I): MANAGEMENT DISCUSSION & ANALYSIS REPORT.

OVERVIEW

The year under review had challenges on several fronts with general elections conducted during the year. With a stable Government coming in power after two terms of coalition, the business confidence and optimism of better governance have already started showing some signs of recovery in the overall economy. The annual growth rate of the Indian economy is projected to have increased to 7.4% in 2014-15 as compared with 6.9% in the fiscal year 2013-14. The inflation came down significantly due to various reasons including sharp drop in international crude oil prices. The construction and infrastructure industry has been one of the fastest growing in the year under review.

The industrial sector is vital to India's economic story. The growth in the sector is driven by many core segments such as infrastructure, energy, mining, cement and its allied sectors among others. Focused approach to attract investment in these key sectors will convert into demand for products and services produced by your company.

The government's 'Make in India' program is likely to push growth in several hitherto unserved sectors. The specific initiatives like Swatch Bharat over the next two years, own house for every citizen and plans to have hundred new smart cities in the coming years would transform the economy and the society in a significant manner. In addition to this, the drive of the new Government on mass opening of Bank accounts and subsequent linking of aids and subsidies to the accounts would reduce leakage of the support drastically. This in turn will result in significantly higher real disposable income available to the needy and poor. With the implementation of the planned initiatives the building material and construction industry would experience a faster growth.

INDUSTRY AND COMPANY TREND

As discussed in last year's report performance of your company is directly linked to performance of the rural / semi-urban economies of our Country. The year 2014-15 began with a positive note for the fibre cement industry. Due to better monsoon during FY 14-15 the industry bounced back from the decline in demand experienced in the earlier year.

India's construction sector is projected to grow at 7-8 percent each year over the next decade as it stimulates building infrastructure and creates growth opportunities for other sectors in the economy. Infrastructure accounts for 49 percent housing, 42 percent real estate and 9 percent industrial projects. Growth in these sectors would enable your company to achieve better growth.

BUSINESS SEGMENT ANALYSIS

The Company's business can broadly be classified into three groups i.e. Building Product Group,Thermal Insulation Product Group and Wind Power.

(A) BUILDING PRODUCT GROUP consists of:

1. Fibre Cement Sheets Business

2. Autoclaved Aerated Concrete (AAC) Blocks / Fly Ash Bricks (Light Weight large size Bricks)

3. Building Panels (for walling/partitioning and br-fab structures)

4. Advanced Polymer Products (APP)

(B) THERMAL INSULATION PRODUCT GROUP consists of:

Calcium Silicate Insulating Materials (for high temperature insulation)

(C) WIND POWER

(A) BUILDING PRODUCT GROUP: This segment consists of four different product groups, viz., Fibre Cement Sheets, Autoclaved Aerated Concrete Blocks, Building Panels and Advanced Polymer Products.

"Fibre Cement Sheets" business continue to be the major revenue generator for the Company by contributing 81% of the Company's Revenue. The Fibre Cement Sheet Industry witnessed spurt in demand from the beginning of the financial year mainly due to better monsoon effect of last year and improved visibility of higher disposable income in the hands of rural consumers. During the year under review, the industry registered a growth of 10 % as compared to de-growth of 14% in the last fiscal. This division achieved highest ever sales volume and production volume during the year. This division also produced and sold more than 100,000 MT in a single month by creating history in the industry. With a clear focused approach in select states / territories, market share of your company has also improved during the year. Your Company continues to be the market leader in the fibre cement roofing industry. Efforts taken by the Company in terms of optimizing production foot prints across its facilities coupled with operational efficiencies yielded desired results for the Company.

Another major growing product in this segment is the "Autoclaved Aerated Concrete Blocks / Fly Ash Bricks". This division reported a significant growth during the year under review by registering 59% growth over brvious year in quantity terms. In view of improved economic conditions, activity in this segment is gaining momentum and your Company with established brand name "AEROCON" is geared to capitalize this momentum to its advantage. AEROCON has been able to increase its Market Share through product differentiation, cost optimization, branding and customer service in the challenging business environment. Well planned 'Go to Market' strategy has also contributed for increase in market share of this product during the year. However, aggressive pricing from the un-organised/ small time players remains a challenge in this product category. Additionally, built up of excessive capacity kept prices down thereby reducing margins. During the year under review, your Company commercialized operations of its state of the art new plant at Jhajjar in Haryana. This facility caters to the requirements of the northern market where we see huge potential for scaling up of the business. With environmental restrictions, non-availability of clay bricks, increased awareness among builders and consumers in switching over to "Green Products" coupled with anticipated growth in real estate sector we expect the demand to improve significantly in the coming years.

Another product in this segment is the "Building Panels". Panels are normally used for construction of brfab structures and partition walls and have been extensively used in the infrastructure sectors like power and steel plants, roadways, irrigation, airports as also in the construction of malls, schools, hospitals and colleges. This business witnessed a growth of 29% in quantity terms during the period under review. With the continued Government focus on these sectors this product vertical is also expected to do well in the current fiscal.

