MANAGEMENT DISCUSSION & ANALYSIS

DIVIDEND

Your Company had declared and paid Interim Dividends of Rs. 3.75 ps. (@ 75%) per share (of Rs. 5/- each). Your directors are pleased to recommend a Final Dividend of Rs. 1.75 ps. (@ 35%) per share (of Rs. 5/- each) for the Financial Year 2014-15, aggregating to the Total Dividend of Rs. 5.50 ps. (@ 110%) per share (of Rs. 5/- each) for the Financial Year 2014-15 compared to the Total Dividend of Rs. 4.50 ps. (@ 90%) per share (of Rs. 5/- each) for the Financial Year 2013-14. The total amount of Dividend pay-out for the year would be Rs. 48.73 Crores (Previous Year: Rs. 39.87 Crores).

Your Company has transferred Rs. 19.00 Crores to General Reserve (Previous Year: Rs. 14.90 Crores) and Rs. 30.00 Crores to Debenture Redemption Reserve (Previous Year: Nil).

FINANCIALS

Your Company is pleased to report continuation of its growth momentum. Inspite of the inventory losses due to sharp decline in input prices (trailing the fall in crude prices), your Company had been able to brsent the growth in bottom line by over 25%.

Your Company's Total Income stood at Rs. 2,871 Crores, up by 9% as compared to Rs. 2,633 Crores in Financial Year 2013-14. Operating Profit rose by 15% to Rs. 456 Crores for Financial Year 2014-15 as compared to Rs. 395 Crores for Financial Year 2013-14. Operating Margins increased from 15% for Financial Year 2013-14 to about 16% for Financial Year 2014-15.

Net Profit Before Tax rose by 22% to Rs. 246 Crores in Financial Year 2014-15 as compared to Rs. 201 Crores in Financial Year 2013-14. Likewise, Net Profit after Tax & Deferred Tax also grew by 26% to Rs. 188 Crores in Financial Year 2014-15 as compared to Rs. 149 Crores in Financial Year 2013-14.

On a Consolidated basis, your Company's Total Income stood at Rs. 2,908 Crores, up by 10% as compared to Rs. 2,633 Crores in Financial Year 2013-14. Operating Profit (before other income) rose by 16% to Rs. 466 Crores as compared to Rs. 402 Crores in Financial Year 2013-14. Similarly, Net Profit after consolidation grew by 27% to Rs. 206 Crores in Financial Year 2014-15 as compared to Rs. 162 Crores in Financial Year 2013-14. Likewise, Consolidated EPS surged by about 27% at Rs. 23.24 for Financial Year 2014-15, as compared to Rs. 18.34 for Financial Year 2013-14.

With these stable and consistent performances, the Consolidated Profits for your Company had surpassed Rs. 200 Crores mark. After going Public in 1992, your Company had been able to achieve and cross the historic Rs. 100 Crores consolidated profits in Financial Year 2011-12 and in next three years' time your Company has been able to double the same. With these numbers, the consolidated profits have grown for last 5 years at a CAGR of about 26%, while the revenues have grown at a CAGR of about 19% during the same period. A large part of this growth is on account of increased volumes from global markets.

CHEMICAL INDUSTRY - STRUCTURE & DEVELOPMENT

Global Speciality Chemicals Market

Speciality Chemicals are a group of high value, low volume chemicals formulated for developing/enhancing properties of specific products. The customised product requires special technologies, process expertise and understanding of client needs, and so the industry typically commands limited competition, yielding higher gross margins and returns than other chemical sub-segments.

The Global Speciality Chemicals market is growing at a fast pace. Despite the economic recession, it has recovered and is showing signs of high growth in the future. According to TechNavio Analysis, the Global Speciality Chemicals market is expected to grow at a CAGR of 5.16% during the period 2013-2018 and reach US $760.9 billion by 2018 (from US$ 619.0 billion in 2014).

Industry Segmentation

The chemical industry is an integral constituent of the growing Indian Industry. It includes basic chemicals and its products, petrochemicals, fertilizers, paints, varnishes, gases, soaps, perfumes and toiletry and pharmaceuticals. It is one of the most diversified of all industrial sectors covering thousands of commercial products. This Industry occupies a pivotal position in meeting basic needs and improving quality of life. The Industry is the main stay of industrial and agricultural development of the country and provides building blocks for several downstream industries, paints, soaps, detergents, pharmaceuticals, varnish etc.

The Indian Chemical industry has witnessed robust growth in the past decade and has been ranked 6th largest in the world and 3rd largest in the Asia according to United Nations Industrial Development Organisation (UNIDO). The industry has been forecast to reach USD 200 billion mark by 2020.

Indian government is rendering extensive support to give impetus to the Indian chemical industry and has set up the task force to consider suggestions for National Chemical Policy to ensure steady growth of the country's chemical sector.

Indian Speciality chemicals industry is expected to grow at a robust pace driven by consumption boom, infrastructure spending and exports to international markets.

Proxy to play consumption as well as infrastructure theme

The key demand drivers for Speciality chemicals are per capita income growth, rising urbanisation and infrastructure spending. The per capita chemical consumption for India in most categories of Speciality chemicals (paints, dyes, polymers, home and personal care etc.) is only about 15-20% of the global average, thus, there is a significant opportunity for growth.

While around 70% of Speciality chemical demand is linked to consumer spending, the balance is used by construction and infrastructure industry. As domestic consumer as well as infrastructure spending slowed in the past couple of years, Indian Speciality chemical companies were impacted though overall impact was limited due to strong growth in exports. However, both these dynamics are expected to improve in medium to long term.

The robust demand for Speciality chemicals (FICCI est: 13%) would be driven by strong growth in end-user industries itself. While the ones linked to infrastructure (construction chemicals, paints, water chemicals, industrial cleaners) are expected to grow at >15%, the other categories (dyes, personal care, plastic additives, rubber chemicals) are expected to grow at 10-15%.

