SPENTEX INDUSTRIES LIMITED - Edelweiss

PLACEMENT DOCUMENT DATED 18-Aug-2006CLCSPENTEX INDUSTRIES LIMITED(incorporated in the Republic of India under the Indian Companies Act, 1956 with Registration No. 21-53829/91)Registered Office: A-60, Okhla Industrial Area, Phase II, New Delhi- 20.PLACEMENT OF 7,500,000 EQUITY SHARES OF RS. 10/- EACH (“EQUITY SHARES”) FOR CASH AT A PRICE OF RS.62.13 /- PER EQUITY SHARE AGGREGATING RS. 465,975,000 /- (THE “ISSUE”).This Placement Document (the “Placement Document”) relates to an offering by us, Spentex Industries Limited, of the Equity Shares toQualified Institutional Buyers under the provisions of Chapter XIII-A of the Securities and Exchange Board of India (Disclosure andInvestor Protection) Guidelines, 2000 (“SEBI DIP Guidelines”). The issue is not being made under under Chapter XIII of the SEBI DIPGuidelines and the provisions of the said Chapter XIII shall not apply.Disclaimer: This Placement Document relates to an issue to be made to Qualified Institutional Buyers(“QIBs”) and no offer of Equityshares is being made to the public or any other class of investors.RISKS IN RELATION TO THE ISSUEThe Equity Shares are proposed to be listed on the Bombay Stock Exchange Limited (“BSE”). The floor price of the issue [determined bythe Company in consultation with the Lead Managers (“LMs”)] on the basis of clause 13A.3 of Chapter XIII-A of the SEBI DIP Guidelinesis Rs. 62.13 per share, as described further on Page 11. No assurance can be given regarding an active and/or sustained trading in the EquityShares or regarding the price at which the Equity Shares will be traded after listing.GENERAL RISKInvestment in equity and equity related securities involve a high degree of risk and investors should not invest any funds in this issue unlessthey can afford to take the risk of losing their investment. Investors are advised to read the risk factors for the Issue carefully before takingan investment decision in this Issue. For taking an investment decision, the Qualified Institutional Buyers must rely on their ownexamination of the Company and the Issue including the risks involved. The Equity Shares offered in the issue have not been recommendedor approved by the Securities and Exchange Board of India (“SEBI”) nor does the SEBI guarantee the accuracy or adequacy of thisdocument. Specific attention of the QIBs is invited to the statement of Risk Factors on page no. 16 to 21 of this Placement Document.ISSUER’S ABSOLUTE RESPONSIBILITYThe Company having made all reasonable inquiries, accepts responsibility for, and confirms that this Placement Document contains allinformation with regard to the Company and the Issue, as required by Clause 13A.12.2 of SEBI DIP Guidelines; that the informationcontained in this Placement Document is true and correct in all material respects and is not misleading in any material respect; that theopinions and intentions expressed herein are honestly held and that there are no other facts the omission of which makes this document as awhole or any of such information or the expression of any such opinions or intentions misleading in any material respect.LISTINGThe Equity Shares are proposed to be listed on the BSE. We have received an in-principle approval from the BSE for listing the EquityShares, vide their letter dated August 1, 2006. We shall be making an application to the BSE for final approval for listing the Equity Sharesafter their allotment.FILINGThe Placement Document will not be vetted by the SEBI or any other regulator. It will be filed with SEBI, Registrar of Company (“ROC”)and the BSE after the allotment of Equity shares to QIBs.ISSUE OPENING AND CLOSING DATEThe issue opening date is August 8, 2006 and the issue closing date is August 16, 2006LEAD MANAGERSEdelweiss Capital Limited14 th Floor, Express TowersNariman Point, Mumbai 400 02Tel: +91 22 22864400; Fax: +91 22 22882119E-mail: spentex.qip@edelcap.com1

TABLE OF CONTENTSSECTION I. GLOSSARY OF TERMS /ABBREVIATION USED IN THIS PLACEMENT DOCUMENT......3SECTION II. GENERAL INFORMATION ...............................................................................................................5SECTION III. SUMMARY OF FINANCIAL STATEMENTS................................................................................7SECTION IV. LEAD MANAGERS/MANAGERS AND OTHER ADVISORS TO THE ISSUE........................9SECTION V. SUMMARY OF THE OFFERING AND INSTRUMENT ..............................................................10SECTION VI. RISK FACTORS.................................................................................................................................16SECTION VII. MARKET PRICE INFORMATION...............................................................................................22SECTION VIII. USE OF PROCEEDS ......................................................................................................................26SECTION IX. CAPITALIZATION STATEMENT.................................................................................................27SECTION X. DIVIDENDS ..........................................................................................................................................29SECTION XI. SELECTED FINANCIAL AND OTHER INFORMATION.........................................................30SECTION XII. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS..........................................................................................................147SECTION XIII. INDUSTRY OVERVIEW.............................................................................................................159SECTION XIV. BUSINESS OVERVIEW...............................................................................................................172SECTION XV. ORGANISATIONAL STRUCTURE BOARD AND MAJOR SHAREHOLDERS................195SECTION XVI. BOARD OF DIRECTORS AND SENIOR MANAGEMENT..................................................197SECTION XVII. TAXATION ASPECTS RELATING TO THE INSTRUMENT............................................201SECTION XVIII. LEGAL AND OTHER INFORMATION ................................................................................203SECTION XIX. MATERIAL DEVELOPMENTS.................................................................................................207SECTION XX. ACCOUNTANTS.............................................................................................................................2162

SEBI Takeover RegulationsSpentex Groupwith global change of circumstances.Securities and Exchange Board of India (SubstantialAcquisition of Shares and Takeovers) Regulations,1997, as amended from time to time.Spentex, IRTL and Amit Spinning.ABBREVIATIONS/ INDUSTRY RELATED TERMSAbbreviationA/cCapexCAGRCENVATCESTATDEPBEPCGEuroFDIFII(s)FIPBFYGoIMEGNANRIPTAPSFPOYTUFSRs. / INRFull FormAccountCapital ExpenditureCompounded Annual Growth RateCentral Value Added TaxCustom Excise and Service Tax Appellate TribunalDuty Entitlement Pass Book SchemeExport Promotion Capital GoodsCurrency of European UnionForeign Direct InvestmentForeign Institutional Investors as defined under theSEBI (Foreign Institutional Investors) Regulations,1995Foreign Investment Promotion BoardFinancial YearGovernment of IndiaMono Ethyl GlycolNot ApplicableNon-resident IndianPurified Teriphthalic AcidPolyester Staple FibrePartly Oriented YarnTechnology Upgradation Fund SchemeIndian Rupees4

SECTION II.GENERAL INFORMATION1. The Company was incorporated on November 25, 1991 under the provisions of theCompanies Act, 1956 in India and was registered with the Registrar of Companies inCalcutta, West Bengal. On September 4, 1995 the Company changed its registered officefrom West Bengal to Maharashtra and on September 7, 2005 the Company changed itsregistered office from Maharashtra to New Delhi. The Company’s registration No. is 55-138153. The registered office of the Company is A-60, Okhla Industrial Area, Phase-II, NewDelhi-20, India.2. The Company’s main objectives as set out in Clause III A of its Memorandum of Associationare:a. To establish, own, run and manage composite textile mills and to carry on thebusiness of spinners, weavers, doublets, converts, knitters, twisters, combers,crimpers, texturisers, processors, dyers, printers, bleachers, mercirizers of all kinds ofyarns, man-made fibres, textiles, cloth, linen and other fabrics made from cotton,hemp, jute, wool, silk, art silk, rayon, nylon, polyester staple fibres and other fibrousmaterial.b. To carry on the business as manufacturers, processors, dealers, contractors, agents,suppliers, stockiest, traders, representatives, importers, engineers, designers, printers,dyers, weavers, bleachers, mixers, drapers, consultants, finishers, and promoters forany or all varieties of silk, artificial silks, synthetics, polyester rayon, nylon, cotton orany other types of yarn and or cloth fabrics and linen from any base whether organicor inorganic or compounds or mixtures thereof by physical, chemical or any otherprocess of treatment now prevalent or may be devised in future of manufacturing thechemicals, dye-stuffs, equipments, vitriol, washing bleaching and dyeing material,hem stitches, platters, knitters, embroiderers, tailors, dress makers, costumers,manufacture of carpet and sport goods, gloves hatters dyers, cleaners, washerssynthetic and manmade fibers and yarns and all other requisites needed for all or anyof the above purposes and by-products which can be conveniently produced therefrom.c. To carry on any part of India and abroad, the business as spinners, weavers,manufactures, traders, ginners, pressers of cotton jute hemp silk wool synthetic andany other fibrous material and the cultivation thereof and the business of weaving orotherwise manufacturing bleaching, dyeing, printing, yarn cloth, linen and othergoods or merchandise made there of and generally to carry on the business of cottonmerchants, bleachers and dyers, makers of vitriol bleaching and materials, and totransact all related manufactured articles.3. This issue has been authorized by the resolution of the shareholders of the Company by aspecial resolution dated July 1, 2006 on and also by a circular resolution passed by the Boardof Directors of the Company approving the placement of securities on June 2, 2006.4. The Company will apply to obtain in-principle approval for listing of the Shares on the BSEas soon as practicable.5. The Company prepared its audited financial statements as of and for the years ended March31, 2006, 2005, 2004 each as contained herein. These financial statements were prepared inconformity with Indian GAAP.5

6. The address of the Company’s website is www.spentexindia.com. Information contained onthis website does not constitute part of this Placement Document.Disclaimer clause of the BSEAs required, a copy of this Placement document has been submitted to the BSE. BSE does notin any manner:1. warrant, certify or endorse the correctness or completeness of any of the contents ofthis Placement Document.2. warrant that this Company’s equity shares will be listed or will continue to be listedon BSE; or3. take any responsibility for the financial or other soundness of this Company, itspromoters, its management or any scheme or project of this Company;and it should not for any reason be deemed or construed to mean that this PlacementDocument has been cleared or approved by BSE. Every person who desires to apply for orotherwise acquires any securities of this Company may do so pursuant to independent inquiry,investigation and analysis and shall not have any claim against BSE whatsoever by reason ofany loss which may be suffered by such Person consequent to or in connection with suchsubscription/acquisition whether by reason of anything stated or ommited to be stated hereinor for any other reason whatsoever.6

SECTION III.SUMMARY OF FINANCIAL STATEMENTSThe following tables present summary financial information for Spentex, and it should be read inconjunction with the section entitled “Selected Financial Information” on page number 29, sectionentitled “Management Discussions and Analysis of Financial Condition and Results of Operations” onpage number 146 and section entitled “Business Overview” on page number 171. The summaryfinancial information presented below were derived from the audited financial statements of Spentex.SPENTEX INDUSTRIES LIMITEDBalance Sheets31-03-2006Rupees31-03-2005Rupees31-03-2004RupeesSOURCES OF FUNDSShareholders' FundsCapital 574,591,910 111,101,350 222,200,090Capital Suspense Account - 260,990,560 -Share Warrants 7,399,350 - -Reserves and Surplus 760,485,950 147,769,543 138,231,7061,342,477,210 519,861,453 360,431,796Loan FundsSecured Loans 1,106,140,020 721,917,504 269,933,153Unsecured Loans 598,566,087 70,313,305 -Deferred Tax Liabilities 8,694,719 - -3,055,878,036 1,312,092,262 630,364,949APPLICATION OF FUNDSFixed AssetsGross Block 1,188,939,047 1,068,546,410 702,868,317Less: Depreciation 516,287,063 442,588,555 329,785,214Net Block 672,651,984 625,957,855 373,083,103Capital Work-in-Progress and Capital Advances 759,791,733 66,310,419 412,792Pre-operative Expenses Pending Allocation -Investments 560,597,361 163,721 356,411Deferred Tax Asset - 11,008,602 -Current Assets, Loans & AdvancesInventories 534,906,652 300,192,545 60,055,057Sundry Debtors 226,048,372 407,038,358 9,776,368Cash and Bank Balances 384,786,493 76,031,478 417,323Loans and Advances 285,852,504 150,956,783 30,124,1421,431,594,021 934,219,164 100,372,890Less: Current liabilities and ProvisionsCurrent Liabilities 349,568,269 325,959,551 120,597,702Provisions 19,188,794 2,972,403Net Current Assets 1,062,836,958 605,287,210 (20,224,812)Miscellaneous Expenditure - 493,897 4,372,439(To the extent not written off or adjusted)Profit and Loss Account (net) - 2,870,558 272,365,0163,055,878,036 1,312,092,262 630,364,9497

SPENTEX INDUSTRIES LIMITEDProfit & Loss Accounts2005-2006Rupees2004-2005Rupees2003-2004RupeesINCOMESales 3,522,557,340 3,643,599,743 363,381,540Other Income 105,114,758 86,971,363 19,608,4803,627,672,098 3,730,571,106 382,990,020EXPENDITURERaw material consumed 562,639,044 691,039,891 241,782,024Cost of traded goods sold 2,285,396,819 2,387,473,415-Salaries, Wages & Benefits 97,283,659 72,495,233 26,974,416Manufacturing and Other costs 388,607,927 338,662,530 83,632,261Depreciation 75,556,858 60,247,710 35,608,940Financial Charges 81,472,742 84,282,251 17,604,614(Increase)/Decrease in Stocks 3,727,167 3,089,321 (4,205165)3,494,684,216 3,637,290,351 401,397,090Profit before tax 132,987,882 93,280,755 (18,407,070)Tax ExpenseCurrent Tax 11,219,883 - -Deferred Tax (net) 19,703,321 (11,008,602) -Fringe Benefit Tax 1,543,414 - -Tax expense in respect of earlier year - 789,732Total Tax Expense 32,466,618 (10,218,870) -Profit after Tax 100,521,264 103,499,625 (18,407,070)Balance brought forward from previous year (2,870,558) (272,365,016) (253,957,946)Reduction in capital as per scheme of arrangement - 111,098,740 -Additions on Amalgamation - 26,536,718 -General Reserve - 28,359,375 -97,650,706 (2,870,558) (272,365,016)8

SECTION IV.LEAD MANAGERS/MANAGERS AND OTHER ADVISORS TO THE ISSUECompany Secretary and Compliance OfficerMr. P K PuhanSpentex Industries LimitedA-60, Okhla Industrial AreaPhase IINew Delhi -20Tel: +91 11 2638 7738Fax: +91 11 41614537Email: pradeepta@clcindia.comLead ManagersEdelweiss Capital Limited14th Floor, Express Towers,Nariman Point, Mumbai 400 021Tel: +91 22 2286 4400Fax: +91 22 2288 2119Email: spentex.qip@edelcap.comLegal Advisor to the IssueJ. Sagar AssociatesVakils House,18, Sprott Road,Ballard Estate,Mumbai 400 001IndiaTel: (91 22) 6656 1500Fax: (91 22) 6656 1515Email: Mumbai@jsalaw.comRegistrar to the IssueBEETAL Financial & Computer Services Pvt. Ltd.BEETAL House, 3rd Floor, 99, Madangir,Behind Local Shopping Centre,Near Dada Harsukhdas Mandir,New Delhi 110062Phone: 011 2996 1280 / 81 / 82 / 83,Fax: 011 2996 1284Email: beetal_99@sify.comAuditorsPrice WaterhouseChartered AccountantsP-1 Aditya Vihar, SaidulajabOpp D Block, SaketMehrauli Badarpur RoadNew Delhi -110 0309

SECTION V.SUMMARY OF THE OFFERING AND INSTRUMENTSUMMARYThe following summary highlights information contained elsewhere in this Placement Document. Thissummary should be read in conjunction with, and is qualified in its entirety by, the more detailedinformation and the Financial Statements, including the notes thereto, appearing elsewhere in thisPlacement Document. For a discussion of certain matters that should be considered by prospectiveQIBs, see “Risk Factors” on page16.Company/IssuerIssueSpentex Industries Limited.7,500,000 Equity Shares of Rs.10/ each for cash at a price ofRs. 62.13/- per Equity Share.Of WhichReserved for Mutual Funds (Note 1)750,000 Equity SharesEligible InvestorsIssue Price (Note 2)Authority for the IssueQualified Institutional Investors as defined in clause 2.2.2B (v)of SEBI DIP GuidelinesThe floor price of the issue as determined by the Company inconsultation with the LMs on the basis of clause 13A.3 ofChapter XIII-A of the SEBI DIP Guidelines is Rs. 62.13 pershare.The Issue has been authorised pursuant to a resolution of theBoard of Directors of the Company adopted on June 2, 2006.The Issue has been authorised by a special resolution adoptedpursuant to Section 81(1A) of the Companies Act, at the ExtraordinaryGeneral Meeting of our shareholders held on July 1,2006.Share RankingUse of proceedsTransferability of specifiedsecuritiesThe Equity Shares offered by the Company will be fully paidup in all respects, including in respect of dividends and votingrights and that will rank pari passu with the existing Shares ofthe Company.Please refer to the section titled “Use of Proceeds” on page no.25 of this Placement Document for a detailed description onthe objects of the Issue and use of the issue proceeds.Equity Shares allotted pursuant to this Placement Documentshall not be sold by allottees for a period of one year from thedate of allotment, except on a recognised stock exchange(including a block deal in compliance with applicableregulations/guidelines of SEBI and BSE).10

Notes:1. Under clause 13A.2.1 of the SEBI DIP Guidelines a minimum of 10% of the specifiedsecurities issued shall be allotted to the mutual funds. However if no mutual fund is agreeableto take up the minimum portion mentioned above or any part thereof, such minimum portionor part thereof may be allotted to other QIBs.2. Justification for pricing of the Issue pursuant to the SEBI DIP Guidelines.SHARE PRICE - SHARE PRICE DATA - Spentex IndustriesLtdDate Close Price Averages Week Day of week31-May-06 57.00 57.00 Wednesday30-May-06 63.40 Tuesday29-May-06 64.40 Monday26-May-06 63.75 Friday25-May-06 64.95 64.95 1 Thursday24-May-06 64.55 61.40 Wednesday23-May-06 61.60 Tuesday22-May-06 61.40 Monday19-May-06 64.90 Friday18-May-06 65.15 65.15 2 Thursday17-May-06 72.45 63.45 Wednesday16-May-06 73.40 Tuesday15-May-06 67.90 Monday12-May-06 63.60 3 Friday11-May-06 63.45 73.40 Thursday10-May-06 64.35 64.05 Wednesday9-May-06 64.55 Tuesday8-May-06 64.65 Monday5-May-06 64.05 4 Friday4-May-06 66.05 66.05 Thursday3-May-06 63.25 62.85 Wednesday2-May-06 64.05 Tuesday29-Apr-06 65.05 5 Saturday28-Apr-06 62.85 Friday27-Apr-06 63.40 65.05 Thursday26-Apr-06 62.45 54.50 Wednesday25-Apr-06 60.80 Tuesday24-Apr-06 60.60 Monday21-Apr-06 56.15 6 Friday20-Apr-06 54.50 62.45 Thursday19-Apr-06 51.50 48.05 Wednesday18-Apr-06 49.05 Tuesday17-Apr-06 48.60 Monday13-Apr-06 48.05 51.50 7 Thursday12-Apr-06 49.15 48.50 Wednesday10-Apr-06 49.65 Monday7-Apr-06 48.50 49.65 8 Friday5-Apr-06 47.25 43.95 Wednesday11

SHARE PRICE - SHARE PRICE DATA - Spentex IndustriesLtd4-Apr-06 45.60 Tuesday3-Apr-06 45.95 Monday31-Mar-06 45.55 9 Friday30-Mar-06 43.95 47.25 Thursday29-Mar-06 44.05 42.35 Wednesday28-Mar-06 42.35 Tuesday27-Mar-06 43.30 Monday24-Mar-06 44.20 10 Friday23-Mar-06 45.40 45.40 Thursday22-Mar-06 46.00 46.00 Wednesday21-Mar-06 47.35 Tuesday20-Mar-06 49.15 Monday17-Mar-06 46.65 11 Friday16-Mar-06 46.30 49.15 Thursday14-Mar-06 47.55 47.55 Tuesday13-Mar-06 48.05 Monday10-Mar-06 48.15 12 Friday9-Mar-06 49.00 49.00 Thursday8-Mar-06 48.50 48.50 Wednesday7-Mar-06 49.85 Tuesday6-Mar-06 51.55 Monday3-Mar-06 51.70 13 Friday2-Mar-06 51.90 51.90 Thursday1-Mar-06 49.45 47.65 Wednesday28-Feb-06 50.60 Tuesday27-Feb-06 50.00 Monday24-Feb-06 49.00 14 Friday23-Feb-06 47.65 50.60 Thursday22-Feb-06 46.70 46.70 Wednesday21-Feb-06 49.30 Tuesday20-Feb-06 50.45 Monday17-Feb-06 52.40 15 Friday16-Feb-06 53.60 53.60 Thursday15-Feb-06 44.75 42.80 Wednesday14-Feb-06 43.00 Tuesday13-Feb-06 42.80 Monday10-Feb-06 45.00 45.00 16 Friday8-Feb-06 44.75 44.75 Wednesday7-Feb-06 46.15 Tuesday6-Feb-06 45.35 Monday3-Feb-06 47.30 17 Friday2-Feb-06 47.75 47.75 Thursday1-Feb-06 49.10 49.10 Wednesday31-Jan-06 50.75 Tuesday30-Jan-06 52.05 Monday27-Jan-06 51.60 52.05 18 Friday25-Jan-06 52.00 50.95 Wednesday24-Jan-06 53.00 Tuesday23-Jan-06 53.10 Monday20-Jan-06 50.95 19 Friday19-Jan-06 51.70 53.10 Thursday12

SHARE PRICE - SHARE PRICE DATA - Spentex IndustriesLtd18-Jan-06 49.60 49.60 Wednesday17-Jan-06 50.75 Tuesday16-Jan-06 51.35 Monday13-Jan-06 53.00 20 Friday12-Jan-06 53.25 53.25 Thursday10-Jan-06 54.75 49.55 Tuesday9-Jan-06 55.15 Monday6-Jan-06 56.85 21 Friday5-Jan-06 49.55 56.85 Thursday4-Jan-06 48.95 48.95 Wednesday3-Jan-06 51.25 Tuesday2-Jan-06 49.50 Monday30-Dec-05 49.45 22 Friday29-Dec-05 50.80 51.25 Thursday28-Dec-05 50.35 49.65 Wednesday27-Dec-05 52.80 Tuesday26-Dec-05 49.65 Monday23-Dec-05 49.80 23 Friday22-Dec-05 50.95 52.80 Thursday21-Dec-05 51.55 50.85 Wednesday20-Dec-05 50.85 Tuesday19-Dec-05 52.60 Monday16-Dec-05 54.45 24 Friday15-Dec-05 54.55 54.55 Thursday14-Dec-05 57.45 48.05 Wednesday13-Dec-05 57.65 Tuesday12-Dec-05 48.05 Monday9-Dec-05 53.65 25 Friday8-Dec-05 51.75 57.65 Thursday7-Dec-05 49.60 46.45 Wednesday6-Dec-05 49.25 Tuesday5-Dec-05 47.75 Monday2-Dec-05 47.20 26 Friday1-Dec-05 46.45 49.60 Thursday26 weeks 52.542 weeks 62.13SEBIPRICE 62.133. The following provisions of Chapter XIIIA of the SEBI DIP Guidelines relating to QualifiedInstitutional Placement (QIP) are highlighted for your attention:• For each placement under this Placement Document, there shall be at least twoallottees for an issue of size up to Rs.250 crores and at least five allottees for an issuesize in excess of Rs.250 crores. Further, no single allottee shall be allotted in excessof 50 per cent of the issue size;• Investors shall not be allowed to withdraw their bids / applications after closure of theIssue;13

• The aggregate funds that can be raised through QIPs in one financial year shall notexceed five times of the net worth of the Company at the end of its previous financialyear;• The shareholders resolution approving QIP, passed under sub-section (1A) of Section81 of the Companies Act, 1956, will remain valid for a period of twelve months fromthe date of passing of the resolution (in the present case, until June 30, 2007). Thereshall be a gap of at least six months between each placement in case of multipleplacements of equity shares pursuant to authority of the same shareholders’resolution;• A copy of the Placement Document shall be filed with SEBI for record purposewithin 30 days of the allotment of the Equity Shares; and14

FORWARD-LOOKING STATEMENTSThis Placement Document, as well as information included in oral statements or other writtenstatements made, or to be made, by us, contain, or will contain, disclosures which are “forwardlookingstatements”. Forward-looking statements include all statements that do not relate solely tohistorical or current facts, and can be identified by the use of words such as “intend”, “potential”,“may”, “should”, “believe”, “will”, “expect”, “project”, “estimate”, “anticipate”, “plan” or“continue”. These statements include, among other things, statements about our business strategy,market position, future operations, profitability, liquidity and capital resources. These forwardlookingstatements are based on our current plans and expectations, speak only as of the date of thisPlacement document and are subject to a number of uncertainties and risks that could significantlyaffect our current plans and expectations, speak only as of the date of this Placement Document andour future financial condition and results. These factors include, but are not limited to:• changes in competitors’ pricing and other competitive strategies;• general economic and political changes and changes in laws and regulations that apply to theIndian or global textile industry, including with respect to import duties, excise duties orenvironmental regulations;• our ability to successfully implement our strategy, our growth and expansion plans andtechnological changes;• the market prices and demand for fabrics;• the loss of any significant customers;• actions by our marketing partners, authorized dealers, and distributors that adversely affectour business;• governmental and business conditions globally and in India;• changes in interest rates, and in exchange rates;• changes in raw material and energy prices;• our ability to obtain financing needed to repay maturing obligations and to fund expansion ina timely manner and on satisfactory terms and conditions; and• the other risk factors discussed in this Placement Document, including those set forth under“Risk Factors”.Additional factors that could cause actual results, performance or achievements to differ materiallyinclude, but are not limited to, those discussed under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”, “Industry Overview”, “Busines Overviews”and“Material Developments”.As a consequence, current plans, anticipated actions and our future financial condition and resultsmay differ from those expressed in any forward-looking statements. You are cautioned not to undulyrely on such forward-looking statements when evaluating the information presented herein. We do notundertake any obligation to update publicly or revise any forward-looking statements.15

SECTION VI.RISK FACTORSAn investment in equity shares involves a high degree of risk. You should carefully consider all of theinformation in this Placement Documents, including the risks and uncertainties described below,before making an investment in the Equity Shares. If any of the following risks actually occur, ourbusiness, financial condition and results of operations could suffer, the trading price of our EquityShares could decline, and you may lose all or part of your investment.This Placement Document also contains forward-looking statements that involve risks anduncertainties. Our actual results could differ materially from those anticipated in these forwardlookingstatements as a result of certain factors, including the considerations described below andelsewhere in this Placement Document.Unless specified or quantified in the relevant risk factors below, we are not in a position to quantifythe financial or other implication of any of the risks mentioned herein under:INTERNAL RISK FACTORSThe Company is involved in certain legal and regulatory proceedings that, if determined against theCompany, could have a material adverse impact on the Company.The Company is party to various legal proceedings which are pending at different levels ofadjudication before various courts, and if determined against the Company, could have a materialadverse impact on the business, financial condition and results of operations of the Company. Noassurance can be given as to whether these matters will be settled in favour of or against the Company.Nor can any assurance be given that no further liability will arise out of these claims. For furtherdetails on these proceedings, see the section “Legal and other Proceedings” on page no. 202 of thePlacement Document.The pending legal proceedings by/against the Company are summarized below:(i)Proceedings initiated by the Company:Type of Cases No. of Cases Amount claimed(Rs. Millions)Civil 6 22.4Criminal 13 30.6Labour 5 Cannot be quantifiedExcise Duty 3 32.5Provident Fund 1 3.1(ii)Proceedings initiated against the Company, IRTL and Bharat Udyog LimitedType of Cases No. of Cases Amount Involved(Rs. Millions)Civil 1 1.5Labour 50 2.0Excise 1 3.016

(iii)Proceedings initiated by our Promoter (Mr. Mukund Choudhary)Type of Cases No. of Cases Amount claimed(Rs. Millions)Civil 1 0.3Any volatility in the price of raw material may impact our businessOur profits are dependant upon the prices of our main raw materials and other inputs. If there is adrop in production/availability of raw materials and other inputs, there would be a correspondingincrease in prices of the same and our profit margins may decline as a result.Availability and cost of power may impact our businessThe business of yarn spinning is power intensive in nature. Areas where our facilities are located facesignificant shortage of power. Any adverse change in the availability/cost of power can impact ourbusiness and profitability.The Company has a high debt to equity ratioWe have a high debt to equity ratio which may have a negative impact on our profitability and earningin future. The company had a debt to equity ratio of 1.92 as at March 31, 2006. A substantial portionof our properties is hypothecated with the lenders. On failure to replay the loans, the lenders couldexercise their lien on these hypothecated properties, which may adversely impact our businessoperations.We face competition from large number of organised and un-organised players in the industryMost of the end-users for some of our products are price conscious. Pricing is one of the factors thatplay an important role in selecting these products. Due to the presence of large number of unorganizedplayers in the industry we face stiff competition which can adversely impact our operations andprofitability.Foreign currency riskThe volatility in global financial markets may have an adverse impact on our business. We have tomake payments in foreign exchange for our imports. In the future, we expect an increase in ourdealings in foreign exchange thus increasing our exposure to foreign exchange markets. Our inabilityto hedge this foreign exchange exposure may result in an adverse impact on our financial condition.Our export and import for the year 2005-06 amounts to Rs. 1,595.7 million and Rs. 90.9 millionrespectively.Contingent liabilities as at March 31, 2006The outstanding Contingent liabilities of the Company as at March 31, 2006 are given below:Particulars31-Mar-2006Rs. In millionsa) Demands from Income Tax Authorities under appeal 18.7b) Demands from Sales Tax Authorities under appeal 15.3c) Show cause notices/demands received from Excise / CustomsDepartment (excluding applicable penalties), not acknowledgedas debts4.217

Particularsd) Guarantees and Letters of credit issued on behalf of theCompany, outstanding at the year ende) Bills Discounted with Banks on behalf of theCompany, outstanding at the year end31-Mar-2006Rs. In millions409.1484.0Export obligation under the import export policyWe have assumed export obligations under the EPCG scheme and the Advance License scheme. Ourtotal export obligation as per the EPCG scheme is estimated at US$ 48.9 million which will have to befulfilled within a period of eight (8) years from the date of the respective licenses, or such extendedperiod as may be allowed from time to time. Our total export obligation as per the Advance Licensescheme is estimated at US$ 1.0 million, which will have to be fulfilled within a period of two (2)years from the date of the respective licenses, or such extended period as may be allowed from time totime. The consequence of not meeting the above commitment would be a retrospective levy of importduty to the extent of US$ 7.5 million on items previously imported at concessional duty. Additionally,the retrospective authorities have rights to levy penalties and/or interest for any defaults on a case-bycasebasis.Our success depends largely on our senior management and our ability to attract and retain ourkey personnelOur success depends on the continued services and performance of the members of our managementteam and other key employees. If one or more members of our senior management team are unable orunwilling to continue in their present positions, they could be difficult to replace and our businesscould be adversely affected. Competition for senior management in the industry is intense, and wemay not be able to retain our existing senior management or attract and retain new senior managementin the future. As such, any loss of services of our senior management personnel or key employeescould adversely affect our business, results of operations and financial condition.The Company has entered into several loan agreements which contain customary restrictivecovenants, placing significant limitations on the Company.The Company has taken a number of loans from various banks, for which some of its immovable andmovable properties have been offered as security. As such, the lenders of the Company have theoption to take over management control of the Company if there are defaults on their debt obligations.The loan agreements contain certain customary restrictive covenants, which, among other things,require the Company to obtain prior permission from the concerned lender prior to undertakingcertain activities such as new projects, diversification, raising additional capital, drastic change in themanagement etc. If such consent is not forthcoming the Company’s ability to undertake theabovementioned activities is affected. The Company has obtained the written approval from all of itslenders for this offering.If we default on the repayment of debt, our lenders could enforce their security interests on our assetslimiting our ability to carry out operations. In addition, default under our credit facilities could limitour ability to raise additional funds in the future.18

Our operations may be adversely affected if relations with employees were to deteriorateWe rely heavily on our employees and unions. Our relations with employees and unions coulddeteriorate due to disputes related to, among other things, wage and benefits levels. Any disputesbetween the Company and its employees or unions resulting in strikes, lockouts or decreases inproductivity of employees could adversely affect its ability to continue operating, results of operationsand financial conditions.We rely on contract labour for the performance of many of our operationsWe rely on contractors who engage on-site labourers for performance of many of our unskilledoperations. We are registered as a principal employer under the Contract Labour (Regulation andAbolition) Act, and we shall apply for a renewal of this registration at the appropriate stage.However, any delay or non receipt of this registration may adversely affect our ability to employcontract labour and our operations.Further, on an application made by the contract labourers, the appropriate court/ tribunal may directthat the contract labourers are required to be regularized or absorbed, and/ or that the Company paycertain contributions in this regard.Our operations are subject to environmental, employee, health and safety laws and regulations.Our operations are subject to various national and state environmental laws and regulations relating toenvironmental protection in the various locations in India and internationally where we operate. Therecan be no assurance that compliance with such environmental laws and regulations will not result in acurtailment of production or a material increase in the costs of production or otherwise have a materialadverse effect on our financial condition and results of operations. Environmental laws andregulations in India have become increasingly stringent, and it is possible that they will becomesignificantly more stringent in the future. Stricter laws and regulations, or stricter interpretation of theexisting laws and regulations may impose new liabilities on us or result in the need for additionalinvestment in environmental protection equipment, either of which could affect our business, financialcondition or prospects.We are also subject to laws and regulations governing relationships with employees in such areas asminimum wage and maximum working hours, overtime, working conditions, hiring and terminatingof employees, contract labor and work permits. Furthermore, the success of our business is contingentupon, among other things, receipt of all required licenses, permits and authorizations, including localland use permits, manufacturing permits, building and zoning permits and environmental, health andsafety permits. Changes or concessions required by regulatory authorities could also involvesignificant costs and delay or prevent completion of the construction or opening of a plant or couldresult in the loss of an existing license.We do not own all the properties used by us for our businessSome of the properties used by us for our business are taken on lease leasehold basis. Any terminationof these leases whether due to any breach or otherwise, or non-renewal thereof, could adversely affectour business operations.Some of the title deeds pertaining to properties utilised by us are not registeredThe title deeds to some of the properties are not registered. The potential consequence of this could bethat the said title documents may not be admissible as evidence in a court of law, until the relevantstamp duties and penalties are paid and the relevant registration, if required, is done. Any claim oradverse order/ finding in connection with these properties could adversely affect our operations.19

We may not be fully insured for business lossesWe have not taken any insurance for protecting us from future business losses and in the event of suchlosses occurring, the operations of the Company may be affected significantly. However, we haveinsured all our assets and properties adequately.Risk of integration with the recently acquired Amit SpinningAs on June 30, 2006, we have acquired an equity stake of 44.14% in Amit Spinning Limited and wehave also completed the mandatory open offer under the SEBI (Substantial Acquisition of Shares andTakeovers) Regulations, 1997 pursuant to this acquisition. While the above acquisition will broadenour presence in the textile business and reach, integration of operations, management of these entitieswill present a challenge, and a failure to properly integrate Amit Spinning into our current businesscould adversely effect our operations and our future profitability.Risk of Integration in future acquisitionsWe have been expanding significantly in the recent past through acquisitions. It is also a stated aspectof our business strategy to continue to expand through inorganic growth, in India and overseas. Someof our acquisitions may be of loss making companies or companies that face challenges and presentopportunities in terms of integration. A failure to complete and integrate potential targets mayadversely impact our operations and our future profitability.Our Business operations spread over 6 locations, thus putting a lot of strain on our operationsOur business operations are spread over six locations i.e. Baramati, Ahmedabad, Coimbatore,Bangalore, Pithampur and New Delhi. The senior management undergoes a lot of strain from time totime to handle the operations of the Company.EXTERNAL RISK FACTORSIncreasing employee compensation in India may reduce some of our competitive advantageIncrease in compensation payable to employees in India may reduce some of the competitiveadvantage and may negatively affect our profit margins. Employee compensation in India isincreasing at a fast rate, which could result in increased costs relating to engineers, managers andother mid-level professionals. We may need to continue to increase the levels of our employeecompensation to remain competitive.Any downgrading of India’s debt rating by an international rating agency could negatively impactour businessAny downward revisions to India’s credit ratings for domestic and international debt by internationalcredit rating agencies may adversely impact domestic interest rates and other commercial terms onwhich such additional financing is available. This could have a material adverse effect on our businessand future financial performance, our ability to obtain financing for Capex and the trading price of ourshares.A significant change in the regulatory environment could disrupt our business and cause the priceof our Equity Shares to decline.The Government of India has traditionally exercised and continues to exercise a dominant influenceover many aspects of the economy. Its economic policies have had and could continue to have asignificant effect on our operations and on market conditions and prices of Indian securities, including20

the Equity Shares. Any significant change in the Government’s policies or any political instability inIndia could adversely affect business and economic conditions in India and could also adversely affectour business, our future financial performance and the price of our Equity Shares.Political, economic and social developments in India could adversely affect our business.All our manufacturing facilities and assets are located in India and also, all of our employees anddirectors are residing in India. We derive a major portion of our revenue from domestic sales. Thechanges in government policies pertaining to taxation (direct and indirect), political instability, andsocial unrest may have an adverse effect on the operations of the Company and its financial results.Natural disasters could disrupt our operations and result in loss of revenues and increased costs.Our plants are susceptible to natural disasters such as, explosions, earthquakes, storms, floods as wellas acts of violence from terrorists and war. The occurrence of any of the above event could disturb theoperations of our plants and we may have to shut down our plant for carrying out repairs that willresult in loss of revenues and increased costs.Notes to Risk Factors• Qualified Institutional Placement of 7,500,000 Equity Shares of Rs. 10 /- each for cash at anIssue Price of Rs. 62.13/- per Equity Share aggregating to Rs. 465,975,000 (the ‘Issue’) by theCompany.• The net worth of Spentex Industries Limited before the Issue (as on 31 st March 2006) was Rs.1187.31 mn.• The average cost of acquisition of one Equity Share for the Promoters is as follows:Name of the PromoterAverage Cost ofAcquisition (Rs.)Mr. Ajay Kumar Choudhary 14.7Mr. Mukund Choudhary 11.5Mr. Kapil Choudhary 11.3Mrs. Jyoti Choudhary 10.1Mrs. Ritu Choudhary 10.1• The Issue is being made to Qualified Institutional Buyers under Chapter XIII A and no offeris being made to the public or any other class of investors.• The Investors are advised to please refer to section titled “Market Price Information” and“Summary of the Offering and Instrument” on page no. 22 and 10 respectively of thisPlacement Document before making an investment in the Issue.21

SECTION VII.MARKET PRICE INFORMATIONMarket Price InformationSpentex Industries Limited is listed on the Bombay Stock Exchange, limited. The table below showsthe Maximum of all the highs for each month for the past three years, minimum of all the lows foreach month for the past three years, average of the closing price for each month for the past threeyears, total volumes traded in shares for each month for the past three years and total of the volumestraded in rupees for each month for the past three complete years.The table below provides information of the following as required:‣ The high, low and average market prices of shares of the company during the preceding threeyears.Market Price for shares Volumes Traded Volumes TradedCalender Period High Low Close (In Shares.) (In Rs.thousands)2003 7.38 0.85 2.08 1,700,025 1,700,0252004 22.90 3.52 8.85 5,389,790 76,4122005 60.80 13.65 26.99 9,631,928 310,114‣ Monthly high and low prices for the six months preceding the date of filing of the prospectus.Market Price for shares Volumes Traded Volumes TradedCalender Period High Low Close (In Shares.) (In Rs.thousands)February 2006 58.80 40.00 50.60 2,409,545 124,581March 2006 54.00 40.00 45.55 1,787,262 84,598April 2006 66.80 45.50 65.05 2,738,560 154,998May 2006 77.35 55.00 56.85 2,636,225 176,607June 2006 61.40 38.35 53.15 893,031 46,874July 2006 63.00 47.55 61.45 896,748 50,034‣ Number of shares traded on the days when high and low prices were recorded on the stockexchange during period of (i) high, low and average market prices of shares of the companyduring the preceding three years (ii) Monthly high and low prices for the six monthspreceding the date of filing of the prospectus, and (iii) the total volume traded on those dates.Dates Market Price for shares Volumes Traded Volumes TradedHigh / Low Close (In Shares.) (In Rs.thousands)High May 17 th 2006 77.35 72.45 183,017 13,604.78Low March 7 th 2003 0.85 0.95 4,002 3.55The stock market data for periods marked by a change in capital structure, with such periodcommencing from the date the concerned stock exchange recognizes the change in the capitalstructure (e.g., when the shares have become ex-rights or ex-bonus)• There was a reduction of capital in July 2005 of 1 equity share for every 2 equityshares held.22

Announced Date June 30 th 2005Recorded Date July 13 th 2005‣ The market price immediately after the date on which the resolution of the Board of Directorsapproving the issue was approved i.e June 1 st 2006.Dates Market Price for shares Volumes Traded Volumes TradedHigh Low Close (In Shares.) (In Rs. thousands)June 1 st 2006 61.00 55.00 55.55 51,469 2911.38‣ The volume of securities traded in each month during the six months preceding the date onwhich the offer document is filed with ROC. Along with high, low and average prices ofshares of the company, details relating to volume of business transacted for the respectiveperiod are set out.23

Market Price for shares Volumes Traded Volumes TradedCalender Period High Low Close (In Shares.) (In Rs. thousands)2003January 1.40 0.90 1.14 22,101 27February 1.90 0.95 1.42 10,222 13March 2.20 0.85 1.38 12,792 15April 1.60 1.25 1.46 5,908 9May 2.10 0.85 1.46 26,698 42June 2.04 1.16 1.67 30,601 50July 3.56 1.43 2.54 284,018 766August 3.96 1.81 2.63 213,598 612September 2.88 1.18 2.00 64,263 151October 1.85 1.01 1.37 61,121 84November 3.00 1.25 1.94 65,550 138December 7.38 2.00 5.90 903,153 4,9422004January 8.50 5.41 6.75 553,937 4,004February 7.25 5.24 6.39 170,896 1,094March 6.60 5.50 6.23 139,052 868April 6.69 5.41 6.09 66,210 402May 6.91 5.03 5.90 39,859 236June 6.80 3.52 5.15 40,880 223July 7.20 4.08 5.54 73,208 423August 16.36 5.11 8.05 679,521 8,234September 17.75 11.10 12.77 820,241 11,139October 13.50 11.11 12.43 274,961 3,434November 16.00 12.50 14.19 490,087 7,115December 22.90 12.48 16.77 2,040,938 39,2402005January 21.00 15.05 17.44 608,773 10,905February 20.50 16.00 18.62 800,505 14,843March 19.40 13.65 16.18 711,492 12,053April 18.30 14.10 16.24 444,888 7,321May 19.10 15.10 16.85 1,379,529 23,791June 21.55 17.00 18.36 1,034,937 19,495July 18.20 17.05 17.52 84,756 1,500AugustNot traded this monthSeptember 60.00 40.00 47.65 1,375,737 67,950October 47.80 28.50 37.74 699,088 26,334November 48.50 32.50 39.13 611,663 24,442December 60.80 43.95 51.21 1,880,560 101,4802006January 59.40 48.25 51.96 1,143,548 61,042February 58.80 40.00 47.67 2,409,545 124,581March 54.00 40.00 47.27 1,787,262 84,598April 66.80 45.50 53.84 2,738,560 154,998May 77.35 55.00 65.04 2,570,579 172,832June 61.40 38.35 52.40 893,031 46,874July 63.00 47.55 53.86 896,748 50,034In August 2005, the Shares of Spentex were not traded due to reduction of paid up share capital of theCompany to the extent of 50% as approved by Honerable High Court, Bombay. Further BSE vide itsNotice No. 20050629-29 dated June 29, 2005 informed that to give effect to the scheme of24

SECTION VIII.USE OF PROCEEDSThe objectives of the Issue are:1. Strategic alliances and acquisitions.2. General corporate purposes.REQUIREMENT OF FUNDSThe proceeds of the Issue will be used for expanding our business through strategic alliances andacquisitions of various other textiles-based businesses and companies. We believe that suchacquisitions will enhance our brand name, provide a greater market to our products as well as help usin diversifying into various aspects of the textile business.Our assessment of funds requirement and deployment is based on internal management estimates andhas not been appraised by any bank or financial institution or any independent organisation. Ouracquisition plans are subject to a number of variables, including receipt of critical governmentalapprovals, availability of working capital finance on acceptable terms, and changes in management’sviews of the desirability of such plans, among others. The entire requirement of funds shall be metfrom the proceeds of the issue. The shortfall, if any, will be met from internal accruals and/or termloans/working capital loans from the banks. The balance proceeds of the Issue in addition to theabovementioned requirements, if any, will be used for general corporate purposes.The main objects clause and objects incidental or ancillary to the main objects of the Memorandum ofAssociation of the Company enables us to undertake existing activities as well as the activities forwhich the funds are being raised through this Issue.Interim Use of FundsThe management the Company in accordance with the policies set up by the Board, will haveflexibility in deploying the net proceeds received by us from the Issue. Pending utilization for thepurposes described above, we intend to temporarily invest the funds in high quality interest/dividendbearing liquid instruments including money market mutual funds, deposits with banks for necessaryduration.26

SECTION IX.CAPITALIZATION STATEMENTThe tables below sets forth the Company’s audited capitalization and indebtness as at 31 st March 2006and 31 st March 2006 as adjusted to account for the issue of equity shares. This table should be read inconjunction with the financial statements of the Company and related notes appearing elsewhere inthis offering document.ParticularsAs at March 31 st2006 (Rs. InMillions)Postallotment ofthe EquitySharesLoan FundsSecured Loans- Loans from banks 1,101.4 1,101.4- Other loans 4.7 4.7Unsecured Loans 598.6 598.6Total Debts (A) 1,704.7 1,704.7Deferred Tax Liability (Net) (B) 8.7 8.7Shareholder's FundsShare Capital -Authorised Capital 600.0 600.0Fully Paid Up Share Capital 574.6 574.6Reserves and Surplus 760.5 760.5Share warrants 7.4 7.4Fresh issue in QIP - 465.9Total Shareholder's Funds ( C) 1,342.5 1808.4Total Capitalisation (A+B+C) 3,055.9 3,521.8Notes:1. Secured Loans:• Term loans to Rs 767 mn as on March 31, 2006 from Banks are secured by first paripassucharge on all the fixed assets of the Company, both present and future. Theseloans are further secured by second pari passu charge on entire current assets andpersonal guarantee of the promoters.• Cash / export packing credit facilities amounting to Rs 334 mn as on March 31, 2006from banks are secured by first pari-passu charge on all the current assets of theCompany, both present and future. These loans are further secured by second paripassu charge on entire fixed assets and personal guarantee of the promoters.• Vehicle loan of Rs. 4 mn as on March 31, 2006 is secured by hypothecation of Motorcars.27

2. Unsecured Loans:• Short term loan from others (Rs. 98 mn) as on March 31, 2006 includes loan of Rs. 88mn from Amit Spinning Industries Limited.• The Company has received application money (Rs. 500 mn) against 500 (nos.) 9%Non-convertible debentures which were allotted to UTI Bank subsequent to the yearend. These are redeemable at par in 26 equal quarterly installments commencing fromDecember 31, 2006. Upon execution of the Debenture Trust deed and creation of theapplicable charge, these debentures would become secured.3. Total Capitalisation consists of Secured and Unsecured debts, Deferred Tax Liabilities (Net)and Total Shareholder’s Funds.4. Reserves and Surplus includes Capital Reserve, Share Forfeiture Reserve, Profit onRestructure, Securities Premium Account and Surplus/Deficit in Profit and Loss Account.28

SECTION X.DIVIDENDSUnder the Companies Act, an Indian company pays dividends upon a recommendation by the Boardof Directors and approval by a majority of the shareholders, who have the right to decrease but not toincrease the amount of the dividend recommended by the Board of Directors. Under the CompaniesAct, dividends may be paid out of profits or reserves of a company in the year in which the dividendis declared or out of the undistributed profits or reserves of previous fiscal years.Dividends are payable within 30 days of approval by shareholders at our AGM which is held not laterthan six months from the close of the fiscal year (or as extended for up to another three months bypermission of the Government authorities). The dividend so declared is required to be deposited in aseparate company account within five days of the date of declaration of the dividend, and the amountso deposited may only be used for the payment of the dividend.Our management does not have a stated dividend policy and determines the amount of dividends to berecommended for approval by the shareholders on a year-by-year basis by reference to our earnings,cash flow, financial condition and other factors prevailing at the time.See section on “Taxation —” page no. 201 for a summary of certain Indian tax consequences ofdividend distributions to QIBsHistoric dividendsThe Company has not declared any dividends for the last five financial years i.e. from 2001-2006.Future dividendsThere is no guarantee that any future dividends will be declared or paid or that the amount thereof willnot be decreased.29

SECTION XI.SELECTED FINANCIAL AND OTHER INFORMATIONThis section contains the financial statements of the companies of the Spentex Group, i.e.1. Spentex Industries Limited;2. IRTL; and3. Amit Spinning.This section has been extracted from the Auditor’s Report which has been provided to Spentex, IRTLand Amit Spinning by their respective Auditors.SPENTEX INDUSTRIES LIMITEDAUDITORS’ REPORT FOR THE AUDITED FINANCIALS AS AT 31 ST MARCH, 2006To the members of Spentex Industries Limited1. We have audited the attached Balance Sheet of Spentex Industries Limited, as at 31 st March2006, and the related Profit and Loss Account and Cash Flow Statement for the year ended onthat date annexed thereto, which we have signed under reference to this report. Thesefinancial statements are the responsibility of the Company’s management. Our responsibilityis to express an opinion on these financial statements based on our audit.2. The opening balances carried forward are based on the audit carried out by another firm ofChartered Accountants and relied upon by us.3. We conducted our audit in accordance with the auditing standards generally accepted in India.Those Standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.4. As required by the Companies (Auditor’s Report) Order, 2003, as amended by the Companies(Auditor’s Report) (Amendment) Order, 2004, issued by the Central Government of India interms of sub-section (4A) of Section 227 of ‘The Companies Act, 1956’ of India (the ‘Act’)and on the basis of such checks of the books and records of the Company as we consideredappropriate and according to the information and explanations given to us, we further reportthat :4.1 (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.(b)The fixed assets are physically verified by the management according to a phasedprogramme designed to cover all the items over a period of two years, which in ouropinion, is reasonable having regard to the size of the Company and the nature of itsassets. Pursuant to the programme, a portion of the fixed assets has been physicallyverified by the management during the year end and no material discrepanciesbetween the book records and the physical inventory have been noticed.30

