MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL ECONOMY

The global economy grew at a slightly faster pace in 2014, as a modest revival in the euro zone and a pick-up in India helped offset slowdowns in China and Japan. Growth picked up, albeit marginally, from 2.5% to 2.6%, mainly driven by momentum in the U.S. and U.K. It is seen shifting upwards to an average of 3.3% between 2015 and 2017, brought about by an upward shift of growth in Gross Domestic Product (GDP) of the developed economies from 1.8% to 2.2% and with developing economies accelerating from 4.8% to 5.4 %. The combined gross domestic output of the Group of 20 largest economies, which accounts for 90% of the global economic output, expanded to 3.4% in 2014, up slightly from 3.2% in 2013, aided by a return to growth in the Eurozone. Global growth is forecast to rise moderately to 3.5% in 2015 and 3.7% in 2016, the net positive being a sharp decline in oil prices. International Monetary Fund (IMF) projects growth in emerging markets and developing economies to remain broadly stable at 4.3% in 2015 and increase to 4.7% in 2016. Moving ahead, across nations, the mandate to Governments  is to control inflation, improve fiscal prudence and sustainable growth, with concerted efforts being on job creation through public and private investments.

GLOBAL SPIRITS MARKET AND TRENDS

According to www.statistica.com1, the world revenue of the global spirits industry was US$107.9 billion in 2014, and estimated to grow to US$113.78 billion by 2015. According to them, the global spirits market has been growing at a CAGR of 3.52% over the last 7 years.

According to Rabobank's report on the global spirits industry in Q2 2015, consumers worldwide are looking for new experiences, in response to which leading players are pushing the boundaries of the sector in an effort to establish new brands and products. In the U.S., the shift in consumer behaviour is mirrored by the rapid rise of craft spirits2 and is creating structural challenges for established spirits players. In Europe, Scotch producers are starting to feel the squeeze. The sector registered a decline in exports for the second year in a row, driven by a contraction of blended Scotch, a category that is struggling to remain relevant among younger consumers in particular. However, other parts of the sector showed promising growth, signaling that there is still potential for growth in the Scotch sector. The Chinese liquor industry has seen consistent weak performance, with consumers continuing to trade down. The Chinese New Year brought some much-needed relief for the sector, but spirits producers are looking towards new categories to revive growth in the sector. Imported spirits are struggling in Brazil as a result of a weakening economic environment and a strengthening U.S. dollar. As a result, an increase in inflation in the category is expected, leadingto a reduction in out-of-home expenditure and trading down in the spirits category.

IMFL Market Trends in India

While volume growth was relatively flat over the past 3 years, value growth continues to show solid progress within the Indian Alcoholic Beverages Industry. Despite flat to modest volume growth, the Indian spirits industry has been witnessing value growth within the range of 13% to 18% per annum over the last eight years (Euromonitor). With YoY pricing growth being in high single digits over the past five years, value growth has remained strong on the back of product mix and churn improvement. This is because, over a longer-term perspective, consumers are willing and able to move up the brand chain to more brmium drinks.

The Indian alcoholic beverages industry is broadly divided into - Wine, Beer, Indian Made Foreign Liquor (IMFL) and Country Liquor. While the market is almost equally divided in terms of volume, the IMFL market is much larger in terms of value, thus accounting for more than 65% of the market share by value. The IMFL industry is the third largest market in the world with an estimated market size of around US$35 billion. Imports constitute 3-4% of this volume. The current industry size is about 305 million cases per annum, and assuming an average growth rate of 7%, industry volumes are likely to be more than 400 million cases by FY2019.

The IMFL industry in India is characterised by diverse customer brferences, changing significantly from region to region. For instance, due to ban on country liquor, South India dominates the IMFL segment with ~ 60% market share in volumes, followed by North with ~16%, East India accounting for West India ~9% and CSD ~4% (Source: Company Estimates). Within South India, Tamil Nadu leads IMFL market share in volumes followed by Karnataka, Andhra Pradesh and Kerala.