With improving cost competitiveness (particularly w.r.t. China), favourable IPR framework and strong domestic demand outlook, India is emerging as a brferred manufacturing destination for Speciality chemicals. China is losing out its edge over India in chemical manufacturing due to:

(1) steep cost inflation (labour costs);

(2) stricter compliance of environmental regulations being enforced in China, while in India the same had been already in place since past few years; and

 (3) Yuan apbrciation in recent years.

Chemical exports from India have grown at 22% CAGR over 2010-14, significantly outpacing the global demand growth (3-4%) and the trend has continued through in 2015 as well.

Shares in exports of chemicals

Exports from India are likely to get further fillip and India is expected to increase export market share (from miniscule 2% currently) with:

• Curtailment of capacities in developed countries: While capacities are being closed in developed world, a simultaneous scale up of capacities is being witnessed in emerging economies.

• De-risking of exports by global MNCs: The major MNCs are trying to de-risk their supply chain by diversifying their RM procurement away from China (amongst the developing countries). During the past decade, China aggressively added chemical capacities and became the largest exporter (amongst the developing countries) to MNCs. However, as risks associated with Chinese exports increase (domestic slowdown, currency apbrciation etc.), MNCs are seeking to increasingly brfer India amongst the developing countries for their RM supplies.

The Indian Chemical Companies are expected to get further fillip under the "Make in India" drive. Various new projects are proposed to be commenced with a focus to make India as a manufacturing hub for those products. This shall increase the direct and indirect demand of various chemicals. These chemicals are expected to contribute directly or indirectly as Import Substitute or contribute to the increase in exports from India.

Your Company is a leading manufacturer of Speciality Chemicals and has integrated brsence across various value chains. Your Company's diversified end-user application and customer profile had provided a significant insulation against the global downturns and various geographic volatilities. Your Company's strength to meet the Stringent and Customised specifications for each of its 800+ customers have helped it gain customer confidence and trust and also to open up new growth opportunities. Exports, which accounts for half of the total revenues, is well sbrad across various customers which your Company caters across different geographies, as mentioned in the adjacent chart.

Also significant quanta of domestic supplies are converted/value added and eventually exported. Thus about 70% of our volumes are directly or indirectly exported. Your Company’s global market position, strategic arrangements with key customers, Customised delivery offerings, increased scale of Operations, ability to meet the stringent quality requirements of the customers, have enabled your Company to increase its brsence in the global arena over a period of time and also have helped it to work along with the customers in their growth plan and thus have been able to add new products around this phase of growth.

As you would note, Speciality Chemicals continues to account for a major part of Revenues and EBIT. However, it may also be noteworthy, that Pharmaceuticals Segments, wherein the USFDA approvals had been accorded to our units in 2011, had breakeven in 2012. The Pharma Segment revenues had registered a CAGR of over 22% over last four years, while the EBIT had jumped from Rs. 4 Crores to Rs. 36 Crores during the same period.

Speciality Chemicals Segment:

Speciality Chemicals Segment accounts for the majority of revenues and profits for the Company. RM Price volatility impacts the segment's topline the most, but has very limited impact on the bottom line. We brsent below a note which explains this in more detail.

Impact of RM Volatility

Since the Company adopts a Cost Plus pricing for its various Speciality Chemicals, its topline is linked with the Input costs. During Financial Year 2014-15, we had witnessed sharp corrections in the prices of Crude Oil during the period of November 2014 to March 2015. As a result, the prices of various Raw-materials procured by the Company viz, Benzene, Aniline, Methanol, Phthallic Anhydride, etc had also declined accordingly.

As you would note from above, the Sales revenues had declined in Q3 and Q4, in spite of having registered a volume growth of about 13%, due to falling RM prices.

Further, since the Company's product pricing is on Cost Plus basis, EBIDTA per KG is constant, hence increase in volumes results into higher absolute EBIDTA resulting into higher segmental EBIT. This is reflected in the increase in EBIT, as mentioned in above table. Further, also note that the EBIT mentioned above were after adjusting for inventory markdown in Q3 for about Rs. 8 Crores. and in Q4 for about Rs. 11 Crores. Hence, in spite of these markdowns, the overall EBIT for the segment grew by about 19% on Y-o-Y basis.

It may also be noted that the demand for most of the products manufactured by your Company is in-elastic to the RM price fluctuations. Further, in case of high value added products, the impact of the same becomes significantly lower to have any impact.

As you would note, fall in raw material prices, kept the growth in topline limited to about 8%, while the increase in volume of initial and high value added products resulted the increase in Segmental EBIT by about 23% on Y-o-Y basis and even on CAGR over last four years.

Your Company continues to maintain its leadership position in the domestic market for its range of Benzene Based Derivatives and enjoys global market share of about 25% to 40% amongst various products supplied by them.

For most of the above processes, your Company had reached near to 90%+ capacity utilisation. As a result, your Company had been in last 2-3 years initiated various expansion projects to increase its capacities of various existing processes and also had plans to introduce the new products to cater to the growing demand of its over 800 domestic and global customers. Some of these projects are briefed below:

NCB Expansion:

During last year, your Company had started the process of expansion of its NCB Capacities from 57000 MT to about 75000 MT. During Q3 Financial Year 2014-15, your Company had commissioned the first phase of its expansion, thereby enhancing the capacities upto 66000 MT, while the balance is expected to be commissioned by Q3 Financial Year 2015-16. As a result, the production of NCB had increased in Q4 Financial Year 2014-15 to 14800 MT as compared to the quarterly average of 13500 MT for Financial Year 2013-14. Production during Financial Year 2014-15 was about 53400 MT as compared to 54230 MT for Financial Year 2013-14. The production during first nine months was lower on account of shut down taken during the year for the on-going brownfield expansion activities. These incremental capacities would increase our market share for NCB in domestic and global markets and also provide adequate feedstock for the related downstream products (viz. Hydrogenated Products and various other products), having higher EBIDTA. As you would recollect, your Company had already expanded its Hydrogenation capacities and now has sufficient capacities to cater to the global demand for next few years. Increase in the feeder capacities such as NCB, helps your Company to increase the utilisation of these expanded hydrogenation capacities as well.