(c)In our opinion and according to the information and explanations given to us, asubstantial part of fixed assets has not been disposed of by the Company during theyear.4.2 (a) The inventory (excluding stocks with third parties) has been physically verified by themanagement during the year. In respect of inventory lying with third parties, thesehave substantially been confirmed by them. In our opinion, the frequency ofverfification is reasonable.(b)(c)In our opinion, the procedures of physical verification of inventory followed by themanagement are reasonable and adequate in relation to the size of the Company andthe nature of its business.On the basis of our examination of the inventory records, in our opinion, theCompany is maintaining proper records of inventory. The discrepancies noticed onphysical verification of inventory as compared to book records were not material.4.3 (a) The Company has granted unsecured loans to parties covered in the registermaintained under Section 301 of the Act. The maximum amount involved during theyear and the year-end balance of such loans aggregates to Rs.39,290,230 andRs.3,975,796 respectively.(b)(c)(d)(e)(f)(g)In our opinion, the rate of interest and other terms and conditions of such loans arenot prima facie prejudicial to the interest of the Company.In respect of the aforesaid loans, the parties are repaying the principal amounts asstipulated and are also regular in payment of interest, where applicable.In respect of the aforesaid loans, there is no overdue amount more than Rupees OneLakh.The Company has taken unsecured loans from parties covered in the registermaintained under Section 301 of the Act. The maximum amount involved during theyear and the year-end balance of such loans aggregates to Rs.121,650,289 andRs.2,518,684 respectively.In our opinion, the rate of interest and other terms and conditions of such loans arenot prima facie prejudicial to the interest of the Company.In respect of the aforesaid loans, the Company is regular in repaying the principalamounts as stipulated and is also regular in payment of interest, where applicable.4.4 In our opinion and according to the information and explanations given to us, there is anadequate internal control system commensurate with the size of the Company and the natureof its business for the purchase of inventory, fixed assets and for the sale of gods and services.Further, on the basis of our examination of the books and records of the Company, andaccording to the information and explanations given to us, we have neither come across norhave been informed of any continuing failure to correct major weaknesses in the aforesaidinternal control system.4.5 (a) In our opinion and according to the information and explanations given to us, theparticulars of contracts or arrangements referred to in Section 301 of the Act havebeen entered in the register required to be maintained under that section.31

(b)In our opinion and according to the information and explanations given to us, thereare no transactions made in pursuance of such contracts or arrangements andexceeding the value of Rupees Five Lakhs in respect of any party during the year,which have been made at prices which are not reasonable having regard to theprevailing market prices at the relevant time.4.6 The Company has not accepted any deposits from the public within the meaning of Sections58A and 58AA of the Act and the rules framed there under.4.7 In our opinion, the Company has an internal audit system commensurate with its size andnature of its business.4.8 We have broadly reviewed the books of account maintained by the Company in respect ofproducts where, pursuant to the Rules made by the Central Government of India, themaintenance of cost records has been prescribed under clause (d) of sub-section (1) of Section209 of the Act and are of the opinion that prima facie, the prescribed accounts and recordshave been made and maintained. We have not, however, made a detailed examination of therecords with a view to determine whether they are accurate or complete.4.9 (a) According to the information and explanations given to us and the records of theCompany examined by us, in our opinion, the Company is regular in depositing theundisputed stautory dues including investor education and protection fund,employees’ state insurance, income tax dues, wealth tax, customs duty, service tax,excise duty, cess and other material stautory dues with the appropriate authorities andis generally regular in depositing undisputed statutory dues for provident fund andsales tax, as applicable, with the appropriate authorities.The extent of the arrears of stautory dues outstanding as at 31 st March, 2006 for aperiod of more than six months from the date they became payable, in respect of salestax is as follows :Name of thestatuteMaharashtraSales Tax ActNatureof duesLocalSales TaxAmount Period of whichthe amountrelates234, 246 03-0404-05Due dateVariousdatesDate ofPaymentNot Paid(b)According to the information and explanations given to us and the records of theCompany examined by us, the particulars of dues of income-tax, sales tax, wealth tax,service tax, customs duty, excise duty and cess as at 31 st March, 2006 which have notbeen deposited on account of a dispute, are as follows :-Name ofthestatuteSales TaxDelhiSales TaxActIncome TaxIncomeTax ActNature of dues Amount Period towhich theamountrelatesDemand due to nonsubmission of ST1 & CFormsDisallowance u/s 80HHC on exportinventives15,305,392 A.Y. 2004-057,852,895 A.Y. 2003-04Forum where thedispute ispendingFirst AppellateAuthorityCommissionerIncome Tax(Appeals)32

Income Disallowance ofTax Act expenses like ROCfees, depreciation ongoodwill and carryforward loss of AY2003-04Income Disallowance ofTax Act expenses likedepreciation ongoodwill, foreigntraveling expenses etc.Central Excise & CustomsCentral Demand for DTAExcise clearances of CottonAct Yarn and PolyesterCentralExciseActCentralExciseActCustomsActCotton YarnShow Cause CumDemand notice onshort payment of dutyDemand on account ofavailing Cenvat Crediton furnance oilDemand for noncompliance with termsof EPCG licence6,894,303 AY 2003-04 CommissionerIncome Tax(Appeals)3,981,354 A.Y. 2001-0227,861,240 April 2000to 11.9.20012,996,725 Feb 2001 toDec 2001TribunalCommissioner-Central ExciseCommissioner-Central Excise1,213,435 Feb 2004 JointCommissioner –Central Excise68,106,855 October2003 to Jan2005Commissioner –Central Excise &Customs4.10 The Company has no accumulated losses as at 31 st March, 2006 and it has not incurred anycash losses in the financial year ended on that date or in the immediately preceding financialyear.4.11 According to the records of the Company examined by us and the information andexplanation give to us, the Company has not defaulted in repayment of dues to any financialinstitution or bank or debenture holders as at the balance sheet date.4.12 The Company has not granted any loans and advances on the basis of security by way ofpledge of shares, debentures and other securities.4.13 The provisions of any special statute applicable to chit fund / nidhi / mutual benefit fund /socities are not applicable to the Company.4.14 In our opinion, the Company is not a dealer or trader in shares, securities, debentures andother investments.4.15 In our opinion, and according to the information and explanations given to us, the terms andconditions of the guarantees given by the Company, for loans taken by others from banks orfinancial institutions during the year, are not prejudicial to the interest of the Company.4.16 In our opinion, and according to the information and explanations given to us, on an overallbasis, the term loans have been applied for the purposes for which they were obtained.4.17 On the basis of an overall examination of the balance sheet of the Company, in our opinionand according to the information and explanations given to us, there are no funds raised on ashort-term basis which have been used for long term investment.33

4.18 The Company has made preferential allotment of shares to parties covered in the registermaintained under Section 301 of the Act during the year. In our opinion and according to theinformation and explanations given to us, the price at which such shares have been issued arenot prejudicial to the interest of the Company.4.19 The Company has not issued any debentures during the year nd there are no debenturesoutstanding as at the year end.4.20 The Company has not raised any money by public issues during the year.4.21 During the course of our examination of the books and records of the Company, carried out inthe accordance with the generally accepted auditing practices in India, and according to theinformation and explanations given to us, management has informed us that, during the year,they have come across and reported one instance of fraud committed by a customer who hasdefaulted in repayment of trade dues. The total loss to the Company as a result of this fraudwas Rs.9,925,373 which has been charged to Profit and Loss Account during the year.5. Further to our comments in paragraph 4 above, we report that :(a)(b)(c)(d)(e)(f)We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes of our audit;In our opinion, proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books;The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account;In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in subsection(3C) of Section 211 of the Act;On the basis of written representations received from the directors, as on 31 st March,2006 and taken on record by the Board of Directors, none of the directors isdisqualified as on 31 st March, 2006 from being appointed as a director in terms andclause (g) of sub-section (1) of Section 274 of the Act;In our opinion and to the best of our information and according to the explanationsgiven to us, the said financial statements together with the notes thereon and attachedthereto give in the prescribed manner the information required by the Act and give atrue and fair view in conformity with the accouting principles generally accepted inIndia:(i)(ii)in the case of the Balance Sheet, of the state of affairs of the Company as at31st March, 2006;in the case of the Profit and Loss Account, of the profit for the year ended onthat date; and(iii)in the case of the Cash Flow Statement, of the cash flows for theyear ended on that date.34

SPENTEX INDUSTRIES LIMITEDBalance Sheet as at 31st March, 2006Schedule 31-03-2006Rupees31-03-2005RupeesSOURCES OF FUNDSShareholders' FundsCapital I 574,591,910 111,101,350Capital Suspense Account I(a) - 260,990,560Share Warrants (Refer Note 8(a) & 8(b) of Schedule XXI) 7,399,350 -Reserves and Surplus II 760,485,950 147,769,5431,342,477,210 519,861,453Loan FundsSecured Loans III 1,106,140,020 721,917,504Unsecured Loans IV 598,566,087 70,313,305Deferred Tax Liabilities (Refer Note 15 of Schedule XXI) 8,694,719 -3,055,878,036 1,312,092,262APPLICATION OF FUNDSFixed AssetsGross Block V 1,188,939,047 1,068,546,410Less: Depreciation 516,287,063 442,588,555Net Block 672,651,984 625,957,855Capital Work-in-Progress and Capital Advances 759,791,733 66,310,419Investments VI 560,597,361 163,721Deferred Tax Asset - 11,008,602Current Assets, Loans & AdvancesInventories VII 534,906,652 300,192,545Sundry Debtors VIII 226,048,372 407,038,358Cash and Bank Balances IX 384,786,493 76,031,478Loans and Advances X 285,852,504 150,956,7831,431,594,021 934,219,164Less: Current liabilities and ProvisionsCurrent Liabilities XI 349,568,269 325,959,551Provisions XII 19,188,794 2,972,403Net Current Assets 1,062,836,958 605,287,210Miscellaneous Expenditure XIII - 493,897(To the extent not written off or adjusted)Profit and Loss Account (net) - 2,870,5583,055,878,036 1,312,092,262Statement on Significant Accounting PoliciesXXNotes to AccountsXXIThe Schedules referred to above form an intergral part of the AccountsSPENTEX INDUSTRIES LIMITEDProfit & Loss Account for the Year ended 31st March, 2006Schedule 2005-2006Rupees2004-2005RupeesINCOMESales (Refer Note 5 on Schedule XX) 3,522,557,340 3,643,599,743Other Income XIV 105,114,758 86,971,3633,627,672,098 3,730,571,106EXPENDITURERaw material consumed XV 562,639,044 691,039,89135

Cost of traded goods sold 2,285,396,819 2,387,473,415Salaries, Wages & Benefits XVI 97,283,659 72,495,233Manufacturing and Other costs XVII 388,607,927 338,662,530Depreciation 75,556,858 60,247,710Financial Charges XVIII 81,472,742 84,282,251(Increase)/Decrease in Stocks XIX 3,727,167 3,089,3213,494,684,216 3,637,290,351Profit before tax 132,987,882 93,280,755Tax Expense (Refer Note 10 on Schedule XX )Current Tax 11,219,883 -Deferred Tax (net) (Refer Note 15 on Schedule XXI ) 19,703,321 (11,008,602)Fringe Benefit Tax 1,543,414 -Tax expense in respect of earlier year - 789,73232,466,618 (10,218,870)Profit after Tax 100,521,264 103,499,625Balance Brought forward from Previous Year (2,870,558) (272,365,016)Reduction in Capital as per the Scheme of Arrangement - 111,098,740Additions on Amalgamation - 26,536,71897,650,706 (31,229,933)General Reserve - Closing Balance as on 31.3.2005 - 28,359,37597,650,706 (2,870,558)Basic and Diluted Earnings per Share2.31 2.78(Refer Note 16 on Schedule XXI)Statement on Significant Accounting PoliciesXXNotes to AccountsXXIThe Schedules referred to above form an Integral part of the AccountsSCHEDULES TO THE ACCOUNTS31-03-2006Rupees31-03-2005RupeesSCHEDULE I : CAPITAL (Refer Notes 7a), 7b) & 7c) on Schedule XXI)Authorised60,000,000 Equity Shares of Rs 10 each {Previous Year 600,000,000 -4,30,00,000 equity shares of Rs. 10 each}25,000,000 Equity Shares of Rs. 10/- each - 250,000,00018,000,000 Equity Shares of Rs. 10/- each as per the- 180,000,000Scheme of Amalgamation600,000,000 430,000,000Issued, Subscribed and Paid up57,459,191Equity Shares of Rs. 10 each, fully paid up (Previous 574,591,910 222,200,090Year 11,110,135)Less : Reduction in Capital by 11,109,874 shares @- (111,098,740)Rs. 10/- as per the Scheme of Arrangement574,591,910 111,101,350SCHEDULE I (a) : CAPITAL SUSPENSE ACCOUNT8,274,465 Equity Share @ Rs 10/- each at par to be- 82,744,650issued to the promoters of the CLC Corporation asper the Scheme of Arrangement17,824,591 Equity Share @ Rs 10/- each to be issued- 178,245,910to the shareholders of the CLC Global Ltd in the ratio1:1 as per the Scheme of Amalgamation .- 260,990,56036

SCHEDULE II : RESERVES AND SURPLUS (Refer Note 9 on Schedule XXI)Capital Reserve :Capital Reserve 138,231,706 138,231,706Share Forfeiture Reserve 7,179,250 7,179,250Profit on Restructure 2,358,587 2,358,587147,769,543 147,769,543Securities Premium Account : 515,065,701Profit & Loss Account:For the Year 97,650,706 -760,485,950 147,769,543SCHEDULE III : SECURED LOANS ( Refer Notes below)Loans from banksTerm Loans 767,338,936 403,539,262Cash Credit facility 206,294,804 190,302,323Export Packing Credit 127,769,770 125,198,736Other loansVehicle Loan 4,736,510 2,877,1831,106,140,020 721,917,504NOTES :1. Term loans referred above amounting to Rs 767,338,936 from Banks are secured by first paripassucharge on all the fixed assets of the Company, both present and future. These loans arefurther secured by second pari passu charge on entire current assets and personal guarantee ofthe promoters.2. Cash / export packing credit facilities referred above amounting to Rs 334,064,574 from banksare secured by first pari-passu charge on all the current assets of the Company, both present andfuture. These loans are further secured by second pari passu charge on entire fixed assets andpersonal guarantee of the promoters.3. Vehicle loan is secured by hypothecation of Motor cars.4. Secured loans to the extent of Rs.163,638,005 (Previous year Rs. 80,995,146) are repayablewithin one year.SCHEDULE IV : UNSECURED LOANS31-03-2006Rupees31-03-2005RupeesShort-term loansFrom Others * 98,566,087 70,313,3059% Non-convertible Debenture application money ** 500,000,000 -598,566,087 70,313,305* Includes loan of Rs. 88,500,000 (Previous year Nil) from Amit Spinning Industries Limited.** The Company has received application money against 500 (nos.) 9% Non-convertible debentureswhich were allotted to UTI Bank subsequent to year end. These are redeemable at par in 26 equalquarterly installments commencing from December 31, 2006. Upon execution of the DebentureTrust Deed and creation of the applicable charge, these debentures would become secured.37

SCHEDULE V - FIXED ASSETS( Refer Notes 2, 3, 9 & 11 on Schedule XX and Notes 11 & 12 onSchedule XXI )PARTICULARS Gross Block Depreciation Net BlockCost as at Assets Assets Additions Deletions/ Cost as at Up toFor The Deletions/ Up to As at01.04.2005 Transferred Transferred for the year Adjustment 31.03.2006 01.04.2005Year Adjustment 31.03.2006 31.03.2006*ssINTANGIBLEASSETSGoodwillTotal ATANGIBLEASSETS108,910,417 - - -108,910,417 - - - -AdditiononAmalgamation(Amountin Rs.)As at31.03.2005108,910,417 50,891,042 10,891,042 - 61,782,084 47,128,333 58,019,375108,910,417 50,891,042 - 10,891,042 - 61,782,084 47,128,333 58,019,375Land- Freehold Land 359,600 - - - - 359,600 - - - - - 359,600 359,600- Leasehold Land 6,834,416 - 5,199,053 - 12,033,469 350,964 - 159,459 - 510,423 11,523,046 6,483,452135,990,38181,739,24106,890,83Building5 - 45,748,863 - 8 29,099,547 - 4,773,217 - 33,872,764 147,866,484 8770,834,94830,371,34 338,172,17389,989,18432,662,76Plant & Machinery 4 - 66,697,397 7,161,000 1 7 - 52,937,315 1,120,307 5 440,382,156 7Furniture &Fixtures 12,737,372 - 1,694,387 - 14,431,759 7,263,512 - 1,143,807 - 8,407,319 6,024,440 5,473,860Office Equipments 21,312,720 - 4,017,964 20,000 25,310,684 12,596,563 - 3,131,679 3,600 15,724,642 9,586,042 8,716,157Vehicle 11,566,556 - 5,300,761 1,084,788 15,782,529 4,214,750 - 2,520,339 734,443 6,000,646 9,781,883 7,351,806959,635,99128,658,421,080,028,6 391,697,51454,504,97567,938,48Total BGrand Total3 -1,068,546,410 -5 8,265,788128,658,425 8,265,788301,188,939,0473 - - 64,665,816 1,858,350442,588,555 - 75,556,858 1,858,3509 625,523,651516,287,063 672,651,9840625,957,85538

Capital Work -in-Progress**479,453,838 54,340,752Capital Advances 280,337,895 11,969,667759,791,733 66,310,419-702,868,31327,100,94 *1,068,546,4 329,785,21 -53,326,71As at 31.03.2005 78 39,541,088 963,943 10 4 4 60,249,271 772,644• As per the scheme of arrangement with CLC Corporation and scheme ofamalgamation of CLC Global• ** Capital work in progress includes freehold land amounting to Rs. 556 lacs, yet tobe registered in name of the Company.442,588,5551,432,443,717 692,268,27439

SCHEDULE VI : INVESTMENTS (Refer Note 6 on Schedule XX)31-03-2006RupeesI) LONG TERM Nos. ValueTrade - QuotedAmit Spinning Industries Limited (Face value Rs. 166,012,095/- each, fully paid up) 18,170,667 9 166,012,099Indorama Textiles Limited (Face value Rs. 10/- 394,430,79each, fully paid up) 4,673,625 1 394,430,7931-03-2005Rupees1Other than Trade - QuotedIn Fully Paid-up equity shares of Rs. 10/- each :Ceat Limited 100 5,724 5,724 5,724CFL Capital Financial Services Limited 100 1,985 1,985 1,985CESC Limited 100 5,553 5,553 5,553Harrisons Malayalam Limited 100 3,744 3,744 3,744KEC International Limited 100 6,909 6,909 6,909Phillips Carbon Black Limited 100 5,653 5,653 5,653RPG Cables Limited 170 5,382 5,382 5,382RPG Transmission Limited 100 7,261 7,261 7,261RPG Life Sciences Limited 100 8,065 8,065 8,065Spencer & Co. Limited 200 7,563 7,563 7,563Saregama India Limited 100 1,322 1,322 1,322Aggregate Market Value of Quoted InvestmentsRs. 51,26,30,073/- ( Previous Year Rs. 1,05,474/- ) 560,502,051II) Other than Trade - UnquotedThe Baramati Co-operative Bank Limited(Face value Rs.20/- each, fully paid up)1,300 26,000The Saraswat Co-operative Bank Limited-(Face value Rs.10/- each, fully paid up) -The Sadguru Jangli Maharaj Co-operative Bank 1,000 50,000Ltd. (Face value Rs.50/- each, fully paid up)National Saving Certificates26,000--59,16126,000- 14,25050,000 50,00019,310 14,31095,310 104,560560,597,36 163,7211SCHEDULE VII : INVENTORIES (Refer Note 4 on Schedule XX and Note 10 on Schedule XXI)31-03-2006 31-03-2005RupeesRupeesStores, Spares & Packing Material6,368,1007,618,882Raw Material207,961,780455,840,168Work-in-process9,535,34610,470,797Finished goods40

ManufacturedTradedCotton WasteSCHEDULE VIII : SUNDRY DEBTORSUnsecuredOutstanding for a period over six monthsConsidered GoodConsidered DoubtfulOther DebtsConsidered GoodLess : Provision for doubtful debtsSCHEDULE IX : CASH & BANK BALANCESCash balance on handBalances with Scheduled Banks:In Current AccountIn Fixed Deposit Account *In Margin Money Account **Balances with other Banks :In Current AccountIn Fixed Deposit Account4,831,52048,256,8217,888,464534,906,65221,323,800551,31621,875,116204,724,572226,599,688551,316226,048,372375,5695,631,464354,568,94821,765,2522,445,260384,786,493* Includes amount under Escrow Account Rs 200,000,000 (Previous Year Nil)** Having a lien by BanksSCHEDULE X : LOANS AND ADVANCESAmount recoverable in cash or in kind or for value to be receivedUnsecuredConsidered good *272,447,390Considered doubtful--272,447,39014,464,36258,944,7172,918,240300,192,5452,906,9502,318,6585,225,608404,461,011409,686,6192,648,261407,038,358374,71910,678,46913,028,8321,150,0002,549,45848,250,00076,031,478146,867,0483,050,000149,917,04841

Less : Provision for Doubtful AdvancesDeposits with Excise and Customs AuthoritiesAdvance Income Tax/Tax Deducted at Source-272,447,3901,307,63712,097,4773,050,000146,867,048176,1503,913,585150,956,783285,852,504* Includes Loans given to a company and a firm Rs. 3,975,796 (Previous Year Rs. 3,931,330), inwhicha director of Spentex Industries Limited is a director/partner. Maximum amount outstanding at anytime during the year Rs. 39,290,230 (Previous Year Rs. 57,524,497)SCHEDULE XI : CURRENT LIABILITIES (Refer Notes 2 & 5 on Schedule XXI)31-03-2006Rupees31-03-2005RupeesSundry CreditorsTotal outstanding dues to small scale industrial undertaking(s)* and 1,813,506 477,602Total outstanding dues of creditors other than small scale industrial292,576,086undertaking(s) 302,100,953Other liabilities32,905,86340,336,851Interest accrued but not due on loans-5,316,959325,959,551349,568,269* As certified by the Management based on available informationSCHEDULE XII : PROVISIONS (Refer Note 8 on Schedule XX)Provision for Taxation (including fringe benefit tax Rs. 1,543,414)-Provision for Wealth TaxFor Leave EncashmentFor GratuitySCHEDULE XIII : MISCELLANEOUS EXPENDITURE(To the extent not written off or adjusted)Preliminary ExpensesPublic Issue ExpensesSCHEDULE XIV : OTHER INCOME ( Refer Note 5 on Schedule XX)DividendCommission (gross)12,763,29735,4603,529,5862,860,45119,188,794---2,96541,480,439-1,606,2001,366,2032,972,403247,080246,817493,89733,61537,762,10242

{Tax deducted at source Rs. 1,464,628/- ( Previous Year Rs.2,693,184/-)}Interest on deposits (gross)8,006,9939,587,084{Tax deducted at source Rs 1,852,147/- ( Previous Year Rs.83,926./-)}Interest Written Back2,788,749-Conversion Charges-11,848,648{Tax deducted at source Rs 149,809/- ( Previous Year Nil)}Liabilities no longer required written back418,8501,772,548Profit on Sale of Fixed Assets (net)-119,378Export Incentive36,063,01428,488,705Foreign Exchange Fluctuation Gain (net)-7,094,884Miscellaneous Income1,898,0404,720,10786,971,363105,114,758SCHEDULE XV : RAW MATERIAL CONSUMEDOpening Stock140,065,845207,961,780Add : Purchases758,935,826810,517,432Less : Closing Stock207,961,780455,840,168691,039,891562,639,044SCHEDULE XVI : SALARY, WAGES AND BENEFITS (Refer Note 14 on Schedule XXI)Salaries, Wages and Bonus60,939,28383,262,896Contributions to Provident and Other Funds6,079,0788,330,881Employees Welfare Expenses5,476,8725,689,88272,495,23397,283,659SCHEDULE XVII : MANUFACTURING AND OTHER COSTS( Refer Note 13 on Schedule XXI)2005-2006Rupees2004-2005RupeesStores, Spares and Packing Material Consumed (net of recoveries)39,203,75242,148,334Sub-contracting Charges 1 9,703,3710,640,718Power, Fuel & Water118,979,598136,751,514Rent1,139,6532,129,040Rates & Taxes 105,90043

1,795,345Repairs & Maintenance :Plant & Machinery2,644,6382,866,367Building568,914811,497Others1,934,8191,679,0135,148,3715,356,877Insurance4,975,5054,637,194Communication Expenses7,450,7208,116,532Traveling and Conveyance14,052,80317,518,887Legal and Professional charges7,776,64911,926,771Commission46,413,26139,365,452Freight Outward and Clearing Charges (net of recoveries)65,577,57574,561,745Loss on Sale of Fixed Assets (net) - 44,896Provision for doubtful debts-515,316Bad debts and Advances written off455,4532,357,724Bad Debts written off related to Fraud-9,925,373Sitting Fees66,300233,200Selling and Other Expenses9,541,88910,990,351Foreign Exchange Fluctuation Loss (net) - 3,918,796Miscellaneous Expenditure written off422,734493,897Miscellaneous Expenses3,685,3049,143,657338,662,530388,607,927SCHEDULE XVIII: FINANCIAL CHARGES (Refer Note 9 on Schedule XX )Interest - On Non Convertible Debentures - 3,140,748Interest- Fixed Loans47,614,21536,725,470- Others24,017,99632,295,620Bank Charges9,509,29212,451,65284,282,25181,472,74244

SCHEDULE XIX : (INCREASE) / DECREASE IN STOCKSOpening Stock :Finished goodsWork in processCotton WasteAdd : Additions on account of Scheme of Arrangement /AmalgamationClosing Stock :Finished goodsWork in processCotton Waste(Increase) / Decrease in Stocks8,955,53314,464,3625,503,9719,535,3463,736,0692,918,24018,195,57326,917,948- 11,811,69630,007,26926,917,94814,464,3624,831,5209,535,34610,470,7972,918,2407,888,46426,917,94823,190,7813,089,3213,727,167SCHEDULE XX : SIGNIFICANT ACCOUNTING POLICIES1. BASIS OF ACCOUNTING:The financial statements are prepared under historical cost convention and comply withapplicable accounting standards issued by The Institute of Chartered Accountants of India andrelevant provisions of the Companies Act, 1956.2. Fixed AssetsFixed Assets are stated at their original cost including freight, duties (net ofMODVAT/CENVAT), taxes and other incidental expenses relating to acquisition andinstallation.Expenditure incurred during the period of construction are carried forward as capital work-inprogressand on completion, the costs are allocated to the respective fixed assets.3. Depreciation / AmortizationDepreciation for all fixed assets situated at manufacturing locations is provided on the straightline method and for all other fixed assets, is provided on the written down value method, on apro-rata basis at the rates specified in Schedule XIV to the Companies Act, 1956.Spindles acquired on or after 1st April, 2005 and capitalised under Plant & Machinery arebeing depreciated over the estimated useful life of 36 months on pro-rata basis.Leasehold land is amortized over the lease period.45

Acquired goodwill is amortized using the straight-line method over a period of 10 yearsconsidering the fact that erstwhile firm / company has strong marketing network in textilebusiness segment.4. InventoriesRaw materials have been valued under the Specific identification of cost method as defined inAccounting Standard - 2 “Inventories”.Work-in-progress and finished goods are valued at lower of weighted average cost and netrealizable value. Cost includes direct materials and labour and a proportion of manufacturingoverheads based on normal operating capacity.Inventory of stores and spares are valued at lower of weighted average cost and net realisablevalue. Waste is valued at estimated net realizable value.5. Revenue recognitionSale of goods: Revenue on sale of goods is recognized on transfer of significant risk andrewards of ownership to the buyer and on reasonable certainty of the ultimate collection.Sales are net of excise duty, trade discounts and sales returns.Interest: Income is recognised on a time proportion basis taking into account the amountoutstanding and the rate applicable.Commission and Insurance claim: Revenue on the activities is recognized when nosignificant uncertainty as to measurability or collectability exists.6. InvestmentsInvestments that are readily realisable and intended to be held for not more than a year areclassified as current investments. All other investments are classified as long-terminvestments. Current investments are carried at lower of cost and fair value determined on anindividual investment basis. Long-term investments are carried at cost. However, provisionfor diminution in value is made to recognise a decline other than temporary in the value of theinvestments.7. Foreign currency transactionsTransactions in foreign currency are accounted for at the exchange rates prevailing on the dateof transaction. All monetary items denominated in foreign currency are translated at year endrates. Exchange differences arising on such transactions and also exchange differences arisingon the settlement of such transactions are adjusted in the Profit and Loss Account.Realised gains and losses on foreign exchange transactions during the year, other than thoserelating to the fixed assets, are recognized in the profit and loss account. The gains/lossesarising on repayment and restatement of foreign exchange liabilities incurred to acquire fixedassets from a country outside India are adjusted in the carrying cost of such fixed assets.In case of forward contracts, the premium or discount on all such contracts arising at theinception of each contract is recognised / amortised as income or expense over the life of thecontract. Any profit or loss arising on the cancellation or renewal of such contracts isrecognized as income or expense for the period.46

8. Retirement benefitsThe Company's contributions to recognised Provident Funds are charged to revenue on anaccrual basis.The Company has taken a group policy with the Life Insurance Corporation of India (LIC) tocover its liability towards employee gratuity and superannuation. The contributionpaid/payable, as actuarially determined by LIC at the annual renewal date of the policy beingMarch 31, is charged to revenue on an accrual basis.9. Borrowing costsBorrowing costs that are directly attributable to the acquisition, construction or production ofa qualifying asset are capitalised as a part of the cost of that asset. Other borrowing costs arerecognised as an expense in the period in which they are incurred.10. Taxation11. LeasesTax expense for the year, comprising current tax, deferred tax and fringe benefit tax isincluded in determining the net profit/(loss) for the year.A provision is made for the current tax and fringe benefit tax based on tax liability computedin accordance with relevant tax rates and tax laws. Deferred tax assets are recognised for alldeductible timing differences and carried forward to the extent it is reasonably / virtuallycertain that future taxable profit will be available against which such deferred tax assets canbe realised.Deferred tax assets and liabilities are measured at the tax rates that have been enacted orsubstantively enacted by the Balance Sheet date.Assets acquired under long term finance lease are capitalised and depreciated in accordancewith Company’s policy for assets situated at manufacturing and other locations. Theassociated obligations are included in other loans under “Secured Loans”.12. Impairment of AssetsAt each balance sheet date, the Company assesses whether there is any indication that an assetmay be impaired. If any such indication exists, the Company estimates the recoverableamount. Where the carrying amount of the asset exceeds its recoverable amount, animpairment loss is recognised in the profit and loss account to the extent the carrying amountexceeds recoverable amount.47

SCHEDULE XXINotes to Accounts1 Contingent Liabilities not provided for in respect of :(Amount inRs.)Description 31-Mar-2006 31-Mar-2005a) Demands from Income Tax Authorities under appeal 18,728,552 3,981,354b) Demands from Sales Tax Authorities under appeal 15,305,392 -c) Show cause notices/demands received from Excise / Customs Department 4,210,160 12,735,492(including applicable penalties), not acknowledged as debtsd) Guarantees and Letters of credit issued on behalf of the Company,409,162,001 8,443,230outstanding at the year ende) Bills Discounted with Banks on behalf of the Company, outstanding at the 484,031,461 373,453,426year endf) The Company has assumed liabilities for certain disputed cases in respect of excise duty amounting to Rs.95,968,095 and certain other disputed cases amounting to Rs. 750,000 under the terms of sale negotiated forpurchase of assets from Bank of India at Ahmedabad. In the event that the outcome of these cases are not inthe favor of the Company, the amount would be adjusted with the carrying value of assets taken over fromBank of India.g) The amount shown in the items (a) to (c) represent the best possible estimates arrived at on the basis ofavailable information. The uncertainties and possible reimbursements are dependent on outcome of thedifferent legal processes which have been invoked by the Company or the claimants as the case may be andtherefore cannot be predicted accurately. The Company engages reputed professional advisors to protect itsinterest and has been advised that it has strong legal positions against such disputes. The amount shown initems (d) to (e) represent guarantees and bills discounted given / done in the normal course of the Company’soperations and are not expected to result in any loss to the Company on the basis of beneficiaries fulfillingtheir ordinary commercial obligations.2 Consequent to a demand received under the Maharshtra Electricity Duty Act, 1958, in relation to payment ofelectricity duty @ 15 paisa on captive generation of electricity at its Baramati plant, Rs. 10,623,219 has beenprovided as Electricity Duty payable for the year 2000-2001 to 2005-2006. The Company along with otherlocal industry groups have filed a writ petition in the High Court at Mumbai. The final ruling of the Court inthe matter is awaited.3a) Corporate Guarantee given to IREDA for Loan to M/s Himalayan CrestPower Limited 150,498,500 10,100,0003b) Corporate Guarantee given to UTI Bank for Loan to M/s Amit SpinningIndustries Limited 400,000,000-4 Estimated value of contracts remaining to be executed on capital account(net of advances) 688,992,540 97,720,6275 The names of small scale industrial undertakings to whom the Company owes any sum together with interestoutstanding for more than thirty days as at March 31, 2006 are Suraksha Packers, Shivam Industries, GopalaKraft Pack P. Ltd., Dynamic Plastic Corporation, Yash Packaging P. Ltd., Sumeru Packaging P. Ltd.,GoldenOyster, Shree Bhagwan Saw Mills, Ekta Engineers, Acetex Textile Industries Ltd., Shree Fabro Steels & TexTech Industries, which amounts to 156,740 /- ( Previous Year Rs. 20,754/-) .6 In accordance with the current industry practice, plant and machinery of the Company has been treated as"Continuous Process Plant" as defined under Schedule XIV to the Companies Act,1956. Consequentlydepreciation on such assets is provided at the rate prescribed under Schedule XIV for " Continuous ProcessPlant".7a) During the year, the Company has increased its authorised share capital from 25,000,000 equity shares of Rs. 10each amounting to Rs. 250,000,000 to 60,000,000 equity shares of Rs. 10 each amounting to Rs. 600,000,000.48

7b) Consequent to scheme of arrangement of CLC Corporation with Spentex Industries Limited and scheme ofamalgamation of CLC Global Limited with Spentex Industries Limited, 8,274,465 Equity shares of Rs. 10each amounting to Rs. 82,744,650 and 17,824,591 equity shares of Rs. 10 each amounting to Rs.178,245,910 have been allotted to CLC Corporation and CLC Global Limited respectively.7c) During the year the Company has made a preferential allotment of 2,750,000 equity shares of Rs. 10 each ata premium of Rs. 26.54 per share, to the promoters amounting to Rs. 100,485,000 and 17,500,000 equityshares of Rs. 10 each at a premium of Rs. 26.54 per share, to Citigroup Venture Capital International GrowthPartnership Mauritius Limited (CVC) amounting to Rs. 639,450,000 as per the guidelines issued bySecurities and Exchange Board of India under SEBI (Disclosure & Investor Protection) Guidelines, 2000 forPreferential Allotment.8a) Pursuant to an agreement dated December 8, 2005, the Company issued 1,750,000 share warrants toCitigroup Venture Capital International Growth Partnership Mauritius Limited (CVC), each convertible intoone equity share at share subscription price of Rs. 36.54 per warrant. The Company has received an advanceof 10 % of the share subscription price amounting to Rs. 6,394,500 from CVC. The warrants may beexercised at the option of CVC within a maximum period of 18 months from the date of their issue. If thewarrants are exercised by CVC, the Company will allot 1,750,000 fully paid up equity shares of Rs. 10 eachon receipt of the balance consideration of Rs. 57,550,500. If the warrants are not exercised, the advance willbe forfeited by the Company.8b) Pursuant to the resolution passed at Extra Ordinary General Meeting dated November 23, 2005, theCompany issued 127,895 share warrants to Mr. Ajay Choudhary, 76,519 share warrants to Mr. MukundChoudhary and 70,586 share warrants to Mr. Kapil Choudhary each convertible into one equity share atshare subscription price of Rs. 36.54 per warrant. The Company has received an advance of 10 % of theshare subscription price amounting to Rs. 467,328 , Rs. 279,600 and Rs. 257,922 from Mr. Ajay Choudhary,Mr. Mukund Choudhary and Mr. Kapil Choudhary respectively. The warrants may be exercised at theoption of above promoters within a maximum period of 18 months from the date of their issue. If thewarrants are exercised by above promoters, the Company will allot 275,000 fully paid up equity shares of Rs.10 each on receipt of the balance consideration of Rs. 9,043,650. If the warrants are not exercised, theadvance will be forfeited by the Company.9 In accordance with the provisions of section 78 of the Companies Act, 1956, the Company has appliedamounts available in the securities premium account to offset a) expenses relating to issue of shares under apreferential basis amounting to Rs. 15,963,249 and b) expenses relating to issue of 9% non-convertibledebentures to a bank amounting to Rs. 6,406,050.10 In the current year, the Company has changed its method of valuing raw materials from the WeightedAverage method to the Specific identification of cost method based on peculiarities of condition existing inthe business and prevalent industry practices.The Specific identification of cost method results in a betterpresentation of the carrying value of raw material inventory in the financial statements.Had the Company continued to use the earlier basis of valuing Raw Materials, closing stock of RawMaterials would have been lower by Rs. 10,636,015 with consequential impact on net current assets andprofit for the year.11 In accordance with rapidly changing technology in respect of Cotton spindles and other plant and machinery,the company has revised the estimated useful life of spindles acquired during the year and certain other plantand machinery located at its manufacturing facilities. Had the Company continued to use the earlier usefullife for these machines, depreciation charge for the year would have been lower by Rs. 8,619,765 withconsequential impact on net block of the fixed assets and profit for the year.49

12 Leased Assets included in vehicles where the Company is a lessee under finance leases are :This Year Previous YearNot later than one year 2,521,586 1,878,270Later than one year but not later than five years 2,736,979 1,185,806Later than five years Nil NilTotal Minimum lease payments 5,258,565 3,064,076Less : Future finance charges on finance leases 522,055 186,893Present value of finance lease liabilities 4,736,510 2,877,183Representing lease liabilities:-Current 2,237,022 1,734,702-Non current 2,499,488 1,142,4814,736,510 2,877,183The present value of finance lease liabilities may be analysed as follows :Not later than one year 2,237,022 1,734,702Later than one year but not later than five years 2,499,488 1,142,481Later than five years Nil Nil4,736,510 2,877,18313 Payment to Auditors : This Year Previous Yeara) Statutory Audit (*) 1,102,200 442,153b) Tax Audit (*) 200,400 33,060c) Other Services, Certifications, etc. (*) (**) 451,656 116,366d) Out of pocket expenses 11,200 8,8001,765,456 600,379(*) including taxes, as applicable.(**) including payments made to the previous auditor.14 Remuneration to Managerial personnel * This Year Previous Yeara) Salary and Allowances 4,925,103 4,052,294c) Contribution to Provident Fund and Superannuation Fund 395,820 306,270b) Estimated value of Perquisites 197,155 2,7555,518,078 4,361,319Directors' Sitting Fees 233,200 66,300Foot Note:* The contribution to Gratuity Fund has been made on group basis and separate figures applicable to anindividual employee are not available and have, therefore, not been taken into account in the abovecomputation.50

15 TaxationDeferred TaxBreak-up of Deferred Tax Assets and Liabilities into major As at 31st As at 31stcomponents of the respective balances is as under :March , 2006 March , 2005I. Balance brought forward - Deferred Tax Asset / (Liability) 11,008,602 -II. For the Year :(i) Tax impact of difference between carrying amount of fixed assets 6,358,538 (113,429,380)in the financial statements and the income tax return(ii) Tax impact of expenses charged in the financial statements but 968,163 1,498,471allowable as deduction in future years under income tax(iii) Realisation of tax impact of unabsorbed depreciation created in (27,030,022) 122,939,511the previous yearNet Deferred Tax (Liability)/Asset (19,703,321) 11,008,602III. Closing Deferred Tax (Liability)/Asset (8,694,719) 11,008,602The tax impact for the above purpose has been arrived at by applying a tax rate of 33.66% (Previous Year33.66%), being the prevailing tax rate for Indian companies under the Income Tax Act, 1961.16. Earnings Per Share (EPS)The following table reconciles the numerators and denominators used to calculate Basic andDiluted EPS for the Year:This Year Previous YearNet profit attributable to equity shareholders 100,521,264 103,499,625Effect of Dilutive Securities - -Income available to Equity Shareholders 100,521,264 103,499,625Weighted Average Shares outstanding Nos. Nos.Weighted average shares outstanding 43,533,849 37,209,191Effect of Dilutive Securities 54,130 -Diluted weighted average shares outstanding 43,587,979 37,209,191Nominal value of Equity Shares 10 10Basic Earnings per Share 2.31 2.78Diluted Earnings per share 2.31 -17. Subsequent to the year end, the Company has acquired majority share holding in IndoramaTextiles Limited, thereby making it a subsidiary of the Company.SPENTEX INDUSTRIES LIMITEDCash Flow Statement for the Year ended 31st March, 2006Year ended Year ended31st March, 06 31st March, 05Net Profit Before Tax 132,987,882 93,280,755Add:Depreciation 75,556,858 60,247,710(Profit) / Loss on Sale of Fixed Asset (119,378) 44,896Provision for Doubtful Debts and Advances 515,316 329,603Provision for Wealth Tax 35,460 -Unrealised Exchange Fluctuation (net) (3,150,138) -Bad Debts and Advances Written off 12,283,097 -Liabilities no longer required written back (1,772,548) (418,850)51

Provision for Leave Encashment 3,529,586 1,606,200Dividend Income (2,965) (33,615)Interest Income (9,587,084) (8,006,993)Miscellaneous Expenditure Written Off 493,897 422,734Interest Expense 81,472,742 84,282,251Operating Profit Before Working Capital Changes 292,242,725 231,754,691Adjustments for changes in working capital :- (INCREASE)/DECREASE in Sundry Debtors 171,341,707 (279,810,383)- (INCREASE)/DECREASE in Other Receivables (134,895,721) 153,472,355- (INCREASE)/DECREASE in Inventories (234,714,107) (50,829,713)- INCREASE/(DECREASE) in Trade and Other Payables 16,904,542 104,898,542A. Cash Flow From Operating Activities 110,879,146 159,485,492Purchase of Fixed Assets (125,610,611) (96,511,700)Sale proceeds of Fixed Assets 6,526,816 147,250Capital Work-in-Progress and Capital Advances (693,481,314) -Purchase of Investment (560,433,640) (1,206)Sales Of Investment - 207,000Dividend Received 2,965 33,615Interest Received 9,587,084 8,006,993B. Cash Flow From Investing Activities (1,363,408,700) (88,118,048)Proceeds from Share Capital 202,500,000 -Proceeds from Share Warrants 7,399,350 -Share Premium (net) 515,065,701 -Proceeds from 9% Non-convertible Debenture application money 500,000,000 -Proceeds from Term Loans 446,647,872 251,089,560Repayment of Term Loans (82,848,198) (244,295,370)Proceeds from Working Capital Loans (net) 18,563,515 54,282,198Proceeds from Short Term Loans (net) 28,252,782 -Vehicle Loans (net) 1,859,327 -Repayment of Fixed Deposits - -Interest Paid (76,155,780) (88,637,603)C. Cash Flow From Financing Activities 1,561,284,569 (27,561,215)Increase/(Decrease) in Cash Equivalents {A+B+C} 308,755,015 43,806,229Cash and Cash Equivalents at the Beginning of the Year (# 1) 76,031,478 417,323Add: Cash and Cash Equivalents on acquisition ofCLC Corporation & Amalgamation of CLC Global Limited - 31,807,926Cash and Cash Equivalents at the End of the Year (# 2) 384,786,493 76,031,478Increase / (Decrease) in Cash/Cash Equivalents 308,755,015 75,614,155Notes :-Cash and cash equivalents compriseCash in hand 375,569 374,719Balance with Schedule Banks 381,965,664 24,857,301Balance with Other Banks 2,445,260 50,799,458384,786,493 76,031,478# 1 The above Cash flow statement has been prepared under the Indirect method set out inAccounting Standard 3 issued by the Institute of Chartered Accountants of India.# 2 Figures in brackets indicate cash outgo.52

AUDITOR’S REPORT FOR THE AUDITED FINANCIALS AS AT 31 ST MARCH, 2005To the members of Spentex Industries Limited1. We have audited the attached Balance Sheet of Spentex Industries Limited, as at March 31,2005 and also the related Profit and Loss Account and the Cash Flow Statement for the yearended on that date annexed thereto. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.2. We conducted our audit in accordance with auditing standards generally accepted in India.Those Standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material mis-statement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.3. The financial statements are prepared after considering the separate financial statements oferstwhile CLC Corporation and CLC Global Limited, which were amalgamated with thecompany with effect from April 01, 2004. Another firm of chartered accountants appointed byrespective entities has audited these financial statements and we have placed reliance on theauditor’s report issued by the said firm of Chartered Accountants in respect of the saidfinancial statements.4. As required by the Companies (Auditor’s Report) Order, 2003, duly amended by the DCAnotification GSR 766(E) dated 25th November 2004, (hereinafter to be referred to as “theOrder”) issued by the Central Government of India in terms of sub-section (4A) of section227 of the Companies Act, 1956, we enclose in the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the said Order, to the extent applicable.5. Further to our comments in the Annexure referred to in paragraph (4) above, we report that:(i)(ii)(iii)(iv)We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes of our audit;In our opinion, proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books;The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of accounts;In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in subsection(3C) of section 211 of the Companies Act, 1956;(v) On the basis of written representations received from the directors as on March 31,2005 and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on March 31, 2005 from being appointed as a director interms of Clause (g) of subsection (1) of section 274 of the Companies Act, 1956;53

(vi)In our opinion and to the best of our information and according to the explanationsgiven to us, the said financial statements together with the notes thereon give theinformation required by the Companies Act, 1956, and give a true and fair view inconformity with the accounting principles generally accepted in India:(a)(b)(c)In the case of the Balance Sheet, of the state of affairs of the Company as atMarch 31, 2005;in the case of Profit and Loss Account, of the Profit for the year ended on thatdate; andIn the case of Cash Flow Statement, of the cash flows for the year ended onthat date.Annexure to the Auditor’s report of even date to the Members of Spentex Industries Limited forthe year ended March 31, 2005 [Referred to in paragraph 4 of the Auditors Report](i) (a) The Company has maintained proper records showing full particulars, includingquantitative details and the situation of its fixed assets;(b)(c)A major portion of fixed assets has been physically verified by the managementduring the year. In our opinion, the frequency of verification of the fixed assets by themanagement is reasonable having regard to the size of the Company and the nature ofits assets. No material discrepancies have been noticed on physical verification andthe same have been properly dealt with in the books of account.The assets disposed off during the year are not significant and therefore do not affectthe going concern assumption.(ii) (a) The inventory has been physically verified by the management, during the year. Inour opinion, the frequency of verification of inventories is reasonable.(b)(c)In our opinion and according to the information and explanations given to us, theprocedures for physical verification of the inventories followed by the managementwere generally reasonable and adequate in relation to the size of the company and thenature of its business.In our opinion the Company is maintaining proper records of inventory. Thediscrepancies noticed between the physical stocks and the book stocks were notmaterial and have been properly dealt with in the books of account;(iii)(iv)(v)During the year, the Company has not granted or taken any loans from/to parties covered inthe register maintained under Section 301 of the Companies Act, 1956.In our opinion and according to the information and explanations given to us, there areadequate internal control procedures commensurate with the size of the Company and thenature of its business with regard to purchase of inventory, fixed assets and for sale of goods.During the course of our audit, no major weakness has been noticed in the internal control;Based on the audit procedure applied by us and according to the information and explanationsgiven to us, we are of the opinion that there are no transactions that need to be entered into theregister maintained under section 301 of the Companies Act, 1956.54

(vi)(vii)(viii)The Company has not accepted any deposits from the public, hence the provision of Section58A, 58AA or any other relevant provisions of the Companies Act 1956 and the rules framedthere under are not applicable.In our opinion, the Company has a system of internal audit, which is commensurate with itssize and nature of its business;We have broadly reviewed the books of accounts maintained by the Company pursuant to therules made by the Central Government under Section 209(1) (d) of the Companies Act, 1956for maintenance of cost records in respect of products manufactured and are of the opinionthat, prima facie, the prescribed accounts and records have been maintained by the company.We have not however, made a detailed examination of the records with a view to determinewhether they are accurate or complete;(ix) (a) According to the information and explanation provided to us, the Company isgenerally regular in depositing with appropriate authorities undisputed statutory duesincluding amount of provident fund, income-tax, sales-tax, custom duty, excise-duty,service tax, cess and other statutory dues, applicable to it. According to theinformation and explanations given to us, no undisputed amounts payable were inarrears, as at March 31, 2005 for a period of more than six months from the date theybecame payable.(b)Except for the taxes, the details of which are given below, there are no other disputedIncome Tax, Sales Tax, excise duty,custom duty, Service Tax, and Cess that have notbeen paid to the concerned authority;Name of the StatuteFinancial Yearto which thematter pertainsForum WhereDispute is pendingUnpaid Amount(Rs. In Lacs)Central Excise Duty 1999-20002000-2001CESTATCommisssioner ofCentral Excise(Appeals)63.7363.61The Income Tax Act,19612000-01 Comm Income TaxAppeal30.91(x)(xi)(xii)(xiii)The accumulated losses of the company as at the Balance Sheet date are less than fifitypercent of its net worth. The Company has not incurred any cash losses during the the currentfinancial year and in the immediately preceding financial year.According to the information and explanations given to us, the company has not defaulted inrepayment of dues to banks or denenture holders.According to the information and explanations given to us the company has not granted loansand advances on the basis of security by way of pledge of shares, debentures and othersecurities.The Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, theprovisions of clause 4(xiii) of the Companies (Auditor’s Report) Order, 2003 (as amended)are not applicable to the Company.55

(xiv)(xv)(xvi)According to the information and explanations given to us, the company is not dealing ortrading in Shares, Securuites and Debentures.On the Baisis of information & explanations given to us, the Company has not given anyguarantee for loans taken by others from bank or financial institution,(xvi)Based on information and explanations given to us by the management, the term loans wereapplied for the purpose for which the loans were raised.(xvii) According to the information and explanations given to us and on an overall examination ofthe balance sheet of the Company, we report that no funds raised on short-term basis havebeen used for long-term investments.(xviii) The Company has not made any preferential allotment of shares to parties or companiescovered in the register maintained under Section 301 of the Companies Act, 1956.(xix)(xx)(xxi)The Company has not issued any fresh debetures during the year.The required security hasbeen created for the denetures issued in the earlier years and repaid in the current year.The Company has not raised any money through a public issue during the yearAccording to the information and explanations given to us no material fraud on or by theCompany has been noticed or reported.SPENTEX INDUSTRIES LIMITEDBalance Sheet as at 31st March, 2005Schedule 31-03-2005Rupees31-03-2004RupeesSOURCES OF FUNDSShareholders' FundsCapital 1 111,101,350 222,200,090Share Capital Suspense Account 1(a) 260,990,560 -Reserves and Surplus 2 176,128,918 138,231,706548,220,828 360,431,796Loan FundsSecured Loans 3 721,917,504 269,933,153Unsecured Loans 4 70,313,305 -TOTAL 1,340,451,637 630,364,949APPLICATION OF FUNDSFixed Assets 5Gross Block 1,068,546,410 702,868,317Less: Depreciation 442,588,555 329,785,214Net Block 625,957,855 373,083,103Capital Work-in-Progress ( including advances ) 65,986,880 412,792Pre-operative Expenses Pending Allocation 323,539 -Investments 6 163,721 356,411Deferred Tax Asset 11,008,602 -Current Assets, Loans & AdvancesInventories 7 300,192,545 60,055,057Sundry Debtors 8 407,038,358 9,776,368Cash and Bank Balances 9 76,031,478 417,323Loans and Advances 10 150,956,783 30,124,14256

934,219,164 100,372,890Less: Current liabilities and Provisions 11 328,931,954 120,597,702Net Current Assets 605,287,210 (20,224,812)Miscellaneous Expenditure 12 493,897 4,372,439(To the extent not written off or adjusted)Profit and Loss Account (net) 31,229,933 272,365,016TOTAL 1,340,451,637 630,364,949SPENTEX INDUSTRIES LIMITEDProfit & Loss Account for the Year ended 31st March, 2005Schedule 2004-2005Rupees2003-2004RupeesINCOMESales 3,831,212,748 363,381,540Less : Inter Company Sales (195,739,865) -3,635,472,883 363,381,540Other Income 13 86,971,363 19,608,480Increase /(Decrease) in Stocks 14 (16,821,992) 4,205,165TOTAL 3,705,622,254 387,195,185EXPENDITURERaw material consumed 15 3,260,520,500 241,782,024Less : Inter Company Purchase (195,739,865) -3,064,780,635 241,782,024Salaries, Wages & Benefits 16 72,624,245 26,974,416Other Costs 17 3,30,406,657 83,632,261Depreciation 60,247,710 35,608,940Financial Charges 18 84,282,252 17,604,614TOTAL 3,612,341,499 405,602,255Profit / (loss) Before Tax 93,280,755 (18,407,070)Provision for Taxation- Current Tax - -- Deferred Tax ( Refer Note No.7 of Notes to Accounts ) (11,008,602) -- In respect of earlier year 789,732 -Profit / (Loss) After Tax 103,499,625 (18,407,070)Loss Brought Forward From Previous Year (272,365,016) (253,957,946)Reduction in Capital as per the Scheme Arrangement( Refer Note No.5(a) of Notes to Accounts ) 111,098,740 -Add : Additions on Amalgamation ( Refer Note No.6 of 26,536,718 -Notes to Accounts )Amount Carried To Balance Sheet (31,229,933) (272,365,016)Number of Equity Shares outstanding during the year 37,209,191 22,220,009Earnings per share 2.78 (0.83)SCHEDULES FORMING PART OF THE ACCOUNTS 31-03-2005Rupees31-03-2004RupeesSCHEDULE 1 : SHARE CAPITALAuthorised2,50,00,000 (Previous Year 2,50,00,000) Equity Shares of Rs.10/- each )250,000,000 250,000,00057

18,000,000 Equity Shares of Rs. 10/- each as per the 180,000,000 -Scheme of Amalgamation430,000,000 250,000,000Issued, Subscribed and Paid up1,11,10,135 (Previous Year 2,22,20,009) Equity Shares of 222,200,090 222,200,090Rs.10/- each fully paid upLess : Reduction in Capital by 11,109,874 shares @ (111,098,740) -Rs. 10/- as per the Scheme of Arrangement( Refer Note No.5(b) of Notes to Accounts) 111,101,350 222,200,090SCHEDULE 1 (a) : SHARE CAPITAL SUSPENSE ACCOUNT8,274,465 Equity Share @ Rs 10/- each at par to be 82,744,650 -issued to the promoters of the CLC Corporation asper the Scheme of Arrangement17,824,591 Equity Share @ Rs 10/- each to be issued 178,245,910 -to the shareholders of the CLC Global Ltd in the ratio1:1 as per the Scheme of Amalgamation .( Refer Note No.6 (c ) of Notes to Accounts 260,990,560 -SCHEDULE 2 : RESERVES AND SURPLUSCapital Reserve :Balance as per last Balance Sheet 138,231,706 3,000,000Add : Principal amount of loan waived by the lenders - 135,231,706Add : Additions on Amalgamation 9,537,837 -147,769,543 138,231,706General Reserve :Balance as per last Balance SheetAdd : Additions on Amalgamation 28,359,375 -( Refer Note No.6 (e) of Notes to Accounts )176,128,918 138,231,706SCHEDULE 3 : SECURED LOANS(a) From Financial Institutions :- Non – Convertible Debentures - 50,000,000- Term Loan - 14,550,437(b) From banks- Term Loan 403,539,262 20,388,359- Cash Credit facility 190,302,323 59,97,146- Export Packing Credit 125,198,736 49,258,517- Interest Accured And Due on above - 4,412,694(c ) From Others- Inter Corporate Loans - 125,326,000- Vehicle Loan ( Secured by hypothecation of Motor Cars ) 2,877,183 -( Refer Note No.2 (a) & (b) of Notes of Account721,917,504 269,933,153SCHEDULE 4 : UNSECURED LOANSDeposits from Promoters / Directors 40,983,553 -Loans from Shareholders 10,381,144 -From others 18,948,608 -70,313,315 -58

SCHEDULE 5 - FIXED ASSETS ( AT COST ) AS AT 31ST MARCH, 2005Item Gross Block Accumulated Depreciation Net BlockAdditionsAs at Assets for the Deletions / As at As at Additions on For the Deletions / As at As at As a01.04.2004 Transferred* year Adjustments 31.03.2005 01.04.2004 Amalgamation year Adjustments 31.03.2005 31.03.2005 31.03.2004Goodwill - 100,000,000 8,910,417 - 108,910,417 - 40,000,000 10,891,042 - 50,891,042 58,019,375 -Land - - - - - - - - - - - -Freehold 359,600 - - - 359,600 - - - - - 359,600 359,60Leasehold 2,324,660 4,509,756 - - 6,834,416 303,763 22,731 24,470 - 350,964 6,483,452 2,020,89Building 83,945,195 48,036,640 4,008,550 - 135,990,385 23,336,171 1,709,533 4,053,843 - 29,099,547 106,890,838 60,609,02Plant & Machinery 598,609,429 150,833,578 22,577,759 210,025 771,810,741 293,680,759 3,804,120 41,217,099 119,731 338,582,247 433,228,494 304,928,67Furniture, Fixture& Equipments 16,801,624 13,221,119 3,090,852 39,300 33,074,295 11,967,594 4,830,743 2,667,899 16,231 19,450,005 13,624,290 4,834,03Vehicles 827,809 10,499,855 953,510 714,618 11,566,556 496,927 2,959,587 1,394,918 636,682 4,214,750 7,351,806 330,88TOTAL 702,868,317 327,100,948 39,541,088 963,943 1,068,546,410 329,785,214 53,326,716 60,249,271 772,644 442,588,555 625,957,853 373,083,10Previous yearTotal 705,816,531 - 528,217 3,476,431 702,868,317 296,229,825 - 35,608,940 2,053,551 329,785,217 373,083,103 -*As per the scheme of arrangement with CLC Corporation and scheme of amalgamation of CLC Global imited ( refer notes 5 & 6 in Notes to Accounts ) Thedepreciation of Rs.1,561/- has been considered as pre-operative expenses and hence not expensed to Profit & Los59

SCHEDULE 6 : INVESTMENTSNo. of SharesLONG TERM INVESTMENTS ( at cost )I) Non Trade :QUOTEDIn Fully Paid-up equity shares of Rs.10/- each :- Ceat Limited 100 5724 5724- CFL Capital Financial Services Limited 100 1985 1985- CESC Limited 100 5553 5553- Harrisons Malayalam Limited 100 3744 3744- KEC International Limited 100 6909 6909- Phillips Carbon Black Limited 100 5653 5653- RPG Cables Limited 170 5382 5382- RPG Transmission Limited 100 7261 7261- RPG Life Sciences Limited 100 8065 8065- Spencer & Co. Limited 200 7563 7563- Saregama India Limited 100 1322 132259,161 59,161Provision for diminution in value of long term investments - 30,767Aggregate Market Value of Quoted Investments Rs.1,05,474/- 59,161 28,394( previous year Rs.48,720/-)II) Other Investments :UNQUOTEDFully Paid-up SharesThe Baramati Co-operative Bank Ltd (Face value Rs.20/- 1,300 26,000 26,000each)The Cosmos Co-operative Bank Ltd. (Face value Rs.20/- 10,350 - 2,07,000each)The Saraswat Co-operative Bank Ltd (Face value Rs.10/- 1,425 14,250 14,250each)The Sadguru Jangli Maharaj Co-operative Bank Ltd.( Face value Rs.50/- each ) 1,000 50,000 50,00090,250 297250National Saving Certificates 14,310 -1,63,721 3,56,411SCHEDULE 7 : INVENTORIESa) Raw Material 207,961,780 35,182,550b) Work-in-process 9,535,346 5,503,971c) Finished goods 7,11,43,914 8,955,533d) Stores, Spares & Packing Material 6,368,100 6,676,934e) Cotton Waste 2,918,240 3,736,069f) Finished goods - purchased 22,65,165 -300,192,545 60,055,057Basis of Stock valuation:-Cotton Waste at net realizable value-Other inventories are valued at lower of cost or net realizable valueSCHEDULE 8 : SUNDRY DEBTORSi) Outstanding for a Period exceeding six months -- Considered Good 2,906,950 492,328- Considered Doubtful 2,318,658 2,318,6585,225,608 2,810,986ii) Others – Considered good 404,761,011 9,284,040409,986,619 12,095,026Less : Provision for doubtful debts 2,648,261 2,318,658407,038,358 9,776,36860

SCHEDULE 9 : CASH & BANK BALANCESCash on hand 374,719 121,173Balances with Schedules Banks :In Current Account 10,678,469 261,150In Fixed Deposit Account 13,028,832 -In Margin Account * 1,150,000 35,000Balances with Other Banks:In Current Account 2,549,458 -In Fixed Deposit Account 48,250,000 -* Having a lien by Banks 76,031,478 417,323SCHEDULE 10 : LOANS AND ADVANCES( Unsecured and Considered good unless otherwise stated )Amount recoverable in cash or in kind or for value to be received 135,686,677 28,232,545(Considered Doubtful Rs.30,50,000/-, Previous Year Rs.30,50,000/-)Less : Provision for Doubtful Advances 3,050,000 3,050,000132,636,677 25,182,545Advance Income Tax & TDS 3,913,585 139,910Deposits 14,406,521 48,01,687150,956,783 30,124,142SCHEDULE 11 : CURRENT LIABILITIES & PROVISIONSCURRENT LIABILITIESSundry Creditors 286,640,538 116,817,857(Outstanding dues to SSI undertakins are Rs.4,77,602/-(PreviousYear Rs.9,79,524/-) and out of this sums outstanding for more than30 days to – Amit Chemicals Engineers amounting to Rs.20,754/-Previous Year Rs.54,525/- )Other Liabilities 41,463,876 3,034,718PROVISIONSFor retirement benefits 827,540 745,127328,931,954 120,597,702SCHEDULE 12 : MISCELLANEOUS EXPENDITURE(To the extent not written off or adjusted )Deferred Revenue Expenses -Initial cost of borrowings / conversion premium on Loans /- 4,372,439restructuring fees ( Please refer Note No.3 to Accounts )Preliminary Expenses - 247,080 -Public Issue Expenses 246,817 -493,897 4,372,439SCHEDULE 13 : OTHER INCOMEDividend 33,615 37,379Commission Received 37,762,102 -Interest Received 8,006,993 259,371(Tax deducted at source Rs.83,926/- (Previous Year Rs.1,13,269/-)Interest Written Back ( Refer note no.10 of Notes to Accounts ) 2,788,749 17,609,650Excess Provision Written Back 418,850 1,611,839Export Incentive 36,063,014 -Miscellaneous Income 1,898,040 90,24186,971,363 19,608,48061

SCHEDULE 14 : INCREASE / (DECREASE ) IN STOCKOpening Stock :Finished goods 8,955,533 10,770,846Work in process 5,503,971 2,592,402Cotton Waste 3,736,069 627,16018,195,573 13,990,408Add : Additions on account of Scheme of Arrangement / 82,223,919 -Amalgamation100,419,492 13,990,408Closing Stock :Finished goods 71,143,914 8,955,533Work in process 9,535,346 5,503,971Cotton Waste 2,918,240 3,736,06983,597,500 18,195,573Increase / ( Decrease ) in Stock (16,821,992) 4,205,165SCHEDULE 15 : CONSUMPTION OF RAW MATERIALOpening Stock 35,182,550 8,401,600Add: Addition on account of Scheme of Arrangement/Amalgamation 104,883,295 -Add : Purchases 758,935,826 268,562,974Less : Closing Stock 207,961,780 35,182,550691,039,891 241,782,024Add : Cost of Traded Goods Sold 2,373,740,744 -3,064,780,635 241,782,024SCHEDULE 16 : SALARY, WAGES AND OTHER BENEFITSSalaries, Wages and Bonus 60,939,283 22,779,344Contributions to Provident And Other Funds 6,079,078 2,364,374Employees Welfare Expenses 5,605,884 1,830,69872,624,245 26,974,416SCHEDULE 17 : OTHER COSTSStores, Spares and Packing Material Consumed 39,203,752 16,388,460Power, Fuel & Water 118,979,598 40,241,419Lease Rent - 2,677,085Rent 1,139,653 1,123,827Rates & Taxes 105,900 53,537Repairs & Maintenance :- Plant & Machinery 2,644,638 7,219,985- Building 568,914 231,228- Others 1,934,819 437,233Insurance 4,975,505 1,812,920Auditor’s Remuneration :Audit Fees (Including service tax) 442,153 151,200Tax Audit Fees (Including service tax) 33,060 32,400Other Services 116,366 139,590Out of Pocket expenses 8,800 4,600Communication Expenses 7,450,720 864,652Travelling and Conveyance 14,052,803 1,364,044Legal and Professional charges 7,176,270 739,069Commission on sales 46,413,261 1,122,474Freight Outward and Clearing Charges 66,433,553 80,36562

Loss on Assets Sold / Discarded 44,896 688,377Other Expenses 12,391,629 4,068,941Preliminary and Share issue expenses charged off 422,734 -Deferred Revenue Expenses charged off - 4,190,855Job Work Charges 5,867,633 -330,406,657 83,632,261SCHEDULE 18: FINANCIAL CHARGESInterest - On Non Convertible Debentures 3,140,748 7,901,703Interest - On Fixed Loans 47,614,215 1,861,747- Others 24,017,996 7,137,810Discounting Charges 142,811 -Bank Charges 9,366,481 703,35484,282,252 17,604,614SCHEDULE 19: ACCOUNTING POLICIES AND NOTES TO ACCOUNTSA. ACCOUNTING POLICIES:1. SYSTEM OF ACCOUNTING:The Company follows the mercantile system of accounting and recognises income andexpenditure, on an accrual basis except in the cases where there is significant uncertainty ofrealisation.2. REVENUE RECOGNITION:Export sales are recognised on the date of Bill of Lading. Domestic sales are recognised onthe date of dispatch and are net of excise duty, sales tax and textile commission cess whereverapplicable.3. FIXED ASSETS AND DEPRECIATION:The company provides depreciation on straight-line method for all assets situated atmanufacturing locations and for all other assets pertaining to selling, marketing and corporateoffice is provided on Written Down Value Method basis, at the rate provided under ScheduleXIV to the Companies Act, 1956.Acquired goodwill is being amortised @10% on Straight Line Value Method.4. INVESTMENTS:Long-term investments are stated at cost. Provision for diminution in value of investment ismade if considered as permanent by the management.5. INVENTORIES:Inventories including Stores and Spares are valued at weighted average cost or estimated netrealisable value whichever is lower. Waste is valued at estimated net realisable value.63

6. FOREIGN CURRENCY TRANSACTION:a) Export sales and other transactions in foreign currencies are recognised at theexchange rate prevailing on the date of transaction.Foreign currency assets and liabilities on the Balance Sheet date are restated at theexchange rate prevailing on the Balance Sheet date or at amortised forward contractrate as applicable.The exchange difference arising on repayment/restatement of liabilities incurred foracquisition of fixed assets is adjusted to the cost of the relevant assets. Otherexchange differences are debited/credited to respective income/ expenditure.b) Premium on Forward contracts for foreign currency is recognised over the life of thecontract.c) Gain or loss on cancellation of forward contracts for foreign currency is recognised inProfit and Loss account of the year.7. MISCELLANEOUS EXPENDITURE:The company follows the policy of writing off Preliminary Expenses and Share issue expenseover a period of 10 years.8. RETIREMENT BENEFITS:Gratuity and Superannuation is charged to Profit and Loss Account on the basis ofcontribution to the fund maintained by LIC of India. Contributions to Provident Fund arecharged to Profit and Loss Account on accrual basis. Actuarially valued liability for leaveencashment on retirement is provided for by charging the incremental liability to Profit &Loss Account and in case of decrease in liability, treating the same as revenue.9. TAXES ON INCOME:Current Tax is determined as the amount of tax payable in respect of taxable income for theperiod. Deferred tax is recognized, subject to consideration of prudence in respect of deferred taxassets, on timing differences, being the difference between taxable income and accounting incomethat originate in one period and are capable of reversal in one or more subsequent period.B. NOTES TO ACCOUNTS:31-03-2005Rupees31-03-2004Rupees1 Contingent Liabilities not provided for in respect of -a)Guarantees given by banks 84,43,230 3,50,000b)Bills Discounted with Banks 37,34,53,426 -c)Corporate Guarantee Given to IREDA 34,19,00,000 -d)Claims not acknowledged as debts -i) Differential excise duty on sale of yarn in DTA 63,73,933 63,73,933manufactured out of imported cottonii) Duty demand on indigenous cotton waste clearance 63,61,559 -iii)Estimated amount of contracts (net of Advances) remaining 97,720,627 -to be executed on capital Account and not provided fore)Taxation matter in respect of which appeal is pending before CIT 30,91,486 -64

2. a) Term Loans from scheduled bank aggregating to Rs. 24.07 Crores are secured by afirst mortgage on the company’s immovable property located at Baramati and termloans of Rs. 16.28 crores are secured by a first mortgage on the company’simmovable property located at Solapur and by a first charge by way of hypothecationof all movables present and future assets and personal guarantee of Promoters.b) Export Packing Credit and Cash Credit Facility are secured by hypothecation of theCompany’s all present and future inventory, book debts and other movable assets. Itis further secured by way of second charge over the fixed assets of the Company.c) Secured loans to the extent of Rs. 8,09,95,146/- are repayable within one year(previous year Rs. 4,38,01,000/-).3. In the earlier years initial / restructuring cost of borrowings were considered as DeferredRevenue Expenditure. In the current year the relevant term loans have been fully repaid andhence a balance of Rs. 43.72 Mn in the Deferred Revenue Expenditure is charged off to Profitand Loss A/c.4. As per the opinion received by the company from the technical experts, the Plant andMachinery of the Company has been treated as “Continuous Process Plant” as defined underSchedule XIV of the Companies Act, 1956. Consequently depreciation on such assets isprovided at the rate prescribed under Schedule XIV for “Continuous Process Plant”.5. The company had proposed a scheme of arrangement under section 391 to 394 of theCompanies Act, 1956 involving reduction of share capital and acquisition of business of CLCCorporation (the ‘firm’). The Hon’ble High Court of Mumbai and Delhi approved the saidscheme subsequent to balance sheet date. The accounting effect of the scheme has been givenin the accounts of the current year. The details of which are as follows:a) Reduction of Share CapitalThe equity capital of the Company has been reduced to the extent of 50% and by thesame amount the debit balance in the Profit and Loss Account is reduced.Consequently one share of the company was issued to the existing shareholdersagainst two shares held by them on the record date i.e.13.7.2005.b) Scheme of Arrangement of CLC Corporation with the Companyi) As per the said scheme, the business of CLC Corporation, a partnership firm,got transferred to the company with effect from April 01, 2004. Theconsideration for acquisition of business was discharged by issue of82,74,465 shares of the Company to the partners of CLC Corporation afterreduction of share capital as mentioned above. As the shares were issued afterthe balance sheet date an amount of Rs. 8,27,44,650 is shown as ShareCapital Suspense Account in the Accounts for the year ended March 31,2005.iii)The Scheme of arrangement with CLC Corporation has resulted in transfer offollowing assets (Net) with effect from April 01, 2004:65

ParticularsAmount (Rs.)Fixed Assets 15,99,092Current Assets 20,97,32,601Total Gross Assets............... 21,13,31,693Less: Secured Loans 4,17,77,289Unsecured Loans 4,80,64,636Current Liabilities and Provisions 4,76,55,535Total Gross Liabilities ........ 13,74,97,460Net Assets of CLC Corporation Acquired 7,38,34,233Face Value of shares issued as consideration 8,27,44,650Balance treated as Goodwill on Acquisition 89,10,417The difference between the nominal value of shares issued and net assets acquiredhave been treated as ‘Goodwill on Acquisition’, which is being amortised over aperiod of 10 years, considering strong marketing network in textile business oferstwhile CLC Corporation.6. a) The scheme of amalgamation (the ‘Scheme’) of CLC Global Limited (CLCGL) withthe company was approved by shareholders and subsequently sanctioned by theHon’ble High Court of Judicature at Delhi as per its order dated November 23, 2005.The scheme became effective on filing of the said order with the Registrar ofCompanies, Delhi on November 29, 2005 In accordance with scheme the assets andliabilities of erstwhile CLCGL stands transferred to and vested with the companywith effect from April 01, 2004. The scheme has accordingly being given effect to inthe current year accounts as per the provisions of Accounting Standard (AS) 14 underthe ‘pooling of interests’ method provided in the AS issued by The Institute ofChartered Accountants of India.b) The operations of erstwhile CLCGL comprised of trading of cotton yarn, textilefabrics and steel alloys.c) As stipulated in the scheme of amalgamation and as per provision of AS 14 reservesof the erstwhile CLCGL have been transferred to the Company in the same form inwhich it was appearing in the erstwhile CLCGL. Accordingly, the amalgamation hasresulted in transfer of assets, liabilities and reserves as summarized below :ParticularsAmount (Rs.)Fixed Assets (including Work-in-Progress) 24,38,30,807Investments 13,104Current Assets 46,37,75,743Miscellaneous Expenditure 9,16,631Total Assets 70,85,36,285Less: Loans- Secured 27,72,83,122Loans- Unsecured 16,12,81,358Current Liabilities and Provisions 5,56,51,340Total Liabilities 49,42,15,820Net Assets Transferred 21,43,20,465Less: Transfer of Capital Reserve of CLCGL to Capital Reserve Account 95,37,837Transfer of Profit & Loss Balance of CLCGL to Profit & Loss A/c 2,65,36,719Net Balance - Nominal Value of Equity Shares 17,82,45,91066

Consideration for Amalgamation:To be issued in the ratio of One equity share of the company for each equity share ofCLCGL. Pending allotment, the shares are shown under the head “Share CapitalSuspense Account “ in the balance sheet. The equity shares when issued and allottedby the company shall rank pari-passu with the equity shares of the company, afterreduction of share capital.d) In view of the aforesaid merger w.e.f April 01, 2004, the balance sheet as at March31, 2005 and the Profit & Loss account and the Cash Flow Statement for the yearended March 31, 2005 include the figures of erstwhile CLCGL from the said date.Hence the figures for the current year are not comparable with those of previous year.e) The erstwhile CLCGL was providing depreciation on ‘goodwill’ on acquisition on adifferent basis then that followed by the company. As per the provision in the schemethe method of depreciation on goodwill of the erstwhile CLCGL as on April 01, 2004has been realigned with the company’s policy. Consequent to this WDV of goodwillwas enhanced by Rs 28359375 by crediting the same amount to the General Reserveas per provision of the scheme.7. Deferred Taxa. On account of carried forward loss and unabsorbed depreciation, the company has notaxable profits during the year and hence there is no provision for current year tax.There is no Minimum Alternate Tax (MAT) liability on account of sufficient carriedforward book losses / depreciation.b. Consequent to the amalgamation of CLCGL into the company and acquisition ofCLC Corporation there is certainty of future taxable profits. In view of this DeferredTax working of current year is made after considering unabsorbed depreciation andbusiness loss of the company, which was not considered in the previous year. Thecomponents of Deferred Tax are as follows:Particulars As at March 31, 2005A. Deferred Tax Assets -- Provision for Doubtful Debt 1,10,944- Preliminary expenses written off 59,216- Other timing differences 13,28,311- Accumulated Losses (Business Loss and 12,29,39,511Unabsorbed depreciation)12,44,37,982B. Deferred Tax Liability -- Depreciation 11,34,29,380Net Deferred Tax Asset 1,10,08,6028. Earnings Per Share2004 - 2005 2003 – 2004a. Weighted average number of equity shares of Rs. 10 each:i. Number of Shares 1,11,10,135 2,22,20,009ii. Number of Shares to be issued to shareholders of 2,60,99,056 —-erstwhile CLC Corporation and CLCGLPending allotment, the shares are shown under the head“Share Capital Suspense Account “ in the Balance sheet.Total Number of Shares 3,72,09,191 2,22,20,00967

. Net Profit after Tax available to Equity shareholders 10,34,99,625 (1,84,07,070)c. Basic and Diluted Earnings per Share 2.78 (0.83)9. Managerial Remuneration: 2003-04 2004-05Rupees Rupeesa) Salaries 40,52,294 10,77,060b) Perquisites – Rent Free Accommodation — 1,15,206– Others (Valued as per the IT Act, 1961) 2755 1,25,255c) Contribution to Provident Fund & Other Funds 3,06,270 1,72,711————— —————43,61,319 14,90,232========= ==========10. During the year interest amounting Rs. 27,88,749/- charged in earlier years was waived by thelender on account of settlement of loan and the same has been shown as ‘Interest written back’in Schedule 13.11. The exchange differences arising on settlement or on year-end updation of foreign currencyassets and liabilities are recognised in the respective heads of income / expenditure.Accordingly, Sales includes unfavourable exchange difference of Rs. 26,82,464/- (Previousyear favourable Rs. 71,146/-) and expenses accounted for in respective heads of accountsinclude unfavourable exchange difference of Rs 9,73,625/- (Previous year favourableexchange difference of Rs. 1,81,288/-).12. Production Capacity:Product Unit Licensed Capacity Installed Capacity #2004-2005 2003-2004 2004-2005 2003-2004Cotton Yarn Spindles N.A. N.A. 55,440 29,232# As certified by the Management13. Particulars in respect of opening stock, sales & closing stock etc. :a) Particulars regarding Goods Manufactured. :2004 – 2005 2003 – 2004RupeesRupees15. a. CIF Value of Imports :Raw Material 3,80,90,038 —Stores, Spares & Components 44,65,339 34,63,042Capital Goods 1,11,77,280 —5,37,32,657 34,63,042b. Expenditure in Foreign Currency :Traveling 18,45,850 1,36,824Commission 2,43,45,107 —Others — 1,52,6312,61,90,957 2,89,455c. Earnings in Foreign Currency :- FOB Value of Exports 150,96,98,520 11,21,63,37316. The following expenditure of revenue nature has been considered for capitalisation:2004-05 2003-04RupeesRupeesTechnical Assistance for new expansion project 3,00,000 —68

Traveling & Conveyance 23,539 —Total unallocated expenses carried forward 3,23,539 —as Pre-operative Expenses pending allocation17. In accordance with the Accounting Standard 17 on Segment Reporting issued by The Instituteof Chartered Accountants of India, the Company has identified three business segments viz.,Textile Manufacturing textile trading and other trading. Further, two geographical segmentsby locations of Customers has been considered as a secondary segment viz. Exports &Domestic. The Segment wise disclosure is as follows:B.)GEOGRAPHICAL SEGMENT REPORTINGDomestic S ales Export Sales TotalMarch March March March March March2005 2004 2005 2004 2005 2004REVENUEExternal Sales - Rs. Mn 1686.830 230.435 1935.730 132.947 3831.213 363.382Inter - segment Sales 195.740 - - - 195.740 -Total revenue 1491.090 230.435 1935.730 132.947 3635.473 363.38218. Following disclosure has been made as per the requirements of Accounting Standard 18 on “Related Party Disclosures” (AS 18), issued by the Institute of Chartered Accountants ofIndia–A] List of related parties with whom transactions have taken place and relationship:i) Enterprises/Individuals exhibiting significant influence:1. Shri Hanuman Textile Agencies2. Himalyan Crest Power Ltd.ii)Key Management Personnel and their RelativesMr. Ajay Kumar ChoudharyMr. Mukund ChoudharyMr. Kapil ChoudharyChairmanManaging DirectorDirector – MarketingB] Disclosure of transactions between the company and related parties(Rs. In Millions)ParticularsEnterprises where there is Key Management PersonalSignificant Influence and their relativesUnsecured Loan Taken — 37.355Interest paid on loan — 2.420Loans Given 23.72 —Remuneration Paid to the Directors — 4.3612. Payment made to Non Executive Director -Sitting Fees Rs. 66,300/-Consultancy Fees Rs. 15,23,066/-19. Previous year’s figures have been regrouped or rearranged wherever necessary.69

SCHEDULE 20 : SIGNIFICANT ACCOUNTING POLICIES1. Basis of AccountingThe financial statements are prepared under historical cost convention and comply withapplicable accounting standards issued by The Institute of Chartered Accountants of India andrelevant provisions of the Companies Act, 1956.2. Fixed AssetsFixed Assets are stated at their original cost including freight, duties (net ofMODVAT/CENVAT), taxes and other incidental expenses relating to acquisition andinstallation.Expenditure incurred during the period of construction are carried forward as capital work-inprogressand on completion, the costs are allocated to the respective fixed assets.3. Depreciation / AmortizationDepreciation for all fixed assets situated at manufacturing locations is provided on the straightline method and for all other fixed assets, is provided on the written down value method, on apro-rata basis at the rates specified in Schedule XIV to the Companies Act, 1956.Spindles acquired on or after 1 st April, 2005 and capitalised under Plant & Machinery arebeing depreciated over the estimated useful life of 36 months on pro-rata basis.Leasehold land is amortized over the lease period.Acquired goodwill is amortized using the straight-line method over a period of 10 yearsconsidering the fact that erstwhile firm / company has strong marketing network in textilebusiness segment.4. InventoriesRaw materials have been valued under the Specific identification of cost method as defined inAccounting Standard - 2 “Inventories”.Work-in-progress and finished goods are valued at lower of weighted average cost and netrealizable value. Cost includes direct materials and labour and a proportion of manufacturingoverheads based on normal operating capacity.Inventory of stores and spares are valued at lower of weighted average cost and net realisablevalue. Waste is valued at estimated net realizable value.5. Revenue recognitionSale of goods: Revenue on sale of goods is recognized on transfer of significant risk andrewards of ownership to the buyer and on reasonable certainty of the ultimate collection.Sales are net of excise duty, trade discounts and sales returns.Interest: Income is recognised on a time proportion basis taking into account the amountoutstanding and the rate applicable.Commission and Insurance claim: Revenue on the activities is recognized when nosignificant uncertainty as to measurability or collectability exists.70

6. InvestmentsInvestments that are readily realisable and intended to be held for not more than a year areclassified as current investments. All other investments are classified as long-terminvestments. Current investments are carried at lower of cost and fair value determined on anindividual investment basis. Long-term investments are carried at cost. However, provisionfor diminution in value is made to recognise a decline other than temporary in the value of theinvestments.7. Foreign currency transactionsTransactions in foreign currency are accounted for at the exchange rates prevailing on the dateof transaction. All monetary items denominated in foreign currency are translated at year endrates. Exchange differences arising on such transactions and also exchange differences arisingon the settlement of such transactions are adjusted in the Profit and Loss Account.Realised gains and losses on foreign exchange transactions during the year, other than thoserelating to the fixed assets, are recognized in the profit and loss account. The gains/lossesarising on repayment and restatement of foreign exchange liabilities incurred to acquire fixedassets from a country outside India are adjusted in the carrying cost of such fixed assets.In case of forward contracts, the premium or discount on all such contracts arising at theinception of each contract is recognised / amortised as income or expense over the life of thecontract. Any profit or loss arising on the cancellation or renewal of such contracts isrecognized as income or expense for the period.8. Retirement benefitsThe Company's contributions to recognised Provident Funds are charged to revenue on anaccrual basis.The Company has taken a group policy with the Life Insurance Corporation of India (LIC) tocover its liability towards employee gratuity and superannuation. The contributionpaid/payable, as actuarially determined by LIC at the annual renewal date of the policy beingMarch 31, is charged to revenue on an accrual basis.11. Borrowing costsBorrowing costs that are directly attributable to the acquisition, construction or production ofa qualifying asset are capitalised as a part of the cost of that asset. Other borrowing costs arerecognised as an expense in the period in which they are incurred.12. TaxationTax expense for the year, comprising current tax, deferred tax and fringe benefit tax isincluded in determining the net profit/(loss) for the year.71

A provision is made for the current tax and fringe benefit tax based on tax liability computedin accordance with relevant tax rates and tax laws. Deferred tax assets are recognised for alldeductible timing differences and carried forward to the extent it is reasonably / virtuallycertain that future taxable profit will be available against which such deferred tax assets canbe realised.Deferred tax assets and liabilities are measured at the tax rates that have been enacted orsubstantively enacted by the Balance Sheet date.11. LeasesAssets acquired under long term finance lease are capitalised and depreciated in accordancewith Company’s policy for assets situated at manufacturing and other locations. Theassociated obligations are included in other loans under “Secured Loans”.12. Impairment of AssetsAt each balance sheet date, the Company assesses whether there is any indication that an assetmay be impaired. If any such indication exists, the Company estimates the recoverableamount. Where the carrying amount of the asset exceeds its recoverable amount, animpairment loss is recognised in the profit and loss account to the extent the carrying amountexceeds recoverable amount.CASH FLOW STATEMENT FOR YEAR ENDED 31 st MARCH, 200531-03-2005Rupees31-03-2004RupeesA. CASH FLOW FROM OPERATING ACTIVITIES:Net Profit Before Tax And Extraordinary Items 93,280,755 (18,407,070)Adjustments for :Depreciation 60,247,710 35,608,940Miscellaneous Expenditure W/off 422,737 4,190,855Loss on Assets Sold / Discarded 44,896 688,377Interest 84,282,253 17,604,614Dividend Received (33,615) (37,379)Operating Profit Before Working Capital Changes 238,244,736 39,648,337Adjustments for :Trade and Other Receivables (126,008,425) (20,694,316)Inventories (50,829,713) (30,351,614)Trade Payables 107,002,859 41,716,175Cash Generated From Operations 168,409,458 30,318,582Direct Taxes Paid 916,967 -Net Cash From Operating Activities 167,492,491 30,318,582B. CASH FLOW FROM INVESTING ACTIVITIES:Purchase of Fixed Assets (96,511,700) (941,009)Proceeds From Sale of Assets 147,250 734,503Purchase of Investments (1,206) -Sale of Investments 207,000 -Dividend Received 33,615 37,379Net Cash Used In Investing Activities (96,125,041) (169,127)C. CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from Long Term Borrowings 251,089,560 59,200,00072

Principal Amount of Loan waived / Written Off - 135,231,706Bank Borrowings 54,282,198 (11,179,028)Term Loan Repayments (244,295,375) (190,051,770)Interest Paid (88,637,604) (25,917,435)Net Cash Used In Financing Activities (27,561,220) (32,716,527)Net Increase In Cash and Cash Equivalents (A+B+C) 43,806,229 (2,567,072)Cash and Cash Equivalents As At 01.04.2004 (Opening balance) 417,323 2,984,395Add: Cash and Cash Equivalents on acquisition ofCLC Corporation & Amalgamation of CLC Global Limited 31,807,926 —Cash and Cash Equivalents As At 31.03.2005 (Closing balance) 76,031,478 417,323Note : a) The Cash Flow Statement has been prepared under the ‘Indirect Method’ asset out in the Accounting Standard - 3 on Cash Flow Statement issued by theInstitute of Chartered Accountants of India.b) Bracket indicates cash outflow.c) Previous year’s figures have been regrouped or rearranged wherevernecessary.73

AUDITED ACCOUNTS FOR INDO RAMA TEXTILES LIMITEDAUDITORS’ REPORTTo The Members of Indo Rama Textiles Limited1. We have audited the attached Balance Sheet of Indo Rama Textiles Limited as at 31st March,2006 and also the Profit and Loss Account and the Cash Flow Statement for the year ended onthat date annexed thereto. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements basedon our audit.2. We conducted our audit in accordance with auditing standards generally accepted in India.Those Standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.3. As required by the Companies (Auditor’s Report) Order, 2003 (as amended) issued by theCentral Government of India in terms of sub-section (4A) of Section 227 of the CompaniesAct, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4and 5 of the said Order.4. Further to our comments in the Annexure referred to above, we report that:i. We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes of our audit;ii.iii.iv.In our opinion, proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books;The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account;In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in subsection(3C) of Section 211 of the Companies Act, 1956;v. On the basis of the written representations received from the directors, as on March31, 2006, and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on 31st March, 2006 from being appointed as a director interms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;vi.In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts give the information required by the Companies Act,1956, in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India;74

a) in the case of the Balance Sheet, of the state of affairs of the Company as at31st March, 2006;b) in the case of the Profit and Loss Account, of the profit for the year ended onthat date; andc) in the case of Cash Flow Statement, of the cash flows for the year ended onthat date.ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATERe : Indo Rama Textiles Limited(i) (a) The Company has maintained proper records showing full particulars, includingquantitative details and situation of fixed assets.(b)(c)Fixed assets have been physically verified by the management during the year basedon a phased programme of verifying all the assets over a period of two years, whichin our opinion is reasonable having regard to the size of the Company and the natureof its fixed assets. As informed, no material discrepancies were noticed on suchverification.There was no substantial disposal of fixed assets during the year.(ii) (a) The management has conducted physical verification of inventory at reasonableintervals during the year.(b)(c)The procedures of physical verification of inventory followed by the management arereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.The Company is maintaining proper records of inventory and no materialdiscrepancies were noticed on physical verification.(iii) (a) As informed, the Company has not granted any loan, secured or unsecured tocompanies, firms or other parties covered in the register maintained under Section301 of the Companies Act, 1956 and hence clause iii (a), (b), (c) and (d) of theCompanies (Auditor’s Report) Order, 2003 (as amended) are not applicable to theCompany.(b)(c)As informed, the Company has taken a loan from a Company covered in the registermaintained under Section 301 of the Companies Act, 1956. The maximum amountinvolved during the year was Rs. 9,683 thousand and the year end balance of the loanwas Rs. Nil.In our opinion and according to the information and explanations given to us, the rateof interest and other terms and conditions for such loan are not prima facie prejudicialto the interest of the Company.75

(d)In respect of the loan taken, repayment of the principal amount is as stipulated andpayment of interest has been regular.(iv)In our opinion and according to the information and explanations given to us, there is anadequate internal control system, commensurate with the size of the Company and the natureof its business for the purchase of inventory and fixed assets and for the sale of goods. Theprovisions relating to sale of services is not applicable to the Company. During the course ofour audit, no major weakness has been noticed in the internal control system in respect ofthese areas.(v) (a) According to the information and explanations provided by the management, we areof the opinion that the particulars of contracts or arrangements referred to in Section301 of the Act, that need to be entered into the register maintained under Section 301,have been so entered.(b)In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of such contracts or arrangements exceeding the valueof Rupees 0.5 Mn have been entered into during the financial year at prices which arereasonable, having regard to the prevailing market prices at the relevant time.(vi)The Company has not accepted any deposits from the public.(vii)In our opinion, the Company has an internal audit system commensurate with the size andnature of its business.(viii)We have broadly reviewed the books of account maintained by the Company pursuant to therules made by the Central Government for the maintenance of cost records under Section209(1) (d) of the Companies Act, 1956 and are of the opinion that prima facie, the prescribedaccounts and records have been made and maintained.(ix) (a) Undisputed statutory dues including Provident Fund, Investor Education andProtection Fund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax,Service Tax, Custom Duty, Excise Duty, Cess and other material statutory duesapplicable to the Company have generally been regularly deposited with theappropriate authorities.(b)(c)According to the information and explanations given to us, no undisputed amountspayable in respect of Provident Fund, Investor Education and Protection Fund,Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax,Custom Duty, Excise Duty, Cess and other undisputed statutory dues wereoutstanding at the year end, for a period of more than six months from the date theybecame payable.According to the records of the Company, the dues outstanding of Income Tax, SalesTax, Wealth Tax, Service Tax, Custom Duty, Excise Duty and Cess on account ofany dispute are as follows:76

Name of theStatuteThe CentralExcise Act, 1944 Capital goodsThe CentralExcise Act, 1944The CentralExcise Act, 1944Central SalsesTax Act, 1956Bombay SalesTax Act, 1959/Central Sales TaxAct, 1956TheM.P.CommercialTax Act,TheM.P.CommercialTax Act,Entry Tax Act,1976The Income TaxAct, 1961Nature of dues Amount Rs.’000 Period towhich itrelatesCenvat –239 04/1996 toCenvat – Inputsdemandincluding finesand penalitiesExcise dutydemandincluding finesand penalitiesSales TaxDemandSales TaxDemandPenalty – SalesTax DemandPenalty – SalesTax DemandEntry TaxdemandDisallowance ofexpenses07/199630,511 10/1994 to09/20049,314 01/1997 to06/2004Forum where dispute is pending (Amount in Rs.’000 )Adjudication – Joint Commissioner ofCentral Excise, Nagpur1) Deputy Commissioner ofCentral Excise, Division II,Nagpur – Rs. 5312) Commissioner (Appeals), Central Excise,Nagpur – Rs. 53) Customs, Excise & Service TaxAppellate Tribunal, Mumbai – Rs.29,8154) Customs, Excise & Service TaxAppellate Tribunal, New Delhi – Rs.1601) Supreme Court– Rs. 6,3812) Adjudication - Commissioner ofCentral Excise, Nagpur – Rs.6253) Commissioner (Appeals),Central Excise, Nagpur– Rs.2084) Customs, Excise & ServiceTax Appeallant Tribunal,Mumbai – Rs.2,087Adjudication – Asst. Commissionerof Central Excise, Pitahampur –Rs.13.2,608 2000-03 2) M.P. Commercial Tax AppellateBoard, Bhopal – Rs.638.3) Dy. Commissioner (Appeals),Indore – Rs.1,970360 1998-03 Dy. Commissioner of Sales Tax(Appeals), Nagpur.44 2000-01 M.P. Commercial Tax AppellateBoard, Bhopal57 1999-00 Dy. Commissioner ( Appeals), Indore2,096 1992-02 1) Assessing Authority, Indore – Rs.8502) Dy. Commissioner (Appeals), Indore –Rs.2103) M.P.Commercial Tax AppeallateBoard, Bhopal – Rs.1604) The M.P.High Court – Rs.876.1,483 2003-04 Commissioner of Income Tax (Appeals),New Delhi.(x)The Company has no accumulated losses at the end of the financial year and it has notincurred any cash losses in the current and immediately preceding financial year.77

(xi)(xii)(xiii)(xiv)(xv)(xvi)Based on our audit procedures and as per the information and explanations given by themanagement, we are of the opinion that the Company has not defaulted in repayment of duesto banks. We have been informed that the Company does not have any loans outstanding fromfinancial institutions during the year and has not issued any debentures.According to the information and explanations given to us and based on the documents andrecords produced to us, the Company has not granted loans and advances on the basis ofsecurity by way of pledge of shares, debentures and other securities.In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society.Therefore, the provisions of clause 4(xiii) of the Companies (Auditor’s Report) Order, 2003(as amended) are not applicable to the Company.In respect of dealing/ trading in shares, securities and other investments, in our opinion andaccording to the information and explanations given to us, proper records have beenmaintained of the transactions and contracts and timely entries have been made therein. At theyear end, there are no shares, securities and other investments in the Company’s books ofaccounts.According to the information & explanations given to us, the Company has given guaranteefor loans taken by others from a financial institution, the terms and conditions whereof in ouropinion are not prima-facie prejudicial to the interest of the Company.Based on information and explanations given to us by the management, the term loans wereapplied for the purpose for which the loans were obtained.(xvii) According to the information and explanations given to us and on an overall examination ofthe balance sheet of the Company, we report that no funds raised on short-term basis havebeen used for long-term investments.(xviii) The Company has not made any preferential allotment of shares to parties or companiescovered in the register maintained under Section 301 of the Companies Act, 1956.(xix)(xx)(xxii)The Company did not have any outstanding debentures during the year.The Company has not raised any money through a public issue during the yearBased upon the audit procedures performed for the purpose of reporting the true and fair viewof the financial statements and as per the information and explanations given by themanagement, we report that no fraud on or by the Company has been noticed or reportedduring the course of our audit.INDO RAMA TEXTILES LIMITEDBalance Sheet for the Year ended 31st March, 2006Schedule 31.03.2006Rs.’00031.03.2005Rs.’000SOURCES OF FUNDSShareholders’ FundsShare capital 1 311,783 311,783Reserves and surplus 2 1,050,359 923,1831,362,142 1,234,966Loan FundsSecured loans 3 454,598 499,042Unsecured loans 4 - 109,68378

454,598 608,725Deferred Tax 5 67,606 -TOTAL 1,884,346 1,843,691APPLICATION OF FUNDSFixed Assets 6Gross block 2,774,926 2,764,572Less : Accumulated Depreciation 1,617,294 1,492,494Net block 1,157,632 1,272,078Investments 7 20 1,687Deferred Tax 5 - 38,837Current Assets, Loans and AdvancesInventories 8 286,899 357,865Sundry debtors 9 292,678 240,684Cash and bank balances 10 8,317 13,491Other current assets 11 217,177 169,883Loans and advances 12 249,801 148,7041,054,872 930,627Less: Current Liabilities and ProvisionsLiabilities 13 251,070 277,348Provisions 14 77,108 122,190328,178 399,538Net Current Assets 726,694 531,089TOTAL 1,884,346 1,843,691PROINDO RAMA TEXTILES LIMITEDPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2006Schedule 31.03.2006Rs.’00031.03.2005Rs.’000INCOMETurnover (Gross) 3,872,689 4,084,742Less : Excise duty 136,390 165,406: Value added tax 6,476 -Turnover (net) 3,729,823 3,919,336Other Income 15 158,239 80,970TOTAL 3,888,062 4,000,306EXPENDITURERaw material consumed 2,338,847 2,599,575Personnel expenses 16 243,639 230,730Operating and other Expenses 17 690,522 768,248Decrease/(Increase) in inventories 18 121,117 (15,435)TOTAL 3,394,125 3,583,118Profit before Financial expenses, Depreciation & Tax 493,937 417,188Financial Expenses 19 47,239 77,428Profit before depreciation and tax 446,698 339,760Depreciation 128,288 131,700Profit before tax 318,410 208,060Provision for tax (including Rs.524 thousand 18,124for earlier years, Previous year Rs.NIL)Less : MAT Credit Entitlement 17,600 524 10,500Deferred Tax Charge 106,443 74,766Fringe benefit tax 2,500 -Total Tax expense 109,467 85,26679

Net Profit 208,943 122,794Balance brought forward from Previous year 131,594 100,192Profit available for appropriation 340,537 222,986APPROPRIATIONS:Interim dividend 71,710 -Dividend on preference shares - 7Proposed final dividend - 62,357Tax on dividend 10,057 8,746Transfer to capital redemption reserve - 10,782Transfer to general reserve 22,500 9,500104,267 91,392Surplus carried to Balance Sheet 236,270 131,594Earnings per share 20-Basic and diluted (In Rupees) 6.70 3.94CASHCASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH, 200631.03.2006Rs.’00031.03.2005Rs.’000A) Cash flow from operating activitiesNet profit before tax 318,410 208,060Adjustments for:Depreciation 128,288 131,700Loss on fixed assets sold / discarded (net) 821 969Profit on sale of investments (net) (1,340) (1,909)Foreign Exchange loss (net) 8,222 24,372Interest income (7,807) (6,792)Dividend income from current non-trade investments - (126)Interest expense 36,414 59,197Bad debts written off 30,046 589Provision for doubtful debts and advances (net) (28,122) 1,633Operating profit before working capital changes 484,932 417,693Movements in working capital:Decrease in inventories 70,966 252,103Increase in sundry debtors (52,151) (37,159)Increase in other current assets (47,339) (101,667)Increase in loans & advances (54,659) (83,283)Decrease in current liabilities and provisions (16,260) (152,095)Cash generated from operations 385,489 295,592Direct taxes paid (net) (31,970) (9,456)Net cash from operating activities 353,519 286,136B) Cash flows used in investing activitiesPurchase of fixed assets (18,192) (31,232)Proceeds from sale of fixed assets 2,267 3,393Purchase of investments (110,000) (20)Sale of investments 113,007 10,556Dividends received - 12680

Interest received 7,851 6,732Net cash used in investing activities (5,067) (10,445)C) Cash flows used in financing activitiesRedemption of preference share capital - (32,345)Proceeds from long term borrowings 384,804 100,000Repayment of long term borrowings (406,680) (62,539)(Repayment of)/Proceeds from short term borrowings (net) (138,911) (162,808)Dividend paid (132,462) (46,653)Tax on dividend paid (18,803) (5,994)Interest paid (41,574) (64,392)Net cash used in financing activities (353,626) (274,731)Net(decrease)/increase in cash and cash equivalents (A+B+C) (5,174) 960Cash and cash equivalents at the beginning of the year 13,491 12,531Cash and cash equivalents at the end of the year 8,317 13,491Components of cash & cash equivalentsCash and cheques on hand 5,201 6,290With banks - on current accounts 365 285- on cash credit accounts - 5,449- on deposit accounts 15 47- on unpaid interest on debentures account 723 1,012- on unpaid dividend accounts 2,013 408Notes:1. The cash flow statement has been prepared under the indirect method as set out in AccountingStandard - 3 on Cash Flow Statements issued by the Institute of Chartered Accountants ofIndia.81

2. Negative figures have been shown in brackets.SCSCHEDULES TO THE ACCOUNTS31.03.2006Rs.’00031.03.2005Rs.’000SCHEDULE 1: SHARE CAPITALAuthorised34,000,000 (Previous year 34,000,000) equity shares ofRs.10 each 340,000 340,0007,000,000 (Previous year 7,000,000) redeemablepreference shares of Rs.10 each 70,000 410,000 70,000 410,000Issued, Subscribed and Paid-up31,178,288 (Previous year 31,178,228) equity shares ofRs.10 each fully Paid-up 311,783Nil (Previous year 2,156,333) 0.1% redeemablepreference shares of Rs.5 (Previous year Rs.10) eachfully paid-up - 10,782Less: Redemption during the year - - 10,782 -311,783 311,783Note:Pursuant to the order dated 27th February, 2003 of the Hon’ble High Court of Madhya Pradesh(Indore Bench) and order dated 24th March, 2003 of the Hon’ble High Court of Delhi, approvingscheme of arrangement for demerger, the Company issued two equity shares of Rs. 10 each fully paidup to the shareholders of the transferor Company i.e. Indo Rama Synthetics (India) Limited (IRSL)for every ten shares held by them in IRSL before the demerger without payment being received incash.31.03.2006Rs.’00031.03.2005Rs.’000SCHEDULE 2 : RESERVES & SURPLUSCapital ReserveBalance as per last account 5,657 5,657Capital Redemption ReserveBalance as per last account 21,564 10,782Add: Created during the year - 21,564 10,782 21,564Securities Premium AccountBalance as per last account 722,970 745,331Less: Share/Debenture issue expenses adjusted - 798Less: Premium on redemption of Preference shares adjusted - 722,970 21,563 722,970General ReserveBalance as per last account 41,398 31,898Add: Transferred during the year 22,500 63,898 9,500 41,398Profit and Loss Account 236,270 131,59431.03.2006Rs.’0001,050,359 923,18331.03.2005Rs.’000SCHEDULE 3 : SECURED LOANSLoans & Advances from BanksCash/export credit facilities 64.129 203,55482

Foreign currency term loan 390,469 295,488454,598 499,042Notes:1. Foreign currency term loan referred to above amounting to Rs. 390,469 thousand from StateBank of India is secured by a first charge over entire fixed assets of the Company, bothpresent and future, situated at Pithampur, Distt Dhar (M.P.) and Butibori, District Nagpur(Maharashtra) or any such places and equitable mortgage of factory land and building situatedat Butibori, Nagpur. This loan is further secured by second charge on entire current assets ofthe Company.2. Cash/export credit facilities from banks amounting to Rs. 64,129 thousand referred to aboveare secured by way of hypothecation of stocks of raw materials, work-in-progress , finishedgoods, stores and spares and book debts of the Company, both present and future. These loansare further secured by second charge on all the immovable properties of the Company.3. Loans aggregating to Rs. 101,388 thousand (Previous Year Rs. 73,872 thousand) arerepayable within one year.31.03.2006Rs.’00031.03.2005Rs.’000SCHEDULE 4 : UNSECURED LOANS- Short Term Rupee Loan from a Bank - 100,000- Loan from a Body Corporate - 9,683- 109,683Note : Loans aggregating to Rs. Nil (Previous year Rs.109,683 thousand) are repayable within 1 year.SCHEDULE 5: FIXED ASSETS Rs.’000Land- Road & Plant & Furniture Vehicles Total PreviousLeasehold Building Machinery & OfficeYearEquipmentsGross BlockAt 01.04.2005 13,042 321,855 2,392,776 34,645 2,254 2,764,572 2,744,258Additions - 547 10,639 5,744 - 16,930 33,985Deductions - - 4,514 1,986 76 6,576 13,671At 31.03.2006 13,042 322,402 2,398,901 38,403 2,178 2,774,926 2,764,572DepreciationAt 01.04.2005 1,542 91,501 1,375,591 22,991 869 1,492,494 1,370,102For the year 138 7,958 117,718 2,314 160 128,288 131,700Deletions/Adjustments - - 2,580 835 73 3,488 9,308At 31.03.2006 1,680 99,459 1,490,729 24,470 956 1,617,294 1,492,494Net Block :At 31.03.2006 11,362 222,943 908,172 13,933 1,222 1,157,632 1,272,078At 31.03.2005 11,500 230,354 1,017,185 11,654 1,385 1,272,078 -1. Additions to Plant & Machinery include Rs. 28 thousand (Previous year Rs. 1,440 thousand)on account of foreign exchange fluctuation.2. Land and Roads and Building amounting to Rs. 8,352 thousand and Rs. 206,656 thousandrespectively, transferred from Indo Rama Synthetics (India) Limited under the scheme ofarrangement, are yet to be registered in the Company’s name.83

31.03.2006Rs.’00031.03.2005Rs.’000SCHEDULE 6 : DEFERRED TAXDeferred Tax LiabilitiesDifferences in depreciation and other differences in blockof fixed assets as per tax books and financial books 248,257 269,968Gross Deferred Tax Liabilities 248,257 269,968Deferred Tax AssetsBrought forward unabsorbed depreciation 165,738 287,798Expenditure debited to profit and loss account in the currentyear but allowed for tax purposes in following years 13,257 9,885Provision for doubtful debts and advances 1,656 11,122Gross Deferred Tax Assets 180,651 308,805Net Deferred Tax Liability / (Assets) 67,606 (38,837)31.03.2006Rs.’00031.03.2005Rs.’000SCHEDULE 7 : INVESTMENTS Nos. Nos.I) Long Term, At cost- Other than trade, quotedFully Paid-up Equity Shares of Rs. 10 eachIndo Rama Synthetics (India) Limited - - 42,000 1,667II) Current- In Government Securities UnquotedNational Saving Certificate VIith issue - 20 - 20( Pledge with Sales Tax Authorities )TOTAL I + II 20 1,687Market Value of Quoted Long Term Investments - 2,768SCHEDULE 8 : INVENTORIESRaw materials (including stock in transit Rs. 5,480thousand, Previous year Rs. 17,762 thousand) 199,349 134,661Stores and spares (including stock in transit Rs. 1,21319,853thousand, Previous year Rs. 1,315 thousand) 14,502Work-in-progress 46,523 54,051Finished goods 25,929 139,908Waste 596 9,392SCHEDULE 9 : SUNDRY DEBTORSDebts outstanding for a period exceeding six monthsUnsecured, considered good - 2,453Considered doubtful 3,213 32,165Other debtsUnsecured, considered good 292,678 238,231Considered doubtful 247 -296,138 272,849Less: Provision for doubtful debts 3,460 32,165292,678 240,68484

SCHEDULE 10 : CASH & BANK BALANCECash on Hand 5,201 6,290Balances with Scheduled Banks :On current accounts 365 285On cash credit accounts - 5,449On deposit accounts 15 47On unpaid Interest on debenture accounts 723 1,012On unpaid dividend accounts 2,013 4088,317 13,491Included in Cash on hand are :Collections in transit 4,199 5,712Included in deposit accounts are:Receipts pledged with sales tax authorities 15 15SCHEDULE 11 : OTHER CURRENT ASSETSInterest accrued on deposits and others - 45Claims and other receivables 215,664 168,325Fixed assets held for sale (at net book value or estimatednet realisable value, whichever is lower) 1,513 1,513217,177 169,883SCHEDULE 12: LOANS AND ADVANCESUnsecured, considered goodAdvances recoverable in cash or in kind or for value to be received 19,455 97,717Balance with customs, excise, etc 151,748 28,993Payment of income tax/ tax deducted at source 44,247 14,777MAT credit entitlement 17,600 -Deposits-others 16,350 6,770Loans to employees 401 447Unsecured, considered doubtful Advances recoverable incash or in kind or for value to be received 1,222 708Balance with customs, excise, etc. 237 168251,260 149,580Less : Provision for doubtful advances 1,459 876249,801 148,704Included in loans and advances are :Due from an officer of the Company - -Maximum amount outstanding during the year 46 88Due from a director of the Company - -Maximum amount outstanding during the year - 20SCHEDULE 13: LIABILITIESAcceptances 109,359 148,560Sundry creditors 124,868 93,789Advances from customers 4,359 6,299Deposits from dealers and others 1,568 2,421Unpaid dividend 2,013 408Interest accrued but not due on loans - 4,008Unaccrued income 235 15,08285

Other liabilities 8,668 6,781251,070 277,348Dues to small scale industrial undertakings included inSundry creditors 5,688 2,794Dues to other than small scale industrial undertakingsincluded in Sundry creditors 119,180 90,995The names of small scale industrial undertakings (to the extent of information available with themanagement) to whom amounts are outstanding for more than 30 days are as under:Adhunik Udhyog; Dhwani Industries; Girnar Corugators Pvt. Ltd.; Kinetic Gears; Moksha ThermoplasticsPvt. Ltd.; Niptex Engg. Works; Pavan Drives Private Limited.; P. Conitex; Souny Fibre Glass (I) Pvt. Ltd.;Shiva Engineering Works; Shiva Press; Samrath Air-Tech P. Ltd.; Tex -Tech Industries (India) PrivateLimited.None of the aforesaid outstandings are due for payment as at 31st March, 2006 as per the payment termsagreed with the respective parties.Included in Sundry creditors:Book overdraft from banks - 3SCHEDULE 14: PROVISIONSTaxation 40,224 22,100Gratuity 28,319 22,630Leave encashment 8,565 6,358Proposed dividend - 62,357Tax on dividend - 8,74577,108 122,190SCHEDULE 15: OTHER INCOMEInterest others (Gross, Tax Deducted at Source Rs. 553thousand, Previous year Rs. 731 thousand) 7,807 6,792Rent income 1,410 1,173Dividend income from current non-trade investments - 126Profit on sale of long term non-trade investments (net) 1,100 -Profit on sale of current non-trade investments (net) 240 1,909Sale of scrap (net of excise duty Rs. 306 thousand, Previousyear Rs. 219 thousand) 8,347 7,027Unspent liabilities written back 2,033 4,118Foreign exchange fluctuation (net) - 41,517Export benefit under duty free credit entitlement (ReferNote No. 8 in Schedule 21) 130,083 -Miscellaneous income 7,219 18,308158,239 80,970SCHEDULE 16: PERSONNEL EXPENSESSalaries, wages and bonus 216,089 204,081Contribution to provident fund 6,427 5,900Contribution to other funds 8,296 8,724Workmen and staff welfare expenses 12,827 12,025243,639 230,730SCHEDULE 17: OPERATING AND OTHER EXPENSESConsumption of stores and spares 93,207 103,580Packing materials consumed 56,334 61,460Power and fuel 367,550 345,07186

Freight and forwarding charges Less : Recoveries 15,934 1,19,895Rent (Including lease rent and hire charges) 2,371 2,584Rates and taxes 5,592 5,306Insurance (net) 7,589 6,703Repairs and Maintenance:Plant and machinery 8,295 10,156Buildings 4,466 2,613Others 4,200 2,170Cost of outsourcing activities 14,742 12,816Brokerage and commission on sales (other than to soleselling agent) 7,922 18,584Discounts, rebates and claims 7,996 9,648Directors’ sitting fee 330 365Auditor’s remuneration:- Audit fee 1,000 1,000- Tax audit fee 250 250- Limited review of financial statements 600 616- Certification etc 10 16- Out of pocket expenses 55 45Donations and contributions (other than to political parties) - 322Provision for doubtful debts and advances (net) 656 1,687Loss on fixed assets sold /discarded (net) 821 969Bad debts and other balances written off (net) Less : Provmadein earlier years, now reversed 1,268 535Foreign exchange fluctuation (net) 17,819 -Miscellaneous expenses 71,515 61,857690,522 768,248SCHEDULE 18: DECREASE/(INCREASE) IN INVENTORIESInventories as at March 31, 2006-Finished goods 25,929 139,908-Work-in-progress 46,523 54,051-Waste 596 9,39273,048 203,351Inventories as at March 31, 2005-Finished goods 139,908 128,054-Work-in-progress 54,051 52,869-Waste 9,392 6,723203,351 187,646Difference of Excise duty on stocks of Finished goods andWaste (9,186) 270121,117 (15,435)SCHEDULE 19: FINANCIAL EXPENSESInterest- On term loans 13,565 12,69387

- Others 22,849 46,504Bank charges 10,825 18,23147,239 77,428SCHEDULE 20: EARNINGS PER SHARE (EPS)Net profit as per profit and loss account 208,943 122,794Less: Preference dividend and tax thereon - 8Net Profit for calculation of basic and diluted EPS 208,943 122,786Number of equity shares of Rs. 10 each at the beginning ofthe year 31,178,288 31,178,288Total number of equity shares of Rs. 10 each at the end ofthe year 31,178,288 31,178,288Weighted average number of equity shares of Rs.10 each atthe end of the year for calculation of basic and diluted EPS 31,178,288 31,178,288Basic and Diluted Earnings Per Share (In Rupees) 6.70 3.94SCHEDULE 21: NOTES TO ACCOUNTS1. Nature of OperationsIndo Rama Textiles Limited (hereinafter referred to as ‘the Company’) is a manufacturer andexporter of Man Made Fibre Yarn, Polyester Cotton Yarn and Cotton Yarn. In accordancewith the Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956between the Company and Indo Rama Synthetics (India) Limited (IRSL), the spinningbusiness of IRSL was transferred to the Company on a going concern basis w.e.f. 1st April,2002.2. Statement of Significant Accounting Policies(a)Basis of preparationThe financial statements have been prepared to comply in all material respects withthe mandatory Accounting Standards issued by the Institute of Chartered Accountantsof India and the relevant provisions of the Companies Act, 1956. The financialstatements have been prepared under the historical cost convention on an accrualbasis. Following items are accounted for on acceptance basis since the exact quantumin respect thereof cannot be ascertained with reasonable accuracy:i) Income on account of claims lodged with insurance company but not settled,andii)Interest receivable from customers on delayed payments.The accounting policies have been consistently applied by the Company and areconsistent with those used in the previous year.(b)Fixed AssetsFixed assets are stated at cost, less accumulated depreciation and impairment losses,if any. Cost comprises the purchase price and any attributable cost of bringing theasset to its working condition for its intended use. Financing costs relating toacquisition of fixed assets, which takes substantial period of time to get ready for its88

intended use, are also included to the extent they relate to the period till such assetsare ready to be put to use.(c)Depreciationi) Premium on Leasehold land is amortised over the period of Lease or theiruseful lives whichever is lower.ii)iii)iv)Depreciation on other fixed assets is provided on Straight-Line Method at therates prescribed in Schedule XIV to the Companies Act, 1956 or the ratesdetermined on the useful lives of the respective assets, whichever is higher.Depreciation on the amount of additions made to fixed assets on account offoreign exchange fluctuations is provided for over the remaining useful livesof the respective assets.Depreciation on the insurance spares/standby equipments is provided over theremaining useful lives of the respective mother assets.(d)Impairmenti) The carrying amounts of assets are reviewed at each balance sheet date ifthere is any indication of impairment based on internal/external factors. Animpairment loss is recognized wherever the carrying amount of an assetexceeds its recoverable amount. The recoverable amount is the greater of theassets net selling price and value in use. In assessing value in use, theestimated future cash flows are discounted to their present value at theweighted average cost of capital.ii)After impairment, depreciation is provided on the revised carrying amount ofthe assets over its remaining useful life.(e)InvestmentsInvestments that are readily realisable and intended to be held for not more than ayear are classified as current investments. All other investments are classified as longterminvestments. Current investments are carried at the lower of cost and fair value.Long-term investments are carried at cost. However, provision for diminution invalue is made to recognise a decline other than temporary in the value of suchinvestments.(f)InventoriesInventories are valued as follows:Raw materials and stores and sparesAt lower of cost and net realisable value.However, materials and other items held foruse in the production of inventories are notwritten down below cost if the finishedproducts in which they will be consumed areexpected to be sold at or above cost. Cost isdetermined on a moving weighted averagebasis. Cost of raw materials and stores andspares lying in bonded warehouse includescustom duty accounted for on accrual basis.89

Work-in-progress and Finished goods At lower of cost and net realisable value.Cost includes direct materials and labour anda proportion of manufacturing overheadsbased on normal operating capacity. Cost ofraw materials for this purpose is ascertainedon First In First Out basis. Cost of finishedgoods includes excise duty.WasteAt net realisable value.Net realisable value is the estimated selling price in the ordinary course of business,less estimated costs of completion and to make the sale.Provision for obsolescence in inventories is made, wherever required.(g)Export BenefitsExport benefits under Duty Exemption Advance License and Duty Exemption PassBook Schemes are accounted for in the year of export of goods.(h)Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits willflow to the Company and the revenue can be reliably measured.Sale of GoodsRevenue is recognised when the significant risks and rewards of ownership of thegoods have been passed to the buyer.InterestRevenue is recognised on a time proportion basis taking into account the amountoutstanding and the rate applicable, except to the extent stated in note no. 2 (a) above.(i)LeasesLeases where the lessor effectively retains substantially all the risks and benefits ofownership of the leased term are classified as Operating Leases. Operating Leasepayments are recognised as an expense in the Profit & Loss account.(j)Foreign currency translationForeign Currency Transactionsi) Initial RecognitionForeign currency transactions are recorded in the reporting currency, byapplying to the foreign currency amount the exchange rate between thereporting currency and the foreign currency at the date of the transaction.ii)Conversion90

Foreign currency monetary items are reported using the closing rate. Nonmonetaryitems which are carried in terms of historical cost denominated in aforeign currency are reported using the exchange rate at the date of thetransaction; and non-monetary items which are carried at fair value or othersimilar valuation denominated in a foreign currency, are reported using theexchange rates that existed when the values were determined.iii)Exchange DifferencesExchange differences arising on the settlement of monetary items or onrestatement of monetary items at rates different from those at which theywere initially recorded during the year, or reported in previous financialstatements, are recognised as income or as expenses in the year in which theyarise, except exchange differences on transactions relating to fixed assetsacquired from a country outside India, which are adjusted to the carryingamount of fixed assets.iv)Forward Exchange ContractsIn respect of forward exchange contracts entered into by the Company, thedifference between the contracted rate and the rate at the date of transaction isrecognized as gain or loss over the period of contract except for difference inrespect of liabilities incurred for acquiring fixed assets from a country outsideIndia, in which case such difference is adjusted in the carrying amount of therespective fixed assets. Exchange differences on such contracts arerecognized in the statement of profit and loss in the year in which theexchange rates change. Any profit or loss arising on cancellation or renewalof forward exchange contract is recognised as income or as expense for theyear, except profit or loss on transactions relating to acquisition of fixedassets from a country outside India, which is adjusted to the carrying amountof fixed assets.(k)Retirement and other employee benefitsi) Retirement benefits in the form of Provident Fund are charged to the Profit &Loss Account of the year when the contributions to the respective funds aredue.ii)Gratuity liability under the Payment of Gratuity Act and liability for leaveencashment is accrued and provided for on the basis of an actuarial valuationmade at the end of each financial year.(l)Income taxesTax expense comprises of current, deferred and fringe benefit tax. Current income taxand fringe benefit tax is measured at the amount expected to be paid to the taxauthorities in accordance with the Indian Income Tax Act. Deferred income taxesreflect the impact of current year timing differences between taxable income andaccounting income for the year and reversal of timing differences of earlier years.Deferred tax is measured based on the tax rates and the tax laws enacted orsubstantively enacted at the balance sheet date. Deferred tax assets are recognisedonly to the extent that there is reasonable certainty that sufficient future taxableincome will be available against which such deferred tax assets can be realised.Deferred tax assets are recognised on carry forward of unabsorbed depreciation and91

tax losses only if there is virtual certainty that such deferred tax assets can be realisedagainst future taxable profits. Unrecognised deferred tax assets of earlier years are reassessedand recognized to the extent that it has become reasonably certain that futuretaxable income will be available against which such deferred tax assets can berealised.In the year in which the Minimum Alternate Tax (MAT) credit becomes eligible to berecognized as an asset in accordance with the recommendations contained inGuidance Note issued by Institute of Chartered Accountants of India, the said asset iscreated by way of a credit to the profit and loss account and shown as MAT creditassets. The Company reviews the same at each balance sheet date and writes downthe carrying amount of MAT credit assets to the extent there is no longer aconvincing evidence to the effect that Company will pay normal Income Tax duringthe specified period.(m)ProvisionsA provision is recognized when an enterprise has a present obligation as a result ofpast event and it is probable that an outflow of resources will be required to settle theobligation, in respect of which a reliable estimate can be made. Provisions are notdiscounted to its present value and are determined based on best estimate required tosettle the obligation at the balance sheet date. These are reviewed at each balancesheet date and adjusted to reflect the current management estimates.(n)Segment Reporting PoliciesIdentification of segments:The Company’s operating businesses are generally organised and managed separatelyaccording to the nature of products and services provided. The analysis ofgeographical segments is based on the geographical location of the customerswherever required.(o)Earnings Per ShareBasic earnings per share are calculated by dividing the net profit or loss for the periodattributable to equity shareholders (after deducting preference dividends andattributable taxes) by the weighted average number of equity shares outstandingduring the period. Partly paid equity shares are treated as a fraction of an equity shareto the extent that they were entitled to participate in dividends relative to a fully paidequity share during the reporting period.For the purpose of calculating diluted earnings per share, the net profit or loss for theperiod attributable to equity share holders and the weighted average number of sharesoutstanding during the period are adjusted for the effects of all dilutive potentialequity shares.3. As per the Memorandum of Understanding entered into between the Company and IRSL,IRSL has charged to the Company a sum of Rs. 95,718 thousand (Previous year Rs.83,690thousand) for the use of common utilities and facilities such as power & utilities,administrative and marketing assistance etc. The same have been debited under the respectiveheads of account in the Profit & Loss Account, except for indirect costs of Rs. 3,659 thousand(Previous year Rs. 4,695 thousand), which is included in Miscellaneous Expenses underOperating and Other Expenses in Schedule 17.92

4. The Company has recognized Rs. 17,600 thousand as MAT Credit Asset which representsthat portion of MAT liability, which can be recovered based on the provision of Section115JAA of the Income Tax Act, 1961. The management based on the present trend ofprofitability and also the future profitability projections, opines that there would be sufficienttaxable income in future, which will enable the Company to utilize MAT credit assets.5. The Indo Rama Export unit has been de-bonded from 100% EOU status to DTA unit w.e.f.17th July, 2005. Accordingly, all the obligations for de-bonding has been discharged by theCompany.6. Pursuant to SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997,Spentex Industries Limited (referred to as “Acquirer”) has made an offer to the publicshareholders of Indo Rama Textiles Limited (IRTL), to acquire a maximum of 6,235,658 fullypaid-up equity shares, representing 20% of the paid up equity capital of IRTL at a price of Rs.84.15 per share payable in cash (the “Offer”). The public announcement for the abovementioned offer has been released on 23rd February, 2006 in various newspapers.The Acquirer has moreover executed a Share Purchase Agreement on 17th February, 2006with the existing promoter group, of IRTL to acquire 15,286,831 equity shares of Rs. 10 eachrepresenting 49.03% of the fully paid-up equity voting capital of the Company at a price ofRs. 84.15 per share subject to completion of all the regulatory formalities under SEBI(Substantial Acquisition of Shares and Takeover) Regulations, 1997.7. Unaccrued income include aggregating to Rs. Nil (Previous year Rs. 14,844 thousand) onaccount of foreign exchange difference on outstanding forward exchange contracts.8. Other income includes Rs. 130,083 thousand represents Export Benefit under Duty FreeCredit Entitlement Certificate for the year 2003-04 received during the year.9. The company takes various types of foreign currency derivative instruments to hedge itsforeign currency risk. The outstanding amount of Forward Contracts as on 31st March, 2006is Rs. Nil.The amount of foreign currency loan to the extent of Rs. 390,469 thousand is not hedged by aderivative instrument or otherwise as on 31st March, 2006.10. Segment Informationa) Business segmentThe Company produces only spun yarn and accordingly the entire business has beenconsidered as one single segment.b) Geographical Segments*The following is the distribution of the Company’s consolidated revenue bygeographical market:(Rs.’000)2006 2005Domestic Market 3,701,388 2,101,087Overseas Market 184,002 1,881,168Total 3,885,390 3,982,255*The Company has common assets for producing goods for Domestic Market andOverseas Markets. Hence, separate figures for assets / additions to assets cannot befurnished.93

11. Related Party Disclosuresi) Names of related parties:Key Management PersonnelMr. O. P. Lohia, Director;Mr. Vishal Lohia, Whole-time Director andMr. Rajiv Agarwal, Whole-time Director(resigned on 31st July, 2004)Relatives of key management personnel Ms. Ritika Kumar (daughter ofMr. O. P. Lohia, Director)Enterprises owned or significantly Indo Rama Petrochemicals Ltd. (IRPL) andinfluenced by key management Indo Rama Synthetics (India) Limitedpersonnel or their relatives(IRSL).(ii)Remuneration paid to directors is disclosed in Note 14.1 of the notes to accounts.Enterprises owned orsignificantlyKeyRelatives ofKeyincfluenced by keymanagementManagemen Managemen personnel or their( Rs.’000)t Personnel t Personnel relativesTotal2006 2005 2006 2005 2006 2005 2006 2005Transactions with IRSL:- Sale of Goods - - - - 1,827,673 261,533 1,827,673 261,533- Other Sales - - - - 11,992 143,534 11,992 143,534- Purchases of Raw Material - - - - 1,474,607 1,695,524 1,474,607 1,695,524- Purchase of Stores & Spares - - - - 23,449 128,985 23,449 128,985- Stores & Spares taken on loan - - - - 30,413 - 30,413 -- Stores & Spares returned - - - - 30,413 - 30,413 -- Reimbursements towards - - - - 95,718 83,690 95,718 83,690Common Services Received- Interest Paid (Net) - - - - 317 939 317 939- Payments towards Other - - - - 504 732 504 732Services received (net)- Loan & Interest paid - - - - 9,956 13,231 9,956 13,231- Guarantee released - - - - 348,441 - 348,441 -- Sale of fixed assets - - - - - 380 - 380Transactions with IRPL:-Advance against Share - - - - 20,000 - 20,000Application Money-Refund of advance against - - - - 20,000 - 20,000Share Application MoneyTransactions with Relatives:Rent- Mr. Vishal Lohia 58 25 - 33 - - 58 58- Ms. Ritika Kumar - - 33 33 - - 33 33Balance outstanding as at the year end:94

Loan and Interest thereon (IRSL) - - - - - 9,956 - 9,956Sundry Debtors (IRSL) - - - - 237,632 95,246 237,623 95,246Guarantee from IRSL for loan taken - - - - - - 348,441 348,44112. Capital CommitmentsEstimated amount of contracts remaining to be executed on capital account and not providedfor (net of advances) - Rs. 10,065 thousand (Previous Year Rs. Nil).13. Contingent Liabilities not provided fora) Bills of Exchange discounted under Irrevocable Letters of Credit - Rs. 26,946thousand (Previous Year Rs. 445,753 thousand).b) Guarantee given by the Company - Rs. Nil (Previous Year Rs. 16,091 thousand).c) Demands made by Excise Authorities in respect of reversal of Cenvat Credit onFurnace Oil - Rs. 29,815 thousand (Previous Year Rs. 29,261 thousand), duty onYarn and Fibre Waste sold - Rs. 6,381 thousand (Previous Year Rs. 6,381 thousand)and others - Rs. 7,082 thousand (Previous Year Rs. 5,465 thousand).d) Demand made by Sales Tax Authorities in respect of entry tax on purchase of Plantand Machinery - Rs. 2,548 thousand (Previous Year Rs. 2,719 thousand) and others -Rs. 871 thousand (Previous Year Rs. 1,440 thousand ).e) Demand made by Income Tax Authorities for the Assessment Year 2000-01 to 2003-04 in respect of disallowances of various expenses - Rs. 4,466 thousand (PreviousYear Rs. 9,061 thousand).f) Demand made by the MP Government in respect of Energy Cess on electricitygenerated by the captive power plant - Rs. 33,534 thousand (Previous Year Rs.30,169 thousand).g) Demand raised by MPEB for the non usage of 50% of electricity requirement throughMPEB connection - Rs. 81,674 thousand (Previous Year Rs. 81,674 thousand) andothers - Rs. 1,984 thousand (Previous Year Rs. Nil).h) Various other claims made against the Company not acknowledged as debts - Rs.11,831 thousand (Previous Year Rs. 7,494 thousand).i) Cases pending with Labour Courts (amount not ascertainable).Based on the favourable decisions in similar cases/legal opinions taken by theCompany/ discussions with the solicitors etc. the Company believes that it has goodcase in respect of all the items listed under (c) to (i) above and hence no provisionthere against is considered necessary.14. Supplementary Statutory Information14.1 Whole-time Directors’ Remuneration 2006 (Rs.’000) 2005(Rs.’000)Salaries 2,520 2,141Contribution to Provident fund 216 189Perquisites *(excluding the value of non-monetaryperquisites)906 1,14595

3,642 3,475* Does not include the value of leave encashment and gratuity since it is determined throughactuarial valuation for all employees including directors.14.2 Computation of net profit in accordance with Section 349 of the Companies Act, 1956 :2006 (Rs.’000) 2005 (Rs.’000)Profit before Taxation – as per Profit &318,410 208,060Loss AccountAdd: Managerial Remuneration* 3,642 3,475Directors’ sitting fee 330 365Provision for doubtful debts & advances (net) 656 1,687Loss on Fixed Assets sold/discarded (net) 821 5,449 969 6,496323,859 214,556Less: Provision for doubtful debts/advances adjusted 28,778 54Profit on sale of current non-trade investments 240 29,018 1,909 1,963294,841 212,593*Includes remuneration given to all Whole-time Directors.14.3 Earnings in foreign currency 2006 (Rs.’000) 2005 (Rs.’000)Exports at F.O.B. Value 175,616 1,747,11014.4 Expenditure in foreign currency (on accrual basis)Travelling 4,343 2,657Claims 1,910 2,811Commission 1,297 13,926Others 156 1,0677,706 20,46114.5 Value of imports calculated on CIF basisRaw materials 7,731 4,637Stores and spares 21,693 28,746Capital goods 2,596 6,23032,020 39,61314.6 Net dividend remitted in foreign exchangePeriod to which it relates:01.04.2004 TO31.03.200501.4.2003 TO31.03.2004- Number of non-resident shareholders 3 3- Number of equity shares held on which dividend was due 11,974,112 13,474,112- Amount remitted (US$ 550,256; Previous Year US$23,948 20,211440,139) (Rs. in thousand)Period to which it relates:01.04.2005 TO31.03.2006501.04.2004 TO31.03.20051st Interim Dividend- Number of non-resident shareholders 3 -- Number of equity shares held on which dividend was due 11,974,112 -Amount remitted (US$ 620,141; Previous Year US$ Nil)27,540 -(Rs. in thousand)14.7 Remittance in foreign currency on account of redemption of Preference SharesNumber of non-resident shareholders - 1Number of preference shares held - 1,758,000Amount remitted Rs. Nil, (Previous Year JPY 608,881,968)(Rs. in thousand)- 26,37696

15. Additional information pursuant to the provisions of paragraphs 3, 4C and 4Dof Part II of Schedule VI to the Companies Act, 195615.1 Details of Capacity: (As certified by the management)Class of Goods Unit Licensed Capacity Installed Capacity2006 2005 2006 2005Spindles Nos. 154,272 154,272 122,976 122,976Looms Nos. 120 120 - -Knitting Machines Nos. 4 4 - -15.2 Details of Production, Sales & Stocks of Finished GoodsClasses of Goods Opening Stock ProductionQty(MT)1. Man Made Fibre Yarn 808(369)2. Polyester Cotton Yarn 678(943)3. Cotton Yarn 24-4. Kinitted Fabrics -(-)5. Viscose Cotton Yarn 2(34)6. Waste 401(238)Value(Rs.’000)80,872(36,508)57,118(87,577)1,703-23(23)192(3,946)9,392(6,723)Qty(MT)18,433(20,238)19,918(19,425)-(500)-(-)-(1)2,149(2,370)Qty(MT)19,106(19,799)20,450(19,690)24(476)-(-)2(33)2,503(2,207)SalesValue(Rs.’000)1,896,907(2,006,405)1,919,667(1,973,865)1,686(41,232)-(-)173(4,489)54,256(58,751)Qty(MT)135(808)146(678)-(24)-(-)-(2)47(401)Closing StockValue(Rs.’000)13,392(80,872)12,537(57,118)-(1703)-(23)-(192)596(9,392)Notes:1. Figures in brackets are for previous year.2. Sales are after netting of returns out of previous year’s sales amounting to Rs. 1,089 thousand(Previous Year Rs. 682 thousand).15.3 Consumption of raw materialsUnit Quantity (MT) Value (Rs.’000)2006 2005 2006 2005Polyester Staple Fibre MT 23,155 23,897 1,348,895 1,445,079Viscose Staple Fibre MT 6,777 8,010 492,844 576,771Cotton MT 10,486 10,693 494,513 574,101Others MT - - 2,595 3,62440,418 42,600 2,338,847 2,599,575Note:DEPB benefit amounting to Rs. 9,140 thousand (Previous year Rs. 119,588 thousand) has beenreduced from raw material consumption.97

15.4 Imported and indigenous raw materials, stores and spare parts consumedPercentage ofValue (Rs.’000)total consumption2006 2005 2006 2005A. Raw MaterialsImported 0.13 0.18 3,083 4,785Indigenously obtained 99.87 99.82 2,335,764 2,594,790100.00 100.00 2,338,847 2,599,575B. Stores & SparesImported 27.11 32.66 25,264 33,825Indigenously obtained 72.89 67.34 67.943 69,755100.00 100.00 93,207 103,58016. Following Non-trade Investments have been Purchased and Sold during the year:Description Number/ Purchased SoldUnits (Rs.’000) (Rs.’000)Equity Shares of Rs.10 each-Indo Rama Synthetics (India) Limited* 42,000 1,667 2,766Units of Mutual Funds of-Alliance Cash Manager-IP-Growth 894,470 10,000 10,023Prudential ICICI liquid Plan-IP-Growth 5,891,965 100,000 100.2186,828,435 111,667 113,007* Sold out of purchases made in previous year Rs. 1,667 thousand.17. Previous Year ComparativesPrevious year’s figures have been regrouped where necessary to conform to this year’sclassification.AUDITOR’S REPORT FOR THE AUDTIED FINANCIALS AS AT 31 ST MARCH,2005ToThe Members of Indo Rama Textiles Limited1. We have audited the attached Balance Sheet of Indo Rama Textiles Limited as at 31 st March,2005 and also the Profit and Loss Account and the Cash Flow Statement for the year ended onthat date annexed thereto. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express as opinion on these financial statements basedon our audit.2. We conducted our audit in accordance with auditing standards generally accepted in India.Those Standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.3. As required by the Companies (Auditor’s Report) Order, 2003 (as amended) issued by theCentral Government of India in terms of sub-section (4A) of Section 227 of the Companies98

Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4and 5 of the said Order.4. Further to our comments in the Annexure referred to above, we report that:i. We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes of our audit ;ii.iii.iv.In our opinion , proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books;The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account;In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in subsection(3C) of Section 211 of the Companies Act, 1956;v. On the basis of the written representations received from the directors, as on March31, 2005, and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on March 31, 2005 from being appointed as a director interms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;vi.In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts give the information required by the Companies Act,1956, in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India;a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31 stMarch, 2005;b) in the case of the Profit and Loss Account, of the profit for the year ended on thatdate; andc) in the case of Cash Flow Statement, of the cash flows for the year ended on thatdate.ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE TOTHE MEMBERS OF INDO RAMA TEXTILES LIMITED ON THE ACCOUNTS AS AT ANDFOR THE YEAR ENDED 31 ST MARCH, 2005.1. (i) The Company has maintained proper records showing full particulars, includingquantitative details and situation of fixed assets.(ii)(iii)Fixed assets have been physically verified by the management during the yearbased on a phased programme of verifying all the assets over a period of two years,which in our opinion is reasonable having regard to the size of the Company andthe nature of its fixed assets. As informed, no material discrepancies were noticedon such verification.There was no substantial disposal of fixed assets during the year.2. (i) The management has conducted physical verification of inventory at reasonableintervals during the year.99

(b)(c)The procedures of physical verification of inventory followed by the management arereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.The Company is maintaining proper records of inventory and no materialdiscrepancies were noticed on physical verification.3. (a) As informed, the Company has not granted any loan, secured or unsecured tocompanies, firms or other parties covered in the register maintained under Section301 of the Companies Act, 1956 and hence clause iii (a), (b), (c) and (d) of theCompanies (Auditor’s Report) Order, 2003 (as amended) are not applicable to theCompany.(b)(c)(d)As informed, the Company has taken a loan from a Company covered in the registermaintained under Section 301 of the Companies Act, 1956. The maximum amountinvolved during the year was Rs. 13,231 thousand and the year end balance of theloan was Rs.9,683 thousand.In our opinion and according to the information and explanations given to us, the rateof interest and other terms and conditions for such loan are not prima facie prejudicialto the interest of the Company.In respect of the loan taken, repayment of the principal amount is as stipulated andpayment of interest has been regular.4. In our opinion and according to the information and explanations given to us, there is anadequate internal control system, commensurate with the size of the Company and the natureof its business for the purchase of inventory and fixed assets and for the sale of goods andservices. During the course of our audit, no major weakness has been noticed in the internalcontrol system in respect of these areas.5. (i) According to the information and explanations provided by the management, we areof the opinion that the particulars of contracts or arrangements referred to in Section301 of the Act, that need to be entered into the register maintained under Section 301,have been so entered.(ii)In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of such contracts or arrangements exceeding the valueof Rupees five lakhs have been entered into during the financial year at prices whichare reasonable, having regard to the prevailing market prices at the relevant time.6. The Company has not accepted any deposits from the public.7. In our opinion, the Company has an internal audit system commensurate with the size andnature of its business.8. We have broadly reviewed the books of account maintained by the Company pursuant to therules made by the Central Government for the maintenance of cost records under Section 209(1) (d)100

of the Companies Act, 1956 in respect of the products to which the said rules are applicable and are ofthe opinion that prima facie, the prescribed accounts and records have been made and maintained.(9) (a) Undisputed statutory dues including Provident Fund, Investor Education andProtection Fund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax,Service Tax, Custom Duty, Excise Duty, Cess and other undisputed statutory duesapplicable to the Company have generally been regularly deposited with theappropriate authorities.(b)(c)According to the information and explanations given to us, no undisputed amountspayable in respect of Provident Fund, Investor Education and Protection Fund,Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax,Custom Duty, Excise Duty, Cess and other undisputed statutory dues wereoutstanding at the year end, for a period of more than six months from the date theybecame payable.According to the records of the Company, the dues outstanding of Income Tax, SalesTax, Wealth Tax, Service Tax, Custom Duty, Excise Duty and Cess on account ofany dispute are as follows:Name of theStatuteThe Central ExciseAct, 1944 Capital goodsThe Central ExciseAct, 1944Nature of dues Amount Rs.’000 Period towhich itrelatesCenvat – 239 04/1996 toCenvat – Inputsdemandincluding finesand penaltiesThe Central Excise Excise dutyAct, 1944 demandincluding finesand penalties07/199630,828 10/1994 to09/20045,966 01/1997 to06/2004Forum where dispute is pending (Amount in Rs.’000 )Adjudication – Joint Commissioner ofCentral Excise, Nagpur.1) Adjudication – AdditionalCommissioner of Central Excise,Nagpur – Rs.3152) Adjudication – Commissioner ofCentral Excise, Nagpur –Rs.11,318.3) Deputy Commissioner of CentralExcise, Division II, Nagpur – 536.4) Commissioner (Appeals), CentralExcise Nagpur – Rs.6365) Adjudication – AssistantCommissioner of Central Excise,Division – Pithampur – Rs.84.6) Customs, Excise & Service TaxAppellate Tribunal, Mumbai –Rs.16,998.7) Customs, Excise & Service TaxAppellate Tribunal, New Delhi –Rs.9411) Adjudication – AssistantCommissioner of CentralExcise, Division Pithampur – 353.2) Adjudication - Commissioner ofCentral Excise, Nagpur –Rs.2,6553) Adjudication – DeputyCommissioner of Central Excise,Division II Nagpur – Rs.83.4) Adjudication – JointCommissioner of Central Excise,101

Central Sales Tax Sales TaxAct, 1956 DemandBombay Sales Tax Sales TaxAct, 1959/ Central DemandSales Tax Act, 1956ThePenalty –M.P.Commercial Purchase TaxTax Act, DemandThe M.P. Penalty – SalesCommercial Tax Tax DemandAct,Entry Tax Act, Entry Tax1976demandNagpur – Rs.156.5) Commissioner (Appeals), CentralExcise, Nagpur – Rs.79.6) Customs, Excise & Service TaxAppellate Tribunal, Mumbai –Rs.2,640.1,623 2000-02 Dy. Commissioner (Appeals), Indore149 1998-05 Dy. Commissioner of Sales Tax(Appeals), Nagpur.36 2000-01 M.P.Commercial Tax Appellate Board,Bhopal98 1999-00 Dy. Commissioner (Appeals), Indore.2,685 1997-02 5) Assessing Authority, Indore – Rs.117.6) Dy. Commissioner (Appeals), Indore –Rs.801.7) M.P.Commercial Tax Appellate Board,Bhopal – Rs.1122.8) The Revenue Board, Gwalior –Rs.645.10. The Company has no accumulated losses at the end of the financial year and it has notincurred any cash losses in the current and immediately preceding financial year.11. Based on our audit procedures and as per the information and explanations given by themanagement, we are of the opinion that the Company has not defaulted in repayment of duesto financial institutions, banks & debenture holders.12. According to the information and explanations given to us and based on the documents andrecords produced to us, the Company has not granted loans and advances on the basis ofsecurity by way of pledge of shares, debentures and other securities.13. In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society.Therefore, the provisions of clause 4(xiii) of the Companies (Auditor’s Report) Order, 2003(as amended) are not applicable to the Company.14. In respect of dealing/ trading in shares, securities and other investments, in our opinion andaccording to the information and explanations given to us, proper records have beenmaintained of the transactions and contracts and timely entries have been made therein. Theshares, securities and other investments have been held by the Company in its own name.15. According to the information & explanations given to us, the Company has given guaranteefor loans taken by others from a financial institution, the terms and conditions whereof in ouropinion are not prima-facie prejudicial to the interest of the Company.16. Based on information and explanations given to us by the management, the term loans wereapplied for the purpose for which the loans were obtained.17. According to the information and explanations given to us and on an overall examination ofthe balance sheet of the Company, we report that no funds raised on short-term basis havebeen used for long-term investments.102

18. The Company has not made any preferential allotment of shares to parties or companiescovered in the register maintained under Section 301 of the Companies Act, 1956.19. The Company did not have any outstanding debentures during the year.20. The Company has not raised any money through a public issue during the year21. Based upon the audit procedures performed for the purpose of reporting the true and fair viewof the financial statements and as per the information and explanations given by themanagement, we report that no fraud on or by the Company has been noticed or reportedduring the course of our audit.INDO RAMA TEXTILES LIMITEDBalance Sheet for the Year ended 31st March, 2005Schedule 31.03.2005Rs.’00031.03.2004Rs.’000SOURCES OF FUNDSShareholders’ FundsShare capital 1 311,783 322,565Reserves and surplus 2 923,183 893,8601,234,966 1,216,425Loan FundsSecured loans 3 499,042 687,292Unsecured loans 4 109,683 18,225608,725 705,517TOTAL 1,843,691 1,921,942APPLICATION OF FUNDSFixed Assets 5Gross block 2,764,572 2,744,258Less : Depreciation 1,492,494 1,370,102Net block 1,272,078 1,374,156Capital work-in-progress including capital advances - 2,3191,272,078 1,376,475Investments 6 1,667 10,314Deferred Tax Assets (net) 7 38,837 113,603Current Assets, Loans and AdvancesInventories 8 357,865 609,968Sundry debtors 9 240,684 200,622Cash and bank balances 10 13,511 12,531Other current assets 11 169,883 68,216Loans and advances 12 148,867 51,109930,810 942,446Less: Current Liabilities and ProvisionsLiabilities 13 277,511 432,589Provisions 14 122,190 89,105399,701 521,694Net Current Assets 531,109 420,752Misc. Expn (to the extent not written off or adjusted) 15 - 798TOTAL 1,843,691 1,921,942Notes to Accounts 22The Schedules referred to above form an integral part of the Balance Sheet103

PROINDO RAMA TEXTILES LIMITEDPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2005Schedule 31.03.2005Rs.’00031.03.2004Rs.’000INCOMETurnover (Gross) 4,084,742 3,735,370Less : Excise duty 165,406 216,735Turnover (net) 3,919,336 3,518,635Other Income 16 81,050 122,967TOTAL 4,000,306 3,641,602EXPENDITURERaw material consumed 2,599,674 2,274,890Personnel expenses 17 230,730 242,885Operating and other Expenses 18 786,460 731,256Decrease/(Increase) in inventories 19 (15,435) 18,858TOTAL 3,601,429 3,267,889Profit before interest, depreciation & tax 398,957 373,713Interest 20 59,197 65,911Profit before depreciation and tax 339,760 307,802Depreciation 131,700 129,702Profit before tax 208,060 178,100Provision for tax ( including Rs.Nil for earlier years,Previous year Rs.4,100 thousand ) 10,500 9,300Deferred Tax Charge 74,766 76,306Total Tax expense 85,266 85,606Net Profit 122,794 92,494Balance brought forward from Previous year 100,192 76,249Profit available for appropriation 222,986 168,743APPROPRIATIONS:Capital redemption reserve 10,782 10,782Dividend on preference shares 7 -Proposed dividend on Preference Shares - 9Proposed dividend on Equity Shares 62,357 46,767Tax on Dividend - -Tax on Proposed Dividend 8,745 5,993General reserve 9,500 500091,392 68,551Surplus carried to Balance Sheet 131,594 100,192Earnings per share 21-Basic and diluted (In Rupees) 3.94 2.89Notes to Accounts 22The Schedules referred to above form an integral part of the Profit & Loss Account.104

SCSCHEDULES TO THE ACCOUNTS31.03.2005Rs.’00031.03.2004Rs.’000SCHEDULE 1: SHARE CAPITALAuthorised34,000,000 (Previous year 34,000,000) equity shares ofRs.10 each 340,000 340,0007,000,000 (Previous year 7,000,000) redeemablepreference shares of Rs.10 each 70,000 410,000 70,000 410,000Issued, Subscribed and Paid-up31,178,288 (Previous year 33,334,621) equity shares ofRs.10 each fully Paid-up 311,783 333,346Less : Nil ( Previous year 2,156,333) equity sharesconverted into 0.1% redeemable preference share ofRs.10 each - 311,783 21,563 311,7832,156,333 (Previous year 2,156,333) 0.1% redeemablepreference shares of Rs.5 (Previous year Rs.10) eachfully paid-up 10,782 21,563Less: Redemption during the year 10,782 - 10,781 10,782311,783 322,565Note:a) Pursuant to the order dated 27th February, 2003 of the Hon’ble High Court of MadhyaPradesh (Indore Bench) and order dated 24th March, 2003 of the Hon’ble High Court ofDelhi, approving scheme of arrangement for demerger, the Company issued two equityshares of Rs. 10 each fully paid up to the shareholders of the transferor Company i.e. IndoRama Synthetics (India) Limited (IRSL) for every ten shares held by them in IRSL beforethe demerger without payment being received in cash.b) 2,156,333 equity shares were converted into equal numbers of 0.1% redeemable preferenceshares of Rs.10 each (redeemable at Rs.30 per share in two equal instalments) inpursuance of the option exercised by the shareholders as per the scheme and accordingly,the equity share capital got reduced to that extent.c) Pursuant to the terms of allotment of preference shares, second & final instalment of Rs.15per share (Rs.5 towards face value and Rs.10 towards premium ) was paid by the Companyto the shareholders on 19 th November, 2004. Also, the entire dividend was paid alongwithsecond & final instalment.31.03.2005Rs.’00031.03.2004Rs.’000SCHEDULE 2 : RESERVES & SURPLUSCapital ReserveBalance as per last account 5,657 5,657Securities Premium AccountBalance as per last account 745,331 771,382Less: Share/Debenture issue expenses adjusted 798 4,488Less: Premium on redemption of Preference shares adjusted 21,563 722,970 21,563 745,331Capital Redemption ReserveBalance as per last account 10,782 10,782Created during the year 10,782 21,564 - 10,782105

General ReserveBalance as per last account 31,898 26,898Add: Transferred during the year 9,500 41,398 5,000 31,898Profit and Loss Account 131,594 100,192923,183 893,86031.03.2005Rs.’00031.03.2004Rs.’000SCHEDULE 3 : SECURED LOANSLoans & Advances from BanksCash/export credit facilities 203,554 355,704Foreign currency term loan 295,488 331,588499,042 687,292Notes:1. Foreign currency term loan referred to above amounting to Rs.295,488 thousand from ExportImport Bank of India by a first charge by way of hypothecation of movable fixed assets , bothpresent and future, including movable plant and machinery, equipment, appliances, furniture,vehicles, machine spares and stores, tools and accessories, whether or not installed, subject toprior charges created and / or to be created in favour of the Company’s bankers on specifiedmovables for securing borrowings from working capital requirements. Further, a charge byway of equitable mortgage on land and other immovable properties, both present and future,by way of deposit of title deeds is yet to be created pending the registration of such propertiesin the Company’s name subsequent to demerger from IRSL. In addition, the above Foreigncurrency Term Loan is secured by irrevocable and unconditional guarantee of a bodycorporate ( Indo Rama Synthetics (India) Limited).2. Cash/export credit facilities from banks amounting to Rs.203,554 thousand referred to aboveare secured by way of hypothecation of stocks of raw materials, work-in-progress , finishedgoods, stores and spares and book debts of the Company, both present and future. These loansexcept export credit facilities from Export Import bank of India are further secured by secondcharge on all the immovable properties of the Company situated at Pithampur, once theproperties are registered in the Company’s name.3. Loans aggregating to Rs.73,872 thousand (Previous Year Rs.36,843 thousand) are repayablewithin one year.31.03.2005Rs.’00031.03.2004Rs.’000SCHEDULE 4 : UNSECURED LOANS- Short Term Rupee Loan from a Bank 100,000 -- Loan from a Body Corporate ( Refer Note 1 below ) 9,683 18,225109,683 18,225Note :1. In accordance with the scheme of arrangement with Indo Rama Synthetics (India) Ltd.(IRSL), part of the Loan taken by IRSL from a Financial Institution namely DEG –Deutsche Investitions – undEntwicklungsgesellschaft Gmbh was supposed to have beentransferred to the Company. However, the Company had entered into a tripartiteagreement with DEG and IRSL in respect of the said loan taken from DEG by IRSL, as per106

which, IRSL had agreed to retain the entire loan in its books. Accordingly, the Companyhas shown in its books an amount due to IRSL equivalent to the amount that would havebeen transferred by DEG to the Company as per the scheme of arrangement. Also, to theextent of loan retained by IRSL in its books, the Company has given a guarantee to DEG tomake up for the default by IRSL, if any, in repayment of loan amount that had to betransferred to the Company under the Scheme of arrangement.2. Loans aggregating to Rs.109,683 thousand ( Previous year Rs.9,113 thousand) are repayablewithin one year.SCHEDULE 5: FIXED ASSETS Rs.’000Land- Road & Plant & Furniture Vehicles Total PreviousLeasehold Building Machinery & OfficeYearEquipmentsGross BlockAt 01.04.2004 13,042 320,115 2,373,038 35,809 2,254 2,744,258 2,672,016Additions - 1,740 30,636 1,609 - 33,985 91,148Deductions - - 10,898 2,773 - 13,671 18,906At 31.03.2005 13,042 321,855 2,392,776 34,645 2,254 2,764,572 2,744,258DepreciationAt 01.04.2004 1,385 83,558 1,262,327 22,127 705 1,370,102 1,255,422For the year 138 7,947 121,209 2,242 164 131,700 129,702Deletions/Adjustments (19) 4 7,945 1,378 - 9,308 15,022At 31.03.2005 1,542 91,501 1,375,591 22,991 869 1,492,494 1,370,102Net Block :At 31.03.2005 11,500 230,354 1,017,185 11,654 1,385 1,272,078 1,374,156At 31.03.2004 11,657 236,557 1,110,711 13,682 1,549 1,374,156 -Capital WIP - 1,299Capital Advances - 1,020- 2,3191. Additions to and deductions from Plant & Machinery include Rs.1,440 thousand (Previousyear Rs. 1,039 thousand) and Rs. Nil ( Previous year Rs.296 thousand ) respectively onaccount of foreign exchange fluctuation.2. Land and Roads and Building amounting to Rs. 8,352 thousand and Rs. 320,115 thousandand Rs.640 thousand respectively, transferred from Indo Rama Synthetics (India) Limitedunder the scheme of arrangement, are yet to be registered in the Company’s name.3. Charges created in respect of certain properties prior to demerger from IRSL against the loanstaken by IRSL are yet to be satisfied.31.03.2005Rs.’00031.03.2004Rs.’000SCHEDULE 6 : INVESTMENTS Nos. Nos.I) Long Term, At cost- Other than trade, quotedFully Paid-up Equity Shares of Rs. 10 eachIndo Rama Synthetics (India) Limited 42,000 1,667 42,000 1,667II) Current107