The IMFL industry market size has been growing at CAGR of 10% over the last 10 years. The segment is majorly led by brown spirits, where Whisky accounts for around 57% market share, followed by Brandy at 25% and Rum at 14%, while the remaining 4% is from white spirits like Vodka and Gin. The share of IMFL segment in the spirits market surpassed that of country liquor, having grown from 45% in 2008 to 52% in 2013, indicating a shift towards good quality and brmium products. Going forward, according to ICICIdirect.com Research, the IMFL growth is expected to moderate, due to higher base.

GROWTH DRIVERS

Despite being the third-largest liquor market in the world, the per capita consumption in India is one of the lowest. Rising incomes and a significant increase in the numbers of people allowed to drink will boost the popularity of the brmium segment over the medium term. Following are some of the key drivers pushing forward the consumption of spirits in India:

• India's strong demographic profile, with around 485 million population in the drinking age.

• A large chunk of the population will join the consumption base of India within just a few years. Over FY2011-16, more than 100 million individuals will reach the legally permissible drinking age in India. Between FY2016-21, another 100 million plus are expected to reach this age. This will add a significant number to the alcohol consuming class, which should be a key positive driver for the IMFL industry in the medium term.

• Increasing social acceptance of alcohol driven by improving lifestyle and rising consumption among women.

• The Indian middle class, target consumers for many IMFL companies, is expected to swell up to 267 million people in the next five years, up 67% from the current levels according to NCAER.

• The number of people living in urban areas should also see a sharp increase over the next couple of decades, adding to the attractiveness of the IMFL industry in the medium term.

• A key driving factor for the IMFL industry over the next decade will be a trend toward brmiumization. With a large portion of the industry still in the 'regular and below' segment, there is ample scope for the industry to witness far more brmiumization in due course.

The industry is currently experiencing a structural transformation towards brmiumization of products along with a structural shift from country liquor to IMFL. The Government's brference for better quality liquor has also led to the shift towards IMFL.

Key structural features and trends being experienced by industry players are:

Regulatory entry barriers: The Indian alcoholic beverages industry is characterised by very stringent regulations. The industry

is subject to different laws and regulations varying from State to State. This entails any company in the industry to have licenses and permissions in each State where its operations are brsent. Hence, most of the smaller players in the industry are regional in nature.

Foreign Direct Investment (FDI): 100% FDI is permitted in the alcoholic beverages sector. A foreign entity can invest in an Indian business through the automatic route, provided the required licenses are in place. In some cases where the investor is an Indian entity with foreign owners, the investment would require clearance from the Foreign Investment Promotion Board (FIPB).

High taxation and price controls: Various taxes such as excise duties, sales tax, VAT contribute to the bulk of the retail price. In most States, the Government tightly controls the retail price of liquor. In many cases, a tender process is used to determine prices and volumes that will be bought by the distributors.

Market control: Distribution and retailing of all alcoholic beverages in India are subject to government control. Nearly 75% of the distribution is handled by government corporations, whereas around 21% is handled by distributors and the remaining 4% from direct sales.

Premiumization: Growth in the brmium segment has already been higher in the past two to three years, despite the overall market seeing flat performance. The move towards brmium spirits is helping to drive gross margins higher for the industry. In the near term, however, there will be significant levels of investment behind driving these brmiumization strategies.

Cost improvements and productivity: With global players entering and general industry consolidation, the scale of operations for long-term players is increasing. This will give each player opportunities to rationalize costs and improve margins.

BUSINESS AND OPERATIONS REVIEW

A. Overview

Tilaknagar Industries Ltd.'s (TI) key priority is to improve its profitability across all its products. The Company aims to do this at the lowest cost possible and in partnership with its stakeholders.

During FY2014-15, the Company made progress in these endeavours and has largely achieved several of these objectives. To supplement its own plants, the Company also engages in third-party plant contracts and outsources its manufacturing under strict quality guidelines and rigorous supervision.