PDA Expansion:

Further, your Company's scale up of its PDA capacities from 250 tpm to 1000 tpm had reached its final stage of implementation and is expected to be commissioned in phased manner from Q1 Financial Year 2015-16.

These capacities shall increase your Company's capabilities for increase its brsence in the end-use applications of High End Polymers & Additives. This will also add your Company as the only Indian source for few MNCs which brsently do not source this product from India.

Introduction of Toluene and Ethylene Based Products:

Your Company's diversification into Toluene chemistry by way of introduction of Nitrotoluene and Derivatives is expected to commercialise by end of current year. Your Company plans to setup a unit with a capacity of about 30000 tpa. Your Company is confident to attain faster volume growth in this new value chain, as the end-customer and the applications are fairly similar or same to the ones which are brsently being serviced by your Company. The introduction of these products will further strengthen your Company's market position and capabilities to supply basket of products catering to end user application such as Optical Brighteners, Agrochemicals, Pigments, Pharmaceuticals, etc.

This unit shall also provide the feeder material required for the proposed Ethylation unit being setup at Dahej SEZ. Your Company would be setting up the Ethylation unit by adopting the Swiss Technology. It will be first time in India, that a Company is going to procure Ethylene by pipeline and operate the greener Ethylation process. Your Company plans to gradually introduce a range of Ethylene based chemicals over longer tern catering the end-user applications of Agrochemicals, Engg. Polymers, Pigments, Additives, etc. The Dahej SEZ project is brsently being carried on by Anushakti Specialities LLP, which is a 100% subsidiary of your Company. Your Company proposes to absorb the same into itself during Financial Year 2015-16, so as to bring the entire chemical operations under one roof. The Company expects to commission this SEZ unit in Q1 of Financial Year 2016-17.

Greenfield Chlorination Complex
Your Company further proposes expansion of its capacities by way of setting up new units for other key processes and targets to commission the same within next 2 year's time. Your Company plans to setup a Chlorination Complex at Jhagadia. This complex shall expand your Company's capacities in the Chloro Benzene range of chemicals and shall also provide additional capacities to introduce a new range of chlorinated compounds. Since Chlorine is manufactured in nearby Chloro Alkali units, your Company proposes to procure the same by pipeline on a continuous basis, which adds as a significant logistical benefit to set up the facility at Jhagadia.

Speciality Chemical Complex

Your Company also proposes to set up another speciality Chemical complex at Jhagadia to manufacture of range of Speciality Chemicals from the brsent value chain and also plans to introduce few new products which were being developed under secrecy agreement with the MNC customers.

Co-Generation Power Plant

With large capacities being commissioned over next 12-30 months at Jhagadia, your Company plans to set up a Captive Co-generation Power Plant similar to the ones being already operational at its Vapi unit, but with a higher capacity. This shall help meet the partial power needs of the unit at Jhagadia at significantly lower power costs. Thus, this shall bring about cost savings in respect of the future projects being proposed at Jhagadia.

These projects would cater to the growing demands for various Agrochemicals and Engg. Polymers and would help the Company increase its market share in this space.

These capacities would provide the further diversification of the product mix and would drive the growth beyond Financial Year 2017-18.

Pharmaceuticals:

Indian pharmaceutical industry was valued at USD 12 Bn in 2013. The market is primarily driven by exports to regulated as well as semi-regulated markets. Currently, India exports drugs to more than 200 countries and vaccines and bio-pharma products to about 151 countries. Globally, India ranks 3rd in terms of volume and 14th in terms of value. Industry estimates show that generic drug user fee amendments in USA, compulsory licensing and national pharmaceutical pricing policy have increased the legal expenditures of the top 10 drug makers in India by ~50% in the past three years.

The regulatory environment in the pharmaceutical sector is more challenging now than ever before. To meet the new norms, companies will have to invest in re-establishing their competitive position. Optimization of product portfolio to target high return products and building distinguishing capabilities to stay ahead of competition would be the key to success. The winning companies will be the ones which analyze their competitive position and meet the rapid changes happening in the industry by evaluating and speedily implementing the five levers outlined below.

Over a period of time, Mergers and Acquisitions in Pharma segment have resulted into consolidation and rationalisation. Gradually the Innovator companies have started focusing more on Oncology drugs as a major thrust area. Your Company had been working into this area and is expected to benefit over long term.

China had been a traditional source of intermediates to various companies manufacturing APIs world over. However, tighter compliance of pollution norms, increasing and stricter regulatory processes, consolidation of various pharma companies, had resulted into restricted suppliers, which ultimately affects the supply of various intermediates. This has opened up opportunities in India for manufacture of various intermediates as Import Substitutes. Your Company is working for various such intermediates with various companies and expects to attain a strategic position in the intermediates space.

Your Company had been looking at older/already off-patented Generics to be supplied in regulated markets, directly and indirectly, wherein very few/restricted suppliers operates. With commissioning of expanded capacities and having a range of 48 commercial APIs, with 33 EUDMFs, 28 US DMF, more than 60% exports coming from regulated markets, your Company is better placed to increase its share in the regulated markets.

As you would note from above, the segment had been growing at the fastest pace. Out of incremental sales in Financial Year 2014-15 of about Rs. 54 Crores, growth in exports sales was about Rs. 39 Crores, i.e. more than 70% of incremental growth had been from global markets. Hence, increased volumes from Global and more particularly Regulated markets would help in faster paced growth for this segment.

Home & Personal Care Chemicals

Rising per capita income have enabled the increase of consumption of hygiene and personal care products. Increasing consumption is driving demand for wide range of Cosmetic Chemicals, Health care products as well as Hygiene products using Performance Chemicals, Polymers and Oleo Chemicals. Our PM's "Swachh Bharat Abhiyaan", is expected to increase the demand of these chemicals significantly.

Home & Personal Care Chemicals segment is relatively a low margin business. Your Company has two manufacturing units, one each at Pithampur (Madhya Pradesh) & at Silvassa. Your Company plans to carry out debottlenecking for some of its operations so as to expand the capacities for export oriented products which have better margins. These efforts shall help the increase of exports for this segment and also result into improvement of margins.

SAFETY, HEALTH & ENVIRONMENT (SHE)

Mitigating the Safety, Health and Environment related hazards tops the priority list of various risks for the Company and is being regularly monitored with stricter compliances for any deviations. Your Company's continuous efforts and thrusts into adopting better, cleaner and cost efficient technologies in its road to growth had been recognised by the Chemtech Foundation. The Award Committee of Chemtech Foundation Chaired by Shri Nadir Godrej, CMD of Godrej Industries Ltd, had accorded your Company with the Prestigious award of "Outstanding Achievement - Innovation" - Chemtech CEW Leadership & Excellence Award 2015.

Your Company had been chosen for this brstigious award for its continuous and commendable efforts in conserving environments as well as ensuring sustainable growth through path breaking innovation with thrust on 3Rs of Reduce-Reuse-Recover principle and several other initiatives. This Award recognizes your Company's in-house technical innovations undertaken by the Company across various product development and continuous process & operations improvements while adopting eco-friendly technologies and constantly enhancing energy efficiency, by-products recovery, gainful usage from waste streams and more.

This award recognizes the efforts of your Company and motivates it to persist with the efforts for continuous improvement and innovation keeping always in mind the philosophy of "Growth with Sustainability for Sustainable Growth". Keeping these principles as an important element, your Company plans to invest further to capitalize on the growth opportunities available in the global arena.

Your Company had been chosen for this brstigious award for its continuous and commendable efforts in conserving environments as well as ensuring sustainable growth through path breaking innovation with thrust on 3Rs of Reduce-Reuse-Recover principle and several other initiatives. This Award recognizes your Company's in-house technical innovations undertaken by the Company across various product development and continuous process & operations improvements while adopting eco-friendly technologies and constantly enhancing energy efficiency, by-products recovery, gainful usage from waste streams and more.

This award recognizes the efforts of your Company and motivates it to persist with the efforts for continuous improvement and innovation keeping always in mind the philosophy of "Growth with Sustainability for Sustainable Growth". Keeping these principles as an important element, your Company plans to invest further to capitalize on the growth opportunities available in the global arena.

Your Company had bought an adjoining plot of land admeasuring about 18,175 sq. mtrs. at Plot no. 806, 807, Phase III, GIDC,Vapi. This would help in decongesting the existing unit and thus improve the safety of the operation at Vapi significantly.

Your Company had further invested significant amounts to improve its setup and mitigate these risks. Some of the initiatives in this regard as briefed below:

Introduced Aarti Management System: An in-house developed framework of 32 elements detailing procedures and processes catering to all Plant Related Activities - 3 elements namely MOC (Management of Change), BBS (major root causes of incidents are due to behavior) and Permit Systems catering to reduce SHE related risks are launched. Other elements are being developed and reviewed which will be introduced in this year.

Process Safety studies and audits: To keep the thrust on achieving intrinsically safe processes, your Company had external safety audits and study by industry experts such as Chillworth, ABS, Zeplin, etc. In our journey to excel in field of process safety, your company focused on increasing in-house competency. Your Company’s operation team has done about 130 man hours of training on process safety leadership training conducted by DuPont and over 520 man hours of HAZOP training conducted by CLI (Centre Labour Institute). Your Company had also developed in-house capability for calorimetry of hazardous reaction, which is brsently being done by very few Companies in India. Your Company als o shared its journey with industry partners in a talk name “Chemical Reaction Hazard Management: Challenges & Strategies -- A perspective at AARTI GROUP OF INDUSTRIES” arranged in TIMA (Tarapur Industrial Manufacturers Association) Hall, MIDC Tarapur.

Behaviour Based Safety: Belief causes behaviour and behaviour cause action. As per industry statistics, around 90% incident is due to human behaviour. Considering this, your Company had initiated Behaviour Based Safety (BBS) project, to improve behaviours at shop floor. Since inception, your Company conducted 81 batches covering 2293 employees (77%) across organization. In order to monitor the behaviour, an online reporting and tracking system is launched. Totally 17,000+ BBS Observation rounds have been conducted by our employees across plants Process Automation plan had been implemented for critical unit operations and is now being evaluated / implemented over a period of time for other operations as well.

Upgradation of facility into Zero discharge:

Your Company had commissioned various equipments and processes such as water recovery, RO Plant, etc. and upgraded the two of its facilities into Zero Liquid discharge facility.

Your company is evaluating further for making other plants as zero discharge facilities.

Planning to introduce Automated Solid Handling Equipment: Your Company plans to automate the solid handling of various chemicals. This shall reduce the hazards of physical exposures related to manual handling of various chemicals.

With these and various other initiatives, your Company firmly places the SHE at the top of its goals and aims to provide a workplace which is safer and healthier for the society at large.