- Other than trade quotedFully Paid-up Equity Shares of Rs.10 eachContainer Corporation of India Ltd. - - 6,000 2,577Indian Hotels Co. Ltd. - - 7,500 1,967Indian Oil Corporation Ltd. - - 12,000 4,103- 8,647TOTAL I + II 1,667 10,314Market Value of Quoted Long Term Investments 2,768 2,964Market Value of Quoted Current Investments - 13,43031.03.2005Rs.’00031.03.2004Rs.’000SCHEDULE 7 : DEFERRED TAXDeferred Tax AssetsBrought forward unabsorbed depreciation 287,798 384,767Expenditure debited to profit and loss account in the currentyear but allowed for tax purposes in following years 9,885 10,012Provision for doubtful debts and advances 11,122 11,267Gross Deferred Tax Assets 308,805 406,046Deferred Tax LiabilitiesDifferences in depreciation and other differences in blockof fixed assets as per tax books and financial books 269,968 292,443Gross Deferred Tax Liabilities 269,968 292,443Deferred Tax Assets (net) 38,837 113,603SCHEDULE 8 : INVENTORIESRaw materials 134,661 393,001Stores and spares 19,853 29,321Work-in-progress 54,051 52,869Finished goods 139,908 128,054Waste 9,392 6,723357,865 609,968SCHEDULE 9 : SUNDRY DEBTORSDebts outstanding for a period exceeding six monthsUnsecured, considered good 2,453 2,717Considered doubtful 32,165 30,755Other debtsUnsecured, considered good 238,231 197,905272,849 231,377Less: Provision for doubtful debts 32,165 30,755240,684 200,622SCHEDULE 10 : CASH & BANK BALANCECash on Hand 6,290 8,573Balances with Scheduled Banks :On current accounts 285 2,350On cash credit accounts 5,449 -On deposit accounts 67 167108

On unpaid Interest on debenture accounts 1,012 1,163On unpaid dividend accounts 408 27813,511 12,531Included in Cash on hand are :Collections in transit 5,712 7,536Cheques on hand - 155Included in deposit accounts are:Receipts pledged with sales tax authorities 35 135SCHEDULE 11 : OTHER CURRENT ASSETSInterest accrued on deposits and others 45 45Claims and other receivables 168,325 66,739Fixed assets held for sale (at net book value or estimatednet realizable value, whichever is lower) 1,513 1,432169,883 68,216SCHEDULE 12: LOANS AND ADVANCESUnsecured, considered goodAdvances recoverable in cash or in kind or for value to be received 97,550 26,452Balance with customs, excise, etc 29,160 14,681Payment of income tax/ tax deducted at source 14,777 5,321Deposits-others 6,933 3,956Loans to employees 447 699Unsecured, considered doubtful Advances recoverable incash or in kind or for value to be received 876 653149,743 51,762Less : Provision for doubtful advances 876 653148,867 51,109Included in loans and advances are :Due from an officer of the Company - 6Maximum amount outstanding during the year 88 122Due from a director of the Company - -Maximum amount outstanding during the year 20 23SCHEDULE 13: LIABILITIESAcceptances 148,560 264,217Sundry creditors 93,789 143,893Advances from customers 6,299 8,329Deposits from dealers and others 2,421 2,773Investor Education and Protection Fund- Interest accrued but not due on loans - 13Unpaid dividend 408 278Interest accrued but not due on loans 4,008 3,526Unaccrued income 15,082 758Other liabilities 6,944 8,802277,511 432,589Dues to small scale industrial undertakings included inSundry creditors 2,794 7,712Dues to other than small scale industrial undertakingsincluded in Sundry creditors 90,995 136,181109

The names of small scale industrial undertakings (to the extent of information available with themanagement) to whom amounts are outstanding for more than 30 days are as under:Gondwana Packers (P) Ltd.; Shree Gajanand Plastics Pvt. Ltd; Sureka Paper Containers Pvt. Ltd;S.S.Packing Industries, Suresh Polymers Pvt. Ltd.; Tirupati Packo Plast; Unique Poly Pack Pvt. Ltd.None of the aforesaid outstandings are due for payment as at 31st March, 2005 as per the payment termsagreed with the respective parties.Included in Sundry creditors:Book overdraft from banks 3 2,071SCHEDULE 14: PROVISIONSTaxation 22,100 11,600Proposed dividend on preference shares - 9Proposed dividend on equity shares 62,357 46,767Tax on proposed dividend 8,745 5,993Gratuity 22,630 18,594Leave encashment 6,358 6,142122,190 89,105SCHEDULE 15: MISC. EXPENDITURE(to the extent not written off or adjusted)31.03.2005Rs.’00031.03.2004Rs.’000Share/Debenture Issue ExpensesBalance as per last account 798 1,400Less : Written off 798 - 602 798GDR Issue ExpensesBalance as per last account - 3,886Less : Written off - - 3,886 -- 79831.03.2005Rs.’00031.03.2004Rs.’000SCHEDULE 16: OTHER INCOMEInterest others (Gross, Tax Deducted at Source Rs. 731thousand, Previous year Rs. 225 thousand) 6,792 9,013Rent income 1,173 1,292Dividend income from current non-trade investments 126 3,168Profit on sale of current non-trade investments (net) 1,909 1,648Sale of scrap (net of excise duty Rs. 219 thousand, Previousyear Rs.166 thousand) 7,027 4,621Unspent liabilities written back 4,118 8,423Foreign exchange fluctuation (net) 41,517 82,294Profit on sale of raw material and stores 80- -Miscellaneous income 18,308 12,50881,050 122,967SCHEDULE 17: PERSONNEL EXPENSESSalaries, wages and bonus 204,081 215,003Contribution to provident fund 5,900 6,255Contribution to other funds 8,724 8,879Workmen and staff welfare expenses 12,025 12,748230,730 242,885110

SCHEDULE 18: OPERATING AND OTHER EXPENSESConsumption of stores and spares 103,561 90,759Packing materials consumed 61,460 57,785Power and fuel 345,071 329,434Repairs and Maintenance:Plant and machinery 10,156 4,739Buildings 2,613 1,878Others 2,170 1,825Cost of outsourcing activities 12,850 6,108Rent ( including lease rent and hire charges) 2,584 2,822Rates and taxed 5,306 2,870Insurance (net) 6,703 4,974Brokerage and commission on sales (other than to soleselling agent) 18,584 22,075Discounts, rebates and claims 9,648 6,854Freight and forwarding charges 119,895 107,005Directors’ sitting fee 365 195Auditor’s remuneration:- Audit fee 1,000 1,101- Tax audit fee 250 189- Limited review of financial statements 616 454- Certification etc 16 5- Out of pocket expenses 45 63Loss on fixed assets sold /discarded (net) 969 870Donations and contributions (other than to political parties) 322 34Bad debts and other balances written off (net) 535 1,533Provision for doubtful debts and advances (net) 1,687 4,218Miscellaneous expenses 80,054 83,466786,460 731,256SCHEDULE 19: DECREASE/(INCREASE) IN INVENTORIESInventories as at March 31, 2005-Finished goods 139,908 128,054-Work-in-progress 54,051 52,869-Waste 9,392 6,723203,351 187,646Inventories as at March 31, 2004-Finished goods 128,054 149,980-Work-in-progress 52,869 59,694-Waste 6,723 1,460187,646 211,134Difference of Excise duty on stocks of Finished goods andWaste 270 (4,630)(15,435) 18,858111

SCHEDULE 20: INTERESTInterest- On fixed loans 12,693 10,308- Others 46,504 55,60359,197 65,911SCHEDULE 20: EARNINGS PER SHARE (EPS)Net profit as per profit and loss account 122,794 92,494Less: Preference dividend and tax thereon 8 10Net Profit for calculation of basic and diluted EPS 122,786 92,484Number of equity shares of Rs. 10 each at the beginning ofthe year 31,178,288 33,342,663Less : Decrease in number of equity shares pursuant to thescheme of arrangement with IRSL w.e.f. 1 st April, 2002. - (8,042): Equity shares converted into redeemable preferenceshares. - 2,156,333Total number of equity shares of Rs. 10 each at the end ofthe year 31,178,288 31,194,372Weighted average number of equity shares of Rs.10 each atthe end of the year for calculation of basic and diluted EPS 31,178,288 32,006,191Basic and Diluted Earnings Per Share (In Rupees) 3.94 2.89CASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH, 200531.03.2005Rs.’00031.03.2004Rs.’000A) Cash flow from operating activitiesNet profit before tax 208,060 178,100Adjustments for:Depreciation 131,700 129,702Loss on fixed assets sold / discarded (net) 969 870Profit on sale of current non-trade investments (net) (1,909) (1,648)Foreign Exchange loss / (gain) (net) 24,372 (22,825)Interest income (6,792) (9,013)Dividend income from current non-trade investments (126) (3,168)Interest expense 59,197 (65,911)Bad debts written off - 1,568Provision for doubtful debts and advances (net) 1,633 4,218Operating profit before working capital changes 417,104 343,715Movements in working capital:Decrease / (Increase) in inventories 252,103 (95,470)Increase in sundry debtors (37,159) (122,485)Increase in other current assets (101,667) (51,894)Increase in loans & advances (82,858) (24,848)(Decrease) / Increase in current liabilities and provisions (151,798) 99,880112

Cash generated from operations 295,725 148,898Direct taxes paid (net) (9,456) (5,052)Net cash from operating activities 286,269 143,846B) Cash flows used in investing activitiesPurchase of fixed assets (30,226) (87,693)Proceeds from sale of fixed assets 3,393 2,088Purchase of investments - (67,656)Sale of investments 10,556 60,657Dividends received 126 3,168Interest received 6,732 9,036Net cash used in investing activities (9,419) (80,400)C) Cash flows used in financing activitiesRedemption of preference share capital (32,345) (32,344)Adjustment in share capital as per Scheme of Arrangement - (81)Proceeds from long term borrowings 100,000 348,441Repayment of long term borrowings (63,678) (608,921)(Repayment of)/Proceeds from short term borrowings (net) (162,808) 365,847Dividend paid (46,653) (33,116)Tax on dividend paid (5,994) (4,272)Interest paid (64,392) (88,598)Net cash used in financing activities (275,870) (53,044)Net increase in cash and cash equivalents (A+B+C) 980 10,402Cash and cash equivalents at the beginning of the year 12,531 2,129Cash and cash equivalents at the end of the year 13,511 12,531Components of cash & cash equivalentsCash and cheques on hand 6,290 8,573With banks - on current accounts 285 2,350- on cash credit accounts 5,449 -- on deposit accounts 67 167- on unpaid interest on debentures account 1,012 1,163- on unpaid dividend accounts 408 278Notes:1. The cash flow statement has been prepared under the indirect method as set out in AccountingStandard - 3 on Cash Flow Statements issued by the Institute of Chartered Accountants ofIndia.2. Negative figures have been shown in brackets.113

AMIT SPINNING INDUSTRIES LIMITEDAUDITORS’ REPORT FOR THE PERIOD ENDED MARCH 31, 2006To the Members of AMIT SPINNING INDUSTRIES LIMITED1. We have audited the attached Balance Sheet of AMIT SPINNING INDUSTRIESLIMITED, as at March 31, 2006 and also the Profit and Loss Account of the Company andthe Cash Flow Statement of the Company for the Period ended on that date annexed thereto.These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audit.2. We conducted our audit in accordance with auditing standards generally accepted in India.Those Standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.3. As required by the Companies’ (Auditor’s Report) Order, 2003 issued by the CentralGovernment in terms of Section 227(4A) of the Companies Act, 1956, we enclose in theAnnexure a statement on the matters specified in the paragraph 4 and 5 of the said Order.4. Further to our comments in Annexure referred to in paragraph 3 above, we report that:a. We have obtained all the information and explanation which, to the best of ourknowledge and belief were necessary for the purpose of our audit;b. In our opinion, proper books of accounts as required by law have been kept by theCompany so far as appears from our examination of those books;c. The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account;d. In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementcomply with the Accounting Standards referred to in sub-section (3C) of Section 211of the Companies Act, 1956;e. On the basis of the written representations received from the public companies inwhich the Directors of the Company are directors, as on March 31, 2006, and takenon record by the Board of Directors, we report that none of the directors aredisqualified as on March 31, 2006 from being appointed as a director in terms ofclause (g) of sub-section (1) of section 274 of the Companies Act, 1956.f. Subject to Note (3) of Schedule 20 regarding provision of interest to small scale andancillary units and Note (5) of Schedule 20 regarding granting of loans in excess oflimits prescribed under Section 372A of the Companies Act 1956, in our opinion andto the best of our information and according to the explanations given to us, the saidaccounts, together with notes thereon, give the information required by the114

Companies Act, 1956 in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India :i. In the case of Balance Sheet, of the state of affairs of the Company as atMarch 31, 2006;ii.iii.In the case of Profit and Loss Account, of the profit for the Period ended onthat date; andIn the case of Cash Flow Statement, of the cash flows for the Period ended onthat date.Annexure referred to in paragraph 3 of the Auditors’ Report of even date to the members ofAMIT SPINNING INDUSTRIES LIMITED on the accounts for the period ended March 31,2006.On the basis of such checks as we considered appropriate and in terms of information andexplanations given to us, we state that:(i) (a) The Company has maintained proper records showing full particulars, includingquantitative details and situation of Fixed assets.(b)(c)As explained to us, the company has a procedure to carry out physical verification offixed assets at reasonable intervals, which in our opinion is reasonable having regardto the size of the company and the nature of its assets. No material discrepancies werenoticed on such verification.During the period, the Company has not disposed off any substantial part of its fixedassets, so as to affect its going concern.(ii) (a) The inventories have been physically verified by the management during the period.In our opinion, the frequency of verification is reasonable.(b)(c)In our opinion and according to the information and explanations given to us, theprocedures of physical verification of inventories followed by the management arereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.The Company is maintaining proper records of inventory. The discrepancies noticedon verification between physical inventories and book records were not material inrelation to the operations of the Company and the same have been properly dealt within the books of account.(iii) (a) As per the information furnished, the Company has not granted any loans, secured orunsecured, to companies, firms or other parties covered in the register, maintainedunder Section 301 of the Companies Act, 1956.(b)As the Company has not granted any such loans, Clause (iii)(b) of the Order relatingto the rate of interest and other terms and conditions, whether prima facie prejudicialto the interest of the Company, Clause (iii)(c) relating to regularity of the receipt of115

principal amount and interest and Clause (iii)(d) relating to steps for recovery ofoverdue amount of more than rupees 0.1 Mn, are not applicable.(c)As the Company has not taken any loans, secured or unsecured from companies,firms or other parties covered in the register maintained under Section 301 of the Act,Clause (iii)(f) of the Order relating to the rate of interest and other terms andconditions, whether prima facie prejudicial to the interest of the Company and Clause(iii)(g) relating to regularity of payment of the principal amount and interest, are notapplicable.(iv)In our opinion and according to the information and explanations given to us, there isadequate internal control system commensurate with the size of the Company and the natureof its business with regard to purchase of inventory and fixed assets and for the sale of goodsand services. During the course of our audit, we have not observed any continuing failure tocorrect major weakness in the internal control system.(v) (a) According to the information and explanations given to us and the records of theCompany examined by us, the particulars of contracts or arrangements referred to inSection 301 of the Act have been entered into the Register required to be maintainedunder that Section; and(b)In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of such contracts or arrangements entered into theregister in pursuance of Section 301 of the Act and exceeding the value of Rupees 0.5Mn in respect of any party during the period, have been made at prices which arereasonable, having regard to prevailing market prices at the relevant time, whereverapplicable.(vi)In our opinion and according to the information and explanations given to us, the Companyhas complied with the provisions of Section 58A and 58AA of the companies (Acceptance ofdeposits) Rules 1975 with regard to the deposits accepted from the public. No order has beenpassed by the Company Law Board.(vii)The Internal audit of the Company has been carried out. In our opinion the scope of Internalaudit is commensurate with the size of the Company and the nature of its business operations.(viii)We have broadly reviewed the books of account relating to materials, labour and other itemsof cost maintained by the Company pursuant to the rules made by the Central Government forthe maintenance of Cost Records under Section 209 (1)(d) of the Companies Act, 1956, andwe are of the opinion that prima facie the prescribed accounts and records have been madeand maintained. We have, however, not made a detailed examination of the records with aview to determine whether they are accurate or complete.(ix) (a) According to the information and explanations given to us and the records examinedby us, the Company has not been regular in depositing undisputed statutory duesincluding Provident Fund, Investor Education and Protection Fund, Employees’ StateInsurance, Income-Tax, Sales-Tax, Wealth-Tax, Service–Tax, Customs Duty, ExciseDuty, Cess and other material Statutory dues applicable to it with appropriate116

authorities. The amount of statutory dues outstanding as on March 31, 2006 for aperiod of six months from the date they became payable is as follows :Statutory Dues/Cess Amount outstanding Amount Paid Payment dateas on March 31, 2006 subsequentlyTax Deducted at Sources Rs.32,094 - -(b)According to the information and explanations given to us, as may be applicable,given hereinbelow are the details of dues of Income Tax, Sales Tax, Wealth Tax,Service Tax, Customs Duty, Excise Duty, Cess which have not been deposited onaccount of disputes and the forum where the dispute is pending :Name of theStatue1. Central ExciseAct, 19442. Central ExciseAct, 1944Nature ofthe duesAmount in(Rupees)Period to whichthe amount relateForum wheredisputes pendingExcise Duty 80,408 2001-02 Central Excise andand PenaltyService TaxAppellate TribunalExcise Duty 77,74,241 2004-05 Central Excise andService TaxAppellate Tribunal(x)The accumulated losses of the Company as on March 31, 2006 are less than fifty percent of itsnet worth and the Company has incurred cash losses during the financial period covered byour audit and the immediately preceding financial period.(xi)The Company has implemented the package of Corporate Debt Restructuring as approved bythe CDR Cell and accordingly, the Company has been discharged of consequences, if anyexcept in the case of loan from bank of Rajasthan, of the past defaults by the Company inrepayment of the loans to banks and financial institutions.(xii)According to the information and explanations given to us and based on the documentsproduced to us, the Company has not granted any loans and / or advances on the basis ofsecurity by way of pledge of shares, debentures and other securities.(xiii)In our opinion, the Company is not a chit fund or Nidhi / mutual benefit fund / society.Therefore the provisions of Clause 4 (xiii) of the Order are not applicable to the company.(xiv)According to the information and explanations given to us, as the Company is not dealing ortrading in shares, securities, debentures and other investments, the requirements of Clause4(xiv) of the Order are not applicable.(xv)As explained to us, the company has given guarantee for Housing loans taken by employeesfrom HDFC Bank. The terms and conditions whereof are not prejudicial to the interest of thecompany.(xvi)In our opinion, the term loans availed by the company were prima facie, applied for thepurpose for which the loans were obtained.117

(xvii) According to the information and explanations given to us and on an overall examination ofthe balance sheet of the Company, we report that the funds raised on short term basis have notbeen utilised for long term investments.(xviii) According to the information and explanations given to us, as the Company has not madepreferential allotment of shares to parties and companies covered in the register maintainedunder section 301 of the Act.(xix)According to the information and explanations given to us, as the Company has not issuedany debentures, the question of creating security or charges in respect thereof does not arise.(xx)According to the information and explanations given to us, the Company has not raised anymoney by public issues during the period, Clause 4 (xx) of the Order is not applicable.(xxi)Based on the audit procedures performed and information and explanations given to us by themanagement, we report that, no fraud, on or by the Company, has been noticed or reportedduring the course of our audit.AMIT SPINNING INDUSTRIES LIMITEDBalance Sheet as at 31st March, 2006ScheduleAs atMarch, 31 2006(Rupees)As atSept. 30, 2004(Rupees)SOURCES OF FUNDSShareholders' FundsShare Capital 1 205,848,335 220,900,000Share Application Money pending Allotment 2 - 20,000,000Reserves & Surplus 47,601,665 3,000,000253,450,000 243,900,000LOAN FUNDSSecured Loans 3 447,212,716 798,602,813Unsecured Loans 4 8,336,238 39,695,633TOTAL 455,548,954 838,298,446708,998,954 1,082,198,446APPLICATION OF FUNDSFIXED ASSETS 5Gross Block 1,020,562,589 1,024,570,010Less: Depreciation 410,725,099 336,886,170Net Block 609,837,490 687,683,840Capital Work-In-Progress - -609,837,490 687,683,840INVESTMENTS 6 4,545,521 21,731DEFERRED TAX ASSET(Refer Note — to Schedule 19) 3,860,850 67,550,890CURRENT ASSETS, LOANS & ADVANCESInventories 7 145,040,233 36,996,062Sundry Debtors 8 12,809,390 18,589,750Cash & Bank Balances 9 4,762,819 13,324,064118

Loans & Advances 10 122,135,919 114,280,849284,748,361 183,190,725LESS: CURRENT LIABILITIES AND PROVISIONS 11 298,873,841 129,995,781NET CURRENT ASSETS (14,125,480) 53,194,944MISCELLANEOUS EXPENDITURE 12 5,882,578 7,852,762( To the extent not written off or adjusted)PROFIT & LOSS ACCOUNT 98,997,994 265,894,279TOTAL 708,998,954 1,082,198,446Significant Accounting Policies 19Notes to Accounts 20Cash flow Statement 21AMIT SPINNING INDUSTRIES LIMITEDPROFIT & LOSS ACCOUNT FOR THE PERIOD OCTOBER 04 TO MARCH 06ScheduleAs atMarch, 31 2006(Rupees)As atSept. 30, 2004(Rupees)Sales 13 713,296,510 938,599,983Other Income 14 313,222,416 5,150,266Accretion/(Decretion) to Stock 15 (428,810) (15,044,332)TOTAL 1,026,090,116 928,705,917EXPENDITUREMaterial Cost 16 438,384,677 681,618,298Other Expenses 17 307,497,763 284,835,050Interest & Financial Costs 18 93,866,385 83,994,662Depreciation 76,244,699 78,453,807Miscellaneous Expenditure Written off 1,970,184 2,834,599TOTAL 917,963,708 1,131,736,416Profit for the year 108,126,408 (203,030,499)Add: Prior Period items 32,340,400 (27,540,610)Profit before tax 140,466,808 (230,571,109)Less:Taxation: Current Year - -: Deferred Tax 63,690,042 (70,896,650): Fringe Benefit Tax 330,477 -Profit after Tax 76,446,289 (159,674,459)Add : Balance As Per Last Balance Sheet. (175,444,283) (131,219,820)Profit available for Appropriation (98,997,994) (290,894,279)AppropriationsInterim Dividend on Preference Shares - -Add : Corporate Dividend Tax - -Proposed Dividend on Equity Shares - -Add : Corporate Dividend Tax - -Transfer from General Reserve - 25,000,000Balance carried to Balance Sheet (98,997,994) (265,894,279)TOTAL (98,997,994) (290,894,279)119

AMIT SPINNING INDUSTRIES LIMITEDSCHEDULES ATTACHED TO AND FORMING PART OF THE ACCOUNTSSchedule As atMarch, 31 2006(Rupees)As atSept. 30, 2004(Rupees)SCHEDULE 1SHARE CAPITALAuthorised5,00,00,000 Equity Shares of Rs. 5 each. 250,000,000 190,000,0006,00,000 16% Redeemable Cumulative Preference Shares ofRs. 100 each- 60,000,000250,000,000 250,000,000Issued Subscribed and paid up4,11,69,667 Equity Shares of Rs. 5 each fully paid up 205,848,335 180,900,0003,00,000 12% Redeemable Cumulative Preference Shares of- 30,000,000Rs. 100 each fully paid up.1,00,000 14% Redeemable Cumulative Preference Shares of- 10,000,000Rs. 100 each fully paid up.TOTAL 205,848,335 220,900,000SCHEDULE 2RESERVES & SURPLUSCapital ReserveState Subsidy 3,000,000 3,000,000Share Premium 44,601,665 -TOTAL 47,601,665 3,000,000SCHEDULE 3SECURED LOANSTerm Loans from Financial Institutions/BanksRupee Loans 37,244,637 484,050,193Interest accrued and due thereon 1,607,980 75,459,660Term Loan 398,217,338 -Foreign Currency Loans - 72,882,240Interest accrued and due thereon - -Working Capital Borrowings from Banks 10,142,762 166,210,720TOTAL 447,212,716 798,602,813SCHEDULE 4UNSECURED LOANSFixed Deposits 1,829,000 2,226,000From Bodies Corporate 4,008,566 6,250,026From Others 2,498,672 31,219,607TOTAL 8,336,238 39,695,633120

SCHEDULE 5 - FIXED ASSETS ( CONSOLIDATED ) AS AT 31ST MARCH, 2006Item Gross Block ( At Cost ) Depreciation Net BlockDeletionsDeletionsAs at Additions DuringOctober, 04 During Upto MarchAs atOctober 01, During Oct. Oct. 04 - As at March Upto Sept. to March, the 31, 2006 As at March September2004 04 - Mar. 06 Mar. 06 31, 2006 30, 2004 06 period Accumulated 31, 2006 30, 2004Freehold Land 6,173,223 - - 6,173,223 - - - - 6,173,223 6,173,223Building 135,914,041 0 0 135,914,041 23,775,457 4,353,928 - 28,129,385 107,784,656 112,138,584Plant & Machinery 837,868,640 381,396 4,190,618 834,059,418 289,684,184 66,078,709 2,210,657 353,552,236 480,507,181 548,184,456Furniture &Fixture 7,866,509 50,000 0 7,916,509 3,030,957 739,565 0 3,770,522 4,145,987 4,835,552FactoryEquipments 7,554,487 0 0 7,554,487 5,440,684 466,506 0 5,907,190 1,647,297 2,113,803Vehicles 5,781,940 0 339,250 5,442,690 2,522,855 774,422 195,131 3,102,146 2,340,544 3,259,085Office Equipments 23,411,186 91,037 0 23,502,223 12,432,052 3,831,569 0 16,263,621 7,238,603 10,979,134TOTAL 1,024,570,025 522,433 4,529,868 1,020,562,590 336,886,188 76,244,699 2,405,788 410,725,099 609,837,490 687,683,837Previous year(Total) 1,044,041,800 16,427,060 35,898,850 1,024,570,010 266,480,890 78,453,810 8,048,530 336,886,170 687,683,840 777,560,900121

SCHEDULE 6INVESTMENTS (AT COST)250 shares of Shamrao Vithal Co-Op Bank Ltd of Rs. 102,500 2,500each fully paid up1 share of United Yarn of Rs.31 each 31 31500 shares of Datta Nagari 5,000 5,000LOTUS HOUSE INVESTMENTS 1,500 -1420 shares of Saraswat Co-op Bank Ltd of Rs. 10 each fully14,200 14,200paid upMyantrade Corporation Pte*(*Ref. to Note No. 22 of4,522,290 -Schedule 20)TOTAL 4,545,521 21,731SCHEDULE 7INVENTORIES (As valued and certified by themanagement)Raw Materials (including in transit Rs. Nil ( Rs 33.95 lacs )) 121,001,856 12,794,006Stores and Spares 4,459,247 4,166,659Packing Materials 1,005,159 1,032,616Stock in Process 7,624,413 6,575,651Finished Goods 7,531,651 10,166,059Waste 3,417,907 2,261,071TOTAL 145,040,233 36,996,062SCHEDULE 8SUNDRY DEBTORS (Unsecured, considered good)Outstanding for a period exceeding 6 months 37,747,058 47,836,810Other Debts 12,809,390 13,324,500Less: Provision for Doubtful Debts (37,747,058) (42,571,560)TOTAL 12,809,390 18,589,750SCHEDULE 9CASH & BANK BALANCESCash on Hand 535,155 1,404,183Balances with Scheduled Banks inCurrent Accounts 100,780 1,214,051Time Deposit Accounts 4,126,884 10,705,830TOTAL 4,762,819 13,324,064SCHEDULE 10LOANS & ADVANCES(Unsecured, Considered good)LoansTo Bodies Corporate 17,604,496 13,706,249To Companies under the same management 69,349,937 -To Technical Director-Employee 849,973 -To Others 590,455 11,520,198Advances recoverable in cash or in kind or for value to be27,216,355 84,954,116receivedDeposits 5,603,238 3,459,975Tax Deducted at Source 921,465 640,311TOTAL 122,135,919 114,280,849SCHEDULE 11CURRENT LIABILITIES & PROVISIONSSundry Creditors 190,224,675 71,383,238Credit Balance of UTI Bank 84,826,937 -122

Other Liabilities 23,332,196 46,253,337Interest accrued but not due 490,033 12,359,206TOTAL 298,873,841 129,995,781SCHEDULE 12MISCELLANEOUS EXPENDITURE(To the extent not written-off or adjusted)Preliminary Expenses 7,500 52,710Share Issue Expenses 83,025 989,756Deferred Revenue Expenses 7,762,237 9,644,8957,852,762 10,687,361Less: written Off for the year 1,970,184 2,834,599Balance Carried Forward 5,882,578 7,852,762SCHEDULE 13SALESYarn 643,164,293 912,815,560Waste 54,990,863 60,830,830Conversion Charges 15,642,620 -TOTAL 713,797,776 973,646,390Less :Excise duty 501,266 (35,046,407)TOTAL 713,296,510 938,599,983SCHEDULE 14OTHER INCOMELoan Balances Written back 306,501,517 -Others 6,720,899 5,150,266TOTAL 313,222,416 5,150,266SCHEDULE 15ACCRETION/(DECRETION) TO STOCKSStock as on Sept 30,2004Finished Goods 10,166,059 24,869,151Stock in Process 6,575,651 8,392,379Saleable Waste 2,261,071 785,583Stock of Trading Yarn - -19,002,781 34,047,113Stock as on March 31, 2006Finished Goods 7,531,651 10,166,059Stock in Process 7,624,413 6,575,651Saleable Waste 3,417,907 2,261,071Stock of Trading Yarn - -18,573,971 19,002,781Accretion/(Decretion) to Stocks (428,810) (15,044,332)SCHEDULE 16COST OF MATERIAL AND OTHER EXPENSESRaw MaterialsOpening Stock 9,662,574 8,148,030Add: Purchases 519,888,488 611,822,252Less: Closing Stock 121,001,856 9,662,574Raw Material consumption 408,549,206 610,307,708Stores & Spares consumption 10,976,382 16,820,058Packing Material consumption 16,716,494 14,698,685Purchase of Fabric 109,066 -Purchase of Yarn for trading 2,033,529 39,791,847Purchase of Cotton for trading - -123

TOTAL 438,384,677 681,618,298SCHEDULE 17OTHER EXPENSESSalaries, Wages and Stipend 67,663,732 56,492,160Contribution to Provident Fund 5,406,329 4,936,880Welfare Expenses 1,830,973 1,771,420Managerial remuneration 3,380,106 3,617,090Power & Fuel 126,192,798 86,459,180Commission on Sales 9,332,976 8,445,150Freight for Exports 6,053,443 17,244,250Clearing & Forwarding 804,817 590,160Insurance 3,940,496 4,779,250Rent - 42,390Rates & Taxes 532,754 2,412,080Repairs & Maintenance- Plant & Machinery 611,348 623,640- Buildings 550,490 281,480- Others 2,406,997 2,434,320Auditors’ Remuneration- Audit Fees 417,330 163,100- Tax Audit Fees 25,000 54,550- Others 41,632 82,670Debonding duty 105,417 2,903,390Loss on sale of assets 624,354 7,774,620Legal & Professional fees 9,085,798 5,597,261Travelling Expenses 1,316,711 1,602,738Foreign Travelling Expenses 535,332 817,356Lease Rent 4,788,200 4,596,015Vehicle Expenses 3,791,684 2,849,667ECGC Premium Charges 1,845,430 2,649,227Bad & Doubtful Debts Prov - 42,571,560Provision for Doubtful Advances - 9,235,000Bad Debts/doubtful advances written off 34,212,399 -Sundry Expenses 22,001,217 13,808,446TOTAL 307,497,763 284,835,050SCHEDULE 18INTEREST AND FINANCIAL COSTSInterest on Term Loans 77,023,928 45,830,490Others 19,794,326 40,119,167Total 96,818,254 85,949,657Less : Interest Income (2,951,869) (1,954,995)Gross -TDS Rs.0.96 lacs ( Rs.3.26 lacs)TOTAL 93,866,385 83,994,662SCHEDULE 19SIGNIFICANT ACCOUNTING POLICIES1. SYSTEM OF ACCOUNTINGThe Company follows the accrual system of accounting except leave encashment.124

2. OVERALL VALUATION POLICYThe accounts have been prepared under the historical cost convention.3. REVENUE RECOGNITIONSales are recognised at the time of dispatch from the factory and are net of claims,Compensation paid.4. VALUATION OF INVENTORYItem of inventory(a) Raw material(b) Work In Progress(c) Finished Goods(d) Stores and Spares(e) Packing Material(f) Saleable WasteValuation methodAt cost or net realisable value whichever is lowerAt CostAt cost or net realisable value whichever is lowerAt CostAt cost or net realisable value whichever is lowerAt net realisable value5. FIXED ASSETSAll fixed assets are stated at original cost less depreciation. Interest incurred on borrowingspecifically raised for projects are capitalised to the cost of assets until such time that the assetis ready to be put to use for its intended purpose.6. DEPRECIATIONDepreciation has been provided on straight-line method in accordance with the ratesprescribed under Schedule XIV to the Companies Act, 1956 (as amended by notification noGSR 756(E) dated December 16, 1993 issued by Department of Company affairs).Accordingly, depreciation on assets acquired during the period and whose actual cost does notexceed five thousand rupees has been provided at the rate of hundred percent. On the basis oftechnical advice, the Company has treated its spinning Process Plant as a Continuous ProcessPlant and has provided depreciation accordingly.7. FOREIGN CURRENCY TRANSACTIONSa. EXPORT SALESales for which forward contract have been entered into have been recognised at theforward contract rate. Sales for which no forward contract has been entered into arerecorded at the rates prevailing on the date of transaction except sales in transit of Rs.NIL (Previous year Rs.42.23 Lacs), which have been recorded at rate at end of theperiod. The exchange rate difference arising at the time of realisation has beenrecognised in the Sales Account.b. EXPENDITUREAll expenditure has been recorded at the rates prevailing as on the date of transactionand outstanding liabilities at the rates at the close of the period, or at the forwardcontract rates wherever applicable.125

c. LOANS FOR ACQUIRING FIXED ASSETS8. GRATUITYValued at the rate at the close of the period or at rate of exchange prevailing on thedate of such transaction or at forward contract rates, where applicable and theresulting difference on exchange fluctuation, if any, is adjusted to the respective assetaccounts.Gratuity has been provided in accordance with the valuation specified in life InsuranceCorporation Policy.9. LEAVE ENCASHMENTThe Company has accounted the leave encashment on payment basis, in accordance with theCompany’s leave rules.10. INVESTMENTSInvestments have been classified as long-term investments and are stated at cost.11. TAXES ON INCOME:Current tax is determined on the amount of tax payable in respect of taxable income for theperiod. Deferred tax is recognized, subject to the consideration of prudence in respect ofdeferred tax assets, on timing difference, being the difference between taxable Income andaccounting Income that originate in one period and are capable of reversal in one or moresubsequent periods.12. IMPAIRMENT OF ASSETSAs at each Balance sheet date, the carrying amount of assets is tested for impairment so as todetermine.a) The provision for impairment, if any, required; orb) The reversal, if any, required of impairment loss recognised in previous period.Impairment loss is recognised when the carrying amount of an asset exceeds itsrecoverable amount. Recoverable amount is determineda) In the case of an individual asset, on the higher of the net selling price and the valuein use.b) In the case of a cash-generating unit, on the higher of the cash generating units netselling price and value in use.(Value in use is determined on the present value of estimated future cash flows fromthe continuing use of an asset and from its disposal at the end of its useful life)13. MISCELLANEOUS EXPENDITUREPreliminary expenses and share issue expenses are being amortised over a period of 10 yearsfrom the commencement of commercial production.126

SCHEDULE 20NOTES TO ACCOUNTS1. Contingent liabilities not provided for in respect of:a. Bank Guarantees outstanding Rs. 49.98 Lacs(Previous period Rs. 158.75 Lacs)b. Letters of credit with banks Rs. Nil(Previous period Rs. 308.39 Lacs)c. Bills discounted but not realised Rs. Nil(Previous Year Rs. 226.69 Lacs)d. The Company has guaranteed repayment the Housing Loan taken from HDFC by theemployees, in the event of their ceasing employment with the company and nonpaymentof the loan. The amount outstanding is Rs. 245.98 Lacs (Previous Year Rs.216.50 Lacs). The employees have entered into an agreement with the company, thatin consideration of the company writing off the loans to the extent of the downpayments made by the employees for acquisition of flats and in consideration of thecompany repaying the entire outstanding dues of employees towards HDFC, theemployees have agreed to convey and transfer the flats to the company under the saidagreements. The company is also required to bear the stamp duty and registrationcharges for conveyance of the flats.e. The Central excise authorities have raised the demand of excise duty ofRs.78,54,649/-. However the company has disputed the said demand before theappellant authority and appeal for the same are pending.f. The Company has undertaken Export Obligation under EPCG Scheme under EXIMPolicy 2002-2007 as a result of deregistration of 100% EOU Status. However, in casethe company fails to fulfill its Export Obligation within 8 Years of License then theCompany will be liable to pay the duty amounting to Rs. 1.66 crores. Against exportobligation of Rs. 22.84 crores, the company has already made exports of Rs. 16.80crores.g. MSEB has asked all Captive Power Plant users including ASIL to compulsorily payminimum usage charges of 25% of previous consumption. The company filed a suitein the High Court who in turn had referred the matter to MERC as advised by theSupreme Court’s ruling. MERC’s decision was in favour of the Company. However,MSEB has filed a writ petition against the MERC Order. The minimum usage chargescomprise of 25% billing amount i.e.Rs.111.08 Lacs and interest on the above till dateis Rs.88.76 Lacs. Undisputed dues of MSEB of Rs. 369.90 Lacs (Provision in theBooks of accounts Rs. 227.55 Lacs) have been settled by the company at Rs. 137.03Lacs and the rest being written back. An old matter of 15 paise per unit generated bythe captive power generators is pending. The cumulative amount from April 2000 toApril 2005 is aggregating to Rs.143.65 Lacs. A writ petition has been filed forwithdrawal of this amount and same has been admitted. From May 2005 onwards thisduty has been abolished and hence, not provided for.h. Gram Panchayat, Sangawade has demanded Gram Panchayat tax of Rs. 3.50 Lacs perannum from the Company. However, the company has challenged the said demand byfiling a civil suit before the Bombay High Court, which is pending for disposal.127

i. M/s Raghunath & Company has charged interest @ 24% p.a of Rs. 91,275/- forfailure to make the payment for purchase of pressed cotton bales within the stipulatedtime. However the company has denied its liability to pay the said interest for whichthe suit for recovery is pending before civil court of junior Civil Judge at Adilabad.j. The company wanted to augment its marketing channel for accelerated exports andaccordingly selected a company in Singapore and made remittance of Rs.7.08 Lacsfor acquiring equity stake in that company. However, due to financial constrainfurther remittance could not be made. In terms of the understanding with the promoterof the said company, further remittance of Rs.38.14 Lacs will be required to be made.Provision for this payment is made in the accounts. Company is following expertsview in this matter.k. The Company had submitted a proposal for the One Time Settlement (OTS) of itsdebts under the Corporate Debt Restructuring Mechanism. The OTS package wasfinalized and approved by the CDR Empowered Group. All the lenders except forBank of Rajasthan conveyed their acceptance. Bank of Rajasthan has not conveyed itsacceptance despite follow up by the company. Bank of Rajasthan has given notice toASIL and Shri. Bharat P. Shah, under section 13 (2) of the Securitisation andReconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’.The said notice has been replied by ASIL through its counsels on 11.5.06, stating thatBOR has failed to fulfill its own obligations under the CDR package and theCompany was willing to pay the OTS amount.The additional contingent liability on this account is Rs. 14,45,135.2. The present Subscribed and Paid up Equity Share Capital of the company has been reducedby 50% from Rs. 18,09,00,00/- (Rupees Eighteen Crores Nine lacs only) divided into1,80,90,000 (one crore eighty lacs nine thousand) fully paid up equity shares of Rs. 10/- eachto Rs.9, 04,50,000/- (Rupees Nine Crore Four Lacs Fifty Thousand) divided in to 1,80,90,000(one crore eighty lacs nine thousand) fully paid up equity shares of Rs. 5/- each by canceling50% of the existing equity share capital of the company pursuant to the special resolutionpassed at Extra Ordinary General Meeting of the Company held on September 10, 2004 andthe Bombay High Court has passed the order dated March 18, 2005 confirming the reductionof share capital.3. The company does not possess information as to which of its suppliers are AncillaryIndustrial Undertaking / Small Scale Industrial Undertaking holding permanent registrationcertificates issued by the Directorate of Industries of a State or Union Territory.Consequently, the liability, if any, of interest which would be payable under ‘The Interest onDelayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993’, cannotbe ascertained. However, the Company has not received any claim in respect of interest.4. The CDR Proposal for restructuring of the debts was approved by the Financial Institutionsand Banks as of April 7, 2004 and IDBI was appointed as a monitoring agency to oversee theimplementation of the scheme.In compliance of the CDR Scheme and pursuant to the provisions of Section 100 of theCompanies Act, 1956 and consent of members and shareholders in the Extra OrdinaryGeneral Meeting of the Company held on September 10th, 2004, The Bombay High Court128

has confirmed vide its order dated April 19, 2005 the reduction of Equity Share capital of theCompany from Rs.18, 09,00,000 (Rupees Eighteen Crores Nine Lacs Only) divided into1,80,90,000 (One Crore Eighty Lacs Ninety Thousand) fully paid up equity shares of Rs.10/-each to Rs.9,04,50,000(Rupees Nine Crores Four Lacs Fifty Thousand only) divided into1,80,90,000 (One Crore Eighty Lacs Ninety Thousand) fully paid up equity shares of Rs. 5/-each by cancelling 50% (Rs.9,04,50,000) of the existing paid up equity share capital of thecompany. Accordingly issued, subscribed and paid up share capital of the company standsreduced.The company has repaid the term loan and the working capital loans as per the CorporateDebt Restructuring package approved by the various Banks and Financial Institutions videletter dated December 27, 2005 issued by the CDR Cell as One Time Settlement (OTS).Further, as a part of the requirement of the CDR Scheme, the Promoters have brought inRs.2.00 Crores and 3,00,000- 12% Redeemable Cumulative Preference Shares of Rs.100 eachheld by the promoters are converted into 60,00,000 Equity Shares of Rs.5/- each. TheCompany has allotted 100,00,000 equity shares of Rs.5 each on preferential basis to thepromoters. As a part of the scheme, promoters were to be paid accrued unpaid dividend on thepreference shares at the end of the scheme.5. During the period the company had granted loans to body corporate exceeding the limitprescribed under Section 372A of the Companies Act, 1956. However in view of the increasein paid up capital by the period ended March 31, 2006 the said loans are within the limitsprescribed under Section 372A.6. UTI Bank has granted a Term Loan of Rs. 40 Crores to the Company to pay off the existinglenders according to OTS Scheme. This is against the first pari passu charge on company’spresent and future movable and immovable assets and collateral guarantee of SpentexIndustry Ltd. and the personal guarantee of Shri Mukund Choudhary and Shri KapilChoudhary. As per the terms if charge is not created within 15 days from the date of loan,then the company will be charged a penal interest @ 2% p.a. The charge has not been createdas on March 31, 2006.7. The Sundry Debtors includes export receivables of Rs. 377.82 Lacs and the Company hasmade a provision for Doubtful Debts for the aforesaid amounts. The Company has also soughtfor the permission of the Reserve Bank of India through its authorized dealer to write offthese debts.8. During the period the company has written off the sundry debtors of Rs. 342.12 Lacs as baddebts and has also written back the advances of Rs. 11.27 Lacs received from sundry debtors,Rs. 6.50 Lacs of MSEB dues and Rs. 1.5 Lacs of Unsecured Loans and the same has beenapproved by the board of directors.9. Sales and Purchase include inter departmental transfers of Rs. Nil (Previous Year Rs. 536.32Lacs).10. Sales (Exports) are adjusted for Gain/(loss) on account of foreign exchange fluctuation of Rs.(-) 0.10 Lacs {Previous Year Rs. (-) 10.14 Lacs}.129

11. Other Income includes an amount of Rs. 0.005 Lacs (Previous Year Rs. 0.004 Lacs), beingdividend received on account of non-trade investments.12. The outstanding balance as on December 31, 2005 in respect of certain Sundry debtors,Creditors, Loans & Advances and Bank and other deposits are subject to confirmation fromthe respective parties and consequential reconciliation / adjustments arising there from, if any.The management, however, does not expect any material variations.13. Directors RemunerationCurrent Period(Rupees in Lacs)Previous year(Rupees in Lacs)Salary 23.40 23.45Employer’s contribution to Provident Fund 2.53 2.68House Rent allowance 7.98 8.87Perquisites (including estimated value of benefits) 1.80 1.80Total 35.71 36.8014. Segmental ReportingThe Company’s operation relates only to Textile Segment and thus has only one reportablesegment.15. Information on Earning Per Share as per Accounting Standard 20 on “Earnings Per Share”issued by the Institute of Chartered Accountants of India:Sr. No. ( Rs. in Lacs ) Period ended Period ended31-03-2006 30-09-20041 Net Profit/(Loss) for 764.46 (1596.74)2 Number of Equity Shares outstanding 411.70 180.903 Basic & Diluted earning per share 1.86 (8.83)4 Nominal value per share Rs 5 Rs. 1016. The Company has recognized Deferred Tax Assets of Rs. 38.61 lacs for the period ended31.03.2005 with a corresponding adjustment to the Profit and Loss account.Significant components of Company’s DTA/(DTL) are as follows:Rs. in Lacs01.10.2004 During the year 31.03.2006charge /creditRelated to Fixed Assets 1564.16 (147.02) 1417.15Unabsorbed Depreciation and Business loss (1962) 633.31 (1328.70)Allowances of Earlier Year U/s.43B 321.28 (321.38) NilProvision for doubtful debts (155.81) 28.76 (127.06)Others (443.24) 443.24 NilTotal (675.51) 636.90 (38.61)130

As the company follows the practice of providing for DTA/DTL at the year end only,DTA/DTL liability for the period from April-2005 to March-2006, will be provided whilefinalizing the accounts, i.e. on 31st March,2006.17. Related Party disclosure in terms of Accounting Standard ‘AS – 18’ issued by the Institute ofChartered Accountants of India.Relationships:a) Other related parties where control exists1) Kaytee Cimpex.2) Kaytee Cimpex Pvt. Ltd.3) Rajpal Cotton Industries Pvt. Ltd.4) Rajpal Industries5) Spectrum International P. Ltd.6) Spectrum studios P. Ltd7) Amit Green Acre P. Ltd.8) Spentex Industries Ltd.b) Key Management Personnel:1) Bharat P. Shah2) R. SampathRs. in LacsKey ManagementPersonalJoint Venture / Other related partiesAssociates where control existsSale of Goods Nil 862.71 Nil(346.76) Nil NilPurchase of Goods Nil Nil Nil(171.37) Nil NilFinance Nil 693.50 Nil(48.50) Nil NilManagement Contracts Nil Nil NilNil Nil NilRemunerations Nil Nil 35.71Nil Nil (36.80)Note: Related party relationship is as identified by the Company and relied upon by the auditors.18. The Prior period items includes sums of Rs. 178.59 Lacs (previous year Rs. 275.92 Lacs)being cotton carrying charges paid for purchase of cotton, other sums Rs 2.97 Lacs onaccount of interest, insurance, etc, a sum of Rs 18.04 Lacs an account of Commissionpertaining to earlier years and incomes of Rs 65.29 Lacs being excess provision of MSEBdues and Rs 469.97 Lacs being reversal of provision of interest on term Loans.19. Fixed Assets includes Written Down Value of SAP-ERP Packages of the company of Rs.122.91 Lacs. As per Accounting Standard AS-28 issued by the Institute of CharteredAccountant of India impairment of assets needs to be disclosed. The company is informedthat this is a transferable license; it will fetch the present WDV value as stated in the books.Hence, no provision for impairment has been made.131