B. Manufacturing

TI manufactures a vast product portfolio through 5 in-house facilities, supported by 9 lease arrangements and 13 tie-up units. Based on the Company's business model, it is positioned reasonably well to project growth via strategic investments and production capabilities. It runs and operates its own manufacturing facilities built to support the Company's growth ambitions.

commissioning of New Plant

A key development during FY2015 is the completion and commissioning of TI's new IMFL Bottling Facility. This new facility is a state-of-the-art Bottling Facility with Plant in Plant Concept, in which all activities starting from Storage of Packing & Raw Materials, Blending, Filtration & Polishing of blended liquor, Bottle Rinsing, Bottling Section and the Finished Goods Storage are under one roof. The mezzanine floor is used for storage of dry goods items such as CC Boxes, PP Caps, Mono cartons and Labels on one side, while the other half is used for storage of finished goods. It has state-of-the-art hygiene facilities and system, stricter process control and mechanised material handling. The whole infrastructure is provided with natural ventilation using Turbo Ventilators and natural lighting. All entries to the building are provided with combination of Air Curtains and Strip Curtains to minimise ingress of dust and insects. Despite this, all critical locations are provided with in sectocutors.

This state-of-the-art building will be self-sufficient for its power needs with Solar Panel once installed - a concept of Green Building. Currently, it is running two 300 BPM Auto Bottling Lines for 180 ml and 90 ml pack size production and one semi-auto Bottling Line which caters to all pack sizes. All the three lines are fully operational.

The Company has achieved average production on both the Auto Lines to the tune of 2,200 cases per day for 180 ml size which averages to nearly 80% productivity on 7.5 hrs production basis. So far, the highest ever production achieved is 2700 cases in a day. This new facility is capable of catering to over 1.3 lac cases in a month. Post shifting of the balance lines from the old PLP hall and completion of installation of all the 10 lines, the plant will have an eventual capacity to produce around 5.0 lac cases in a month.

The business model of having tie-ups has several advantages: they can be started in relatively much shorter time; very little orno capital investment is required; one does not have to wait for licenses; it is devoid of any labour related issues and offers the management the flexibility to change over from one location to another.

c. Marketing

TI is one of the leading players within the IMFL segment in India. The Company's 40+ brands covering Brandy, Whisky, Rum, Vodka and Gin are sold through India's largest distribution network. TI's flagship brand "Mansion House " Brandy continues to be a millionaire brand.

Currently, Mansion House Brandy is the world's 2nd largest selling brandy. TI has established a distinct identity for itself within the IMFL segment through its portfolio of superior liquor brands (offered at various price points) for consumers at varied cross- sections. TI is already an established player in the Brandy space in India. It is committed to fortify its brsence in the segment with a strong portfolio of its legacy brands that includes Mansion House Brandy and Courrier Napoleon Brandy family, to achieve superior business performance.

Distribution Network

TI sells its products through 30+ Distributors and 40,000+ POS across India. TI has one of India's largest distribution networks in the IMFL space. The Company sells through State Corporations across Telangana, Andhra Pradesh, Karnataka, Kerala,Tamil Nadu and Odisha. It also operates through a vast distributor channel located in Maharashtra, Goa, Silvassa, Assam and West Bengal. TI is also one of the largest players in the CSD marketplace. Going forward, the Company is looking to expand its reach into the East, which is currently being tapped with immense growth potential.

Strong Brands and Geographical Reach

TI enjoys a strong and established Brand Portfolio and is capitalizing on its market-leading brsence in South India. The Company's Courrier Napoleon Brandy family is anticipated to become a Millionaire Brand in the near future adding to the Company's Mansion House Brandy in this segment. Going forward, TI is continuously evolving to expand its business profile, both in terms of Brands and Geographies.

Premiumization

TI has an enviable history in leading the brmiumization strategy within the industry. With a target of profitable and sustainable growth, the Company is always concentrating on healthy EBIDTA. The key strategy behind this outcome is the Company's endeavour in further penetrating existing brmium segments while pioneering new brmium positions which it can readily serve. TI continues its brmiumization journey in Brandy, Rum, Vodka and Whisky segments by launching pan Indian and tactical brands in the brmium space. Not only have these brands been well received, but they have also managed to get lion's share of the segment. TI has not limited itself only to brown spirits, but is also interested to enter and succeed in the white spirits space as well.

Beyond product mix enhancement and sales growth, TI recognizes that with limited resources, one must be highly focused to maximize value of its burgeoning brmium products. However, to tap into these opportunities, the Company is carefully re-allocating its working capital from low margin brands to higher margin brands. This is a gradual process and actually requires greater short term investments to reduce volumes or terminate low margin generating lines. But in the medium term, the payoffs of such a strategy of redirected resources into higher margin brands, will be highly rewarding.

Some key brmiumization strategies in play during FY2014-15 were:

• Courrier Napoleon Brandy in the brMIUM Brandy segment, posted growth across Southern Market.

• Courrier Napoleon Brandy - Green reported a growth YOY and continues to lead the brMIUM PLUS segment.

• Mansion House Silk Brandy posted a growth in the SUPER brMIUM Brandy segment.

• Mansion House Gold Whisky posted a growth in the SEMI brMIUM segment across the Southern Market.

• Blue Lagoon Gin is the largest selling Premium Gin across the Eastern Zone.

Mansion house Brandy

Mansion House Brandy is the world's 2nd largest selling Brandy. The Company expects this brmium brand to keep growing in its markets. Over the last 5 years, "Mansion House" Brandy has matured and evolved significantly. TI's continuous focus on brmiumization has transformed it from a regular brand into a pan Indian brmium brand.

Courrier Napoleon Brandy - Green

Priced above the existing Courrier Napoleon Finest French Brandy (Red), this brand is the first step towards expanding the Courrier Napoleon Family.

Courrier Napoleon Brandy - Red

This is one of the most profitable brands in TI stable and has grown during FY2014-15.

Madiraa Gold Dark XXX Rum

Madiraa Gold Dark XXX Rum is most brmium Rum by an Indian Company.

Vodka and Gin

Vodka and Gin as a segment for TI is witnessing an increase in share in its overall sales. By acquiring IFB brands in March 2014, TI has strengthened its Vodka and Gin footprints in the East and will gradually take these acquired brands into its pan India marketing channels. Through this acquisition, TI has added to its fold IFB Agro's brands 'Volga' Vodka, 'Blue Lagoon' Gin and 'Leonov' Vodka - the most popular brands in East Indian markets of West Bengal, Assam and Odisha.

Whisky

Whisky is a burgeoning segment for TI and the Company is dedicated to increase its foothold in the segment with a direction towards becoming a serious player in the brmium category. TI's journey in the Whisky space has transformed the Company from being a regular Whisky player to a pan Indian Premium Whisky contender. The Whisky portfolio comprises of emerging brands such as Mansion House Whisky, BLACPOWER Grain Whisky and Senate Royale Whisky. Having been launched in FY2012, Mansion House Whisky has gradually established itself as an emerging brand within the Whisky segment.

D. Marketing Initiatives

We laid a stronger emphasis on new marketing initiatives. With a strategy of focussed marketing and successful implementation of each of these initiatives, we hope to get substantial direct and indirect returns. Besides launching new brands, we also streamlined our current brand portfolio. Our brand launches and new marketing initiatives mark a new phase for the Company, positively impacting our top and bottom lines.

Evolution of Mansion House

With its cult identity and loyal brand following, Mansion House Brandy (MHB), our flagship product, enjoys a leadership position in the market. With careful marketing and meticulous attention to the distillation process, MHB has become the brferred choice for Brandy drinkers. The Year on Year sales figure is witness to the fact that MHB is one of the most brferred brand in India. During FY2015, our continuous focus on brmiumization of MHB has transformed it from a regular into a pan-India brmium brand.

Volume Reduction in Unprofitable Markets

During the year under review, we made a conscious plan to exit the unprofitable segment of Tamil Nadu. The primary aim behind this has been to avoid supply-side limitations owing to bottling capacity constraints. Our net contribution from Tamil Nadu market fell from 40% in FY2011 to 10% in FY2014. Further, we registered "zero" sales in the region in FY2015. We also identified other States with good growth prospects and better margins in the segment.

AWARDS & RECOGNITIONS

During FY2014-15, the following brstigious awards were conferred in recognition of our performance, achievements and contribution to the Society:

LACP Award for Annual Report 2013-14

We won the brstigious Silver Award in 2014 Spotlight Awards, a Global Communication Competition organized by LACP (League of American Communications Professionals) for excellence in the development of our Annual Report for the FY2013-14.

HR Leadership Award, 2014

Dr. Keshab Nandy, Director (Legal, HR, IT, IR, Vigilance & Safety), was conferred with the brstigious "HR Leadership Award" at the Asia Pacific HRM Congress Awards 2014. This is a congregation of a global audience of HR professionals, governed by the Global Advisory Council & National Advisory Council and benchmarks talent and HR practices.

Bharat Vibhushan Samman Puraskar

Dr. Keshab Nandy, Director (Legal, HR, IT, IR, Vigilance & Safety), was conferred with the brstigious 'Bharat Vibhushan Samman Puraskar' for his Outstanding Individual Achievement & Distinguished Services to the Nation. The Award was brsented by the Global Achievers Foundation, New Delhi on the occasion of a National Seminar held at Dehradun on 30th May, 2015 on "Individual Contribution for National Economic and Social Development

RISKS & CONCERNS, OPPORTUNITIES & THREATS

TI is already an established and recognised player in the marketplace with a strong and loyal following by millions of consumers who stand by its portfolio of alcoholic beverages. The vast numbers of young Indians coming of legal drinking age over the next few years is a tremendous advantage and a huge potential consumer base. TI expects that this 'young' India will continue to be a sustained growth opportunity for TI. However, despite these positives, the Company is not impervious to certain risks or concerns that might challenge this industry from time to time.

To begin with, the increasing levels of taxation coupled with regulation has pushed taxes and duties to approximately three fifths of the retail prices of most of its products. Further, non-inclusion of liquor in the Goods and Services Tax(GST) regime will also result in price escalation. To avoid the risk of losing market share to its competitors, the Company is taking various initiatives to ensure constant supply of its products to cater to the demand in different markets.

HUMAN RESOURCES

At the very heart of TI and its steady growth story is its biggest asset - People. The Company is proud of its passion and commitment and the alignment of its aspirations and dreams to its shared vision. Its growth and successes are met equally by even greater steps to ensure that it not only complies, but leads in areas of processes and human relations to unleash and harness innovation at every level within the organisation. It is the conduct of its leadership team and people, their shared wisdom and values, which have gone into creating TI - a Company where entrebrneurship and innovation thrive. As a close knit team of 604 employees as on March 31, 2015, the Company has done very well over the last few years. It is against this backdrop that the Human Resources function assumes a strategic and critical role.

TI has been conferred the "Bharat Vibhushan Samman Puraskar" by the Global Achievers Foundation, Delhi for TI's extra-ordinary professional contributions and excellence.

TI'S HR PHILOSOPHY:

• To be identified as a brferred employer and an employer of choice by prospective candidates;

• To develop a culture based on open communication, trust, fairness and one that promotes equity;

• To be an equal opportunity employer, promoting diversity across cultural and linguistic backgrounds;

• To foster and promote a culture which recognises and promotes merit/performance based compensation and rewards; and

• Building the organisation from within, by growing, developing and promoting our people to a large extent and resorting to external hires only to complement the existing skill/competency base or fill positions for which suitable internal resources are not available.

EMPLOYEE FRIENDLY ORGANISATION

The Company has a "family" value system and is an employee friendly organisation. This is based on the basic brmise that in order to get the best out of its people in terms of productivity and creativity, it needs to take a very endearing and compassionate approach to engaging with them. A liberal medical policy; complimentary meals and refreshments; sponsoring employees' children to study domestically and abroad are only a few examples of the Company's extraordinary gestures to the employee engagement and welfare. As a result, its employees are generally a very happy lot and identify themselves completely with the Company.

EMPLOYEE ENGAGEMENT SURVEY:

The HR team conducted an in-depth Employee Engagement Survey, through which many constructive findings were made. This survey showed that while the majority of the workforce is highly engaged with the Company, there are areas that leave room for improvement. The HR team is using this report to find new and better ways to strengthens engagement levels among its employees.