RISK, CONCERNS & ITS MANAGEMENT

Your Company perceives risks or concerns common to industry such as concerns related to the Macro Indian Economic Outlook, Global Economic fallout, Regulatory risks, Foreign Exchange volatilities, Higher Interest rates, Volatile Raw-material prices and other commercial & business related risks. While Segments like Pharmaceuticals and Home & Personal Care and Speciality Chemicals with applications into Agrochemicals are not much affected by the economic cycle and have its own independent growth drivers, the diversity of end uses of Speciality Chemicals and the ability of the Company to interchangeably use the production facilities insulate the Company from any adversity for any specific end user applications. Further, your Company's diversified revenue mix, flexible product mix and increasing export volumes also help to derisk the business from any domestic economic setbacks as well as certain specific global uncertainties. Diversified & wide customer base further reduces risks of dependence of business with few customer or few products. Your Company is entering into long term supply arrangement with its key suppliers to ensure continuous and adequate supply of raw-materials to meet the growing demand for the products.

Chemical businesses are generally working capital intensive and hence the working capital requirements are also higher. Your Company has been making continuous efforts to reduce the working capital cycle.

Risk management policy underpins your Company's efforts to remain a competitive and sustainable company, enhancing its operational effectiveness and creating wealth for its employees, shareholders and stakeholders in pursuance of its strategy. Your Company has constituted a Risk Management Committee.

The Company has a dynamic Risk Management framework to identify, evaluate business risks and opportunities. This framework seeks to create transparency, minimize adverse impact on the business. The business risk framework defines the risk management approach across the enterprise at various levels including documentation and reporting. The framework has different risk models which help in identifying risks, exposure and potential impact analysis for the Company level.

CORPORATE SOCIAL RESPONSIBILITY

Aarti group: Committed to Social Responsibility.

From the time of the inception of the Company, the Company's Founder Visionary and Chairman Emeritus Shri Chandrakant Gogri has upheld the philosophy of 'giving back to the society' with utmost fidelity.

Your Company actively contributes to the following segments:

1. Education & Skill Development

2. Healthcare Facilities

3. Women Empowerment and livelihood

4. Water Conservation and Environment

5. Rehabilitation in Disaster Affected areas

6. Eradication of Hunger & Poverty

7. Donating to Govt. bodies viz. Prime Minister & Chief Minister Relief Funds.

We advocate the concept of universal and all around development and hence work on "Clusters" in whole, while initiating a spectrum of development projects within the each identified locations. Our on-going initiatives are focused on bringing about an overall development in the rural sector. These initiatives are inspired by the guidelines set by Hon'ble Former President of India Dr. A.P.J. Abdul Kalam's PURA (Providing Urban Amenities to Rural Area) model. Education, sanitation, health, water management, skill building, environment forms the key factors of this PURA model. Your Company had been actively involved and has been under implementation of PURA Model in villages at Kutch, Gujarat and at Beed (Marathawada, Maharashtra).

A brief about the various activities being undertaken at the Kutch Cluster for the implementation of PURA model and to being about an overall development and upliftment of the Cluster is brsented below:

Kutch Cluster

Education:

Every year over four hundred students from around 12 villages receive free Secondary and Higher Secondary Education at Tulsi Vidya Mandir (TVM). TVM is one of its kind rural school to admit dropouts & rejected from other schools & poor students and had achieved an average 90% results in SSC and 95% results in HSC. The Company intends to expand the TVM horizons by commencing Technical and Army Entrance Training courses.

Further, a new project named "Vidya Sarthi" had been undertaken, wherein local youngsters (brsently 20) are trained and recruited for imparting extra coaching to students of Government managed Primary schools in vicinity of TVM. This model not only provides employment opportunities to the youngsters but also provides the additional support to the Government managed schools in achieving the goal of "Education for all".

Sanitation: After your Company's engagement, one of the village had achieved 100% sanitation mark and has an underground drainage system and waste water recycle plant. Taking cues from our PM's 'Swachh Bharat Abhiyaan' your Company had undertaken to provide toilets to all families of TVM students of neighbouring 12 villages. Approximately over 100 toilets would be provided by your Company under this programme.

Rain water harvesting: A traditional lake was revived to store maximum rain water. Animals, birds, farmers are benefitted by this "Mirik lake"

Cattle feed depot: Cattle owners from around twenty villages are being provided cattle feed at subsidized rates from this center.

In addition to above, various Health Camps, Agricultural Training Camps and other activities are carried out to promote the overall development of the cluster. The results had been so encouraging that your Company further plans to set up three PURA model Clusters in due course of time. The Model implementation was further apbrciated by the local NGOs and other agencies, who had also started replicating the model for development in other neighbouring Districts.

Your Company had been engaged into similar Cluster development activities at Beed, Maharashtra which had been adversely affected by drought situations.

In addition to above, your Company has actively involved into various activities which are broken into few critical segments. Some of these activities are briefed below:

1. Education & Skill Development:

Education, in particularly in English Medium in Mumbai region, have become very expensive and beyond the reach of a lot of Urban Poor families. Your Company contributes and participates into distributing Education Aid through Kutch Jain Mahajan. On an average over 2700 students from Jr. KG to XII Std. had been aided under this programme.

Your Company had contributed in Building Infrastructure for Nahur Welfare Association and Trust, which plans to start CBSE curriculum school named "Dhan-Vallabh English Medium School" at Mulund, Mumbai. The School would start with Nursery, Jr. KG & Sr. KG from 2015-16 and focuses on imparting education to Low income groups of the Urban Mumbai.

Your Company also actively supports Five Nomad Boys and Girls hostels accommodating over 300 pupils at Radhanpur in the State of Gujarat.

Your Company also works with Yusuf Meherally Center (YMC) in arranging and running alternative schools for children of Saltpan workers and Fishermen on coastal belt of Kutch. At brsent 21 such schools are being run whereby over 650 children are being educated.

Your Company had in past adopted the "Ratanpur Boarding School" managed by "Sushil Trust" and directly supports entire expenditure for approximately 240 students at this Boarding School, every year.

I n addition to this, your Company provides direct help to schools located nearby its operations/facilities by way of sponsoring text books/ note books, grant/aid for fees, etc.

To promote the technical educations, your Company gives donation to Institute of Chemical Technology to enable them to provide interest free bridge loan to Post Graduation students.

Your Company had also funded the local NGO for setting digital classroom in 25 rural primary schools run by Govt. near its Bhachau factory.

2. Health

Considering increased number of patients with kidney-related diseases, requiring expensive treatment of frequent dialysis, your Company had donated 10 Dialysis Machines to Ahmedabad based hospitals to offer treatment for the low income group at very nominal rates.

In addition to above, your Company continuously supports various Health Camps and Blood Donation camps around and beyond its manufacturing units. Your Company also sponsors Medical Conference for Doctors working in rural areas to help them understand the new advancement in the Medical fields.

3. Woman Empowerment

Your Company had initiated a unique programmed named "Sanskardhan" at Maninagar, Gujarat where women are provided training in Stitching and Beautician Courses. Such programs promotes the Spirit of Women Empowerment and endorses independence and sustainability among them.

Your Company had also started "Nursing School" where women from different areas and economically backward classes are trained to enable them procure employment opportunities into Metro Cities and even abroad. This year, your Company aims at undertaking the training for approx 250 women under this programme.

In an another initiative, your Company in association with Jan Seva Charitable Trust giving accommodation along with food supply to approximately 60 tribal women who had enrolled for higher education.

4. Environment

Your Company had set up "cattle feed depots" in around 27 villages within the drought affected district of Beed in Maharashtra. The project also involves the provision of water pumps for bore well along with 2 check dams on Riddhi and Siddhi rivers. Your Company is keen to expand the current phase of the project in association with the Government and the local NGO - Siddhivinayak Parivar.

Your Company had instituted the project of "Parjanya Ecology" to develop a check dam at Anjar Taluka, Kutch.

Reduction of Green spaces had been a global concern and is also a reason for various climatic and ecological changes. Your Company, in its efforts to promote and conserve green spaces, had developed a Garden at Vapi with dedicated Jogging and walking tracks, seating arrangements for elderly people, water fountain and such other amenities. Over 80 trees/plants had been planted at this Vapi Garden.

Your Company had further committed to build several toilets under the PM's 'Swachh Bharat Abhiyaan' across the remote areas of Gujarat over a span of two years.

5. Rehabilitation in Disaster Affected areas

Aarti industries which holds an expertise of working in collaboration with the government and local NGOs has carried out rehabilitation in almost all the disaster affected areas in Kutch, Tamil Nadu, Orissa, Jammu & Kashmir, Indonesia, Bihar, Uttarakhand and Maharashtra. In Jammu & Kashmir after the floods in 2014, Aarti rehabilitated approximately 50 families providing them with housing, kitchen kit, winter kit, health and checkup at Srinagar. Your Company continues its efforts to rehabilitate further families in these affected region.

6. Eradication of Hunger & Poverty

With an initiative to provide the basic amenities to the Urban Slum, under the Urban Slum Rehabilitation programme was adopted by Kutch Jain Foundation (KJF). Your Company had not only financially supported KJF but also have been actively involved in the day-to-day functioning of the foundation. The Foundation is engaged into building Community Township with livelihood opportunities and provide the needy Urban Slum families subsidized accommodation at these Township.

In addition to above, your Company participates into a spectrum of CSR activities evolving around the general upliftment of the economically backward class of people. Your Company also makes active contribution to Prime Minister Relief Funds, Chief Minister Relief Funds and such other Government Bodies to assist them in their relief measures in the affected areas.

Your Company also plans to contribute for any further activities which promotes the upliftment of the society and shall always remain committed to the moral objectives.

CSR annual Report is annexed as Annexure 'A' and forms an integral part of the Report.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED.

As on 31st March, 2015 the Company had 2039 permanent employees at its manufacturing plants and administrative office. The Company recognizes the importance of human value and ensures that proper encouragement both moral and financial is extended to employees to motivate them.

The Company enjoyed excellent relationship with workers and staff during the last year.

REMUNERATION AND NOMINATION POLICY

The Board of Directors has framed a policy which lays down a framework in relation to remuneration of Directors, Key Managerial Personnel and Senior Management of the Company. The policy also lays down criteria for selection and appointment of Board Members. The details of this policy are given in the Corporate Governance Report.

PERSONNEL

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in an annexure and forms part of this report. In terms of Section 136(1) of the Companies Act, 2013, the Report and the Accounts are being sent to the Members excluding the aforesaid Annexure. Any Member interested in obtaining a copy of the Annexure may write to the Company Secretary at the Registered Office of the Company.

MATERIAL CHANGES AND COMMITMENT IF ANY AFFECTING THE FINANCIAL POSITION OF THE COMPANY OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR TO WHICH THIS FINANCIAL STATEMENTS RELATE AND THE DATE OF THE REPORT

No material changes and commitments affecting the financial position of the Company occurred between the end of the financial year to which this financial statements relate on the date of this Report.

MEETINGS

The details of the number of meetings of the Board held during the Financial year 2014-15 forms part of the Corporate Governance Report.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has clearly laid down policies, guidelines and procedures that form part of internal control systems, which provide for automatic checks and balances. Your Company has maintained a proper and adequate system of internal controls. This ensures that all Assets are safeguarded and protected against loss from unauthorized use or disposition and that the transactions are authorised, recorded and reported diligently. Your Company's internal control systems commensurate with the nature and size of its business operations. Internal Financial Controls are evaluated and Internal Auditors' Reports are regularly reviewed by the Audit Committee of the Board.