20. The Company had become Sick within the meaning of Section 3(1) (o) of Sick Industrial Co.Act, 1985 and had referred to the Board for Industrial Finance and restructuring andregistered as a sick Company (“BIFR”) The Company has submitted a comprehensiveproposal under the Corporate Debt Restructuring Scheme to the Banks and FinancialInstitutions incorporating the revival plan which has been approved by them. Accordingly theaccounts for the current period have been prepared following the fundamental accountingassumption of “Going Concern” assumption is followed hitherto.21. The current period extended up to March 31, 2006 hence the present account relates to 18months. Previous period figures given in brackets have been regrouped and restated whereverconsidered necessary.22. The Shares of Myntrade Pte. Ltd. are yet not transferred in the Name of the Company PendingPayment of the Balance Consideration of Rs. 38,14,290.00 which is referred to in “otherLiabilities” in Schedule 11.ADDITIONAL INFORMATION PURSUENT TO PARAGRAPH 3 AND 4 OF PARA II OFSCHEDULE VI OF THE COMPANIES ACT, 1956A. Details of Capacity: (As certified by the management)Class of Goods Unit Licensed Capacity(Spindles) Installed Capacity (Spindles)2006 2005 2006 2005Yarn Nos. 55536 55536 30672 30672Knitting Machines Nos. 4 Nos. 4 Nos. 4 Nos. 4 Nos.B. Details of Opening Stock, Production, & Closing Stock during the yearClasses of Goods Opening Stock Production Closing StockQty(MT)Value(Rs.in Lacs)Qty(MT)Qty(MT)Value(Rs. in Lacs)Yarn 85.423-160.787101.66-243.426477.09-5599.52857.80-85.423829.09-101.66Fabrics -4.68 -5.29 -47.131 - -C. Details of Opening Stock, Purchases & Closing Stock of Finished Goods traded duringthe yearClasses of Goods Opening Stock Production Closing StockQty(MT)Value(Rs.in Lacs)Qty(MT)Qty(MT)Value(Rs. in Lacs)Yarn - - - - -D. Raw Material ConsumedClasses of Goods Current Period Previous yearQty(MT)Value(Rs.in Lacs)Qty(MT)Value(Rs. in Lacs)Cotton 8442.13 4333.70 7440.189 5228.56Others - - 735.032 874.51E. SalesClasses of Goods Current Period Previous yearQty(MT)Value(Rs.in Lacs)Qty(MT)Value(Rs. in Lacs)132

Yarn 5846.421 6431.642 6110.89 8631.897Cotton Waste 2147.970 549.91 1743.934 608.31Fabrics - - 51.811 62.95Yarn-Trading - - 318.892 433.32Cotton - - - -F. CIF Value of ImportsCurrent Period(Rs. in Lacs)Previous Year(Rs. in Lacs)Raw Material and Packing Material - 78.15Stores and Spares parts 5.91 17.16Capital Goods - 28.15G. Expenditure in Foreign Currency on account of :Current Period(Rs. in Lacs)Previous Year(Rs. in Lacs)Foreign Travelling - 2.81Interest on Foreign Currency Loans - 4.99Technical assistance Fees 9.11 7.36Others 0.74 40.36H. Earning in Foreign CurrencyCurrent Period(Rs. in Lacs)Previous Year(Rs. in Lacs)FOB Value of Exports (Direct) 723.57 2818.87I. Value of Consumption% Current Period(Rs. in Lacs)% PreviousPeriod (Rs. inLacs)Raw Material- Imported 4.33 187.56 11.40 695.52- Indigenous 95.67 4146.14 88.60 5407.55Spare Parts- Imported 5.38 5.91 45.85 77.12- Indigenous 94.62 103.85 54.15 91.08AMIT SPINNING INDUSTRIES LIMITEDAUDITORS’ REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2004To the Members of AMIT SPINNING INDUSTRIES LIMITED1. We have audited the attached Balance Sheet of AMIT SPINNING INDUSTRIESLIMITED, as at September 30, 2004 and also the Profit and Loss Account of the Companyfor the Period ended on that date annexed thereto and the Cash Flow Statement for the periodended on that date. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements basedon our audit.133

2. We conducted our audit in accordance with auditing standards generally accepted in India.Those Standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.3. As referred to in the Note number 19 of Schedule 17, despite the Company’s net worth beingeroded due to losses, the accounts have been prepared on going concern basis. TheCompany’s ability to continue as going concern is dependent on the ultimate outcome of thefavorable consideration of the Comprehensive Corporate Debt Restructuring (CDR) Schemeapproved by the Banks and financial Institutions.4. As required by the Companies’ (Auditor’s Report) Order, 2003 issued by the CentralGovernment in terms of Section 227(4A) of the Companies Act, 1956, we enclose in theAnnexure a statement on the matters specified in the paragraph 4 of the said Order.5. Further to our comments in Annexure referred to in paragraph 3 above, we report that:a. We have obtained all the information and explanation which, to the best of ourknowledge and belief were necessary for the purpose of our audit;b. In our opinion, proper books of accounts as required by law have been kept by theCompany so far as appears from our examination of those books;c. The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account;d. In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementcomply with the Accounting Standards referred to in sub-section (3C) of Section 211of the Companies Act, 1956;e. On the basis of the written representations received from the public companies inwhich the Directors of the Company are directors, as on September 30, 2004, andtaken on record by the Board of Directors, we report that none of the directors aredisqualified as on September 30, 2004 from being appointed as a director in terms ofclause (g) of sub-section (1) of section 274 of the Companies Act, 1956.f. In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts, together with notes thereon, give the informationrequired by the Companies Act, 1956 in the manner so required and give a true andfair view:i. In the case of Balance Sheet, of the state of affairs of the Company as atSeptember 30, 2004;ii.iii.In the case of Profit and Loss Account, of the loss for the Period ended onthat date; andIn the case of Cash Flow Statement, of the cash flows for the Period ended onthat date.134

Annexure referred to in paragraph 4 of the uditors’ Report of even date to the members ofAMIT SPINNING INDUSTRIES LIMITED on the accounts for the period ended September30, 2006.On the basis of such checks as we considered appropriate and in terms of information andexplanations given to us, we state that:(i) (a) The Company has maintained proper records showing full particulars, includingquantitative details and situation of Fixed assets.(b)(c)As explained to us, the company has a procedure to carry out physical verification offixed assets at reasonable intervals, which in our opinion is reasonable having regardto the size of the company and the nature of its assets. No material discrepancies werenoticed on such verification.During the period, the Company has not disposed off any substantial part of its fixedassets, so as to affect its going concern.(ii) (a) The inventories have been physically verified by the management during the period.In our opinion, the frequency of verification is reasonable.(b)(c)In our opinion and according to the information and explanations given to us, theprocedures of physical verification of inventories followed by the management arereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.The Company is maintaining proper records of inventory. The discrepancies noticedon verification between physical inventories and book records were not material inrelation to the operations of the Company and the same have been properly dealt within the books of account.(iii) (a) As per the information furnished, the Company has, during the period covered by ouraudit, granted a loan to a firm covered in the register maintained under Section 301 ofthe Companies Act, 1956 of Rs.143.97 Lacs. The Maximum amount involved duringthe period was Rs.143.97 lacs and the period end balance of loan given to such partywas Rs.143.97 Lacs.The Company has not taken any loans, Secured or Unsecured from Companies, Firmsor other parties covered in the registered maintained under Section 301 of theCompanies Act, 1956 and the question of commenting on the rate of interest andother terms and conditions of loans taken by the Company, Secured or unsecured, arenot, prima facie, prejudicial to the interest of the Company, does not arise. Also thequestion of commenting, on regular payment of principal amount and interestthereon, and, on taking reasonable steps for recovery / payment of principal amountand interest thereupon, does not arise.(b)In our opinion the rate of interest and other terms and conditions on which unsecuredloan granted by the Company, to the firms or other parties covered in the registermaintained under Section 301 of the Companies Act, 1956, are not, prima facie,prejudicial to the interest of the Company.135

(c)The Company has not received the principal amount on the loan granted by theCompany.(iv)In our opinion and according to the information and explanations given to us, there isadequate internal control system commensurate with the size of the Company and the natureof its business with regard to purchase of inventory and fixed assets and for the sale of goodsand services. During the course of our audit, we have not observed any continuing failure tocorrect major weakness in the internal controls.(v) (a) Based on the audit procedures applied by us and according to the information andexplanations provided to us, we are of the opinion that the transactions that need tobe entered into the Register maintained under Section 301 have been so entered.(b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of such contracts or arrangements entered in theRegister maintained under Section 301 of the Act and exceeding the value of Rupeesfive lacs in respect of each party during the period, have been made at prices whichare reasonable, having regard to prevailing market prices at the relevant time,wherever applicable.(vi)In our opinion and according to the information and explanations given to us, the Companyhas complied with the provisions of Section 58A and 58AA of the companies (Acceptance ofdeposits) Rules 1975 with regard to the deposits accepted from the public. No order has beenpassed by the Company Law Board.(vii)In our opinion and according to the explanations given to us, the Company has an Internalaudit system commensurate with its size and nature of its business.(viii)We have broadly reviewed the books of account relating to materials, labour and other itemsof cost maintained by the Company pursuant to the rules made by the Central Government forthe maintenance of Cost Records under Section 209 (1)(d) of the Companies Act, 1956, andwe are of the opinion that prima facie the prescribed accounts and records have been madeand maintained. We have, however, not made a detailed examination of the records with aview to determine whether they are accurate or complete.(ix) (a) According to the information and explanations given to us and the records examinedby us, the Company is generally regular in depositing with appropriate authoritiesundisputed statutory dues including, investor education and protection Fund,Employees’ State Insurance, Income-Tax, Sales-Tax, Wealth-Tax, Service–Tax,Customs Duty, Excise Duty, Cess and other material Statutory dues applicable to itexcept in the case of provident fund.(b) According to the information and explanations given to us, no undisputed amountspayable in respect of income-tax, sales tax, wealth-tax, customs duty, excise duty andcess were in arrears, as at September 30, 2004 for a period of more than six monthsfrom the date they became payable.(c)According to the information and explanations given to us, given herein below are thedetails of dues of excise duty which have not been deposited on account of disputesand the forum where the disputes are pending. However, there are no undisputed136

arrears of Sales Tax, Wealth Tax, Customs Duty, Excise Duty and cess which havenot been deposited on account of disputes :Name ofStatue1. CentralExcise Act.2. CentralExcise Act.2. CentralExcise Act.Nature ofthe duesExciseDutyExciseDutyExciseDutyAmountRs. in LacsPeriod to whichthe amount relateForum where disputesis pending1.00 2001-02 Assistant Commissionerof Central Excise ( Pune )0.82 2004-05 Assistant Commissionerof Central Excise ( Pune )9.18 2004-05 ( Upto Assistant Commissioner30.09.04 ) of Central Excise ( Pune )(x)(xi)In our opinion, the accumulated losses of the Company are more than fifty percent of its networth. The Company has incurred cash losses during the financial period covered by ouraudit and the immediately preceding financial year.The Company has defaulted in repayment of installments due to the Banks and financialinstitutions. However, we have been explained by the company that since its Corporate DebtRestructuring proposal before the CDR forum is pending, a sum of Rs.207.356 Lacs due forthe period April, 03 to September, 04 remains unpaid.(xii)According to the information and explanations given to us and based on the documentsproduced to us, the Company has not granted any loans and / or advances on the basis ofsecurity by way of pledge of shares, debentures and other securities.(xiii)In our opinion, the Company is not a chit fund or Nidhi / mutual benefit fund / society.Therefore the provisions of Clause 4 (xiii) of the Order are not applicable to the company.(xiv)(xv)(xvi)In our opinion, the Company is not dealing or trading in shares, securities, debentures andother investments, the requirements of Clause 4(xiv) of the Companies (Auditor’s report )Order, 2003 are not applicable to the Company.In our opinion, the terms and conditions on which the Company has given guarantee for loanstaken by others from banks or financial institutions are not prejudicial to the interest of theCompany.In our opinion, the term loans availed by the company were prima facie, applied for thepurpose for which the loans were obtained.(xvii) According to the information and explanations given to us and on an overall examination ofthe balance sheet of the Company, we report that the funds raised on short term basis havebeen used for long term funds have been used to finance short term assets.(xviii) According to the information and explanations given to us, as the Company has not made anypreferential allotment of shares during the period.137

(xix)According to the information and explanations given to us, during the period covered by ouraudit report the Company has not issued any debentures and hence, the question of creatingsecurities in respect thereof does not arise.(xx)(xxi)According to the information and explanations given to us, the Company has not raised anymoney by public issues during the period.According to the information and explanations give to us and on the basis of our examinationof the books of account and other relevant records, prima facie we have not noticed any fraudon or by the Company, during the period. Further, the management has represented to us thatno fraud on or by the Company has been reported during the year. However, we are unable todetermine / verify as to whether any such reporting has been made, during the period.AMIT SPINNING INDUSTRIES LIMITEDBalance Sheet as at September 30, 2004ScheduleAs atSept. 30, 2004(In Thousands)As atMarch 30, 2003(In Thousands)SOURCES OF FUNDSShareholders' FundsShare Capital 1 220,900.00 220,900.00Share Application Money pending Allotment 20,000.00 -Reserves & Surplus 2 3,000.00 28,000.00243,900.00 248,900.00Deferred Tax Liability - 3,345.76LOAN FUNDSSecured Loans 3 798,602.81 768,536.71Unsecured Loans 4 40,096.86 35,360.38TOTAL 838,699.67 803,897.091,082,599.67 1,056,142.85APPLICATION OF FUNDSFIXED ASSETS 5Gross Block 1,024,570.01 1,044,041.80Less: Depreciation 336,886.17 266,480.89Net Block 687,683.84 777,560.91Capital Work-In-Progress - 2,203.38687,683.84 779,764.29INVESTMENTS 6 21.73 46.73DEFERRED TAX ASSET(Refer Note 15 to Schedule 19) 67,550.89 -CURRENT ASSETS, LOANS & ADVANCESInventories 7 36,996.07 121,911.91Sundry Debtors 8 18,589.75 42,352.30Cash & Bank Balances 9 13,324.06 43,044.74Loans & Advances 10 114,280.85 101,666.10183,190.73 308,975.05LESS: CURRENT LIABILITIES AND PROVISIONS 11 129,594.56 174,550.40NET CURRENT ASSETS 53,596.17 134,424.65MISCELLANEOUS EXPENDITURE 12 7,852.76 10,687.36138

( To the extent not written off or adjusted)PROFIT & LOSS ACCOUNT 265,894.28 131,219.82TOTAL 1,082,599.67 1,056,142.85Significant Accounting Policies 18Notes to Accounts 19Cash flow Statement 20AMIT SPINNING INDUSTRIES LIMITEDPROFIT & LOSS ACCOUNT FOR THE PERIOD ENDED SEPTEMBER 30, 2004ScheduleAs atSept. 30, 2004(In Thousands)As atMarch 30, 2003(In Thousands)INCOMESales 13 938,599.98 845,882.16Other Income 5,150.27 17,450.75Accretion/(Decretion) to Stock 14 -15,044.33 -30,372.75TOTAL 928,705.92 832,960.16EXPENDITUREMaterial Cost 15 681,618.31 589,762.66Other Expenses 16 284,835.05 183,002.64Interest & Financial Costs 17 83,994.67 93,221.43Depreciation 78,453.81 53,080.17Miscellaneous Expenditure Written off 2,834.58 2,177.87TOTAL 1,131,736.42 921,244.77Profit / (loss) for the year -203,030.50 -88,284.61Prior Period items -27,540.61 -Taxation : Current Year - -: Deferred Tax Asset / (Liability) (Refer Note No.15 of 70,896.65 -46,980.33Schedule 19 )Profit / (loss) after Tax -159,674.46 -135,264.94Add : Balance As Per Last Balance Sheet. -131,219.82 4,045.12Profit available for Appropriation -290,894.28 -131,219.82AppropriationsTransfer from Reserve & Surplus 25,000.00 -Balance carried to Balance Sheet -265,894.28 -131,219.82TOTAL -290,894.28 -131,219.82Basic and Diluted Earning Per Share (8.83) (7.75)Significant Accounting Policies 18Notes to Accounts 19139

AMIT SPINNING INDUSTRIES LIMITEDSCHEDULES ATTACHED TO AND FORMING PART OF THE ACCOUNTSScheduleAs atSept. 30, 2004(In Thousands)As atMarch 30, 2003(In Thousands)SCHEDULE 1SHARE CAPITALAuthorised190,00,000 Equity Shares of Rs.10 each. 190,000.00 170,000.006,00,000 (8,00,000 16% Redeemable Cumulative Preference Shares of Rs. 100 each 60,000.00 80,000.00250,000.00 250,000.00Issued Subscribed and paid up18,090,000 Equity Shares of Rs.10 each fully paid up180,900.00 180,900.00( of the above 10,90,000 shares of Rs.10 each fully paid up allotted to IDBI byconversion of part of interest amount )3,00,000 12% Redeemable Cumulative Preference Shares of Rs. 100 each fully paid30,000.00 30,000.00up.1,00,000 14% Redeemable Cumulative Preference Shares of Rs. 100 each fully paid10,000.00 10,000.00up.TOTAL 220,900.00 220,900.00NOTE : 3,00,000 12% Redeemable Cumulative Preference Shares of Rs.100 each and 1,00,000 14% Reedemable Preference Sharesof Rs.100 each are redeemable at par on the expiry of five years from the date of allotment i.e. 25 th March, 2007 and 28 th March, 2005respectively.SCHEDULE 2RESERVES & SURPLUSCapital ReserveState Subsidy 3,000.00 3,000.00General ReserveBalance as per last Balance Sheet 25,000.00 25,000.00Less : Transferred to Profit & Loss Account -25,000.00 -140

TOTAL 3,000.00 28,000.00SCHEDULE 3SECURED LOANSTerm Loans from Financial Institutions/BanksRupee Loans 484,050.19 417,185.31Interest accrued and due thereon 75,459.66 81,161.98Foreign Currency Loans 72,882.24 47,240.74Working Capital Borrowings from Banks 166,210.72 222,948.68{ Includes Rs.62.50 Lacs (Rs.82.88 Lacs) guaranteed by the MD} ( Refer Note 5 ofSchedule 19)TOTAL 798,602.81 768,536.71SCHEDULE 4UNSECURED LOANSFixed Deposits 2,226.00 4,571.00From Others 37,870.86 30,789.38TOTAL 40,096.86 35,360.38SCHEDULE 5 - FIXED ASSETS ( CONSOLIDATED ) AS AT 30 September, 2004 ( Rs. in ‘000 )Item Gross Block ( At Cost ) Depreciation Net BlockAs at Additions DeductionsAdditions DeductionsMarch31,2003DuringtheperiodDuringtheperiodAs atSept.30, 2004UptoMarch31, 2003DuringTheperiodDuringTheperiodUptoSept.30, 2004As atSept.30, 2004As atMarch31, 2003Freehold Land 6,173.22 - - 6,173.22 - - - - 6,173.22 6,173.22Building 147,035.11 - 11,121.07 135,914.04 18,627.58 5,510.58 362.71 23,775.45 112,138.58 128,407.52Plant &Machinery** 847,737.79 13,540.96 23,410.12 837,868.63 230,264.18 66,365.56 6,945.56 289,684.18 548,184.45 617,473.61Furniture &Fixture 5,667.89 2,198.62 - 7,866.51 2,393.04 637.91 0 3,030.95 4,835.56 3,274..85FactoryEquipments 8,066.89 4.13 516.54 7,554.48 4,736.44 919.19 214.95 5,440.68 2,113.80 3,330.45Vehicles* 6,091.00 457.20 766.26 5,781.94 2,052.93 858.59 388.66 2,522.86 3,259.08 4,038.07141

OfficeEquipments 23,269.90 226.15 84.86 23,411.19 8,406.72 4,161.98 136.65 12,432.05 10,979.14 14,863.18TOTAL 1,044,041.80 16,427.06 35,898.85 1,024,570.01 266,480.89 78,453.81 8,048.53 336,886.17 687,683.84 777,560.90Previous year(Total) 1,056,352.16 14,227.51 26,537.87 1,044,041.80 221,610.97 53,080.17 8,210.24 266,480.90 777,560.90 834,741.19SCHEDULE 6INVESTMENTS (AT COST)Long Term Investment in Government Securities 10 unquoted units of Indira Vikas- 25.00PatraIn Equity Shares – Un Quoted250 shares of Shamrao Vithal Co-Op Bank Ltd of Rs.10 each fully paid up 2.50 2.501 shares of United Yarn of Rs.31 each 0.03 0.03500 shares of Datta Nagari Pathsanstha ltd. of Rs.10 each full paid up. 5.00 5.001420 shares of Saraswat Co-op Bank Ltd of Rs.10 each fully paid up. 14.20 14.20TOTAL 21.73 46.73SCHEDULE 7INVENTORIES (As valued and certified by the management)Raw Materials {including in transit Rs.31.31 lacs (P.Y.Rs.688.25 Lacs)} 12,79401 76,972.88Stores and Spares 4,166.66 8,893.62Packing Materials 1,032.62 1,998.30Stock in Process 6,575.65 8,392.38Finished Goods 10,166.06 24,869.15Waste ( Refer note 4 of Schedule 18 ) 2,261.07 785.58TOTAL 36,996.07 121.911.91SCHEDULE 8SUNDRY DEBTORS(Unsecured, considered good)Outstanding for a period exceeding 6 months 47,836.81 13,821.56Less: Provision for Doubtful Debts -42,571.56 -5,265.25 13,821.56Others 13,324.50 28,530.74142

TOTAL 18,589.75 42,352.30SCHEDULE 9CASH & BANK BALANCESCash on Hand 1,404.18 1,416.04Balances with Scheduled Banks inCurrent Accounts 1,214.05 10,298.71Time Deposit Accounts10,705.83 31,329.99{Includes Rs.20,189 Cheques on hand (P.Y.Rs.Nil)}TOTAL 13,324.06 43,044.7406SCHEDULE 10LOANS & ADVANCES(Unsecured, but considered good)LoansTo Bodies Corporate * 13,706.25 19,130.41Less : Provision for doubtful advances - -13,706.25 19,130.41To Others * ( Refer note 6 of Schedule 19)* 11,520.20 4,844.26Advances recoverable in cash or in kind or for value to be received 84,954.12 72,596.14Deposits 3,459.98 3,722.50Tax Deducted at Source 640.30 1,372.79TOTAL 114,280.85 101,666.10SCHEDULE 11CURRENT LIABILITIES & PROVISIONSCurrent LiabilitiesSundry CreditorsCapital Items - 8,840.27Others* 71,383.24 138,709.76Other Liabilities 45,852.11 26,145.27Interest accrued but not due *( Refer note 2 of Schedule 19 ) 12,359.21 855.10TOTAL 129,594.56 174,550.40SCHEDULE 12MISCELLANEOUS EXPENDITURE(To the extent not written-off or adjusted)Preliminary Expenses 52.70 96.42143

Share Issue Expenses 989.76 1,868.81Deferred Revenue Expenses 9,644.90 10,900.0010,687.36 12,865.23Less: written Off for the year -2,834.60 -2,177.87Balance Carried Forward TOTAL 7,852.76 10,687.36SCHEDULE 13SALESYarn 912,815.56 834,267.31Waste 60,830.83 38,972.60TOTAL 973,646.39 873,239.91Less :Excise duty -35,046.40 -27,357.75TOTAL 938,599.98 845,882.16SCHEDULE 14ACCRETION/(DECRETION) TO STOCKSStock as on March 31, 2003Finished Goods 24,869.15 51,900.26Stock in Process 8,392.38 11,394.48Saleable Waste 785.58 1,054.29Stock of Trading Yarn - 70.8434,047.11 64,419.86Stock as on Sept. 30, 2006Finished Goods 10,166.05 24,869.15Stock in Process 6,575.65 8,392.38Saleable Waste 2,261.07 785.58Stock of Trading Yarn - -19,002.78 34,047.11Accretion/(Decretion) to Stocks -15,044.33 -30,372.75SCHEDULE 15COST OF MATERIAL AND OTHER EXPENSESRaw MaterialsOpening Stock 8,148.03 36,850.71Add: Purchases 611,822.25 428,106.71Less: Closing Stock 9,662.57 8,148.03Raw Material consumption 610,307.71 456,809.39144

Stores & Spares consumption 16,820.06 6,920.34Packing Material consumption 14,698.69 13,195.82Purchase of Finished Goods 39,791.85 100,559.46Purchase of Cotton for trading - 12,277.65TOTAL 681,618.31 589,762.66SCHEDULE 16OTHER EXPENSESSalaries, Wages and Stipend 56,492.16 40,353.48Contribution to Provident Fund 4,936.88 3,399.41Welfare Expenses 1,771.42 1,682.43Managerial remuneration 3,617.09 3,724.81Power & Fuel 86,459.18 61,468.30Commission on Sales 8,445.15 5,225.56Freight for Exports 17,244.25 27,571.71Clearing & Forwarding 590.16 937.78Insurance 4,779.25 3,448.23Rent 42.39 34.00Rates & Taxes 2,412.08 679.93Repairs & Maintenance- Plant & Machinery 623.64 763.18- Buildings 281.48 338.21- Others 2,434.32 1,541.30Auditors’ Remuneration- Audit Fees 163.10 105.00- Tax Audit Fees 54.55 26.25- Others 82.67 67.88Debonding duty 2,903.39 -Bad & Doubtful Debts Provision 42,571.56 -Provision for Doubtful Advances 9,235.00 -Loss on sale of assets 7,774.62 4,199.96Sundry Expenses 31,920.71 27,435.22TOTAL 284,835.05 183,002.64145

SCHEDULE 18INTERESTOn Term Loans 45,830.49 55,366.76Others 40,119.17 41,082.57Total 85,949.66 96,449.33Less : Interest Gross – TDS Rs.6.38 lacs ( Rs.3.26 lacs) -1,954.99 -3,227.90TOTAL 83,994.67 93,221.43146

SECTION XII.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONSThe following discussion of our financial condition and results of operations should be read together -with the audited financial statements for financial year 2004, 2005 and 2006 including the Schedules,Annexures and Notes thereto and the Reports thereon, which appear on page 29. These financialstatements are prepared in accordance with Indian GAAP, the Companies Act, and the SEBIGuidelines as described in the Auditor’s Report of Price WaterHouse Chartered Accountants datedMarch 31, 2006 in the section titled ‘Selected Financial & Other Information’ on page 29.The Spentex GroupThe Spentex Group comprises of Spentex Industries Limited along with its subsidiary company, IndoRama Textiles Limited and associate company, Amit Spinning Industries Limited. The group isprimarily involved in the manufacturing of cotton yarn and synthetic Blended Yarn and alsoundertakes trading of cotton yarn, Cotton Fabric, polyester, ferro alloy.The Company has made a strategic acquisition of IRTL by an acquisition of the existing sharesfollowed by an open offer under the Takeover Regulations. The shareholding of the Company inIRTL as of June 30, 2006 is 84.02% of the total paid up share capital of IRTL.Amit Spinning Industries Limited was a sick company going through a debt restructuring exercisewith its lenders. Simultaneous with settlement of the lenders dues, the Company purchased existingshares of the Promoters of Amit Spinning Industries Limited, and infused further equity by way ofpreferential allotment and also made an open offer to the Promoters of Amit Spinning IndustriesLimited. The Offer closes on July 24, 2006. The current holding of the Company is 44.14% (as onJune 30, 2006) which is likely to increase based on the open offer made by the Company.Overview of the CompanySpentex Industries Limited has a lineage to the textile business for several decades and has anestablished brand image in terms of its product quality and services in global textile markets. Theconsolidation of CLC Corporation and CLC Global Ltd., the flagship company of the CLC Group,with Spentex Industries Ltd. has given a further boost to its operations both in textile manufacture andtrading of cotton yarn, steel and related products. The consolidation also has given an edge over othercompetitors due to economies of scale. The turnaround for the Company has been sharp and it is nowpoised to face the challenges of the business with optimism and confidence.With the acquisition of Amit Spinning and IRTL, the Company is consolidating the manufacturing ofcotton yarn and has also stepped into manufacturing of man made fibre. The trading part of thebusiness is slowly being reduced. The total number of installed capacity of spindles of Spentex alongwith IRTL and Amit Spinning amounts to 313,120 Spindles.Spentex Industries Limited:The company has a total number of 159,472 spindles.. The financial year 2005-06 has witnessedexcellent performance due to extended manufacturing capacity of cotton yarn. Further betterefficiencies have resulted in controlled overhead expenses. The trading business mentioned hereinbelow has been acquired by the company on amalgamation of M/s. CLC Global Ltd in 2004-05. Thusthe 2004-05 figures are not comparable with that of the financial year ending 2003-04, as 2003-04figures are pre amalgamation of CLC Global Ltd. Product/item wise performance is given below:147

(Rs. in millions)Particulars 2003-04 2004-05 2005-06Installed Capacity (nos) 29,232 55,440 159,472*Operating Capacity (nos) 29,232 55,440 105,440**Revenue from yarn manufacturing 363.3 883.9 936.8Revenue from trading of textile & Yarn - 1,493.5 1,498.0Revenue from other trading - 1,266.1 1,087.7Total Revenue 363.3 3,643.5 3,522.5EBITDA 34.2 237.8 290.0PAT (1.8) 103.5 100.5* Out of the 159,472 spindles installed, 50,000 spindles are provided by The Bombay Dyeing &Manufacturing Company Limited for contract manufacturing. Further addition of 54,032spindles has been on account of the asset purchase of Taichonbang Textiles IndustriesLimited in Dec’05.** 54,032 spindles which have been on account of the asset purchase of Taichonbang TextilesIndustries Limited in Dec’05 was restarted and commenced production only in May’06.Indo Rama Textiles Limited:IRTL is involved in the manufacturing of polyester at its manufacturing units in Pithampur (Dist.Indore, Madhya Pradesh) and Butibori (Dist. Nagpur, Maharashtra)Following is the brief performance of IRTL:Rs. In million 2003-04 2004-05 2005-06No. of Spindles (nos) 122,976 122,976 122,976Revenue from Manufacturing of Polyester 3,518.6 3,919.3 3,729.8Revenue from trading activities - - -Net Turnover 3518.6 3,919.3 3,729.8EBITDA 373.7 417.1 493.9PAT 92.4 122.7 208.9Amit Spinning Industries Limited:Amit Spinning is involved in the manufacturing of cotton yarn from its manufacturing units atKolhapur.Following is the brief performance of Amit Spinning:Rs. In million 2002-0312 mths2003-0418 mths(April 2003-Sept 04)2004-0618 mths(Oct 2004-Mar 06)No. of Spindles (nos) 30,672 30,672 30,672Revenue from Manufacturing of Cotton Yarn 721 938.6 697.6Revenue from cotton trading activities 124 0 15.6Net Turnover 845 938.6 713.2EBITDA 58 (68.1) 310.5PAT (88) (159.7) 76.4148

Spentex Combined / ConsolidatedSpentex, along with Amit Spinning and IRTL currently operates with the following number ofspindles for manufacturing of cotton yarn. & man made fibre.Location Company Installed Capacity(in no. of spindles)Ahmedabad Spentex 54,032Baramati Spentex 29,232Sholapur Spentex 76,208*Kolhapur Amit Spinning 30,672Nagpur IRTL 59,280Indore IRTL 63,696Total 313,120* Includes 50,000 spindles of contract manufacturingExpansionThe abolition of quotas, has provided a significant opportunity for the Indian textile players to beglobally competitive and make a headway in textile exports. Spentex has gained strength throughproduction capacity expansions, acquisitions and the expanded customer base. Due to its strengths itwill be in unique positions in capitalising on the available market opportunities. The domestic markethas also showing significant growth.To capitalize on the opportunities and our strengths, the Spentex group is currently undertakingexpansion of 36,000 spindles of value added cotton yarn at the Baramati unit (this unit is expected tobe operating by September 2006). Our expansion plans and acquisition programme has been in lineand on time with our plans as of today and we expect to get some early returns from the newinvestments.We have expanded our capacities regularly in the past. Below is the graph showing our capacities in2004-05, current and post expansion.149

No. of Spindles (Spentex along with Amit Spinning and IRTL)375,000350,000325,000300,000275,000250,000225,000200,000175,000150,000125,000100,00075,00050,00025,0000349,120313,12055,4402004-05 Current Post ExpansionFactors Affecting Our Results of OperationsGeneral economic and business conditionsThe demand for our products is dependent on general economic conditions in India, Europe, China,South and East Asia and to a greater extent the United States where our customers are primarilybased. Our manufacturing operations, which are currently in India, will be affected by changes inbusiness conditions in these countries.DemandThe demand of our products is from the manufacturers of knitted fabrics, woven fabrics, linen, tablecloth, towels, apparels & garments. We have expanded our customer base domestically as well asinternationally. The prospects and earnings growth of these customers and industries we serve willhave an impact on our ability to generate sales.CompetitionSelling cost of our products may be affected if competition intensifies. Further as a result of increasedcapacity of yarn and polyester, adoption of aggressive pricing strategies by our competitors in order togain market share or new competitors entering the markets, may adversely affect our operations andfinancial results.CapacityWe are currently increasing our capacity for production of yarn and polyester. Our ability to fulfilllarge orders will depend upon our ability to complete our expansion plans as scheduled. We believethat the scale of our production, and lower per unit operating cost due to economies of scale, will giveus an edge over our competitors.150

Raw material prices / availabilityRaw materials prices and availability constitute a major portion of our total expenses. Since our keyraw material is cotton, prices of which is dependent upon the market conditions, the monsoon in thecountry and the demand and supply scenario in the economy. With the use of effective raw materialprocurement policy, we should be able to mitigate price fluctuations. Also our manufacturing capacityin cotton yarn is in the leading cotton producing states of Maharashtra and Gujarat.Our Significant Accounting PoliciesBASIS OF ACCOUNTING:The financial statements are prepared under historical cost convention and comply with applicableaccounting standards issued by The Institute of Chartered Accountants of India and relevantprovisions of the Companies Act, 1956.Fixed AssetsFixed Assets are stated at their original cost including freight, duties (net of MODVAT/CENVAT),taxes and other incidental expenses relating to acquisition and installation. Expenditure incurredduring the period of construction are carried forward as capital work-in-progress and on completion,the costs are allocated to the respective fixed assets.Depreciation / AmortizationDepreciation for all fixed assets situated at manufacturing locations is provided on the straight linemethod and for all other fixed assets, is provided on the written down value method, on a pro-ratabasis at the rates specified in Schedule XIV to the Companies Act, 1956. Additional spindlescapitalised under Plant & Machinery are being depreciated over the estimated useful life of 36 monthson pro-rata basis. Leasehold land is amortized over the lease period. Acquired goodwill is amortizedusing the straight-line method over a period of 10 years & considering the fact that erstwhile firm /company has strong marketing network in textile business segment.InventoriesRaw materials have been valued under the Specific identification of cost method as defined inAccounting Standard - 2 “Inventories”. Work-in-progress and finished goods are valued at lower ofweighted average cost and net realizable value. Cost includes direct materials and labour and aproportion of manufacturing overheads based on normal operating capacity. Inventory of stores andspares are valued at lower of weighted average cost and net realisable value. Waste is valued atestimated net realizable value.Revenue recognitionSale of goods: Revenue on sale of goods is recognized on transfer of significant risk and rewards ofownership to the buyer and on reasonable certainty of the ultimate collection. Sales are net of exciseduty, trade discounts and sales returns.Interest: Income is recognised on a time proportion basis taking into account the amount outstandingand the rate applicable.Commission and Insurance claim: Revenue on other activities is recognized when no significantuncertainty as to measurability or collectability exists.151

InvestmentsInvestments that are readily realisable and intended to be held for not more than a year are classifiedas current investments. All other investments are classified as long-term investments. Currentinvestments are carried at lower of cost and fair value determined on an individual investment basis.Long-term investments are carried at cost. However, provision for diminution in value is made torecognise a decline other than temporary in the value of the investments.Foreign currency transactionsTransactions in foreign currency are accounted for at the exchange rates prevailing on the date oftransaction. All monetary items denominated in foreign currency are translated at year end rates.Exchange differences arising on such transactions and also exchange differences arising on thesettlement of such transactions are adjusted in the Profit and Loss Account.Realised gains and losses on foreign exchange transactions during the year, other than those relatingto the fixed assets, are recognized in the profit and loss account. The gains/losses arising onrepayment and restatement of foreign exchange liabilities incurred to acquire fixed assets from acountry outside India are adjusted in the carrying cost of such fixed assets.In case of forward contracts, the premium or discount on all such contracts arising at the inception ofeach contract is recognised / amortised as income or expense over the life of the contract. Any profitor loss arising on the cancellation or renewal of such contracts is recognized as income or expense forthe period.Miscellaneous expenditureThe Company follows the policy of amortization of preliminary expenses and share issue expensesover a period of 10 years.Retirement benefitsThe Company's contributions to recognised Provident Funds are charged to revenue on an accrualbasis. The Company has taken a group policy with the Life Insurance Corporation of India (LIC) tocover its liability towards employee gratuity and superannuation. The contribution paid/payable, asactuarially determined by LIC at the annual renewal date of the policy being March 31, is charged torevenue on an accrual basis.Borrowing costsBorrowing costs that are directly attributable to the acquisition, construction or production of aqualifying asset are capitalised as a part of the cost of that asset. Other borrowing costs are recognisedas an expense in the period in which they are incurred.TaxationTax expense for the year, comprising current tax, deferred tax and fringe benefit tax is included indetermining the net profit/(loss) for the year. A provision is made for the current tax and fringe benefittax based on tax liability computed in accordance with relevant tax rates and tax laws. Deferred taxassets are recognised for all deductible timing differences, and carried forward to the extent it isreasonably / virtually certain that future taxable profit will be available against which such deferredtax assets can be realised. Deferred tax assets and liabilities are measured at the tax rates that havebeen enacted or substantively enacted by the Balance Sheet date.152

LeasesAssets acquired under long term finance lease are capitalised and depreciated in accordance withCompany’s policy for assets situated at manufacturing and other locations. The associated obligationsare included in other loans under “Secured Loans”.Impairment of AssetsAt each balance sheet date, the Company assesses whether there is any indication that an asset may beimpaired. If any such indication exists, the Company estimates the recoverable amount. Where thecarrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised in theprofit and loss account to the extent the carrying amount exceeds recoverable amount.BUSINESS PERFORMANCEThe following discussion of our results of operations is for Spentex Industries Limited as a standalonecompany. Spentex amalgamated with M/s. CLC Global Ltd in 2004-05. Thus the 2004-05 figures arenot comparable with that of the financial year ending 2003-04, as 2003-04 figures are preamalgamation of CLC Global Ltd.Discussion on Results of OperationsTable showing profit and loss statement for the past 3 years ended 31 st March 2006, 31 st March 2005and 31 st March 2004.Statement showing Profit and Loss account of Spentex IndustriesLimitedParticulars 2005-06 2004-05 2003-04Rs In millionsIncomeSales 3,522.6 3,643.6 363.4Other Income 105.1 87.0 19.6Total Income 3,627.7 3,730.6 383.0ExpenditureRawmaterial consumed 566.4 694.1 241.8Cost of traded goods sold 2,285.4 2,387.5Personnel expenses 97.3 72.5 27.0Manufacturing and other cost 388.6 338.7 83.6Total Expenditure 3,337.7 3,492.8 352.4EBITDA 290.0 237.8 30.6Depreciation 75.6 60.2 35.6EBIT 214.5 177.6 (5.0)Interest 81.5 84.3 17.6PBT 133.0 93.3 (22.6)Tax 32.5 (10.2)PAT 100.5 103.5 (22.6)Year Ended March 31, 2006 Compared to Year Ended March 31, 2005Income153

The sales for financial year ending 31 March 2006 was Rs. 3,522.6 million as compared to Rs.3,643.6 million in financial year 2005.Year Ended March 31,Rs. million2004 2005 2006Yarn Manufacturing 363.4 883.96 936.8Trading - 2,759.6 2,585.7Yarn ManufacturingRevenues from yarn manufacturing increased in financial year 2006 to Rs. 936.8 million as comparedto Rs 883.96 million in financial year 2005. This represents an increase of 6%.TradingRevenues from trading activities decreased in financial year 2006 (Rs. 2,585.7 million) as comparedto financial year 2005 (Rs. 2,759.6 million) owing to the fact that the company strategically has madea decision to concentrate more on the manufacturing activities.ExpenditureRaw MaterialsRaw material expenditure decreased in financial year 2006 (Rs. 566.4 million) as compared tofinancial year 2005 (Rs. 694.1 million). The primary raw material for the company is cotton utilizedin the manufacturing of cotton yarn. The decrease is mainly due to the reduction in cotton cost whichwas around Rs. 21,000 per candy in 2005 as compared to around Rs. 16,500 per candy in 2006.Cost of traded goods soldCost of traded goods sold increased in financial year 2006 to Rs. 2,285.4 million as compared tofinancial year 2005 of Rs. 2,387.5 million due to the recasting of 2005 figures.Personnel CostSalary and other personnel expenditure increased in financial year 2006 from Rs. 97.3 million ascompared to financial year 2005 Rs. 72.5 million. This is because the company has increased itsworkforce to cater to expanded capacity.Interest and finance costThere was a marginal increase in financial year 2006 (Rs. 81.5 million) interest and finance cost ascompared to financial year 05 (Rs.84.3 million)DepreciationThere was a marginal increase in financial year 2006 (Rs. 75.6 million) interest and finance cost ascompared to financial year 2005 (Rs.60.2 million)154

Comparison of financial year 2005 with financial year 2004IncomeYarn ManufacturingRevenues from yarn manufacturing increased in financial year 2005 (Rs. 883.96 million) as comparedto financial year 2004 (Rs. 363.4 million)TradingThere were no revenues from trading activities in financial year 2004ExpenditureRaw MaterialsRaw material expenditure decreased in financial year 2005 (Rs. 694.1 million) as compared tofinancial year 2004 (Rs. 241.8 million).Cost of traded goods soldAs there were no trading activities carried out in financial year 2004 there were no cost of tradedgoods soldPersonnel CostSalary and other personnel expenditure increased in financial year 2005 (Rs. 72.5 million) ascompared to financial year 2004 (Rs. 27.0 million) because the company has increased its workforcedue to expanded capacity.Interest and finance costThere was a marginal increase in financial year 2005 (Rs. 84.3 million) interest and finance cost ascompared to financial year 2004 (Rs.17.6 million)DepreciationThere was a marginal increase in financial year 2005 (Rs. 60.2 million) interest and finance cost ascompared to financial year 2004 (Rs. 35.6 million)Table showing Balance Sheet for the past 3 years ended as at 31 st March 2006155

Particulars 2005-06 2004-05 2003-04SOURCES OF FUNDSShareholders' FundsCapital 574.6 111.1 582.0Capital Suspense Account - 261.0 -Share Warrants 7.4 -Reserves and Surplus 760.5 147.8 748.41,342.5 519.9 1,330.3Loan FundsSecured Loans 1,106.1 721.9 1,606.1Unsecured Loans 598.6 70.3 139.8Deferred Tax Liabilities 8.7 - 27.23,055.9 1,312.1 3,103.5APPLICATION OF FUNDSFixed AssetsGross Block 1,188.9 1,068.5 1,196.4Less: Depreciation 516.3 442.6 508.2Net Block 672.7 626.0 688.3Capital Work-in-Progress and Advances 759.8 66.3 810.3Investments 560.6 0.2 560.6Deferred Tax Asset - 11.0 -Current Assets, Loans & AdvancesInventories 534.9 300.2 534.9Sundry Debtors 226.0 407.0 234.9Cash and Bank Balances 384.8 76.0 384.8Loans and Advances 285.9 151.0 243.3Total Current Assets 1,431.6 945.2 1,397.8Less:Current liabilities and ProvisionsCurrent Liabilities 349.6 326.0 335.0Provisions 19.2 3.0 18.5Net Current Assets 1,062.8 616.3 1,044.3Miscellaneous Expenditure - 0.5 -(To the extent not written off or adjusted )Profit and Loss Account (net) - 2.9 -3,055.9 1,312.1 3,103.5Liquidity and Capital ResourcesWe finance our working capital requirements primarily through funds generated from operations andbank financing. Our principal sources of liquidity are cash, cash equivalents and the cash flow that wegenerate from our operations. We had combined cash and cash equivalents of Rs. 76 million and Rs.385 million as of March 31, 2005 and 2006, respectively. The following is a summary of ourcombined cash flow data for the periods indicated:156

Year end 31 st March(Rs. In Million)2004 2005 2006Net cash (used in)/provided by operating activities 30.3 1,59.5 1,10.8Net cash (used in)/provided by investing activities (0.1) (88.1) (13,63.4)Net cash (used in)/provided by financing activities (32.7) (27.5) 15,61.2Net (decrease)/increase in cash and cash equivalents at theend of the year(2.6) 43.8 3,08.7Net cash provided by operating activities primarily consists of net profit adjusted for certain non-cashitems (including depreciation), investments, interest paid and the effect of changes in working capitaland other activities. Net cash provided by operating activities in fiscal year 2003-04 was Rs. 30.3million and consisted of net profit before extraordinary items and tax of Rs. 18.4 million.Net cash provided by operating activities in fiscal year 2004-05 was Rs. 159.5 million and consistedof net profit before extraordinary items and tax of Rs. 93.2 million and adjustments for non-cash itemsof Rs. 238.2 million.Net cash provided by operating activities in fiscal year 2005-06 was Rs.110.8 million and consisted ofnet profit before extraordinary items and tax of Rs. 132.9 million and adjustments for non-cash itemsof Rs. 292.2 million.We used cash flow from investing activities as the primary source of funding for our capitalexpenditures relating to capacity expansion. Net cash used in investing activities was Rs. (0.1)million, Rs. (88.1) million and Rs. (1,363.4) million in fiscal years 2004, 2005 and 2006, respectively.Net cash provided by financing activities was Rs. (32.7) million in fiscal year 2004, Rs. (27.5) millionin fiscal year 2005 and Rs. 1,561.2 million in fiscal year 2006.Statement of Indebtedness and Contingent LiabilitiesBorrowingsAs of March 31, 2006, Spentex had outstanding secured bank loans of Rs. 1,106.1 million andunsecured loans of Rs. 598.6 million as compared to Rs. 721.9 million (secured loans) and Rs. 70.3million unsecured loan.Working CapitalTaking into account the net proceeds of the Offering and available banking facilities, we believe thatour Company has sufficient working capital for its present requirements and the expenditures referredto in “— Liquidity and Capital Resources” above.Contingent liabilitiesThe table below sets out material contingent liabilities that have not been provided for as of March 31,2006.Particularsa) Demands from IncomeTax Authorities under appealb) Demands from SalesTax Authorities under appeal31-Mar-2006Rs. In millions18.715.3157

Particularsc) Show cause notices/demands received fromExcise / Customs Department (excluding applicable penalties),not acknowledged as debtsd) Guarantees and Letters of credit issued on behalfof the Company, outstanding at the year ende) Bills Discounted with Banks on behalf of theCompany, outstanding at the year end31-Mar-2006Rs. In millions4.2409.1484.0The amount shown in the items (a) to (c) represent the best possible estimates arrived at on the basisof available information. The uncertainties and possible reimbursements are dependent on outcome ofthe different legal processes which have been invoked by the Company or the claimants as the casemay be and therefore cannot be predicted accurately. The Company engages reputed professionaladvisors to protect its interest and has been advised that it has strong legal positions against suchdisputes. The amount shown in items (d) to (e) represent guarantees and bills discounted given / donein the normal course of the Company’s operations and are not expected to result in any loss to theCompany on the basis of beneficiaries fulfilling their ordinary commercial obligations.Consequent to demand received under the Maharshtra Electricity Duty Act, 1958, in relation topayment of electricity duty @ 15 paisa on captive generation of electricity at its Baramati plant, Rs.10.62 million has been provided as Electricity Duty payable for the year 2000-2001 to 2005-2006.The Company along with other local industry groups have filed a writ petition in the High Court atMumbai. The final ruling of the Court in the matter is awaited.158

SECTION XIII.INDUSTRY OVERVIEWData in this section has been sourced from the following:• CRIS INFAC - Cris Infac Textile Industry Annual Review - May 2006• Citigroup - Citigroup Textile Industry - Indian Textile - October 2005• Government of India: Ministry of Textiles, Offices of the Textile Commissioner, Annualreport 2005-06• USA Cotton Market Monthly Economic Letters - April 2006• Edelweiss Securities Private Limited: Textile Industry Report - Weaving the Future - April2006• IL&FS Research report on textile industry - May 2006A broad perspectiveThe textile sector represents one of the most active and growth oriented segments of India’s economy.One of the earliest to come into existence in India, it accounts for around 14% of the total industrialproduction, contributes to nearly 30% of the total exports and is the second largest employmentgenerator after agriculture. The textile industry contributes to around 6% of the GDP of India andearns 18% of the total foreign exchange earnings of the country.India, is one of the largest producer of cotton, cotton yarns, fabric and textiles and synthetic fibersand yarns, and is poised to play an increasingly important role in global cotton and textile markets as aresult of domestic and multilateral policy reform. In contrast to the other major textile producingcountries, India’s textile sector is characterized by mostly small-scale, nonintegrated spinning,weaving, cloth finishing and apparel enterprises, many of which use outdated technology. The uniquestructure of the Indian textile industry is due to the legacy of tax, labor and other regulatory policiesthat have favored small-scale, labor intensive enterprises, while discriminating against larger scale,more capital intensive operations. The structure is also due to the historical orientation towardsmeeting the needs of India’s predominantly low-income domestic consumers, rather than the worldmarkets. Policy reforms, which began in the 1980s and continued into the 1990s, have led tosignificant gains in technical efficiency and international competitiveness, particularly in the spinningsector. This shows the potential growth in this sector.The Indian Textile Industry is a vertically integrated industry, which covers a large gamut of activitiesranging from production of its own raw material i.e., cotton, jute, silk and wool to providing to theconsumers high value added products such as fabrics and garments.The Textile industry occupies an important place in the economy of the country by virtue of itscontribution to the industrial output, employment generation and foreign exchange earnings. Some ofthe key highlights of the Indian textile Industry are:• 18% of foreign exchange earning comes from textile• Size of Indian Textile Industry is USD 33 billion and Indian global textile trade is USD 9billion• India is third largest producer of cotton & viscose fibre in the world• India is second largest producer of cotton yarn in the world• India is largest producer of jute in the world• India is second largest producer of silk in the world• India is fifth largest producer of synthetic fibre / yarn in the world159