TRAINING, DEVELOPMENT AND EVENTS:

The Company has carried out various in-house training programmes in skill-enhancement and other soft skill areas, in addition to sponsoring employees to various training programmes organized by Bombay Chamber of Commerce and Bombay Management Association. The Company also carries out a very successful Mentorship and Buddy programme for training and empowerment of working managers. Dr. Keshab Nandy, Director-HR, a widely acclaimed speaker on management and trainer, has conducted a series of training programmes on Leadership Development and Motivational strategies for employees of the Company at the Corporate Office and the Shrirampur factory.

The Company had conducted free medical health check-up for its employees in Corporate Office and Reports were distributed to the employees with medical counseling by Doctors and health workers.

ORMAIION IECHNOLOGT

At the centre of the business is our SAP based system, which enables full visibility to the management of Company's operations, marketing and financial parameters. Investment in technology allows TI to raise the standard of customer service and reliability. In addition, innovative technology solutions differentiate TI in the marketplace in terms of both-offerings and operational efficiency. Technology is also the foundation for process improvements within TI that enhances productivity, improves efficiency and reduces costs. This multi-tier effort has engineered our domestic business, based on a data-driven platform derived from renowned and trusted software and hardware platforms.

During FY2014-15, the following initiatives were taken:

Implementation of UBUNTU operating system on user desktop computers. UBUNTU, being an open source software has the following advantages over other Operating system:

• Security: It is one of most secured operating systems. "Walls" and flexible file access permission systems brvent access by unwanted visitors or viruses.

• Low cost: It comes with free GNU General Public License and so no need to spend on license cost and can be installed on many computers.

• Stability: It does not slow down over a period of time due to leakage of memory.

• Performance: It provides persistent high performance on workstations, network and run on less powerful resources with multitasking.

• Flexibility: It can be used for high performance server applications, desktop applications, embedded systems and can be tailored to meet user-specific demand.

• Compatibility: It runs all common Unix software packages and can process all common file formats.

The Company has effective, efficient and adequate systems of internal controls, which have been incorporated throughout the enterprise through SAP systems commensurate with the size and nature of the business. The Company's Internal and Statutory Auditors review the adequacy of internal controls on a regular basis and thus help mitigate/avoid fraud or any other discrepancies in the daily operational activities of the Company. The Audit Committee periodically reviews the findings of Internal and Statutory Auditors and advises the management with corrective policies and controls to be adopted by the Company, consistent with the organizational requirements.

OUTLOOK

Looking at the Company's history, TI has never experienced any problems with garnering popularity for its products. In fact, its success across all price points in all the drink categories has been legendary. The Company is and has been a great standard bearer for both the brmium and affordable end of the price spectrum. Furthermore, the market demand for IMFLs remains to be strong due to the positive macroeconomic factors highlighted in the earlier section of the MD&A. TI has in fact been a victim of its success, wherein its large volumes in the entry level products have been working capital hungry and produce very little net benefit to the Company. This has been due to external factors beyond the control of the Company, such regulatory restrictions, exorbitant levels of duties and levies, and the high cost of working capital. In recognition of these anomalies, the Company has made a strategic decision to exit some of these value decretive products and place more focus on its high margin brmium and semi-brmium business. Given the evolving social demographics of the country, the Company foresees substantial growth in demand for these types of brmium products and is confident of growing its volumes in this segment. This turnaround in EBITDA is expected to come from the organic volume growth of some of its key existing flagship brands and through the introduction of new brmium and semi-brmium brands in strategic markets. With stringent steps taken towards EBITDA and profit maximisation, your Company is on a steady a path to recovery and remains an enduring and evolving Company in the IMFL space.

CAUTIONARY STATEMENT

Statement made in the Management Discussion & Analysis describing the Company's objectives, projections, estimates, expectations may be "Forward-looking statements" within the meaning of applicable securities laws & regulations. Actual results could differ from those exbrssed or implied. important factors that could make a difference to the Company's operations include economic conditions affecting demand supply and price conditions in the domestic & overseas markets in which the Company operates, changes in the government regulations, tax laws & other statutes & other incidental factors.