DIRECTORS' RESPONSIBILITY STATEMENT

To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3) (c) of the Companies Act, 2013:

a. that in the brparation of the annual financial statements for the year ended 31st March, 2015, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

b. that the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

c. that the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the Assets of the Company and for brventing and detecting fraud and other irregularities;

d. that Directors' have brpared the annual accounts on a going concern basis;

e. the directors, had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively;

f. the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

RELATED PARTY TRANSACTIONS

All related party transactions that were entered into during the financial year were on arm's length basis and were in the ordinary course of the business. There are no materially significant related party transactions made by the Company with Promoters, Key Managerial Personnel or other designated persons which may have potential conflict with interest of the Company at large.

All related party Transactions are brsented to the Audit Committee. Omnibus approval is obtained for the transactions which are foreseen and repetitive in nature. A statement of all related party transactions is brsented before the Audit Committee on quarterly basis, specifying the nature, value and terms and conditions of transactions.

The related party transactions policy is uploaded on the Company's website at the web-link given below:

<http://www.aartigroup.com/pdfs/Related%20Party%20Transaction%20Policy%20Pdf.pdf>

The details of Related party transactions are provided in the accompanying financial statements.

Since all related party transactions entered into by the Company were in ordinary course of business and were on an arms length's basis, Form AOC - 2 is not applicable to Company.

STATEMENT ON DECLARATION GIVEN BY INDEPENDENT DIRECTORS UNDER SUB-SECTION (6) OF SECTION 149

All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

Your Company has complied with the mandatory Corporate Governance requirements stipulated under Clause 49 of the Listing Agreement. Report on Corporate Governance is annexed hereto forming part of this report.

ANNUAL RETURN

The details forming part of the extract of Annual Return in the Form MGT-9, as required under Section 92 of the Companies Act, 2013 is included in the Report as Annexure - 'B' and forms an integral part of the Report.

CONSOLIDATED FINANCIAL STATEMENT

Your Directors have pleasure in brsenting Consolidated Financial Statements which form part of the Annual Report and Accounts.

DEPOSITS

The Company has neither accepted nor renewed any deposits during the year under review. The Company does not have any deposits which are not in compliance with the requirements of Chapter V of the Companies Act, 2013.

SECRETARIAL AUDIT

The Board had appointed CS Sunil M. Dedhia of Sunil M. Dedhia & Co., Practising Company Secretary, to conduct Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report for the financial year ended 31st March, 2015 is annexed herewith marked as Annexure 'C' and forms an integral part to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements.

BOARD EVALUATION

Pursuant to the provisions of Clause 49 of the Listing Agreement , a structured questionnaire was brpared after taking into consideration, various aspects of the Board's functioning, composition of the Board and its Committees, culture, execution and performance of specific duties, obligations and governance.

The performance evaluation of the Independent Directors was completed. The performance evaluation of the Chairman and Non-Independent Directors was carried out by the Independent Directors. The Board of Directors exbrssed their satisfaction with the evaluation process.

SUBSIDIARIES AND ASSOCIATES

The Company has 6 (six) subsidiaries, namely, Aarti Corporate Services Limited, Alchemie (Europe) Limited, Anushakti Specialities LLP, Innovative Envirocare Jhagadia Limited, Shanti Intermediates Private Limited and Nascent Chemical Industries Limited and 6 (six) associates namely, Ganesh Polychem Limited, Anushakti Chemicals and Drugs Limited, Anushakti Holdings Limited, Aarti Intermediates Private Limited, Aarti Biotech Limited, Perfect Enviro Control System Limited.

During the year Board of Directors ('the Board') reviewed the affairs of the subsidiaries. In accordance with Section 129(3) of the Companies Act, 2013, we have brpared consolidated financial statements of the Company and all its subsidiaries, which form part of the Annual Report. Further a statement containing salient features of the financial statement of our Subsidiaries/Associates in the brscribed format AOC - 1 is included in the Report as Annexure 'D' and forms an integral part of this Report. The statement also provides the details of performance, financial position of each of the Subsidiaries/ Associates.

DIRECTORS

Shri Renil R. Gogri and Shri Shantilal T. Shah retire by rotation and, being eligible, offer themselves for re appointment. Your Directors recommend Shri Renil R. Gogri and Shri Shantilal T. Shah for re-appointment.

During the Year 2014-15, Independent Directors, namely, Shri Bhavesh R. Vora, Shri P. A. Sethi and Shri K. V. S. Shyam Sunder were re-appointed for a period of 5 (five) years with effect from 24th September, 2014 and Shri Ramdas M. Gandhi, Shri Vijay H. Patil and Shri Laxmichand K. Jain were re-appointed for a period of 3 (three) years with effect from 24th September, 2014.

The Board of Directors appointed Prof. Ganapati D. Yadav and Smt. Priti P. Savla, Additional Directors of the Company in the category of Independent Directors with effect from 25th September, 2014 and they hold office till the date of ensuing Annual General Meeting. Notice(s) have been received from member(s) along with requisite deposits proposing their candidature for appointment as such.

Shri Chetan B. Gandhi was appointed as Chief Financial Officer of the Company w.e.f. 30th May, 2014.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant material orders passed by the Regulators/Courts which would impact the going concern status of the Company and its future operations.

COMMENTS ON AUDITORS REPORT

There are no qualification, reservation or adverse remark or disclaimer made:

(i) by the auditor in his report; and

(ii) by the company secretary in practice in his secretarial audit report.

WHISTLE BLOWER POLICY

The Company has a whistle blower policy to report genuine concerns or grievances. The Whistle Blower policy has been posted on the website of the Company (www.aartigroup.com )

MATERIAL SUBSIDIARY

The Company does not have any material subsidiary whose net worth exceeds 20% of the consolidated net worth of the Company in the immediately brceding accounting year or has generated 20% of the consolidated income of the Company during the brvious financial year. Accordingly, a policy on material subsidiaries has not been formulated.