The Indian textile industry also contributes significantly to the world textile production capacity andavailability of textile fibres/yarns. This industry contributes about 21 per cent to the world spindlageand 6 per cent to the world rotorage. With China’s dismantling of 10 million spindles, India hasemerged as the country with highest spindlage in the world. With almost 5.64 million looms(including 3.89 million handlooms), this industry has also the highest loomage (including handlooms)in the world and contributes about 57 per cent to the world loomage. Even excluding handlooms, theindustry contributes 33 per cent to the world loomage.Spun Yarn – Industry StructureThe industry can broadly be divided into cotton yarn, blended yarn and 100% non-cotton yarn. In2004-05, cotton yarn comprised more than 70% of the total yarn production in the country.Production of spun YarnYear Cotton Yarn Blended Yarn 100% Non-Cotton Total YarnYarn1999-2000 2204 621 221 30462000-01 2267 646 247 31602001-02 2212 609 280 31012002-03 2177 585 319 30812003-04 2121 589 342 30522004-05 2272 585 366 32232005-06 (A) 2434 585 392 3411A- AnticipatedSource: Cris InfacThe spindles can be used to manufacture any kind of spun yarn – cotton yarn, blended yarn orpolyester spun yarn. Currently there are 37.5 mn spindles and 520,000 rotors installed in the Indiantextile industry. Out of these 9.8 mn spindles and 54,600 rotors are non operational, thus the effectivenumber of spindles are 27.6 mn and effective rotors are 465,400. They can produce about 4021.6 mnkg of spun yarn each year but the production in 2005-06 is expected to be about 3411 mn kg signalinga utilization of about 85%. On the back of strong demand, this utilization has been steadily increasingfrom about 75% in 2002-03 to nearly 85% currently. The average productivity of each spindle worksout to nearly 130 – 140 kg of spun yarn each year.Cotton YarnThe main players in the value chain of the cotton yarn industry are raw material suppliers (i.e cottonfarmers or ginners), cotton yarn manufacturers (i.e spinners), fabric manufacturers who convert cottonyarn into fabric and finally the garment manufacturer and the retailers. In 2004-05, the total yarnindustry comprised around 1,566 spinning mills, 223 composite mills and 188,131 registered powerloom units.Cotton yarn industry is a fairly unorganized and has high potential for growth. This is attributed tothe technological requirements of the spinning sector, which necessitate considerable investment. Theaverage capital investment per spindle is estimated at Rs. 25,000 – Rs. 30,000.Table 1: Industry structure:160

Fiber223Composite millsSSI1,161 millsNon-SSI1,789 millsSpinning(Producing yarn)Weaving / Knitting(Producing grey cloth)Processing(Producing processed fabric)Composite mill (Present inspinning to processing)Garment / Apparels / Made-ups(Manufacturing readymade garments)Retail(Selling to end users)Cotton yarn is calculated based on count. Mills can manufacture yarns from count of 1 to counts of 80and above. The most widely used count is from 11 to 40 which account for about 65% of the totalproduce.Count –Wise Production of Cotton Yarn(In Mn.Kg)CountGroup1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06(Apr-Aug) (P)2005-06(A)1-10s 509 521 524 459 435 482 225 53311-20s 504 469 439 445 403 435 194 46921-30s 455 479 456 476 493 509 235 52531-40s 524 561 548 533 522 546 236 57041-60s 131 146 147 161 161 175 77 19061-80s 44 52 61 61 64 80 40 10081s- and 37 39 37 42 43 45 23 47aboveTotal 2204 2267 2212 2177 2121 2272 1030 2434Source: Cris InfacRegional distribution in spun yarnThe spun yarn capacities are mainly concentrated in Tamil Nadu, Maharashtra, Gujarat, AndhraPradesh and Punjab. Together these states account for around 72 % of the spinning capacities in India.In 2004-05, Tamil Nadu, Punjab, Maharashtra and Gujarat contributed around 73 % to the total cottonyarn production. Tamil Nadu's individual contribution was around 45 %, while that of Punjab,Maharashtra and Gujarat was 10 %, 10 % and 8 % respectively.161

State-wise cotton yarn productionOthers, 27%Tamil Nadu,45%Gujarat, 8%Maharashtra,10%Punjab, 10%Source: Textile Commissioner's OfficePublic sector and private ownershipThe spinning capacity can be classified into three categories on the basis of ownership — public, cooperativeand private sector. There was an increase in the share of the private sector from 76 % in2002-03 to 79 % in 2003-04, while the share of the public sector decreased from 14 % to 10 %.Increase in investments and improvement in operations augmented the share of the private sector.Man made fibreThe total production of man made fibre decreased by approximately 9% in 2005- 06 (April-September, 2005) to 474.94 million kg. from 523.91 million kg during the corresponding period of2004-05 (April- Sept. 2004). The total man made fibre production is expected to decrease by about7% during 2005-06 as compared to 2004-05.The main reason for decline in production of Man made fibre has been the non availability of rawmaterial i.e. the polyester staple fibre (PSF) at international prices due to high rate of custom duty onits import. Further, DEPB @ 10% on PSF encourages indigenous producers to export rather thansupply the same for domestic consumption.Installed Capacity And Production of Man-made Staple Fibre/Filament YarnTypeStaple FibreNo. ofUnitsInstalledcapacity(TPA)30.09.2005(P)2003-04 2004-05 % ageofgrowthProduction (Million Kg)2004-05(Apr-Sept)2005-06(Apr-Sept)(P)% ageofGrowthViscose6** 338.7 221.07 247.95 12.19 121.09 99.79 -17.50Polyster 15 699.79 612.58 644.16 5.16 336.81 313.08 -7.05Acrylic 8 145 117.00 127.61 9.07 64.52 60.61 -6.06Polypropylene 3 8.00 2.74 2.88 5.11 1.49 1.48 -2.01Total 32 1191.16 953.33 1022.60 7.27 523.91 474.91 -9.35162

Filament YarnViscose 7 79.10 53.17 53.56 0.73 26.30 25.86 -1.67Nylon# 10 24.00 30.99 35.41 14.26 18.77 19.73 6.11Polyster## 41 1253.35 1013.00 1003.63 -0.92 520.61 540.04 3.73Polypropylene# 13 17.38 20.82 16.30 -21.71 8.35 6.94 -16.89Total 71 1373.83 1117.98 1108.9 -0.81 574.03 592.57 3.23P= Provisional*= HWM Fibre**=Grasim Industries at Mavoor, Kharach, Hanhar and Nagda are treated as 4 unit# = The exclusive capacity of N.F.Y and P.P.F.Y## = Capacity under broad banding scheme has been indicated against P.F.YSource: Cris InfacRecent government initiatives have ensured that polyester yarn becomes price-competitive. Exciseduty on partly oriented yarn (POY) was cut from 24 % to 16 % in the Union Budget 2005-06, whichmade POY more price-competitive. In the Union Budget 2006-07, excise duty on POY was furthercut to 8 % adding to its price competitiveness. The prices of POY feedstocks, i.e., PTA and MEG areexpected to soften in 2006-07, due to bunching up of new capacities. This would give further pricingflexibility to POY players.Consumption of Man Made FibreAcrylic Staple Fibre Viscose Staple Fibre Polyester Staple Fibre(In Million Kgs)60050040030020010002001 2002 2003 2004 2005Source: Textile Commissioner’s OfficeThe growth storyThe Indian textile industry is estimated to grow at 11% over the next 5 years. The market size of theIndian textiles is estimated at USD 36 bn in 2005 of which exports accounted for 37.5% of therevenues at USD 14 bn. The industry is estimated to witness a strong CAGR of 11% over the next 5years led by an estimated 16% CAGR in exports and a 7% CAGR domestic growth. The growth issubstantial in comparison with the 5% CAGR in exports and a 3% CAGR domestic growth over thelast 5 years. The export growth is mainly driven by the opening up of the global textile markets withthe abolishment of the multi-fibre agreement.163

Graph : Indian textile industry - market size and growth estimatesSource: IL&FS Research ReportThe demand for cotton yarn is primarily on the following accounts:-‣ Derived export demand – cotton yarn demand for fabrics, made-ups and apparels exported‣ Domestic demand – cotton yarn demand for fabrics, made-ups and apparels sold domestically‣ Direct export demand – direct export of cotton yarnCurrently, the derived export demand is roughly about 50% of the total cotton yarn demandQuota abolition to drive textile exportsIndia has been one of the biggest beneficiaries of the abolition of quotas on textile imports by the USand EU after the Agreement on Textiles and Clothing expired on January 1, 2005. Global retailers,accounting for the bulk of imports into their countries, used to source from all over the world becauseof the quotas, which were allocated to various countries. These retailers are now consolidating theirsourcing activities and reducing the number of countries they source their products from, the primaryconsideration being the cost of production and manufacturing lead times. Exports to the US fromIndia have increased by 27% where as most of the countries having US$ 1 bn plus exports to the USwitnessed negative growth. Likewise, India has been one of the biggest beneficiaries of exports to theEU as well. It was one of the two countries with over 1 bn euro exports to the EU who could increasetheir market share while eleven such countries saw a decline in their market share.The demand for cotton yarn derived from apparels, made-ups and fabric exports (derived exportdemand) is expected to grow at a CAGR of 14.2 % during 2005-06 to 2010-11. The quotas hadrestricted the textile exports from low-cost producer countries like India. Also, the quotas imposed oncertain Chinese textile products by both the EU and the US till 2008 would give India the opportunityto strengthen its market share and position.164

Rising income levels would drive domestic demandThe cotton yarn demand is expected to grow at a CAGR of 7.3 % from 2,420 mn kg to 3,446 mn kg inthe 5-year period from 2005-06 to 2010-11. Cotton yarn can either be exported or consumed in thedomestic market for manufacturing fabrics. The fabrics in turn can either be exported or consumed inthe domestic market for manufacturing garments or home textiles or industrial (technical) textiles. Thesefinal products again can either be exported or sold in the domestic market. For all these segments, thetable below shows the demand growth expected during the 5-year period from 2005-06 to 2010-11.Cotton yarn: Segment-wise demand growthRs. Millions2005-06 E 2010-11 P CAGRDemand derived from (mn kgs)Domestic clothing 1,123 1,569 6.9Domestic non-clothing 576 902 9.4Clothing exports 161 391 19.4Non-clothing exports 92 141 8.8Direct fabric exports 59 74 4.5Direct yarn exports 408 369 -2.0Total yarn demand 2,420 3,446 7.3E: Estimate, P: ProvisionalSource: CRIS INFAC165

The cotton yarn demand derived from domestic clothing and non-clothing sales (i.e. derived domesticdemand) is expected to witness a CAGR of 7.8 % during 2005-06 to 2010-11, primarily driven by:-‣ Growing income levels on the back of strong GDP growth‣ Increased awareness among the population for better quality and better lifestyle‣ Increasing penetration of organized retail‣ Easier payment options like credit cardProduction and ConsumptionDuring the last five decades, the production of cotton increased from 30 lakh bales of 170 kgs. each in1950-51 to an all time high of high of 213 lakh bales with an area of 89.69 lakh hectares and theaverage yield of 404 kg per hectare. One of the main reasons for low yield in India, as compared toworld average of about 680 kg/hectare, is that 65% of the area under cotton cultivation in India is raindependent. The main cotton producing states are Maharashtra, Gujarat, Andhra Pradesh, MadhyaPradesh, Punjab, Haryana, Rajasthan, Karnataka and Tamil Nadu.Area, Production, Yield and Consumption of CottonCotton Area in Lac HectaresCotton Production in Lac bales of 170 KgCotton Consumption Lakh Bales of 170 Kg. EachCotton yield in Kg/Hectare4504003503002502001501005001998 1999 2000 2001 2002 2003 2004 2005Source: Cotton Advisory Board (CAB)166

(In million sq. mtrs)24000210001800015000120009000600030000Production of Fabric - Fibre-wiseBlended 100% Non-Cotton Cotton1996 1997 1998 1999 2000 2001 2002 2003 2004 2005(P)Source: Cotton Advisory Board (CAB)Production of cotton yarnCountry wiseChina India Brazil Mexico Korea Republic12,00011,00010,0009,0008,0007,0006,0005,0004,0003,0002,0001,000-2004 2005Source : ICAC -World Textile Demand167

Export growth driversIndia’s export growth is driven by its core competitive strengths in the global textile markets postquota:‣ Strong manufacturing base across the textile value chain‣ Low labor cost and abundant raw material availability‣ Favourable government policiesIndia’s spinning capacity at 34 mn spindles ranks second only to China’s capacity of 67 mn spindlesin 2005. Though India has competition from the countries in its core competencies it has theadvantage of delivering quality too.Table: Comparison of capacity with China and PakistanCotton availability - key cost elementsMajor Raw Material – CottonCotton is only raw material for manufacturing of cotton yarn which is one of the major cropscultivated in India. 75 % of the total fibre consumption is in the spinning mills and 56 % of the totalfibre consumption is in the textile sector. Minimum Support Price (MSP) is provided to the farmersand through appropriate export – import intervention as and when necessary. There have beenconstant efforts to improve the quality of cotton to that of international standards through effectiveimplementation of the Technology Mission on Cotton (TMC).The key cost component of a cotton spinning unit is the raw material or the cotton cost. This costaccounts for nearly 56-58 % of the operating income. Cotton production is seasonal in nature and isdependent on the vagaries of monsoon, and hence, cotton prices are volatile.60% of the world’s cotton production comes out of three countries – China (23%), US (21%) andIndia (16%). China, which is the largest producer of cotton (5.7 mn tons in 2005-06), is also thelargest consumer (9.8 mn tons) and importer of cotton (3.9 mn tons). The trend is expected tocontinue as China’s share of textile imports by the US and EU is expected to increase to more than40% over the next few years. Self sufficiency gives India advantage as India is the only majorproducer of textiles in Asia which has surplus cotton production. Other Asian countries like China,Bangladesh, Pakistan, Thailand and Indonesia are importers of cotton.Yield improvement would be very critical in attaining self-sufficiency, which would in turn depend onthe proportion of Bacillus thuringiensis (BT) cotton cultivated. The usage of BT cotton has drasticallyimproved cotton yields in India. The yields have improved from 302 kg per hectare in 2002-03 to 468kg per hectare in 2005-06, thus recording a sizeable increase of 55 %. The area under BT cottoncultivation went up from 0.05 mn hectares in 2002-03 to 1.4 mn hectares in 2005-06. Yet, the BTcotton covers only 16 % of the total area of 8.8 mn hectares under cotton cultivation in 2005-06. Withincreased area under BT cotton the yields are expected to increase further over the years.168

With improvement in cotton yields in the past few years, India is expected to become a significantexporter of cotton this year with its share of world exports increasing from 0.2% (2003) to 4.7%,which gives India sufficient room for growth. India also produces most varieties of cotton and the costof production is the lowest. This will give Indian textile mills easy and immediate access to cotton atlow prices as compared to countries which depend on imports.As the material cost primarily determines the operating margins of the spinning company, procuringcotton at the right time and at the right prices is very critical for a spinning company, since cotton is aseasonal commodity and its price witnesses seasonality.Spinning is not a very labour-intensive process unlike other processes like weaving, processing andgarmenting (most labour intensive) in the textile industry. India has the distinct advantage of lowwage rates as compared with other competitor countries like China, Mexico, Thailand, Brazil, etc.Favorable government policies and initiativesGovernment policies have a major impact on the cotton textile industry. The National Textile Policy,announced once every decade by the Ministry of Textiles, aims at ensuring that the industry isinternationally competitive, in terms of manufacturing practices and exports.The textile packages such as the Technology Upgradation Fund Scheme (TUFS) aim at making thesector competitive, in terms of productivity and costs. Similarly, the Exim Policy contains exportpromotion measures like the DEPB and Duty Drawback Schemes. The Union Budget also usuallycontains provisions on customs and excise, which have a strong impact on the cost structure ofmanufacturers.The government introduced a major positive change for the cotton textile industry in the UnionBudget 2004-05 by abolishing the mandatory CENVAT for cotton textile companies (yarn, fabric,garments) and giving an option of complete excise exemption to the companies. Further, in the UnionBudget 2005-06, the government de-reserved the knitwear sector that was erstwhile reserved for theSSI sector.In order to encourage upgradation of textiles sector and to give a fillip to exports of textile products,some of the important initiatives taken by the Government of India are as follows:• Announcement of New Textile Policy: One of the main objectives of the New Textile Policy(NTxP-2000) announced in November 2000 was to facilitate the textile industry to attain andsustain an eminent global standing in the manufacture and export of clothing. The policyendeavours to achieve the target of textile exports from the present level to US $ 50 billion by2010.• Technology Up-gradation Fund Scheme (TUFS): TUFS was another major policy adoptedin favour of the cotton textile companies, which was more like an incentive than agovernment regulation. TUFS was introduced by the Central government in April 1999 withan outlay of Rs 250 bn for 5 years. Its objective was to increase the cost-competitiveness ofIndian textile producers against those in other developing countries. Loans from the corpuswould be provided to efficient textile mills at an interest rate subsidised by 5 %. In the UnionBudget 2005-06, the TUF scheme got a tranche of Rs 4.35 bn, with an extension up to March2007. In the Union Budget 2006-07, the government provided an additional tranche of Rs 1bn to the scheme. This subsidy has reduced the cost of borrowing of spinning companies andthus the interest cost has come from 7 % of operating income in 2000-01 to 4 % of theoperating income in 2004-05.169

Cotton yarn players are the largest beneficiaries of the TUF scheme, as cotton spinning iscapital intensive and requires substantial investment in high-cost and sophisticated technologymachinery. The amount disbursed under TUFS was the highest for cotton spinning companies— Rs 34.5 bn upto February 2006 — which formed about 36 % of the total amount disbursedunder the scheme.TUFS underwent some changes - the major one being the inclusion of second-hand importedlooms under the scheme. On January 17, 2005, capital ceiling for machinery was increasedfrom Rs 60 lakh to Rs 1 crore for de-centralised powerloom sector under Credit LinkedCapital Subsidy Scheme (CLCS) and credit-linked capital subsidy was increased from 12 %to 15 % for the small-scale textile and jute industries under CLCS. Vintage period of secondhandimported projectile, rapier, and air jet and water jet shuttleless looms was also raisedfrom 10 years to 15 years.• Government to encourage FDI in textiles: The Union government has decided to encourageFDI in the textile industry to help it gain access to the latest technologies, and strengthen itselfin the competitive world market.• Export Promotion Capital Goods (EPCG) Scheme: The scheme facilitates import ofcapital goods at 5% concessional rate of duty with appropriate export obligation. Import ofsecond hand capital goods is allowed under the EXIM Policy as announced on 31.03.2003.• Advance Licensing Scheme: With a view to facilitating exports and to access duty-freeinputs under the scheme, standard input-output norms for about 300 textiles and clothingexport products have been prescribed and this scheme remained under operation.• Duty Drawback Scheme: The exporters are allowed refund of the excise and import dutypaid on raw materials under the scheme so as to make the products more competitive in theinternational market.• Human Resource Development: Attention has also been paid to Human ResourceDevelopment in the textile sector. National Institute of Fashion Technology (NIFT) which isimparting training to Fashion Designers and Fashion Technologists to cater to the humanresource requirements of garment industry has 7 branches at Delhi, Mumbai, Calcutta,Hyderabad, Bangalore, Chennai and Gandhinagar. Ministry of Textiles has established aNodal Centre for Upgradation of Textile Education at the Indian Institute of Technology,Delhi with funding from the Ministry of Textiles.• Setting up of modern laboratories: The Ministry of Textiles has assisted the TextileCommittee in setting up of modern textile laboratories to ensure that the textiles exportedfrom the country meet all international environmental standards.• Textile Centres Infrastructure Development Scheme (TCIDS): Development ofinfrastructure facilities at pre-dominantly textile/apparel sector areas is one of the thrust areasof NTxP-2000. For attaining this objective, a new scheme (TCIDS) has been launched forupgrading infrastructure facilities at important textile centers.Recent Policy ReformsThe textile industry in our country is one of the few industries in the country, which has the potentialto emerge as a true global player. The Government has already embarked on a role of industryfriendly,pro-active facilitator. Recognizing the fact, the Government has further augmented its effortsto strengthen policy measures in favour of the textile industry in the Budget released on 28thFebruary, 2005170

The Budget has reduced excise duty on polyster filament yarn (PFY) from 24% to 16%. The movewill help to curb cheap imports from south-east Asian countries. The government has reducedcustoms duty on polyster and nylon chips, fibres yarns, fabrics, and garments from 20% to 15%. Toenhance India’s competitiveness in the global textile trade, the Budget has extended a 10% capitalsubsidy to the processing sector. This subsidy is over and above the benefit provided to the entiretextile sector under the TUF. In addition to all this, to encourage capital investment in technologyupgradation, customs duty on textile machinery has also been cut from 20% to 10%.171

SECTION XIV.BUSINESS OVERVIEWBUSINESSOverview of the Group and the Company’s BusinessThe spentex group consists of the Company, Indo Rama Textile Limited (IRTL), an 84.02 %subsidiary company, is engaged in the manufacturing of polyester and Amit Spinning IndustriesLimited a 44.14% associate company. Currently, our installed capacity is 313,120 spindles for cottonyarn and blended yarn at various locations.Cotton Yarn ProductionThe list below shows the number of spindles manufacturing only cotton yarn at various locations.Baramati PlantInstalled CapacityProduction29,232 Spindles15 MT per daycombed single cotton yarn (count rangeProducts20s to 50s).Total area / Built-up area (sq mtr) 70,015 / 17,150Major certificationsISO 9001:2000, ISO 14000, OEKOTEXSholapur PlantInstalled CapacityProduction76,208 Spindles**12 MT per dayProducing yarns in the count range of 20sto 50s carded and combed, single andProductsmultifoldTotal area / Built-up area (sq mtr) 160,000 / 40,000 approxMajor certifications ISO 9001:2000** Includes 50,000 spindles of contract manufacturing out which about 60% have been erectedand are operational and the rest would become operational by Aug’06.Ahmedabad PlantInstalled CapacityProduction54,032 Spindles**22 MT per dayProducing yarns in the count range of 20sProductsto 26s carded and combed singleTotal area / Built-up area (sq mtr) 121,000 / 34,500Major certificationsNIL** Includes 15,728 unused spindles which would eventually be removed172

Kholapur PlantInstalled CapacityProduction30,672 Spindles18 MT per dayCarded Warp / Carded Slub / CombedProductsElite / Combed Hosiery / Combed WarpTotal area / Built-up area (sq mtr) 152,300/31,594Major certificationsNILWe manufacture various counts i.e. in the 20-50 range of cotton yarn at several locations. Thefollowing pie charts depict the proportion of sales of major counts of cotton for the year 2005-06:Production countwise - Solapur unit15%11%13%19%9%33%20/1SC(K) 24/1SC(K) 30/1CW 40/1 CW 40/2 CW OthersProduction Countwise - Baramati Unit19%9%14%25%33%CH 20 CH 24 CH 30 CH 40 Others173

Production Countwise-Kohlapur unit Carded21%12%25%14%29%10/1 CARDED 20/1 CARDED 32/1 CARDED 30/1 CARDED OthersProduction Countwise - Kolhapur Unit Combed18%11%15%17%40%20/1 COMBED 24/1 COMBED 30/1 COMBED 40/1 COMBED OthersThe Ahmedabad unit was an asset purchase of Taichonbang from Bank of India under SARFAESI inDec’05 and became operational only in May’06.174

However, Spentex Industries Limited plans to change the product mix of Amit Spinning and as perthe proposed spinning plan, average yarn count for the company would be in range of 22 – 23.Spentex will spin following types of value added yarns in Unit II (expansion project underway atBaramati for 36,000 Spindles):Slub Yarn – These types of yarns are used in premium quality denim and bottom wear fabricmanufacturing. These are manufactured by intermittently increasing the diameter of yarn. Use of theseyarns gives raining effect to the fabric. There is 20% more value addition in slub yarn over normalyarn.Core Spun Yarn – There are two types of core spun yarn.1. Soft Core Spun: Stretchable filament yarn, called Spandex (Lycra) is used in core and thiscore is covered with cotton. This type of yarn imparts high stretch ability to fabric. Thesetypes of fabrics are used for comfort & ladies wear.2. Hard Core Spun: Polyester or Nylon Filament yarn is used in core and this core is coveredwith cotton. This type of yarn imparts strength to fabric. Normally these fabrics are used forindustrial and technical purpose.3. There is 25-30% more value addition in core spun yarn in comparison to normal yarn.Compact Yarn – This type of yarn is latest in high end premium yarns. Cotton, being naturalproduct, has fibres of various lengths. Short length fibres make cotton yarn hairy. This yarn has lessthan half hairiness in comparison to normal yarn, so fabric made out of Compact Yarn is very smooth,more durable and has no tendency for pilling on washing repeatedly. Value addition in Compact yarnis 25-30% more in comparison to normal yarn.Man Made FibreIndo Rama Textiles Limited is one of the largest Synthetic Blended Yarn manufacturer in India witha market share of ~25% in products like Polyester Staple Fibre (PSF) & Partly Oriented Yarn (POY).It has two state of the art plant at Pithampur (Indore) and Butibori (Nagpur). The two plants combinedproduce close to 40,000 MT of yarns in blends, polyester / cotton, polyester / viscose, 100% polyester& 100% viscose.IRTL has two state of the art manufacturing facilities located at Pithampur, Madhya Pradesh andButibori, Maharashtra. Most of the capacity expansion occurred between 1993 and 1995.Pithampur is preferred for Viscose based blends and Butibori for PSF based blends because ofproximity to raw material sources.Pithampur PlantInstalled CapacityProductionProducts63,696 spindles55MT per dayTotal area / Built-up area (sq mtr) 210,254 / 55,247Major certifications ISO 9001:2000PV, PC carded / combed, carpet yarn,175

Butibori PlantInstalled CapacityProductionProducts59,280 spindles55MT per dayTotal area / Built-up area (sq mtr) 110,843 / 33,409Major certificationsOthersPC carded / combed, carpet yarn, PVISO 9001:2000, ISO 14000, OEKOPEXCLC Global, a division of Spentex, provides marketing services in India to many textile millsmanufacturing fabrics and sold 4,57,06,440 mts totalling Rs. 2,463.6 million in value.CLC Corporation, a division of Spentex, is in the business of merchant exports mainly in textiles andrecorded exports of Rs 1147.08 million in 2006. This division has been many awards for highestexports in fabrics from the country by the Cotton Textile Export Promotion Council of India.Indus Merchandising, a division of Spentex, offers its overseas clients complete agency serviceswhich include sourcing, vendor selection, placement of orders / compliance, order tracking, fullinspection procedures and export documentation for a wide range of products. This includes apparelof all kinds, fashion Accessories, decorative Accessories, and home Furnishing etc. IndusMerchandising charges around 4%-5% commission on sales. The total commission income for theyear FY 06 is Rs. 7.70 mn as compared to Rs. 3.79 mn in FY 05.Bharat Udyog, a division of Spentex, is involved in trading of Ferro Alloys and Ferro chrome. Wehave orders for these activities until December 2006 after completion of which we do not intend tocarry on these activities as we are shifting our focus on yarn manufacturing.Past Acquisitions and Joint VenturesAcquisition of CLC CorporationDuring the year under review, the Hon’ble High Court, Delhi and Bombay vide their order dated 25-05-2005 and 17-06-2005 respectively approved the Scheme of Arrangement in respect of acquisitionof CLC Corporation by your Company and reduction of paid up capital of the Company by an extentof 50%. Consequent upon that, the business of CLC Corporation together with all its assets, liabilitiesand employees were transferred to your Company with effect from April 01, 2004.CLC Corporation was a recognized Two Star Export House by the Ministry of Commerce & Industry,Govt. of India. It is a leading Merchant Exporter of Cotton Textiles primarily Yarns, Fabrics andDenims. At present CLC Corporation is exporting its products to about 25 countries comprising ofUSA, South America, Europe, Israel, Middle East, South Asia, Far East, Australia, Hong Kong, SriLanka and Bangladesh.The CLC Corporation was awarded since 2001-02 to 2004-05 Gold and Silver trophy (in 2003-04obtained Bronze trophy) for its excellent performance in exports by The Cotton Textile ExportPromotion Council of India (Ministry of Textiles, Govt. of India).As a result of Scheme of Arrangement, the paid up share capital of the Company stood reduced by anextent of 50% and issued one equity share of Rs. 10/-each to fractional shareholders whose namesappear in the register of members on record date (13-07-2005) accordingly the paid up capital reducedfrom Rs. 222,200,090/- to 111,101,350/-. The Company has issued 8274465 equity share of Rs. 10/-176

each proportion of contribution made by the partners of CLC Corporation. The Share Capital of yourCompany will Stand increased (after reduction) from Rs. 111,101,350/- to 193,846,000/-.Amalgamation of CLC Global Ltd. with the CompanyDuring the year under review, the Hon’ble High Court, Delhi vide its order dated 23/11/2005approved the Scheme of Amalgamation of CLC Global Ltd. into the Company.To strengthen Balance Sheet of the Company, improve top line visibility to Client, achieve economiesof scale for Raw Material procurement, Long Term Value creation for Investors and improved DebtEquity Ratio CLC Global Ltd. an Public Limited Company merged into the Company. Consequentupon that, the business of CLC Global Ltd. together with all its assets, liabilities and employees weretransferred to your Company with effect from April 01, 2004.As a result of Scheme of amalgamation, the authorized share capital of CLC Global Ltd. will mergewith the authorized capital of the company thereafter the authorized share capital of the companystand increased from Rs 42.00 crores to Rs 60.00 crores, the Company also to allot and issue oneequity share of Rs. 10/- each in proportion to one equity share to the members of CLC Global Ltd.whose names appear in the register of members on such date (record date), the Share Capital of yourCompany will Stand increased from Rs. 193846000/- to Rs. 372091910/-.Indo Rama Textiles LimitedIRTL has an efficient manufacturing flexibility capable of producing different varieties of yarns.IRTL has had a distinction of manufacturing products as per the USTER standards. USTER is aninternational agency that collects textile samples every 4 years from all over the world and certifiesthe quality of the products. As per USTER standards, IRTL is amongst the Top 15% of globalmanufacturers in terms of yarn quality. Its yarn specifications are within 5%-15% of USTERstandards -2001 and of proven superior quality. The rigorous quality orientation has helped thecompany in establishing a strong presence in the international markets. The company has maintainedstrong relationships with some of the largest global apparel retailers. We acquired IRTL because therewas an opportunity to use the business of IRTL as a platform to enter into other segments in the textilevalue chain.In February 2006, we acquired 14.99% in IRTL. Post 31 st March 2006, via an open offer we acquiredsome more equity stake in IRTL. Currently we own 84.02% in IRTL.Particulars (Rs. In 2004-05 2005-06millions)Revenues 3,919.3 3,729.8EBITDA 417.1 493.9Profit after tax 122.7 208.9With the acquisition of IRTL, we have added Blended Yarns in our product portfolio. Along withIRTL we would be one of the leading players in the country by capacity and market capitalisation.Amit Spinning Industries LimitedAmit Spinning Industries Ltd. was incorporated in 1991. It started its operations in 1994 with thelatest technology, equipment and a highly qualified staff. The company is primarily engaged in themanufacture of yarn. It also manufactures fabrics and trades in yarn to a limited extent. The count mixalso includes higher count of 40-50's. However the average count of last two years was 28. Thecompany’s plant is located in Kolhapur, Maharashtra with around 30,672 spindles.177

We acquired, in February 2006, 12.37% fully paid equity and voting capital from the existingpromoters, 28.88% through preferential allotment, 2.89% on conversion of preference shares issuedon a preferential basis. We intend to acquire another 20% in the ongoing open offer. This offer isestimated to be completed around August. Amit Spinning was a loss making company prior toacquisition.Assets of Tai Chonbang Textile Industries Limited situated at AhmedabadIn December 2005, Spentex acquired assets of Taichongbang Textiles Limited situated at SanandAhmedabad having 54,032 spindles for manufacturing of cotton yarn from Bank of India underSecuritization and reconstruction of Financial Assets and Inforcement of Security Interest Act 2002(SARFAESI Act).Expansion PlansWe have expanded our capacities via inorganic and organic means. We are adding another 36,000spindles at a surplus land available at our Baramati unit to manufacture combed yarn as well as valueadded cotton yarn at a capex of Rs. 1190 mn. Commercial production for this unit is expected to startin September 2006.LocationCurrent InstalledCapacity (in no.of spindles)ExpandedInstalledCapacityOperatingtime frameBaramati 29,232 65,232 Sept 2006No. of Spindles (Spentex along with Amit Spinning and IRTL)375,000350,000325,000300,000275,000250,000225,000200,000175,000150,000125,000100,00075,00050,00025,0000349,120313,12055,4402004-05 Current Post ExpansionSourcing of Raw Materials and Suppliers178

Cotton YarnThe key raw material for manufacturing cotton yarn is cotton, which is procured predominantly fromdifferent domestic markets depending upon the customers specifications. Most of our cotton issourced from ginners (a ginning factory removes cotton seeds and other trash from the raw cotton) inGujarat, Andhra Pradesh and Maharashtra. Cotton selectors from our company visit these ginningfactories during the season and select the cotton as per our requirement and orders. We keep adequatestock of cotton to cover the existing order book position, which mitigates any adverse effect due toprice fluctuations.Man Made FibreThe key raw material used are VSF, PSF & Cotton. IRTL procures VSF from Grasim Nagda, MadhyaPradesh and Kharach, Gujarat and PSF from Indo Rama Synthetics Limited (IRSL). We have anoption of procuring VSF and PSF by way of imports if needed and other domestic players likeReliance whereas Cotton is procured from various local suppliers.However, in blended yarn, in polyester and viscose, are heavily depended upon the manufacturerswho keep price validity on month to month basis. We cover orders between 30-45 days of dealingperiod.Marketing and SalesCHAIRMANMANAGING DIRECTORDIRECTORCORPORATEMARKETINGMID-CORPORATEGROUP CFOSr. VP-HR GM-CORPORATE HEAD-EXPORT MKT.VP-MARKETINGDIRECTOR-OPRS.GM-MERCHADISINGVP-AGENCY DIV.GM-COMMERCIALAGM-MKT. (ME)SR.MGR.-PPCWe have a full-fledged marketing department headed by a Director (Marketing). There are two VicePresidents reporting directly to him who are responsible for the export and the domestic marketingfunctions who in turn are supported by a team of qualified marketing managers. There are 20 textileprofessionals, having appropriate qualification and experience to support the day-to-day marketingactivity and formulate long term business plans.Domestic179

We have marketing offices in Delhi, Mumbai, Coimbatore, Kolkata & Bangalore and also haveappointed 5 dealers in Delhi, 1 dealer in Ludhiana, 3 dealers in Tirupur and two dealers in Ichalkaranji(Maharashtra).InternationalWe operate on the basis of a very articulate set up of agent network system due to the fact that in mostof the countries English Language is not spoken. It is the agent who arranges face to face meetingwith the buyers, follows up the establishing of LCs, Monitoring shipment and finally follows up therealisation of sales proceeds. For this he is paid a commission of 2% to 3% on FOB / CIF invoicevalues.There has been a vast change in export scenario after the abolition of quotas since January, 2005.This has lead to under cutting of prices, dumping of goods. As far as our group is concerned, we findthere has been abundant scope in exports and we are exporting our products to full capacity.The sales are spread on the basis of demand and supply situation. The bulk of supplies go to CentralEurope, Turkey & North Africa.We intend to grow business continuously by adding new customers both in existing as well as in thenew countries. We aim to do this by effectively leveraging our marketing skills & relationships andfurther enhancing customer satisfaction.Our BuyersOur yarn has been sold to buyers across the globe including Egypt, Germany, Bangladesh,Switzerland, USA, Taiwan, Korea, Spain, Canada etc. We sell yarn to several reputed knit wear andweaving companies in Tiripur, Delhi, Kolhapur, Solapur etc. Below is a list of our international anddomestic buyers. We are not dependent on one buyer for cotton yarn and are very diversely spreadacross, internationally as well as domestically, due to which we have an advantage of not beingdependent on one buyer for our products.Cotton YarnSpentex Industries Limited International BuyersName of Buyer Country as a % of totalsales for 2005-06as a % of total salesfor 2004-05Top 1 Country Egypt 3.26 1.07Top 5 Countries Egypt, Bangladesh, Germany,8.18 2.81Switzerland, USA,Top 10 Countries Taiwan, Korea, Spain, Canada,Egypt, Bangladesh, Germany,Switzerland, USA, Columbia10.00 3.95Spentex Industries Limited Domestic BuyersName of Buyer as a % of total salesfor 2005-06as a % of total salesfor 2004-05Top 1 Customer 3.05 1.57Top 5 Customers 7.64 3.65Top 10 customers 9.64 5.00180

We have established a manufacturing facility at our surplus land available at Solapur. Bombay DyeingManufacturing Contract (BDMC) has provided the main plant & machinery from its existing facilityat Mumbai. This plant & machinery was dismantled and transported to Solapur at BDMC’s cost.BDMC shall procure and provide the raw cotton to us to manufacture yarn and supply to them and inreturn we will get our manufacturing fees.Man Made FibreIRTL International Buyers:Name of Buyer Country as a % of total salesfor 2005-06as a % of total salesfor 2004-05Top 1 Customer Venezuela 12.05 15.29Top 5 Customers Venezuela, Spain,35.53 33.68Singapore, TurkeyTop 10 customers Israel, Portugal,Belgium, Venezuela,Spain, Singapore, Turkey47.59 45.51IRTL Domestic Buyers:Name of Buyer as a % of total salesfor 2005-06as a % of total salesfor 2004-05Top 1 Customer 9.14 10.23Top 5 Customers 34.67 35.42Top 10 customers 49.94 50.36Products and their processesCotton YarnThe process of manufacturing cotton yarn consists of the following stages:Ginning Blowing andblendingCardingCombingPost-spinningoperationsRing spinningRovingGinningCotton procured from farms contains seeds and other impurities. Ginning removes these impurities.The ginned cotton is then compressed into bales (one bale equals 170 kg.).Blowing and blendingCotton from different sources in bale form is fed into the blender, where it is beaten to convert it intoblended cotton in loose form. The blending process ensures that the quality of the cotton (of the samegrade), received from different sources, is consistent. The loose cotton is converted into sheets181

through a scutcher, and then rolled to form laps. Impurities such as sand, dust, and leaf matter arealso removed at this stage.CardingThe lap is taken to the carding machine, where some impurities are removed by combing. In this step,the sheet is converted into a loose fibrous rope, thereby elongating the cotton fibre about 100 times.The output, which is in the form of a thick, loose rope, is called sliver.CombingThe cotton sliver is then taken to the combing machine, in order to complete the combing action forremoving short fibres. The output is again in the form of sliver.182

RovingThe sliver is taken in a speed frame, where the fibre is further extended by converting it into a thinstrand-like rove, increasing the length of the cotton by 10-12 times. This rove is wrapped aroundbobbins and taken to the next stage.Ring spinningThe rove on bobbins is taken to the ring frame (spindles) for spinning. Each frame has 1,000- 2,000spindles. The spindles spin the rove into thin strands of cotton. A few strands are twisted together toform the yarn. The yarn is then rolled on bobbins and taken for post-spinning operations.Post-spinning operationsThe yarn is required to be packed in heavier packages in a wound form. Packaging is done on awinding machine and is sold as the final product yarn.Man Made FibreThe process of manufacturing Man Made Fibre consists of the following stages:MixingBlow RoomCardingCombingRing FrameSimplexDrawingWinding CheeseTFO PackingMixingPressed cotton bales/ man made fibres are opened and fed to bale breaker for homogenous mixingaccording to required mixing / blendBlow RoomMatted pieces of the bales are pressed through a series of armed beaters having the functions of bothseparating the material into small flakes and removing the heavier impurities contained in it such assand, seeds, leaves etc.CardingThe cotton laps etc. received from blowroom are processed on the carding machine which convert thelaps in the form of thin web card slivers which are collected in doff drums. During the course of thisprocess short fibres, leafs and neps if any183

CombingFrom carding, the slivers are given pretreatment, to combing, if necessary. For pre - treatment, theslivers from carding is given one pass through drawing and then these drawing cans are fed to lapformer to convert the slivers into lap form toDrawingThe slivers from carding and / or combing are fed to drawing machine to get even slivers. Eightslivers are placed together and drawn or drafted eight times the original length by a set of rollers. Byrepeating the process two times, the sliversSimplexThe slivers from the drawing are gradually drafted by the rollers so as to reduce its thickness and toprovide some twist so that it can with stand as the succeeding process. Slivers are wound on interbobbinswhich are then sent to ring framesRing FrameThe final yarn is spun on ring frames by drafting and twisting the rovers received from speed framesto the required count. When yarn is produced with required twist it comes out on ring tubes.WindingYarn from ring bobbins is passed through winding machine which eliminates thick and thin placesand other faults from the yarn and form large packages like cones and cheeses.CheeseCheeses are used in case of double yarn in which case two single yarn are wound parallel on a plastictube called cheese.T.F.OThis process is also used for doubling the yarn. In this process, yarn on chesses is fed and yarn istwisted into a single yarn.PackingCones / cheeses etc. received from final process of yarn are packed in card board boxes of differentsizes and then yarn is ready for despatch. For export packing special boxes are uses.For single yarns the material after autoconer is directly packed. The superlap & comber is not used forthe carded yarns.Our Competitors: Domestic & InternationalDomesticOur company is a manufacturer of cotton yarns and man made fibre which is an organized segment ofthe Indian Textile Industry. Textile being a global industry, we face competition from variousdomestic and international manufacturers of cotton yarn and man made fibre. However, with the saidcapacity expansions and acquisitions, economies of scale, consolidation of work force, improvingtopline visibility to client and also improved presence in the textile value chain, we have an edge over184

other small & medium size manufacturers in the country. Globally we face stiff competition frommanufacturers in various countries due to different factors mentioned below. However, due to ourquality commitment and timely delivery, we are in the market for more than a decade and have growninspite of strong completion.There are many large players in this domestic industry, Vardhman, Nahar etc. are some of the otherplayers who can be compared on the basis of similar size.InternationalBelow is a list of countries in which companies are competing with Spentex.ChinaPakistanBangladeshSri LankaOur EmployeesAdvantagesLow-cost; ready supply of inputs;can make any product at any levelof quality at any price level; hugeinvestments in new spinning,weaving equipment; efficientbusiness-savvy ManagementHuge relatively inexpensive labor,access to local raw cotton, largeinstalled capacity for spun yarn,consistent qualityLow wages; duty-free access toEU, Canada, Norway; makingprogress in supplying apparelindustry’s yarn needs for knitwearDuty-free and quota-free access toEU, reduced-duty access to India,duty-free access to some largeAsian marketsDisadvantagesVulnerable to trade remedy actions,must import cotton, dyeing &printing sector lagsDonot have adequate spinningcapacity and are net Importer ofYarnPersonal safety and security ofShipments are problems, lowerproductivity than ChinaProductivity needs work, laborstandards need work, needs todevelop “full package” capabilities,infrastructure(Ports) needsimprovement, lower productivitythan ChinaRelatively small labor pool,relatively high wage rates, reliesheavily on imported yarn and fabric,needs to develop “full package”capability, Infrastructure needs to beworked outWe believe that the success of an enterprise principally depends upon its human resource known asthe 'employees' who contribute to the strength of the organisation. We encourage our employees toparticipate in the management of affairs of the company. Since the progress and growth of thecompany is directly linked to the employee-contribution, the company pays special attention toemployee welfare aspects. The compensation is kept competitive by adjusting to the emerging jobmarketconditions, and also by recognising and rewarding performance. Training and developmentprogrammes are held on periodical basis. Training is important not only for keeping the employeesabreast with the new developments in their respective work areas and for improving their workmethods but also for promoting a team spirit amongst them. In many of the training programmes, theemployee participation cuts across the organisational hierarchy. It has been observed that theemployee participation in the training programmes is unbiased and whole-hearted. The programmeshave benefited the company through improvement in performance and working skills of theemployees. The employees have been benefited by development of their personality. The bestemployees are rewarded annually.185

Below is a table showing the total number of skilled and unskilled employees of :Amit Spinning as at March 31, 2006Sr. No Department Skilled Unskilled TotalEmployees Employees1 Mixing - On contract -2 Blowroom 3 - 33 Preparatory 56 20 764 Ring frame 97 74 1715 Post spinning 71 29 1006 Cleaning - - -7 Maintenance 33 7 408 Electrical 10 - 109 Quality- 1 1control10 Others 16 4 20Total 286 135 421Spentex as at March 31, 2006Baramati UnitSr. No Department Skilled Employees UnskilledTotalEmployees1 Mixing ON CONTRACT 26 262 Blow Room 03 - 033 Preparatory 47 03 504 Ring frame 84 12 965 Post spinning 56 03 596 Cleaning -- -- --7 Maintenance 24 11 358 Electrical 11 -- 119 Quality control 01 -- 0110 Others 11 02 13Total 237 57 26811 Trainees - 137 13712 Trial Workers - 79 79Grand Total 237 273 510Cimmco Unit ISr. DepartmentSkilled Unskilled TotalNoEmployees Employees1 B/R Carding - 16 16186

Sr. DepartmentSkilled Unskilled TotalNoEmployees Employees2 Sliver Ribben lap - 7 73 Comber - 27 274 Draw Frame - 6 65 Speed Frame - 45 456 Ring Frame (Doffer) - 111 1117 Ring Frame (Jobber) 2 - 28 Ring Frame (Sider) 28 17 459 Autoconer - 83 8310 Assly Winding / RJK - 7 711 T.F.O. - 22 2212 Packing - 8 813 Engineering 17 3 2014 Q. A. - 4 415 Cotton Yarn-2 216 Materials-2 217 Admin-3 318 Prep. Maint.614 2019 R/F Maint.816 2420 P.Spg. Maint.47 11Total 65 400 465Cimmco Unit II*Sr. DepartmentSkilled Unskilled TotalNoEmployees Employees1 B/R Carding - 3 32 Sliver Ribben lap - 3 33 Comber - 5 54 Draw Frame - 6 65 Speed Frame - 9 96 Ring Frame (Doffer) - 22 227 Autoconer - 2 28 Packing - 4 49 Engineering 20 11 3110 Prep. Maint. 8 13 2111 R/F Maint. 11 12 2312 P.Spg. Maint. 5 4 9Total 44 94 138*The employees strength will increase as the utilisation increases.187

SPENTEX INDUSTRIES LIMITED, AHMEDABADS.No Deptt.Skilled UnskilledTotal Sk. &Employees TraineesTra.1 B/R 6 6 122 Card 15 4 193 SL/RL 10 3 134 Comber 12 7 195 D/F 12 4 166 S/F 29 16 457 R/F 106 105 2118 A/C 55 51 106Total 245 196 4419 Maint 27 25 5210 Elect. 8 2 1011 Mech. 5 4 912 Q.A. 6 613 Admn 4 414 Cotton/ Mix. 3 3G.Total 285 240 525IRTL as at March 31, 2006PithampurSr.NoDepartmentSkilledEmployeesUnskilledEmployeesTotal1 Mixing - 59 592 Blowroom - 27 273 Preparatory 113 58 1714 Ring frame 208 210 4185 Post Spining 170 319 4896 Cleaning - 15 157 Maintenance 69 4 738 Electrical 44 - 449 Quality Control 10 2 1210 Other 2 - 2Total 616 694 1310188

ButiBoriRegularWorkmanContractorWorkmanSr. No. Department Skilled Unskilled Skilled Unskilled Total1 Mixing - - - 50 502 Blowroom 29 - - - 293 Preparatory 118 - 15 9 1424 Ring Frame 343 - 40 36 4195 Post spinning 270 - 60 72 4026 Cleaning - - - -7 Maintenance 67 - - 4 718 Electrical 17 - - - 179 Quality Control 16 - - - 1610 Others 20 - 8 40 68Total 880 - 123 211 1214Insurance CoverageWe have taken adequate Insurance Policies to cover our Plant and Machinery and other assets. Themanagement periodically reviews the adequacy of the insurance cover.Office LocationsWe have branch office at the following locations:Sr. No.Address1 A-60, Okhla Industrial Area, Phase – II, New Delhi – 110 0202 602, Carlton Tower, No.1, Airport Road, Bangalore – 560 0173 Room No.307, Third Floor, Marshall House, 33/1 N.S Road, Kolkatta – 700 0014 509, Red Rose Plaza, IIIrd Floor, R.S.Puram, D.B.Road, Coimbatore –641 002Environmental and Safety AspectsWe have been awarded the prestigious Environmental Management Systems certification IS/ISO14001:2004, IS/ISO 9001:2000 and obtained “Confidence in textiles” certification tested for harmfulsubstances according to Oeko-Tax Standards 100.The activities, processes and systems in our company ensure that utmost care is taken to prevent orminimize any adverse effects on the environment. Safety is given a very high priority. Ourmanufacturing facilities are inspected regularly by officials from Pollution Control Board andInspectorate of Factories. Regular training programmes are also conducted, in order to create andmaintain awareness amongst our employees with respect to environmental management andoperational safety.Internal Control SystemsWe have instituted adequate internal control procedure commensurate with the nature of its businessand the size of its operations. An audit committee consisting of three independent non-executivedirectors is in place. Internal audit is conducted at regular intervals at all the plants including headoffice at Delhi. All significant audit observations and follow up actions thereon are reported to the189

Audit Committee. The Audit Committee meets regularly to review the internal audit reports as well asall relevant internal control measures and other incidental matters.SWOTStrengthWide market for yarn – No dependency on single buyer or country:We are not dependent on any single buyers for our sales. We have around 45%-55% of our sales fromexports. Our sales are very widely spread among a range of different buyers, hence we are notdependent on clients domestically as well as internationally.Strong product offering to customers:Post acquisition of IRTL we have the capability to manufacture yarn from different kinds of fibre i.ecotton, VSF, PSF etc., this gives us a broader range of products to sell to different buyers of yarn andfibre in different markets. New markets have been identified and captured with this wider productrange.Acquisitions and strong in integration:We have a strong management and technical team in place which has been instrumental in turningaround the loss making units acquired by the company. We have a history of turning aroundcompanies; for eg: prior to the takeover, in October 2003, Cimmco Spinners (a BK Birla Groupcompany) had incurred a loss of Rs. 39 Million in FY 2001-02 and Rs.15 Million during FY 2002-03and within a short period of five months subsequent to the takeover, the company turned aroundCimmco Spinners and made a profit of Rs. 16 Million during FY 2003-04.Benefits of scale:Post the present expansion, Spentex will augment its presence across the textile value chain, offeringbetter value to customers and strengthening their own margins and profitability. The expansion plansare currently underway and would enable us to manufacture very high quality value added yarns suchas compact yarns, with slubs, multi count, multi twist, core spun yarn for apparel/fabric industry. Allthese yarns will fetch us not only higher premium but also a strong position in the domestic andexport markets.Presence in cotton abundant statesGujarat and Maharashtra are known be cotton abundant states. This makes our procurement of cottonsimpler and convenient. Due to the locational advantage that we have our logistics costs are low.Aggressive inorganic growth strategy:Our strategy is value buying coupled with a strong turn around performance centred aroundimproving efficiencies, product mix, management of operation and expansion and value addition toimprove profitability. We have experienced significant inorganically growth in the past and intend tocontinue this in the future. The cost per spindle is lower for acquisitions that for any other brownfield/ greenfield project. The cost of acquisition is around Rs. 15,000 – 20,000 and for greenfield /brownfield project is around Rs. 25,000 – 30,000Weaknesses190