Your Company's new business vertical "Advanced Polymer Products" has completed one full year of operation. This product vertical manufactures UCPVCand CPVC pipes and fittings and currently caters to part of the northern and southern markets. During the last year, your company commissioned one more facility at Timmapur, Telangana for manufacture of pipes and fittings. As the demand for these products is expected to increase manifold, this division would do well in the coming years

(B) THERMAL INSULATION PRODUCT GROUP:  

This business mainly caters to the requirements of cement, fertilizer, power and petrochemicals industries. As some of these sectors are already facing excess capacity situation in certain parts of the country, there were very few new  projects which came up in the year under review. We expect that this business will continue to perform at the same level in the current fiscal in view of excess capacity built up across these sectors. The brand "HYSIL" enjoys high customer delight and hence we should be able to increase volumes as the demand-supply situation improves. This division has had good success in the exports front and the Company was able to open up new markets in the middle east and far east.

(C) WIND POWER: In addition to the above business segments, your Company has also invested in setting up Wind Power Plants in select parts of the Country. During the year under review, your Company set up one additional Wind Turbine Generator of 2MW at Rajasthan. With this new addition, your company now has 9.35 MW of Wind Turbine Generators installed at different locations, viz., Gujarat, Tamil Nadu & Rajasthan. The energy generated from these projects is partly used for captive consumption at the Company's AAC Blocks manufacturing units in Gujarat and Tamilnadu and partly sold to the electricity distribution companies in the respective states. Your Company is making constant efforts to explore further areas of improvement as part of energy optimization.

OUTLOOK FOR THE COMPANY

India is expected to show accelerated growth during next few years mainly driven by reforms and policy initiatives of the Government which will help the country to retain its 3rd place in terms of purchasing parity across the globe. Consumption from the rural and semi-urban areas of the economy continues to drive growth in the Indian economy to a large extent.

Infrastructure, a key driver of the economy is a major force for propelling India's overall development. As mentioned earlier implementation of initiatives of the Government like Swatch Bharat, Own house for every citizen and Smart Cities would help the industry to register growth at a faster pace. The initiative of linking Bank account to subsidy is expected to result in higher disposable income in the hands of needy and poor who are one of your company's core customers.

As discussed in our earlier report, India's population is fast urbanizing and is expected to grow to 500 million (36%) of total population by 2020. As we expect, this urbanization move will generate unbrcedented demand for quality real estate and infrastructure including housing. India is witnessing significant interest from the international investor community in the infrastructure space. Many foreign companies are keen on collaborating with India on projects relating to infrastructure, high speed trains, renewable energy and developing smart cities. We believe that the demand for your Company's green products like Blocks, Panels & Pipes are expected to go up.

Even today large part of the population do not have permanent roof for their shelters. With increased awareness of risks associated with the usage of "kuccha roofing" with regard to safety and health, a gradual shift in demand for better alternative products is seen. The Government's continued thrust to provide adequate shelter to the rural poor through various Government sponsored programs like "Housing for All" would help boost demand for various building products, providing a huge opportunity for your Company's "CHARMINAR" roofing sheets.

With the continued focus/awareness on the impact of Climate change across the Globe, your Company expects that the demand for its environmental friendly products like Blocks, Panels and Pipes would go up in the current year. Our brand "AEROCON" is positioned in the market as a brmium brand and is expanding its reach. Our shift in focus towards providing "complete building solution" helped the customers to use our products more efficiently and our core technical support teams ensure that the customers are at ease by working with them closely for efficient usage of our products.

Your Company's efforts to position itself as a "Complete building solution provider" with superior and consistent quality and service level's evoked good response from the market. The Company is also contemplating expanding its product portfolio to further increase its brsence in the segment.

RESEARCH AND DEVELOPMENT

We are committed to investing in world-class technology development, particularly on environment friendly Green Building Products (GBP). The Research and Development (R&D) Centers of the Company are continuously evolving into a vibrant place with the research work progressing in several areas. Our continuous efforts on R & D activities with focus on areas such as designing and developing new products, de-risking the business, improving manufacturing processes with respect to environment, health and safety, quality up-gradation of existing products and researching future technologies for total building solutions have given the Company good results.

The Research and Development (R&D) Centers of the Company are recognized by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India. Well experienced, qualified and a fully dedicated team is actively working in conjunction with our

Business Development teams in developing energy efficient and pollution free processes, new application development, variants in products, business continuity, cost reduction and enhancement in product quality.

RISKS

Your Company has a robust Risk Assessment and Management process. The Risk Management Committee headed by the Managing Director with active participation of senior leadership team handles the process of Risk Identification, Assessment and Mitigation plans. The process adopted by the committee is reviewed by the Board for implementation and continuous monitoring. Your Company classifies the risks broadly into two categories, viz., External Risks and Internal Risks. The external risks mainly comprises of business risks on various fronts. The identified business risks and opportunities are deliberated in detail and thereafter considered in the business plan of the Company along with the mitigation plan. The internal risks identified by the committee are systematically addressed on a continuous basis across the locations. These findings are discussed with both the Management Committee and the Audit Committee.