FAMILIARISATION PROGRAMME FOR INDEPENDENT DIRECTORS

The Company has a familiarisation Programme for Independent Directors with regard to their role, rights, responsibilities in the Company, Nature of the industry in which the Company operates, the Business models of the Company etc. and the same is available on the website of the Company (weblink - <http://www.aartigroup.com/pdfs/Family.pdf>.).

AUDITORS

In the 31st Annual General Meeting (AGM) of the Company held on 24th September, 2014, M/s. Gokhale & Sathe, Chartered Accountants (Firm Regn. No. 103264W) had been appointed as the Statutory Auditors of the Company for a period up to 3 (three) years to hold office from the conclusion of the 31st (AGM) until the conclusion of the 34th AGM of the Company. In terms of the provisions of the Companies Act, 2013, it is necessary to get the appointment ratified by the shareholders in every Annual General Meeting until the expiry of the period of original appointment.

In view of the above, the Board of Directors recommends your ratification of the appointment of M/s. Gokhale & Sathe, Chartered Accountants (Firm Regn. No. 103264W) as the Statutory Auditors as mentioned at Item No. 5 of the Notice.

COST AUDITORS

The Cost Auditor Ms. Ketki D. Visariya (Fellowship No. 16028), Cost Accountant, re-appointed by the Company under provisions of Section 148(5) read with Section 141 of the Companies Act, 2013 attend the Audit Committee Meeting, where cost audit reports are discussed.

The due date for filing the Cost Audit Reports in XBRL mode for the financial year ended 31st March, 2014 was 30th September, 2014 and the Cost Audit Reports were filed by the Cost Auditor on 26th September, 2014. The due date for filing the Cost Audit Reports for the financial year ended 31st March, 2015 is 30th September, 2015.

The Company is seeking the ratification from the Shareholders for the appointment of Ms. Ketki D. Visariya, Cost Auditor of the Company for the financial year ending 31st March, 2016 vide resolution no. 10 of the Notice of AGM.

NUMBER OF CASES FILED, IF ANY, AND THEIR DISPOSAL UNDER SECTION 22 OF THE SEXUAL HARASSMENT OF WOMEN AT WORK PLACE (brVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

Your Company has Zero tolerance towards any action on the part of any one which may fall under the ambit of 'Sexual Harassment' at workplace, and is fully committed to uphold and maintain the dignity of every women working with the Company. The Policy framed by the Company in this regard provides for protection against sexual harassment of women at workplace and for brvention and redressal of such complaints.

Particulars I NO. OF COMPLAINTS

Number of Complaints pending as on beginning of the financial year NIL

Number of Complaints filed during the financial year NIL

Number of Complaints pending as on the end of the financial year NIL

DETAILS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

(A) CONSERVATION OF ENERGY

(i) The steps taken or impact on conservation of energy;

- The Company had been operating various captive and co-generation Power plants. The Company expects a

significant savings in the consumption of natural resources/fuel by adoption of such process.

- Wherever possible, Variable Frequency Drives are installed to reduce the power consumption.

- Energy audit is conducted and recommendations are implemented.

- Low Pressure Steam Generation from Process areas to recover heat and use for Low Pressure Applications.

- Chilling Water Generation from Chlorine tonners for Chilling Applications.

ii) Additional Investments & Proposals, if any, being implemented for Reduction of Consumption of Energy:

- Implementation of Clean Development Mechanism Project, which will lead to higher recovery of Heat and thus, result in reduction of emission of green House gases.

- Upgradation of Batch Nitration units into Continuous Nitration units, shall help in overall optimization of utilities thereby resulting the reduction in energy consumption.

- The Company proposes to set up additional Captive Co-generation Power Plant at Jhagadia and Kutch Plants similar to the ones already operated at Vapi, thereby increasing thermal efficiency and reduced coal consumption per unit power as power produced without steam condensation.

- Upgradation of various processes, wherever feasible, considering optimisation of utilities, thereby resulting the reduction in energy consumption.

(iii) The capital investment on energy conservation equipments;

Your Company has invested about Rs. 24.7 Crores during Financial Year 2014-15 into energy conservation equipments.

(B) TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

(a) Efforts, in brief, made towards technology absorption, adaptation and innovation:

- Forward Integration for downstream products and expansion also with in-house technology.

- Continuous endeavour to improve product quality and process yields.

(b) Benefits derived as a result of above efforts:

- Lower project costs for expansion

- Value addition

- Exports of higher value-added products resulting in increased foreign exchange earning.

(c) Information regarding technology imported during the last 3 years: NIL

(C) TOTAL FOREIGN EXCHANGE EARNINGS AND OUTGO

The Foreign Exchange Earnings and outgo were Rs. 1,449 Crores and Rs. 435 Crores respectively (Previous Year: Rs. 1,281 Crores and Rs. 442 Crores respectively).

ACKNOWLEDGEMENT

The Board of Directors places on record its sincere apbrciation for the dedicated services rendered by the employees of the Company at all levels and the constructive co-operation extended by them. Your Directors would like to exbrss their grateful apbrciation for the assistance and support by all Government Authorities, Auditors, financial institutions, banks, suppliers, other business associates and last but not the least the Shareholders.

For and on behalf of the Board

Sd/- RAJENDRA V. GOGRI

CHAIRMAN & MANAGING DIRECTOR

Place : Mumbai

Dated : 13th May, 2015

CAUTIONARY STATEMENT

Statement in the Annual Report describing the Company's objectives, projections, expectations and estimates regarding future performance may be "Forward Looking Statements" and are based on currently available information. The Management believes these to be true to the best of its knowledge at the time of brparation of this Report. However, these statements are subject to certain future events and uncertainties, which could cause actual results to differ materially from those which may be indicated in such statements.