There is inherent risk in inorganic growth; the risk of turning around a company or making it moreprofitable. We may need to expand management bandwidth significantly to manage inorganic andorganic growth.OpportunitiesExportIn order to encourage and give a fillip to exports of textile products, the Government of India hastaken some initiatives like quota abolitions, Export Promotion Capital Goods Scheme, DutyDrawback Scheme and Advance Licensing Scheme.ExpansionTo encourage up-gradation of textile sector infrastructure and capacity expansion, the Government ofIndia has taken some initiatives and come up with some schemes that would support the companies toincrease capacity. There are schemes like Technology Up-gradation Fund Scheme and Textile CentresInfrastructure Development Scheme. Also, the government is encouraging FDI in textile industry tohelp gain access to the latest technologies and strengthen itself in the competitive world market.ThreatsThe price of cotton is cyclical. While in 2005 weak cotton prices expanded margins, a sharp increasein cotton prices could reduce margin in the short term. However, the price increase in cotton does getreflected in yarn realization with a slight lag. Thus the impact of rise in raw material prices is not asadverse in case of yarn manufacturing as in the case of end product companies engaged in apparel andhome textile manufacturing. Also, significant appreciation of the Indian Rupee (INR) versus the USDollar and Euro will adversely affect margins.Awards and RecognitionCLC Corporation, a division of Spentex Industries Limited has won the following awards from TheCotton Textile Export Promotion Council (TEXPROCIL) and Ministry of Textiles (Govt. of India).a. Gold Trophies for export performance in Fabrics amongst Merchant Exporters for the years2001-02b. Silver Trophy for export performance in Fabrics amongst Non-Quota Category for the year2001-02.c. Gold Trophies for export performance in Fabrics amongst Merchant Exporters for the years2002-03d. Bronze Trophy for export performance in Yarn amongst Merchant Exporters for the year2003-04.e. Gold Trophies for export performance in Fabrics amongst Merchant Exporters for the year2004-05Corporate History and Organisational StructureCorporate HistoryThe CLC group, including CLC Corporation along with CLC Global, was a Delhi based groupengaged in various activities such as manufacturing, trading and indenting of yarn, fabrics, structural191

steel, ferro alloys. In April 2004 this group was consolidated under one company; Spentex IndustriesLimited by consolidating CLC Global and CLC Corporation.Shri Ajay Kumar Choudhary, son of Sh. Chiranji Lal Choudhary, is the Chairman of Spentex Group,Shri Mukund Choudhary, son of Shri Ajay Kumar Choudhary, is the MD of Spentex group and hasbeen instrumental in group entry into manufacturing of yarn. Shri Kapil Choudhary, son of Sh. AjayKumar Choudhary, is responsible for the marketing activities of the group and under his guidance thegroup has developed strong marketing network all over the world.CLC CorporationCLC GlobalMerged with effect from April 1, 20041. AcquisitionSpentexIndustries Ltd2. MergerMilestones achieved by the Group• Acquisition of Cimmco Spinners: In year 2003 CLC successfully acquired CimmcoSpinners, a 100% cotton yarn spinning unit located at Solapur from Xpro India Ltd. (a “S.K.Birla Group” company).• Signing of Contract Manufacturing Agreement with BDMC: In 2004, CLC Global Ltd.now CLC Global, a division of Spentex Industries Limited signed a contract manufacturingagreement to manufacture 100% cotton yarn with The Bombay Dyeing & Mfg. Co. Ltd.,Mumbai. As per this agreement, 50,000 more spindles (42000 Ring Spindles and 6 Open Endmachines) are being installed at CLC Global Ltd.’s existing unit Cimmco Spinners, Solapur.The entire yarn production of these 50,000 spindles will be supplied to The Bombay Dyeing& Mfg. Co. Ltd. for 7 years. Building construction work has started at site and the companyhas plans to complete commissioning by September 2005. (For details refer to page no. 41 &42 )• Private Funding: In December, 2005 Citigroup Venture Capital International GrowthPartnership Mauritius Limited invested an aggregate sum of Rs 70.3 Crore to subscribe andpurchase fully paid up equity shares and warrants of the company on a preferential allotmentbasis.• Acquisition of Spinning Unit: Spentex Industries Limited acquired the unit of M/s. TaiChongbang Textiles Industries Limited which is located in Ahmedabad-Viramgam state highway at a distance of 34 km from Ahmedabad .The site is at prime location with over 1000feet front along the high way. There are villages Khoda & Naranpura near by within thedistance of 5 - 7 Kilometers where accommodation for workforce is available. The plot areais 121000 sq. Over the years the company’s performance drifted into poor profitability andthe company’s operation came to a halt when Bank of India as a leader of financialinstitutions consortium got control of the factory assets under Securitization andReconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(SARFAESI Act 2002). Bank of India offered the assets on open bid basis.• Acquisition of IRTL: On Feb. 17, 2006 Spentex Industries Limited acquired 46,73,625 (14.99%) equity shares of Rs. 10/- each and Signed share purchase agreement with existingpromoters of Indo Rama Textiles Ltd. to further acquire 1,52,86,831 equity sharesconstituting 49.03% of the present share capital . Execution of Agreement trigger the openoffer and company had issued public announcement pursuant to SEBI substantial192

Acquisition of Shares and Takeover Regulation, 1997 at an offer price of Rs 84.15 per sharesand open offer had been completed by acquiring 20% from Public and it makes 84% stake ofSIL in IRTL.• Acquisition of ASIL: Spentex Industries Limited has acquire stake in the Amit SpinningIndustries Limited in two steps, in the first stage, SIL buy 5,091,000 shares (Approximately18.1% of total equity) from the promoters of the company at Rs 11/- per share and in thesecond stage, by SIL has infused of Rs 10.00 Crore funds into company by way ofpreferential allotment of shares at Rs 8.41 per share and finally SIL would follow it up withan open offer for shares of ASIL from other shareholders, as per the SEBI guidelines.193

Organisational StructureGROUP CFOGM-INTENAL AUDITGM-LEGALAGM-BANKINGAGM-LOGISTICSSR.MGR.-A/CsSR.MGR.-TAX.COM. SECRETARYDY.MGR-FIN.Organisational StructureCHAIRMANMANAGING DIRECTORDIRECTORCORPORATEMARKETINGSr. VP-HR GM-CORPORATEHEAD-EXPORT MKT. VP-MARKETINGGM-MERCHADISINGVP-AGENCY DIV.DGM-HRAGM-MKT. (ME) SR.MGR.-PPCPLANT HR HEADS5 LocationsUNIT – ICIMMCO SPINNERSSOLAPURUNIT – IISPENTEX INDUSTRIES LTD.BARAMATIUNIT – VINDO RAMA TEXTILES LTD.BUTIBORI & PITHAMPURAbbreviations:ME = Merchant ExportsMkt.= MarketingOPRS.=OperationsPPC=Production Planning & ControlBUTIBORIPITHAMPURMID-CORPORATEDIRECTOR-OPRS.GM-COMMERCIALPLANTSUNIT – IIISPENTEX INDUSTRIES LTD.AHMEDABADUNIT – IVAMIT SPINNING IND. LTD.KOLHAPUR194

SECTION XV.ORGANISATIONAL STRUCTURE BOARD AND MAJOR SHAREHOLDERSCategoryNo. of sharesheld%ageA. Promoter Holdings1. PromotersIndian Promoters 3,04,01,843 52.91Foreign Promoters Nil Nil2. Persons Acting in Concert 1,39,041 0.24B. Non Promoter Holdings3. Institutional Investors4. OthersSUB TOTAL 3,05,40,884 53.15(a) Mutual Funds and UTI 19,685 0.03(b) Banks, FIIs, Insurance Companies200 0.00(Central/State Government Institutions/Non-Government Institutions(c) Foreign Institutional Investors 1,75,04,000 30.47SUB TOTAL 1,75,23,885 30.50(a) Private Corporate Bodies 17,05,572 2.97(b) Indian Public 74,43,287 12.95(c) NRI/OCBs 1,56,053 0.27(d) Any Others * 89,510 0.16SUB TOTAL 93,94,422 16.35GRAND TOTAL 5,74,59,191 100.00* Clearing Members (Shares are in Demat TransitNote: Total Foreign Shareholding as on 31/03/2006 is 1,76,60,053 (comprising 1,75,04,000 of FIIsand 1,56,053 of NRI/OCBs)195

SPENTEX INDUSTRIES LIMITED (INE376C01020)LIST OF SHARE HOLDERS HAVING 1% AND ABOVE SHARES AS ON 31-03-2006S. No. L-Folio/Client- ID/DP-ID Name/s of holder No. of sharesheld%ageA. INDIAN PROMOTERS1. 0600001Mukund Choudhary 83,99,947 14.62IN302679-301537792. 0600002Kapil Choudhary 83,72,724 14.57IN302679-301537623. 0600003Ajay Kumar Choudhary 78,78,573 13.71IN302679-301537444. IN302679-30153787 Ritu Choudhary 27,70,374 4.825. IN302679-30202745 Jyoti Choudhary 29,80,225 5.19B. NON PROMOTER HOLDINGForeign InstitutionalInvestorsTOTAL 3,04,01,843 52.911. 0600009 Citigroup Venture CapitalInternational GrowthPartnership Mauritius Ltd.1,75,00,000 30.46TOTAL 1,75,00,000 30.46C. INDIAN PUBLIC1. IN301151-13167098 Vineet Suresh Sethi 6,04,692 1.05TOTAL 6,04,692 1.05SPENTEX INDUSTRIES LIMITED (INE376C01020)LIST OF PERSONS ACTING IN CONCERT AS ON 31-03-2006S. No. L-Folio/Client- ID/DP-ID Name/s of holder No. of shares %ageheld1. 0600016Lekha Choudhary 96,035 0.17IN302679-301537532. 50792988Chiranji Lal Choudhary 43,001 0.07IN3030283. 0600017 J K Bansal 1 0.004. 0600018 Santosh Bansal 1 0.005. 0600019 Chandrakala Choudhary 1 0.006. 0600020 Kashi Prasad Banka 1 0.007. 0600021 Prem Lata Banka 1 0.00TOTAL 1, 39,041 0.24196

SECTION XVI.BOARD OF DIRECTORS AND SENIOR MANAGEMENTDetails of Board of Directors of SpentexMr. Ajay Kumar Choudhary, ChairmanMr. Ajay Choudhary, 59 years, joined the family business in 1970 after completing his graduation inCommerce from Delhi University.The early stages of CLC’s growth can be attributed to Mr. Ajay Kumar Choudhary to a large extent.In association with the founder of the group Mr. Chiranji Lal Choudhary, he has built the foundationfor CLC Enterprise.Mr. Mukund Choudhary, Managing DirectorMukund Choudhary, 34 years, joined the family business in August 1992 after completing hisgraduation in Commerce from Delhi University. He started his career by working in marketingdepartment of the Company before becoming the MD of one of the group companies, CLC & SonsPvt. Ltd. in April 1997.CLC Global Ltd. came into existence by de-merging the textile division of CLC & Sons Pvt. Ltd. inApril 2001 and Mukund was made the MD of CLC Global Ltd.Mukund’s focused vision and commitment has seen the Spentex Group grow from strength tostrength. Under his leadership CLC Global acquired Cimmco Spinners from S.K.Birla Group inOctober 2003. CLC Global also acquired Spentex Industries Ltd, a BIFR company from R.P. GoenkaGroup.Under his able guidance these units turned into profitable ventures within a short span of six months.The acquisition of these two companies’ has strengthened the position of CLC Enterprise in the textileindustry. Mukund is part of the Executive Committee of Northern India Textile Mills Association andis an active spokesperson for the Textile industry.Mr. Kapil Choudhary, Director-MarketingKapil Choudhary, 32 years, joined the family business of textiles at an early age and looks afteroperations and marketing aspects of the group.Under his guidance that the group developed a very strong marketing network all over the world.Today the group exports company products and traded products to far off and developed markets suchas Australia, U.K., South America, Canada, South East Asia , and E.E.C.Under his able guidance the group has won the Cotton Textiles Export Promotion Council(TEXPROCIL) award for achieving a high level of exports for the last three years. Kapil has been apart of many Government sponsored trade delegations. Recently, he visited USA, on invitation ofTexprocil, as a member of senior trade delegation to study the impact of textile trade increase to theUSA after the fall out of the quota regime from January, 2005Mr. Sitaram Parthasarathy, Director-WorksMr. Parthasarathy, 45 years, has a sound academic background, B.Sc (Hons) in Physics and wasawarded Sri Yadalam Subbaiah Setty Memorial Gold Medal for securing first rank in B.tech(Textiles)197

with rich experience in leading teams for setting up and running of plants both spinning and weavingover a period of 20 years in textile industry.Mr. Pankaj Sharma, DirectorMr. Sharma, 41 years, A B. Tech graduate in Textile Technology, MBA Marketing & a CharteredEngineer having experience in leading textile mills in operations and marketing over a span of 18years.Mr. Deepak Diwan, DirectorMr. Diwan, 56 years, commerce cum law graduate and is a Senior Corporate Law Advisor andprovides consultation on corporate law matters.Mr. Prem Malik, DirectorMr. Malik, 63 years, post graduate from Punjab University and having more than 41 years ofexperience in Textiles & Clothing Companies like Calico Mills, DCM Group, Mafatlal Group &Bombay Dyeing and a active member and advisors in various Textiles Committees and Boards.Worked on the governing council of Indian Society of Advertising for several years. Widely traveledand have good contacts in various countries and have created tie-ups and joint ventures in textiles andclothing at time when India was not looked as a destination for investment and tie-ups.Mr. Ram Kumar Thapliyal, DirectorMr. Thapliyal, 62 years, Master in Arts (Economics) joined State Bank of India as a ProbationaryOfficer in State Bank of India in the year 1968 and having more than 35 years experience by servingvarious departments in State Bank of India.Board of Directors of Indo Rama Textiles LimitedMukund Choudhary, DirectorMukund Choudhary, 34 years, joined the family business in August 1992 after completing hisgraduation in Commerce from Delhi University. He started his career by working in marketingdepartment of the Company before becoming the MD of one of the group companies, CLC & SonsPvt. Ltd. in April 1997.CLC Global Ltd. came into existence by de-merging the textile division of CLC & Sons Pvt. Ltd. inApril 2001 and Mukund was made the MD of CLC Global Ltd.Mukund’s focused vision and commitment has seen the group grow from strength to strength. Underhis leadership CLC Global acquired Cimmco Spinners from S.K.Birla Group in October 2003. CLCGlobal also acquired Spentex Industries Ltd, a BIFR company from R.P. Goenka Group.Under his able guidance these units turned into profitable ventures within a short span of six months.The acquisition of these two companies’ has strengthened the position of CLC Enterprise in the textileindustry. Mukund is part of the Executive Committee of Northern India Textile Mills Association andis an active spokesperson for the Textile industry.Kapil Choudhary, DirectorKapil Choudhary, 32 years, joined the family business of textiles at an early age and looks afteroperations and marketing aspects of the group.198

Under his guidance that the group developed a very strong marketing network all over the world.Today the group exports company products and traded products to far off and developed markets suchas Australia, U.K., South America, Canada, South East Asia , and E.E.C.Under his able guidance the group has won the Cotton Textiles Export Promotion Council(TEXPROCIL) award for achieving a high level of exports for the last three years. Kapil has been apart of many Government sponsored trade delegations. Recently, he visited USA, on invitation ofTexprocil, as a member of senior trade delegation to study the impact of textile trade increase to theUSA after the fall out of the quota regime from January, 2005.Amrit Agrawal, DirectorMr. Agrawal, 38 years, is a member of The Institute of Chartered Accountants of India and AssociateMember of Institute of Company Secretaries of India. He has an outstanding academic record – rankholder in Chartered Accountants and having 15 year experience in Finance, Corporate, Secretarial andLegal.Suraj Parkash SetiaMr. Setia, 64 years, B.Sc (Hons) in textiles, Gold Medalist and having more than 43 years ofexperience in Textiles Companies like Calico Mills, DCM Group, J.K.Synthetics, Orient Texfabs Pvt.Ltd. He has been awarded “study in the marketing of consultancy services” by International TradeCentre, Geneva with field study in 5 West European Countries and desk research work in India. From1982 he has been practicing as Consultant to textile Industries and has assisted over 32 projects invarious segments of textile Industry.Satish Chander GroverMr. Grover, 64 years, having diversified Education B.com (Hons) from DU, M.A. (Eco) from AgraUniversity, CA.I.I.B, MBA, L.L.B. Retired Chief Commissioner of Income Tax, Chandigarh withcadre controlling functions for the entire North- West Region. Started Carrier in 1962 by Working asJunior executive with Bank of Baroda for about 4 years. Worked as Commissioner and Director inIncome Tax Department for several years.Key Management PersonnelMr. Amrit Agrawal, Chief Finance Officer & Company Secretary, A.C.A & A.C.S having more than14 years of experience in the field of Finance, Accounts and Secretarial matter in the Corporate level.Mr. C. B. Kataria, Vice President (Yarn), B. Tech Textile Technology and Masters of ManagementScience, has 12 Years of experience in the textile industry. Mr. Kataria has rich experience inspinning operations.Mr. Sanjay Chaudhary, Manager (Corporate), B. Tech Textile Technology and PG Diploma inManagement, has 14 years of experience in the textile industry. Mr. Chaudhary has worked withreputed mills like Grasim Industries and Uniworth in India.Mr. S.P.Setia, (Consultant) B. Tech in Textiles Technology is a reputed consultant in the textileindustry having experience in excess of 39 years in project implementation.Mr. Ravi Upadhyay, Chief Executive (Export Sales), has 18 Years of experience in the textileindustry having worked with reputed mills in India. Mr. Upadhyay has rich experience in spinningoperations.199

Dr. Shrimant Basu: Sr. Vice President-HR Ph. D Thesis entitled: “Mentoring & OrganizationalOutcomes”) from I.I.T. – Kharagpur. MBA, PGDPMIR and B.Sc (Geology) He has over 23 years ofprofessional standing in all facets of HR Management.Mr. L.N.Kaushik : B.Tech in Textile Technology and M.Tech ( IIT-Delhi), Has 16 years ofexperience in leading textile industries in India, Indonesia and Sri Lanka.Board of Directors of Amit Spinning Industries Limited:The Company does not have any representation on the board of directors of Amit Spinning. Asrequired by SEBI Takeover Regulations, we cannot appoint nominees on the board of directors ofAmit Spinning until completion of the open offer to public shareholders of Amit Spinning. The openoffer closes on July 5, 2006 and the completion of the open offer is expected by July 24, 2006.200

SECTION XVII.TAXATION ASPECTS RELATING TO THE INSTRUMENTSTATEMENT OF POSSIBLE DIRECT TAX BENEFITS AVALIABLE TO THE COMPANYAND ITS SHAREHOLDERS:BENEFITS AVAILABLE TO THE COMPANY:The company does not enjoy any benefits related to taxationBENEFITS AVAILABLE TO SHAREHOLDERS1. As per section 10(34) of the Income Tax Act, any income by way of dividends referred to insection 115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003 by theCompany) is exempt from tax.2. As per section 10(38) of the Income Tax Act, long term capital gains from the transfer of along term capital asset being an equity share of the Company, where such transaction ischargeable to securities transaction tax, would not be liable to tax in the hands of theshareholder.3. As per section 111A of the Income Tax Act, short term capital gains arising from the sale ofequity shares of the Company , transacted through a recognized stock exchange in India,where such transaction is chargeable to securities transaction tax, will be taxable at the rate of10%(plus applicable surcharge and education cess.)4. As per section 54EC of the Income Tax Act and subject to the conditions specified therein ,capital gains not exempt under section 10(38) and arising on transfer of a long term capitalasset shall not be chargeable to tax to the extent such capital gains are invested in certainnotified bonds within six months from the date of transfer. However, if the said bonds aretransferred or converted into money within a period of three years from the date ofacquisition, the amount of capital gains exempted earlier would become chargeable to tax aslong as long term capital gains in the year in which the bonds are transferred are convertedinto money.5. As per section 54ED of the Income Tax Act and subject to the conditions specified therein,capital gains not exempt under section 10(38) and arising from transfer of long term capitalassets, being listed securities or units, shall not be chargeable to tax to the extent such gainsare invested in acquiring equity shares forming part of an “eligible issue of share capital”within six months from the date of transfer of the long term assets (provided they are nottransferred within one year of acquisition). Eligible issue of share capital has been defined asan issue of equity shares which satisfies the following conditions:• The issue is made by a public company formed and registered in India ;and• The shares forming part of the issue are offered for subscription to the public.6. As per section 54F of the Income Tax Act, long term capital gains (in cases not covered undersection 10(38) arising on the transfer of the shares of the Company held by an individual orHindu Undivided Family (HUF) shall be exempt from capital gains tax of the netconsideration is utilized, within a period of one year before, or two years after the date oftransfer, in the purchase of a residential house within three years. Such benefit will not beavailable.201

a) If the individual or Hindu Undivided Family-• Owns more than one residential house, other than the new residential house,on the date of transfer of the shares; or• Purchases another residential house within a period of one year after the dateof transfer of the shares; or• Constructs another residential house within a period of three years after thedate of transfer of the shares; andb) The income from such residential house, other than the one residential house ownedon the date of transfer of the original asset, is chargeable under the head “Incomefrom house property”.If only a part of the net consideration is so invested, so much of the capital gain as bears to thewhole of the capital gain the same proportion as the cost of the new residential house bears tothe net consideration shall be exempt.If the new residential house is transferred within a period of three years from the date ofpurchase or construction, the amount of capital gains on which tax was not charged earlier,shall be deemed to be income chargeable under the head “ Capital Gains” of the year in whichthe residential house is transferred.7. As per section 112 of the Income Tax Act, taxable long –term capital gains, if any, on sale oflisted securities or units or zero coupon bonds (in cases not covered under section 10(38) ofthe Act would be charged to tax at the rate of 20% (plus applicable surcharge and educationcess) after considering indexation benefits or at 10% (plus applicable surcharge and educationcess) without considering indexation benefits, whichever is less. Under section 48 of the Act ,the long term capital gains arising out of sale of capital assets excluding bonds and debentures(except Capital Indexed Bonds issued by the Government ) will be completed after indexingthe cost of acquisition/improvement.8. As per section 88E of the Income Tax Act, the securities transaction tax paid by theshareholder in respect of taxable securities transactions entered into in the course of thebusiness would be eligible for deduction from the amount of income tax on the incomechargeable under the head “Profits and Gains of Business or Profession” arising from taxablesecurities transaction, subject to certain limit specified in the section. As such, no deductionwill be allowed in computing the income chargeable to tax as “capital gains” or under thehead “Profits and gains of business or Profession” for such amount paid on account ofsecurities transaction tax.202

SECTION XVIII.LEGAL AND OTHER INFORMATIONOUTSTANDING LITIGATION1. Save as detailed herein:a. neither the Company, nor any director or promoter of the Company is party to anyongoing proceedings before any statutory or regulatory authority, nor are any showcause notices pending against any of them;b. neither the Company, nor any director of the Company was party to any pastproceedings where any penalty was imposed;c. there have been no defaults to FIIs/ banks for non-payment of statutory dues and duestowards instrument holders like debenture holders, fixed deposits, and arrears oncumulative preference shares by the Promoters of the Company and the companies/firms promoted by the Promoters of the Company;d. the Company has not failed to pay any statutory dues;e. no disciplinary action has been taken against the Promoters of the Company by SEBIor any Stock Exchange in India; andf. none of the names of the directors of the Company have appeared on the RBI'sdefaulters list.2. We have only reported cases filed by the Spentex, IRTL and Amit Spinning and cases filedagainst the Company, Group Company and Associate Company where the amount of claimexceed Rs. 10,00,000/-. The summary of pending litigation set out in the risk factors on Page16 however, is not on the basis of this threshold, and includes all litigations irrespective of theamount claimed.3. The following are the names of small scale creditors to whom the Company owe a sumexceeding Rs. 0.1 Mn which is outstanding for more than thirty days:Name of the Creditor Credit Balance (Mn)Acetex Textile Engg.&0.304ConsultantsGopala Kraft Pack Pvt. Ltd. 0.980Total 1.284LITIGATION/MATERIAL DEVELOPMENTS AGAINST OUR PROMOTER/THECOMPANY/GROUP COMPANIES4. Proceedings filed by Mr. Mukund Choudhary (“Promoter”)Mr. Mukund Choudhary, the promoter of the Company, filed a complaint (No.954/1999) as apartner of the firm called Chiranji Lal Chaudhary and Sons against M/s Prakash Transport(Nepal) Private Limited, Katmandu, Nepal in the State Consumer Dispute Redressal Forum,Delhi for non-delivery of the goods at the destination and for refusal of payment cost of theundelivered goods amounting to Rs .308 Mn. The matter is pending for final disposal.203

5. Criminal Proceedings filed by the CompanyThe Company has filed seven criminal proceedings for bouncing of cheques against variouspersons/companies before the Court of Chief Metropolitan Magistrate or Additional ChiefMetropolitan Magistrate, New Delhi depending on the pecuniary jurisdiction of the claimedamount. The total amount of claim under the seven proceedings filed by the Companyamounts to Rs. 26.35 Mn.6. Criminal Proceedings filed by Indo Rama Synthetics (I) Ltd./Indo Rama Textiles Ltd.Indo Rama Synthetics (I) Ltd./Indo Rama Textiles Ltd has filed five criminal proceedings forbouncing of cheques against various persons/companies before the Court of ChiefMetropolitan Magistrate or Additional Chief Metropolitan Magistrate, in various courtsdepending on the pecuniary jurisdiction of the claimed amount. The total amount of claimunder the five proceedings filed by the Group Company amounts to Rs. 4.042 Mn..7. Civil Proceedings filed by the Companya. The Company filed a civil suit (No.CS (OS) No. 672/2006) against Mr. PulakChowdhury before the Delhi High Court. The Company had entered into a serviceagreement (“Agreement”) with Mr. Pulak Chowdhury. Mr. Pulak Chowdhury did notcomply with the terms of the Agreement and therefore the Company terminated theAgreement. Enraged by the termination the Mr. Pulak Chowdhury mailed false andmisleading information about the Company to various authorities. Aggrieved by this,the Company approached the Court, seeking prohibitory and mandatory injunctions.The Company has also claimed damages amounting to Rs. 5 Mn. The matter ispending for hearing and final disposal.b. The Company has filed a Civil Application (No. 4916/2006) against M/s. UttarGujarat Vijli Company Limited before the Gujarat High Court, Ahmedabad. TheCompany claims that they had acquired the unit situated at Naranpura free from anyclaim qua the Electricity Department. Therefore, the Company has filed a WritPetition seeking directions to provide new electricity connection to the said unitwithout imposition of old dues/arrears. The total amount claimed by the Company isRs.11.90 Mn, an interim order has been passed directing the Company to deposit theentire amount until final disposal of the petition.c. Bharat Udhyog Ltd.(a division of Spentex) filed a civil suit (No.C.S.(OS) No.1025/2004) against M/s. Vinay Corporation and others before the Delhi High Court.The Group Company paid an advance sum to M/s. Vinay Corporation for supplyingthe raw material to Radhika Fibres (India) Ltd, with whom Bharat Udhyog Ltd. hadjob work arrangement. The cheques for the same amount were encashed by M/s.Vinay Corporation but the raw material was not supplied to Radhika Fibres (India)Ltd. This suit is filed for recovering of the advance paid. The amount claimed is Rs.2.044 Mn and is pending for hearing and final disposal.8. Civil Proceedings filed by Indo Rama Synthetics (I) Ltd./Indo Rama Textiles Ltd (asubsidiary of Spentex).Indo Rama Synthetics (I) Ltd./Indo Rama Textiles Ltd filed a miscellaneous appeal in theMadhya Pradesh High Court, Indore against Madhya Pradesh Textiles and others. Indo RamaSynthetics (I) Ltd had challenged an arbitral award passed by the International Court in theCourt of the Additional District Judge. Indo Rama Synthetics (I) Ltd appealed against thesaid order of the Additional District Judge on the ground that the award passed was contrary204

to the provisions of law. The amount involved in this dispute is Rs. 2.10 Mn and the same ispending hearing and final disposal.9. Excise cases filed by the Companya. The Company filed an Appeal (No. E/4118/05) against the Joint CommissionerCentral Excise, Ahmedabad – II before the CESTAT, Ahmedabad The Departmentissued a showcause notice to Tai Chonbang (“TCIL”) wherein it alleged that it hadfound certain irregularities in respect of customs duty payable by it. TCIL did notreply to the show cause and closed down its operations. The authorities passed anorder confirming the amount due and a penalty of an equal amount was levied.Thereafter the Company acquired TCIL and filed the present appeal arguing that thedues and the penalty claimed to the tune of Rs. 27.86 Mn be quashed. The matter ispending for hearing and final disposal.b. The Company filed an appeal against the order (No. 04/ASR/2003) against theCommissioner Central Excise, Pune-III before the CESTAT, Mumbai. The Companyhad paid excise on the cotton yarn it had sold in the Domestic Tariff Area as perconcessional rate. The Authorities claimed that the concession was not available tothe Company as it mixed domestic and imported raw material (cotton) formanufacture. (for the period June 7, 1999 to February 13, 2001) the total claimedamount is Rs. 3.407 Mn.10. Labour cases filed by Indo Rama Synthetics (I) Ltd./Indo Rama Textiles Ltda. Indo Rama Synthetics (I) Ltd./Indo Rama Textiles Ltd filed three labour proceedingsagainst Mr. Shri Vijay Telang on the charges of misconduct, unfair labour practicesand illegal strike before the Labour Court, Nagpur the matters are pending hearingand final disposal.b. Indo Rama Synthetics (I) Ltd/Indo Rama Textiles Ltd filed Writ Petition before theMadhya Pradesh High Court, Indore Bench against the order of the Labour Court andIndustrial Court, for reinstatement of service of Mr. Shri Pradyumn Kumar Nagar (exemployee of the Group Company) with full back wages.11. Excise cases against the CompanyThe Commissioner Central Excise, Pune, filed a suit against the Company before theCommissioner Central Excise, Pune (F.No. VDSCN)15-4/Adj/2002/804). The Company paidexcise on the cotton yarn it sold in the Domestic Tariff Area at a concessional rate. TheCommissioner Central Excise claimed that the concession was not available to the Companyas it mixed domestic and imported raw material (cotton) for manufacture. The total quantumof claim is to the tune of Rs. 2.98 Mn and it is pending hearing and final disposal.12. Civil Proceedings filed against Indo Rama Synthetics (I) Ltd./Indo Rama Textiles LtdThe Madhya Pradesh Audhyogik Kendra Vikas Nigam (Indore) Limited filed a suit againstthe Group Company. The Madhya Pradesh Audhyogik Kendra Vikas Nigam (Indore)claimed that the Group Company deposited the amount of premium for lease of land at oldrate though the rates stood revised from September 1, 1989. The total amount claimed wasRs. 1.55 Mn. The matter is pending hearing and final disposal.205

13. Labour cases filed against Indo Rama Synthetics (I) Ltd./Indo Rama Textiles LtdVarious employees of the Indo Rama Synthetics (I) Ltd./Indo Rama Textiles Ltd have filed asuit in the Labour Court of Nagpur against the Group Company for unfair termination ofservices. There are 38 labour cases filed against Indo Rama Synthetics (I) Ltd./Indo RamaTextiles Ltd. All these cases are pending hearing and final disposal.Besides, the litigation reported above, the Company, IRTL, Bharat Yudog Limited and AmitSpinning are involved in various other litigations. However the amount of claims under suchunreported litigation does not exceed Rs. 1 Mn. The unreported litigation cases consists ofproceedings before the various industrial tribunals relating to reinstatement and termination ofservices of employees, contract labour issues and claims for Provident Fund.206

SECTION XIX.MATERIAL DEVELOPMENTSAcquisition of the Uzbekistan Company:Spentex Industries Limited, through its subsidiary, Spentex Tashkent Toyetpa LLC hasentered into an Asset Sale & Purchase Agreement with Tashkent-To’yetpa Tekstil Limited, astate controlled company in Uzbekistan to acquire its textiles business. The transactioncomprises of an acquisition of two manufacturing facilities located in the cities of Tashkentand To’yetpa. These two state-of-the-art plants are the largest yarn manufacturing facilities inCentral Asia with an aggregate installed capacity of 220,000 spindles and an aggregateweaving capacity of 236 Air jet looms.The company successfully acquired the management control of the business of TashkentTo’ytepa Tekstil LLC, in a ceremony held on August 22 in Tashkent.The salient features of the acquisition are as follows:1. The consideration of USD 81mn, which would be payable over a period of 4years as follows:0 Year 1 Year 2 Year 3 Year 4 Year Total% Payment 25% 15% 15% 15% 30% 100%Acquisiton Amt -$ in Mn 20.3 12.2 12.2 12.2 24.3 81.02. Details of turnover of the target company.('000 $)2006 (5 months)Revenue from Spinning 33,585Revenue from Weaving 8,383Total Revenue 41,9683 Background and business overview of the target.These acquired plants were a part of the erstwhile Uzbeg Kabool, a subsidiary of the Koreantextiles giant, Kabool Textiles. The plant and machinery at the two facilities are importedfrom Japan, Korea and Switzerland. Subsequently, Uzbeg Kabool became bankrupt andTashkent-To’yetpa Tekstil Limited (TTTL) was incorporated in May 2005 by the Uzbekistangovernment to take over the yarn manufacturing and weaving assets at Tashkent and To’yetpafrom Uzbeg Kabool. The lenders to Uzbeg Kabool, viz., National Bank of Uzbekistan (NBU)and UzInterImpex, the state cotton supplier to Uzbeg Kabool took control of the assets atthese two locations and transferred the same to TTTL.Quartely results of the Company, IRTL and Amit Spinning as on June 30, 2006The Company, ITRL and Amit Spinning have declared their unaudited quarterly results(given below) for the quarter ending June 30, 2006.207

Spentex Industries Limited:Spentex Industries LimitedRegd. Off : A 60 OKHLA INDUSTRIAL AREA, PHASE - II, NEW DELHI - 110020.UNAUDITED FINANCIAL RESULTSFOR THE QUARTER ENDED JUNE 30, 2006(Rs. in Lacs)PARTICULARSQuarter endedJune 30, 2006Quarter endedJune 30, 2005Year endedMarch 31,2006ConsolidatedQuarter endedJune 30, 2006(Reviewed) (Reviewed) (Audited) (Un-audited)(1) (2) (3) (4)1 Net Sales / Income from Operations 7,490.99 9,988.45 35,225.57 11,203.242 Other Income 573.73 169.15 980.20 523.37Total Income 8,064.72 10,157.60 36,205.77 11,726.613 Total Expenditure :a) (Increase) / Decrease in(355.93) (48.07) 37.27 (738.24)stock-in-tradeb) Consumption of Raw6,137.82 8,505.75 28,901.84 8,715.19Materials, Spare Parts, Storesand Packing Material(including Cost of TradedGoods)c) Staff Cost 362.95 204.22 972.84 627.81d) Power and Fuel Cost 562.20 322.29 1,367.52 976.76e) Other Expenditure 707.95 496.69 2,097.07 1,033.04Total Expenditure 7,414.99 9,480.88 33,376.54 10,614.56Profit before Interest, Depreciation649.73 676.72 2,829.23 1,112.05and Foreign Exchange Fluctuation4 Gain / (Loss) on account of Foreign43.78 (0.02) 70.95 1.10Exchange Fluctuation (net)5 Interest 589.07 197.99 814.73 609.646 Profit after Interest and Foreign503.51Exchange Fluctuation but beforeDepreciation and Taxation104.44 478.71 2,085.457 Depreciation / Amortisation408.35274.75 148.09 755.578 Profit/(Loss) before Tax, Minority95.16interest and share of loss ofAssociate(170.31) 330.62 1,329.889 Provision for TaxationCurrent Tax - - 112.20 -Deferred Tax 72.01 - 197.03 160.96Fringe Benefit Tax 2.91 1.00 15.43 5.4210 Net Profit / (loss) after Tax before(245.23) 329.62 1,005.22 (71.22)Minority interest and share of lossof Associate11 Minority Interest - 27.8112 Share of Net (Loss) of Associate (17.66)13 Net Profit / (Loss) (245.23) 329.62 1,005.22 (116.69)14 Paid up Equity Share Capital(Face Value Rs. 10/- each)5,745.92 4,004.46 5,745.92 5,745.92208

15 Reserves excluding Capital Reservesfor previous accounting year- - 5,150.66 -16 Earnings Per Share (Not Annualised)Rs.Basic EPS (0.43) 0.82 2.31 (0.20)Diluted EPS (0.42) 0.82 2.31 (0.20)17 Aggregate of Non-PromoterShareholdingNumber of Shares 26,918,307 13,620,340 26,918,307 26,918,307Percentage of Shareholding 46.85 34.01 46.85 46.851 The above results for the quarter ended June 30, 2006 were taken on record at the meeting of the Board of Directorsheld on July 31, 2006. The Auditors of the Company have carried out limited review for the standalone results, asshown in column (1) above, for the quarter ended June 30, 2006.2 Accounting Standard 15 (Revised 2005) on 'Employee benefits' issued by the Institute of Chartered Accountants ofIndia is applicable to the Company with effect from April 1, 2006. The Company is in the process of compilinginformation necessary to estimate short term compensated absences. Accordingly, this standard will be adopted in thesubsequent quarters. Management does not expect the impact to be material as and when the standard is adopted.3 In accordance with Accounting Standard 17 on Segment Reporting issued by The Institute of Chartered Accountantsof India, the Company has identified three business segments viz., Textile Manufacturing, Textile Trading and OtherTrading. Further, two geographical segments by location of customers have been considered as secondary segmentsviz, Export & Domestic. Accordingly, segment disclosure has been done.4 The above net sales does not include sales done in the course of commission business by the Company for Rs5,113.12 lacs for the quarter ended June 30,2006 and Rs 4,525 lacs in the corresponding previous quarter.5 The net sales for the quarter ended June 30, 2006 has declined due to reduced focus on the 'low margin tradingbusiness'.6 Other income includes income earned on 'Contract manufacturing' carried out for Bombay Dying and ManufacturingCompany ('BDMC').7 Increase in interest costs is mainly attributable to investments and creating new capacities which have just startedproduction.8 Depreciation expense has increased due to the fact that the Company has revised the estimated useful life of spindlesacquired during the last quarter of previous year and certain other plant and machinery located at its manufacturingfacilities.9 There were no investor complaints pending at the beginning of the quarter. Thirty five complaints were receivedduring the quarter and properly redressed and there was no complaint pending at the end of the quarter.10 During the quarter, the Company has acquired 26,106,114 equity shares of Rs.10/- each of Indorama Textiles Limited,representing 84.02% of the fully paid up equity shares through Stock Exchange Mechanism from the Indian publicand erstwhile promoters through share purchase agreement under SEBI (Substantial Acquisition of shares andTakeover) Regulation, 1997. Accordingly, Indorama Textiles Limited has become a subsidiary of the Company.11 During the quarter, the Board of Directors have approved the scheme of arrangement to amalgamate IndoramaTextiles Limited into the Company and sent the necessary documents to Bombay Stock Exchange for their approval.The Company will issue 90 equity shares of Rs.10/- each for every 100 equity shares of Rs. 10/- each of IndoramaTextiles Limited to the existing members whose names are appearing on record date fixed by the Company onapproval of the said scheme.12 Pursuant to SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, the Company has made anoffer to the shareholders of Amit Spinning Industries Limited to acquire 8,233,934 nos. equity shares of Rs. 5/- eachat a price of Rs. 11/- per fully paid up equity shares. The public announcement for the above offer has been releasedon March 2, 2006. The offer was opened on July 5, 2006 and closed on July 24, 2006.13 Column (4) above represents consolidated results for the quarter ended June 30, 2006 of the group comprisingSpentex Industries Limited, its subsidiary Indorama Textiles Limited which has been consolidated w.e.f. May 24,2006, the date on which it became subsidiary of the Company and its associate Amit Spinning Industries Limited.Consolidated results are not available for the previous period as consolidation procedures are applicable to theCompany for the first time in the quarter ended June 30, 2006.14 Previous period figures have been regrouped wherever necessary, to conform to the current period presentation.209

REPORTING OF SEGMENT -WISE REVENUE, RESULTS AND CAPITALEMPLOYED( Rs. in Lacs )Quarter EndedYear EndedParticulars June 30, 2006June 30,2005 March 31, 2006A) PRIMARY SEGMENT1 Segment Revenuea) Textile- Manufacturing 2,574.39 2,422.14 9,561.29b) Textile Trading 3,396.03 2,803.57 14,980.08c) Other- Trading 1,566.55 4,762.74 10,877.22Total 7,536.97 9,988.45 35,418.59Less : Inter segment revenue 45.98 - 193.02Net Sales/ Income from operations 7,490.99 9,988.45 35,225.572. Segment ResultsProfit before tax and interest of each SegmentSegmenta) Textile- Manufacturing 221.62 515.82 1,812.66b) Textile Trading 60.29 94.81 383.92c) Other- Trading 19.20 91.49 231.99TOTAL 301.11 702.12 2,428.57Less :i) Interest 589.07 197.99 814.73ii) Other unallocable expenses/(income) (117.65) 173.51 283.96Total Profit / (Loss) before Tax (170.31) 330.62 1,329.883. Capital Employed( Segment Assets - Segment Liabilities )a) Textile- Manufacturing 25,151.50 6,201.54 19,413.51b) Textile Trading 1,888.64 2,187.93 2,560.82c) Other- Trading 79.66 774.06 271.82Unallocated (13,940.25) - (8,821.38)TOTAL 13,179.55 9,163.53 13,424.77B) SECONDARY SEGMENT( Geographical By Location of market )Segment Revenuea) Export Sales 4,074.54 8,584.99 16,485.40b) Domestic Sales 3,416.45 1,403.46 18,740.17Net Sales/ Income from operations 7,490.99 9,988.45 35,225.57210

Indo Rama Textiles LimitedINDO RAMA TEXTILES LIMITEDRegistered Office : 51-A, Industrial Area, Sector-III, Pithampur, Distt. Dhar (MP)-454774.Corporate Office : A-60,Okhla Industrial Area, Phase II, New Delhi - 110020UNAUDITED FINANCIAL RESULTS FOR THE QUARTER ENDED JUNE 30, 2006(Rs. in Lacs, unless otherwise indicated)S.No.ParticularsFirst Quarter EndedYear EndedReviewed Reviewed (Audited)30.06.2006 30.06.2005 31.03.20061 Gross Turnover 8990.18 10114.12 38726.89Less : Excise Duty on Sales 100.33 464.28 1363.90Less : Value Added Tax - - 64.76Net Turnover 8889.85 9649.84 37298.232 Other Income 151.91 98.32 1582.403 Expenditure :456A. ( Increase ) / Decrease in Stock- in-Trade(938.57) 482.30 1303.02B. Movement in Excise Duty on Stocks 23.03 (55.07) (91.86)C. Consumption of raw - materials 6172.12 6108.84 23388.48D. Staff Cost 634.27 562.80 2436.39E. Power & Fuel 992.76 897.76 3675.50F. Other Expenditure 1001.21 819.67 3159.78Operating Profit Before Interest,Depreciation & Taxes(Loss) / Gain on account of ForeignExchange FluctuationProfit Before Interest, Depreciation &Taxes1156.94 931.86 5009.32(102.20) 150.44 (178.19)1054.74 1082.30 4831.137 Interest 99.05 134.57 364.148Profit Before Tax,Exceptional item andDepreciation955.69 947.73 4466.999 Depreciation 319.93 319.66 1282.8810 Profit Before Exceptional item & Taxes 635.76 628.07 3184.1111 Exceptional item 184.53 - -12 Profit Before Tax (PBT) 451.23 628.07 3184.1013 Provision for Taxation-Income Tax (MAT) - 37.94 --Income Tax (MAT) for earlier years - - 5.24211

-Fringe Benefit Tax 6.00 5.00 25.00-Deferred Tax 213.13 170.00 1064.4314 Profit After Tax (PAT) 232.10 415.13 2089.4315Paid-up Equity Share Capital (Face Valueof Rs.10 per share)3,117.83 3117.83 3,117.8316 Reserves - - 10,503.6017Basic and diluted EPS for the period (NotAnnualised) (Rs.)0.74 1.33 6.718 Cash EPS for the period (Rs.) 3.05 2.90 14.219Aggregate of Non-Promoters Shareholding:- Number of Shares (Nos.) 5,081,174 11,284,158 15,891,457- Percentage of Shareholding (%) 16.30 36.19 50.971. The results for the quarter ended June 30, 2006 have been reviewed by Auditors and were taken on record at theBoard of Directors Meeting held on July 31, 2006.2. The Company’s business activity falls within a single business segment in terms of Accounting Standard 17 onSegment Reporting.3. There was no investor complaint pending at the beginning of the quarter.During the quarter 32 complaints werereceived and all the 32 complaints were suitably disposed-off and no complaint is pending as on June 30, 2006.4. Spentex Industries Ltd. has acquired 2,61,06,114 equity shares of Rs 10/- each , representing 83.7% of the fullypaid up equity shares through Stock Exchange Mechanisn/ erstwhile promoters through share purchaseagreement/ from indian public, under SEBI (Substanstial Acquisition of shares and Takeover)Regulation,1997.Accordingly, The Company has become a subsidiary of Spentex Industries Ltd.5. During the quarter Board of Directors have approved scheme of arrangement to amalgamate the company intoSpentex Industries Ltd. and sent necessary documents for Stock Exchange for their approval.Spentex IndustriesLtd. will issue 90 equity shares of Rs 10/- each for every 100 equity shares of the Company to the existingmembers whose names will appear on record date fixed by Spentex Industries Ltd. on approval of the saidscheme.6. Exceptional Item for the current period represents the temple land and building at Pithampur, Madhya Pradeshtransferred to a Charitable Trust pursuant to Share Purchase Agreement (Refer Note No.4 above).7. Sales Tax Exemption for the Butibori unit of the Company had expired on December 31, 2005. The Companyhas applied for the extension of 3 years w.e.f. January 1, 2006 to the Development Commissioner (Industries),Government of Maharashtra. Based on the legal opinion obtained, the Company has accrued VAT receivableamounting to Rs 169.43 lacs for the period January 1, 2006 to June 30, 2006, on the basis that the Sales TaxExemption will be extended for a further period of 3 years w.e.f. January 1, 2006.8. Butibori unit of the Company had been exporting its goods under Rule 18 of the Excise Rules , 2002 and claimingrebate on both input and output stage of duty. The Central Excise Department has disallowed the rebate on inputstage of duty amounting to Rs 512.03 lacs. The Company filed revision petition with the Jt. Secretary,Govt.ofIndia and it was allowed rebate for both the stages of duty. However the department appealed in the Hon’ble HighCourt of Mumbai, which has also been disallowed during the quarter. The Company has now filed a petition inthe Hon’ble Supreme Court for quashing the High Court order and allowing the rebate on input stage of duty.Pending the decision in the matter by Supreme Court, the Company has not yet reversed the rebate on input dutyof Rs. 512.03 lacs.212

9. Previous year / Quarter figures have been regrouped / recasted wherever necessary, to make them comparable.213

Amit Spinning Industries LimitedAMIT SPINNING INDUSTRIES LIMITEDReg.Off.:Gat No. 47-48, Village-Sangawade,Taluka - Karveer, Dist-KOLHAPUR (Maharashtra)Corporate Off.: A 60 Okhala Industrial Area, Phase II , New DelhiUNAUDITED FINANCIAL RESULTS FOR THE QUARTER ENDED JUNE 30,2006(Rs.in Lacs)S.No.ParticularsFirst Quarter EndedYearEnded30.06.06 30.06.05 31.03.06Reviewed Reviewed Audited1 Net Sales/Income from Operations 1,429.62 1,139.52 7,132.972 Other Income 39.86 7.75 3,132.223 Prior Period Items Write Back - 323.404 Total Expenditure 1,237.40 1,050.29 7,483.24a) Increase/decrease in stock (157.81) 42.86 (4.29)b) Consumption of raw materials 942.74 593.27 4,388.85c) Staff cost 118.78 121.96 782.81d) Other expenditure 333.69 292.20 2,315.875 Operating Earning Before Interest,Depreciation & Tax 232.08 96.98 3,105.356 Loss/Gain on account of foreign Ex.Fluc. 1.827 Earning Before Interest,Depreciation & Tax 233.90 96.98 3,105.358 Interest 142.35 180.04 938.669 Profit Before Tax and Depreciation (PBTD) 91.55 (83.06) 2,166.6910 Depreciation 131.30 138.00 762.4511 Profit(+)/Loss (-) before tax (39.75) (221.06) 1,404.2412 Provision for taxation - 640.2113 Profit(+)/Loss (-) (39.75) (221.06) 764.0314 Paid-up equity share capital (Face value of Rs 5/-per share) 2,058.48 904.50 2,058.4815 Reserves excluding revaluation reserve 476.0216 Basic and diluted EPS for the period,(not annualised) (0.10) (1.22) 1.86214

17 Aggregate of non-promoter ShareholdingNo. of shares 31,137,453 11,371,577 27,873,252Percentage of shareholding 75.63% 62.86% 67.30%1. The above results have been taken on records by the Board of Directors at their meeting held on 29th July,2006 TheAuditors have carried out limited review of the same.2. The Company's business activity falls within a single business segment in terms of Accounting Standard 17 on segmentreporting issued by ICAI.3. There are no investor complaints pending at the beginning of the quarter. Eighteen complaints were received during thequarter and properly redressed and there was no complaint pending at the end of the quarter.4. Pursuant of SEBI (Substantial Acquisition of Shares and Takeover) Regulations,1997, Spentex Industries Ltd.has made anoffer to the shareholders of Co.,to acquire 82,33,934 equity shares of Rs.5 each representing 20% of the paid up capital ofCompany at a price of Rs.11/- per share payable in cash. The Public announcement has been released on 2nd March,2006.The offer was opened on 5th July, 2006 and closed on 24th July, 2006.5. Figures have been regrouped/recasted wherever necessary to make them comparable.215

SECTION XX.ACCOUNTANTSSpentex Industries Ltd.Price WaterhouseChartered AccountantsP-1 Aditya Vihar, SaidulajabOpp D Block, SaketMehrauli Badarpur RoadNew Delhi -110 030Indo Rama Textiles Ltd.S R Batliboi & CoChartered AccountantsNew DelhiAmit Spinning Industries LtdB.S.Mehta & Co.Chartered AccountantsMumbai216

DECLARATIONThis Placement Document is being issued in compliance with the provisions of Chapter XIIIA of theSEBI DIP Guidelines.SIGNED BYMANAGING DIRECTOR217