Agriculture is the dominant sector of the Indian economy, which determines the growth and sustainability. The sale of Company's main product, viz., Fibre Cement Sheet has direct correlation with the GDP growth of the country. Agricultural growth in India largely depends on monsoon and weather conditions across the country. The uncertain weather conditions affect the growth of the sector to a large extent.

Major raw materials used in our products are OPC cement, fibre, fly-ash, and lime. Cement, being a seasonal commodity product, high volatility in its pricing is experienced during different seasons and its availability becomes a constraint in some of the regions. As the capacity of the cement industry has increased in the last couple of years this risk has reduced to a great extent. Also HIL is working with major cement players across regions to ensure smooth and un-interrupted supplies and we are confident that it will not hurt our production pattern adversely.

Constraint in supply of Fibre due to closure of certain mines across the world has resulted in increased dependency on limited supply sources. However, your Company enters into long term contracts with the suppliers thereby ensuring availability of fibre as per business requirement. The process of development of an alternative to fibre is on which would help the Company to overcome this risk to a great extent. Pricing and supply of fly-ash, another key raw material is expected to remain in a range and not have any major adverse impact on the cost of production

Asbestos Cement Products Manufacturing Association (ACPMA) and Asbestos Information Centre(AIC) nodal agencies, promoted by the Indian Manufactures are advocating safe/controlled use through different forums which has created good awareness among the users of the products and the public at large .

INTERNAL FINANCIAL CONTROL

The Company has combrhensive internal financial control system for all major processes to ensure reliability of reporting. The system also helps management to have timely data / feedback on various operational parameters for effective review. It also ensures proper safeguarding of assets across the Company and its economical use. The internal financial control system of the Company is commensurate with the size, scale and complexity of its operations. The systems and controls are periodically reviewed and modified based on the requirement. The Company has an internal audit function, which is empowered to examine the adequacy and compliance with policies, plans and statutory requirements. It is also responsible for assessing and improving the effectiveness of risk management, control and governance process. The scope of Internal Audit is well defined and documented and the audit committee reviews the observations of the Internal Audit critically. The composition and working of the audit committee forms part of the Corporate Governance Report.

INFORMATION TECHNOLOGY (IT)

IT@HIL continues to support the enterprise with digital technologies while improving IT Architecture, management and governance and has been playing an important role in strengthening the Information framework supplemented with in-time MIS, thereby helping business grow with the desired speed.

With the objective to build a robust and secured information network, yet not compromising on the information availability to business stakeholders, IT@HIL is in the process of re-implementing SAP.

To improve the efficiency of the sales force, in continuation to last year, Sales force automation has been extended to all business. Strengthening and enhancing the service levels of IT Support both Infra & Application endorse our endeavor in line with the business transformation initiatives.

HUMAN RESOURCES/EMPLOYEE RELATIONS

Your company believes in accelerated growth through people and recognizes the fact that human resource is highly valuable and an essential asset and we strive to continuously develop our talent to face future challenges & make them ready for adapting to the changing business environment.

Your Company is committed to the welfare and career growth of its people. The company has automated few of the HR processes to make them more robust. The recruitment is totally aligned to attract best quality & diversified Talent. Last financial year, the management focused on creating a framework for Talent to develop them into high performing individuals through focused leadership programs coupled with 'Break Through Projects' and 'Action Learning Projects'. The Company's management firmly believes that a strong and stable industrial relation is essential for success of any organisation. Over the years the management has made sincere and continued efforts for the development of an atmosphere of mutual cooperation, confidence and respect duly recognizing the rights of the workers. A very rigorous labour law compliance mechanism is in place to help us run our businesses in the most ethical manner.  As on 31st March, 2015, the Company had 1728 employees.

ENVIRONMENT, HEALTH & SAFETY

The Company believes that a clean environment in and around the work place fosters health and prosperity for the individual, the group and the community they belong to. Regular medical examinations of employees and health care schemes are an integral part of the Company's policy. Health surveillance of employees adhering to national regulations and ILO recommendations is an ongoing process. We ensure that best environment engineering controls are adopted in the factories. These controls aim in brventing accidents, environment pollution and health hazards. The Pollution control equipment installed in our Plants ensures achievement of internationally acclaimed practices which are recommended to be followed elsewhere in the world. The Company's policies give highest priority to safety employees health both occupational and general and on environment protection.

CAUTIONARY STATEMENT

Statements in the Directors Report including Management Discussion & Analysis Report describing the Company's objectives, expectations or brdictions may be forward looking within the meaning of applicable securities laws and regulations and reflects only the Management's perception and assessment. Actual results may differ materially from those exbrssed in the statement and the Company assumes no responsibility in respect of forward looking statements made herein which may undergo changes in the future. Important factors that could influence the Company's operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, exchange rates, changes in Government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations