hindustan inks and resins limited - micro ink

Private and confidential

For Equity Shareholders of the Company only

HINDUSTAN INKS AND RESINS LIMITED[The Company was incorporated as “Hindustan Inks and Resins Limited” on November 13, 1991 at Vapi, Gujarat

under the Companies Act, 1956 and obtained the Certificate of Commencement of Business on January 13, 1992]Registered Office: Bilakhia House, Muktanand Marg, Chala, Vapi, Gujarat – 396 191.

The registered Office of the Company was changed from 2803/2, III Phase, GIDC, Vapi – 396 195 to Bilakhia House,Muktanand Marg, Chala, Vapi - 396 191, Gujarat, effective October 1, 2000.

Corporate Office : Bilakhia House, Muktanand Marg, Chala, Vapi – 396 191, Gujarat.Tel. : 91-260-2462 811/ 2460 284 Fax : 91-260-2463 733

E-mail: [email protected] Website: www.hindustaninks.com

LETTER OF OFFER

Issue of 8,197,200 Equity Shares of Rs. 10/- each for cash at a premium of Rs. 230/- per Equity Share onrights basis to the existing Equity Shareholders of the Company in the ratio of 3 Equity Shares for every5 equity shares held on Record Date aggregating Rs. 1967.33 million.

GENERAL RISKS

Investment in equity and equity related securities involve a degree of risk and investors should not invest anyfunds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised toread the Risk Factors on page (i) carefully before taking an investment decision in this Issue. For taking aninvestment decision, investors must rely on their own examination of the Company and the Issue including therisks involved. The Equity Shares have not been recommended or approved by Securities and Exchange Boardof India (“SEBI”) nor does SEBI guarantee the accuracy or adequacy of this Letter of Offer.

COMPANY’S ABSOLUTE RESPONSIBILITY

The Company, having made all reasonable inquiries, accepts responsibility for, and confirms that this Letter ofOffer contains all information with regard to the Company and the Issue, which is material in the context of theIssue, that the information contained in this Letter of Offer is true and correct in all material respects and is notmisleading in any material respect, that the opinions and intentions expressed herein are honestly held and thatthere are no other facts, the omission of which makes this Letter of Offer as a whole or any of such informationor the expression of any such opinions or intentions misleading in any material respect.

LISTING

The existing equity shares of the Company are listed on Vadodara Stock Exchange Limited (“VSE”), The StockExchange - Mumbai (“BSE”), National Stock Exchange of India Limited (“NSE”), The Delhi Stock ExchangeAssociation Limited (“DSE”) and The Stock Exchange – Ahmedabad (“ASE”). The Company has received in-principle approvals from VSE, BSE, NSE, DSE and ASE by letters dated July 5, 2003, July 18, 2003, July 17,2003, July 22, 2003 and July 15, 2003 respectively, for listing the securities arising from this Issue.

Lead Manager to the Issue Registrar to the Issue

Kotak Mahindra Capital Company Limited Intime Spectrum Registry LimitedBakhtawar, 3

rd floor C-13, Pannalal Silk Mills Compound

229, Nariman Point LBS Marg, BhandupMumbai – 400 021 Mumbai – 400 078Phone no.: 91-22-5634 1100 Phone no.: 91-22-5555 5454Fax no.: 91-22-2284 0492 Fax no.: 91-22-5555 5353Email: [email protected] Email: [email protected]

Issue opens on Last date for receiving requests for split forms Issue closes on

September 26, 2003 October 11, 2003 October 27, 2003

TABLE OF CONTENTS

RISK FACTORS ....................................................................................................................................................................................... I

GENERAL INFORMATION ..................................................................................................................................................................... 1

CAPITAL STRUCTURE ........................................................................................................................................................................... 11

TERMS OF THE ISSUE .......................................................................................................................................................................... 17

TAX BENEFITS ........................................................................................................................................................................................ 27

PARTICULARS OF THE ISSUE ............................................................................................................................................................. 29

FINANCIAL PERFORMANCE ................................................................................................................................................................. 33

COMPANY ................................................................................................................................................................................................ 72

MANAGEMENT ........................................................................................................................................................................................ 85

THE INK INDUSTRY ............................................................................................................................................................................... 89

BUSINESS OF THE COMPANY ............................................................................................................................................................. 93

MANAGEMENT DISCUSSION AND ANALYSIS ................................................................................................................................... 100

STOCK MARKET DATA .......................................................................................................................................................................... 107

BASIS FOR ISSUE PRICE ..................................................................................................................................................................... 108

UNAUDITED WORKING RESULTS FOR THE LATEST PERIOD ..................................................................................................... 109

PROMISE VERSUS PERFORMANCE IN THE LAST ISSUE ............................................................................................................. 110

OUTSTANDING LITIGATIONS ............................................................................................................................................................... 111

MECHANISM FOR REDRESSAL OF INVESTOR GRIEVANCES ..................................................................................................... 115

MATERIAL DEVELOPMENTS ................................................................................................................................................................. 115

EXPERT OPINION ................................................................................................................................................................................... 115

OPTION TO SUBSCRIBE ....................................................................................................................................................................... 115

MATERIAL CONTRACTS AND INSPECTION OF DOCUMENTS ..................................................................................................... 115

DECLARATION ........................................................................................................................................................................................ 117

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GLOSSARY OF TERMS / ABBREVIATIONSAct The Companies Act, 1956 and amendments theretoAGM Annual General MeetingAir Act The Air Prevention and Control of Pollution Act, 1981Articles Articles of Association of the CompanyASE The Stock Exchange, AhmedabadAY Assessment YearBIFR Board for Industrial and Financial ReconstructionBn BillionBoard Board of Directors of the CompanyBSE The Stock Exchange, MumbaiCAF Composite Application FormCDSL Central Depository Services (India) LimitedCIF Cost Insurance and FreightCommittee of Directors Committee of the Board of Directors of the Company authorized to take decisions on

matters related to/ incidental to this IssueD&NH Union Territory of Dadra and Nagar HaveliDaman Unit The Company’s manufacturing facilities located at Survey No. 137/1, Jani Vankad, Daman (UT).Depositories NSDL and CDSLDP Depository ParticipantDSE The Delhi Stock Exchange Association LimitedEEFC Exchange Earners Foreign Currency account of an Indian party maintained with an

authorized dealer in accordance with Regulation 4 of the Foreign Exchange Management(Foreign Currency Accounts) Regulations, 2000

EGM Extra-ordinary General MeetingEquity Shareholders Equity shareholders whose names appear as beneficial owners as per the list to be

furnished by the depositories in respect of the shares held in the electronic form and onthe Register of Members of the Company in respect of the shares held in physical format the close of business hours on the Record Date i.e. September 12, 2003 and to whomthis Issue is being made.

Equity Shares 8,197,200 equity shares of Rs. 10/- each offered through this Letter of OfferFEMA Foreign Exchange Management Act, 2000 read with rules and regulations thereunder and

amendments theretoFII(s) Foreign Institutional Investor(s) registered with SEBI under applicable lawsFIPB Foreign Investment Promotion BoardFY Financial year ending March 31GDP Gross Domestic ProductGEB Gujarat Electricity BoardGoI Government of IndiaHIRL, Company Hindustan Inks and Resins LimitedIssue Closing Date Date on which the Issue closesIssue Opening Date Date on which the Issue opensIssue/ Rights Issue Issue of 8,197,200 Equity Shares of Rs. 10/- each for cash at a premium of Rs. 230/- per

equity share on rights basis to the existing Equity Shareholders of the Company in theratio of 3 Equity Shares for every 5 equity shares held on Record Date aggregating Rs.1967.33 million.

Issue Size Rs. 1967.33 million, based on Issue price of Rs. 240 per shareIT Act The Income Tax Act, 1961 and amendments theretoKtpa Kilo (thousand) tons per annumLead Manager Kotak Mahindra Capital Company LimitedLetter of Offer/ LOF This Letter of Offer circulated to the Equity Shareholders of the CompanyMemorandum Memorandum of Association of the Company

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MIC or MIC USA Micro Inks Corporation, USAMIC GmbH Micro Inks GmbH, AustriaMn MillionMT Metric TonNBFC Non-Banking Financial CompanyNR Non-ResidentNRI(s) Non-Resident Indian(s)NSDL National Securities Depository LimitedNSE National Stock Exchange of India LimitedOCB(s) Overseas Corporate Body(ies)RBI The Reserve Bank of IndiaRecord Date September 12, 2003Registrar to the Issue Intime Spectrum Registry LimitedRights Entitlement The number of Equity Shares that an Equity Shareholder is entitled to under this Letter

of Offer in proportion to his/ her/ its existing shareholding in the Company as on theRecord Date

SEBI Securities and Exchange Board of IndiaSEBI Guidelines SEBI (Disclosure & Investor Protection) Guidelines, 2000 and amendments theretoSecurity Certificates Equity Share CertificatesSilvassa Unit The Company’s manufacturing facilities located at Survey No. 11, Village Morkhal, Silvassa

(UT of Dadra and Nagar Haveli)Tpa Tons per annumVapi I Unit The Company’s manufacturing facilities located at Plot No. 2803/2, III Phase, GIDC, Vapi–

396 195, Gujarat.Vapi II Unit The Company’s manufacturing facilities located at Plot No. 808/E, II Phase, GIDC, Vapi

– 396 195, Gujarat.Vapi III Unit The Company’s manufacturing facilities (100% EOU) located at Plot No. 808/E/P, 305/6,

305/7, II Phase, GIDC, Vapi – 396 195, Gujarat.VSE Vadodara Stock Exchange LimitedWater Act The Water Prevention and Control of Pollution Act, 1981WOS Wholly owned subsidiary

In this Letter of Offer, all references to “Rs.” refers to Rupees, the lawful currency of India, “USD” or “US$” refersto the United States Dollar, the lawful currency of the United States of America and “EURO” refers to the Euro, thelawful currency of European Union. References to the singular also refer to the plural and one gender also refers toany other gender wherever applicable.

Unless otherwise specified, exchange rates used in this Letter of Offer (for the purpose of converting amountsmentioned in USD or Euro to Rs.) are as follows:

1 USD = Rs. 1 Euro = Rs.

December 31, 1998 42.50 49.61March 31, 1999 42.44 45.57December 31, 1999 43.52 43.73January 7, 2000 43.51 44.91March 31, 2000 43.63 41.95August 18, 2000 45.95 42.16December 31, 2000 46.69 43.99March 31, 2001 46.66 41.02October 11, 2001 48.16 43.87December 31, 2001 48.34 42.83March 31, 2002 48.89 42.54December 31, 2002 48.04 50.36March 31, 2003 47.65 51.46August 13, 2003 45.96 51.88

Source: www.oanda.com

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RISK FACTORS

The investors should consider the following risk factors together with all other information included in this Letter ofOffer carefully, in evaluating the Company and its business before making any investment decision. Any projections,forecasts and estimates contained herein are forward looking statements that involve risks and uncertainties. Suchstatements use forward looking terminology like “may”, “believes”, “will”, “expect”, “anticipate”, “estimate”, “plan” orother similar words. The Company’s actual results could differ from those anticipated in these forward lookingstatements as a result of certain factors including those, which are set forth in the “Risk Factors” below.

The Letter of Offer also includes statistical data regarding the ink industry. This data has been obtained from industrypublications, reports and other sources that the Company and the Lead Manager believe to be reliable. Neither theCompany nor the Lead Manager have independently verified such data.

Note: Unless specified or quantified in the relevant risk factors below, the Company is not in aposition to ascertain the financial and other implications of any the other risks mentioned below.

INTERNAL RISK FACTORS

1. Criminal case against the Company

A criminal case no. 1210/03 has been filed by Gujarat Factory Inspector, Valsad, Gujarat against theCompany in respect of death of a contract labour worker due to accident caused by fire. While the caseis before the Chief Judicial Magistrate, Valsad, Gujarat, summon has been issued and the date of nexthearing has been fixed as October 8, 2003. The maximum financial penalty under this case is fine uptoRs. 200,000.

1. Penalty imposed by SEBI in the past

A penalty of Rs 5 lakh was imposed by SEBI for non-compliance of Regulation 3(1) (c) (ii) of the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 in relation to insufficient disclosuresmade in the notice of Extraordinary General Meeting dated November 6, 1999 for a preferential allotmentto promoters in November 1999. Vide their letters dated March 27, 2000 and April 13, 2000 the Companysubmitted that they agreed with the view of SEBI that there were procedural errors in their EGM noticecirculated and that the same was not in conformity with the regulatory requirements. SEBI noted thatthe non-compliance with the statutory requirement was unintentional, without any malafide and donewithout an intent to obtain any benefit or deny any benefit to the shareholders. For further details, referto the Notes to the Capital Structure on page 15 of the Letter of Offer.

2. Potential fluctuations in future operating results

Although the Company’s financial performance has demonstrated significant growth in revenues over the pastdecade (Rs. 86 mn in FY1993 to Rs. 5845 mn in FY2003, CAGR: 52.5%), these results may fluctuate in future,depending on a number of factors including inter-alia, the international price of inks, fluctuation of the rupeevis-à-vis major international currencies, import tariffs and other regulations in India as well as within countrieswhere the Company exports or proposes to export its products, domestic duties and taxes, greenfield ink projectsbeing set up in India, country and customer specific considerations in markets where the Company exports itsproducts, changes in printing technologies, changes in preferences of customers of ink and paper, changes inrelationship between revenues and costs, consolidation in the ink industry, changes in government policies,increases in prices of key raw materials or in technology and other general economic and business factors.Due to any or all of these factors, it is possible that in future, the Company’s operating and financial performancemay vary from the expectations of shareholders, market analysts and public.

3. Management of growth

As a part of its growth strategy, the Company has made substantial investments in (a) new production capacitiesin India for manufacture of inks, resins and pigments and (b) creating production and marketing infrastructurein the USA. At present, the Company’s growth plan also involves plans to enhance its existing control on inputs,further investment in marketing and distribution to increase penetration levels in the domestic market andacquisition of more customers in the overseas markets, all of which may require substantial management timeand financial resources. The success of the ongoing growth strategy of the Company is therefore critically

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dependent on the Company’s ability to optimally manage its resources. The Company can provide no assurancethat it will be in a position to manage its resources in a manner which will maximize returns to its shareholders.

4. Downgrades in credit rating in the last 3 years

The Company’s credit rating has been downgraded by CARE from AA+ in November 2001 to A+ in November2002 (a reduction by two notches in credit rating). “Instruments with a CARE ‘A’ rating are considered uppermedium grade instruments and have many favourable investment attributes. Safety for principal and interestare considered adequate. Assumptions that do not materialize may have a greater impact as compared toinstruments rated higher. As instruments characteristics or debt management capability could cover a widerange of possible attributes whereas rating is expressed only in limited number of symbols, CARE assigns ‘+’or ‘-‘ signs to be shown after the assigned rating (wherever necessary) to indicate the relative position withinthe band covered by the rating symbol.” (Source: Explanatory notes regarding Rating symbols of CARE, CAREletter dated November 28, 2002). The cost of borrowing of the Company is dependent on the credit rating awardedto the various debt instruments of the Company. Any adverse movement in the rating of the Company mayadversely affect further availability of debt and cost of such debt. Any failure to secure additional debt oncommercially acceptable terms may lead cash flow shortfalls and therefore reduce its ability to meet futurecapital expenditure and debt servicing obligations, especially during lean business periods.

Please refer to “General Information” on page 1 of this Letter of Offer for the details of credit ratings receivedby the Company in the last three years.

5. Dependence on external suppliers

The Company aided with its integrated operations produced a substantial component of its resin and pigmentrequirements in FY2002 and FY2003. The Company sources some of its other raw material requirements froma large number of suppliers, local and overseas. In FY2003, the dependence of the Company on external suppliersfor its key raw materials i.e. pigments and resins was as follows:

(in MT)

Particulars Pigments Resins

In-house production 4,346 11,130

Supply from outside source 4,949 3,458

Total 9,295 14,588

The quality of the Company’s products and acceptance of its products by its customers depends on the qualityof raw materials and failure of external suppliers to adhere to delivery schedules or specified quality standardsor any technical specifications can hamper the production schedule and /or the sales program of the Company.The nature of the Company’s business will entail continued dependence on such external suppliers. The Companycannot provide any assurances with regard to availability of raw materials of desired quality and specificationsat reasonable prices.

6. Dependence on distributors and customers

The Company currently has a customer base of about 5000, which includes 463 distributors. Sales throughdistributors accounted for nearly 24% of its total domestic sales in FY2003. The single largest customeraccounted for almost 1.92% of the domestic sales of the Company in FY2003 against 1.62% in the previousyear. The contribution to sales of the top customers of the Company in the domestic market is as follows:

% share of sales value in the domestic market

FY2003 FY2002

Top 10 customers 11.20% 13.38%



Source : Company Annual Reports

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In the US market, in FY2003 83% of MIC’s revenue was to top 10 customers, with the single largest customer(R.R. Donnelley & Sons) accounting for 31% of MIC’s revenue. In the non-US export market, in FY2003 57%of the Company’s non-US export revenue was to top 10 customers, with the single largest customer (ImperialInk Pte Ltd, Singapore) accounting for 8% of the Company’s non-US export revenue.

Accordingly, the Company is dependent on a few customers for a large part of sales. The Company can provideno assurance that it would continue to realize significant revenues from its existing customers in India and/oroverseas in future.

7. Risk of attrition of key personnel and ability to attract and retain talented professionals

The Company believes that its success depends on its continued ability to retain and attract skilled andexperienced executive personnel. While the Company has retained its key management personnel in the past,should it fail to retain them in future, it may find it difficult to find suitable replacements with similar knowledgeand experience. The Company is dependent on its ability to identify, hire, train, manage and retain skilled technicaland management personnel and it may face a risk in realizing its business objectives in the event of attritionof key managerial personnel.

8. Losses in MIC and MIC GmbH

Both the subsidiaries of the Company have made losses since inception as follows:

Name of subsidiary Unit FY2003 FY2002 FY2001 FY2000

MIC GmbH* ‘000 Euro 21.33 328.78 156.44 151.99

MIC GmbH* Rs. mn 1 17 7 7

MIC** US$ mn 12.97 18.10 4.64 4.74

MIC** Rs. mn 618 885 217 221

* Periods ending March 31, 2003, December 31, 2002, December 31, 2001 and December 31, 2000 havebeen considered

** Periods ending March 31, 2003, March 31, 2002, March 31, 2001 and December 31, 2000 have beenconsidered

MIC incurred a net loss of US$ 12,972,404 (Rs. 618.02 mn) for the financial year ended March 31, 2003. TheEPS (loss per share) and RONW of MIC is mentioned below:

As on March 31, 2003

EPS US$ -5,690 (Rs. - 271,129)

RONW -737%

For details, please see “Management Discussion and Analysis” on page 100 of this Letter of Offer. MIC andMIC GmbH may incur further losses in future as a result of a variety of factors, some or all of which may bebeyond the control of MIC, MIC GmbH and / or the Company. Accordingly, there can be no assurance that MICand MIC GmbH will achieve profitable operations, generate positive cash flow, or meet debt service obligations,and / or achieve any of the business objectives for which they were set up.

As on March 31, 2003, the Company had invested a total equity of Rs. 2045.2 mn in MIC GmbH, has providedloans of Rs. 150.2 mn to MIC and has also invested Rs. 804.3 mn in preference shares issued by MIC. TheCompany’s investments by way of loans and / or equity in its subsidiaries could increase in future, dependingon the subsidiaries’ requirements. Therefore, in future, any adverse performance of the subsidiaries could havea material adverse effect on the Company’s business, operating results and financial condition. At this point intime, it is difficult to estimate any or all of risks that these subsidiaries may face and the specific strategiesthat these subsidiaries and the Company may employ to mitigate these risks and the implication, financial orotherwise, for the subsidiaries and / or the Company as a result of these risks. As a result of this, the Companyis not in a position to ascertain the financial and other implications of this particular risk factor.

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9. Reduction in net profit of the Company on a standalone basis

On a standalone basis, the Company’s net profit has decreased from Rs. 483.24 mn in FY2002 to Rs. 440.75mn in FY2003. While sales grew from Rs 5218 mn in FY2002 to Rs 5845 mn in FY2003 representing an increaseof about 12% primarily on account of higher ink exports, raw materials and manufacturing costs increased by21% from Rs 3300 mn in FY2002 to Rs 3995 mn in FY2003. Further details on the reduction in net profit areavailable in “Management Discussion and Analysis” on page 100 of the Letter of Offer.

This reduction in net profit is inspite of an increase in other income from Rs. 100.57 mn in FY2002 to Rs.229.34 mn in FY2003. Increase in other income is primarily on account of an increase in profit on forwardforeign exchange contracts from Rs. 11.62 mn in FY2002 to Rs. 145.20 mn in FY2003, as depicted below:

(Rs. million)

Description Year Year Year Year Yearended ended ended ended ended

March 31, March 31, March 31, March 31, March 31,1999 2000 2001 2002 2003

Recurring in nature :Interest ReceivedOn loan to Subsidiary - - 8.18 - -On Investments 0.01 0.01 0.01 - -Others 1.04 1.39 1.27 30.26 13.18Sale of Scrap Material 2.86 4.39 10.26 14.38 11.25Dividend from Trade Investments - - 4.37 1.45 -Rent Received 0.03 0.09 - 0.13 0.13Exchange Rate Fluctuation - - 13.38 35.14 24.24Profit on Forward Foreign

Exchange Contracts - - - 11.62 145.20Miscellaneous Income 0.14 2.44 5.13 4.84 13.35

Sub Total (A) 4.08 8.32 42.60 97.82 207.35

Non Recurring in nature :Insurance Claim 0.58 - - 2.75 21.99

Sub Total (B) 0.58 - - 2.75 21.99

Grand Total (A+B) 4.66 8.32 42.60 100.57 229.34

If other income (which is not a part of the Company’s main line of business) in FY2003 were at similar levelsas in FY2002 (Rs. 100.57 mn), the net profit of the Company on a standalone basis would have been lesserthan Rs. 440.75 mn.

10. Losses in the Company on a consolidated basis

On a consolidated basis, the Company has made a net loss after extraordinary items of Rs. 187.25 mn inFY2003 vis-à-vis Rs. 443.14 mn in FY2002. The net profit / (loss) of the Company, MIC, and MIC GmbH overthe past 2 years is as follows:

Name of company Unit FY2003 FY2002

Hindustan Inks and Resins Limited (standalone) Rs. mn 441 483MIC GmbH* Euro mn (0.02) (0.33)MIC GmbH* Rs. mn (1) (17)MIC US $ mn (12.97) (18.10)MIC Rs. mn (618) (885)Hindustan Inks and Resins Limited (consolidated) Rs. mn (187) (443)

* Financial performance for MIC GmbH in FY2003 is for the 3 month period ended March 31, 2003 and forFY2002 is for the 12-month period ended December 31, 2002

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The losses incurred by the Company on a consolidated basis are due to setting up and expansion of operationsin MIC, USA. As stated above, MIC and MIC GmbH may incur further losses in future as a result of a varietyof factors, some or all of which may be beyond the control of MIC, MIC GmbH and/ or the Company. Accordingly,since there can be no assurance that MIC and MIC GmbH will achieve profitable operations, the Companymay continue to incur losses on a consolidated basis in future.

11. Negative cash flow in the Company

As detailed in page 71 of the Letter of Offer, the Company has posted a decrease in cash and cash equivalentsof Rs. 219.59 mn during FY2003, after considering cash flow from operating activities, investing activities andfinancing activities.

12. Risks of increase in input costs

The Company may not be able to pass on increase in the raw material and other direct costs, if any, to itscustomers. MIC has a diversified income stream comprising recurring income from 8 customers under long-term supply contracts and income from about 80 small and medium customers who source materials from MICon a non-contractual basis. Over a period of time, the Company expects that several more of MIC’s customerswould enter into long-term supply agreements with MIC. These long-term contracts reduce MIC’s flexibility inchanging its product prices in response to changes in raw material costs. Also, in the past, as a result ofincrease in input costs, the Company’s profit margins have varied and the Company can provide no assurancesthat (a) in future, input costs will not increase (b) it will be in a position to pass through increases, if any, to itscustomers and (c) present profit margins of the Company or of its subsidiaries will be sustained, will improveor will not be adversely affected.

13. Long working capital cycle

Due to the prevailing practices in the ink business in USA, MIC needs to stock sufficient inventory at its locationsas well as at its customer sites. In addition, lengthy shipment periods of finished goods from the Company’smanufacturing locations in India to MIC results in significant transit inventory as well as results in requirementof significant inventory at MIC. The number of days of net working capital requirement for the Company was195 days sales in FY2003, 182 days sales in FY2002 and 137 days sales in FY2001. As on March 31, 2003,on a consolidated basis, total debt amounted to Rs 4990 mn, against Rs. 5066 mn in the previous year. Asignificant portion of the debt has been raised, both in the Company and in MIC, to fund its net working capitalrequirements. The breakup of debt in the Company, Micro Inks Corporation, USA (MIC, USA) and Micro InksGmbH (MIC GmbH) as on March 31, 2002 and March 31, 2003 is as follows:

Name of the Company Currency March 31, 2003 March 31, 2002

Hindustan Inks and Resins Limited Rs mn 3722.48 3803.75

MIC USA US $ mn 26.67 26.00

MIC USA Rs mn 1268.00 1262.56

MIC GmbH Rs mn NIL NIL

Total Rs mn 4990.48 5066.31

In future, the Company may raise further debt for financing its working capital requirements, if required. TheCompany can provide no assurances that it will be able to contain and efficiently manage its working capitalrequirements and raise additional debt when required, or that the commercial and other terms associated withsuch additional debt, if any, will not be materially adverse vis-a-vis prevailing terms and conditions. Terms ofsuch additional debt and financial implications, if any, for the Company, would depend upon, inter alia, on thebusiness performance and financial health of the subsidiaries and of the Company, other credit related criteriathat lenders may employ, interest rate regime, etc. At this stage, the Company is not in a position to ascertainthe financial and other implications of this particular risk factor.

14. Limited share trading volume

The average share trading volume on BSE and NSE for the past 1 year is as given below. The average tradingvolume in the last 1 year is only 2.74% of the listed equity shares.

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No Month and Year Aggregate share trading volume (shares)

1 August 2003 352,4672 July 2003 684,8023 June 2003 398,7264 May 2003 226,7955 April 2003 82,4406 March 2003 206,8017 February 2003 167,3188 January 2003 746,8899 December 2002 868,18910 November 2002 619,18311 October 2002 97,90612 September 2002 37,603

Average 374,093

Number of equity shares listed 13,662,000

The promoters have confirmed that they intend to subscribe to the full extent of their entitlement in the Issue.In addition to their entitlement, the promoters intend to apply for additional shares in the Issue, subject toapplicable law(s), such that at least 90% of the Issue Size is subscribed. As a result of this subscription andconsequent acquisition of shares over and above their entitlement, if any, promoters’ shareholding in the Companymay be above their current shareholding.

Each of the promoters have confirmed that in case the Rights Issue of the Company is completed with thepromoters subscribing to equity shares over and above their entitlement and as a result, if the public shareholdingin the Company after the Rights Issue falls below the “permissible minimum level”, they will either individuallyor jointly with other promoters agree to buy out the remaining holders at the price of the Issue and shall delistthe Company as required in sub-clause 17.1 and 17.2 of SEBI (Delisting of Securities) Guidelines, 2003, andshall complete all formalities in this regard within a period of 3 months from the date of allotment in the proposedIssue, as required under the SEBI (Delisting of Securities) Guidelines, 2003 or as per any amendment theretoor any other period as may be directed by SEBI or any appropriate authority.

Under certain circumstances, after the Issue, in per cent terms, the promoters’ shareholding in the Companycould be above present levels, which in turn, would lead to a reduction in non-promoter shareholding in theCompany.

The Company cannot provide any assurance that as a result of the Issue, liquidity and/or trading volumeswould increase. Shareholders of the Company who desire to sell a portion of or their full holding may beconstrained by the relatively low liquidity and trading volumes in the Company’s shares.

15. Shortfall in performance vis-à-vis promise made in the last public issue made by the Company

In November 1992, the Company made a public issue of equity shares, where the Company had projectedfinancial and operating performance for FY1994 to FY1996. Against these projections, the Company achievedthe following performance :

Parameter Unit FY1994 FY1995 FY1996Projec- Actual Projec- Actual Projec- Actual

tion tion tionInstalled capacitiesPrinting inks MT 4,950 4,950 4,950 5,400 4,950 6,400Resins MT 1,050 400 1,050 800 1,050 1,600Capacity utilizationPrinting Inks % 35% 36% 47% 54% 58% 65%Resins % 35% 58% 47% 61% 58% 39%

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ProductionPrinting Inks MT 1,760 1,766 2,310 2,905 2,860 4,131Resins MT 373 233 490 485 607 616Turnover Rs. mn 160 181 210 381 260 595Material cost Rs. mn 113 140 148 262 183 409Operating Profits (EBITDA) Rs. mn 22 38 33 106 44 158Net Profits after Tax Rs. mn 17 20 25 75 34 101EPS Rs. / share 4.23 5.06 6.41 19.03 8.56 25.80Book value Rs. / share 10.95 14.41 13.60 36.82 17.25 72.92

The parameter on which the Company did not meet the projections is given below:

Parameter Unit FY1994 FY1995 FY1996

Projec- Actual Projec- Actual Projec- Actualtion tion tion

Installed capacities

Resins MT 1050 400 1050 800 1050 1600

In the prospectus of the aforesaid public issue, the Company had stated that after completion of the project,the ink capacity would be 4950 MT and resin capacity would be 1050 MT. However, due to changes in marketfor resins and inks, a change in product mix of resins was carried out in FY1994, which resulted in a reductionof resin capacity.

16. Land

An area aggregating 7500 sq. m. at Daman has not been registered in the name of the Company, due to non-receipt of “NA” permission. An area aggregating 750 sq. m. at Vapi has not been registered in the name of theCompany due to non-execution of lease agreement with Gujarat Industrial Development Corporation. The aforesaidarea aggregating 7500 sq. m. at Daman and 750 sq. m. at Vapi does not have a clear title. No proceedingshave been initiated by any regulatory and government authorities or any other party against the Company inthis regard.

17. Loss making ventures of promoters

Companies belonging to the promoter group have made the following losses over the past 4 years:

Name of promoter group company* Unit FY2003 FY2002 FY2001 FY2000

Bilakhia Holdings Pvt. Ltd. Rs mn - - 3.43 -AGB Holdings Pvt. Ltd. Rs mn - - 39.19 -YGB Holdings Pvt. Ltd. Rs mn - 6.61 8.42 -Bilakhia Properties Pvt. Ltd. Rs mn 10.18 12.52 3.62 -Bilakhia Research Pvt. Ltd. Rs 6,750 7,300 - @Mitsu International Limited US$ ‘000s NA 6.65 305.25 -Mitsu International Limited Rs. ‘000s NA 325 14243 -

* While Bilakhia Holdings Pvt. Ltd. is the promoter of the Company, AGB Holdings Pvt. Ltd., YGB Holdings Pvt.Ltd., Bilakhia Properties Pvt. Ltd., Bilakhia Research Pvt. Ltd. and Mitsu International Limited belong to thepromoter group. For further details on these companies, refer to “Company” on page 72 of this Letter of Offer

@ Audited accounts are not available for the period as the company was not incorporated at that time

18. Non achievement of repatriable entitlements and non equity exports stipulated by RBI

RBI vide its Approval No.AHWRB20000010 dated January 7, 2000 gave its approval for setting up a WhollyOwned Subsidiary (“WOS”) in Austria with a manufacturing unit in USA for the manufacture of printing ink productsinvolving total equity investment of US$ 2,280,000 (Rs. 99.20 mn, January 7, 2000) and a term loan of US$3,360,000 (Rs. 146.19 mn, January 7, 2000) subject to the terms and conditions specified in the said letter.

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On an application made by the Company on July 21, 2000, RBI, vide its letter No. EC.CO.OID 623/19.08.82/2000-01, dated August 18, 2000, modified the aforesaid approval and permitted equity investment of US$3,000,000 (Rs. 137.85 mn, August 18, 2000) and loan of US $ 2,640,000 (Rs. 121.31 mn, August 18, 2000).

Subsequently on application of the Company on July 26, 2001, RBI, vide letter No. EC.CO.OID 1846/19.08.82/2001-02 dated October 11, 2001, granted approval for additional equity investment into MIC GmbH of US$30.86million (Rs. 1486.22 mn, October 11, 2001) and conversion of term loan of US$ 2.64 million (Rs. 127.14 mn,October 11, 2001) into equity of MIC GmbH. RBI also granted approval for extension of corporate guarantee ofUS $ 20 million (Rs. 963.2 mn, October 11, 2001), valid for a period of 1 year, for securing the loans to beavailed by the overseas concern (MIC).

(A) Repatriable entitlements and non equity exports

The approval granted vide letter of October 11, 2001 by RBI provides for repatriable entitlements from MICGmbH and non-equity exports to MIC, USA as provided below. Re-patriable entitlements (dividend from MICGmbH) and non-equity exports (from the Company to MIC USA), as provided in the approval granted by RBIto the Company on October 11, 2001 are interpreted by the Company as minimum permissible levels.

Repatriable entitlements:

Years of operations Unit 1 2 3 4 5 Total

Dividend from MIC GmbH US$ mn Nil Nil 3.6 4.8 7.2 15.6

Dividend from MIC GmbH Rs. mn Nil Nil 173.4 231.2 346.8 751.3

Note : The amount of dividend from MIC GmbH in rupees is taken at a constant exchange rate of Rs. 48.16/1 US$ (exchange rate as on October 11, 2001)

Non-equity exports from the Company to MIC:

(Rs. million)

Year of operation 2002 2003 2004 2005 2006 Total

FOB Value to MIC 3294.8 6376.7 9615.9 13324.5 17485.6 50097.5

Out of approval of US$30.86 million (Rs. 1486.22 mn, as above) in equity of MIC GmbH, the Company hasmade an investment of US $25.45 million (Rs. 1225.7 mn, October 11, 2001) so far. The Company has convertedterm loan of US $ 2.64 million (Rs. 127.14 mn, October 11, 2001) into equity and has granted guarantee of US$ 10 mn (Rs. 481.6 mn, October 11, 2001) for the loans availed by MIC.

Under the Regulation 6 (2) (i) of the FEMA (Transfer or Issue of any Foreign Security) Regulations, 2000, asamended upto date, the Company is entitled to invest in WOS under automatic route, upto 100% of its networth, subject to a maximum of US$ 100 million (Rs. 4,596 mn, August 13, 2003). Considering the net worthof the Company of Rs. 4496.28 mn as on March 31, 2003, the Company had an investment limit into its WOSof US $ 94.20 million (at US $1=Rs 47.73). In order to aggregate US$ 100 mn (Rs. 4,596 mn, August 13,2003), an amount of US $ 5.80 million (Rs. 266.6 mn) can be invested through the Exchange Earners ForeignCurrency (EEFC) route [wherein the foreign currency earnings are deposited in a separate account], videRegulation 6 (3) (i) of the aforesaid regulation. Out of US$ 100 mn (Rs. 4,596 mn, August 13, 2003) availableto the Company for investing in its WOS under the automatic route by means of debt and/or equity, the Companyhas utilized US$36.50 million (Rs. 1677.5 mn, August 13, 2003) and can invest a further amount of US $63.50million (Rs. 2918.46 mn, August 13, 2003).

RBI vide its letter No. EC.CO.OID 140/19.08.82/02-03 dated July 9, 2002 has indicated that investments madein WOS abroad under Regulation 6 of the Foreign Exchange Management (Transfer or Issue of any ForeignSecurity) Regulations, 2000 i.e. under direct investment route are independent of the investments made earlierunder the specific approval of RBI. Subsequent to the said letter of RBI dated July 9, 2002, the Company hasmade further investment in WOS under direct investment route.

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(B) Actual performance achieved on repatriable entitlements and non-equity exports

The Company made export sales (including to MIC) and has received dividend from its WOS as follows:

(Rs million)

Year FY2001 FY2002 FY2003 Total

Export to step Subsidiary (MIC) (FOB Value) 790.60 2044.50 2051.60 4886.70

Export to others (FOB Value) 65.10 176.90 649.30 891.30

Total exports (FOB value) 855.70 2221.40 2700.90 5778.00

Dividend received from MIC GmbH - - - -

The approvals granted by RBI vide its Approval No.AHWRB20000010 dated January 7, 2000 (and also in otherapprovals stated above) inter alia provide that in the event of any terms and conditions stipulated not beingsatisfied or if it’s in a public interest to do so, the permission granted by RBI would be liable to be revoked andwould be without prejudice to any further action that may be taken under FERA or any other law / policy inforce, including requiring the Company to disinvest its shareholdings and to repatriate all proceeds and otherentitlements to India within a stipulated period.

While the Company has filed the requisite reports with RBI, informing RBI of the actual exports achieved by itfrom time to time, till date, no inquiry or notice of any nature, has been received by the Company from RBI.The Company has filed Annual Performance Reports with RBI from time to time including for the year endedMarch 2003 (dated June 27, 2003), which specify the position of non-equity exports. Although the Company’sactual performance on re-patriable entitlements [stated in (B) above] is less than the amounts mentioned in (A)above, RBI has not sought any clarification on the matter till date.

The Company can provide no assuance that, if the Company’s performance continues to be lower than thoseprovided in the RBI approvals for any of the periods mentioned in the tables in (A) and (B) above, any of thefollowing would not occur:

● RBI may conduct an inquiry, issue a notice to the Company or seek clarifications from the Company on itsactual performance on re-patriable entitlements and non-equity exports.

● Various permissions granted by RBI (as stated above) would be liable to be revoked and would be withoutprejudice to any further action that may be taken under FERA or any other law / policy in force, includingrequiring the Company to disinvest its shareholdings and to repatriate all proceeds and other entitlementsto India within a stipulated period.

19. Approvals applied for but have not yet been received

The following approval has been applied for but has not yet been received by the Company:

· Vapi-I: The Company has made an application to Gujarat Pollution Control Board on May 22, 2003 requestingrenewal of the consent order granted to the Company under Section 21 of the Air Act.

20. Contingent liabilities of the Company

As on March 31, 2003, the Company had the following contingent liabilities:

(Rs. million)

i) Counter Guarantees given to banks 68.69ii) Guarantee given to a bank on behalf of subsidiary company 1,129.61iii) Loan given by bank to subsidiary company on the security of

certain assets of the Company (USD 3 million [Rs. 142.95 mn]) 143.19iv) Un-expired letter of credits 317.02v) Disputed Income Tax, Sales Tax and Excise Duty which is contested by the Company 10.97vi) Estimated Sales Tax liability due to non-receipt of Sales Tax declaration forms 43.77vii) Bills Discounted 1,045.04

Total 2,758.29

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21. Contingent liabilities of subsidiaries and group companies

● MIC GmbH: Contingent liabilities for an amount of Euro 23.3 mn (Rs. 1199.02 mn, March 31, 2003) resultingfrom guarantees for bank loans of MIC.

● Mitsu Limited: (Rs.)

Contingent Liabilities at the year-end not provided for in respect of: As onMarch 31, 2002

Letter of Credits and Guarantees given by Banks on behalf of the companyto third parties. 4,592,000

Bills discounted with Banks and remaining outstanding at the year-end andwhich are yet to mature. 18,449,382

Disputed Income Tax, which is contested by the company 41,273

Show cause cum demand notice issued by the Central Excise Authorities onaccount of difference in opinion for classification of certain products againstwhich the Company has preferred appeals with Central Excise andGold Appellate Tribunal (CEGAT), Mumbai. 17,413,602

Estimated Sales Tax liability due to non receipt of sales tax declaration forms 300,784

Fixed Deposit under a bank’s lien to secure advances granted by the bank toMicro Inks Corporation, USA, a fellow subsidiary. 242,500,000

● Bilag Industries Pvt. Ltd. (Rs.)

Contingent Liabilities at the year-end not provided for in respect of: As onMarch 31, 2003

Bank Guarantee issued in favour of third parties 200,000

Demands raised by the Income-tax Authorities for which the company haspreferred appeals. 7,909,939

Show cause cum Demand notices issued by the Central Excise Authoritieson account of difference in opinion for classification of certain products(including penalty and interest) against which the company has preferred appeals. 3,466,270

Demands raised by the Sales Tax Authorities for which the companyhas preferred appeals -

Potential liability for non-fulfilment of export obligation in the future on accountof duty-free imports of materials imported against theAdvance Quantity License Scheme 48,902,901

22. Sales Tax cases, Income Tax cases and other Government sector claims against the Company

● Sales Tax: Three cases regarding addition of branch transfer sales to regular sales are pending beforeappellate authorities involving total amount of about Rs. 7.63 million

● Income Tax: Ten cases are pending before appellate authorities involving total amount of Rs.3.34 million

For further details on each of the cases mentioned above, refer page 111 under “Outstanding Litigations” of theLetter of Offer.

23. Litigations filed by the Company

● Ten criminal cases filed under section 138 of the Negotiable Instruments Act for trade recovery involvinga total sum of Rs. 4.71 million

● Nine civil cases of trade recovery filed involving a total sum of Rs.13.60 million

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24. Litigations against the Company other than due to tax demands and Government sector claims

● A suit has been filed on April 24, 2000 before the Civil Judge, Rajkot Civil Court by Parag Agencies, Rajkotfor recovery of about Rs. 0.04 mn, which they have claimed as sales commission. The matter is pendingfor further hearing.

25. Litigations against the Company, promoters, promoter group companies

● Criminal cases against the Company

As stated above in Risk Factor number 1, on page i of the Letter of Offer.

● Company’s cases involving statutory authorities

As stated above in “Sales Tax cases, Income Tax cases and other Government sector claims against theCompany”

● Promoters’ cases involving statutory authorities

● Mr. Yunus Bilakhia: Under the Income Tax Act, 1961, a case of AY2000-01 is pending before AppellateTribunal, Ahmedabad involving a total amount of Rs. 55.1 mn, with a disputed tax demand of Rs. 12.12mn. The amount of Rs. 55.1 mn relates to receipts by way of non compete fees, where the Income Taxauthorities have treated the same as long term capital gain, as against the claim of non taxable receipt.Pending decision, Rs. 12.12 mn has been paid against the above tax demand.

● Mr. Anjum Bilakhia: Under the Income Tax Act, 1961, a case of AY2000-01 is pending before AppellateTribunal, Ahmedabad involving a total amount of Rs. 100.0 mn, with a disputed tax demand of Rs.21.51 mn. The amount of Rs. 100.0 mn relates to receipts by way of non compete fees, where theIncome Tax authorities have treated the same as long term capital gain, as against the claim of nontaxable receipt. Pending decision, Rs. 21.84 mn has been paid against the above tax demand.

● Group companies’ cases involving statutory authorities

● Mitsu Limited:

Show cause cum demand notice no.P.N.R-II/SCN/Mitsu/97/835 was issued by the Central Exciseauthorities on October 28, 1997, on account of difference in opinion for classification of certain products.An appeal was filed by the Government against the order of the Tribunal. The Supreme Court, videorder dated October 23, 2002 has dismissed the appeal filed by the Government in respect of theorder passed by the tribunal and upheld the classification as decided by the tribunal.

A show cause notice no. ORC/383-A/2003/38905/10598 dated February 11, 2003 has been receivedfrom the office of the Registrar of Companies, Gujarat, for non-compliance of section 383A of theCompanies Act, 1956. Against this, the company has filed a compounding application on March 4,2003.

● Bilag Industries Pvt. Limited:

Income Tax: 8 income tax cases filed in Surat are pending before appellate authorities involving a totalamount of Rs. 111.8 mn. Out of this, an amount of Rs. 50.0 mn relates to non-allowance of benefits bythe Asst. Commissioner of Income Tax, Surat under sections 80IB and 80HHC of the IT Act, 1961.

Sales Tax: 3 cases are pending before Gujarat Sales Tax Tribunal, Ahmedabad involving a total amountof Rs. 4.9 mn.

Excise duty: 4 cases relating to classification of capital goods are pending before Deputy CommissionerCentral Excise (Appeals) involving a total amount of Rs. 3.5 mn.

For further details on each of the cases mentioned above, refer page 111 under “Outstanding Litigations”of the Letter of Offer.

26. Low Capacity utilisation

In February 2000, the Company set up a wholly owned subsidiary, MIC, at Chicago, USA to focus on the USink market by exploiting the relatively low cost structure of the Company. In order to cater to the needs of theUS market and other export markets, the Company set up fresh capacities for inks and raw materials over the

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past 4 years as stated in “Business of the Company” on page 93 of the Letter of Offer. A summary of the buildup of installed capacity of printing and packaging inks over the past decade is provided below:

(tpa)

Year ended March 31, 1993 1995 1997 1999 2001 2003

Installed ink capacity 4,950 5,400 7,800 15,960 77,450 180,000

While the Company has set up capacities upfront for its products and raw materials to cater to the demand inexport markets (including USA), such expansion in capacities has not been accompanied by a commensurateincrease in production and sales volume. Due to the mismatch between build-up of capacity and production,the capacity utilization of these products has decreased between FY1998 and FY2003 as follows:

Year ended March 31, 1998 1999 2000 2001 2002 2003

Class of Goods

Printing Inks 67% 72% 22% 55% 29% 30%

Resins 52% 48% 74% 15% 33% 48%

Adhesives 91% 73% 101% 197% 110% 101%

Wire Enamels 62% 79% 81% 79% 66% 64%

Fine Chemicals 44% 74% 42% 55% 34% 43%

Pigments & Flushed Colors NA NA 34% 43% 19% 15%

Source : Audited Annual Report, HIRL

27. Future Equity offerings by the Company

The Company’s shareholders may experience a dilution in their shareholdings in the event the Company makesfuture equity offerings or issues stock options under any employee stock option scheme.

External Risk Factors

1. Changes in product preferences of customers

Evolving industry standards, changing customer preferences and new product introductions have an importantbearing on the Company’s business. The Company’s success depends on its ability to keep pace with thesechanges. The Company may not successfully address these developments on a timely basis, and even ifaddressed, the Company’s products may not be successful in the market place. In addition, products developedby competing companies may make the Company’s products less competitive. Additionally, there can be noassurances that current customers of the Company will continue to use products manufactured by the Companyin future or that current customers will continue to use inks at all in future. In the event of changes in customerpreferences not envisaged by the Company, it may have to alter or modify its production processes, invest innew capacities and/or alter its marketing and distribution strategies, any or all of which may involve significantinvestment of capital and management resources, which, in turn, could hamper the ability of the Company tomeet its present growth objectives.

2. Risk of volatility in the share price

Future announcements concerning the Company or its competitors, international prices of ink, rupee depreciationor appreciation vis-à-vis major international currencies, significant currency movements in markets whereCompany exports its products, import tariffs in India and in countries where the Company exports its products,domestic duties and taxes, volatitlity in the domestic and international financial markets, media reports relatingto the Company and its businesses, greenfield ink projects being set up in India, changes in product preferences,successes of various products, success in new marketing programs, performance of the Company in untestedoverseas markets and changes in regulations in those countries, consolidation in the ink industry, unanticipatedincreases in wage bills, changes in sourcing pattern of raw materials and arrangements with job work agencies,changes in government policies, economic downturn, transportation or labour unrest, changes in market andcustomer practices in overseas markets, adverse movements in working capital requirements, variation in theCompany’s operating results or changes in earnings estimates by analysts as well as market conditions could

xiii

cause the price of the listed securities of the Company to substantially fluctuate. The Company can provide noassurances that there will be active and/or sustained trading in the Equity Shares of the Company or the priceat which such shares will be traded.

3. Risk of exchange rate fluctuations

Foreign exchange fluctuations could have an impact on import prices of raw materials and realizations fromexport of its products. In FY2003, imported raw materials (including packing materials) accounted for 57.9% ofthe total raw material cost vis-à-vis 44.6 % in FY2002 and 40.0% in FY2001. Further, out of the Company’stotal sales of Rs. 5845 mn in FY2003, Rs. 2877 mn was from exports. Any adverse fluctuation in exchangerates between the rupee and major international currencies or between the rupee and currencies where theCompany exports its products, could therefore adversely impact the Company’s revenues and costs and couldpotentially lead to a decrease in its profitability.

4. Risk of political instability

The performance of the Company may be affected by a number of factors beyond its control including political,social and economic developments both in India and overseas. If events such as the terrorist attacks thatoccurred in New York and Washington, DC on September 11, 2001, the act of terrorism in New Delhi, India onDecember 13, 2001, communal violence in Gujarat in March-April 2002, or the war between USA and Iraq occurin future, they could result in a loss of overall customer confidence as well as customer confidence towardsIndia, which in turn, could result in increase in the cost of raw materials of the Company, adversely impactdemand for and selling prices of its products or adversely impact quantum of inventory. In addition, theseconditions may have an adverse impact on the financial markets in India and may cause the market price ofthe Company’s Equity Shares on the stock exchanges to decline.

5. Risk of regulatory uncertainty

The business of the Company is subject to the regulations enacted by the Government of India, Governmentof the USA and several agencies of the respective governments of countries where the Company exports itsproducts. Changes in the fiscal policies and slowdown or reversal in economic liberalization and deregulationinitiatives, which are currently ongoing, could adversely affect business and economic conditions in India andtherefore the business of the Company. Changes in other regulations such as import related regulations, tariffand non-tariff barriers in export markets (including USA), environmental norms applicable to the products andprocesses employed by the Company and/or its subsidiaries may adversely affect the operations of the Company.

In June 2003, a petition was filed by four companies before the Import Administration of U.S. Department ofCommerce and U.S. International Trade Commission seeking imposition of countervailing duty and antidumpingduties on imports of certain colored synthetic organic oleoresinous pigment dispersions from India, wherebythe petioners had contended that most of these imports were effected through MIC and this had resulted in orcould result in, in future, material injury to the US industry producing the said products. However, as a result ofinvestigations by the concerned authorities and based on the preliminary brief / hearing submitted, the U.S.International Trade Commission has determined that there is not a reasonable indication that a US industry ismaterially injured or threatened with material injury.

The Company can provide no assurance that a situation similar to that stated in the paragraph above wouldnot occur in future either in USA itself or in any other country where the Company exports its products.

6. Risk of economic slowdown

The overall demand for ink in India is closely linked to macro parameters like GDP growth, increase in literacyrates, increased consumerism and increase in population. Also, the Company is relying on MIC to realize asignificant portion of its future growth. Any slowdown in growth or adverse impact on any or all of the abovefactors in India or globally, especially in the USA, may have an adverse impact on the demand for the Company’sproducts and therefore on its growth potential.

7. Consolidation driven competition

The All India Printing Ink Manufacturers’ Association, in a letter dated May 8, 2002 has stated that the Companyis a market leader in the domestic ink market with a market share of 33%. Consolidation of capacities or other

xiv

strategic or contracting arrangements between other players in the domestic ink market, or entry of resourcefulinternational competition into the domestic market could significantly alter the competitive landscape of thedomestic ink industry and could have an adverse impact on the Company’s business.

Notes to Risk Factors

● Investors are advised to refer to the “Basis for Issue Price” on Page 108 of this Letter of Offer beforeinvesting in this Issue.

● Net worth of the Company before the Issue, as on March 31, 2003 was Rs. 4496.28 mn. (including Rs.1500million brought in by promoters as advance against proposed further issue of capital by the Company).

● The Issue size is Rs. 1967.33 mn.

● Cost per share of shareholding of the promoters is as follows:

● Mr Anjum Bilakhia*- Rs. 550 per share

● Mr Yunus Bilakhia*- Rs. 550 per share

● Mr Zakir Bilakhia* - Rs. 550 per share

● Bilakhia Holdings Pvt. Ltd.** – Rs 14.45 per share

* Mr. Anjum Bilakhia, Mr Yunus Bilakhia and Mr Zakir Bilakhia have transferred / gifted all the shares of theCompany acquired by them over the past (including bonus shares in the ratio 1:1 allotted on November 22,2000, as detailed in “Capital Structure”, in page 11 of this Letter of Offer) to Bilakhia Holdings Pvt. Ltd., except300,000 shares allotted to each of them in the preferential allotment of December 15, 1999.

** Cost per share held by Bilakhia Holdings Pvt. Ltd. takes into account the cost incurred by Bilakhia HoldingsPvt. Ltd. in acquiring the shares of the Company (including shares transferred / gifted from Mr. Anjum Bilakhia,Mr Yunus Bilakhia and Mr Zakir Bilakhia at various points in the past). If the actual cost incurred by Mr. AnjumBilakhia, Mr Yunus Bilakhia and Mr Zakir Bilakhia in acquiring the Company’s shares (before these shareswere gifted / transferred to Bilakhia Holdings Pvt. Ltd.) is also considered, the cost per share would beRs. 49.19.

The average cost per share of the promoters (Mr. Anjum Bilakhia, Mr. Yunus Bilakhia and Mr. Zakir Bilakhiaand Bilakhia Holdings Pvt. Ltd.), considering all shares issued to them is Rs. 93.53 per share, as follows:

Promoter Shares held Cost of acquisition (Rs.)

Mr. Anjum Bilakhia 300,000 550.00

Mr. Yunus Bilakhia 300,000 550.00

Mr. Zakir Bilakhia 300,000 550.00

BHPL 9,264,160 49.19

Total 10,164,160 93.53

● The book value of the Equity Shares of the Company as on March 31, 2003 is Rs. 164.42.

● During the last six months, no member of the promoter group or directors of promoters have carried outtransactions in shares of the Company.

● The Board of Directors of the Company, vide resolution dated July 29, 2003 have approved the change ofname of the Company from “Hindustan Inks and Resins Limited” to “Micro Inks Limited”. This change ofname is subject to the approval of shareholders of the Company. The Company would initiate measures forchange in name (including seeking permissions from Government of India) once the approval fromshareholders is obtained.

● Related party transactions

1) A tripartite agreement between Bilag Industries Pvt. Ltd., Mitsu Limited and the Company has beenexecuted on January 1, 2002 for supply of power from the 6.5 MW captive power plant of Bilag IndustriesPvt. Ltd. to Mitsu Limited and the Company, on a no profit, no loss basis. While the term of thisagreement is up to May 30, 2011, the sanction granted by the Government of Gujarat under section 28

xv

of The Indian Electricity Act, 1910 and this agreement would automatically terminate should the sameindividuals not have atleast 26% of the voting power of Bilag Industries Pvt. Ltd., Mitsu Limited andthe Company.

2) A Leave and License Agreement between the Company and Bilakhia Properties Pvt. Ltd. has beenexecuted on October 16, 2001 wherein, Bilakhia Properties Pvt. Ltd. has provided on lease 40,000 sq.ft. of constructed area at Muktanand Marg, Chala, Vapi, Gujarat for the Company’s commercial use.The period of the agreement is 11 months from September 1, 2001. The agreement provides for paymentof a monthly amount of Rs. 0.44 mn by the Company to Bilakhia Properties Pvt. Ltd., in addition to theupfront payment of interest free security deposit of Rs 10 mn. Vide its letter dated May 1, 2003, BilakhiaProperties Pvt. Ltd., has communicated to the Company stating that the aforesaid agreement is validtill June 1, 2004, on the same terms and conditions.

3) A Job Work Agreement has been entered into between the Company and Bilag Industries Pvt. Ltd. onJuly 13, 1999, further to the earlier job work agreement dated March 18, 1997 between the two parties.Under the agreement, the Company would convert certain raw materials supplied by Bilag IndustriesPvt. Ltd. into intermediates within 1 week of receipt of raw materials, for a fixed amount per kilogrammeof intermediate. All intellectual property provided by Bilag Industries Pvt. Ltd. to the Company wouldbe used only for the purpose of this job work, and Bilag Industries Pvt. Ltd. would be the sole ownerof this intellectual property. The Company has guaranteed that it would provide Bilag Industries Pvt.Ltd. with the minimum quantities of intermediates in order for Bilag Industries Pvt. Ltd. to be able tomanufacture specified quantities of the corresponding products every year. The term of this agreementis 5 years from July 13, 1999. During the term of this agreement and for four years thereafter, theCompany directly or indirectly through any of its affiliates or howsoever, would refrain from any activitywhich may compete directly or indirectly with the business of Bilag Industries Pvt. Ltd.

4) A Job Work agreement had been entered into between the Company and Bilag Industries Pvt. Ltd. onMarch 18, 1997. Under the agreement, the Company would convert certain raw materials supplied byBilag Industries Pvt. Ltd. into intermediates, for a fixed amount per kilogramme of intermediate. Theterm of this agreement is 5 years from March 18, 1997 and the agreement will remain valid untilterminated by either party by giving 3 months notice. Bilag Industries Pvt. Ltd. has agreed to offtakea certain minimum quantity of intermediates from the Company every month.

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Statement of Related Party Disclosure

Related party Disclosure as required by Accounting Standard -18 issued by The Institute of Chartered Accountants of India, are given below :

(i) Where control exists:

S.No. Related party Relationship

1 Micro Inks GmbH, Austria Subsidiary

2 Micro Inks Corporation, USA Subsidiary of Subsidiary

3 Bilakhia Holdings Pvt. Ltd. Holding Company

Related Party Transactions

(Rs. million)

Sale of Goods & Services Purchase of Goods and Services Interest Income on Loans Interest Expenses on Loans and DepositsLoans and Deposits taken

Year Ended Year Ended Year Ended Year Ended Year EndedRelationship Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31,

2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003

Fellow Subsidiaries 2.24 33.69 1.69 55.10 62.18 57.88 - - - 6.91 8.25 5.53 705.00 295.00 276.16

Associates 71.50 53.96 58.00 179.62 147.50 56.23 - - - 3.89 8.06 0.18 250.00 350.00 153.30

Subsidiaries 860.10 2,169.90 2,185.45 - 0.11 1.95 8.18 - - - - - - - -

Holding Company - - - - - - - - - - - - 5.00 - -

Key ManagementPersonnel - - - - - - - - - - - - - - 60.00

Relative of KeyManagement Personnel - - - - - - - - - - - - - - -

5) The related party transactions as certified by the auditors of the Company are as follows:

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(Rs. million)

Investments and Loans & Purchase of Fixed Assets Guarantees given Remuneration / Commission Reimbursement ofDeposits and sitting fees Expenditure - Given


2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 1 2 0 0 2 2 0 0 3

Fellow Subsidiaries 10.00 - - - 4 .30 1 .99 - - - - - - 1 .06 0 .16 5 .07

Associates - - - - * 0 .87 - - - - - - 2 .46 5 .20 0 .61

Subsidiar ies 571.18 1,332.41 1,094.89 - - - 233.20 780.80 692.09 - - - - - 0 .39

Holding Company - 0 .01 - - - - - - - - - - - - 0 .60

Key ManagementPersonnel - - - - 0 .25 - - - - 3 .19 4 .10 4 .43 - 0 .20 -

Relative of KeyManagement Personnel - - 1 .92 - - - - - - 0 .92 1 .12 1 .52 - 0 .24 -

* Includes swapping of 16000 Sq. Meter Land with M/s Bilag Industries (P) Ltd.

(Rs. million)

Reimbursement of Gain on Exchange Rate Sale of Fixed Assets Guarantees Taken Margin Money pledgedExpenditure Obtained Fluctuation (Net) and security of certain

assets with Bank


2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 1 2 0 0 2 2 0 0 3

Fellow Subsidiaries 0 .03 6 .50 0 .91 - - - - - 2 .03 - - - - - -

Associates 0 .13 0 .71 0 .44 - - - - - - - - - - - -

Subsidiar ies - - 0 .77 7 .67 52.82 5.28 - - - - - - - - 243 .19

Holding Company - 0 .06 - - - - - - - - - - - - -

Key ManagementPersonnel - - - - - - - - - - - - - - -

Relative of KeyManagement Personnel - - - - - - - - - - - 200.00 - - -

xviii

Related Party Balances

(Rs. million)

Receivables Payables Investments Loans and Deposits given Guarantees given

As at As at As at As at As atRelationship Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31,

2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003

Fellow Subsidiaries 0.05 0.01 0.01 32.19 0.35 2.79 - - - 10.01 43.79 10.00 - - -

Associates - - 14.57 110.79 - - - - - - 16.78 - - - -

Subsidiaries 432.39 1,051.58 855.43 - - - 452.17 1,754.54 2,849.43 131.30 161.35 150.16 233.20 634.40 1,129.61

Holding Company - - - - - - - - - - 0.01 0.02 - - -

Key ManagementPersonnel - - - 0.04 0.20 0.18 - - - 0.30 0.23 0.15 - - -

Relative of KeyManagement Personnel - - - - 0.20 0.20 - - - 0.41 0.28 0.76 - - -

(Rs. million)

Margin money and security of certain assets with bank Guarantees Taken

As At As At

Relationship March 31, 2001 March 31, 2002 March 31, 2003 March 31, 2001 March 31, 2002 March 31, 2003

Fellow Subsidiaries - - - - - -Associates - - - - - -Subsidiaries - - 243.19 - - - Holding Company - - - - - -Key Management Personnel - - - - - -Relative of Key ManagementPersonnel - - - - - 200.00

Name of the related parties and description of relationship

1. Fellow Subsidiaries Mitsu Limited, Bilakhia Properties (P) Ltd.,AGB Holdings (P) Ltd. and ZGB Holdings (P) Ltd.

2. Associates Bilag Industries (P) Ltd.3. Subsidiary / Subsidiary of Subsidiary Micro Inks GmbH, Austria and Micro Inks Corporation, USA.4. Holding Company Bilakhia Holdings Pvt. Ltd.5. Key Management Personnel Mr. Anjum Bilakhia (Managing Director) and Mr.Shivram Angne (Whole-time Director)6. Relatives of Key Management Personnel Mr. Zakir Bilakhia and Mr. Yunus Bilakhia (Brothers of Mr. Anjum Bilakhia)

1

Dear Equity Shareholder(s),

Pursuant to the resolution passed by the Board of Directors of the Company at its meetings held on March 27, 2002 and May 10, 2003and vide resolution passed on May 28, 2003 by the Committee of Directors, it has been decided to make the following offer to the EquityShareholders of the Company:

Issue of 8,197,200 Equity Shares of Rs. 10/- each for cash at a premium of Rs. 230/- per equity share on rights basis to theexisting Equity Shareholders of the Company in the ratio of 3 Equity Shares for every 5 equity shares held on Record Dateaggregating Rs. 1967.33 million.

GENERAL INFORMATION

Name of the Company and address of the Registered Office and Corporate Office

Hindustan Inks and Resins LimitedRegistered and Corporate Office:Bilakhia House, Muktanand Marg,Chala, Vapi – 396 191, GujaratTel. : 91-260-2462 811 / 2460 284, Fax: 91-260-2463 733email: [email protected]: www.hindustaninks.com

The Registered Office of the Company was changed from 2803/2, III Phase, GIDC, Vapi – 396 195 to Bilakhia House, Muktanand Marg,Chala, Vapi – 396 191, Gujarat, effective October 1, 2000, due to expansion of business operations and availability of dedicated officepremises on a leave and license basis at Bilakhia House, Muktanand Marg, Chala, Vapi.

Important

This Issue is applicable to those Equity Shareholders whose names appear as beneficial owners as per the list to be furnished by thedepositories in respect of the shares held in the electronic form and on the Register of Members of the Company at the close ofbusiness hours on the Record Date i.e. September 12, 2003.

� Your attention is drawn to the section on “Risk Factors” appearing on page (i) of this Letter of Offer.

� Please ensure that you have received the Composite Application Form (“CAF”) with this Letter of Offer.

� Please read the Letter of Offer and the instructions contained herein and in the CAF carefully before filling in the CAF. The instructionscontained in the CAF are an integral part of this Letter of Offer and must be carefully followed. Application is liable to be rejectedfor any non-compliance of the Letter of Offer or the CAF.

� All enquiries in connection with this Letter of Offer or CAF should be addressed to the Registrar to the Issue, quoting the name(s)of the shareholder(s), Registered Folio number/ DP and Client ID number and the CAF number as mentioned in the CAF.

� The Company and the Lead Manager will keep the public informed of any material changes till the commencement of listing andtrading of the Equity Shares issued through the Letter of Offer

� All information shall be made available by the Lead Manager and the Company to the public and investors at large and no selectiveor additional information would be available for a section of investors in any manner whatsoever including at road shows, presentations,in research or sales reports, at bidding centers, etc.

Issue Schedule

Issue Opening Date : September 26, 2003

Last date for receiving requests for split forms : October 11, 2003

Issue Closing Date : October 27, 2003

ISSUE MANAGEMENT TEAM

Lead Manager to the Issue

Kotak Mahindra Capital Company LimitedBakhtawar, 3

rd floor

229, Nariman Point, Mumbai - 400 021Tel: 91 22 5634 1100Fax: 91 22 2284 0492Email: [email protected]

Registrar to the Issue

Intime Spectrum Registry LimitedC-13, Pannalal Silk Mills CompoundLBS Marg, Bhandup, Mumbai – 400 078Phone no.: 91-22-5555 5454Fax no.: 91-22-5555 5353Email: [email protected]

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Compliance Officer and Company Secretary

Mr. Hitesh ParikhGeneral Manager (Legal) & Company SecretaryHindustan Inks and Resins LimitedBilakhia House, Muktanand Marg, Chala, Vapi – 396 191, GujaratTel: 91-260-2462 811/ 2460 284Fax: 91-260-2463 733Email: [email protected]

The investors can contact the Compliance Officer /Registrar to the Issue in case of any pre-issue/ post-issue related problems suchas non-receipt of Letter of Offer/ letter of allotment/ share certificates/ credit in demat account/ refund orders/cancelled stockinvestsetc.

Auditor of the Company

S.B. Billimoria & Co.Chartered AccountantsMeher Chambers, II FloorR Kamani Road, Ballard EstateMumbai – 400 001Phone no.: 91-22-2262 5001Fax no.: 91-22-2261 3361Email : [email protected]

Bankers to the Issue

Kotak Mahindra Bank Limited2nd Floor, Bakhtawar,229, Nariman Point,Mumbai – 400 021Phone no.: 91-22-5638 6363Fax no.: 91-22-2281 7527

Legal Advisor to the Issue

Kanga & Co.Advocates, Solicitors & NotariesReadymoney Mansion43, Veer Nariman RoadMumbai – 400 001Phone no.: 91-22-5633 2288Fax no.: 91-22-5633 9656

Bankers to the Company

Punjab National BankLarge Corporate BranchGr. Floor, Maker Tower ‘E’Cuffe Parade, MumbaiTel No. 91-22 2218 8453Fax no. 91-22 2218 0403

UTI Bank LimitedJanmabhoomi Bhavan,Janmabhoomi Marg,Fort, Mumbai-400 001Tel No. 91-022 2283 5783 /84/87/89, 2283 5783Fax: 91-022 2284 4113

Central Bank of IndiaCorporate Finance Branch1

st Floor, CBI building

M.G. Road, Fort, Mumbai-400 023Tel No. 91-022 2265 3083/2267 6466/2270 4016Fax: 91-022 2285 0886

ICICI Bank Ltd.215 Free Press HouseNariman Point, Mumbai-400 021Tel No. 91-022 2285 3594/95/98/99Fax: 91-022 2285 3591

3

Development Credit Bank Ltd.Fort Branch8, Raja Bahadur Mansion,16, Ambalal Doshi Marg, Fort, Mumbai-400 001.Tel: 91-022 2270 1871/72/73Fax: 91-022 2270 1868

Bank of IndiaMumbai Corporate Banking BranchBank of India Bldg., 4

th Floor, 70/80,

M.G. Road, Mumbai-400 023Tel: 91-022 2265 9619, 2262 3656Fax: 91-022 2267 1718

Standard Chartered Bank Ltd.90, M.G. Road, Fort, Mumbai-400 001.Tel: 91-022 2267 7000, 2267 0706, 2282 2556Fax: 91-022 2261 9998

State Bank of IndiaCorporate Accounts Group Branch (09995)International Banking Division,Voltas House, 23, J.N. Herdia Marg, Ballard Estate, Mumbai-400 001Tel: 91-022 2267 9528, 2267 9689Fax: 91-022 2267 1902

Eligibility for the Issue

The Company is an existing company under the Act, whose equity shares are listed on VSE, BSE, NSE, DSE and ASE. It is eligible toissue equity shares through a rights issue in terms of Clause 2.4.1 (iv) of the SEBI Guidelines. The Company, its Promoters, its Directorsor any of the Company’s associates or group companies and companies with which the Directors of the Company are associated asdirectors or promoters, or directors or persons in control of the promoting company have not been prohibited from accessing the capitalmarket under any order or direction passed by SEBI. Further, the promoters, their relatives, the Company, group companies and associatecompanies are not detained as willful defaulters by RBI / Government authorities and there are no violations of securities laws committedby them in the past or pending against them.

Government Approvals

The Company has made applications to Foreign Investment Promotion Board (“FIPB”) and to Reserve Bank of India (“RBI”) vide lettersdated June 5, 2003 and August 11, 2003 respectively. Vide letter no. 03/43/SIA/NFC/2003-NRI dated August 19, 2003, FIPB has grantedits approval for issue of additional shares to NRIs on rights basis and also renunciation of the rights entitlement by resident shareholdersin favour of NRIs in the rights issue. Further, vide letter dated September 1, 2003, through an amendment to approval letter no. 03/43/SIA/NFC/2003-NRI dated August 19, 2003, the Ministry of Commerce & Industry has also granted approval for:

� The renunciation of the rights entitlement by resident shareholders and allotment of the shares to non resident investors

� The renunciation of the rights entitlement by non resident shareholders and allotment of the corresponding shares to residentinvestors

� Allotment of shares against application for additional shares by non resident renouncees

� Allotment of unsubscribed shares to any non resident investor

Vide letter no. CO.FID/2030/10.02.40(408)/2003-04 dated September 4, 2003, RBI has permitted the Company to issue shares on rightsbasis to non-resident shareholders and others subject to compliance of terms and conditions stipulated in: (a) Regulation no.6 andSchedule 2 of FEMA Notification No. 20/2000-RB dated May 3, 2000; (b) Approvals from FIPB and Ministry of Commerce & Industrystated in the paragraph above and (c) SEBI approval/regulations, if any as the Company is listed.

No consent of the Government of India, other than the FIPB/ RBI approvals, is required for this Issue. It must be distinctly understoodthat the Government of India does not take any responsibility for the financial soundness of any scheme or project or for the correctnessof any statements made or any opinions expressed with regards to them. The Company can undertake its present activities in view ofthe existing approvals and no further approvals from any Government Authorities/ FIPB/ RBI are required by the Company to undertakeits activities. The Company has received approvals from The Karur Vysya Bank Limited, Development Credit Bank Limited and PunjabNational Bank (based on loan agreements which require lender approval prior to any change in capital structure) for making this Issue.

The Company has received the following important approvals/ signed the following important agreements required for the activities beingcarried on by it:

Investment in subsidiary

1. Pursuant to the application made by the Company on November 19, 1999 and clarifications furnished subsequently, RBI vide itsApproval No.AHWRB20000010 dated January 7, 2000 gave its approval for setting up a Wholly Owned Subsidiary (“WOS”) inAustria with a manufacturing unit in USA for the manufacture of printing ink products involving total equity investment of US$2,280,000 (Rs. 99.20 mn, January 7, 2000) and a term loan of US$ 3,360,000 (Rs. 146.19 mn, January 7, 2000) subject to theterms and conditions specified in the said letter.

4

Pursuant to the aforesaid approval granted by RBI, the Company incorporated a wholly owned subsidiary (“WOS”) in Austria viz.Micro Inks GmbH, which in turn has incorporated wholly owned subsidiary in USA viz. Micro Inks Corporation.

On an application made by the Company on July 21, 2000, RBI, vide its letter No. EC.CO.OID 623/19.08.82/2000-01, dated August18, 2000, modified the aforesaid approval and permitted equity investment of US $3,000,000 (Rs. 137.85 mn, August 18, 2000) andloan of US $2,640,000 (Rs. 121.31 mn, August 18, 2000).

The Company utilized the aforesaid approvals and made investments in MIC GmbH and MIC.

2. Subsequently on application of the Company on July 26, 2001, RBI, vide letter No. EC.CO.OID 1846/19.08.82/2001-02 dated October11, 2001, granted approval for additional equity investment into MIC GmbH of US $30.86 million (Rs. 1486.22 mn, October 11,2001) and conversion of term loan of US $2.64 million (Rs. 127.14 mn, October 11, 2001) into equity of MIC GmbH. RBI alsogranted approval for extension of corporate guarantee of US $20 million (Rs. 963.2 mn, October 11, 2001), valid for a period of 1year, for securing the loans to be availed by the overseas concern (MIC).

Repatriable entitlements and non-equity exports

The approval granted vide letter of October 11, 2001 by RBI provides for repatriable entitlements from MIC GmbH and non-equityexports to MIC, USA as provided below. Repatriable entitlements (dividend from MIC GmbH) and non-equity exports (from theCompany to MIC, USA), as provided in the approval granted by RBI to the Company on October 11, 2001 are interpreted by theCompany as minimum permissible levels.

Years of operations Unit 1 2 3 4 5 Total

Dividend from MIC, GmbH US $ mn Nil Nil 3.6 4.8 7.2 15.6

Dividend from MIC, GmbH Rs. mn Nil Nil 173.4 231.2 346.8 751.4

Note: The amount of dividend from MIC GmbH in Rupees is taken at a constant exchange rate of Rs. 48.16/1 US $ (exchange rateas on October 11, 2001)

Non-equity exports from the Company to MIC as under:

(Rs. million)

Year of operation 2002 2003 2004 2005 2006 Total

FOB Value to MIC 3,294.8 6,376.7 9,615.9 13,324.5 17,485.6 50,097.5

Out of approval of US $30.86 million (Rs. 1,486.22 mn, as above) in equity of MIC GmbH, the Company has made an investmentof US $25.45 million (Rs. 1,225.7 mn, October 11, 2001) so far. The Company has converted term loan of US $ 2.64 million (Rs.127.14 mn, October 11, 2001) into equity and has granted guarantee of US $ 10 mn (Rs. 481.6 mn, October 11, 2001) for the loansavailed by MIC.

3. Under the Regulation 6 (2) (i) of the FEMA (Transfer or Issue of any Foreign Security) Regulations, 2000, as amended upto date,the Company is entitled to invest in WOS under automatic route, upto 100% of its net worth, subject to a maximum of US $100million (Rs. 4,596 mn, August 13, 2003). Considering the net worth of the Company of Rs. 4,496.28 mn as on March 31, 2003, theCompany had an investment limit into its WOS of US $94.20 million (at US $1=Rs 47.73). In order to aggregate US $100 mn(Rs. 4,596 mn, August 13, 2003), an amount of US $5.80 million (Rs. 266.6 mn) can be invested through the Exchange EarnersForeign Currency (EEFC) route [wherein the foreign currency earnings are deposited in a separate account], vide Regulation 6 (3)(i) of the aforesaid Regulation. Out of US $100 mn (Rs. 4,596 mn, August 13, 2003) available to the Company for investing in itsWOS under the automatic route by means of debt and/or equity, the Company has utilized US $36.50 million (Rs. 1,677.5 mn,August 13, 2003) and can invest a further amount of US $63.50 million (Rs. 2,918.46 mn, August 13, 2003).

Performance achieved on repatriable entitlements and non-equity exports

The Company made export sales (including to MIC) and has received dividend from its WOS as follows:

(Rs. million)

Year FY2001 FY2002 FY2003 Total

Export to step Subsidiary (MIC) (FOB Value) 790.60 2,044.50 2,051.60 4,886.70

Export to others (FOB Value) 65.10 176.90 649.30 891.30

Total exports (FOB value) 855.70 2221.40 2,700.90 5,778.00

Dividend received from MIC GmbH - - - -

The approvals granted by RBI vide its Approval No.AHWRB20000010 dated January 7, 2000 (and also in other approvals statedabove) inter alia provide that in the event of any terms and conditions stipulated not being satisfied or if it’s in a public interest todo so, the permission granted by RBI would be liable to be revoked and would be without prejudice to any further action that maybe taken under FERA or any other law / policy in force, including requiring the Company to disinvest its shareholdings and torepatriate all proceeds and other entitlements to India within a stipulated period. The Company has filed the requisite reports withRBI, informing RBI of the actual exports achieved by it from time to time. Till date, no inquiry or notice of any nature, has beenreceived by the Company from RBI. The Company has filed Annual Performance Reports with RBI from time to time including forthe year ended March 2003 (dated June 27, 2003), which specify the position of non-equity exports. RBI has not sought anyclarification on the matter till date.

5

RBI vide its letter No. EC.CO.OID 140/19.08.82/02-03 dated 9th July, 2002 has indicated that investments made in WOS abroad

under Regulation 6 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 i.e. underdirect investment route are independent of the investments made earlier under the specific approval of RBI. Subsequent to the saidletter of RBI dated July 9, 2002, the Company has made further investment in WOS under direct investment route.

Unit: Vapi-I

Factory license: License no. 86272 granted by Chief Factory Inspector, Gujarat dated July 15, 1989, which is valid till December 31,2004.

Power: Agreement with Gujarat Electricity Board (“GEB”) dated October 25, 1999 for the supply of electricity to the unit. The agreementwas valid for a minimum period of 2 years i.e. upto October 24, 2001, with no specified maximum period.

Environment: Authorisation number 2824 dated January 7, 2002 granted by Gujarat Pollution Control Board to the Company under theHazardous Waste Rules, 1989 and Amended Rules, 2000 to operate a facility for collection, storage, transport and disposal of hazardouswaste. This authorization is valid from two years from November 12, 2001.

Water Act: Consent was granted under order no 27935 dated August 14, 2002 by Gujarat Pollution Control Board to the Company forthe discharge of effluent from the Plant. By a letter dated October 7, 2002, Gujarat Pollution Control Board has issued an amendment ofconsent whereby the aforesaid consent order was made valid upto May 27, 2004.

Air Act: Consent was granted under order no.17232 dated August 17, 2001 by Gujarat Pollution Control Board to the Company undersection 21 of the Air (Prevention and Control of Pollution Act, 1981). By a letter dated October 15, 2001, Gujarat Pollution Control Boardhas issued an amendment of consent whereby the aforesaid consent order is made valid upto May 30, 2003.

Unit: Vapi-II

Factory license: License no. 087928 granted by Chief Factory Inspector, Gujarat dated October 7, 2002 and valid till December 31,2004.

Power: Agreement with GEB dated June 21, 2000 for the supply of electricity to the unit and valid for a minimum period of 2 years.

Water Act: Consent granted under order no. 30212, dated May 3, 2003 by Gujarat Pollution Control Board to the Company for thedischarge of effluent from the Plant. This approval valid till February 6, 2004 has been granted under sections 25 and 26 of the Water(Prevention and Control of Pollution) Act, 1974.

Air Act: Consent was granted under order no. 20229 dated October 30, 2002 by Gujarat Pollution Control Board to the Company undersection 21 of the Air (Prevention and Control of Pollution Act, 1981). By a letter dated February 24, 2003, Gujarat Pollution Control Boardhas issued an amendment of consent whereby the aforesaid consent order has been made valid upto August 9, 2004.

Environment: Authorisation number 3247 dated November 1, 2002 granted by Gujarat Pollution Control Board to the Company underthe Hazardous Waste Rules, 1989 and Amended Rules, 2000 to operate a facility for collection, storage, transport and disposal ofhazardous waste on the factory premises. This authorization would be valid till August 7, 2007.

Unit: Vapi-III (100% EOU)

Factory license: License no. 091497 granted by Chief Factory Inspector, Gujarat dated June 24, 2002 and is valid till December 31,2004.

Power: Permission no. CE/16195 dated September 20, 2001 and no. CE/14889-91 dated September 11, 2001 to energise the captivepower plant of 6.5 MW granted by the Office of the Commissioner of Electricity, Gandhinagar, Gujarat.

Water Act: Consent granted under order no. 29708, dated March 31, 2003 by Gujarat Pollution Control Board to the Company for thedischarge of effluent from the plant. This approval is valid till December 5, 2003 and has been granted under Sections 25 and 26 of theWater (Prevention and Control of Pollution) Act, 1974.

Air Act: Consent was granted under order no. 18340 vide letter no. PC/AIR/VSD/1059/4333 dated January 31, 2002 by Gujarat PollutionControl Board to the Company under Section 21 of the Air (Prevention and Control of Pollution Act, 1981). By letter no. PC/AIR/VSD/1059/18412 dated July 3, 2002, Gujarat Pollution Control Board has issued an amendment of consent whereby the aforesaid consentorder has been made valid upto November 27, 2003.

Environment: Authorisation number 3247 dated 15/4/2002 granted by Gujarat Pollution Control Board to the Company under the HazardousWaste Rules, 1989 and Amended Rules, 2000 to operate a facility for collection, storage, transport and disposal of hazardous waste onthe factory premises. This authorization would be valid till November 26, 2006.

Unit: Daman

Factory license: License granted vide Registration number 314 dated January 18, 1995 and valid till December 31, 2003.

Power: Approval nos. WRIO/I-5712/96-97/1674 dated September 10, 1996 and WRIO/I-5712/S798-99/2891 dated February 22, 1999granted by the Ministry of Power, Government of India are for energisation of 1000 KVA/11KV transformer sub-station. Approval WRIO/I-5712/96-97/2233 dated November 1, 1996 granted by Ministry of Power is with respect to energisation of 500 KVA DG Set.

Water Act: Consent was granted under order no. PCC/DDD/O-1184/BP/WA/93-94/758 dated February 7, 2002 by The Pollution ControlCommittee, Daman, Diu & Dadra and Nagar Haveli to the Company under Section 25 of the Water (Prevention and Control of Pollution)Act, 1974. By an amendment no. PCC/DDD/O-1184/WA/BP/93-94/11 dated April 22, 2002 issued by The Pollution Control Committee,Daman, Diu & Dadra and Nagar Haveli, the aforesaid approval has been made valid till March 31, 2005.

Air Act: Consent was granted under order no. PCC/DDD/O-1184/BP/AA/93-94/759 dated February 7, 2002 by The Pollution Control

6

Committee, Daman, Diu & Dadra and Nagar Haveli to the Company under section 21 of the Air (Prevention and Control of Pollution) Act,1981. By an amendment no. PCC/DDD/O-1184/WA/BP/93-94/11 dated April 22, 2002 issued by The Pollution Control Committee, Daman,Diu & Dadra and Nagar Haveli, the aforesaid approval has been made valid till March 31, 2005.

Environment: Authorisation number PCC/DDD/O-1184/WA/DB/93-94/760 dated February 7, 2002 granted by The Pollution ControlCommittee, Daman, Diu & Dadra and Nagar Haveli to the Company under the Environment Protection Act, 1986 and Hazardous WasteRules, 2000 to operate a facility for collection, storage, transport and disposal of hazardous waste on the factory premises. This authorizationis valid till two years from the date of issue (January 29, 2002).

Unit: Silvassa

Factory license: License granted vide registration number 1262 dated February 9, 2000 and valid till December 31, 2003.

Power: Approval no. WRIO/I-9388/SE/2000-01/502 dated May 17, 2000 for energisation of 2 nos 750 KVA DG sets granted by CentralElectricity Authority, Government of India.

Water Act: Consent was granted under order no. PCC/DDD/O-1384/MK/WA/99-00/258 dated February 8, 2002 by The Pollution ControlCommittee, Daman, Diu & Dadra and Nagar Haveli to the Company under Section 25 of the Water (Prevention and Control of Pollution)Act, 1974. By amendment no. PCC/DDD/O-77/MK/WA/99-00/17 dated April 12, 2002 issued by The Pollution Control Committee, Daman,Diu & Dadra and Nagar Haveli, the aforesaid consent has been made valid till December 31, 2004.

Air Act: Consent was granted under order no. PCC/DDD/O-1384/MK/AA/99-00/259 dated February 8, 2002 by The Pollution ControlCommittee, Daman, Diu & Dadra and Nagar Haveli to the Company under Section 21 of the Air (Prevention and Control of Pollution Act),1981. By amendment no. PCC/DDD/O-77/MK/WA/99-00/17 dated April 12, 2002 issued by The Pollution Control Committee, Daman, Diu& Dadra and Nagar Haveli, the aforesaid consent has been made valid till December 31, 2004.

Environment: Authorisation number PCC/DDD/O-1384/MK/HW/260 dated February 8, 2002 granted by The Pollution Control Committee,Daman, Diu & Dadra and Nagar Haveli to the Company under the Environment Protection Act 1986 and Hazardous Waste Rules, 2000to operate a facility for collection, storage, transport and disposal of hazardous waste on the factory premises. This authorization is validtill two years from the date of issue (January 29, 2002).

Approvals applied for but have not yet been received

The following approval has been applied for but has not yet been received by the Company:

� Vapi-I: The Company has made an application to Gujarat Pollution Control Board on May 22, 2003 requesting renewal of the consentorder granted to the Company under Section 21 of the Air Act.

Filing

The Letter of Offer has been filed with SEBI for its observations and SEBI has given its observations and the final Letter of Offer is filedwith Vadodara Stock Exchange, along with documents required to be filed as per the provisions of the Act.

DISCLAIMER CLAUSE

AS REQUIRED, A COPY OF THIS LETTER OF OFFER HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLY UNDERSTOODTHAT THE SUBMISSION OF LETTER OF OFFER TO THE SECURITIES & EXCHANGE BOARD OF INDIA (SEBI) SHOULD NOT,IN ANY WAY BE DEEMED/ CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKEANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR FOR WHICH THE ISSUE IS PROPOSEDTO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE LETTER OFOFFER. THE LEAD MANAGER M/S KOTAK MAHINDRA CAPITAL COMPANY LIMITED HAS CERTIFIED THAT THE DISCLOSURESMADE IN THE LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI GUIDELINES FORDISCLOSURE AND INVESTOR PROTECTION IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATEINVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BECLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS,ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE LETTER OF OFFER, THE LEAD MANAGERS AREEXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELYIN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD MANAGER M/S KOTAK MAHINDRA CAPITAL COMPANY LIMITEDHAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED JUNE 20, 2003 WHICH READS AS FOLLOWS:

“1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIAL DISPUTES,PATENT DISPUTES WITH COLLABORATORS ETC. AND OTHER MATERIAL IN CONNECTION WITH THE FINALIZATION OFTHE LETTER OF OFFER PERTAINING TO THE SAID ISSUE;

2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY, ITS DIRECTORS AND OTHEROFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OFTHE ISSUE, PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN THE ANNEXURE ANDOTHER PAPERS FURNISHED BY THE COMPANY;

WE CONFIRM THAT:

A. THE LETTER OF OFFER FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERSRELEVANT TO THE ISSUE;

B. ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES, INSTRUCTIONS ETC.,ISSUED BY SEBI, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULYCOMPLIED WITH;

7

C. THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE TRUE, FAIR AND ADEQUATE TO ENABLE THE INVESTORS TOMAKE A WELL-INFORMED DECISION AS TO INVESTMENT IN THE PROPOSED ISSUE;

D. WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE LETTER OF OFFER AREREGISTERED WITH SEBI AND TILL DATE SUCH REGISTRATION IS VALID; AND

E. IF UNDERWRITTEN, WE SHALL SATISFY OURSELVES ABOUT THE WORTH OF THE UNDERWRITERS TO FULFILL THEIRUNDERWRITING COMMITMENTS”.

THE FILING OF THE LETTER OF OFFER DOES NOT, HOWEVER, ABSOLVE THE COMPANY FROM ANY LIABILITIES UNDERSECTION 63 OF THE COMPANIES ACT, 1956 OR FROM THE REQUIREMENT OF OBTAINING SUCH STATUTORY OR OTHERCLEARANCE AS MAY BE REQUIRED FOR THE PURPOSE OF THE PROPOSED ISSUE. SEBI FURTHER RESERVES THE RIGHTTO TAKE UP, AT ANY POINT OF TIME, WITH THE LEAD MANAGER ANY IRREGULARITIES OR LAPSES IN THE LETTER OFOFFER.

The Company may, if it deems necessary, get a part or whole of this Issue underwritten at any time prior to the Issue Closing Date.

Caution

The Company and the Lead Manager accept no responsibility for statements made otherwise than in this Letter of Offer or in anyadvertisement or other material issued by the Company or by any other persons at the instance of the Company and anyone placingreliance on any other source of information would be doing so at his/ her own risk.

The Lead Manager and the Company shall make all information available to the Equity Shareholders and no selective or additionalinformation would be available for a section of the Equity Shareholders in any manner whatsoever including at presentations, in researchor sales reports etc. after filing of the Letter of Offer with SEBI.

Disclaimer with respect to Jurisdiction

This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and regulations thereunder. Anydisputes arising out of this Issue will be subject to the jurisdiction of the appropriate court(s) in Killa Pardi, District Valsad, Gujarat only.

Disclaimer Clause of the Stock Exchanges

Disclaimer Clause of VSE

As required, a copy of this prospectus has been submitted to Vadodara Stock Exchange Ltd. (hereinafter referred to as VSE). VSE hasgiven vide its letter dated 10/1/2002 permission to the issuer to use the Exchange’s name in this prospectus as one of the stockexchanges on which this Issuer’s securities are proposed to be listed. The Exchange has scrutinized this prospectus for its limitedinternal purpose of deciding on the matter of granting the aforesaid permission to this Issuer. It is to be distinctly understood that theaforesaid permission given by VSE should not in any way be deemed or construed that the prospectus has been cleared or approvedby VSE; nor does it in any manner warrant certify or endorse the correctness or completeness of any of the contents of this prospectus;nor does it warrant that this Issuer’s securities will responsibility for the financial or other soundness of this Issuer, its promoters, itsmanagement or any scheme or project of this Issuer.

Every person who desires to apply for or otherwise acquire any securities of this Issuer may do so pursuant to independent inquiry,investigation and analysts and shall not have any claim against the Exchange whatsoever by reason of any loss which may be sufferedby such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to bestated herein or any other reason whatsoever.

Disclaimer Clause of NSE

As required, a copy of this letter of offer has been submitted to National Stock Exchange of India Limited (hereinafter referred to asNSE). NSE has given vide its letter dated July 17, 2003 permission to the Issuer to use the Exchange’s name in this letter of offer asone of the stock exchange on which this Issuer’s securities are proposed to be listed. The Exchange has scrutinized this letter of offerfor its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Issuer. It is to be distinctly understoodthat the aforesaid permission given by NSE should not in any way be deemed or construed that the letter of offer has been cleared orapproved by NSE; nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the contents of thisletter of offer; nor does it warrant that this Issuer’s securities will be listed or will continue to be listed on the Exchange; nor does it takeany responsibility for the financial or other soundness of this Issuer, its promoters, its management or any scheme or project of thisIssuer.

Every person who desires to apply for or otherwise acquire any securities of this Issuer may do so pursuant to independent inquiry,investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be sufferedby such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to bestated herein or any other reason whatsoever.

Disclaimer Clause of ASE

As required, a copy of this LOF has been submitted to ASE. ASE has given permission to the issuer to use the Exchange’s name in thisLOF as one of the Stock Exchanges on which this Issuer’s Securities are proposed to be listed. The Exchange has scrutinized LOF orits limited internal purpose of deciding on the matter of granting the aforesaid permission to the Issuer. It is to be distinctly understoodthat the aforesaid permission given by ASE should not in any way be deemed or construed that the LOF has been cleared or approvedby ASE; nor does it in any manner warrant certify or endorse the correctness or completeness of any of the contents of the LOF, nordoes it warrant that the Issuer’s securities will responsibility for the financial or other soundness of this Issuer, its promoters, its managementor any scheme or project of this Issuer.

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Every person who desires to apply for or otherwise, acquire any securities of this Issuer may do so pursuant to independent inquiry,investigation and analysts and shall not have any claim against the exchange whatsoever by reason of any loss, which may be sufferedby such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to bestated herein or any other reason whatsoever.

Impersonation

As a matter of abundant caution, attention of the applicants is specifically drawn to the provisions of sub section (1) ofSection 68A of the Companies Act, 1956 which is reproduced below:

“Any person who-

(a) makes in a fictitious name an application to a Company for acquiring or subscribing for any shares therein, or

(b) otherwise induces a Company to allot, or register any transfer of shares therein to him, or any other person in a fictitiousname,

shall be punishable with imprisonment for a term which may extend to five years.”

Minimum Subscription

If the Company does not receive minimum subscription of 90% of the Issue, the entire subscription shall be refunded to the applicantswithin forty-two days from the Date of Closure of the Issue. If there is delay in the refund of subscription by more than eight days afterthe Company becomes liable to pay the subscription amount (i.e. forty two days after Closure of the Issue), the Company will payinterest for the delayed period, at rates prescribed under sub sections (2) and (2A) of Section 73 of the Companies Act, 1956.

The issue will become undersubscribed after considering the number of shares applied as per entitlement plus additional shares. Theundersubscribed portion can be applied for only after the close of the Issue. The promoters or any other person can subscribe to suchundersubscribed portion as per relevant provisions of law. If any person presently in control of the Company desires to subscribe tosuch undersubscribed portion and if disclosure is made pursuant to SEBI (Substantial Acquisition of Shares and Takeover) Regulations,1997, such allotment of the undersubscribed portion will be governed by the provisions of the SEBI (Substantial Acquisition of Sharesand Takeover) Regulations, 1997.

The above is subject to the terms mentioned under the “Basis of Allotment” of page 21 of the Letter of Offer.

Allotment Letters/ Refund Orders

The Company shall give credit to the Beneficiary Account and/ or issue and dispatch letters of allotment/ share certificates and/ orletters of regret along with refund order, if any within a period of forty-two days from the Issue Closing Date. If such money is not repaidwithin eight days after the day the Company becomes liable to pay it, the Company shall pay that money with interest as stipulatedunder sub sections (2) and (2A) of Section 73 of the Act.

Letters of allotment/ share certificates/ refund orders above the value of Rs.1,500/- will be dispatched by Registered Post/ Speed Postto the sole/ first applicant’s registered address. However, refund orders for value not exceeding Rs.1,500/- shall be sent to the applicantsUnder Postal Certificate. Such cheques or pay orders will be payable at par at all the centers where the applications were originallyaccepted, will be marked “A/c payee” and would be drawn in the name of the sole/ first applicant. Adequate funds would be madeavailable to the Registrar to the Issue by the Company for dispatch of the refund orders.

In case the Company issues letters of allotment, the corresponding share certificates/ credit to the Beneficiary Account will be keptready within three months from the date of allotment thereof or such extended time as may be approved by the Company Law Boardunder Section 113 of the Companies Act, 1956 or other applicable provisions, if any. Allottees are requested to preserve such letters ofallotment, which would be exchanged later for the share certificates.

Listing

The existing Equity Shares of the Company are listed on the VSE, BSE, NSE, DSE and ASE. The Company has made applications tothe VSE, BSE, NSE, DSE and ASE for permission to deal in and for an official quotation in respect of the securities being offered in termsof this Letter of Offer. The Company has received in-principle approvals from VSE, BSE, NSE, DSE and ASE by letters dated July 5,2003, July 18, 2003, July 17, 2003, July 22, 2003 and July 15, 2003 respectively, for listing the securities arising from this Issue.

If the permission to deal in and for an official quotation of the securities is not granted by any of the Stock Exchanges mentioned above,within six weeks from the Issue Closing Date, the Company shall forthwith repay, without interest, all monies received from applicantsin pursuance of this Letter of Offer. If such money is not paid within eight days after the Company becomes liable to repay it, then theCompany and every Director of the Company who is an officer in default shall, on and from expiry of eight days, be jointly and severallyliable to repay the money with interest as prescribed under the Section 73 of the Act.

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Credit rating

As this is an issue of equity shares, there is no credit rating for this Issue. The details of the credit ratings received by the Companyin the last 3 years is as follows:

Borrowing Program Rating Rating Date of letter from theAgency rating agency

Rs 120 mn Commercial Paper programme CARE PR1+ (first rating) February 2, 2000Rs 200 mn NCD issue AA (first rating)

Rs 120 mn Commercial Paper programme CARE PR1+ (no change) April 10, 2000

Review of Rs 200 mn NCD issue CARE AA+ (upgraded from AA) May 9, 2000

Rs 310 mn NCD issue CARE AA+ (upgraded from AA) May 15, 2000

Rs 120 mn Commercial Paper programme CARE PR1+ (no change) July 20, 2000

Rs 250 mn NCD issue CARE AA+ (upgraded from AA) August 9, 2000

Rs 120 mn Commercial Paper programme CARE PR1+ (no change) November 15, 2000

Rs 150 mn Commercial Paper programme CARE PR1+ (no change) January 24, 2001

Annual surveillance of existing NCD issues: CARE AA+ (upgraded from AA) March 28, 2001- Rs 200 mn- Rs 310 mn- Rs 250 mn

Rs 150 mn Commercial Paper programme CARE PR1+ (retained the rating March 28, 2001assigned earlier)

Rs 150 mn Commercial Paper programme CARE PR1+ (no change) June 14, 2001

Review of existing NCD issues: CARE AA+ (upgraded from AA) November 13, 2001- Rs 200 mn- Rs 310 mn- Rs 250 mn

Review of Rs 150 mn Commercial CARE PR1+ (no change) November 13, 2001Paper programme

Short Term Debt programme CARE PR1+ (no change) August 23, 2002(including Commercial Paper)for an enhanced amount upto Rs. 250 mn

Annual surveillance of secured NCD issues CARE AA (downgraded from AA+) August 23, 2002aggregating Rs. 760 mn

Short Term Debt programme CARE PR1 (downgraded from PR1+) November 28, 2002(including Commercial Paper)for an enhanced amount upto Rs. 400 mn

Review of rating assigned to secured CARE A+ (downgraded from AA) November 28, 2002NCD issues aggregating Rs. 760 mn

“Instruments with a CARE ‘A’ rating are considered upper medium grade instruments and have many favourable investment attributes.Safety for principal and interest are considered adequate. Assumptions that do not materialize may have a greater impact as comparedto instruments rated higher. As instruments characteristics or debt management capability could cover a wide range of possible attributeswhereas rating is expressed only in limited number of symbols, CARE assigns ‘+’ or ‘-‘ signs to be shown after the assigned rating(wherever necessary) to indicate the relative position within the band covered by the rating symbol.” (Source: Explanatory notes regardingRating symbols of CARE, CARE letter dated November 28, 2002).

Trustees

As this is an issue of Equity Shares, the appoinment of trustees is not necessary.

Utilization of Issue Proceeds

The Board of Directors declare that:

� The funds received against this Issue will be transferred to a separate bank account other than the bank account referred to sub-section (3) of Section 73 of the Act. This excludes the amount brought in by the promoters as money against proposed furtherissue of capital by the Company (which, pending appropriation, is in the Share Capital Suspense Account) and utilized by theCompany towards the Objects of the Issue (For details please refer to Section “Particulars of the Issue” on page 29 of the Letterof Offer). Promoters’ entitlements in the Issue adjusted for amounts already utilized by the Company on the Issue Opening Date,

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will also be transferred to the separate bank account mentioned above, on the Issue Opening Date. Subject to the terms mentionedunder “Basis of Allotment” on page 21 of the Letter of Offer, equity shares will be allotted to the promoters in the Issue against thetotal amount brought in by the promoters, including the amounts already brought in.

� Details of all moneys utilized out of the Issue shall be disclosed under an appropriate separate head in the balance sheet of theCompany indicating the purpose for which such moneys has been utilized.

� Details of all such unutilized moneys out of the Issue, if any, shall be disclosed under an appropriate separate head in the balancesheet of the Company indicating the form in which such unutilized moneys have been invested.

The funds received against this Issue, except to the extent utilized by the Company from the promoters’ entitlement in the Issue,till the Issue Opening Date as mentioned above, will be kept in a separate bank account and the Company will not have any accessto such funds unless it satisfies the Vadodara Stock Exchange with suitable documentary evidence that the minimum subscriptionof 90% of the Issue (including the amounts already brought in by the promoters as mentioned under “Particulars of the Issue” onpage 29 of the Letter of Offer, and adjusted for actual allotment to promoters as mentioned in “Terms of Issue”, page 17) has beenreceived by the Company.

Undertaking by the Company

� The complaints received in respect of this Issue shall be attended to by the Company expeditiously and satisfactorily.

� All steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where thesecurities are to be listed will be taken within 7 working days of finalisation of basis of allotment.

� The funds required for dispatch of refund orders/ allotment letters/ certificates by registered post shall be made available to theRegistrar to the Issue.

� The share certificates/ credit to the beneficiary account/ refund orders to the Non-Resident Indians shall be dispatched within thespecified time.

� No further issue of securities affecting equity capital of the Company shall be made till the securities issued/ offered through thisIssue are listed or till the application moneys are refunded on account of non-listing, under-subscription etc.

Underwriting agreement / Stand-by arrangement by the Company

The Company has not entered into any underwriting agreement for this Issue. However, the promoters intend to apply for additionalshares in the Issue such that at least 90% of the Issue Size is subscribed. As a result of this subscription and consequent allotment,the promoters may acquire shares over and above their entitlement in the Issue, which may result in their shareholding in the Companybeing above their current shareholding. Please refer to section “Notes to Capital Structure”, page 11 for details.

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CAPITAL STRUCTURE Nominal

Amount (Rs.)

Authorized share capital

30,000,000 Equity shares of Rs.10/- each 300,000,000

5,500,000 Preference shares of Rs.100/- each 550,000,000

850,000,000

Issued, subscribed and paid-up capital13,662,000 Equity shares of Rs.10/- each 136,620,000

100,000(1)

80% Cumulative Redeemable Preference Shares of Rs 100/- each 10,000,000

250,000(2)


4,000,000(3)


571,620,000

Present issue being offered to the Equity Shareholders Nominal value Premiumthrough the Letter of Offer

8,197,200 Equity Shares of Rs. 10/- each at a premium of Rs. 230/- 81,972,000 1,885,356,000

Paid up capital after the Issue21,859,200 Equity shares of Rs.10/- each 218,592,000

Share premium AccountExisting share premium account 902,465,481

Share premium account after the Issue 2,787,821,481

(1) 95%, 100,000 Cumulative Redeemable Preference Shares of Rs 100 each were allotted to ZGB Holdings Pvt. Ltd. on October 3,2000. These shares were redeemable in 24 months from date of allotment at a premium of Rs. 900 per share and had a call andput option for 50% of the shares at the end of 12 months and for the balance 50% at the end of 18 months from allotment. Therefore,on the total amount of Rs. 1000 per share paid by ZGB Holdings Private Limited, a dividend of Rs. 95 per share was payable,resulting in a yield of 9.5% pa. Dividend was payable on or before March 31 of each year or on redemption.

The terms of these Cumulative Redeemable Preference Shares were amended vide board resolution dated March 27, 2003, andaccordingly, effective April 1, 2003, the coupon rate is 80% till redemption. The tenor has been extended by 36 months from October3, 2002 with call and put options exercisable any time after 6 months from October 3, 2002. The Cumulative Redeemable PreferenceShares which were allotted to ZGB Holdings Pvt Ltd were transferred to Parishram Estate Pvt. Ltd. All other terms and conditionsof the Cumulative Redeemable Preference Shares have remained unchanged.

(2) 90% 250,000 Cumulative Redeemable Preference Shares of Rs 100 each allotted to Parishram Estate Pvt. Ltd. on March 27, 2001.These shares redeemable in 36 months at a premium of Rs 900 per share have a call and put option any time after 3 months fromthe date of allotment. Therefore, on the total amount of Rs. 1000 per share paid by Parishram Estate Pvt. Ltd., a dividend of Rs. 90per share is payable, resulting in a yield of 9.0% p.a. Dividend is payable on or before March 31 of each year or on redemption,provided that the first such dividend would be paid on or before March 31, 2002.

(3) 9% 4,000,000 Cumulative Redeemable Preference Shares of Rs 100 each allotted to Parishram Estate Pvt. Ltd. on March 20, 2002.These shares redeemable in 36 months at par have a call and put option at any time after 3 months from the date of allotment.Dividend is payable on or before March 31 of each year or on redemption, provided that the first such dividend would be paid onor before March 31, 2003.

Notes to the Capital Structure

1. Build up of Equity Share Capital

Date of No. of Face Issue % of pre- Consid- Remarksallotment Equity Value Price issue eration

Shares (Rs.) (Rs.) capitalAllotted

14.11.1991 70 10 10 0.0% Cash Initial subscribers to the Memorandum ofAssociation

20.01.1992 267,226 10 10 2.0% Cash Fresh issue of equity shares

28.05.1992 652,704 10 10 4.8% Cash Fresh issue of equity shares

16.02.1993 3,011,000 10 10 22.0% Cash Initial public offer

22.05.1996 2,000,000 10 99.687 14.6% Cash Exercise of warrants pursuant to preferentialissue of 2,000,000 detachable warrants issuedon 25.11.1994 with 0% unsecured NCDsentitling the holder one equity share per Warrant*

15.12.1999 900,000 10 550 6.6% Cash Preferential issue of equity shares**

22.11.2000 6,831,000 10 NA 50.0% NA Issue of bonus shares (1:1 basis)

Total 13,662,000 10 NA 100.0%

* The subscribers, in equal proportion, were Mr Yunus Bilakhia, Mr. Anjum Bilakhia, Mrs. H.A. Bilakhia and Mrs. R.Y. Bilakhia.

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** The subscribers, in equal proportion, were Mr. Yunus Bilakhia, Mr. Anjum Bilakhia and Mr. Zakir Bilakhia. Money (including premium)was received in three instalments for allotment of shares in this preferential issue (application money comprising equity of Rs. 2.50 pershare and premium of Rs. 135 per share was called on December 15, 1999; first call with equity of Rs. 1.25 per share and premium ofRs. 67.50 per share was called on March 29, 2000 and final call with equity of Rs. 6.25 per share and premium of Rs. 337.50 per sharewas called on April 17, 2000)

Except issuance of bonus shares as stated in the table above, the Company has not issued shares for consideration other than cashor out of revaluation reserves.

2. Build up of Cumulative Redeemable Preference Shares

Date of No. of shares Face value Issue price % of pre-issue Considerationallotment (Rs) (Rs) preference

capital

03.10.2000 100,000 100 1000 2.3% Cash

27.03.2001 250,000 100 1000 5.8% Cash

20.03.2002 4,000,000 100 100 91.9% Cash

4,350,000 100.0%

3. Current shareholding pattern of the Company (as on August 29, 2003)

Shareholders No. of equity % of Pre-issue % of post issue capitalshares held capital assuming allotment of all

equity shares offered*

Promoters

Mr. Yunus Bilakhia 300,000 2.2% 2.2%

Mr. Anjum Bilakhia 300,000 2.2% 2.2%

Mr. Zakir Bilakhia 300,000 2.2% 2.2%

Bilakhia Holdings Pvt. Ltd. 9,264,160 67.8% 67.8%

Total promoter shareholding 10,164,160 74.4% 74.4%

Directors & directors’ relatives(other than promoter directors) 86,819 0.6% 0.6%

Promoter Group Nil Nil Nil

Public

Individuals 2,900,881 21.2% 21.2%

NRIs 14,043 0.1% 0.1%

OCBs 3,400 0.0% 0.0%

Mutual Funds 10,711 0.1% 0.1%

Nationalised Banks 400 0.0% 0.0%

Non nationalized banks 500 0.0% 0.0%

FIs & Insurance companies 9,000 0.1% 0.1%

Foreign Company - - -

Others (Includes Clearing Member) 472,086 3.5% 3.5%

Total public shareholding 3,411,021 25.0% 25.0%

Total 13,662,000 100.0% 100.0%

* The promoters have confirmed that they intend to subscribe to the full extent of their entitlement in the Issue. In addition to theirentitlement, the promoters intend to apply for additional shares in the Issue, subject to applicable law(s), such that at least 90% of theIssue Size is subscribed. As a result of this subscription and consequent acquisition of shares over and above their entitlement, if any,promoters’ shareholding in the Company may be above their current shareholding. Please refer to paragraph 4 below for details.

4. On March 27 and 28, 2002 and on March 31, 2003, the promoters have brought in Rs. 1500 million (Rs. 1000 mn and Rs. 500 mnrespectively) as money against proposed further issue of capital by the Company, which is accounted for in the Share CapitalSuspense Account. This amount of Rs. 1500 million would be adjusted against allotments to promoters pursuant to (a) their entitlementand (b) their application for additional shares, if any, in the Issue, subject to applicable law(s). Allotment of shares to promoters in(a) and (b) above would be done at the Issue price. The promoters have confirmed that they intend to subscribe to the full extentof their entitlement in the Issue. The promoters intend to apply for additional shares in the Issue such that at least 90% of the IssueSize is subscribed. As a result of this subscription and consequent allotment, the promoters may acquire shares over and above

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their entitlement in the Issue, which may result in their shareholding in the Company being above their current shareholding. Thissubscription and acquisition of additional shares by promoters, if any, will not result in change of control of the management of theCompany and shall be exempt in terms of proviso to Regulation 3(1)(b)(ii) of the SEBI (Substantial Acquisition of Shares andTakeover) Regulations, 1997. As such, other than meeting the requirements indicated in Use of Funds, Objects of the Issue (refer“Particulars of the Issue”, page 29 of the Letter of Offer), there is no other intention/purpose for this Issue, including any intentionto delist the Company, even if, as a result of allotments to the promoters in this Issue, the promoter shareholding in the Companyexceeds their current shareholding. However, each of the promoters have confirmed that in case the Rights Issue of the Companyis completed with the promoters subscribing to equity shares over and above their entitlement and as a result, if the public shareholdingin the Company after the Rights Issue falls below the “permissible minimum level”, they will either individually or jointly with otherpromoters agree to buy out the remaining holders at the price of the Issue and shall delist the Company as required in sub-clause17.1 and 17.2 of SEBI (Delisting of Securities) Guidelines, 2003, and shall complete all formalities in this regard within a period of3 months from the date of allotment in the proposed Issue, as required under the SEBI (Delisting of Securities) Guidelines, 2003 oras per any amendment thereto or any other period as may be directed by SEBI or any appropriate authority. In this context, theBoard of Directors of Bilakhia Holdings Private Limited have passed the following resolution in their Board meeting held on August11, 2003:

“Resolved that, in case the Rights Issue of Hindustan Inks and Resins Limited (“HIRL”) is completed with promoters subscribing toequity shares over and above their entitlement and as a result, if the public shareholding in the Company after the Rights Issue fallsbelow the permissible minimum level, Bilakhia Holdings Private Limited either by itself or jointly with other promoters, agrees to buy outthe remaining holders at the price of the Rights Issue and shall delist HIRL as required in sub-clause 17.1 and sub-clause 17.2 of theSEBI (Delisting of Securities) Guidelines, 2003 and shall complete all the formalities in this regard within a period of 3 months from thedate of allotment of the proposed Rights Issue as required under the SEBI (Delisting of Securities) Guidelines, 2003 or as per anyamendment thereto or any other period as may be directed by SEBI or any appropriate authority.”

Individual promoters have also provided similar undertakings.

5. Details of the shareholding of the promoters, directors of promoters and promoter group in the Company as on August29, 2003 is as follows:

Name of entities No. of shares

PromotersMr. Yunus Bilakhia 300,000

Mr. Anjum Bilakhia 300,000

Mr. Zakir Bilakhia 300,000

Bilakhia Holdings Pvt. Ltd. 9,264,160

Sub-total 10,164,160Directors of promoter companyMr. Yunus Bilakhia 300,000*

Mr. Anjum Bilakhia 300,000*

Sub-total 600,000Promoter group 0

Total 10,164,160

* Already reflected as shares held in their capacity as promoters

None of the members of the Promoter Group (apart from promoters) have any shareholding in the Company.

6. Details of the earliest and latest market purchases by promoters and promoter group and average purchase price ofcurrent holding.

Name Market purchases Weighted CurrentEarliest Latest average shareholding

Date No. of Price Date No. of Price price (Rs.) (No. of shares)shares shares

Promoters

Mr. Yunus Bilakhia 29-12-94 400 204.13 29-12-94 400 204.13 204.13 300,000

Mr. Anjum Bilakhia 20-11-94 900 306.00 20-11-94 900 306.00 306.00 300,000

Mr. Zakir Bilakhia 13-12-98 67,200 111.61 28-09-99 2,600 654.11 131.81 300,000

Bilakhia Holdings Pvt. Ltd. 18-10-94 800 306.00 25-05-00 1,500 695.38 559.95 9,264,160

Promoter Group(Companies)

NIL

Promoters/ directors, their relations and their associates have not either directly or indirectly financed any transaction in the securitiesof the Company during the preceding six months.

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7. Top 10 shareholders

a. Top 10 shareholders as on August 29, 2003

Name of the shareholders Total Shares % of pre issue capital

Bilakhia Holdings Pvt. Ltd. 9,264,160 67.8%

Mr. Yunus Bilakhia 300,000 2.2%

Mr. Anjum Bilakhia 300,000 2.2%

Mr. Zakir Bilakhia 300,000 2.2%

Mr. Akash Bhanshali 152,636 1.1%

Mr. Vinod L Thukral 92,500 0.7%

Mr. N. P. Bambharolia 90,610 0.7%

Sudarshan Securities Pvt. Ltd. 88,237 0.6%

Enam Investment Services Pvt. Ltd. 71,153 0.5%

Uma Vinod Thukral 58,700 0.4%

TOTAL 10,717,996 78.5%

b. Top 10 shareholders as on August 22, 2003






Mr. Akash Bhanshali 152,570 1.1%




Enam Investment Services Pvt. Ltd. 71,153 0.5%

Uma Vinod Thukral 58,700 0.4%

TOTAL 10,701,993 78.3%

c. Top 10 shareholders as on August 31, 2001






Birla Sun Life Trustee co. Ltd. A/c Birla 295,093 2.2%



IDBI - Principal Equity Fund 88,400 0.6%

Mr. Suresh Kumar Agarwal 87,400 0.6%


TOTAL 10,898,663 79.8%

8. The total number of members of the Company as on August 29, 2003 is 7,798.

9. The present Issue being a Rights Issue, as per extant SEBI guidelines, the requirement of promoters’ contribution and lock-in arenot applicable.

10. The Company has not availed of “bridge loans” to be repaid from the proceeds of the Issue for incurring expenditure on the Objectsof the Issue.

11. The promoters and directors of the Company and Lead Manager of the Issue have not entered into any buy-back or similararrangements for any of the securities being issued through this Letter of Offer.

12. The terms of issue to Non-Resident Equity Shareholders/ applicants have been presented under the section “Terms of the Issue”on page 17 of this LoF.

13. At any given time, there shall be only one denomination of the Equity Shares of the Company.

14. The Company has complied with extant SEBI Guidelines (Chapter XV of SEBI Guidelines) for bonus issues in respect of the issueof bonus shares in November 2000.

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The Company has complied with extant SEBI guidelines for preferential issues during past allotments of shares on a preferentialbasis in May 1996 and December 1999, including certification by a chartered accountant as per Chapter XIII of SEBI Guidelines forthe preferential issue in December 1999 (details of which are given on page 16 of this Letter of Offer), except the following:

The shareholders of the Company (referred to as the “target company” in this section) passed a special resolution in theExtraordinary General Meeting held on November 30, 1999 for issue and allotment of 9,00,000 equity shares of Rs.10/- each atRs.550/- on a preferential basis to each of the following promoters i.e. Mr.Yunus Bilakhia, Mr. Anjum Bilakhia and Mr. Zakir Bilakhia(collectively referred to as the “Acquirers” in this section).

The shareholding of these promoters before and after the preferential issue is as follows:

No Name of Acquirer Before Preferential issue After Preferential issueShares % held Shares % held

1 Mr.Yunus Bilakhia 694,670 11.71% 994,670 14.56%

2 Mr.Anjum Bilakhia 619,710 10.44% 919,710 13.46%

3 Mr.Zakir Bilakhia 83,410 1.40% 383,410 5.16%

Total equity capital held by Acquirers 1,397,790 23.55% 2,297,790 33.18%

Total equity capital of the Company 5,931,000 100.00% 6,831,000 100.00%

An extract of the order passed by SEBI on May 8, 2000 in relation to the preferential allotment of shares to the Acquirers isprovided below:

“As per the provisions contained in Regulation 3(1) (c) (ii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,1997 (referred to as the said Regulations in this section), the acquisition of shares through a preferential allotment is exemptedfrom the applicability of the Regulations provided full disclosures as regards identity of the proposed allottee, the price at which theallotment is made, the purpose of and reason of such allotment, consequential changes, if any, in the Board of Directors, theshareholding pattern of the target company and whether such allotment would result in the change of control over the target companyare made in the notice of the General Meeting called for the purpose of consideration of the preferential issue. Hence, for the EGMheld on November 30, 1999, a copy of the notice dated November 6, 1999 sent to the shareholders of the target company wasforwarded to SEBI under the cover of letter dated December 24, 1999. On consideration of the same, it was noted that the saidnotice did not contain adequate disclosures regarding the shareholding pattern of the target company, the consequential changesin the Board of Directors, voting rights, and disclosures as to whether such an allotment would result in the change in the controlof the target company.

Since the Acquirers was already holding 28.55% shares of the target company prior to the said acquisition, and as the said shareshad been acquired without making a public announcement, the acquirer company would not be able to claim the benefit of non-applicability of regulation 11 (1) of the Regulations and prima-facie appeared to have violated the provisions of regulations 11(1) ofthe said Regulations. Hence, SEBI issued a show cause notice dated February 14, 2000 calling upon the target company to showcause as to why action under regulations 44 and 45 (6) of the said Regulations read with Section 11 of the SEBI Act, 1992 shouldnot be initiated against them for the non compliance of Regulation 3(1) (c) (ii) of the Regulations and called upon them to reply tothe issues contained in the said notice and indicate whether they desired to appear before the Chairman of SEBI for a personalhearing in order to present their case.

In reply to the same and with reference to the issues raised in the show cause notice, the target company, vide their letter datedFebruary 21, 2000 inter-alia, submitted that the copies of the EGM meeting to consider the allotment of shares was duly circulatedto the shareholders wherein the resolution to allot the shares was passed unanimously. Further, the names of the allottees and thequantity of the shares to be allotted was also given in the notice of the meeting and in the explanatory notes. It was also stated thatthe preferential allotment would be done to the promoters, which includes directors. It was however, admitted that the details of thenumber of shares held by the allottees both before and after the preferential allotment ought to have been given. With reference tothe lack of disclosures relating to consequential change in control of the target company subsequent to the allotment, it was submittedthat as no change in control had taken place, no disclosure to that effect had been made. The target company, however, requestedthe condonation of the inadvertent lapses of not specifying the requisite information in the notice.

During the course of the hearing held on March 24, 2000, the submissions stated above were once again reiterated. Subsequently,vide their letters dated March 27, 2000 and April 13, 2000 the target company submitted that they agreed with the view of SEBI thatthere were procedural errors in their EGM notice circulated by the target company and that the same was not in conformity withthe regulatory requirements. It was also submitted that under the provisions of Section 151 of the SEBI Act, 1992, SEBI has thepower to appoint an adjudicating officer to adjudicate upon the issue under consideration and levy a monetary penalty not exceedingRs. five lacs. Hence, with a view to close the matter, the Acquirers voluntarily agreed to pay an amount of Rs. 5 lacs to SEBI aspenalty for the breach of the Regulations and accordingly enclosed a DD no. 515022 dated April 13, 2000 for Rs. 5 lacs in favourof SEBI.”

After taking into consideration the facts and circumstances of the case, the submissions made by representatives of the targetcompany as well as the documents available on record, SEBI noted that no cogent explanation had been offered by the targetcompany with reference to the lack of adequate disclosures in the notice, relating to the shareholding pattern of the target company,the change in the Board of Directors and the change of the voting rights of the target company pursuant to the preferential allotment.Details of the number of shares held by the allottees was not provided in the notice.

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However, SEBI noted that it was apparent that the non-compliance with the statutory requirement was unintentional, without anymalafide and done without an intent to obtain any benefit or deny any benefit to the shareholders. Further, it had been stated thatthe preferential allotment had been carried out to facilitate the expansion plans of the target company.

Under the provisions of Section 151 of the SEBI Act, 1992, SEBI has the power to appoint an adjudicating officer to adjudicate uponthe issue under consideration and levy a monetary penalty not exceeding five lacs. Rather than go through the formalities ofadjudication, in view of the deposit by the acquirers of the maximum amount of Rs.5 lakhs and with a view to close the matter asrequested by the target company and the acquirers, SEBI proposed to treat the present proceedings as a formal adjudicationproceedings and disposed the matter. The target company also waived the requirement of a formal adjudication notice and consentedto the proceedings.

Details of the certification by the statutory auditor of the Company, S.B. Billimoria & Co., as per Chapter XIII of SEBI (Disclosure andInvestor Protection) Guidelines, 2000 for the preferential issue in December 1999 are given below:

“The promoters as defined in the notice of the Extra Ordinary General Meeting of the Company dated November 6, 1999 havebeen allotted 900,000 equity shares of the Company at Rs. 550 per share (including premium of Rs. 540 per share) and have paidRs. 495,000,000 to the Company. The aforesaid funds raised have been utilized for expanding the Company’s capacity formanufacturing inks at its facilities at Silvassa and for manufacturing pigments and resins at its facilities at Vapi, which is in conformitywith the purpose stated in the notice dated November 6, 1999.

According to the information and explanations given to us, and to the best of our knowledge, the undermentioned issue on apreferential basis to:

Mr. Yunus Bilakhia 300,000 equity shares of Rs. 10 each

Mr. Anjum Bilakhia 300,000 equity shares of Rs. 10 each

Mr. Zakir Bilakhia 300,000 equity shares of Rs. 10 each

of M/s. Hindustan Inks and Resins Limited, 2803/2, Third Phase, GIDC, Vapi – 396 195, Gujarat is as per the guidelines datedAugust 4, 1994 of the Securities and Exchange Board of India (SEBI). The issue price of Rs. 550 per share is higher of:

(1) the average of weekly high and low of the closing prices of the equity shares quoted on The Stock Exchange, Mumbai duringthe six months preceding the relevant date i.e. Rs. 420.65

and

(2) the average of the weekly high and low of the closing prices of the equity shares quoted on The Stock Exchange, Mumbaiduring the two weeks preceding the relevant date i.e. Rs. 549.87.”

15. The Equity Shareholders of the Company do not hold any warrant, option or convertible loan or debenture, which would entitle themto acquire further shares in the Company.

16. No further issue of capital by way of issue of bonus shares, preferential allotment, rights issue or public issue or in any othermanner which will affect the equity capital of the Company, shall be made during the period commencing from the filing of the Letterof Offer with the SEBI and the date on which the Equity Shares issued under the Letter of Offer are listed or application moneysare refunded on account of the failure of the Issue. Further, presently the Company does not have any intention to alter the equitycapital structure by way of split/ consolidation of the denomination of the shares on a preferential basis or issue of bonus or rightsor pubic issue of shares or any other securities within a period of six months from the date of opening of the Issue.

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TERMS OF THE ISSUE

The Equity Shares, now being issued, are subject to the terms and conditions of this Letter of Offer, the enclosed Composite ApplicationForm (“CAF”), the Memorandum & Articles of Association of the Company, the approvals from the Stock Exchanges where EquityShares of the Company are listed, GoI, FIPB and RBI, if applicable, the provisions of the Companies Act, 1956, guidelines issued bySEBI, guidelines, notifications and regulations for issue of capital and for listing of securities issued by Government of India and/ or otherstatutory authorities and bodies from time to time, terms and conditions as stipulated in the allotment advise or letter of allotment orsecurity certificate or any other legislative enactments and rules as may be applicable and introduced from time to time.

Authority for the Issue

This Issue is being made pursuant to the resolutions dated March 27, 2002 and May 10, 2003, passed by the Board of Directors andresolution dated May 28, 2003, passed by the Committee of Directors. Further, the Board of Directors of the Company has approved(a) the Draft Letter of Offer in the board meeting held on June 9, 2003, (b) the Letter of Offer in the board meeting held on August 25,2003 (c) the Letter of Offer by means of a circular resolution on September 11, 2003. All the directors, including the Managing Director,as well as the Chief Financial Officer [Director (Finance)] have signed this Letter of Offer.

Basis of the Issue

The Equity Shares are being offered for subscription for cash to those existing Equity Shareholders whose names appear as beneficialowners as per the list to be furnished by the depositories in respect of the shares held in the electronic form and on the Register ofMembers of the Company in respect of shares held in the physical form at the close of business hours on the Record Date i.e. September12, 2003 fixed in consultation with the Vadodara Stock Exchange.

Rights Entitlement

As you are an Equity Shareholder on the Record Date, you are being made an offer under this Issue in the ratio of 3 Equity Shares to5 Equity shares held, as shown in Part A of the enclosed Composite Application Form.

Fractional Entitlement

If the shareholding of any of the Equity Shareholders is not in multiple of 5 (Five), then the fractional entitlement of such holders shallbe rounded up to the next higher integer. Shareholders holding less than 5 (Five) equity shares will be offered 1 (One) new Equity Share.The Equity Shares needed for such shares will be adjusted from the entitlement to promoters.

Offer to Non-Resident Equity Shareholders/ Applicants

1. Pursuant to Rule 6 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India)Regulations, 2000 persons resident outside India are permitted to apply for the Equity Shares offered in this Issue on a repatriablebasis to the extent of their rights entitlement.

2. The Company had submitted an application, dated June 5, 2003 to FIPB seeking approval for renunciations and additional sharesin this Issue, with respect to transactions involving non-residents. Vide letter no. 03/43/SIA/NFC/2003-NRI dated August 19, 2003,FIPB has granted its approval for issue of additional shares to NRIs on rights basis and also renunciation of the rights entitlementby resident shareholders in favour of NRIs in the proposed rights issue. Further, vide letter dated September 1, 2003, through anamendment to approval letter no. 03/43/SIA/NFC/2003-NRI dated August 19, 2003, the Ministry of Commerce & Industry has alsogranted approval for:

� The renunciation of the rights entitlement by resident shareholders and allotment of the shares to non resident investors

� The renunciation of the rights entitlement by non resident shareholders and allotment of the corresponding shares to residentinvestors

� Allotment of shares against application for additional shares by non resident renouncees

� Allotment of unsubscribed shares to any non resident investor

3. The Company had made an application to the Reserve Bank of India on August 11, 2003 seeking approval for (a) allotment ofequity shares to non residents (including NRIs, OCBs and FIIs) for applications made against rights, renunciations, additionalshares and allotment of unsubscribed portion of the Rights Issue to non resident investors and (b) renunciation by residents to nonresidents, non residents to residents and non residents to non residents.

Vide letter no. CO.FID/2030/10.02.40(408)/2003-04 dated September 4, 2003, RBI has permitted the Company to issue shares onrights basis to non-resident shareholders and others subject to compliance of terms and conditions stipulated in: (a) Regulationno.6 and Schedule 2 of FEMA Notification No. 20/2000-RB dated May 3, 2000; (b) Approvals from FIPB and Ministry of Commerce& Industry stated in the paragraph above and (c) SEBI approval/regulations, if any as the Company is listed.

Non Resident renouncees are permitted to apply for renounced Equity Shares on a repatriation basis vide Rule 5(1) and ScheduleI of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000. The priceat which the renounced Equity Shares will be allotted to such Non Resident renouncees shall be the same as the price at whichthe Equity Shares will be allotted to the Equity Shareholders of the Company. In accordance with the provisions of the ForeignExchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, this price is inaccordance with the SEBI Guidelines (and in particular the pricing norms specified by SEBI for rights issues), as the Company islisted on recognized stock exchanges in India.

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4. Non Resident Equity Shareholders and Non Resident renouncees are permitted to apply for additional Equity Shares on a repatriationbasis vide Rules 5(1) and 6 and Schedule I of Foreign Exchange Management (Transfer or Issue of Security by a Person Residentoutside India) Regulations, 2000. The price at which the additional Equity Shares will be allotted to such Non Resident EquityShareholders and Non Resident renouncees shall be the same as the price at which the Equity Shares will be allotted to the EquityShareholders of the Company. In accordance with the provisions of the Foreign Exchange Management (Transfer or Issue ofSecurity by a Person Resident outside India) Regulations, 2000, this price is in accordance with SEBI Guidelines (and in particularthe pricing norms specified by SEBI for rights issues), as the Company is listed on recognized stock exchanges in India.

5. The unsubscribed Equity Shares can be allotted by the Board to any Non Resident investor on a repatriation basis vide Rule 5(1)and Schedule I of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations,2000, at a price in accordance with SEBI Guidelines, since the Company is listed on recognized stock exchanges in India. Thisprice has been arrived at in accordance with the SEBI Guidelines (and in particular the pricing norms specified by SEBI for rightsissues).

Nomination facility

Nomination facility will be provided to the shareholders in terms of Section 109A of the Companies Act, 1956.

Principal Terms and Conditions of the Issue

Face value

Each Equity Share shall have the face value of Rs. 10/-

Market lot

The market lot for the equity shares in dematerialized mode is 1 (One). In case of physical certificates, the Company would issue onecertificate for all Equity Shares allotted towards one folio (“consolidated certificate”).

Tradeable lot

Since trading of equity shares of the Company is compulsorily in dematerialized form, the tradeable lot is 1 (One) equity share.

Issue price

Each Equity Share is being offered at a price of Rs. 240/- (a premium of Rs. 230/-)

Entitlement Ratio

The Equity Shares are being offered on rights basis to the existing Equity Shareholders of the Company in the ratio of 3 Equity Sharesfor every 5 equity shares held.

Terms of payment

The full amount per Equity Share shall be payable along with the application.

Ranking of the Equity Shares

The Equity Shares shall be subject to the Memorandum and Articles of Association of the Company and shall rank pari passu in allrespects (including receipt of dividend, if any) with the existing equity shares of the Company.

How to Apply

Resident Equity Shareholders

Application should be made only on the enclosed CAF provided by the Company. The enclosed CAF should be completed in all respects,as explained in the instructions indicated in this Letter of Offer and in the CAF. Applications will not be accepted by the Lead Manageror by the Registrar to the Issue or by the Company at any offices except in the case of postal applications as per instructions givenelsewhere in the Letter of Offer.

Non-Resident Equity Shareholders

Applications received from the Non-Resident Equity Shareholders for the allotment of Equity Shares shall, inter alia, be subject to theconditions as may be imposed from time to time by the Reserve Bank of India, in the matter of refund of application moneys, allotmentof Equity Shares, issue of letters of allotment/ certificates/ credit in the Beneficiary Account/ issue of dividends etc.

The CAF consists of four parts:

Part A: Form for accepting the Equity Shares offered and for applying for additional Equity Shares

Part B: Form for renunciation

Part C: Form for application for renouncees

Part D: Form for request for split application forms

Acceptance of the Rights Issue

You may accept the Offer and apply for Equity Shares offered, either in full or in part by filling Block III of Part “A” of the enclosed CAFand submit the same (along with the application money payable to the “HIRL - Rights Issue” account) to Bankers to the Issue or anyof the branches as mentioned on the reverse of the CAF before the close of the banking hours on or before the Issue Closing Date or

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such extended time as may be specified by the Board or a Committee thereof in this regard. Applicants at centers not covered by thebranches of collecting banks can send their CAF together with a Demand Draft (net of Demand Draft charges) payable at Mumbai tothe Registrar to the Issue by registered post. Such applications sent to anyone other than the Registrar to the Issue are liable to berejected.

Additional Equity Shares

You are eligible to apply for additional Equity Shares over and above the number of Equity Shares you are entitled to, provided that youhave applied for all the Equity Shares offered without renouncing them in whole or in part in favour of any other person(s). The renounceesapplying for all the Equity Shares renounced in their favour may also apply for additional Equity Shares. Applications for additional EquityShares shall be considered and allotment shall be made in the manner prescribed under the “Basis of Allotment” on page 21 of thisLetter of Offer.

In case of application for additional shares by non-resident Equity Shareholders, the allotment of additional shares will be subject to theregulations of the Reserve Bank of India.

Where the number of additional Equity Shares applied for exceeds the number available for allotment, the allotment would be made ona proportionate basis in consultation with the Vadodara Stock Exchange.

Renunciation

As an Equity Shareholder, you have the right to renounce your entitlement for the Equity Shares in full or in part in favour of one or moreperson(s). Your attention is drawn to the fact that the Company shall not allot and/or register any Equity Shares in favour of:

� More than three persons including joint holders

� Any Trust or Society (unless the same is registered under the Societies Registration Act, 1860 or any other applicable Trust lawsand is authorized under its Constitutions to hold Equity Shares of a Company) unless the allotment is to be made in the name ofany trust or society as a beneficial owner in the electronic form or in the name of the trustees in the physical form.

The right of renunciation is subject to the express condition that the Board/ Committee shall be entitled, in its absolute discretion, toreject the request for allotment to renouncee(s) without assigning any reason thereof.

Procedure for renunciation

1. To renounce the whole offer in favour of one renouncee

If you wish to renounce the offer indicated in Part A, in whole, please complete Part B of the CAF. In case of joint holding, all jointholders must sign Part B of the CAF. The person in whose favour renunciation has been made should complete and sign Part C ofthe CAF. In case of joint renouncees, all joint renouncees must sign this part of the CAF.

2. To renounce in part/or renounce the whole to more than one person(s):

If you wish to either accept this offer in part and renounce the balance or renounce the entire offer in favour of two or morerenouncees, the CAF must be first split into requisite number of forms.

Please indicate your requirement of split forms in the space provided for this purpose in Part D of the CAF and return the entireCAF to the Registrar to the Issue so as to reach them latest by the close of business hours on the last date of receiving requestsfor split forms. On receipt of the required number of split forms from the Registrar, the procedure as mentioned in paragraph (1)above shall have to be followed.

In case the signature of the Equity Shareholder(s) who has renounced the Equity Shares, does not agree with the specimenregistered with the Company, the application is liable to be rejected.

3. Renouncee(s)

The person(s) in whose favour the Equity Shares are renounced should fill in and sign Part C of the CAF and submit the entire CAFto the Bankers to the Issue on or before the Issue Closing Date along with the application money.

4. Change and/ or introduction of additional holders

If you wish to apply for Equity Shares jointly with any other person or persons, not more than three, who is/ are not already jointholder with you, it shall amount to renunciation and the procedure as stated above for renunciation shall have to be followed. Evena change in the sequence of the name of joint holders shall amount to renunciation and the procedure, as stated above shall haveto be followed.

Please note that:

(a) Part A of the CAF must not be used by any person(s) other than those in whose favour this Issue has been made. If used, thiswill render the application invalid.

(b) Request for split form should be made for a minimum of 50 Equity Shares or in multiples thereof and one Split Application Formshould be used to apply for the balance Equity Shares, if any.

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(c) Only the person to whom this Letter of Offer has been addressed and not the renouncee(s) shall be entitled to renounce and toapply for Split Application Forms. Forms once split cannot be split again.

(d) Split form(s) will be sent to the applicant(s) by post at the applicant’s sole risk.

Summary of Options

The summary of options available to the Equity Shareholder is presented below. You may exercise any of the following options withregard to the Equity Shares offered, using the enclosed CAF:

Option Available Action Required

1. Accept whole or part of your entitlement Fill in and sign Part Awithout renouncing the balance. (All joint holders must sign)

2. Accept your entitlement in full and apply for additional Fill in and sign Part A including Block III relating to the acceptanceEquity Shares of entitlement and Block IV relating to additional Equity Shares

(All joint holders must sign)

3. Renounce your entitlement in full to one person Fill in and sign Part B (All joint holders must sign) indicating thenumber of Equity Shares renounced and hand it over to therenouncee. The renouncee(s) must fill in and sign Part C (jointrenouncees shall be considered together and all joint renouncesmust sign)

4. Accept a part of your entitlement and renounce the Fill in and sign Part D (All joint holders must sign) requesting forbalance to one or more renouncee(s) Split Application Forms. Send the CAF to the Registrar to the Issue

so as to reach them on or before the last date for receiving requestsfor Split Forms. Splitting will be permitted only once.

OR On receipt of the Split Forms, take action as indicated below.

Renounce your entitlement to all the Equity Shares � For the Equity Shares you wish to accept, if any, fill in and signoffered to you to more than one renouncee Part A of one of the Split Forms.

� In the other Split Form, for the Equity Shares you wish torenounce, fill in and sign Part B indicating the number of EquityShares renounced and hand it over to the renouncees. Each ofthe renouncees should fill in and sign Part C for the EquityShares accepted by them.

5. Introduce a joint holder or change the sequence This will be treated as a renunciation. Fill in and sign Part B and the of joint holders renouncees must fill in and sign Part C.

Availability of duplicate CAF

In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will issue a duplicate CAF on therequest of the applicant who should furnish the registered folio number / DP and Client ID no and his / her full name and address to theRegistrar to the Issue. Please note that those who are making the application in the duplicate form should not utilise the original CAF forany purpose including renunciation, even if it is received/ found subsequently. If the applicant violates any of these requirements, he /she shall face the risk of rejection of both the applications.

Application on Plain Paper

An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the duplicate CAF may make an applicationto subscribe to the Issue on plain paper, along with an account payee cheque drawn on a local bank at Mumbai / Demand Draft payableat Mumbai or along with Stockinvest which should be drawn in favour of the Company and send the same by registered post directlyto the Registrar to the Issue.

The application on plain paper, duly signed by the applicants including joint holders, in the same order as per specimen recorded withthe Company, must reach the office of the Registrar to the Issue before the Issue Closing Date and should contain the following particulars:

� Name of Company

� Name and address of the Equity Shareholder including joint holders

� Registered Folio Number / DP and Client ID no.

� Number of shares held as on Record Date

� Number of Rights Equity Shares entitled

� Number of Rights Equity Shares applied for

� Number of additional Equity Shares applied for, if any

� Total number of Equity Shares applied for

� Total amount paid @ Rs. 240/- per Equity Share

� Particulars of Cheque / Draft / Stockinvest

� Savings / Current Account Number and name and address of the bank where the Equity Shareholder will be depositing the refundorder

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� PAN/GIR number and Income Tax Circle/ Ward/ District where the application is for Equity Shares of a total value of Rs. 50,000/-or more for the applicant and for each applicant in case of joint names, and

� Signature of Equity Shareholders to appear in the same sequence and order as they appear in the records of the Company

Payments in such cases, should be through a cheque / demand draft payable at Mumbai to be drawn in favour of the Bankers to theIssue marked “A/c Payee” and marked “HIRL - Rights Issue A/c.” or through a Stockinvest to be drawn in the name of the Company.

Please note that those who are making the application otherwise than on original CAF shall not be entitled to renounce their rightsentitlement and should not utilise the original CAF for any purpose including renunciation even if it is received subsequently. If theapplicant violates any of these requirements, he/she shall face the risk of rejection of both the applications.

Last date of Application

The last date for submission of CAF is October 27, 2003. The Board/ Committee will have the right to extend the said date for suchperiod as it may determine from time to time but not exceeding sixty days from the Issue Opening Date.

If the CAF together with the amount payable is not received by the Bankers to the Issue/ Registrars on or before the close of bankinghours on the aforesaid last date or such date as may be extended by the Board/ Committee, the offer contained in this Letter of Offershall be deemed to have been declined and the Board/ Committee shall be at liberty to dispose off the Equity Shares hereby offered, asprovided under the heading “Basis of Allotment” given below in this Letter of Offer.

Basis of Allotment

1. Subject to provisions contained in this Letter of Offer, the Articles of Association of the Company and approval of the VadodaraStock Exchange, the Board will proceed to allot the Equity Shares in the following order of priority:

(a) Full allotment to those Equity Shareholder(s) who have applied for their rights entitlement either in full or in part and also to therenouncee(s) who has/ have applied for Equity Shares renounced in their favour, in full or in part.

(b) Allotment to the Equity Shareholders who having applied for all the Equity Shares offered to them as rights and have alsoapplied for additional Equity Shares. The allotment of such additional Equity Shares will be made as far as possible on aproportionate basis having due regard to the number of Equity Shares held by them on the Record Date, provided there is anunder-subscribed portion after making full allotment in (a) above. The allotment of such Equity Shares will be at the discretionof the Board/ Committee in consultation with the Vadodara Stock Exchange, as a part of the Issue and not preferential allotment.

(c) Allotment to the renouncees who having applied for the Equity Shares renounced in their favour have also applied for additionalEquity Shares, provided there is an under-subscribed portion after making full allotment in (a) and (b) above. The allotment ofsuch additional Equity Shares will be made on a proportionate basis at the discretion of the Board/ Committee but in consultationwith the Vadodara Stock Exchange, as a part of the Issue and not preferential allotment.

2. The Issue will become undersubscribed after considering the number of shares applied as per entitlement plus additional shares.The undersubscribed portion can be applied for only after the close of the Issue. The promoters or any other person can subscribeto such undersubscribed portion as per relevant provisions of law. If any person presently in control of the Company desires tosubscribe to such undersubscribed portion and if disclosure is made pursuant to SEBI (Substantial Acquisition of Shares andTakeover) Regulations, 1997, such allotment of the undersubscribed portion will be governed by the provisions of the SEBI(Substantial Acquisition of Shares and Takeover) Regulations, 1997.

3. After taking into account the allotments made under 1(a), 1(b) and 1(c) above, if there is still any undersubscription, the unsubscribedportion shall be disposed off by the Board or Committee of Directors authorized in this behalf by the Board upon such terms andconditions to such person/ persons and in such manner as the Board/ Committee may in its absolute discretion deem fit, as a partof the Rights Issue and not preferential allotment.

4. No oversubscription shall be retained by the Company.

5. Allotment to promoters of any unsubscribed portion, over and above their entitlement, would be done in compliance with clause 40Aof the Listing Agreement.

6. Partial allotments, if any, will be done only in case of application for additional Equity Shares.

Allotment to promoters

Pending finalisation of the terms and structure of any issue of capital by the Company, but in order to meet the Company’s interimfinancing requirements, on March 27, 2002, March 28, 2002 and March 31, 2003, Mr. Anjum Bilakhia, Mr. Yunus Bilakhia and Mr. ZakirBilakhia have brought in an aggregate amount of Rs. 1500 mn (“Advance”) [refer to column (3) of the table below] as money againstproposed further issue of capital by the Company (which is accounted for in the Share Capital Suspense Account) as provided in detailin “Particulars of the Issue” on page 29 of the Letter of Offer. Pursuant to finalisation of the terms of the Issue in the meeting of theCommittee of Directors held on May 28, 2003, there has been an inter-se arrangement between the promoters on June 5, 2003 (asmentioned in “Particulars of the Issue” on page 29 of this Letter of Offer) whereby the contribution from the promoters has been re-organised as per column (4) in the table below. In the Issue, the promoters would apply for (a) their entitlements and (b) additionalshares subject to applicable law(s), such that at least 90% of the Issue is subscribed. Please refer to page 11 under “Notes to CapitalStructure” for details. After taking into account actual allotments against the promoters’ entitlements and additional shares, refunds, ifany, will be made to promoters.

Since the entitlement by Bilakhia Holdings Private Limited is less than the allocation of advance of Rs.1381.20 million, a refund of excessamount, if any (after considering application for additional shares, if any) would be made after the Board of Directors of the Companyallots new Equity Shares as per the basis of allotment on page 21 of the Letter of Offer. Since the entitlement of Mr. Anjum Bilakhia,

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Mr. Yunus Bilakhia and Mr. Zakir Bilakhia is more than the allocation of advance of Rs. 39.60 million each, these individual promoterswould apply for atleast as many shares in the Issue as would meet the entitlement.

The amounts originally brought in as Advance by the promoters, the re-organised amounts and the promoters’ entitlements are asfollows:

(Rs. million)

Promoter Share holding on Advance originally Allocation of Advance Entitlement at IssueJuly 31, 2003 brought in subsequent to size of

inter se arrangement Rs. 1,967.33 mn*

(1) (2) (3) (4) (5)

Mr. Anjum Bilakhia 2.20% 574.40 39.60 43.20

Mr. Yunus Bilakhia 2.20% 358.50 39.60 43.20

Mr. Zakir Bilakhia 2.20% 567.10 39.60 43.20

Bilakhia Holdings Pvt. Ltd. 67.80% - 1,381.20 1,334.04

Total 74.40% 1,500.00 1,500.00 1,463.64

* Not adjusted for the effect of fractional entitlements to non promoter shareholders

Allotment/ Refund

The Company will issue and dispatch letters of allotment / security certificates and / or letters of regret along with refund order or creditthe allotted securities to the respective beneficiary accounts, within a period of six weeks from the Date of Closure of the Issue. If suchmoney is not repaid within 8 days after the day the Company becomes liable to pay it, the Company shall pay that money with interestas stipulated under Section 73 of the Act.

Letters of allotment / security certificates / refund orders above the value of Rs.1,500/- will be dispatched by Registered Post/ SpeedPost to the sole/ first applicant’s registered address. However, refund orders for value upto Rs.1,500/- shall be sent to the applicantsUnder Postal Certificate. Such cheques or pay orders will be payable at par at all the centers where the applications were originallyaccepted and will be marked “A/c payee” and would be drawn in the name of the sole / first applicant. Adequate funds would be madeavailable to the Registrar to the Issue for the dispatch of Letters of allotment / security certificates and refund orders.

In case the Company issues letters of allotment, the corresponding security certificates will be kept ready within three months from thedate of allotment thereof or such extended time as may be approved by the Company Law Board under Section 113 of the CompaniesAct, 1956 or other applicable provisions, if any. Allottees are requested to preserve such letters of allotment, which would be exchangedlater for the security certificates.

Allotment / refund to Non - Residents

In case of non-residents, who remit their application monies from funds held in NRE/ FCNR accounts, refunds and/ or payment ofdividend and other disbursement, if any, shall be credited to such accounts, details of which should be furnished in the CAF. Subject tothe approval of the RBI, in case of non-residents, who remit their application monies through Indian Rupee draft purchased from abroad,refund and/ or payment of dividend and any other disbursement, shall be credited to such accounts (details of which should be furnishedin the CAF) and will be made net of bank charges/ commission in US Dollars, at the rate of exchange prevailing at such time. TheCompany will not be responsible for any loss on account of exchange fluctuations for converting the Indian Rupee amount into USDollars. The Equity Share certificate(s) will be sent by registered post at the Indian address of the non-resident applicant.

Letter(s) of Allotment/ Equity Share certificates

Letter(s) of Allotment / Equity Share certificates or Letters of Regret will be despatched to the registered address of the first namedapplicant or respective beneficiary accounts will be credited within 42 days as far as possible, from the date of closure of the subscriptionlist. In case the Company issues Letters of Allotment, the Equity Share certificates will be despatched within three months from the dateof allotment thereof or such extended time as may be approved by the Company Law Board under Section 113 of the Companies Act,1956 or other applicable provisions, if any. Allottees are requested to preserve such Letters of allotment (if any) to be exchanged laterfor Equity Share certificates. Export of Letters of Allotment (if any)/ Equity Share certificates to non-resident allottees will be subject tothe approval of RBI.

Arrangement for odd lot Equity Shares

The Company has not made any arrangements for the disposal of odd lot Equity Shares arising out of this Issue. The Company willissue certificate of denomination equal to the single number of shares being allotted to the Equity Shareholder.

Option to receive Equity Shares in Dematerialised Form

Equity Shareholders who hold shares in electronic form on the Record Date will be compulsorily allotted Equity Shares in Electronic(dematerialised) form. Equity Shareholders who hold shares of the Company in physical form will have the option of applying for theEquity Shares in physical or dematerialised form. The Company and the Registrar to the Issue have signed a tripartite agreement withNational Securities Depository Limited (“NSDL”) and with Central Depository Services (India) Limited (“CDSL”) which enables the investorsto hold and trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates.

In this Issue, the allottees who have opted for Equity Shares in dematerialised form and Equity Shareholders holding shares in electronicform will receive their Equity Shares in the form of an electronic credit to their beneficiary account with a depository participant. Investorwill have to give the relevant particulars for this purpose in the appropriate place in the CAF. Applications, which do not accurately

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contain this information, will be given the securities in physical form. No separate applications for securities in physical and demat formshould be made. If such applications are made, the application for physical securities will be treated as multiple applications and is liableto be rejected. Investors may note that the equity shares of the Company can only be traded in the dematerialised form.

The Equity Shares of the Company will be listed on Vadodara Stock Exchange Limited, The Stock Exchange - Mumbai, National StockExchange of India Limited, The Delhi Stock Exchange Association Limited and The Stock Exchange - Ahmedabad.

Procedure for availing this facility for allotment of Equity Shares in this Issue in the electronic form is as under:

a) Open a Beneficiary Account with any Depository Participant (care should be taken that the Beneficiary Account should carry thename of the holder in the same manner as is exhibited in the records of the Company. In case of joint holding, the BeneficiaryAccount should be opened carrying the names of the holders in the same order as with the Company). In case of Investors havingvarious folios in the Company with different joint holders, the investors will have to open separate accounts for such holdings.Those Equity Shareholders who have already opened such Beneficiary Account(s) need not adhere to this step.

b) For Equity Shareholders already holding equity shares of the Company in dematerialised form as on Record Date, the beneficialaccount number shall be printed on the CAF. For those who open accounts later or those who change their accounts and wish toreceive their Rights Equity Shares by way of credit to such account, the necessary details of their beneficiary account should befilled in the space provided in the CAF. It may be noted that the allotment of securities arising out of this Issue may be made indematerialized form even if the original equity shares of the Company are not dematerialized. Nonetheless, it should be ensuredthat the Depository Account is in the name(s) of the Equity Shareholders and the names are in the same order as in the recordsof the Company.

c) Responsibility for correctness of applicant’s age and other details given in the CAF vis-a-vis those with the applicant’s DepositoryParticipant, would rest with the applicant.

d) If incomplete/ incorrect Beneficiary Account details are given in the CAF, the applicant will get Equity Shares in physical form.

e) The Rights Equity Shares allotted to investors opting for dematerialized form, would be directly credited to the Beneficiary Accountas given in the CAF after verification. Allotment advice, Refund Order (if any) would be sent directly to the applicant by the Registrarto the Issue but the applicant’s Depository Participant will provide to him the confirmation of the credit of the Rights Equity Sharesto the applicant’s Depository Account.

f) Renouncees will also have to provide the necessary details about their Beneficiary Account for allotment of securities in this Issue.In case these details are incomplete or incorrect, the application is liable to be rejected.

General instructions for applicants

(a) Please read the instructions printed on the enclosed CAF carefully.

(b) Application should be made on the printed CAF provided by the Company and should be completed in all respects. The CAF foundincomplete with regard to any of the particulars required to be given therein, and/ or which are not completed in conformity with theterms of this Letter of Offer are liable to be rejected and the money paid, if any, in respect thereof will be refunded without interestand after deduction of bank commission and other charges, if any. The CAF must be filled in English and the names of all theapplicants, details of occupation, address, father’s/ husband’s name must be filled in block letters.

(c) The CAF together with cheque / demand draft / Stockinvest should be sent to the Bankers to the Issue/ Collecting Bank or to theRegistrars and not to the Company or Lead Manager to the Issue. Please refer to Mode of Payment mentioned in (r) & (s) below.

(d) Applications for a total value of Rs. 50,000/- or more, i.e. where the total number of securities applied for, multiplied by the issueprice, is Rs. 50,000/- or more, the applicant or in the case of application in joint names, each of the applicants, should mention his/her permanent account number allotted under the Income-Tax Act, 1961 or where the same has not been allotted, the GIR numberand the Income-Tax Circle/ Ward/ District. In case where neither the permanent account number nor the GIR number has beenallotted, the fact of non-allotment should be mentioned in the CAF. Forms without this information will be considered incomplete andare liable to be rejected.

(e) Applicants are advised to provide information as to their savings/current account number and the name of the Bank with whomsuch account is held in the CAF to enable the Registrar to print the said details in the Refund Orders, if any, after the names of thepayees. Application not containing such details is liable to be rejected.

(f) As provided in Section 269SS of the Income Tax Act, 1961, payment against the application should not be effected in cash if theamount to be paid is Rs. 20,000/- or more. In case payment is effected in contravention of this, the application may be deemedinvalid and the application money will be refunded and no interest will be paid thereon. Payment against the application if made incash, subject to conditions as mentioned above, should be made only to the Bankers to the Issue.

(g) Signatures should be either in English or Hindi or in any other language specified in the 8th Schedule of the Constitution of India.Signatures other than in English or Hindi and thumb impression must be attested by a Notary Public or a Special Executive Magistrateunder his/ her official seal. The Equity Shareholders must sign the CAF as per the specimen signature recorded with the Company.

(h) In case of an application under Power of Attorney or by a body corporate or by a society, a certified true copy of the relevant Powerof Attorney or relevant resolution or authority to make investment and sign the application along with the copy of the Memorandum& Articles of Association and/ or bye laws must be lodged with the Registrar to the Issue giving reference of the serial number ofthe CAF. In case the above referred documents are already registered with the Company, the same need not be furnished again;however, the serial number of registration or reference of the letter, vide which these papers were lodged with the Company mustbe mentioned just below the signature(s) on the application. In case these papers are sent to any other entity besides the Registrarto the Issue or are sent after the Issue Closing Date, then the application is liable to be rejected.

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(i) In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per the specimen signature(s)recorded with the Company. Further, in case of joint applicants who are renouncees, the number of applicants should not exceedthree. In case of joint applicants, reference, if any, will be made in the first applicant’s name and all communication will be addressedto the first applicant.

(j) Application(s) received from Non-Resident / NRIs, or persons of Indian origin residing abroad for allotment of Equity Shares shall,inter alia, be subject to conditions, as may be imposed from time to time by the RBI under FEMA in the matter of refund of applicationmoney, allotment of Equity Shares, subsequent issue and allotment of Equity Shares, export of Equity Share certificates, etc. Incase a Non-Resident or NRI Equity Shareholder has specific approval from the RBI, in connection with his shareholding, he shouldenclose a copy of such approval with the CAF.

(k) All communication in connection with application for the Equity Shares, including any change in address of the Equity Shareholdersshould be addressed to the Registrar to the Issue prior to the date of allotment in this Issue quoting the name of the first / soleapplicant Equity Shareholder, folio numbers and CAF number. Please note that any intimation for change of address of EquityShareholders, after the date of allotment, should be sent to the respective DP, in case of equity shares held in demat form.

(l) Split forms cannot be re-split.

(m) Only the person or persons to whom Equity Shares have been offered and not renouncee(s) shall be entitled to obtain split forms.

(n) Applicants must write their CAF number at the back of the cheque / demand draft / Stockinvest.

(o) Only one mode of payment per application should be used. The payment must be either in cash or by cheque / demand draft drawnon any of the banks, including a co-operative bank, which is situated at and is a member or a sub member of the Bankers ClearingHouse located at the centre indicated on the reverse of the CAF where the application is to be submitted.

(p) The payment can also be made by the Stockinvest, drawn as per the instructions mentioned on the reverse of the CAF. A separatecheque / draft / Stockinvest must accompany each CAF. Outstation cheques / demand drafts or post-dated cheques and postal /money orders will not be accepted and applications accompanied by such cheques / demand drafts / money orders or postalorders will be rejected. The Registrars will not accept payment against application, if made in cash. (For payment against applicationin cash please refer point (f) above)

(q) No receipt will be issued for application money received. The Bankers to the Issue / Collecting Bank / Registrars will acknowledgereceipt of the same by stamping and returning the acknowledgment slip at the bottom of the CAF.

(r) Mode of payment for Resident Equity Shareholders/ Applicants

All cheques / drafts accompanying the CAF should be drawn in favour of the Collecting Bank (specified on the reverse of the CAF),crossed “A/c Payee only” and marked “HIRL - Rights Issue”.

Applicants residing at places other than places where the bank collection centres have been opened by the Company for collectingapplications, are requested to send their applications together with Demand Draft (net of Demand Draft charges) favouring theBankers to the Issue, crossed “A/c Payee only” and marked “HIRL - Rights Issue” payable at Mumbai, directly to the Registrarto the Issue by registered post so as to reach them on or before the Issue Closing Date. The Company or the Registrars will notbe responsible for postal delays or loss of applications in transit, if any.

(s) Mode of payment for Non-Resident Equity Shareholders / Applicants

As regards the application by non resident Equity Shareholders, the following further conditions shall apply:

Payment by non-residents must be made by demand draft / cheque payable at Mumbai or funds remitted from abroad in any of thefollowing ways:

1. Application with repatriation benefits

(a) By Indian Rupee drafts purchased from abroad and payable at Mumbai or funds remitted from abroad (submitted alongwith Foreign Inward Remittance Certificate); OR

(b) By cheque / draft on a Non-Resident External Account (NRE) or FCNR Account maintained in Mumbai; OR Rupee draftpurchased by debit to NRE/ FCNR Account maintained elsewhere in India and payable in Mumbai; OR Stockinvest issuedagainst FCNR/ NRE Accounts OR FIIs registered with SEBI must remit funds from special non-resident rupee depositaccount.

All cheques/drafts submitted by non-residents should be drawn in favour of the Bankers to the Issue and marked “HIRL -Rights Issue - NR” payable at Mumbai and must be crossed “A/c Payee only” for the amount payable. The CAF duly completedtogether with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of theCAF before the close of banking hours on the Issue Closing Date. A separate cheque or bank draft must accompany eachCAF.

Applicants may note that where payment is made by drafts purchased from NRE / FCNR accounts as the case may be, anAccount Debit Certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE / FCNRaccount should be enclosed with the CAF. Otherwise the application shall be considered incomplete and is liable to be rejected.

2. Application without repatriation benefits

As far as non-residents holding shares on non-repatriation basis is concerned, in addition to the modes specified above,payment may also be made by way of cheque drawn on Non-Resident (Ordinary) Account maintained in Mumbai or Rupee

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Draft purchased out of NRO Account maintained elsewhere in India but payable at Mumbai or by Stockinvest. In such cases,the allotment of Equity Shares will be on non-repatriation basis.

Note:

In case where repatriation benefit is available, dividend, sales proceeds derived from the investment in Equity Shares can beremitted outside India, subject to tax, as applicable according to Income Tax Act, 1961.

In case Equity Shares are allotted on non-repatriation basis, dividend and sale proceeds of the Equity Shares cannot beremitted outside India.

The CAF duly completed together with the amount payable on application must be deposited with the Collecting Bank indicatedon the reverse of the CAF before the close of banking hours on the aforesaid Issue Closing Date. A separate cheque or bankdraft must accompany each CAF.

In case application received from Non-Residents, allotment, refunds and other distribution, if any, will be made in accordancewith the guidelines/ rules prescribed by RBI as applicable at the time of making such allotment, remittance and subject tonecessary approvals.

(t) Procedure for payment by means of Stockinvest:

The applicant can use the instrument called Stockinvest for payment of application money. The applicant using Stockinvest shouldsubmit the CAF along with the instrument with any of the Bankers to the Issue mentioned in the CAF. Stockinvest instruments arepayable at par at all the branches of the issuing bank and as such outstation Stockinvest instrument can be attached to the CAF.

The applicant has to fill in the following particulars:

� Title of the Account as mentioned in the CAF

� Number of Equity Shares applied for

� The amount payable on the Equity Shares applied for

� Name and address of the applicant where the Stockinvest should be returned in case of non-allotment/ partial allotment.

The applicant should thereafter sign the instrument. It should also bear the stamp of the bank issuing the instrument and should becrossed “A/C Payee only” and made payable to the Company only. Service charges for issuing the Stockinvest must be borne bythe applicant. Stockinvests should be drawn in favour of “Hindustan Inks and Resins Limited”. Only individuals and mutualfunds are eligible to use Stockinvest. An individual applicant can make an application using Stockinvest up to a maximum amountof Rs. 50,000/-. This upper limit does not apply to Mutual Funds.

The Investors should not handover Stockinvest taken against their own account to any third party. The Stockinvest should beutilised by the purchaser(s) and the purchaser’s name/ name of one of the purchasers should invariably be indicated as firstapplicant in the CAF. Thus, if the signature of the purchaser on the Stockinvest and the signature of the first applicant on the CAFdoes not tally, the application would be treated as having being accompanied by a third party Stockinvest and the application isliable to be rejected. The applicant should indicate the application number on the reverse of the instrument.

The purchaser(s) must use Stockinvests within 10 days of issue otherwise the application is liable to be rejected. The last date foruse of the Stockinvest for submitting CAF to the bank is indicated on the face of the Stockinvest with a notation “to be used before”.No refund order will be issued to those applicants using Stockinvest for payment of application money.

Disposal of application & application money

No acknowledgment will be issued for the application moneys received by the Company. However, the Bankers to the Issue / Registrarto the Issue receiving the CAF will acknowledge its receipt by stamping and returning the acknowledgment slip at the bottom of eachCAF.

The Board reserves its full, unqualified and absolute right to reject any application on technical grounds, in whole or in part, and in eithercase without assigning any reason thereto.

In case an application is rejected in full, the whole of the application money received will be refunded. Wherever an application is rejectedin part, the balance of application money, if any, after adjusting any money due on Equity Shares allotted, will be refunded to the applicantwithin six weeks from the Issue Closing Date.

Disposal of application money with Stockinvest

The applicant should not fill in the portion to be filled up by the Registrar to the Issue (right hand portion of the instrument). The Registrarto the Issue will fill up the right hand side of the Stockinvest, the shares allotted to the applicant and the amount calculated in thefollowing manner:

In case of full allotment, the number of Equity Shares and the amount on the right hand side will be the same as that on the left handside of the instrument.

In case of partial allotment, the number of Equity Shares and the amount payable, after the adjustment of total money payable in respectof the Equity Shares allotted (on the right hand side of the instrument) will be less than the amount filled by the applicant (on the left handside).

In case no allotment is made, the number and the amount filled up on the right hand side of the instrument will be nil.

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Registrar to the Issue have been authorized by the Company vide a resolution of a Committee of the Board passed on May 28, 2003to sign, on behalf of the Company, for realising the proceeds of the Stockinvest on behalf of successful allottees or for affixing non-allotment advice on the Stockinvest or for cancelling the Stockinvest of the non-allottees or partially successful allottees with more thanone Stockinvest. The cancelled instrument shall be sent back by the Registrars to the applicant directly by registered post within sixweeks from the Issue Closing Date.

All conditions mentioned earlier for making an application through cheques/ demand drafts will also apply to application made toStockinvest.The procedure for disposal of applications made by cash, cheque or bank draft will apply mutatis mutandis to applicationsaccompanied by Stockinvest except in the event of the following:

In case of non-allotment, the Registrars will return to the applicants the Stockinvest without encashing within six weeks from the dateof close of Issue.

On allotment/ partial allotment, the Registrars will fill in the amount which would be less than or equal to the amount, filled in by theapplicant(s) before presenting the Stockinvest to the Bankers to the Issue for payment to the extent of allotment. The issuing bank willlift the lien on the balance amount in the applicant’s account.

For further instruction, please read the Composite Application Form carefully.

Important

a) Please read this Letter of Offer carefully before taking any action. The instructions contained in the accompanying CompositeApplication Form (CAF) are an integral part of the conditions of this Letter of Offer and must be carefully followed; otherwise theapplication is liable to be rejected.

b) All inquiries in connection with this Letter of Offer or accompanying Composite Application Form and requests for Split ApplicationForms must be addressed (quoting the Registered Folio Number / DP and Client ID no., the CAF number and the name of the firstEquity Shareholder as mentioned on the CAF and superscribed “HIRL - Rights Issue” on the envelope) to the Registrar to theIssue at the following address:

Intime Spectrum Registry LimitedC-13, Pannalal Silk Mills Compound,LBS Marg, Bhandup,Mumbai – 400 078Phone no.: 91-22-5555 5454Fax no.: 91-22-5555 5353Email: [email protected]

c) It is to be specifically noted that this Issue of Equity Shares is subject to Risk Factors appearing on page no. (i) of this Letter ofOffer.

d) The Issue will be kept open for the period between the Issue Opening and Issue Closing Date mentioned on cover page, unlessextended, in which case it will be kept open for a maximum 60 days.

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TAX BENEFITS

The following tax benefits and deductions are available to Hindustan Inks and Resins Ltd ‘the Company’ and its membersunder the Income Tax Act, 1961 and the Wealth Tax Act, 1957 for the time being in force subject to the fulfilment of therequirements of the relevant provisions.

Benefits available to the Company

i. Income Tax Act (the Act)

1. In accordance with and subject to the provisions of Section 32 of the Act, the Company will be entitled to a deduction for depreciationon tangible fixed assets. Depreciation will also be admissible in respect of any lump sum amount paid for acquiring any know-how,patent, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, acquired on orafter the 1st day of April, 1998 for the use thereof in the Company’s business.

2. In accordance with and subject to the provisions of Section 35 of the Act, the Company will be entitled to a deduction in respect ofentire capital expenditure (other than on acquisition of Land) incurred by it on Scientific Research.

3. In accordance with and subject to the conditions specified in Section 80 HHC of the Act, the Company will be entitled to deductionof 50% and 30% of the profits derived by it from the export of goods for the assessment years 2003-04 and 2004-05 respectively.

4. Subject to compliance of certain conditions of the Act, the Company is entitled to benefits under Section 80IB. The Company hasbeen claiming this benefit for its Silvassa and Daman undertakings. The Company is eligible for the benefit of deduction of 30% ofprofits and gains of the Daman undertaking upto Assessment year 2004-05. The profits and gains derived from Silvassa undertakingwill be eligible for deduction at 100% upto Assessment year 2004-05 and at 30% from the Assessment years 2005-06 to 2009-10.

5. Subject to compliance of certain conditions of the Act, the Company is entitled to the benefit of deduction under Section 10B. TheCompany has been claiming such deduction in respect of its 100% export-oriented undertaking located at Vapi. The Company iseligible for deduction of such profits as are derived by the 100% export-oriented undertaking from the export of own-manufacturedgoods, upto assessment year 2009-10. However, for the assessment year 2003-04 the benefit of deduction under this section shallbe 90% of such profits and gains derived by this export-oriented undertaking from exports of own-manufactured goods.

ii. Wealth Tax Act

The Company is not liable to pay wealth tax except in respect of motorcars owned by the Company at the rate of 1% on the valuethereof, subject to the basic exemption of Rs. 15 Lakh.

Benefits available to the Shareholders

Income Tax - Residents

1. In accordance with Section 10(34) of the Act, any income by way of dividends referred to in Section 115-O is exempt from tax.

2. Under Section 48 of the Act, long-term capital gains arising out of the sale of shares shall be computed after indexing the cost ofacquisition/improvements thereof. The long-term capital gains shall be taxed under Section 112 at the rate of 20% (plus surchargeas applicable) provided that in case of listed shares, where the tax payable thereon exceeds 10% (plus surcharge as applicable)of the amount of capital gains computed without indexing the cost of acquisition/improvement, then such excess shall be ignored.

3. In accordance with and subject to the conditions specified in Section 54EC of the Act, long-term capital gains arising on transfer ofthe shares of the Company shall be exempt from tax if the gains are invested within six months from the date of transfer in thepurchase of long-term specified assets.

4. In accordance with and subject to the conditions specified in Section 54ED of the Act, long-term capital gains arising on transfer ofthe shares of the Company shall be exempt from tax to the extent capital gains are invested within six months from the date oftransfer, in the acquisition of Specified Equity Shares.

5. In accordance with and subject to the conditions specified in Section 54F of the Act, long-term capital gains arising on transfer ofthe shares of the Company held by an individual or Hindu Undivided Family shall be exempt from tax, to the extent the net salesconsideration is utilized, within a period of one year before, or two years after the date of transfer, for purchase of a new residentialhouse, or for construction of a residential house within three years from the date of transfer.

Income Tax – Non-Residents


2. The long-term capital gains shall be taxed under Section 112 at the rate of 20% (plus surcharge as applicable), provided that wherethe tax payable thereon being a listed security exceeds 10% (plus surcharge as applicable) of the amount of capital gains computedwithout indexing the cost of acquisition/improvement, then such excess shall be ignored.

3. In accordance with and subject to provisions of Section 48 of the Act, capital gains arising to a non-resident person from thetransfer of capital assets being shares in the Company shall be computed by converting the cost of acquisition, expenditure inconnection with such transfer and full value of the consideration received or accruing as a result of the transfer of the shares intothe same foreign currency as was initially utilised in the purchase of the shares and the capital gains computed in terms of suchforeign currency shall be reconverted into Indian currency, such that the aforesaid manner of computation of capital gains shall beapplicable in respect of capital gains accruing / arising from every reinvestment thereafter and sale of shares of the Company.

4. In accordance with and subject to the conditions and to the extent specified in Section 54EC of the Act, long-term capital gains taxarising on transfer of the shares of the Company shall be exempt from capital gains tax if the gains are invested within six monthsfrom the date of transfer in the purchase of long-term specified assets.

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5. In accordance with and subject to the conditions specified in Section 54ED of the Act, long-term capital gains tax arising on transferof the shares of the Company shall be exempt from capital gains tax to the extent capital gains are invested within six months fromthe date of transfer, in the acquisition of Specified Equity Shares.

6. In accordance with and subject to the conditions specified in Section 54F of the Act, long-term capital gains tax arising on transferof the shares of the Company held by an individual or Hindu Undivided Family shall be exempt from capital gains tax to the extentthe net sales consideration is utilized, within a period of one year before, or two years after the date of transfer, in the purchaseof a new residential house, or for construction of a residential house within three years.

Income Tax – Non-Resident Indians


2. A Non-Resident Indian has an option to be governed by the provisions of Chapter XII-A of the Act, according to which;

(a) Under Section 115 E of the Act, any Non-Resident Indian’s income from long-term capital gains on transfer of shares purchasedin convertible foreign exchange shall be charged to tax at the rate of 10% (plus surcharge as applicable) without aggregatingany other income earned in India which is taxed separately.

(b) Under Section 115 F of the Act, the long-term capital gains arising from the transfer of a foreign exchange asset shall beexempt from tax entirely/proportionately, provided that the net consideration is invested wholly or in part, in any specifiedassets or in any savings certificates referred to in clause (4B) of Section 10 of the Act, within six months from the date oftransfer of the asset. The amount so exempt from tax shall, however, be chargeable to tax if the new asset is transferred orconverted into money within three years from the date of acquisition of the specified new asset.

(c) Under Section 115 G of the Act, a Non-Resident Indian is not obliged to file a Return of Income under Section 139 (1) of theAct, if his total income consists only of income from investments and/or long-term capital gains earned on transfer of suchinvestments and tax has been deducted at source from such income under the provisions of Chapter XVII B of the Act.

(d) Under Section 115 H of the Act, where a Non-Resident Indian, becomes assessable to tax in India, in relation to any previousyear, as a Resident in India in respect of his total income of any subsequent year, he may furnish to the Assessing Officer adeclaration in writing along with his Return of Income under Section 139 for the assessment year for which he is so assessable,to the effect that the provisions of Chapter XII-A shall continue to apply to him in relation to the investment income derived fromany foreign exchange asset, being an asset, other than a share in an Indian Company, of the nature referred to in sub-clause(ii) to sub-clause (v) of clause (f) of Section 115C of the Act, in which case the provisions of Chapter XII-A shall continue toapply to him in relation to such income for that assessment year and for every subsequent assessment year until the transferor conversion (otherwise than by transfer) into money of such assets.

(e) Under Section 115 I of the Act, a Non-Resident Indian has the option of not being governed by the provisions of Chapter XII-A for any assessment year, whereby his total income for that assessment year (including income arising out of investment inthe equity shares of the Company) will be computed according to the other provisions of the Act, and will, therefore, be eligibleto get concessions applicable to a Resident individual and will be liable to tax accordingly.

3. In accordance with Section 48 of the Act, capital gains arising to a Non-Resident person from the transfer of capital assets beingShares in the Company shall be computed by converting the cost of acquisition, expenditure in connection with such transfer andfull value of the consideration received or accruing as a result of the transfer of the capital assets into the same foreign currencyas was initially utilized in the purchase of the Shares and the capital gains computed in terms of such foreign currency shall bereconverted into India currency, such that the aforesaid manner of computation of capital gains shall be applicable in respect ofcapital gains accruing/arising from every reinvestment thereafter and sale of Shares of the Company.

Income Tax – Foreign Institutional Investors


2. Under Section 115 AD of the Act, Notified Foreign Institutional Investors will be charged to tax at the rate of 10% (plus surchargeas applicable) on long-term capital gains and at 30% (plus surcharge as applicable) on short-term capital gains arising from thetransfer of shares, such income being computed in the manner set out in that section.

Income Tax – Mutual Funds


2. Under the provisions of Section 10 (23D) of the Act, any income earned by a mutual fund registered with the Securities andExchange Board of India or a mutual fund set up by a public sector bank or a public financial institution or authorised by theReserve Bank of India will be exempt from income tax, subject to such conditions as the Central Government may, by notificationin the Official Gazette, specify in this behalf.

Wealth Tax

Shares are not treated as assets as defined under Section 2(ea) of the Wealth Tax Act, 1957 and, therefore, would not be liable toWealth-tax.

Gift Tax

Gift Tax Act, 1958 has ceased to apply to gifts made on or after October 1, 1998. Gifts of Shares would, therefore, be exempt from gifttax.

The above Statement of Tax Benefits sets out the provisions of law in a summary manner only and is not a complete analysis or listingof all potential tax consequences of the purchase, ownership and disposal of ordinary shares. The statements made above are basedon the laws in force and as interpreted by the relevant taxation authorities as of date. Investors are advised to consult their tax advisorswith respect to the tax consequences of their holdings based on their residential status and the relevant double taxation conventions.

29

PARTICULARS OF THE ISSUE

Objects of the Issue

The main objects of the Issue are as follows:

1. To reduce long term debt

2. To invest in MIC

3. To repay unsecured short term loans

4. To meet the expenses of this Issue

Use of funds(Rs. million)

At Rs. 240 per Equity Share

1 Reduction in long term debt 250.00

2 Investments in MIC 1216.93

3 Repayment of part of unsecured short term loans 485.40

4 Estimated Issue expenditure 15.00

Total 1967.33

1. Repayment of part of long term debt

On April 11, 2002, the Company has pre-paid a loan of Rs.250 mn availed from ICICI Bank Limited (formerly ICICI Limited), out ofthe money received from the promoters on March 27 and 28, 2002 against proposed further issue of capital. The details of theprepayment are as follows:

Lender Sanction date Amount Purpose of Security Amount Terms &and Sanction Outstanding Loans Prepaid Conditionsamount & Date of

Pre-payment

ICICI Bank Limited June 27, 2001 Rs. 250 Million Capital First charge Rs.250 million Interest @ 11.9%Rs.250 million expansion – on fixed assets on April 11, 2002 payable quarterly

EOU Project & second charge Principalon current assets repayable by

June 2007

As per the terms of the agreement, the Company paid a pre-payment penalty of Rs. 2.5 mn on April 11, 2002.

2. Investments in MIC

During FY2003, the Company has made an investment of Rs. 750 mn in preferred stock issued by MIC to support start up operationsincluding working capital of MIC, out of the money received from the promoters on March 27 and 28, 2002 against proposed furtherissue of capital.

As a holder of Additional Series “A” preferred stock of MIC, the Company is entitled to receive dividend out of any assets legallyavailable therefor, prior and in preference to any declaration or payment of any dividend on common stock and any other juniorequity security of MIC, at the rate of US$ 0.25 (Rs. 11.49, August 13, 2003) per share per annum, payable quarterly when, as andif declared by MIC’s Board of Directors. Dividend shall accrue on each share of the Additional Series “A” preferred stock from thedate of issuance of such share, but only if earned and declared by MIC’s Board of Directors and will be non cumulative so that ifany such accrued dividends have not been paid for any previous quarter, the deficiency need not be fully paid or declared or setapart for such shares before MIC makes any distribution to holders of common stock or other series of preferred stock.

Further, as a holder of Additional Series “A” Preferred Stock of MIC, the Company, in the event of any liquidation, dissolution orwinding-up of MIC either voluntarily or involuntarily would be entitled to receive priority and preference of any distribution of anyassets of MIC to the holders of common stock or any other junior equity security by reason of their ownership thereof an amountper share equal to the sum of (i) the amount per share paid by the Additional Series “A” Preferred Stockholder for each share ofAdditional Series “A” Preferred Stock purchased thereby and (ii) an amount equal to all declared or accrued but unpaid dividendson each such share. If upon occurrence of such event the assets and funds thus distributed among the holders of Additional Series“A” Preferred Stock shall be insufficient to permit payment to such holders of the full aforesaid preferential amounts then the entireassets and funds of MIC legally available for distribution shall be distributed ratably among the holders of the Additional Series “A”Preferred Stock in proportion to the number of shares held by each such holder.

As a holder of Additional Series “A” Preferred Stock the Company shall have a right to redemption of such stock. On or at any timeafter December 31, 2003 and either (1) the receipt by MIC from a holder of shares of Additional Series “A” Preferred Stock of awritten request for redemption or (2) notice by MIC to any holder of the Additional Series “A” Preferred Stock, MIC shall at any timeit may lawfully do to redeem such shares of the Additional Series “A” Preferred Stock by paying in cash the Redemption Pricetherefor which is a sum equal to the original amount paid by the Preferred Stockholders (as adjusted for any stock dividends, stocksplits or recapitalization and the like) per share of the Additional Series “A” Preferred Stock, plus an amount equal to declared butunpaid dividends thereon. At least 30 (thirty) days but not more than 60 (sixty) days prior to the date fixed for any redemption ofthe Additional Series “A” Preferred Stock (“the Redemption Date”) a written notice is required to be mailed to each holder of record

30

of the Additional Series “A” Preferred Stock to be redeemed notifying such holder of redemption to be effected, the number ofshares to be redeemed from such holder, the Redemption Date, Redemption Price etc.

If the funds of MIC legally available for redemption of shares of the Additional Series “A” Preferred Stock on any Redemption Dateare insufficient to redeem a total number of shares of the Additional Series “A” Preferred Stock to be redeemed on such date, thosefunds which are legally available will be used to redeem the maximum possible number of such shares. The shares of AdditionalSeries “A” Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences available withrespect to Additional Series “A” Preferred Stock. At any time thereafter when additional funds of MIC are legally available for redemptionof shares of Additional Series “A” Preferred Stock, such funds will immediately be used to redeem the balance of the shares ofAdditional Series “A” Preferred Stock which MIC has become obligated to redeem on any Redemption Date but which it has notredeemed.

In FY2004, the Company proposes to invest in MIC USA to finance the marketing infrastructure, working capital and routine capitalexpenditure. Since MIC USA is not implementing a conventional project, it is not possible to define the exact investment outlay inMIC USA in FY2004. During FY2004, the Company proposes to invest Rs. 466.9 million in MIC either as a loan or as preferredstock or as equity capital, to support long-term working capital requirements of MIC out of the proceeds of the Issue. From April1, 2003 to July 31, 2003, the Company has already invested Rs. 326.71 mn as preferred stock in MIC. The exact nature of investmentin MIC USA for the balance amount would be determined closer to the time of actual investment. The Company would utilize itsinternal accruals and/or raise incremental debt to finance the incremental requirement of funds in MIC (if any), beyond the amountfinanced by this Issue.

MIC has set up certain limited production and blending facilities and set up corporate office as well as distribution and marketinginfrastructure in the USA. MIC sources near-finished inks from HIRL and blends and markets the products to consumers based indifferent parts of USA. MIC achieved revenue of over US $56.5 mn (Rs. 2,692.2 mn, March 31, 2003) in FY2003 and signed longterm contracts with 3 customers during the year, aggregating US $12.6 mn (Rs. 600.39 mn, March 31, 2003). The Companyexpects that MIC would be the cornerstone of its future growth strategy in the inks’ business. Given the size of the US inks marketand the competitive costs that it is in a position to offer, the Company believes that investments in MIC in its initial period would drivethe Company’s growth and profitability in the medium term.

3. Repayment of part of unsecured short term loans

During FY2003, the Company has availed certain unsecured loans, of which the amount outstanding as on March 31, 2003 wasRs. 545.46 mn, details of which are mentioned below. Out of this amount, the Company proposes to repay loans aggregatingRs. 485.40 mn from the proceeds of the Issue.

Lender Amount as on Amount to be Rate of Repayment RemarksMarch 31, 2003 repaid from Interest Date

(Rs. mn) proceeds of theIssue

(Rs. mn)

Short Term Loans:

SB of Mauritius 95.46 92.67 Libor + 1.25 % July 9, 2003 Already repaid*

Inter Corporate Deposits:

Laxmi Vilas Bank 100.00 100.00 9.00% April 21, 2003 Already repaidCanara Bank 200.00 200.00 8.50% June 4, 2003 Already repaidIL&FS 50.00 50.00 9.50% April 21, 2003 Already repaidIndusInd Bank 100.00 42.73 8.00% February 14, 2004 Already repaid**

Total 545.46 485.40

* While the amount outstanding against this loan was Rs. 95.46 mn as on March 31, 2003, actual payment of Rs. 92.67 mn hasbeen made (as per Auditors’ Certificate on page 31 below). The difference of Rs. 2.79 mn was on account of rupee appreciationin the period between April 1, 2003 and the repayment date.

** This loan, taken on August 18, 2003, replaces an earlier loan of an equivalent amount from the same source at 9% p.a., whichwas repaid on July 28, 2003.

4. Estimated Issue expenditure

The total expenses towards statutory and marketing costs for the Issue are estimated at Rs. 25 mn, of which Rs. 15 mn will beborne out of the proceeds of this Issue. The Issue expenses consist of fees payable for auditor, legal advisor, banker to the Issue,registrar to the Issue and lead management (Rs. 7 mn); advertising and marketing (including selling commission) (Rs. 16 mn);printing and stationery, travelling and listing expenses (Rs. 2 mn).

Schedule of use of Issue proceeds(Rs. million)

Objects of the Issue FY2002 FY2003 FY2004 Total

Reduction in long term debt - 250.0 - 250.0Investments in MIC - 750.0 466.9 1,216.9Repayment of unsecured short term loans - - 485.4 485.4Estimated Issue expenditure - - 15.0 15.0

Total - 1,000.0 967.3 1,967.3

31

5. Sources and Uses of Advance up to March 31, 2003

AUDITORS’ CERTIFICATEOn the basis of the accounts of Hindustan Inks and Resins Limited, (the Company) audited by us for the accounting years ended 31

st

March 2002 and 31st March 2003 and on our examination of the entries appearing in the books of account of the Company during the

period from 1st April 2003 to 31

st July 2003, we have to certify that, based on such examination and the information and explanations

provided to us, the receipt of advance subscription for the proposed Rights Issue (paragraph no.1 below) of the Company and theutilization therefrom (in paragraphs 4 and 5 below) upto 31

st July 2003 was as under:-

1. Advance subscription of Rs. 1500 million was received by the Company from the under-mentioned parties on the dates and in theamounts specified below: -

Date Party Amount (Rs. million)

March 27, 2002 Mr. Yunus Bilakhia 213.50March 27, 2002 Mr. Anjum Bilakhia 479.40March 27, 2002 Mr. Zakir Bilakhia 178.10March 28, 2002 Mr. Yunus Bilakhia 60.00March 28, 2002 Mr. Anjum Bilakhia 25.00March 28, 2002 Mr. Zakir Bilakhia 44.00March 31, 2003 Mr. Anjum Bilakhia 70.00March 31, 2003 Mr. Yunus Bilakhia 85.00March 31, 2003 Mr. Zakir Bilakhia 345.00

Total 1,500.00

2. In terms of an agreement dated 5th June, 2003, between Mr. Yunus Bilakhia, Mr. Anjum Bilakhia, Mr. Zakir Bilakhia and Bilakhia

Holdings Private Limited, the advance subscription is to be deemed to have been received on behalf of the parties and in theamounts mentioned below:

Party Amount (Rs. million)

Mr. Anjum Bilakhia 39.60

Mr. Yunus Bilakhia 39.60

Mr. Zakir Bilakhia 39.60

Bilakhia Holdings Pvt. Ltd. 1,381.20

Total 1,500.00

3. The following is the summary of the Cash flows of the Company for the years ended 31st March 2002 and 2003:

(Rs. million)

Particulars April 01, 2001 - April 01, 2002 -March 31, 2002 March 31, 2003

SOURCES

Opening Cash And Bank Balances 80.49 905.35

Net Cash flows during the period

Advances from Promoters towards proposed issue 1,000.00 500.00

Cash flow from Operating Activities 290.44 1,449.91

Cash flow from Investing Activities (2,090.04) (1,336.42)

Cash flow from Financing Activities 1,624.46 (833.08)

Net Cash flows during the period 824.86 (219.59)

Closing Cash and Bank Balances 905.35 685.76

4. The Cash flow for the year ended 31st March 2003 includes the following outflows:

(Rs. million)

a) Included in Cash flow from Investing Activities:

- Investments in Preferred Stocks of Micro Inks Corporation, USA. 750.00

b) Included in Cash flow from Financing Activities:

- Reduction of long-term debts. 250.00

Total 1,000.00

32

5. During the period from 1st

April, 2003 to 31st

July, 2003, the Company has made payments for the following:

(Rs. million)

Investments in Preferred Stocks of Micro Inks Corporation, USA. (Being part of investmentsof Rs. 326.71 million in the above period) 57.33

Part repayment of unsecured short term loans

Laxmi Vilas Bank 100.00

IL&FS 50.00

Canara Bank 200.00

SB of Mauritius 92.67

Total 500.00

Accordingly, between 1st April 2001 and 31

st July 2003, the Company has incurred a total expenditure of Rs. 1,500 million on the

objects of the Rights Issue as summarized below: -

(Rs. million)

a) Expenditure included in the Cash flow for the year ended 31st March 2003, as indicated in 1,000.00

paragraph 4 above

b) Expenditure during the period from 1st April 2003 to 31

st July 2003 as indicated in paragraph 5 above 500.00

Total 1,500.00

For S.B. Billimoria & Co.Chartered Accountants

Mumbai,August 01, 2003

Pending the deployment of funds towards the objects of the Issue, the funds may be deployed in liquid instruments like governmentsecurities, mutual fund schemes investing exclusively in debt instruments and/or government securities, corporate debentures, bankdeposits or in any other manner beneficial to the Company. The Managing Director would authorize all such investments.

33

FINANCIAL PERFORMANCE

AUDITORS’ REPORT

The Board of DirectorsHindustan Inks and Resins LimitedVapi – 396 191Gujarat.

Dear Sirs,

As required by part II of Schedule II of the Companies Act, 1956 and Guidelines titled Securities and Exchange Board of India (Disclosureand Investor Protection) Guidelines, 2000 (‘Guidelines’) issued by the Securities and Exchange Board of India (SEBI) in pursuance ofSection 11 of the Securities and Exchange Board of India Act, 1992, we have examined the financial information contained in the statementsannexed to this report which is proposed to be included in the Letter of Offer of Hindustan Inks and Resins Limited (“the Company”) inconnection with the proposed Rights Issue and we report that :

1. We have examined the ‘Statement of adjusted Profits and Losses’ of the Company for each of the financial years ending March 31st,

1999, 2000, 2001, 2002 and 2003 and the ‘Statement of adjusted Assets and Liabilities’ as at those dates enclosed as Annexure-I and Annexure-II to this report and confirm that

i. These statements reflect the profits and losses and assets and liabilities for each of the relevant periods as extracted from theProfit and Loss Account for the accounting year ended March 31

st, 1999 and the Balance Sheet as at March 31

st, 1999 audited

by M/s. Gopalakrishnan Aiyer & Co., Chartered Accountants and the Profit and Loss Accounts for the accounting years endedMarch 31

st, 2000, 2001, 2002 and 2003 and the Balance Sheets as at March 31

st, 2000, 2001, 2002 and 2003 audited by us,

(pending the adoption by the shareholders of the financial statements for the year ended March 31st 2003 at the forthcoming

Annual General Meeting of the Company), after making therein the disclosures and adjustments required to be made inaccordance with the provisions of paragraph 6.18.7 of the Securities and Exchange Board of India (Disclosures and InvestorProtection) Guidelines, 2000;

ii. The Significant Accounting Policies adopted by the company are enclosed as Annexure-III to this report

iii. The Notes to the ‘Statement of adjusted Profits and Losses’ and ‘Statement of adjusted Assets and Liabilities’ are enclosed asAnnexure-IV to this report

2. We have also examined the Statements of Profits and Losses of Micro Inks GmbH, Austria, the wholly-owned subsidiary of theCompany for the periods ended December 31

st, 2000, December 31

st, 2001, December 31

st, 2002 and March 31

st, 2003 and Micro

Inks Corporation, USA, the wholly-owned subsidiary of Micro Inks GmbH, Austria for the accounting periods ended December31

st, 2000, March 31

st, 2001, March 31


st, 2003 and the Statements of Assets and Liabilities of those subsidiaries

as at those dates enclosed as Annexure-‘V’ and Annexure-‘VI’ to this report and confirm that

i. These statements reflect the profits and losses, and assets and liabilities of the subsidiaries for each of the relevant periodsas extracted, without any adjustments, from the Profit and Loss Accounts and Balance Sheets of those subsidiaries for therelevant periods, as audited by the under mentioned firms of auditors:

Subsidiary Auditors

Micro Inks GmbH, Austria Pricewaterhouse AGfor the accounting periods endedDecember 31

st, 2000 and December 31

st, 2001.

PwC Wirtschaftsprufung AGfor the accounting periods ended December 31


st, 2003.

Micro Inks Corporation, USA PricewaterhouseCoopers LLPfor the accounting period endedDecember 31

st, 2000

Deloitte & Touché LLPfor the accounting periods endedMarch 31

st, 2001, March 31


st, 2003.

For the accounting period ended March 31st, 2002 Deloitte & Touché LLP in their audit report dated April 10

th, 2002 have stated that

because they were engaged as auditors of the Micro Inks Corporation, USA after April 1st, 2001, they were not present to observe

the taking of physical inventories as of that date. Also, due to the nature of Company’s records, they were unable to satisfy themselvesas to finished goods inventories in the amount of US $4,126,187 as of April 1

st, 2001, by means of other auditing procedures.

PwC Wirtschaftsprufung AG, in their report on the accounts of Micro Inks GmbH for the year ended December 31, 2002 includedthe following paragraph:

“Without qualifying our opinion we draw attention to the fact that the investment in the wholly owned subsidiary, Micro Inks Corporation,Delaware, USA (“the Company”) has a book value of TEUR 47,664 as of December 31, 2002 whereas net equity of the Companyonly amounts to TUSD 24,275 (approx. TEUR 23,814) as at September 30, 2002 (date of latest available audited interim financialstatements). Included in the Company’s net equity as at September 30, 2002 are operating losses in the amount of TUSD 34,255(approx. TEUR 33,605) as a result of start-up activities for establishing the sales organisation. Based on the Company’s businessplan a significant improvement of the operating results is to be expected in the near future and therefore, management of MICRO

34

INKS GmBH believes that the investment in Micro Inks Corporation, Delaware, USA is not impaired.”

PwC Wirtschaftsprufung AG, in their report on the accounts of Micro Inks GmBH for the period ended March 31, 2003 included thefollowing paragraph:

“Without qualifying our opinion we draw attention to the fact that the investment in the wholly owned subsidiary, Micro Inks Corporation,Delaware, USA (“the Company”) has a book value of TEUR 47,664 as of March 31, 2003 whereas net equity of the Company onlyamounts to TUSD 18,208 (approx. TEUR 16,867) as at March 31, 2003 (date of audited financial statements). Included in theCompany’s net equity as at March 31, 2003 are operating losses in the amount of TUSD 40,449 (approx. TEUR 37,470) as a resultof start-up activities for establishing the sales organisation. Based on the Company’s business plan a significant improvement of theoperating results is to be expected in the near future and therefore, management of MICRO INKS GmBH believes that the investmentin Micro Inks Corporation, Delaware, USA is not impaired.”

3. We have examined the ‘Statement of Accounting Ratios’ of the Company for each of the five financial years ended March 31st, 1999,

2000, 2001, 2002 and 2003 enclosed as Annexure-‘VII’ to this report and confirm that they have been correctly computed from thefigures as stated in the ‘Statements of adjusted Profits and Losses’ and ‘Statement of adjusted Assets and Liabilities’ of the Companyreferred to in paragraph 1 above and read with the notes appended in Annexure-‘IV’.

4. We have examined the accompanying ‘Statement of Related Party Disclosure’ for the years ended March 31st, 2001, 2002 and 2003

enclosed as Annexure-‘VIII’ to this report and confirm that the relationships and transactions between the Company and its relatedparties have been appropriately reported in accordance with ‘AS – 18 Related Party Disclosures’ issued by The Institute of CharteredAccountants of India.

5. We have examined the ‘Statement of dividend paid’ by the Company in respect of each of the years ended March 31st, 1999, 2000,

2001, 2002 and 2003, on the Shares of the Company, enclosed as Annexure-‘IX’ to this report and confirm that it correctly recordsthe dividend paid in respect of each of those years.

6. We have examined the ‘Statement of Tax Shelter’ for the years ended March 31st, 1999, 2000, 2001, 2002 and 2003 enclosed as

Annexure-‘X’ to this report and report that, in our opinion it correctly reflects the ‘Tax Shelter’ for each of those years.

7. We have examined the ‘Capitalization Statement’ enclosed as Annexure-‘XI’ to this report and report that it correctly records thematters stated therein.

8. We have examined the ‘Cash Flow Statement’ in respect of each of the years ended March 31st, 2002 and 2003 enclosed as

Annexure-‘XIV’ to this report and confirm that, in our opinion, these statements have been prepared by the Company in accordancewith the requirement of Accounting Standards 3 (Cash Flow Statements) issued by the Institute of Chartered Accountants of India.

9. We have examined the ‘Consolidated Statement of adjusted Profits and Losses’ of the Company and its Subsidiaries Micro InksGmbH, Austria and Micro Inks Corporation, USA (“the Group”) for the financial years ending March 31


st,

2003 and the accompanying ‘Consolidated Statement of adjusted Assets and Liabilities’ of the group as at those dates enclosed inAnnexure-‘XII’ and ‘XIII’ respectively. The Financial Statements of Micro Inks GmbH, Austria as at December 31

st, 2001 and

March 31st, 2003 and Micro Inks Corporation, USA as at March 31


st, 2003 have been audited by other

auditors whose reports have been furnished to us, and in our opinion, in so far as they relate to the amounts included in respectof these subsidiaries, are based solely on the basis of these reports. We report that the consolidated financial statements havebeen prepared by the Company in consideration of and in accordance with the requirements of Accounting Standard 21 (ConsolidatedFinancial Statements), issued by the Institute of Chartered Accountants of India and on the basis of the separate audited financialstatements of the Company and its subsidiaries.

We further report that the information mentioned in the items 3-9 above has been correctly computed from the figures as stated in thestatements of adjusted Profits and Losses and adjusted Assets and Liabilities referred to in paragraph 1 and 2 above.

This report is intended solely for your information for inclusion in the Letter of Offer in connection with the proposed Rights Issue of theCompany and is not to be used, referred to or distributed for any other purpose without our prior written consent.

For S. B. Billimoria & Co.Chartered Accountants

Y.H. MalegamPartner

Mumbai, May 29, 2003

35

ANNEXURE- I

Statement of adjusted Profits and Losses (Rs. million)

Particulars Year ended Year ended Year ended Year ended Year ended

March 31, 1999 March 31, 2000 March 31, 2001 March 31, 2002 March 31, 2003

Income

Sales and Other Operating Income:

a. Sales of products manufactured 1,476.39 1,896.94 3,453.25 5,196.78 5,795.85by the Company (including otheroperating income)

b. Sales of products traded by the 10.82 3.58 17.90 21.06 49.01Company

c. Total 1,487.21 1,900.52 3,471.15 5,217.84 5,844.86

Other Income 4.66 8.32 42.60 100.57 229.34

Increase (Decrease) 4.35 151.09 99.70 (136.26) (31.72)in Inventories

1,496.22 2,059.93 3,613.45 5,182.15 6,042.48

Expenditure

Raw Material consumed 849.22 1,207.95 2,257.12 3,038.96 3,676.19

Manufacturing Expenses 56.06 81.17 188.82 261.18 318.72

Staff Costs 78.23 112.47 155.46 217.19 253.33

Administration Expenses 39.95 91.35 104.68 161.74 209.07

Selling and Distribution Expenses 142.50 156.45 302.02 350.94 425.36

Depreciation 19.00 47.53 86.37 129.02 166.81

Interest 67.08 69.11 172.31 422.11 441.05

Total 1,252.04 1,766.03 3,266.78 4,581.14 5,490.53

Net Profit before Tax and 244.18 293.90 346.67 601.01 551.95Extraordinary item

Taxation 3.40 49.63 29.38 38.24 37.50

Deferred Tax 14.05 37.70 45.72 79.94 73.70

Net Profit before Extraordinary 226.73 206.57 271.57 482.83 440.75item

Extra-Ordinary items (Net of Tax) 0.00 0.00 (0.88) 0.41 0.00

Net Profit after Extraordinary 226.73 206.57 270.69 483.24 440.75item

Significant Accounting Policies and Notes to Accounts annexed

36

ANNEXURE- II

Statement of adjusted Assets and Liabilities

(Rs. million)

As At As At As At As At As AtParticulars March 31, 1999 March 31, 2000 March 31,2001 March 31, 2002 March 31, 2003

A. Fixed Assets:

Gross Block 479.57 1,143.56 1,995.35 2,920.88 3,177.90

Less Depreciation 59.37 105.00 191.16 320.06 482.21

Net Block 420.20 1,038.56 1,804.19 2,600.82 2,695.69

Capital Work in Progress 52.54 240.07 130.49 140.64 77.80

Total 472.74 1,278.63 1,934.68 2,741.46 2,773.49

B. Investments 0.05 9.82 501.97 1,754.60 2,849.49

C. Current Assets, Loans andAdvances:

Inventories 235.72 426.91 688.77 575.27 710.20

Sundry Debtors 523.87 685.92 1,171.75 1,805.11 2,012.63

Cash and Bank Balances 34.84 56.89 80.49 905.35 685.76

Loans and Advances 57.36 121.79 630.24 980.08 892.94

Other Current Assets 0.03 0.04 0.04 0.04 0.04

Total 851.82 1,291.55 2,571.29 4,265.85 4,301.57

D. Liabilities and Provisions:

Secured Loans 425.82 835.63 1,524.96 3,206.07 3,177.02

Unsecured Loans 5.79 78.79 524.12 597.68 545.46

Current liabilities and Provisions 239.66 509.31 752.35 894.09 1,418.59

Total 671.27 1,423.73 2,801.43 4,697.84 5,141.07

E. Deferred Tax liability 50.14 87.84 133.56 213.50 287.20

F. Networth 603.20 1,068.43 2,072.95 3,850.57 4,496.28

G. Represented by

1. Share Capital 46.00 62.69 186.62 586.62 571.62

2. Share Capital Suspense 10.00 - - 1,000.00 1,500.00Account

3. Reserves and Surplus - - 450.00 450.00 315.00Reserves earmarked forredemption of CumulativeRedeemable PreferenceShares (Refer note no.1in Annexure IV)

Other Reserves & Surplus 547.20 1,005.74 1,436.33 1,813.95 2,109.66

Total 547.20 1,005.74 1,886.33 2,263.95 2,424.66

Networth (1+2+3) 603.20 1,068.43 2,072.95 3,850.57 4,496.28


37

ANNEXURE- III

HINDUSTAN INKS AND RESINS LIMITED

Significant Accounting Policies annexed to the Statement of adjusted Assets and Liabilities and the Statement of adjustedProfits and Losses for each of year ended March 31, 1999, 2000, 2001, 2002 and 2003.

ACCOUNTING ASSUMPTION

The financial statements are prepared on historical cost convention based on accrual method of accounting as followed consistently bythe Company.

REVENUE RECOGNITION

Domestic sales are recognised at the time of despatch to the customer, invoicing being the conclusive event. Export sales are recognisedon the basis of dates of bills of lading.

Sales include the excise duty recovered but exclude sales tax, other recoveries set off against the respective expenditure heads andis net of trade discounts.

INVENTORIES

The finished and semi-finished inventory is valued at lower of cost on absorption basis or net realisable value.

The raw materials and other inventories are valued at transactional weighted average basis, net of CENVAT benefits availed by theCompany. The items imported under DEPB/DFRC/AL/SIL are valued inclusive of the notional duty benefits availed.

Damaged, unserviceable and inert stocks are suitably depreciated.

Excise duty and custom duty payable on goods held in the bonded warehouse are provided in the valuation of inventory.

Consumables and other spares, tools etc are valued at transactional weighted average cost.

EXPORT BENEFITS

Export benefits are recognised only against the completion of exports and is considered as Other Operating Income.

The estimated benefit is adjusted for the current duty structure, prevailing domestic market price and other relevant factors.

RESEARCH AND DEVELOPMENT

Revenue expenditure is charged to the Profit & Loss account. The capital expenditure for the purpose is depreciated at the applicablenormal rates.

FIXED ASSETS

Fixed assets are stated at historical cost of acquisition or construction less accumulated depreciation. All costs relating to the acquisitionand installation of fixed assets are capitalised and include the financing costs in accordance with AS-16. The cost excludes the dutybenefits admissible against installation of the specific assets.

In respect of loans and suppliers’ credit arrangements for purchase of fixed assets repayable in foreign currencies, the net increase inthe Company’s liability for repayment consequent upon realignment in rupee value is capitalised.

Advances paid towards the acquisition or construction of fixed assets and the cost of assets not put to use before the year end aredisclosed under capital work in progress.

DEPRECIATION

Depreciation is provided on Straight Line Method on all assets at the rates prescribed in schedule XIV of the Companies Act, 1956except:

I. Leasehold Land is amortised over the unexpired period of lease

II. Assets individually costing less than Rs 5000 are depreciated @ 100%.

Depreciation on assets not owned by the Company included in Gross Block is provided over the estimated period of the economic lifeof the assets.

Depreciation is charged on pro rata basis for the assets purchased / sold during the year.

INVESTMENTS

Investments include investment in the wholly owned overseas subsidiary. Investments of long-term nature are stated at the original cost(net of provision, if any for permanent diminution in value). Short-term investments are stated at cost or realisable value, whichever islower.

RETIREMENT BENEFITS

Gratuity to employees is covered under Group Gratuity Life Assurance Scheme of the Life Insurance Corporation of India since 1999-2000 and the premium paid during the year is charged to revenue. Prior to 1999-2000, Gratuity is accounted for on the basis of actuarialvaluation.

Company’s liability in respect of leave encashment is determined on the basis of independent actuarial valuation and the same is chargedto the profit and loss account.

38

The Company funds the provident fund liability by contributing to the recognised funds and charges the same to the profit and lossaccount.

FOREIGN CURRENCY TRANSLATIONS

Transactions in foreign currency are recorded at the rates of exchange in force at the time of occurrence of the transactions.

Outstanding recoverables and payables in foreign currency at the year end are stated at the rates of exchange prevailing at the closeof the year or at the forward rates relevant to the transaction and resultant gain / loss are adjusted to:

a) Carrying cost of fixed assets, if they relate to fixed assets, and

b) Profit and loss account in other cases.

Gains or losses on cancellation of Forward Foreign Exchange Contracts are recognized in Profit and Loss account.

SHARES / DEBENTURES ISSUE EXPENDITURE

The expenditure incurred for raising funds through preference shares / equity shares / debentures and premium on redemption arecharged against the Security Premium Account.

TAX ON INCOME

Deferred Tax is recognized, subject to the consideration of prudence, on timing differences, being the difference between taxable incomeand accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

39

ANNEXURE- IV


Notes to the Statement of adjusted Assets and Liabilities and the Statement of adjusted Profits and Losses for each of theyear ended March 31, 1999, 2000, 2001, 2002 and 2003.

1. During the year 2001-02, the Company had issued 4,000,000, 9% Cumulative Redeemable Preference Shares of Rs. 100/- eachat par. The said shares are redeemable on or before 36 months from the date of allotment and have a call / put option any time after3 months from the date of allotment. Under the terms of agreement signed with the Preference Share holders, the dividend ispayable before March 31, every year provided that the first dividend is to be paid on or before March 31, 2003. Pursuant to thecontract, no provision for dividend has been made for the year ended March 31,2002.

Also, during the year 2000-01, the Company had issued 250,000 95% and 250,000 90% Cumulative Redeemable Preference Shares(CRPS) of Rs.100/- each at a premium of Rs. 900/- per share. Of the above 150,000 95% CRPS were redeemed in October 2002and balance 95% 100,000 CRPS, which were due for redemption in October 2002, are extended for a further period of 36 monthswith a call / put option any time after 6 months from October 3, 2002 and the coupon rate has been revised from 95% to 80%effective April 01, 2003. The said shares are redeemable at a premium of Rs.900 per share. Therefore, an amount of Rs. 315 millionhas been earmarked out of the Security Premium Account (as at March 31, 2002 Rs. 450 million) for premium payable on redemption,whereof Rs. 225 million is payable in March 2004 and Rs. 90 million is payable on or before October 2005.

2. In terms of Section 117 (C) of the Companies Act, 1956 read with clarification dated April 18, 2002 issued by the Department ofCompany Affairs, the Company is under obligation to create Debenture Redemption Reserve equal to 25% of the face value of thedebentures until such debentures are redeemed. In compliance of the same, an amount of Rs 25.00 million, Rs. 75.00 Million andRs. 50 million is transferred to Debenture Redemption Reserve in the year 1998-99, 1999-2000 and 2001-02 respectively taking thetotal Debenture Redemption Reserve to Rs 150.00 million.

3 a) All Debentures, together with interest thereon, remuneration to the trustees, and other amount payable as at March 31, 2003in respect thereof are secured by way of first mortgage and charge on company’s immovable and movable properties, bothpresent and future including movable machineries, spares, tools etc. subject to prior charge created and / or to be created infavour of the Company’s bankers on Company’s current assets.

3 b) FCNR Loan of Rs. 238.65 million from Canara Bank, Rupee Term Loan of Rs. 249.50 million from Industrial Development Bankof India, Rupee Term Loan of Rs. 375.00 million from The Karur Vysya Bank Limited, and Rupee Term Loan of Rs. 150.00million from Federal Bank, aggregating to Rs. 1,013.15 million as at March 31, 2003 are secured by way of pari passu firstcharge on the company’s immovable and movable properties (save except stock of raw materials, stock in process, finishedgoods, consumables stores and books debts), present and future, including movable machineries, spares, tools etc., subjectto prior charge created in favour of the Company’s bankers on the current assets of the Company.

External Commercial Borrowing of Rs. 190.92 million from Co-operative Central Raiffeisen-Boerenleen bank B.A., Rupee TermLoan of Rs. 200.00 million from UCO Bank and Rupee Term Loan of Rs. 250.00 million from Allahabad Bank, aggregating Rs.640.92 million as at March 31, 2003 are to be secured by way of pari-passu first charge on the company’s movable andimmovable properties (save and except stock of raw materials, stock in process, finished goods, consumable stores andbook debts), present and future, including movable machineries, spares, tools etc., subject to prior charge created in favourof the Company’s bankers on the current assets of the Company. Term Loan of Rs 200.00 million from UCO Bank is alsosecured by third party lien on fixed deposit of Rs. 200.00 million of the Promoter Directors till final security is created.

3 c) Working capital loans as at March 31, 2003 are secured by way of first pari-passu charge on all the stock of raw materials,stock in process, finished goods, consumable stores and book debts both present and future and are further secured by wayof second charge on the fixed assets of the Company.

40

4. A. Unsecured loans consist of:

(Rs . million)

Particulars March 31, March 31, March 31, March 31, March 31,1999 2000 2001 2002 2003

Debentures

a) Promoters - - - - -

b) Tata Mutual Fund - - 50.00 - -

Sub Total - - 50.00 - -

Short Term Loans From Banks / FIs


b) Others

IDBI - 70.00 - - -

ICICI - - 172.55 - -

UTI Bank - - 250.00 - -

Canara Bank - - - 200.00 200.00

Bank of India - - - 200.00 -

Vysya Bank - - - 97.19 -

SB of Mauritius - - - - 95.46

Laxmi Vilas Bank - - - - 100.00

IndusInd Bank - - - - 100.00

Sub Total - 70.00 422.55 497.19 495.46

Short Term Loans From Others


b) Others

Bajaj Auto - 5.00 - - -

GLFL 1.42 0.50 - 0.49 -

Interest Free Sales Tax Loan 4.37 3.29 1.57 - -

IL&FS - - 50.00 100.00 50.00

Sub Total 5.79 8.79 51.57 100.49 50.00

Total 5.79 78.79 524.12 597.68 545.46

4. B. Detailed schedule of unsecured loans as on March 31, 2003

Lender Amount Rate of Repayment Terms & Conditions(Rs. million) Interest Date

Short Term Loans:

SB of Mauritius 95.46 Libor + 125 BSP July 9, 2003

Inter Corporate Deposits:

Laxmi Vilas Bank 100.00 9.00% April 12, 2003

Canara Bank 200.00 8.50% June 4, 2003

IL&FS 50.00 9.50% April 10, 2003

IndusInd Bank 100.00 9.00% July 16, 2003

Total 545.46

1. Tenor: 90 Days /3 Months / 6Months

2. Against DemandPromissory Noteand Post DatedCheques.

41

4. C. Schedule of secured loans as on March 31, 2003

Sr.No. Name of Institutions / Banks Allotment / Original Principal Outstanding Over- Rate of Interest Repayment Schedule SecuritySanction Amount Repaid Amount dues

Date (Rs. Million) (Rs. Million) (Rs. Million)

A Debentures

1 NCD - New India Assurance Co. Ltd January 20, 2000 67.00 - 67.00 - 12.50% Phased payments ending January 20052 NCD - UTI Linked Insurance February 2, 2000 80.00 - 80.00 - 12.25% Phased payments ending January 20053 NCD - UTI Asset Management February 2, 2000 80.00 - 80.00 - 12.25% Phased payments ending January 20054 NCD - Bank of Maharashtra October 2, 2000 50.00 - 50.00 - 12.25% Bullet payment on October 20055 NCD - Bank of Baroda October 2, 2000 50.00 - 50.00 - 12.25% Bullet payment on October 20056 NCD - Jammu & Kashmir Bank October 6, 2000 50.00 - 50.00 - 12.25% Bullet payment on October 20057 NCD - Bank of Baroda June 15, 2000 50.00 - 50.00 - 11.75% Phased payments ending June 20058 NCD - IL&FS Trust June 15, 2000 50.00 - 50.00 - 11.75% Phased payments ending June 20059 NCD - The New India Assurance June 15, 2000 50.00 - 50.00 - 11.75% Phased payments ending June 200510 NCD - LIC Mutual Fund June 15, 2000 60.00 - 60.00 - 11.75% Phased payments ending June 200511 NCD - Prudential ICICI October 10, 2000 100.00 - 100.00 - 12.45% Bullet payment on October 2005

TOTAL 687.00 - 687.00 -

B Term Loans from FinancialInstitutions / Banks

1 Karur Vysya Bank December 8, 2000 250.00 125.00 125.00 - 10.25% Phased payments ending Jan 20042 IDBI August 16, 2001 67.50 18.00 49.50 - 12.75% Phased payments ending Sep. 20063 IDBI August 16, 2001 200.00 - 200.00 - 11.50% Phased payments ending June 20034 UCO Bank March 20, 2003 200.00 - 200.00 - 9.50% Phased payments ending June 20085 Federal Bank February 17, 2003 150.00 - 150.00 - 9.25% Phased payments ending March 20086 Allahabad Bank March 27, 2003 250.00 - 250.00 - 9.00% Phased payments ending March 20077 Rabo Bank– ECB February 26, 2003 190.92 - 190.92 - 1.75% above 6 Bullet Payment in March 2006

months Libor8 Canara Bank–FCNR TERM LOAN January 24, 2003 238.65 - 238.65 - Libor+250 BSP Phased payments ending Feb 20069 Karur Vysya Bank January 25, 2003 250.00 - 250.00 - 9.25% Phased payments ending Aug 2007

TOTAL 1,797.07 143.00 1,654.07 -

C Working Capital Facilities from Banks

1 Punjab National Bank December 28, 2002 400.00 - 25.90 - 8% to 12.00%

2 Central Bank Of India December 10, 2002 250.00 - 67.45 - Libor +

0.75% to 12%

3 Bank of India September 14, 2002 225.00 - 81.35 - 7.5% to 12.50%

4 State Bank of India October 16, 2002 200.00 - 183.84 - 2.06% to 11.50%

5 UTI Bank December 6, 2002 400.00 - 221.04 - Libor + 0.75 BSP

to 12.62%

6 ICICI Bank December 2, 2002 250.00 - - - 12.50%

7 Development Credit Bank October 22, 2002 200.00 - 157.21 - 8% to 13.50%

8 Standard Chartered Bank November 11, 2002 200.00 - 99.16 - 7% to 16%

TOTAL 2,125.00 - 835.95

(Fund Based Limit Sanctioned)

TOTAL SECURED LOANS 4,609.07 143.00 3,177.02 -

Working capital loans from banks aresecured by way of first pari-passu chargeon all the stock of raw materials, stock inprocess, finished goods , consumable storesand book debts both present and future andare further secured by way of second chargeon fixed assets of the Company.

All Debentures, together with interestthereon, remuneration to the trustees, andother amounts payable in respect thereofare secured by way of first mortgage andcharge on Company’s immovable andmovable properties, both present and futureincluding movable machineries, spares,tools etc. subject to prior charge createdand/or to be created in favour of theCompany’s bankers on company’s currentassets.

All term Loans are secured by way of pari-passu first charge on the Company’simmovable and movable properties (saveand except stock of raw materials, stock inprocess, finished goods, consumable storesand book debts), present and future,including movable machineries, spares,tools etc., subject to prior charge created /to be created in favour of the Company’sbankers on the current assets of theCompany.

42

5. Provision for Taxation consist of wealth tax provision of Rs. 0.05 million, Rs. 0.13 million, Rs. 0.26 million, Rs. 0.26 million and Rs.0.32 million, and income tax provision of Rs. 3.35 million, Rs. 49.50 million, Rs. 29.12 million, Rs. 37.98 million and Rs. 37.18 millionfor the year ended March 31, 1999, March 31, 2000, March 31, 2001, March 31, 2002 and March 31, 2003 respectively.

6. The Company has provided for Deferred tax liability of Rs. 36.09 million for the period prior to April 1, 1998 and the same has beenadjusted against the reserves.

Deferred Tax Liability

(Rs. million)



Depreciation 52.10 89.04 144.33 228.49 305.10

Total (A) 52.10 89.04 144.33 228.49 305.10

Deferred Tax Assets

Provision for Doubtful Debts 1.23 0.92 10.63 14.54 16.98

Provision for Leave Encashment / 0.73 0.28 0.14 0.45 0.92Deferred Revenue Expenses

Total (B) 1.96 1.20 10.77 14.99 17.90

Net Deferred Tax Liability (A-B) 50.14 87.84 133.56 213.50 287.20

7. Contingent liabilities not provided for

(Rs. million)

March 31, March 31, March 31, March 31, March 31,1999 2000 2001 2002 2003

i) Counter Guarantees given to banks 10.37 25.09 27.33 73.21 68.69

ii) Guarantee given to a bank on behalf of - - 233.20 634.40 1129.61

the Subsidiary Company

iii) Loan given by bank to Subsidiary Company - - - - 143.19on the security of certain assets of theCompany (USD 3 million)

iv) Un-expired letter of credits 22.51 56.47 84.53 334.25 317.02

v) Disputed Income Tax, Sales Tax and Excise 5.38 11.70 16.40 13.85 10.97Duty which is contested by the Company

vi) Estimated Sales Tax liability due to non- 3.12 2.79 0.67 0.16 43.77receipt of Sales Tax declaration forms

vii) Bills Discounted - - 426.37 524.42 1045.04

viii) Estimated amount of custom duty, which 0.65 - - - -the Company will have to pay if it is notable to fullfil the exports obligations formachineries imported under EPCG licence

ix) Estimated liability of import duty in respect 0.31 - - - -of duty free import of raw materials againstwhich the Company is yet to fullfil exportsobligation.

43

Details of outstanding counter guarantees given to bank as on March 31, 2003

Bank Date Favouring Amount Expiry Particulars Obligation Implication in the Security(Rs. mn) event of default

PNB Vapi June 03, 2000 Electricity Dep’t D&NH 2.90 June 03, 2002 As security against To pay electricity Dues Guarantees will bepurchase of Electricity invoked.

July 28, 2000 Asstt. Comm. Of Customs 3.48 January 29, 2004 Import under Licences To fulfill Exports obligation.

October 24, 2000 Asstt. Comm. Of Customs 0.39 April 23, 2003 Import under Licences To fulfill Exports obligation. As above

December 22, 2000 Asstt. Comm. Of Customs 4.45 June 22, 2003 Import under Licences To fulfill Exports obligation. As above

May 07, 2001 Asstt. Comm. Of Customs 0.83 November 07, 2003 Import under Licences To fulfill Exports obligation. As above

May 28, 2001 Asstt. Comm. Of Customs 5.64 November 27, 2009 Import under Licences To fulfill Exports obligation. As above

October 16, 2001 Asstt. Comm. Of Customs 4.29 April 15, 2004 Import under Licences To fulfill Exports obligation. As above

December 11, 2001 Electricity Dep’t D&NH 0.30 December 31, 2006 As security against To pay electricity Dues As above purchase of Electricity

November 08, 2001 Asstt. Comm. Of Customs 1.07 May 10, 2010 Import under Licences To fulfill Exports obligation. As above As above

December 16, 2002 Electricity Deptt. Daman & 0.58 December 03, 2007 As security against To pay electricity Dues As above As aboveDiu purchase of Electricity

January 27, 2003 Electricity Deptt D&NH 0.73 January 21, 2005 As security against To pay electricity Dues As above As abovepurchase of Electricity.

January 08, 2003 Electricity Deptt D&NH 1.25 January 06, 2005 As security against To pay electricity Dues As above As abovepurchase of Electricity.

25.9ICICI Bank July, 23, 2001 Asstt. Comm. of Customs 1.18 January 23, 2004 Import under Licences To fulfill Exports obligation. As above As aboveMumbai 1.18

SBI Mumbai August 28, 2001 Asstt. Comm. of Customs 2.65 February 24, 2004 Import under Licences To fulfill Exports obligation. As above As above

2.65 As above As above

UTI Bank Ltd May 22, 2001 Asstt. Comm. of Customs 1.57 November 22, 2003 Import under Licences To fulfill Exports obligation. As above As above

May 29, 2001 Asstt. Comm. of Customs 1.04 November 29, 2003 Import under Licences To fulfill Exports obligation. As above As above

June 14, 2001 Asstt. Comm. of Customs 4.29 December 14, 2003 Import under Licences To fulfill Exports obligation. As above As above






August 08, 2001 Asstt. Comm. of Customs 2.96 February 08, 2004 Import under Licences To fulfill Exports obligation. As above As above

35.57

Dena Bank March 08, 2000 Asstt. Comm. Of trade 0.25 February 16, 2002 For Trade Tax To comply Provisions As above As abovetax- Noida Registration under of U.P. Trade Tax

U.P. Trade Tax Act & CST Act.Act CST Act

April 01, 2000 Asstt. Comm. Of customs 0.55 October 03, 2005 Import under Licences To fulfill Exports obligation. As above As above (EPCG)

January 11, 2001 Asstt. Comm. Of customs 1.57 July 11, 2002 Import under Licences To fulfill Exports obligation. As above As above

2.37BOB Vapi October 13, 1993 Sales tax officer Noida 0.02 October 13, 2002 For Sales Tax To comply provision of As above As above

Registration under UP Sales Tax Act andU.P. Sales Tax Act CST Act.CST Act.

November 28, 1998 Electricity dep’t-Daman 0.65 April 27, 2004 As security deposit for To pay electricity Dues As above As aboveConnection of 1100 KVAfor Daman Unit

December 27, 1999 Electricity dep’t-Daman 0.35 December 26, 2004 As for additional To pay electricity Dues As above As aboveConnection of 350 KVAfor Daman Unit

1.02

Grand total 68.69

First Charge on the CurrentAssets and Second Chargeon the Fixed Assets of theCompany.

44

Guarantee given to a bank on behalf of the Subsidiary Company as on March 31, 2003

Central Bank January 29, 2002 Central Bank of India 198.87 October 01, 2005 For Loan to None Company has to Noneof India Subsidiary Co. - pay the Loan

Micro InksCorporation, USA.

Union Bank of India Feburary05, 2002 Union Bank of India 238.65 February 14, 2006 As above As above As above None

Union Bank of India September 27, 2002 Union Bank of India 95.46 April 29, 2003 As above As above As above Fixed Deposit

Punjab National Bank April 30, 2003 Punjab National Bank 119.33 October 01, 2005 As above As above As above None

UTI Bank February 20, 2002 UTI Bank 238.65 November 10, 2005 As above As above As above As above

Bank of India April 11, 2002 Bank of India 238.65 November 22, 2005 As above As above As above As above

Grand Total 1,129.61

8. Capital Commitments:

(Rs. million)

March 31, 1999 March 31, 2000 March 31, 2001 March 31, 2002 March 31, 2003

Estimated amount of contracts 21.46 58.20 22.05 16.37 55.01remaining to be executed oncapital account and not providedfor (Net of Advances)

9. Rs. 500 has been considered in the Gross Block of Fixed Assets, given towards membership of co-operative housing society forwhich share certificates are held by the Company.

10. HT line installation cost worth Rs. 13.58 million, the ownership of which rests with the State Electricity Board and contributiontowards ‘common effluent treatment plant’ worth Rs. 4.04 million, the ownership of which rests with the third party have beenconsidered in the Gross Block of Fixed Assets.

11. Investment consist of:(Rs. million)

Particulars March 31, 1999 March 31, 2000 March 31, 2001 March 31, 2002 March 31, 2003Trade Investments: Quoted - - - - -Unquoted - At CostInvestment-Micro Inks GmbH - 6.46 6.46 6.46 6.46(Wholly owned Subsidiary)Advance Subscription to Micro - 3.31 445.71 1748.08 2038.72Inks GmbH (Wholly ownedSubsidiary), shares pendingallotment.Non-cumulative PreferredStock in Micro Inks Corporation,a wholly owned subsidiarycompany incorporated in USA.(500 shares of Series A - - - - 804.25Preferred Stock with a par valueof US$ 0.001 per share, to beissued in denominations ofUS$ 32900)Non Trade Investment: Quoted - - - - -Unquoted - At Cost Govt. Securities - 6 Year National 0.04 0.04 0.04 0.06 0.06Saving Certificates(Deposited as security withthird party)Govt. Securities - 5 YearKisan Vikas Patra(Deposited as securitywith third party) 0.01 0.01 - - -Mutual Fund Units(Grindlays Super Saver IncomeFund 4.84 million Units, costRs. 51.18 million less provisionfor diminution Rs. 1.42 million) - - 49.76 - -Total 0.05 9.82 501.97 1754.60 2849.49

45

12. Sundry Debtors consist of :

(Rs. million)

Description March 31, March 31, March 31, March 31, March 31,1999 2000 2001 2002 2003

Debts outstanding over Six months

Considered good

Promoter / Promoter Group :

Micro Inks Corp. USA - - - 603.99 255.37

Bilakhia Properties (P) Ltd. - - 0.05 0.01 0.01

Due from others 96.37 99.08 82.76 96.60 134.19

Considered Doubtful

Due from others 3.20 2.32 29.78 40.32 49.09

Provision for doubtful debts (3.20) (2.32) (29.78) (40.32) (49.09)

Other Debts

Considered good

Promoter / Promoter Group :

Micro Inks Corp. USA - - 432.06 447.59 600.06

Due from others 427.50 586.84 656.88 656.92 1,023.00

Total Sundry Debtors 523.87 685.92 1,171.75 1,805.11 2,012.63

13. Loans and Advances consist of :

(Rs. million)

Description March 31, March 31, March 31, March 31, March 31,1999 2000 2001 2002 2003

Unsecured - considered good

Advance to Subsidiary (Micro Inks - 2.53 131.30 161.35 150.16Corporation, USA)

Advance payment of Tax (net of provision) 1.04 16.77 16.77 17.74 -

Advance recoverable in cash or kind or forvalue to be received

Promoter / Promoter Group

Managing Director 0.50 0.00 - - -

Mitsu Limited - - - 33.78 -

AGB Holdings Pvt. Ltd. - - 0.01 0.01 -

Bilakhia Holdings Pvt. Ltd. - - - 0.01 0.01

Others 36.52 44.92 367.85 676.59 657.34

Balances with Excise and Customs 14.08 44.69 81.32 42.80 34.16

Deposits

Promoter / Promoter Group

Bilakhia Properties (P) Ltd. - - 10.00 10.00 10.00

Others 5.22 12.88 22.99 37.80 41.27

Total 57.36 121.79 630.24 980.08 892.94

14. A. Loans and advances to key managerial personnel

(Rs. million)


1. Housing loan to Whole time Director 0.45 0.38 0.30 0.23 0.15Mr. S. J. Angne

2. Housing loan to Managing Director 0.50 - - - -Mr. Anjum Bilakhia

46

14. B. Interest Income on Loans and Advances given by HIRL

(Rs. million)


Interest Income on Loans and Advances 0.25 0.34 8.48 1.16 0.31given by HIRL

15. Term deposits of Rs. 7.27 million, Rs. 10.50 million, Rs. 8.77 million, Rs. 416.36 million and Rs. 122.84 million as on March 31, 1999,March 31, 2000, March 31, 2001, March 31, 2002 and March 31,2003 respectively placed with scheduled banks on which thebanks have lien against the loan extended to the Subsidiary Company in the US and non-fund based facilities have been consideredin Cash and Bank balances.

16. Other Income consists of:

(Rs. million)


Recurring in nature:

Interest Received

On loan to Subsidiary - - 8.18 - -

On Investments 0.01 0.01 0.01 - -

Others 1.04 1.39 1.27 30.26 13.18

Sale of Scrap Material 2.86 4.39 10.26 14.38 11.25

Dividend from Trade Investments - - 4.37 1.45 -

Rent Received 0.03 0.09 - 0.13 0.13

Exchange Rate Fluctuation - - 13.38 35.14 24.24

Profit on Forward ForeignExchange Contracts - - - 11.62 145.20

Miscellaneous Income 0.14 2.44 5.13 4.84 13.35

Sub Total (A) 4.08 8.32 42.60 97.82 207.35

Non Recurring in nature:

Insurance Claim 0.58 - - 2.75 21.99

Sub Total(B) 0.58 - - 2.75 21.99

Grand Total (A+B) 4.66 8.32 42.60 100.57 229.34

17. Donation of Rs. 10,000 was given to a political party in the fiscal year 2000-01.

18. During the year ended March 31 2003, interest expenses is net of income of Rs. 3.70 million, arising on swapping of interestcoupon on debentures and subsequent cancellation of the same.

19. All expenses are shown at net of amount transferred to capital account.

20. A substantial part of the manufacturing operations of the Company are being carried out in the Silvassa, Daman and 100% ExportOriented Unit in Vapi, which enjoy 100 %, 30% and 90% tax exemption u/s 80-IB, 80-IA and 10B respectively of the Income Tax Act,1961.

21. Sales are gross of exports benefits but net of excise duty.

47

ANNEXURE- V

Micro Inks GmbH, Austria

Balance Sheet as at December 31, 2000, December 31, 2001 & December 31, 2002 and March 31, 2003

(Amount Euro)

As At As At As At As AtDec.31.2000 Dec.31.2001 Dec.31.2002 Mar.31.2003

Assets

A. Fixed Assets

Financial assets

Investments in affiliated companies 9,954,802 18,484,777 47,664,037 47,664,037

9,954,802 18,484,777 47,664,037 47,664,037

B. Current Assets

Receivables and other assets

1. Receivables from affiliated companies 231 - - -

2. Other Assets - 3 10,005 3

Bank Balances 51,236 1,269 113,481 30,032

51,467 1,272 123,486 30,035

TOTAL ASSETS 10,006,269 18,486,049 47,787,522 47,694,072

Liabilities And Shareholder’s Equity

A. Shareholder’s Equity

Share Capital 150,000 150,000 150,000 150,000

Capital Surplus 9,952,456 18,567,345 48,171,625 48,171,625

Cumulative losses (151,987) (308,425) (637,204) (658,529)

9,950,469 18,408,921 47,684,422 47,663,096

B. Accruals

Tax accruals 1,750 1,586 673 673

Other accruals 54,050 33,862 82,331 23,900

55,800 35,448 83,004 24,573

C. Accounts Payable

Trade payables - 22,169 20,097 6,403

Other Liabilities - 19,512 - -

- 41,680 20,097 6,403

Total Liabilities & Shareholder’s Equity 10,006,269 18,486,049 47,787,522 47,694,072

Contingent Liabilities - 28,735,750 23,295,550 23,295,550

Extent of interest so far as it concerns the members ofHindustan Inks and Resins Limited, the holding company 100% 100% 100% 100%

Share in net assets so far as it concerns the membersof Hindustan Inks and Resins Limited, the holding company 9,950,469 18,408,921 47,684,422 47,663,096

48

Micro Inks GmbH, Austria

Income Statement for the period ended December 31, 2000, December 31, 2001, December 31,2002 and March 31, 2003

Amount in Euro

Period ended Year ended Year ended Threemonths

endedDec.31.2000 Dec.31.2001 Dec.31.2002 Mar.31.2003

1. Other Operating income Income from the reversal of accruals - 932 - -

2. Other operating expenses

a. Taxes, other than income taxes (101,540) (109,474) (274,880) -

b. Other (48,687) (46,341) (52,258) (20,901)

3. Subtotal of lines I to 2 (Operating result) (150,227) (154,882) (327,138) (20,901)

4. Interest income 38 37 109 13

5. Interest expenses (47) (7) - -

6. Subtotal of lines 4 to 5 (Financial result) (10) 30 109 13

7. Net operating loss (150,237) (154,852) (327,029) (20,889)

8. Taxes on income (1,750) (1,586) (1,750) (437)

9. Net loss for the year / period (151,987) (156,438) (328,779) (21,326)

10. Prior period cumulative losses brought forward - (151,987) (308,425) (637,204)

11. Cumulative losses (151,987) (308,425) (637,204) (658,529)

Extent of interest so far as it concerns the members ofHindustan Inks and Resins Limited, the holding company 100% 100% 100% 100%

Amount of loss for the year / period so far as it concernsthe members of Hindustan Inks and Resins Limited,the holding company 151,987 156,438 328,779 21,326

Notes to the Financial Statements for the period ended December 31, 2000, December 31, 2001 December 31, 2002, and March31, 2003

(Translated from the Austrian statutory report)

1. General Information

The financial statements as of December 31, 2000, 2001, 2002 and three month’s period ended on March 2003 were preparedaccording to the provisions of the Austrian Commercial Code (HGB) as amended. The financial statements were drawn up underthe generally accepted accounting principles and under the assumption to present a true and fair view of the Company.

The generally accepted accounting principles (consistency of valuation of methods, going concern principle, principle of individualvaluation, principle of prudence, balance sheet continuity) under §201(2) HGB were adhered to, as well as the rules of valuationand classification of the balance sheet and the income statement according to §§ 195 to 211 and §§ 222 to 235 HGB. The incomestatement was prepared using the total cost format.

2. Group Relationship

The Company is a 100% subsidiary of Hindustan Inks and Resins Ltd., Vapi, Gujarat, India and therefore is related to HindustanInks and Resins Ltd., as well as to its affiliated companies according to Art.228 of the Austrian Commercial Code (HGB).

Hindustan Inks and Resins Ltd. prepares the consolidated financial statements for the largest group of companies. At the balancesheet date the Company held 100% participation in Micro Inks Corporation, Delaware, U.S.A. Therefore, this company also is anaffiliated Company.

3. Accounting And Valuation Methods

3.1. Fixed Assets

Financial assets are valued at cost

3.2. Current Assets

Accounts receivables and other assets are valued at cost

3.3. Accruals

Other accruals are recorded in the amount necessary according to the principle of prudence and considering all recognizablerisks and liabilities.

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3.4. Liabilities

Liabilities are valued at repayment amounts.

4. Notes To Balance Sheet

Assets:

4.1. Fixed Assets

Regarding the composition and development of the fixed assets (See Note 7)

4.2. Additional information according to Art.238 Par.2 of the Austrian Commercial Code (HGB):

Investment in affiliated company (Micro Inks Corporation, Delaware, USA)

Particulars Dec 31, 2000 Dec 31, 2001 Dec 31, 2002 Jan1, 2003 to

Mar 31, 2003

EUR EUR EUR EUR

Balance Sheet Amount 9,954,802.30 18,484,776.74 47,664,036.65 47,664,036.35

Share in Capital (%) 100 100 100 100

Amount of Equity (USD) *4,109,226 *10,164,067.82 *8,436,945.71 *16,867,008.59

Prior year’s Results (USD) *(4,654,164) *(20,804,836.78) *(17,269,589.45) *(12,016,986.45)

Note: * based on the financial statements of respective years / periods.

Prior year’s loss results from start-up activities for establishing the necessary sales organization. Based on the company’sbusiness plan a significant improvement of the operating results is to be expected in the near future. No write-down for permanentdiminution in value of the investment was therefore required.

4.3. Accounts Receivable and Other Assets

4.3.1 Accounts Receivables from Affiliated Companies

The receivables from the affiliated companies result from services rendered to Hindustan Inks and Resins Limited. Theseamounts fall due with in one year (Art. 225 par. 3 of the Austrian Commercial Code (HGB)) for the period ended December31, 2000, and year ended December 31, 2001.

Shareholder’s equity and liabilities

4.4. Accruals

4.4.1. Composition Of Other Accruals

Dec 31, 2000 Dec 31, 2001 Dec 31, 2002 Jan 1, 2003 toMar 31, 2003

EUR EUR EUR EUR

Capital transfer Tax 41,689.96 23,862.29 68,561.03 2,004.76

Accounting and auditing 12,360.00 10,000.00 13,770.00 21,895.00

Total 54,049.96 33,862.29 82,331.03 23,899.76

4.5. Account Payables (March 31, 2003)

Amounts falling Amounts falling Amounts fallingDue within Due between Due after more

1 year 1 and 5 years than 5 years

EUR EUR EUR

1. Trade payables 6,402.97 0.00 0.00

Total 6,402.97 0.00 0.00

4.6 Contingent Liabilities (March 31, 2003)

Contingent liabilities in the amount of EUR 23,295,550.00 results from guarantees for bank loans of Micro Inks Corporation,USA

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5. Notes To The Income Statement

Other operating expenses

5.1. Taxes, Other Than Income Taxes


EUR EUR EUR EUR

Capital Transfer Tax 101,540.14 109,474.06 274,879.80 0.00

Total 101,540.14 109,474.06 274,879.80 0.00

5.2. Other Expenses


EUR EUR EUR EUR

Accounting and auditing 27,727.00 46,168.51 52,027.73 20,861.27

Legal advice 19,401.36 0.00 0.00 0.00

Others 1,558.43 172.26 230.60 40.09

Total 48,686.79 46,340.77 52,258.33 20,901.36

6. Additional Information

Company members:

During the year 2000;

- Vinaykumar Navnitrai Pandya

- Radja Nadaradjane Coumara

were appointed as general managers.

Employees:

From fiscal year 2001 up to and including March 31, 2003, no personnel was employed by the company.

7. Fixed Asset Movement Schedule

Financial assets

Investment in affiliated companies

Particulars Dec 31, 2000 Dec 31, 2001 Dec 31, 2002 Mar 31, 2003

EUR EUR EUR EUR

Opening balance — 9,954,802.30 18,484,776.74 47,664,036.65

Additions 9,954,802.30 8,529,974.44 29,179,259.91 —

Disposal — — — —

Closing balance 9,954,802.30 18,484,776.74 47,664,036.65 47,664,036.65

Accumulated Depreciation — — — —

Book Value as of 9,954,802.30 18,484,776.74 47,664,036.65 47,664,036.65

Depreciation for the year — — — —

The increase in investment in affiliated companies results from capital contributions of Hindustan Inks and Resins Ltd., India in favourof Micro Inks Corporation, USA as well as capital contributions of Micro Inks GmbH.

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ANNEXURE- VI

Micro Inks Corporation, USA

Balance Sheet as at December 31, 2000, March 31, 2001, March 31, 2002 and March 31, 2003

Amount USD

As At As At As At As AtDec.31, 2000 Mar.31, 2001 Mar.31, 2002 Mar.31, 2003

ASSETS

Current Assets:

Cash and cash equivalents 427,311 1,450,912 379,589 700,167

Investments 102,780 104,206 — —

Accounts receivable 574,975 2,044,524 9,302,626 12,633,359

Inventories 1,924,757 8,723,483 41,080,551 42,634,102

Prepaids and other current assets 147,963 99,340 867,374 1,687,438

Total Current Assets 3,177,786 12,422,465 51,630,140 57,655,066

Property, plant and equipment, net ofaccumulated depreciation 8,944,666 13,267,068 18,314,548 18,868,830

Other assets 182,292 217,409 391,801 1,267,730

Total Assets 12,304,744 25,906,942 70,336,489 77,791,626

LIABILITIES AND STOCK HOLDER’S EQUITY

Current Liabilities:

Accounts payable 142,108 3,469,183 5,849,530 1,062,872

Accounts payable-related party 2,338,918 10,190,064 25,734,008 26,085,408

Accrued liabilities 2,074,492 1,279,329 740,212 2,598,650

Note payable -related party 2,640,000 2,640,000 3,170,000 3,170,000

Note payable 1,000,000 — — —

Long term debt- current portion — 5,000,000 16,000,000 12,666,664

Total Current Liabilities 8,195,518 22,578,576 51,493,750 45,583,594

Long Term Debt — 3,000,000 10,000,000 14,000,002

Total Liabilities 8,195,518 25,578,576 61,493,750 59,583,596

Stockholder’s equity :

Redeemable Series A preferred stock (500 shares authorized, - - - 16,450,000

500 Shares issued and outstanding $0.001 par value )

Common Stockholder’s Equity

Common stock (3,000 shares authorized, 2,280 shares

issued and outstanding, $0.01 par value) 23 23 23 23

Additional paid-in capital 8,846,539 9,704,287 36,318,868 42,206,563

Accumulated deficit (4,737,336) (9,375,944) (27,476,152) (40,448,556)

Total Common stockholder’s equity 4,109,226 328,366 8,842,739 1,758,030

Total stockholder’s equity 4,109,226 328,366 8,842,739 18,208,030

Total liabilities and stockholder’s equity 12,304,744 25,906,942 70,336,489 77,791,626

Extent of interest so far as it concerns the members ofMicro Inks GmbH, Austria, the holding company 100% 100% 100% 100%

Extent of interest so far as it concerns the members ofHindustan Inks and Resins Limited, the holding companyof Micro Inks GmbH, Austria. 100% 100% 100% 100%

Share in net assets so far as it concerns the members ofMicro Inks GmbH, Austria, the holding company. 4,109,226 328,366 8,842,739 1,758,03

Share in net assets so far as it concerns the members ofHindustan Inks and Resins Limited, the holding company ofMicro Inks GmbH, Austria. 4,109,226 328,366 8,842,739 18,208,030

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Micro Inks Corporation, USA

Statement Of Operations

For the periods ended December 31, 2000, March 31, 2001, March 31, 2002 and March 31, 2003

Amount USD

Feb. 8, 2000 to Three months Year Ended Year Ended

Dec.31, 2000 ended Mar.31, 2002 Mar.31, 2003

Mar.31, 2001

Net Sales 812,577 2,598,022 36,067,775 56,487,606

Cost of goods sold 943,587 2,808,964 33,664,971 54,265,320

Gross margin (131,010) (210,942) 2,402,804 2,222,286

Selling, general and administrative expenses 4,523,154 4,240,833 19,274,386 13,877,648

Operating loss (4,654,164) (4,451,775) (16,871,582) (11,655,362)

Other income and (expense):

Interest expense (129,114) (188,341) (1,251,063) (1,335,571)

Interest income 45,942 1,508 22,437 18,529

Total other expenses (83,172) (186,833) (1,228,626) (1,317,042)

Net loss (4,737,336) (4,638,608) (18,100,208) (12,972,404)

Extent of interest so far as it concerns the membersof Micro Inks GmbH, Austria, the holding company 100% 100% 100% 100%

Extent of interest so far as it concerns the membersof Hindustan Inks and Resins Limited, the holdingcompany of Micro Inks GmbH, Austria 100% 100% 100% 100%

Amount of loss for the year / period so far as it concernsthe members of Micro Inks GmbH, Austria,the holding company. 4,737,336 4,638,608 18,100,208 12,972,404

Amount of loss for the year / period so far as it concernsthe members of Hindustan Inks and Resins Limited,the holding company of Micro Inks GmbH, Austria. 4,737,336 4,638,608 18,100,208 12,972,404

Statement Of Cash Flows

For the period ended December 31, 2000, March 31, 2001 , March 31, 2002 and March 31, 2003

Amount USD

Feb. 8, 2000 to Three months Year Ended Year EndedDec.31, 2000 ended Mar.31, 2002 Mar.31, 2003

Mar.31, 2001

Cash flows from operating activities:

Net loss (4,737,336) (4,638,608) (18,100,208) (12,972,404)

Adjustments to reconcile net loss to net cashused in operating activities:

Depreciation 52,948 197,899 1,681,561 2,096,649

Change in operating assets and liabilities:

Investment (102,780) — — —

Accounts receivable (574,975) (1,469,549) (7,258,102) (3,330,733)

Inventories (1,924,757) (6,798,726) (32,357,068) (1,553,551)

Other assets (330,255) 13,506 (838,220) (1,695,993)

Accounts payable -related party — — 15,543,944 351,400

Accounts payable and Accrued liabilities 4,555,518 10,383,058 1,841,230 (2,928,220)

Net cash used in operating activities (3,061,637) (2,312,420) (39,486,863) (20,032,852)

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Feb. 8, 2000 to Three months Year Ended Year EndedDec.31, 2000 ended Mar.31, 2002 Mar.31, 2003

Mar.31, 2001

Cash flows from investing activities:

Purchases of investments — (1,426) — —

Purchases of property, plant and equipment (8,360,537) (4,412,553) (6,509,460) (2,329,130)

Net cash used in investing activities (8,360,537) (4,413,979) (6,509,460) (2,329,130)

Cash flows from financing activities:

Proceed from notes payable 3,640,000 — — —

Proceed from notes payable - related party — — 3,170,000 —

Issuance of common stock 23 — — —

Proceeds from issuance of Long-term debt — 7,000,000 40,000,000 2,000,000

Payment of Long-term debt — — (22,000,000) (1,333,334)

Redeemable preferred stock — — — 16,450,000

Capital contributions from related party 8,209,462 750,000 23,755,000 5,565,894

Net cash provided by financing activities 11,849,485 7,750,000 44,925,000 22,682,560

Net (increase) or decrease in cash and cash equivalents 427,311 1,023,601 (1,071,323) 320,578

Cash and cash equivalents at beginning of period — 427,311 1,450,912 379,589

Cash and cash equivalents at end of period 427,311 1,450,912 379,589 700,167

Supplement cash flow information:

Amounts paid for interest — 3,514 1,227,697 1,380,977

Non Cash investing activity:

Equipment contributed by related party 637,077 107,748 2,640,000 321,801

Related party notes payable converted tocapital contributions

Statement Of Changes In Stockholder’s Equity

As at December 31, 2000, March 31, 2001 , March 31, 2002 and March 31, 2003

Amount USD

Dec.31, 2000 Mar.31, 2001 Mar.31, 2002 Mar.31, 2003

Balance — 4,109,226 328,366 8,842,739

Issuance Of Common Stock 23 — — —

Contributions From Related Party 8,846,539 857,748 26,614,581 22,337,695

Net Loss (4,737,336) (4,638,608) (18,100,208) (12,972,404)

Balance as at Date 4,109,226 328,366 8,842,739 18,208,030

Notes To Financial Statements

For The Period Ended December 31, 2000, March 31, 2001, March 31, 2002 and March 31, 2003.

1. Description Of Business And Stockholder Support

Micro Inks Corporation (the “Company”) was incorporated on February 8, 2000 to manufacture a variety of printing inks for theNorth American printing industry. The Company’s products include printing inks, adhesives, flushed pigments, synthetic resins, andwire enamels. The Company is a wholly owned subsidiary of Micro Inks GmbH, which is a wholly owned subsidiary of HindustanInks and Resins Limited (“HIRL”). HIRL is a publicly listed company in India and the largest ink company in India.

The Company has generated an accumulated deficit of $4.8, $9.4, $27.48 and $40.45 million as at December 31, 2000, March 31,2001,March 31, 2002 and March 31, 2003 respectively. It had a net working capital deficiency of $2.4 and $7.5 million as at December31, 2000 and March 31, 2001 respectively and a net working capital surplus of $3.31 and $12.07 million as at March 31, 2002 andMarch 31, 2003 respectively.

Net cash used in operating activities for the period ended December 31, 2000, March 31, 2001, March 31, 2002 and March 31,2003 was $3.1, $2.3, $39.49 and $20.03 million respectively.

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During 2000, the company’s stockholder made an $8.8 million equity contribution in the Company and HIRL loaned the company$2.64 million and guaranteed the Company’s outstanding bank debt as at December 31, 2000. HIRL contributed $107748 in newmachinery and equipments for the three month period March 31, 2001 and had a $2,640,000 loan receivable from the Company,and either guaranteed or secured substantially all of the Company’s outstanding bank debt as at March 31, 2001. The Companyhas $3,170,000 note payable to HIRL and HIRL either guaranteed or secured all of the Company’s outstanding debts as at March31, 2002 and March 31, 2003. HIRL is the Company’s principal supplier of raw materials.

During the next twelve months ending March 31, 2004, $12.70 million of long term debts must be paid or refinanced and $29 millionis payable to the Parent. The Company expects to meet these obligations with the continued support and guarantees of the parentCompany.

Until management is able to achieve its plan for profitable future operations, the Company continues to be dependent upon theavailability of financial support from HIRL, including assistance in negotiating and guaranteeing debt arrangements with the Company’sbanks. Such financial support is subject to the approval of the Reserve Bank of India. HIRL has pledged its financial support to theCompany through March 31, 2004.

2. Summary Of Significant Accounting Policies

Cash and Cash Equivalents - The Company considers all highly liquid investments purchased with original maturities of threemonths or less to be cash equivalents. The Company at times maintains balances in excess of the amount insured by the FederalDepository Insurance Corporation.

Investments - Investments consist of a certificate of deposit and reinvested accrued interest related thereto.

Inventories - Inventories are stated at the lower of cost or market value and inventory costs have been determined using the first-in, first-out (“FIFO”) method.

Property, Plant and Equipment - Property, plant and equipment are recorded at cost. Depreciation is computed on the straight-line method, over the estimated useful lives ranging from 4 to 30 years. Leasehold improvements are amortized over the estimateduseful lives, or the term of the related leases, whichever is shorter, using the straight-line method. Additions, major renewals andreplacements that increase the property’s useful life are capitalized. Expenditures for maintenance and repairs are charged tooperations as incurred. The cost of property, plant and equipment retired or sold and the related accumulated depreciation oramortization are removed from the accounts, and any related gain or loss is included in the statement of operations for the period.No property, plant and equipment was retired for the year ended on March 31, 2003.

Income Taxes - Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109,“Accounting for Income Taxes.” Under this method, deferred income taxes are recorded to reflect the tax consequences in futureyears of differences between the basis of assets and liabilities for income taxes and for financial reporting purposes using enactedtax rates in effect for the year in which differences are expected to reverse.

Revenue Recognition - Revenue is generated primarily from the selling of printing inks. Revenue is recognized when the inkshave been delivered to the customer for all customers except those on consignment. For those customers purchasing onconsignment, revenue is recognized when an accurate measure of the amount of inks used can be determined.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptions that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates.

Credit Concentrations –

In respect of accounts receivable as at December 31, 2000, three customers account for approximately 73% of the Company’ssales, no other customer accounted for more than 10% of sales and four customers account for 81% of accounts receivable.

In respect of accounts receivable as at March 31, 2001, eight customers account for approximately 81% of the Company’s sales,no other customer accounted for more than 10% of sales and nine customers account for 78% of accounts receivable.

In respect of accounts receivable as at March 31, 2002, five customers account for approximately 63% of the Company’s sales,no other customer accounted for more than 10% of sales and six customers account for approximately 72% of accounts receivable.

In respect of accounts receivable as at March 31, 2003, eleven customers account for approximately 84% of the Company’s sales,no other customer accounted for more than 1% of sales and twelve customers account for approximately 80% of accounts receivable.

Shipping and Handling Costs- The Company has included shipping and handling costs incurred during the year in Selling, Generaland Administrative Expenses within the Statement of Operations. This amount for the year ended March 31, 2003 is $ 3,968,390.

3. Other Assets

The Company made an interest free loan of $250,000 to a significant customer in October 2000. The loan is to be repaid in 48 equalmonthly installments commencing November 2000. The current portion due at March 31, 2003 of $62,503 is included in other currentassets in the balance sheet.

The Company advanced funds to employees totaling approximately $11,000, $26,877, $165,008 and $205,865 as at December 31,2000, March 31, 2001, March 31, 2002 and March 31, 2003 respectively. The current portion due at March 31, 2003 is $ 67,883and is included in other current assets. These advances do not bear interest for the period ended December 31, 2000 and March31, 2001.

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Pursuant to a long-term contract entered with a significant customer, the Company has paid $1.14 million for “inplant” servicesduring the year ended March 31, 2003. Such amounts will be deferred and amortized as a reduction of contract revenues over thethirty-nine-months contract term. As of March 31, 2003, the Company has recorded $352,246 in prepaids and other current assetsand $440,308 in other assets associated with this contract provision.

Pursuant to a three-year contract entered with another significant customer in January 2003, the company has made an advanceof $382,000. This advance will be amortized as a reduction in the contract revenues based on a percentage discount taken onnormal purchases. The unamortized portion of the advances as at March 31, 2003, $319,739 is included in prepaids and otherassets in the balance sheet. The Company has also made a non-refundable “sign-on bonus” of $600,000 to the same customerupon signing the three-year contract. This amount is deferred and amortized as reduction of contract revenues over the three-yearcontract term. As of March 31, 2003 the Company has recorded $200,000 in prepaids and other current assets and $350,000 inother assets associated with this contract provision.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are as follows:

Particulars Dec 31, 2000 Mar 31, 2001 Mar 31, 2002 Mar 31, 2003Amount $ Amount $ Amount $ Amount $

Land and land improvements 1,546,401 1,546,401 1,546,779 1,546,779

Building and building improvements 3,090,326 4,122,418 6,303,500 7,062,313

Machinery and equipment 2,257,268 5,984,821 10,205,966 11,841,209

Trucks 338,534 613,237 968,874 968,874

Furniture and fixtures 139,118 486,992 923,500 1,029,293

Computers and software 10,755 135,538 189,902 340,632

Leasehold improvements 108,435 108,436 108,436 108,436

Construction in progress 1,506,777 520,073 — —

Total 8,997,614 13,517,916 20,246,957 22,897,535

Less accumulated depreciation (52,948) (250,848) (1,932,409) (4,028,705)

Property, plant and equipment - net 8,944,666 13,267,068 18,314,548 18,868,830

5. LEASES

The Company leases its office space, certain office equipment, and automobiles under operating leases. Total rent expense underthese operating leases was approximately $176,747, $244,555, $701,157 and $618,502 for period ended December 31, 2000,March 31, 2001, March 31, 2002 and March 31, 2003 respectively. The following is a schedule of future minimum lease paymentsunder noncancellable operating leases at March 31, 2003:

Year Ending March 31 Amount $

2004 452,950

2005 310,297

2006 96,212

2007 31,551

Thereafter 1,184

Total 829,194

As required under its corporate headquarters lease, the Company maintains a restricted certificate of deposit in the amount of$100,000. The balance of $110,656 at March 31, 2003, which includes accrued interest, is included in other assets.

6. Notes Payable and Long -Term Debt

In June 2001, the Company entered into an agreement with a bank in the United States of America, which enables the Companyto borrow up to $3,000,000. This loan is due on demand within 180 days. The total outstanding borrowings under this loan are$3,000,000 as at March 31, 2003. This loan is secured by a letter of credit with a bank in India and by certain assets of HIRL.Interest on this loan is at the LIBOR rate for foreign currency plus 1% markup per annum (2.45% at March 31, 2003) and is duemonthly.

In January 2002, the Company entered into an agreement with a bank in India, enabling the Company to borrow up to $5,000,000.The total outstanding borrowings under this loan are $4,166,666 as at March 31, 2003. This loan is secured by present and futurefixed assets and current assets of the Company and is also guaranteed by HIRL and Micro Inks GmbH. The loan bears interestat the LIBOR rate for foreign currency plus 2.00% mark up per annum (4.01% at March 31, 2003) and interest is due quarterly.Principal of $833,333 is due semiannually beginning April 1, 2003.

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In February 2002, the Company entered into an agreement with a bank in India, enabling the Company to borrow up to $5,000,000.The total outstanding borrowings under this loan are $5,000,000 as at March 31, 2003. This loan is secured by present and futurefixed assets and current assets of the Company and is also guaranteed by HIRL and Micro Inks GmbH. The loan bears interestat the LIBOR rate for foreign currency plus 2.00% mark up per annum (4.383% at March 31, 2003) and interest is due quarterly.Principal of $833,333 is due semiannually beginning August 14, 2003.

In February 2002, the Company entered into an agreement with a bank in India, enabling the Company to convert its existing shortterm borrowing of $5,000,000 to a long-term borrowing. The total outstanding borrowings under this loan are $5,000,000 as atMarch 31, 2003. This loan is secured by present and future fixed assets and current assets of the Company and is also guaranteedby HIRL and Micro Inks GmbH. The loan bears interest at LIBOR rate of foreign currency plus 1.50% mark up per annum (3.58%at March 31, 2003) and interest is due quarterly. Principal of $833,333 is due semi-annually beginning May 10, 2003.

In June 2002, the Company entered into an agreement with a bank in India, enabling the Company to convert its existing short termborrowing of $5,000,000 to a long-term borrowing. The total outstanding borrowings under this loan are $5,000,000 as at March 31,2003. This loan is secured by movable and immovable properties of the company and is also guaranteed by HIRL and Micro InksGmbH. The loan bears interest at the banks prime rate (4.50% at March 31, 2003) and interest is due monthly. Principal of $833,333is due semi-annually beginning May 22, 2003.

In March 2002, the Company entered into an agreement with a bank in India, enabling the Company to convert its existing shortterm borrowing of $3,000,000 to a long-term borrowing. The total outstanding borrowings under this loan are $2,500,000 at March31, 2003. This loan is secured by movable and immovable properties of the company and is also guaranteed by HIRL and MicroInks GmbH. The loan bears interest at the LIBOR rate for foreign currency plus 2.00% mark up per annum (4.35% at March 31,2003) and interest is due quarterly. Principal of $500,000 is due semi-annually beginning April 1, 2003.

In September 2002, the Company entered into an arrangement with a bank in India, enabling the Company to borrow up to $2,000,000.The principal originally repayable on demand at the end of 90 days, is extended to a further 120 days and is due in April 2003. Thetotal outstanding borrowings under this loan are $2,000,000 as at March 31, 2003. This loan is secured by a lien on fixed depositmade by HIRL of INR 100,000,000, or approximately $2,127,660 at March 31, 2003. The loan bears interest at the LIBOR rate forforeign currency plus 1.25% mark up per annum (2.90% at March 31, 2003) and is payable on maturity of the loan.

Proceeds from all loans described above are to be used to fund the Company’s working capital requirements and capital expenditurerequirements.

Long-term debt as at March 31, 2001, consists of the following:

Term loan payable, interest payable at United States prime rate plus 200 basis points or11.50% at March 31, 2001 $5,000,000

Short-term loan payable, interest payable at the LIBOR rates for foreign currency creditplus 1% margin per annum or average of 5.90% at March 31, 2001 2,000,000

Short-term loan payable, interest payable on the date of maturity at a Negotiated rate or5.95% at March 31, 2001 1,000,000

Total long-term debt 8,000,000

Less current portion of long term debt 5,000,000

Long-term debt – less current portion $3,000,000

Notes payable and long-term debt obligations consist of the following as at March 31, 2002:

Short-term loan payable, interest payable at the LIBOR rate for foreign currency credit plus 1% marginper annum or average of 3.41% at March 31, 2002 $5,000,000

Short-term loan payable, interest payable at the LIBOR rate for foreign currency credit plus 1% marginper annum or 2.90% at March 31, 2002 3,000,000

Short-term loan payable at the LIBOR rate plus 1.40% margin per annum or 3.966% as at March 31, 2002 5,000,000

Short-term loan payable, interest payable at the LIBOR rate for foreign currency credit plus 1.25% marginper annum or 3.235% at March 31, 2002 3,000,000

Term loan payable at the LIBOR rate for foreign currency plus 2% margin per annum or 4.383% atMarch 31, 2002 5,000,000

Term loan payable, interest payable at the LIBOR rate for foreign currency plus 2% margin per annumor 3.935% at March 31, 2002 5,000,000

Total long-term obligations 26,000,000

Less current portion 16,000,000

Long-term debt – (Net of current portion) $10,000,000

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Notes payable and long-term debt obligations consist of the following as at March 31, 2003:

Short-term loan payable, interest payable at the LIBOR rate for foreign currency credit plus 1% marginper annum or average of 2.45% at March 31, 2003 $3,000,000

Term loan payable, interest payable at the LIBOR rate for foreign currency plus 2% margin per annum or4.01% at March 31, 2003 4,166,666

Term loan payable, interest payable at the LIBOR rate for foreign currency plus 2% margin per annum or4.383% at March 31, 2003 5,000,000

Term loan payable, interest payable at the LIBOR rate for foreign currency plus 1.50% margin per annum or3.58% at March 31, 2003 5,000,000

Term loan payable, interest payable at banks prime rate or 4.5% per annum at March 31, 2003 5,000,000

Term loan payable, interest payable at the LIBOR rate for foreign currency plus 2% margin per annum or4.35% per annum at March 31, 2003 2,500,000

Short-term loan payable, interest payable at the LIBOR rate for foreign currency credit plus 1.25% marginper annum or 2.90% per annum at March 31, 2003 2,000,000

Total long-term obligations 26,666,666

Less current portion 12,666,664

Long-term debt – (Net of current portion) $14,000,002

Aggregate maturities of notes payable and long-term debt consist of the following:

Year Ending Mar, 31 Amount $

2004 12,666,664

2005 7,666,664

2006 6,333,338

Total 26,666,666

7. Series A Redeemable Preferred Stock

During the year ended March 31, 2003, pursuant to a Board of Directors’ resolution dated June 5, 2002, the Company issued 500shares of Series A Preferred Stock with a par value of $0.001 per share, to be issued in denominations of $32,900. These sharescarry a dividend at the rate of $0.25 per share per annum, payable quarterly when, as and if declared by the Board of Directorsand are non-cumulative. All 500 shares issued as Series A Preferred Stock were subscribed by HIRL and were fully paid up as atMarch 31, 2003.

This preferred stock is redeemable at $32,900 per share plus any declared but unpaid dividends (i) upon any liquidation, dissolutionor other transaction or series of transactions that result in the transfer of over 50% of the common stock voting interests to a thirdparty; (ii) upon a sale of all or substantially all of the assets of the company; and (iii) at the option of each Series A Preferred Holder,on or at any time after February 28, 2003.

Any required redemptions of the Series A Preferred Stock are prior to and in preference of any distribution of any assets of theCompany to the holders of its common stock.

8. Transactions With Related Parties

In June 2000, the Company entered into a loan agreement with HIRL and issued a note payable to HIRL. The note originally boreinterest at 9% and was due in five equal annual installments, including interest accrued to the date of payment, beginning May 31,2002 and ending May 31, 2006. In 2002 the note, with a balance of $ 2,640,000 was forgiven by HIRL and converted to equity ascapital contribution.

In the year 2001-02, the Company has taken an interest free loan payable to HIRL amounting to $3,170,000 and the same isoutstanding as on March 31, 2003. This loan is payable on demand, and has therefore been classified as short term.

The Company purchased approximately $2.4, $7.8, $47.48 and $40.12 million of raw materials from HIRL and pays to HIRL forthese materials on 180, 165, 165 and 165 day terms from the bill of lading date for the period ended December 31, 2000, March31, 2001, March 31, 2002 and March 31, 2003 respectively. These purchases account for the majority of the Company’s inventoryexpenditures. Accounts payable to HIRL totaled $2.34 million, $10.19 million, $ 25.70 and $ 26.09 million as at December 31, 2000,March 31, 2001, March 31, 2002 and March 31, 2003 respectively.

HIRL contributed $16,450,000 in cash towards 500 Shares of Series A Preferred Stock (See Note 7 Above).

Micro Inks GmbH contributed approximately $637,077, $219,581 and $321,801 during the period ended December 31, 2000, March31, 2002 and March 31, 2003 respectively and HIRL contributed approximately $107,748 during the period ended March 31, 2001in new machinery and equipment to support the Company.

Micro Inks GmbH also contributed $8,209,485, $750,000, $23,755,000 and $5,565,894 in cash as additional common stock capitalcontribution to support the Company for the period ended December 31, 2000, March 31, 2001, March 31, 2002 and March 31,2003 respectively.

58

9. Income Taxes

The Company has a net operating loss carry forward for federal income tax purposes of approximately $4.3, $9.3, $27.48 and$40.35 million as of December 31, 2000, March 31, 2001, March 31, 2002 and March 31, 2003 respectively, to be applied againstfuture taxable income, if any. This carry forward, if unused, will expire in 15 years from the date recorded.

The Company has a net deferred tax asset of approximately $1.5 million (comprising principally of the potential future benefit of netoperating loss carry forwards and differences in the basis of property, plant and equipment for tax purposes and financial reportingpurposes), $2.8 million (comprised principally of the $9.30 million long-term deferred tax asset related to potential future benefit ofnet operating loss carry forwards offsets by the $6.5 million deferred tax liability related to differences in the basis of property, plantand equipment for tax purposes and financial reporting purposes), $27.12 million (comprised principally of the $27.48 million deferredtax asset related to potential future benefit of net operating loss carry forwards offsets by the $0.36 million deferred tax liabilityrelated to differences in the basis of property, plant and equipment for tax purposes and financial reporting purposes) and $15.19million (comprised principally of the $15.33 million deferred tax asset related to the potential future benefits of net operating losscarry forwards. This offset by $0.14 million deferred tax liability related to differences in the basis of property, plant and equipmentfor tax and financial reporting purposes) as of December 31, 2000, March 31, 2001, March 31, 2002 and March 31, 2003 respectively.

As of March 31, 2003, the deferred tax asset is fully offset by a valuation allowance due to the uncertainty of future realization oftax benefits. Due to the effects of the valuation allowance, no income tax benefit was recognized by the Company in connectionwith its reported net loss for the period ended December 31, 2000, March 31, 2001, March 31, 2002 and March 31, 2003 respectively.

10. Employee Benefits

The Company has a 401(k) Salary Deferral Plan (the “Plan”). Under the Plan, all employees at least 21 years of age and that havebeen employed for at least three months may voluntarily contribute up to 15% of their compensation. The Plan allows for a matchingCompany contribution of 50% of the first 6% of each participant’s compensation, which vests ratably over four years of service.The Company made $4,630, $25,911, $117,681 and $110,194 in contributions to the Plan for period ended December 31, 2000,March 31, 2001, March 31, 2002 and March 31, 2003 respectively.

11. Commitments And Contingencies

The Company may be involved in legal matters which arise in the ordinary course of business for which the Company makesprovisions in its financial statements as appropriate. The Company believes there is no pending or threatened litigation that wouldhave a material adverse effect upon the Company’s financial condition, results of operations or cash flows.

59

ANNEXURE VII

Statement of Accounting Ratios

Ratios Year ended Year ended Year ended Year ended Year endedMarch 31, March 31, March 31, March 31, March 31,

1999 2000 2001 2002 2003

Earning per share (Rs.)(Before extraordinary item) 24.64 18.31 18.92 31.52 26.71

Earning per share (Rs.)(After extraordinary item) 24.64 18.31 18.86 31.55 26.71

Cash Earning per share (Rs.)(Before extraordinary item) 28.23 25.86 28.63 46.82 44.32

Cash Earning per share (Rs.)(After extraordinary item) 28.23 25.86 28.56 46.85 44.32

Return on Net Worth (%)(Before extraordinary item) 44.20 24.53 16.53 20.42 14.45

Return on Net Worth (%)(After extraordinary item) 44.20 24.53 16.48 20.44 14.45

Operating Profit (%) 20.93 19.10 14.95 19.61 16.99

Cash Profit (%) 17.47 15.35 11.63 13.26 11.66

Net Asset Value per Share (Rs.) 64.47 85.22 115.11 142.69 164.42

Note : EPS and NAV of earlier years is adjusted for bonus shares issued in 2000-01

A) EPS (before extraordinary items) = (Adjusted profits after tax but before extraordinary items - Preference shares dividend) / ‘Weightedaverage number of equity shares’

B) EPS (after extraordinary items) = (Adjusted profits after tax and extraordinary items - Preference shares dividend) / ‘Weightedaverage number of equity shares’

C) Cash EPS (before extraordinary items) = (Adjusted profits after tax but before extraordinary items + depreciation + deferred tax -Preference shares dividend) / ‘Weighted average number of equity shares’

D) Cash EPS (after extraordinary items) = (Adjusted profits after tax and extraordinary items + depreciation + deferred tax - Preferenceshares dividend) / ‘Weighted average number of equity shares’

E) Return on Net Worth (before extraordinary items) = Adjusted Profit after Tax but before extraordinary items / ‘Average of Shareholders’funds’.

F) Return on Net Worth (after extraordinary items) = Adjusted Profit after Tax and extraordinary items / ‘Average of Shareholders’funds’.

G) Operating profit = (Adjusted Profit before tax and extraordinary item + interest) / ‘Total sales and other operating income’.

H) Cash Profit = (Adjusted Profit after tax but before extraordinary item + depreciation + deferred tax) / ‘Total sales and other operatingincome’.

I) Net Asset Value = (Adjusted Net Worth – Share Capital Suspense – Preference Share Capital and premium on Preference Shares– unpaid dividend on Preference share) / Pro-rated No. of fully paid up equity shares.

J) Average of Shareholders’ funds = Weighted average share capital at the end of the year + weighted average share premium +(Adjusted Reserves at the beginning + Adjusted Reserves at the end of the year) / 2

K) Adjusted Reserves = Reserves at the end of the year + Equity dividend and dividend tax thereon + Preference dividend and taxthereon - Share Premium.

60

Statement of Related Party Disclosure

Rela ted par ty D isc losure as requ i red by Account ing S tandard -18 i ssued by The Ins t i tu te o f Char te red Accountan ts o f Ind ia , a re g iven be low :

(i) Where control exists:

S.NO. Related party Relationship

1 Micro Inks GmbH, Austr ia Subsidiary

2 Micro Inks Corporat ion, USA Subsidiary of Subsidiary

3 Bi lakhia Holdings Pvt . Ltd. Holding Company

Related Party Transact ions

(Rs. million)

Sale of Goods & Services Purchase of Goods and Services Interest Income on Loans Interest Expenses on Loans and DepositsLoans and Deposits taken

Year Ended Year Ended Year Ended Year Ended Year Ended

Relationship Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31,2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003

Fellow Subsidiaries 2.24 33.69 1.69 55.10 62.18 57.88 - - - 6.91 8.25 5.53 705.00 295.00 276.16

Associates 71.50 53.96 58.00 179.62 147.50 56.23 - - - 3.89 8.06 0.18 250.00 350.00 153.30

Subsidiaries 860.10 2,169.90 2,185.45 - 0.11 1.95 8.18 - - - - - - - -

Holding Company - - - - - - - - - - - - 5.00 - -

Key Management

Personnel - - - - - - - - - - - - - - 60.00

Relative of KeyManagement Personnel - - - - - - - - - - - - - - -

ANNEXURE VIII

61


(Rs. million)

Investments and Loans & Purchase of Fixed Assets Guarantees given Remuneration / Commission Reimbursement ofDeposits and sitt ing fees Expenditure - Given

Year Ended Year Ended Year Ended Year Ended Year Ended

Relationship Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31,2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003

Fellow Subsidiaries 10.00 - - - 4 .30 1.99 - - - - - - 1 .06 0.16 5.07

Associates - - - - * 0 .87 - - - - - - 2 .46 5.20 0.61

Subsidiaries 571.18 1,332.41 1,094.89 - - - 233.20 780.80 692.09 - - - - - 0 .39

Holding Company - 0.01 - - - - - - - - - - - - 0 .60

Key ManagementPersonnel - - - - 0 .25 - - - - 3 .19 4.10 4.43 - 0.20 -

Relat ive of KeyManagement Personnel - - 1 .92 - - - - - - 0 .92 1.12 1.52 - 0.24 -

* Includes swapping of 16000 Sq. Meter Land wi th M/s Bi lag Industr ies (P) Limited

(Rs. million)

Reimbursement of Gain on Exchange Rate Sale of Fixed Assets Guarantees Taken Margin Money pledgedExpenditure Obtained Fluctuation (Net) and securi ty of certain

assets with Bank


2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003

Fellow Subsidiaries 0.03 6.50 0.91 - - - - - 2 .03 - - - - - -

Associates 0.13 0.71 0.44 - - - - - - - - - - - -

Subsidiaries - - 0 .77 7.67 52.82 5.28 - - - - - - - - 243.19

Holding Company - 0.06 - - - - - - - - - - - - -

Key ManagementPersonnel - - - - - - - - - - - - - - -

Relat ive of KeyManagement Personnel - - - - - - - - - - - 200.00 - - -

62

Related Party Balances

(Rs. million)

Receivables Payables Investments Loans and Deposits given Guarantees given

As at As at As at As at As atRelationship Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31, Mar.31,

2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003

Fellow Subsidiaries 0.05 0.01 0.01 32.19 0.35 2.79 - - - 10.01 43.79 10.00 - - -

Associates - - 14.57 110.79 - - - - - - 16.78 - - - -

Subsidiaries 432.39 1,051.58 855.43 - - - 452.17 1,754.54 2,849.43 131.30 161.35 150.16 233.20 634.40 1,129.61

Holding Company - - - - - - - - - - 0.01 0.02 - - -

Key ManagementPersonnel - - - 0.04 0.20 0.18 - - - 0.30 0.23 0.15 - - -

Relative of KeyManage ment Personnel - - - - 0.20 0.20 - - - 0.41 0.28 0.76 - - -

(Rs. million)

Margin money and security of certain assets with bank Guarantees Taken

As At As At

Relationship March 31, 2001 March 31, 2002 March 31, 2003 March 31, 2001 March 31, 2002 March 31, 2003

Fellow Subsidiaries - - - - - -Associates - - - - - -Subsidiaries - - 243.19 - - - Holding Company - - - - - -Key Management Personnel - - - - - -Relative of Key ManagementPersonnel - - - - - 200.00

Name of the related parties and description of relationship

1. Fellow Subsidiaries Mitsu Limited, Bilakhia Properties (P) Ltd.,AGB Holdings (P) Ltd. and ZGB Holdings (P) Ltd.

2. Associates Bilag Industries (P) Ltd.3. Subsidiary / Subsidiary of Subsidiary Micro Inks GmbH, Austria and Micro Inks Corporation, USA.4. Holding Company Bilakhia Holdings Pvt. Ltd.5. Key Management Personnel Mr. Anjum Bilakhia (Managing Director) and Mr.Shivram Angne (Whole-time Director)6. Relatives of Key Management Personnel Mr. Zakir Bilakhia and Mr. Yunus Bilakhia (Brothers of Mr. Anjum Bilakhia)

63

ANNEXURE- IX

Statement of Dividend paid for last five years

Financial Dividend Dividend No. of Class of Sharesyear ended per Share Amount Shares

(Rs. Million) (Million)

31.03.1999 50.00% 23.00 4.45 Equity Shares of Rs. 10 each fully paid up

1.48 Equity Shares of Rs. 10 each partly paid up @ Re. 1 per share


0.90 Equity Shares of Rs. 10 each partly paid up @ Rs. 3.75 per share


95.00% 11.13 0.25 95% Cumulative Redeemable Preference Shares of Rs. 100 eachfully paid up (Issued on 3.10.2000 and 18.10.2000)


95.00% 23.75 0.25 95% Cumulative Redeemable Preference Shares of Rs. 100 eachfully paid up



95.00% 7.81 0.15 95% Cumulative Redeemable Preference Shares of Rs. 100 eachfully paid up (Redeemed on 18.10.2002)



9.00% 37.18 4.00 9% Cumulative Redeemable Preference Shares of Rs. 100 eachfully paid up (Dividend from 20.03.2002 to 31.03.2003)

64

ANNEXURE- X

Statement of Tax Shelter for the financial years ended March 31, 1999, 2000, 2001, 2002 and 2003

(Rs. million)

Accounting Year

Description 1998-99 1999-00 2000-01 2001-02 2002-03

Tax at Notional rates on Adjusted profits 85.46 113.15 29.30 46.01 43.47

Less :

A) Permanent Difference

(i) Export Profit (Section 80 HHC) (2.56) (4.42) (42.74) (124.65) (76.86)

(ii) New industrial undertaking profit

Under Section 80 IA (202.49) - - - -

Under Section 80 IB - (72.54) - - -

(iii) Exempted Income (Section 10(33)) - - (2.43) (1.45) -

(iv) Exempted Income of 100% EOU Unit(Section 10B) - - - 9.54 (18.42)

(v) Other Permanent Difference 4.96 5.22 (0.26) (0.26) (0.31)

Sub Total (A) (200.09) (71.74) (45.43) (116.82) (95.59)

B) Timing Difference

(i) Difference in Book and Tax depreciation (32.21) (93.72) - - -

(ii) Provision for Bad Debts 3.20 (0.87) - 10.54 8.78

(iii) Provision for Gratuity / Leave encashment 1.92 (1.92) - - -

(iv) Miscellaneous Expenditure Written Off (0.02) 0.74 - - -

Sub Total (B) (27.11) (95.77) - 10.54 8.78

Net Adjustments (A)+(B) (227.20) (167.51) (45.43) (106.28) (86.81)

Tax Saving Thereon (79.52) (64.49) (3.85) (8.13) (6.84)

Tax on Others 0.46 1.34 3.86 0.40 0.87

Total Tax on adjusted profits 6.40 50.00 29.31 38.28 37.50

Consisting of:

Tax on Profit before extraordinary items 6.40 50.00 29.39 38.25 37.50

Tax on extraordinary items (Actual Tax Paid) - - (0.08) 0.03 -

6.40 50.00 29.31 38.28 37.50

Tax on Profit before extraordinary items 6.40 50.00 29.39 38.25 37.53

Tax on difference between Book profit andAdjusted profit (3.00) (0.37) (0.01) (0.01) (0.03)

Provision for tax on Profitsbefore extraordinary items 3.40 49.63 29.38 38.24 37.50

Provision for tax on extraordinary items - - (0.08) 0.03 -

Deferred Taxation Expenses 14.05 37.70 45.72 79.94 73.70

Total Provision for Tax 17.45 87.33 75.02 118.21 111.20

Note : Tax Provisions for financial years 2000-01, 2001-02 and 2002-03 are computed at the Minimum Alternative Tax rate as requiredunder Section 115JA/115JB (2000-01 onward) of the Income Tax Act,1961

65

ANNEXURE-XI

CAPITALISATION STATEMENT

(Rs. million)

Particulars Pre-issue As At March 31, 2003 As Adjusted for issue

Offer Price (Rs.) At 240.00Short-Term Debts 2,036.32 2,036.32

Long Term Debts* 1,686.16 1,686.16

Total Debts 3,722.48 3,722.48Shareholders’ Funds

Share Capital 571.62 653.59

Share Capital Suspense Account 1,500.00 -

Reserves and Surplus 2,424.66 4,310.02

Total Shareholders’ Funds 4,496.28 4,963.61Long Term Debt/Equity Ratio 0.38 0.34

* Long Term Debts are after repayment of ICICI Loan of Rs. 250 million, as detailed in Objects of Issue.

66

ANNEXURE- XII

Statement of adjusted Consolidated Profits and Losses

(Rs. million)

Particulars Year Ended March 31, 2002 Year Ended March 31, 2003

Income


a Sales of products manufactured by the Company(including other operating income) 4,745.71 6,345.19

b. Sales of products traded by the Company 21.44 49.15

c. Total 4,767.15 6,394.34

Other Income 106.41 236.05

Increase (Decrease) in Inventories 563.46 609.11

5,437.02 7,239.50

Expenditure

Raw Material consumed 3,072.35 4,243.00

Manufacturing Expenses 325.57 394.88

Staff Costs 748.20 777.86

Administration Expenses 388.76 413.27

Selling and Distribution Expenses 541.10 722.15

Depreciation 210.68 266.51

Interest 475.68 497.78

Miscellaneous Expenses Written off 0.00 0.00

Total 5,762.34 7,315.45

Net Profit before Tax and Extraordinary item (325.32) (75.95)

Taxation 38.29 37.60

Deferred Tax 79.94 73.70

Net Profit before Extraordinary item (443.55) (187.25)

Extraordinary item (Net of Tax) 0.41 0.00

Net Profit after Extraordinary item (443.14) (187.25)


67

ANNEXURE- XIII

Statement of adjusted Consolidated Assets and Liabilities

(Rs. million)

Particulars March 31, 2002 March 31, 2003

A. Fixed Assets:

Gross Block 3,904.08 4,287.13

Less Depreciation 413.89 675.73

Net Block 3,490.19 3,611.40

Capital Work in Progress 140.63 77.80

Total 3,630.82 3,689.20

B. Investments 0.06 0.06

C. Current Assets, Loans and Advances:

Inventories 2,799.71 3,234.67

Sundry Debtors 1,205.27 1,757.92

Cash and Bank Balances 929.05 725.86

Loans and Advances 874.60 878.04

Other Current Assets 0.04 0.04

Total 5,808.67 6,596.53


Secured Loans 4,468.63 4,445.02

Unsecured Loans 597.68 545.46

Current liabilities and Provisions 1,726.00 2,534.39

Total 6,792.31 7,524.87

E. Deferred Tax liability 213.50 287.20

F. Networth 2,433.74 2,473.72

G. Represented by

1. Share Capital 586.62 571.62

2. Share Capital Suspense Account 1,000.00 1,500.00

3. Reserves and Surplus

Reserves earmarked for redemption of Cumulative RedeemablePreference Shares (Refer note no.3 in notes to consolidated accounts) 450.00 315.00

Other Reserves and Surplus 397.12 87.10

Total 847.12 402.10

Networth (1+2+3) 2,433.74 2,473.72


68

SIGNIFICANT ACCOUNTING POLICIES FOR THE YEAR ENDED MARCH 31, 2002 AND 2003.

The consolidated financial statements include the accounts of the Company consolidated with the accounts of its wholly owned andcontrolled subsidiaries. Whereas 100% equity of Micro Inks GmbH, Austria (MI) is controlled and owned by the Company, the accountsof Micro Inks Corporation, USA (MIC) have been included in these consolidated financial statements because the Company is undercontrol of MI (100% holding Company of MIC) apart from the fact that the majority of the Board of Directors of MIC consists of personsemployed by the Company. As a result, the controlling financial interest in MIC rests with the Company through its indirect commonstock ownership of MI.

BASIS OF CONSOLIDATION

The financial statements of the Company and its subsidiary companies have been combined on a line-by-line basis by adding togetherthe like items of assets, liabilities, income and expenditure. The intra-group balances and intra-group transactions and unrealized profitsor losses are fully eliminated.

For March 31, 2002 consolidated accounts , Micro Inks GmbH’s accounts for the year ended December 31, 2001 were considered. TheCompany made the adjustments in the accounts for the significant transactions that took place between December 31, 2001 auditedresults of Micro Inks GmbH and March 31, 2002.However, the financials of Micro Inks Corporation, USA were drawn and audited uptoMarch 31, 2002.

For March 31, 2003 consolidation, Micro Inks GmbH’s for fifteen months ended March 31, 2003 were considered. However, for MicroInks Corporation, USA the audited accounts for the year ended March 31, 2003 were considered in the consolidated accounts.

The functional currency of MI and MIC is their respective local currencies. Assets and liabilities of these Companies are translated usingthe current exchange rate in effect at the balance sheet date while revenue and expense items are translated at average exchangerates for the period except depreciation, which is charged at the current exchange rate in effect at the balance sheet date.

The resulting translation adjustments are recorded as a component of stockholders’ equity by way of Currency Fluctuation Reserve onconsolidation.

OTHER SIGNIFICANT ACCOUNTING POLICIES:

These are set out in the Notes of Accounts under Significant Accounting Policies for financial statement of Hindustan Inks and ResinsLimited, Micro Inks Corporation, USA and Micro Inks, GmbH, Austria.

NOTES TO THE CONSOLIDATED ACCONTS

NOTES FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED MARCH 31 2002 AND 2003.

1 Subsidiaries

The Consolidated Financial Statements present the consolidated accounts of Hindustan Inks and Resins Limited with its FollowingSubsidiaries:

Name of the Foreign Subsidiaries Country of Incorporation Proportion of Ownership Interest

A. Micro Inks GmbH Austria 100%

B. Micro Inks Corporation USA 100% owned by Micro Inks GmbH, Austria

2 Significant Accounting Policies and Notes to these consolidated financials statements are intended to serve as a means of informativedisclosure and a guide to better understanding the consolidated position of the companies. Recognizing this purpose, the Companyhas disclosed only such policies and notes from the individual financials statements, which fairly present the needed disclosures.Lack of homogeneity and other similar consideration made it desirable to exclude some of them, which in the opinion of theManagement, could be better viewed when referred to in the individual financial statements.

3 Hindustan Inks and Resins Limited (HIRL) had issued 2,50,000 95% and 2,50,000 90% Cumulative Redeemable Preference Shares(CRPS) of Rs 100/- each at a premium of Rs 900/- per share. Of the above, 1,50,000 95% CRPS were redeemed in October 2002,and balance 1,00,000 95% CRPS, which were due for redemption in October 2002, are extended for a further period of 36 monthswith a call/put option any time after 6 months from October 3, 2002 and the coupon rate has been revised from 95% to 80%effective April 01, 2003. The said shares are redeemable at a premium of Rs 900/- per share. Therefore, an amount of Rs. 315million as at March 31, 2003 has been earmarked out of the Security Premium Account for premium payable on redemption, whereofRs. 225 million is payable in March 2004 and Rs. 90 million is payable on or before October 2005.

4 HIRL had issued 40,00,000 9% Cumulative Redeemable Preference Shares of Rs 100/- each at par. The said shares are redeemableon or before 36 months from the date of allotment and is having a call/put option any time after 3 months from the date of allotment.

5 In terms of Section 117 (C) of the Companies Act, 1956 read with clarification dated April 18, 2002 issued by the Department ofCompany Affairs, HIRL is under obligation to create Debenture Redemption Reserve equal to 25% of the face value of the debenturesuntil such debentures are redeemed. The total Debenture Redemption Reserve as at March 31, 2003 is Rs. 150.00 million

6 (i) All Debentures, together with interest thereon, remuneration to the trustees, and other amounts payable as at March 31, 2003in respect thereof are secured by way of first mortgage and charge on HIRL’s immovable and movable properties, both presentand future including movable machineries, spares, tools etc. subject to prior charge created and / or to be created in favourof HIRL’s bankers on HIRL’s current assets.

69

(ii) FCNR Loan of Rs. 238.65 million from Canara Bank, Rupee Term Loan of Rs. 249.50 million from Industrial Development Bankof India, Rupee Term Loan of Rs. 375.00 million from The Karur Vysya Bank Limited, and Rupee Term Loan of Rs. 150.00million from Federal Bank, aggregating to Rs 1013.15 million as at March 31, 2003 are secured by way of pari-passu firstcharge on HIRL’s immovable and movable properties (save and except stock of raw materials, stock in process, finishedgoods, consumable stores and book debts), present and future, including moveable machineries, spares, tools etc., subjectto prior charge created in favour of HIRL’s bankers on the current assets of HIRL.

External Commercial Borrowing of Rs. 190.92 million from Co-operative Centrale Raiffeisen-Boerenleen Bank B.A., RupeeTerm Loan of Rs. 200.00 million from UCO Bank and Rupee Term Loan of Rs. 250.00 million from Allahabad Bank, aggregatingto Rs 640.92 million as at March 31, 2003 are to be secured by way of pari-passu first charge on HIRL’s movable and immovableproperties (save and except stock of raw materials, stock in process, finished goods, consumable stores and book debts),present and future, including moveable machineries, spares, tools etc., subject to prior charge created in favour of the HIRL’sbankers on the current assets of the HIRL. Term Loan of Rs 200.00 million from UCO Bank is also secured by third party lienon fixed deposit of Rs. 200.00 million of the HIRL’s Promoter Directors till final security is created.

(iii) HIRL’s working capital loans as at March 31, 2003 are secured by way of first pari-passu charge on all the stock of rawmaterials, stock in process, finished goods, consumable stores and book debts both present and future and are further securedby way of second charge on the fixed assets of HIRL.

(iv) In June 2001, Micro Inks Corporation (MIC) entered into an agreement with a bank in the United States of America, enablingMIC to borrow up to $3,000,000. This loan is due on demand within 180 days. The total outstanding borrowings under this loanare $3,000,000 at March 31, 2003. This loan is secured by a letter of credit with a bank in India which in turn is secured bycertain assets of HIRL. The loan bears interest at the LIBOR rate for foreign currency plus 1% mark up per annum (2.45% atMarch 31, 2003) and interest is due monthly.

(v) In January 2002, MIC entered into an agreement with a bank in India, enabling MIC to borrow up to $5,000,000. The totaloutstanding borrowings under this loan are $4,166,666 at March 31, 2003. This loan is secured by present and future fixedassets and current assets of MIC and is also guaranteed by HIRL and Micro Inks GmbH. The loan bears interest at the LIBORrate for foreign currency plus 2.00% mark up per annum (4.01% at March 31, 2003) and interest is due quarterly. Principal of$833,333 is due semi-annually beginning April 1, 2003.

(vi) In February 2002, MIC entered into an agreement with a bank in India, enabling MIC to borrow up to $5,000,000. The totaloutstanding borrowings under this loan are $5,000,000 at March 31, 2003. This loan is secured by present and future fixedassets and current assets of MIC and is also guaranteed by HIRL and Micro Inks GmbH. The loan bears interest at the LIBORrate for foreign currency plus 2.00% mark up per annum (4.383% at March 31, 2003) and interest is due quarterly. Principalof $833,333 is due semi-annually beginning August 14, 2003.

(vii) In February 2002, MIC entered into an agreement with a bank in India, enabling MIC to convert its existing short term borrowingof $5,000,000 to a long-term borrowing. The total outstanding borrowings under this loan are $5,000,000 at March 31, 2003.This loan is secured by present and future fixed assets and current assets of MIC and is also guaranteed by HIRL and MicroInks GmbH. The loan bears interest at LIBOR rate of foreign currency plus 1.50% mark up per annum (3.58% at March 31,2003) and interest is due quarterly. Principal of $833,333 is due semi-annually beginning May 10, 2003.

(viii) In June 2002, MIC entered into an agreement with a bank in India, enabling MIC to convert its existing short term borrowingof $5,000,000 to a long-term borrowing. The total outstanding borrowings under this loan are $5,000,000 at March 31, 2003.This loan is secured by movable and immovable properties of MIC and is also guaranteed by HIRL and Micro Inks GmbH. Theloan bears interest at the banks prime rate (4.50% at March 31, 2003) and interest is due monthly. Principal of $833,333 is duesemi-annually beginning May 22, 2003.

(ix) In March 2002, MIC entered into an agreement with a bank in India, enabling MIC to convert its existing short term borrowingof $3,000,000 to a long-term borrowing. The total outstanding borrowings under this loan are $2,500,000 at March 31, 2003.This loan is secured by movable and immovable properties of MIC and is also guaranteed by HIRL and Micro Inks GmbH. Theloan bears interest at the LIBOR rate for foreign currency plus 2.00% mark up per annum (4.35% at March 31, 2003) andinterest is due quarterly. Principal of $500,000 is due semi-annually beginning April 1, 2003.

(x) In September 2002, MIC entered into an arrangement with a bank in India, enabling MIC to borrow up to $2,000,000. Theprincipal originally repayable on demand at the end of 90 days, is extended to a further 120 days and is due in April, 2003. Thetotal outstanding borrowings under this loan are $2,000,000 at March 31, 2003. This loan is secured by a lien on fixed depositmade by HIRL of Rs. 100,000,000, or approximately $2,127,660 at March 31, 2003. The loan bears interest at the LIBOR ratefor foreign currency plus 1.25% mark up per annum (2.90% at March 31, 2003) and is payable on maturity of the loan.

7. Contingent liabilities not provided for -(Rs. million)

March 31, 2002 March 31, 2003

i) Counter Guarantees given to banks 73.21 68.69

ii) Un-expired letters of credit 334.40 317.02

iii) Disputed Income Tax and Sales Tax which is contested by the Company 13.85 10.97

iv) Estimated Sales Tax liability due to non receipt of Sales Tax declaration forms 0.16 43.77

v) Bills Discounted 15.74 60.28

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8. Capital Commitments:

(Rs. million)

March 31, 2002 March 31, 2003

Estimated amount of contracts remaining to be executed on capitalaccount and not provided for (Net of Advances) 16.37 55.01

9. Rs. 500 has been considered in the Gross Block of Fixed Assets, given towards membership of co-operative housing society forwhich share certificates are held by the Company.

10. HT line installation cost worth Rs. 13.58 million, the ownership of which rests with the State Electricity Board and contributiontowards ‘common effluent treatment’ plant worth Rs. 4.04 million, the ownership of which rests with the third party have beenconsidered in the Gross Block of Fixed Assets.

11. HIRL has accounted for Deferred Tax in accordance with the Accounting Standard – 22, “Accounting for Taxes on Income” issuedby The Institute of Chartered Accountants of India.

Consequently, the cumulative net deferred tax liability at March 31, 2001 of Rs. 133.56 million has been recorded as a reductionfrom General Reserve. Further, the deferred tax liability of Rs. 79.94 million and Rs.73.70 million for the year ended March 31, 2002and 2003 have been recognized in the Profit & Loss Account of the respective years.

Deferred Tax Liability (Rs. million)

Particulars March 31, 2002 March 31, 2003



Total - (A) 228.49 305.10

Deferred Tax Assets

Provision for doubtful debts 14.54 16.98

Provision for Leave Encashment / Deferred revenue expenses 0.45 0.92

Total - (B) 14.99 17.90

Net Deferred Tax Liability (A-B) 213.50 287.20

However, MIC has a net deferred tax asset of approximately $27.12 and $15.19 million, comprised principally of the $27.48 millionand $15.33 million deferred tax asset related to the potential future benefit of net operating loss carry forwards. This is offset by the$0.36 and $0.14 million deferred tax liability related to differences in the basis of property, plant and equipment for tax and financialreporting purposes as of March 31, 2002 and March 31, 2003 respectively. As of March 31, 2003, the deferred tax asset is fullyoffset by a valuation allowance due to the uncertainty of future realization of tax benefits. Due to the effects of the valuation allowance,no income tax benefit was recognized by MIC in connection with its reported net loss for the year ended March 31, 2002 andMarch 31, 2003 respectively.

12. Provision for taxation consist of wealth tax provision of Rs. 0.26 million and Rs. 0.32 million and income tax provision of Rs. 38.03million and Rs. 37.28 million during the year ended March 31, 2002 and 2003 respectively.

13. Term deposit of Rs. 416.36 million and Rs. 122.84 million as at March 31, 2002 and 2003 respectively, with scheduled banks onwhich banks have lien against the loans extended to the MIC and non-fund based facilities has been considered in Cash and Bankbalances.

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ANNEXURE – XIV


ADJUSTED CASH FLOW STATEMENTS

(Rs. million)

Year ended Year ended

March 31, 2002 March 31, 2003

(A) CASH FLOW FROM OPERATING ACTIVITIES

Net Profit before tax and extraordinary as per adjusted Profit and Loss Account 601.01 551.95

Adjustment for:

Add:


Loss on Sale of Fixed Assets 0.14 9.43

Interest Expenses 422.11 441.05

Less :

Interest Received 30.26 13.18

Dividend Received 1.45 -

Operating Profit before Working Capital Changes 1,120.57 1,156.06

Adjustment for :

Trade and Other Receivables (952.19) (149.31)

Inventories 113.50 (134.92)

Trade and Other Payables 47.84 595.80

Cash generated from operations 329.72 1,467.63

Direct Taxes (39.28) (17.72)

Cash Flow from Operating Activities (A) 290.44 1,449.91(B) CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (840.61) (282.43)

Sale of Fixed Assets 1.10 16.53

Investment in Subsidiary (1,302.37) (1,094.89)

Advance to Subsidiary (30.04) 11.19

Sale of Investments 50.20 -

Short term Investments (0.02) -

Interest Income 30.25 13.18

Dividend Income 1.45 -

Net Cash used for Investing Activities (B) (2,090.04) (1,336.42)

C) CASH FLOW FROM FINANCING ACTIVITIES

Increase in Share Capital Suspense 1,000.00 500.00

Issue of Preference Shares and Premium thereon 400.00 -

Redemption of Preference Shares and Premium thereon - (150.00)

Borrowings / (Redemption) of Debentures (90.00) (73.00)

Borrowings through Term loans 1577.23 1825.03

Repayment of Term loan (522.55) (1452.73)

Repayment of interest free sales tax loan (1.08) (0.49)

Movement in Working Capital Borrowings 791.07 (380.10)

Securities issue expenses - (6.41)

Payment of Interest (416.91) (459.25)

Payment of Preference Share Dividend (50.97) (76.99)

Payments of Dividend (including CDT) (62.33) (59.14)

Cash flow from Financing Activities (C) 2,624.46 (333.08) Net increase/(decrease) in Cash and Cash Equivalents (A+B+C) 824.86 (219.59) Opening Cash and Cash equivalents 80.49 905.35 Closing Cash and Cash equivalents 905.35 685.76

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COMPANY

Brief History

(a) Incorporation and ownership

The Company was incorporated as Hindustan Inks and Resins Limited on November 13, 1991 under the Companies Act, 1956 andobtained the Certificate of Commencement of Business on January 13, 1992. The Registered Office of the Company was changedfrom 2803/2, III Phase, GIDC, Vapi – 396 195 to Bilakhia House, Muktanand Marg, Chala, Vapi – 396 191, Gujarat, effective October1, 2000.

(b) Capital History

The Company was incorporated with 70 shares of Rs. 10/- each allotted on November 14, 1991. As per the resolution passed bythe Board of Directors in its meeting dated January 20, 1992, the Company issued 267,226 shares of Rs 10 each to Mr. AnjumBilakhia, Mrs. R.Y. Bilakhia, Mr. S.J. Angne, Mr. Yunus Bilakhia, Mr. Zakir Bilakhia, Mrs. H.A. Bilakhia, Mrs. R.G. Bilakhia,Mr. Shamim G. Bilakhia, Mr. N.P. Bambhrolia, Mr. J.P. Desani and Mrs. Bhavna Bambhrolia. The Company further issued 652,704shares, as per the resolution passed by the Board of Directors at its meeting dated May 28, 1992.

As per resolution dated February 16, 1993 passed by the Board of Directors on the authority of the resolution dated May 20, 1992under Section 81(1A) of the Act passed by the shareholders, the Company allotted 3,011,000 shares of Rs 10 each aggregatingRs 30.11 million in their initial public offer. As per resolutions passed by the Board of Directors on November 26, 1994 and May 22,1996, the Company allotted 2,000,000 carrying entitlements (warrants) in November, 1994, in equal proportion to Mr. Yunus Bilakhia,Mr. Anjum Bilakhia, Mrs. H.A. Bilakhia and Mrs. R.Y. Bilakhia, entitling the allottees to receive one equity share per warrant with aface value of Rs 10 at a premium of Rs 89.687 per share within 18 months of allotment of warrants. All the warrants were exercisedand 2,000,000 Equity Shares were allotted against these warrants on May 22, 1996.

The Company allotted 900,000 Equity Shares of Rs. 10 each, through a preferential issue, in equal proportion to Mr. Yunus Bilakhia,Mr. Anjum Bilakhia and Mr. Zakir Bilakhia at a price of Rs 550 per share as per the Board resolution dated December 15, 1999.

As per the resolution passed by the Board of Directors of the Company dated July 25, 2000, the Company allotted bonus shareson November 22, 2000 in the ratio of one share for every share held, aggregating to an issue of 6,831,000 shares.

Please see the section “Notes to the capital structure” on page 11 of the Letter of Offer for further details.

(c) Business growth

The Company manufactures a wide range of printing, publishing and packaging inks, resins, wire enamels and adhesives at itsplants in Vapi, Gujarat (Vapi-I, Vapi-II and Vapi-III) and in the Union Territories of Daman and Silvassa. The Company started itsoperations in 1991 with a manufacturing capacity of 1,440 tpa of liquid inks at Vapi. The products included azo, phthalocyanine andflushed pigments. The Company began as a regional player with customers located in Gujarat and Maharashtra. In FY1995, theCompany commissioned a liquid ink manufacturing plant in Daman, for the manufacture of flexo and graveure inks.

In 1996 and 1997, the Company established several offices, warehouses and matching centers across the country at Mumbai,Delhi, Noida, Baroda, Chennai, Ahmedabad and Calcutta. In FY1997, the Company installed an integrated ink plant for manufactureof heatset and web offset color inks with an installed capacity of 2000 tpa at Daman.

By FY1998, the Company had introduced products such as flexo inks & coatings, graveure lamination inks and adhesives forupgradation of packaging to international standards. In FY1998, the Company expanded its ink manufacturing capacity from 7800tpa to 12000 tpa at an approximate cost of Rs 80 mn at Daman.

In FY1999, the Company increased ink manufacturing capacity from 12,000 tpa to 15,960 tpa. In FY2000, the Company becamethe market leader in sales of inks in the country with a turnover of Rs 1901 mn, thus emerging as the leading ink manufacturer inIndia. In FY2000, the Company set up an ink manufacturing plant in Silvassa, with a capacity of 57,450 tpa for manufacture ofvarious products such as news black, heat set, liquid inks, sheetfed and offset ink. In February 2000, the Company also set up awholly owned subsidiary, Micro Inks Corporation, at Chicago, USA to focus on the USA ink market by exploiting its relatively lowcost structure. During August 2000, the Company commissioned Specialty Flushed Colours / Pigments plant of 3000 tpa and a highperformance resins plant of 18000 tpa.

In October 2001, the Company set up a 100% Export Oriented Unit at Vapi having a “Single Stream” plant for seamless manufactureof 100,000 tpa printing inks and also expanded manufacturing capacities for resins and flushed pigments. The Company alsocommissioned its 25000 tpa capacity of resins plant (expansion) at Vapi-II unit.

A summary of the build up of installed capacity of printing and packaging inks over the past decade is provided below:

(tpa)

Year ended March 31, 1993 1995 1997 1999 2001 2003


(d) Objects of the Company

The objects clause of the Memorandum of Association of the Company enables it to undertake the activities for which the funds arebeing raised in the present Issue. Furthermore, the activities the Company has been carrying out until now are in accordance withthe objects of the MoA. The main object to be pursued by the Company on its incorporation is as follows:

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“To carry on business as manufacturers, formulators, processors, producers, makers, buyers, sellers, re-sellers, importers,exporters, distributors, suppliers, fermentators, distillers, refiners, stockists, agents, merchants, developers, consultants anddealers in all types, forms (solid, liquid and gaseous) and of all kinds of inks, resins, chemicals chemical compounds (organicand inorganic) acids, alkalies, tannins, tannin extracts, solvents, dyestuffs, dyes, pigments, colours, chemical, auxiliaries, bio-chemicals, microcrystalline, bio and collodial chemicals, chemicals including exipients, paints, coating materials, natural andsynthetic depolymerised products, polymers and plastic, spray dried products, synthesised coating, spreads, carbon andgraphite products industrial and potable alcohol, petrochemicals, medicaments, their raw materials, intermediates, derivatives,suspensions, gels, powders, formulations, downstreams, ingredients, and by-products and their related preparations.”

(e) Background of promoters

The promoters of the Company are Mr. Yunus Bilakhia, Mr. Anjum Bilakhia, Mr. Zakir Bilakhia and Bilakhia Holdings Pvt. Ltd.

1. Mr. Yunus Bilakhia

Yunus Bilakhia is the founder and head of the Bilakhia group of companies. Yunus Bilakhia, 45, graduated in science and hasover 19 years of experience in manufacture of inks and chemicals in India. He looks after strategy and new initiatives of theBilakhia group of companies. He has successfully led the Company in its emergence as India’s leading ink supplier in thedomestic market. During his career as a first generation entrepreneur, he has won several awards and was conferred“Outstanding Entrepreneur Award - 1996” by the Federation of Gujarat Industries.

2. Mr. Anjum Bilakhia

Anjum Bilakhia, 42, is a graduate in chemical engineering. He has been heading operations of the Bilakhia group of companies.As head of operations, his responsibilities include project management which have enabled the group implement manufacturingcapacities in relatively short timeframes, implement the group’s backward integration projects and operationalise innovations inmanufacturing.

3. Mr. Zakir Bilakhia

Zakir Bilakhia, 33, is a qualified printing technologist. He heads the technology function in the ink business and has wideexperience in formulation and manufacture of inks, resins and pigments in India and overseas. The Company has madebreakthroughs in manufacture of flushed pigments and synthetic resins under his guidance and leadership.

4. Bilakhia Holdings Pvt. Ltd. (“BHPL”)

BHPL was incorporated on April 29, 1992 as Shah Securities Investments Pvt. Ltd. The name of the company was changedto Bilakhia Holdings Pvt. Ltd. on June 26, 2000. BHPL, which has been promoted by Mr. Anjum Bilakhia, Mr. Yunus Bilakhia andMr. Zakir Bilakhia is a registered NBFC under Section 45-IA (5) of the Reserve Bank of India Act, 1934 and is primarily theholding and investment company for businesses of the Bilakhia group of companies.

Besides the Company (including the Company’s subsidiaries), BHPL has the following subsidiaries:

1. Milestone Holdings Pvt. Ltd.

2. YGB Holdings Pvt. Ltd.

3. AGB Holdings Pvt. Ltd.

4. ZGB Holdings Pvt. Ltd.

5. Bilakhia Properties Pvt. Ltd.

6. Bilakhia Research Pvt. Ltd.

7. Mitsu Ltd.

Mitsu Limited has the following subsidiaries:

1. Mitsu Overseas Pty Limited (Australia)

2. Mitsu International Ltd. (Mauritius): On April 26 2003, Mitsu Limited has applied to the RBI for formal approval of theclosure of Mitsu International Ltd. On July 29, 2003, the RBI has conveyed its final approval for the closure of MitsuInternational Ltd.

BHPL has an issued, subscribed and paid-up equity capital of Rs. 150 mn. The shares of BHPL are not listed in any stockexchange. Its shareholding pattern is given below:

Number of Shares

Mr. Yunus Bilakhia a/c Yunus Bilakhia Holding Co. Trust 5,000,000

Mr. Anjum Bilakhia a/c Anjum Bilakhia Holding Co. Trust 5,000,000

Mr. Zakir Bilakhia a/c Zakir Bilakhia Holding Co. Trust 5,000,000

Details of the Board of Directors of BHPL:

Name Designation Age (in years)

Mr Yunus Bilakhia Director 45

Mr Anjum Bilakhia Director 42

74

The financial performance of BHPL for the last 5 years is as follows:(Rs. million)

For the period/year ended March 31, March 31, March 31, September March 31,2003*** 2002** 2001* 30, 2000@ 1999

Equity capital 150.0 150.0 150.0 150.0 6.17

Preference capital - - - - -

Reserves (excluding revaluation reserves) 3,472.59 798.16 142.14 11.52 3.94

Sales 380.03 516.09 9.41 12.14 1.58

PAT 227.88 509.66 (3.43) 8.74 1.32

EPS (Rs.) 15.2 34.0 NA 0.58 2.13

NAV (Rs.) 241.5 63.2 19.5 10.8 16.39

@ Not annualized

* BHPL received 41,919,768 equity shares and 21,000 preference shares as gift from its promoters and their relativespursuant to a family arrangement. Out of the same, shares of subsidiary companies and group companies are accountedfor and disclosed at Re. 1/- per gift, and other shares are accounted for and disclosed at cost to the original holder. Ineither case, incidental expenses have been capitalized to the cost of shares.

** BHPL received 18,901,000 equity shares of group and subsidiary companies as gift from promoters and their relativespursuant to a family arrangement. These shares are accounted for and disclosed at Re. 1/- per gift.

*** During FY2003, BHPL sold some of the shares received by it in earlier years pursuant to a family arrangement. Theprofits and gains arising from this sale of shares amounting to about Rs. 2440 mn have been treated as capital receiptsand credited to Capital reserve account.

The aggregate shareholding of the Directors of BHPL in the Company is 600,000 shares representing 4.4% of the issued,subscribed and paid-up capital of the Company.

(f) Details of the subsidiaries of the Company

1. Micro Inks GmbH, Austria

Prior to the incorporation of MIC USA and MIC GmbH, the Company considered tax benefits available under Double TaxationAvoidance Agreement as an input to finalisation of the investment structure in the US market. While tax optimization was anobjective, the Company decided to set up MIC GmbH as a single legal entity for routing all its investments into expansion ofcapacities in the overseas markets in future. After examining various issues, the Reserve Bank of India granted the permissionto establish MIC USA as a wholly owned subsidiary of MIC GmbH. MIC GmbH was incorporated on February 3, 2000 andstarted operations by establishing a wholly owned subsidiary by the name of Micro Inks Corporation, USA. MIC GmbH doesnot have any manufacturing or blending facilities.

Based on discussions with and information received from the Company:

� There have been no regulatory restrictions in Austria with respect to holding pattern for investment in MIC USA or for thepayment of dividend to Hindustan Inks and Resins Limited.

� There is no restriction, which MIC GmbH, Austria is subject to in Austria, which may hamper the interest of HindustanInks and Resins Limited in future.

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The shareholding pattern of the Company is as follows:

Name of shareholder Number of Shares

Hindustan Inks and Resins Limited 150,000

Total 150,000

Financial highlights (details provided in the Audit Report):(‘000 Euro)

Three months ended Year ended Year ended Year endedMar 31, 2003 Dec 31, 2002 Dec 31, 2001 Dec 31, 2000

Share capital 150.00 150.00 150.00 150.00

Capital surplus 48171.63 48171.63 18567.35 9952.46

Cumulative losses (658.53) (637.20) (308.43) (151.99)

Revenue 0.00 0.00 0.93 0.00

PAT (21.33) (328.78) (156.44) (151.99)

EPS (Euro) NA NA NA NA

NAV (Euro) 317.8 317.9 122.7 66.3

The table above has been presented below with the amounts transalated into Indian rupees with the appropriate exchange ratetaken at the end of each financial period as follows:

(‘000 Rs.)

Three months Year ended Year ended Year endedended Mar 31, 2003 Dec 31, 2002 Dec 31, 2001 Dec 31, 2000

Share capital 7,719 7,554 6,425 6,599

Capital surplus 2,478,912 2,425,923 795,240 437,809

Cumulative losses (33,888) (32,089) (13,210) (6,686)

Revenue 0 0 40 0

PAT (1,098) (16,557) (6,700) (6,686)

EPS (Rs.) NA NA NA NA

NAV (Rs.) 16,354 16,009 5,255 2,917

2. Micro Inks Corporation, USA

MIC was incorporated on February 8, 2000. After acquiring the manufacturing facility at Kankakee, Illinois, USA, MIC commencedoperations in November 2000. The Company sends inks in semi-finished form i.e. in form of flush, resins, varnishes etc. andcustomization is done at MIC’s production and blending facilities at Kankakee, Illinois, USA. MIC’s facilities manufacture finalinks to suit customers in the US market. A detailed profile of MIC is provided in the section “Management Discussion andAnalysis” on page 100 of this Letter of Offer.

The shareholding pattern of the company is as follows:

Name of shareholder Number of Shares

Micro Inks GmbH, Austria 2280

Total 2280

Financial highlights (details provided in the Audit Report):(US $ million)

Year ended Year ended Year ended Period endedMarch 31, 2003 March 31, 2002 March 31, 2001 Dec 31, 2000

Common stock 0.000023 0.000023 0.000023 0.000023Additional paid in capital 42.21 36.32 9.70 8.85Redeemable Series A Preferred Stock 16.45 0.00 0.00 0.00Accumulated deficit (40.45) (27.48) (9.38) (4.74)Revenue 56.49 36.07 2.60 0.81PAT (12.97) (18.1) (4.64) (4.73)EPS (USD) NA NA NA NANAV (USD) 771 3878 144 1802

The table above has been presented below with the amounts transalated into Indian rupees with the appropriate exchange rate takenat the end of each financial period as follows:

76

(Rs. million)

Year ended Year ended Year ended Period endedMarch 31, 2003 March 31, 2002 March 31, 2001 Dec 31, 2000

Common stock 0 0 0 0Additional paid in capital 2,011 1,776 453 413Redeemable Series A Preferred Stock 784 - - -Accumulated deficit (1,927) (1,343) (438) (221)Revenue 2,692 1,763 121 38PAT (618) (885) (217) (221)EPS (Rs.) NA NA NA NANAV (Rs.) 36,738 189,595 6,719 84,135

(g) Details of the group companies

AGB Holdings Pvt. Ltd.

The company was incorporated on May 6, 1999 as AGB Holdings Pvt. Ltd. It is an investment company.

Shareholding Pattern:

Name Of Shareholders No. of Equity Shares of Rs. 10/- each

Bilakhia Holdings Pvt. Ltd. 1000019Bilakhia Holdings Pvt. Ltd. & Mr. Anjum Bilakhia 1

Total 1000020

Names of Directors:

Name Designation

Mr. Anjum Bilakhia ChairmanMrs. Hanifa Bilakhia Director

Financial highlights:(Rs. million)

March 31, 2003 March 31, 2002 March 31, 2001

Equity capital 10.00 10.00 10.00Preference capital - - -Share capital 10.00 10.00 10.00Reserves 4.61 4.16 3.55Misc. expenditure not w/o 0.08 0.12 0.16Accumulated loss 20.74 22.56 25.00Less : Reval. reserves - - -Adjusted Reserves (16.20) (18.53) (21.61)Net worth (6.20) (8.53) (11.61)Income 5.64 8.53 8.54PAT 2.28 3.04 (39.19)Number of shares 1.00 1.00 1.00EPS (Rs.) 2.28 3.04 NANAV (Rs.) NA NA NA

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YGB Holdings Pvt. Ltd.

The company was incorporated on April 28, 1999 as YGB Holdings Pvt. Ltd. It is an investment company.



Bilakhia Holdings Pvt. Ltd. 1999999

Bilakhia Holdings Pvt. Ltd. & Mr. Anjum Bilakhia 1

Total 2000000

Names of Directors:

Name Designation

Mr. Yunus Bilakhia Chairman

Mrs. Rashida Bilakhia Director



Equity capital 20.00 20.00 20.00Preference capital - - -Share capital 20.00 20.00 20.00Reserves 2.39 1.58 1.58Misc. expenditure not w/o 0.08 0.12 0.16Accumulated loss 5.04 8.26 1.64Adjusted Reserves (2.72) (6.79) (0.22)Net worth 17.28 13.21 19.78Income 8.10 7.62 4.64PAT 4.03 (6.61) (8.42)Number of shares 2.00 2.00 2.00EPS (Rs.) 2.01 NA NANAV (Rs.) 8.64 6.60 9.89

ZGB Holdings Pvt. Ltd.

The company was incorporated on May 6, 1999 as ZGB Holdings Pvt. Ltd. It is an investment company.



Bilakhia Holdings Pvt. Ltd. 1600019Bilakhia Holdings Pvt. Ltd. & Mr. Anjum Bilakhia 1

Total 1600020

Names of Directors:

Name Designation

Mr. Zakir Bilakhia ChairmanMrs. Anima Bilakhia Director

78



Equity capital 16.00 16.00 16.00Preference capital - - -Share capital 16.00 16.00 16.00Reserves 22.13 17.67 13.22Misc. expenditure not w/o 0.08 0.12 0.16Accumulated loss - - -Less: Reval. reserves - - -Adjusted Reserves 22.05 17.55 13.06Net worth 38.05 33.55 29.06Income 7.16 6.99 8.60PAT 4.46 4.44 6.56Number of shares 1.60 1.60 1.60EPS (Rs.) 2.79 2.78 4.10NAV (Rs.) 23.78 20.97 18.16

Bilakhia Properties Pvt. Ltd.

The company was incorporated on August 19, 1999 as Bilakhia Properties Pvt. Ltd. It is engaged in sale, purchase and development ofimmoveable properties.



Bilakhia Holdings Pvt. Ltd. 21,999,999Bilakhia Holdings Pvt. Ltd. & Mr. Anjum Bilakhia 1

Total 22,000,000

Names of Directors:

Name Designation


Mr. Anjum Bilakhia Director

Financial highlights:

(Rs. million)


Equity capital 220.00 220.00 200.00Preference capital 2.10 2.10 2.10Share capital 222.10 222.10 202.10Reserves 126.15 103.70 35.20Misc. expenditure not w/o 0.69 1.04 1.38Accumulated loss 12.47 15.64 3.12Less: Reval. reserves - - -Adjusted Reserves 112.99 87.02 30.70Net worth 335.09 309.12 232.80Income 5.28 5.26 2.78PAT (10.18) (12.52) (3.62)Number of shares 22.00 22.00 20.00EPS (Rs.) NA NA NANAV (Rs.) 15.23 14.05 11.64

79

Bilakhia Research Pvt. Ltd.

The company was incorporated on June 8, 2000 as Bilakhia Research Pvt. Ltd. Although it is incorporated with the objects of carryingout genetic, scientific and technical research activities, it is yet to commence operations.




Bilakhia Holdings Pvt. Ltd. & Mr. Anjum Bilakhia 1

Total 18103

Names of Directors:

Name Designation



Dr. P.K. Minocha Director

Mr. Vinay Pandya Director


(Amount in Rs.)

March 31, 2003 March 31, 2002 March 31, 2001*

Equity capital 181,030.00 200.00 200.00Preference capital - - -Share capital 181,030.00 200.00 200.00Reserves - 180,830.00 -Misc. expenditure not w/o 186,082.00 186,082.00 186,082.00Accumulated loss 14,050.00 7,300.00 -Less: Reval. reserves - - -Adjusted Reserves (200,132.00) (12,552.00) (186,082.00)Net worth (19,102.00) (12,352.00) (185,882.00)Income - - -PAT (6,750.00) (7,300.00) -Number of shares 18,103.00 20.00 20.00EPS (Rs.) NA NA NANAV (Rs.) NA NA NA

*Not annualized

Mitsu Limited

The company was incorporated on December 29, 1993 as Mitsu Pesticides Limited. The name was changed to Mitsu Limited on August23, 1999. It is engaged in the development of certain new generation insecticides and herbicides.




Bilakhia Holdings Pvt. Ltd. & Mr. N.P. Bambhrolia 1

Bilakhia Holdings Pvt. Ltd. & Mr. Sanjay Shah 1

Bilakhia Holdings Pvt. Ltd. & Mr. C.J.Benjamin 1

Bilakhia Holdings Pvt. Ltd. & Mr. G. Ekambaram 1

Bilakhia Holdings Pvt. Ltd. & Mr. Navin Patel 1

Bilakhia Holdings Pvt. Ltd. & Mr. Dhansukh P. Patel 1

Total 10000000

80

Names of Directors:

Name Designation

Mr. N.P. Bambhrolia Whole-time Director

Dr. P.K. Minocha Director

Mr. Snehal C. Shah Director


(Rs. million)


Equity capital 100.00 100.00 100.00Preference capital - 100.00 100.00Share capital 100.00 200.00 200.00Reserves 333.93 169.64 167.09Misc. expenditure not w/o - 3.55 -Accumulated loss - - -Less: Reval. reserves - - -Adjusted Reserves 333.93 166.09 167.09Net worth 433.93 366.09 367.09Income 1,303.24 509.93 543.37PAT 506.35 20.27 122.08Number of shares 10.00 10.00 10.00EPS (Rs.) 50.64 2.03 12.21NAV (Rs.) 43.39 36.61 36.71

Milestone Holdings Pvt. Ltd.

The company was incorporated on October 11, 1985 as Rashi Krishi Rasayan Pvt. Ltd. It is an investment company. The name waschanged to Raashi Chemicals Pvt. Ltd. on November 11, 1988. The company was become Public Limited on with effect from April, 24,1998. The name was again changed to Milestone Holdings Limited on November 20, 1998.

Shareholding pattern:

Name of Shareholders No. of Equity Shares of Rs. 100/- each


Bilakhia Holdings Pvt. Ltd. joint with Mr. Vinay Pandya 10

Bilakhia Holdings Pvt. Ltd. joint with Mr. Sanjay Shah 10

Bilakhia Holdings Pvt. Ltd. joint with Mr. Snehal Shah 10

Bilakhia Holdings Pvt. Ltd. joint with Mr. Anjum Bilakhia 10

Bilakhia Holdings Pvt. Ltd. joint with Mr. Yunus Bilakhia 20

Bilakhia Holdings Pvt. Ltd. joint with Mr. Zakir Bilakhia 10

Bilakhia Holdings Pvt. Ltd. joint with Mr. Shivram Angne 10

Total 5000

Names of Directors:

Name Designation

Mr. Vinay Pandya Director

Mr. Sanjay Shah Director

Mr. Snehal Shah Director

81


(Rs. ‘000)


Equity capital 500.00 8.00 8.00Preference capital - - -Share capital 500.00 8.00 8.00Reserves - 513.25 307.74Misc. expenditure not w/o 3.93 3.93 3.93Accumulated loss 143.26 - -Less: Reval. reserves - - -Adjusted Reserves (147.19) 509.32 303.81Net worth 352.81 517.32 311.81Income 300.00 300.00 300.00PAT 44.26 201.79 195.67Number of shares 50.00 0.80 0.80EPS (Rs.) 0.89 252.24 244.59NAV (Rs.) 7.06 646.65 389.76

Bilag Industries Pvt. Ltd.

The company was incorporated on August 8, 1990 as Mitsu Intermediates Pvt. Ltd. The name was changed to Mitsu Industries Limitedon January 24, 1995. The name was further changed to “Mitsu Industries Private Limited” from “Mitsu Industries Limited” on August 18,1999. The name of the company was changed to “Bilag Industries Ltd” on October 1, 1999. With effect from May 17, 2001, the word“Private” was added to the name of the company and the current name is “Bilag Industries Private Limited”. It is engaged in developmentand synthesis of agricultural pyrethroids and of non-light stable pyrethroids. Synthetic pyrethroids are modern fourth generation insecticidesand are biodegradable.

Over the past 3 years, the promoters of Bilag Industries Pvt. Ltd, Bilakhia Holdings Pvt. Ltd. (BHPL), has sold a substantial portion oftheir equity stake in the company as follows:

Date Seller Buyer Shares sold Consideration(Rs. million)

April 5, 2002 BHPL Aventis CropScience SA, France(currently Bayer CropScience SA, France) 8,625,000 2,440

Current Shareholding Pattern:

Name Of Shareholders No. of Shares

Mr. Anjum Bilakhia 491000

Mr. Yunus Bilakhia 491000

Mr. Zakir Bilakhia 492000


Bayer CropScience SA, France 27750000

Total 37500000

Names of Directors:

Name Designation

Mr. Yunus Bilakhia ChairmanMr. P.L. Dupont Vice ChairmanMr. K.K. Unni Managing DirectorDr. P.K. Minocha Whole-time DirectorMr. S.M. Gupte Whole-time DirectorMr. Prashant Desai DirectorMr. Remy Goetgheluck DirectorDr. W. Welter DirectorMr. Raj Kaul DirectorMr. Anjum Bilakhia Alternate Director to Mr. Prashant DesaiMr. Geoff Halls Alternate Director to Dr. W. WelterMr. Vinay Pandya Alternate Director to Mr. Yunus Bilakhia

82


(Rs. million)


Equity capital 375.00 375.00 375.00Preference capital - - -Share capital 375.00 375.00 375.00Reserves 2,363.56 1638.66 1,322.72Misc. expenditure not w/o - - -Accumulated loss - - -Less: Reval. reserves - - -Adjusted Reserves 2,363.56 1638.66 1,322.72Net worth 2,738.56 2013.66 1,697.72Income 4,609.07 4296.21 3,770.07PAT 1,580.24 1659.00 1,500.84Number of shares 37.50 37.50 37.50EPS (Rs.) 42.14 44.24 40.02NAV (Rs.) 73.03 53.70 45.27

Mitsu International Limited

The company was incorporated on February 6, 1998 as (private company with limited liability). It is engaged in the trading of agrochemicals.


Shareholders No. of Equity Shares of US$ 1 each

Mitsu Limited 401,000

Total 401,000

Names of Directors:

Name Designation

Mr. Couldip Lala Director

Mr. Kapil Dev Joory Director

Mr. Prashant Desai Director



(US $)


Equity capital 401,000.00 401,000.00 401,000.00Preference capital - - -Share capital 401,000.00 401,000.00 401,000.00Reserves - - 136,404.00Misc. expenditure not w/o - - -Accumulated loss 175,501.00 168,847.00 -Less: Reval. reserves - - -Adjusted Reserves (175,501.00) (168,847.00) 136,404.00Net worth 225,499.00 232,153.00 537,404.00Income - 7,452,659.00 6,665,918.00PAT (6,654.00) (305,251.00) 50,492.00Number of shares 401,000.00 401,000.00 401,000.00EPS (USD) NA NA 0.13NAV (USD) 0.56 0.58 1.34

The table above has been presented below with the amounts transalated into Indian rupees with the appropriate exchange rate takenat the end of each financial period as follows:

83

(Rs. ‘000)


Equity capital 19,605 18,711 17,496Preference capital - - -Share capital 19,605 18,711 17,496Reserves - - 5,951Misc. expenditure not w/o - - -Accumulated loss 8,580 7,878 -Less: Reval. reserves - - -Adjusted Reserves (8,580) (7,878) 5,951Net worth 11,025 10,832 23,447Income - 347,741 290,834PAT (325) (14,243) 2,203Number of shares 401,000 401,000 401,000EPS (Rs.) NA NA NANAV (Rs.) 27 27 58

Mitsu Overseas Pty Limited

The company was incorporated on June 5, 2002 as Mitsu Overseas Pty Limited, Australia and is a registered company under theCorporations Act, 2001 and is taken to be registered in Queensland, Australia. It is engaged in trading of agrochemicals and otherproducts.


Name Of Shareholders No. of Equity Shares ofAustralian $1 Each

Mitsu Ltd. 4700001

Total 4700001

Names of Directors:

Name Designation

Mr. R J O Herring Director

Mr. Yunus Bilakhia Director

As the company has been incorporated in June 2002, its financials are not yet audited for the first year of operations.

Micro Organic Foods Pvt. Ltd.

The company was incorporated on July 15, 2002 as Micro Organic Foods Pvt. Ltd. It is incorporated with an objective to deal in organic/inorganic foods.


Name Of Shareholders No. of Equity Shares of Rs. 10 Each

Mr. Yunus Bilakhia 5000

Mr. Anjum Bilakhia 5000

Total 10000

Names of Directors:

Name Designation

Mr. Yunus Bilakhia Director


84


(Amount in Rs.)

March 31, 2003

Equity capital 100.00Preference capital -Share capital 100.00Reserves 1,736.89Misc. expenditure not w/o 1,736.89Accumulated loss 2.16Less: Reval. reserves -Adjusted Reserves (2.16)Net worth 97.84Income -PAT (2.16)Number of shares 10.00EPS (Rs.) NANAV (Rs.) 9.78

85

MANAGEMENT

Directors

The Board of Directors of the Company is as follows:

Name, Designation, Age Other DirectorshipsFather’s name and (years)Address of the Director

Mr. Yunus Bilakhia 45 � Bilag Industries Pvt. LtdChairman and Non Executive Director � YGB Holdings Pvt. Ltd.(s/o Mr. Gafulbhai Bilakhia) � Bilakhia Properties Pvt. Ltd.“Parishram”, Daman Road � Bilakhia Research Pvt. Ltd.Village Chala, Vapi – 396 191 � Bilakhia Holdings Pvt. Ltd.

� Micro Organic Foods Pvt. Ltd.� Mitsu Overseas Pty. Ltd.

Mr. Anjum Bilakhia 42 � Bilag Industries Pvt. Ltd. (Alternate Director)Managing Director � AGB Holdings Pvt. Ltd.(s/o Mr. Gafulbhai Bilakhia) � Bilakhia Properties Pvt. Ltd.“Parishram”, Daman Road � Mitsu International Ltd.Village Chala, Vapi – 396 191 � Bilakhia Research Pvt. Ltd.

� Bilakhia Holdings Pvt. Ltd.� Micro Organic Foods Pvt. Ltd.

Mr. Shivram Angne 43 NILWhole-time Director(s/o Mr. Jagannath Angne)Kamgar NagarBuilding No. 26/CSG Barve MargKurla, Mumbai – 400 024

Mr. Mansingh Bhakta 72 � Gujarat Ambuja Cement LimitedIndependent and Non Executive Director � Lazard India Limited(s/o Mr. Laxmidas Bhakta) � Reliance Industries Limited4, Sagar Villa � J.C. Bamford Excavators (India) Pvt. Ltd.38, Bhulabhai Desai Road � The Indian Merchants’ Chamber, BombayMumbai – 400 026 � JCB India Limited

Mr. K.K. Unni 61 � Proagro-PGS India Ltd.Independent and Non Executive Director � Bilag Industries Pvt. Ltd.(s/o Mr. Muthalampet Chinnakuttan Nair) � Hikal Limited62, Melrose, Pali Hill � Harvey Health Care Ltd.Bandra (W), Mumbai – 400 050 � T. Stanes and Company Limited

Mr. Hasmukh Shah 68 � Gujarat Gas Co. Ltd.Independent and Non Executive Director � Shaily Engineering Plastics Ltd.(s/o Mr. Shantilal Shah) � Supreme Petrochemicals Ltd.15, Dhanushya Society � Atul Ltd.Sama Road, Vadodara – 390 008 � Hindustan Oil Exploration Co. Ltd.

� Feedback First Urban Infastructure Company Ltd.� Sun Pharmaceutical Industries Ltd.� Oswal Multimedia K.I.D. Ltd.

Mr. Prashant A. Desai 43 � Bilag Industries Pvt. Ltd.Non Executive Director(s/o Mr. Ajit Desai)11, Devki Park, Behind Bhagyoday SocietyDaman Road, Chala, Vapi – 396 191

86

Shareholding of the Directors in the Company

Name of Director Number of shares held as on August 31, 2003

Mr. Yunus Bilakhia 300,000

Mr. Anjum Bilakhia 300,000

Mr. Shivram Angne 9,620

Mr. Mansingh Bhakta 0

Mr. K.K. Unni 31,599

Mr. Hasmukh Shah 0

Mr. Prashant A. Desai 21,000

Date of expiration of the current term of Directors in the Company

Name of Director Last date of re-appointment Date of expiration of the current term

Mr. Yunus Bilakhia July 24, 2001 at 2004 AGM

Mr. Anjum Bilakhia September 28, 2002 at 2005 AGM

Mr. Shivram Angne July 24, 2001 at 2004 AGM

Mr. Mansingh Bhakta September 28, 2002 at 2006 AGM

Mr. K.K. Unni September 28, 2000 at 2003 AGM

Mr. Hasmukh Shah September 28, 2000 at 2003 AGM

Mr. Prashant A. Desai July 24, 2001 at 2005 AGM

Changes in the Directors during the last 3 years

Name of Director Date of appointment Date of retirement/(in the AGM) resignation Reason

Mr. Shivram Angne 11-11-1992 15-6-2000 ResignationMr. Shivram Angne 24-07-2001 AppointmentMr. Mansingh Bhakta 28-09-2000 AppointmentMr. K.K. Unni 28-09-2000 AppointmentMr. Hasmukh Shah 28-09-2000 AppointmentMr. Prashant A. Desai 28-09-2000 Appointment

Key managerial personnel of the Company

The key managerial personnel as on August 31, 2003 are as under:

Name Age Designation Qualification Total Experience Date Of Joining AndPrevious Employment

Mr. Sanjay Shah 42 Director – Commercial M. Sc 15 years April 01, 2000Mitsu Limited

Mr. Vinay Pandya 37 Director – Finance C.A., C.S. 17 years July 01, 2000Mitsu Limited

Mr. Ramkrishna Y Kamat 48 Director – Domestic Sales B.Sc 23 years April 01, 1992Coates India Ltd.

Mr. Snehal Shah 36 Director – B.Com, Diploma in 13 years April 01, 2001Business Development Marketing Management Mitsu Limited

Mr. Ashwani Bhardwaj 45 Vice President MBA (Marketing) 23 years November 15, 1995Coates India Ltd.

Mr. Ashok K Jain 44 Sr. Vice President – B.Com, CA, CAIIB 25 years September 01, 1995Internal Audit Bank of Baroda

Mr. Umesh Sharma 42 Vice President - HR B.Sc.(Hons), M.S.W., 18 years September 08, 1995LLB, Diploma inIndustrial Relations andPersonnel Management

Mr. R.V. Chari 38 Vice President (Finance) B.Com, ACA, ACS 17 years June 7, 2002Claris Lifesciences Ltd.

Mr. Hitesh Parikh 39 General Manager (Legal) B.Com., LLB, ACS, 20 years April 25, 2000and Company Secretary AICWA Atul Limited

87

The persons whose names appear as key management personnel are on the rolls of the Company as permanent employees andemployees of group companies / subsidiaries / holding companies are not included in key managerial personnel.

The promoters and directors of the Company have no interest in the Company except to the extent of remuneration (received by themfrom the Company in their respective capacities) and reimbursement of expenses and to the extent of any equity shares of the Companyheld by them.

During FY2003, the amount of compensation paid, and benefits in kind granted, to the directors of Hindustan Inks and Resins Limitedfor services rendered in all capacities to the Company in their individual capacity is as follows:

(Amount in Rs.)

Director Salary Perquisites Fixed Sitting Fees TotalCommission

Mr. Yunus Bilakhia - - 200,000 25,000 225,000

Mr. Anjum Bilakhia 2,400,000 663,194 - - 3,063,194

Mr. Shivram Angne 1,350,000 21,600 - - 1,371,600

Mr. Prashant Desai - - 200,000 35,000 235,000

Mr. M. L. Bhakta - - 200,000 40,000 240,000

Mr. K. K. Unni - - 200,000 55,000 255,000

Mr. Hasmukh Shah - - 200,000 70,000 270,000

There has not been any contingent or deferred compensation accrued for the year (even if the compensation is payable at a later date)to any director or any member of the key management personnel as defined in the Letter of Offer.

There has not been any compensation to any director or any member of the key management personnel as defined in the Letter ofOffer, paid pursuant to a bonus or profit-sharing plan.

None of the key management personnel as on March 31, 2003 comes under the limits fixed within Section 217 (2A) of the CompaniesAct 1956 in respect to their individual remuneration.

The service contracts of directors with the company (applicable for Mr. Anjum Bilakhia and Mr. Shivram Angne) do not provide forbenefits upon termination of employment except that at any time their services are determined before expiring of the terms of office asagreed, they would be entitled to compensation for loss of office in accordance with and subject to the restrictions laid down in Section318 of the Companies Act.

Shareholding of the key managerial personnel

Name of the key managerial personnel Number of shares held as on August 31, 2003

Mr. Sanjay Shah 22,350Mr. Vinay Pandya 12,003Mr. Ramkrishna Y Kamat 2,000Mr. Snehal Shah 7,400Mr. Ashwani Bhardwaj NILMr. Ashok K Jain NILMr. Umesh Sharma 350Mr. R.V. Chari NILMr. Hitesh Parikh 310

Changes in the key managerial personnel in the last 3 years

Name of key managerial Designation Date of change Reasonpersonnel

Mr. Sanjay Shah Director – Commercial April 1, 2000 Appointed

Mr. Vinay Pandya Director – Finance July 1, 2000 Appointed

Mr. Snehal Shah Director – Business Development April 1, 2001 Appointed

Mr. Zainul Lakdawala Director – Technical Services May 4, 2002 Transferred to MIC, USAand Customer Support

Mr. Vimal Mehra Director – Domestic Sales April 22, 2001 Transferred to MIC, USA(General Inks)

Changes in the auditors in the last five years

During the year 1999-2000, M/s. Gopalakrishnan Aiyer & Co., who were the statutory auditors of the Company, resigned due to otherpre-occupations. In the 8

th Annual General Meeting held on August 23, 1999, the Company appointed S.B. Billimoria & Co. as their

statutory auditors with immediate effect.

88

Corporate Governance

The Company follows a policy on Corporate Governance which values accountability, transparency, responsibility and fairness in allfacets of its operations and in its relationship and interaction with all its stakeholders including shareholders, investors, customers,regulatory authorities, lenders and employees.

The Company has complied with SEBI guidelines in respect of corporate governance with respect to broad basing of the Board andconstituting the committees of the Board viz. Audit Committee and Shareholders/Investors Grievances Committee.

Committees as per corporate governance norms

Audit Committee:

The Audit Committee of the Board was constituted in October 2000 and comprises Mr. K. K. Unni, Chairman of the Committee, Mr. M. L.Bhakta, Mr. Prashant Desai and Mr. Hasmukh Shah. Mr. Vinay Pandya, Director Finance and Mr. Ashok Jain, Sr. Vice President - InternalAudit are permanent invitees as directed by the Committee. 4 meetings of the Audit Committee were held in the financial year endedMarch 31, 2003.

Shareholders / Investors Grievances Committee:

The Company has constituted a Shareholders / Investors Grievances Committee to ensure timely services to its shareholders / investorsand to supervise the performance of the Registrar and Share Transfer Agent. The Committee consists of Mr. Hasmukh Shah, Chairmanof the Committee, Mr. K. K. Unni and Mr. Prashant Desai. The Company Secretary of the Company acts as a secretary of the Committee.3 meetings of this Committee have been held in the financial year ended March 31, 2003.

89

THE INK INDUSTRY

The sources of information presented in this section are disclosed at respective places. However, conclusions drawn from such informationand evaluation of the ink industry presented herein represent the Company’s own belief, which could differ from conclusions and beliefsof others.

The ink industry can be divided into various segments corresponding to the printing techniques used:

Market size

The printing inks industry comprises companies engaged in manufacture of various types of inks for the commercial printing and packagingindustries. According to the Business Report on Printing Inks by Global Industry Analysts, Inc. (GIA) the global market for printing inkswas valued at US$14 bn (Rs. 595 bn, December 31, 1998) in 1998 and the ink market was estimated to be growing at 4% p.a. on anaverage. GIA had projected the size of the ink market to reach US$17 billion (Rs. 781.32 bn, August 13, 2003) by 2004. USA was theleading market for printing inks with sales of $4.2 billion (Rs. 178.5 bn, December 31, 1998) in 1998 and growth in the US market wasestimated at 4.65% annually. Asia-Pacific was determined as a growing market for printing inks, increasing at an average annual rate of6.7%. The geographical distribution of the global ink market is as follows:

Market for printing inks by region

Region/Country (%) Share

USA 31

Canada 4

Japan 25

Europe 28

Asia-Pacific 7

Middle East 1

Latin America 4

Source : Business Report on Printing Inks by Global Industry Analysts, Inc.

PRINTING INKSWeb Offset Inks

Heatset Cold

Sheet fed Inks

Process Colours Pantone Colours Cut Colours

Packing Inks Light Fast Process Colours

UV Inks

Offset Inks

Flexo & Gravure Inks

Water Based Solvent Based

Lamination Printing Surface Printing

Adhesive

Solvent Based Water Based

PU Lamination

Special RangeDry Offset Inks Intaglio Inks

UV Products

UV Coating UV Inks-Flexo

Offset or Paper Plastic

Invisible Inks Penetrating Inks

90

According to GIA, the size of the printing inks market in 2004 has been estimated as follows:

The Printing Inks Market Worldwide: Estimates/Projections for 1998-2004 by Region

Region/Country US$ Sales (mn) %CAGR

1998 1999 2000 2001 2002 2003 2004

USA 4,228 4,412 4,609 4,820 5,047 5,291 5,552 4.65

Canada 547 562 578 595 613 632 653 3.00

Japan 3,412 3,515 3,625 3,742 3,867 4,000 4,142 3.28

Europe 3,821 3,973 4,135 4,308 4,494 4,693 4,906 4.25

Asia-Pacific 1,024 1,090 1,161 1,239 1,323 1,414 1,514 6.73Middle East 205 217 230 244 259 275 293 6.13

Latin America 546 580 617 657 700 746 797 6.51

World 13,784 14,349 14,955 15,605 16,302 17,051 17,856 4.41

Source : Printing Inks – A Global Strategic Business Report by Global Industry Analysts, Inc.

The table above has been presented below with all amounts converted into Indian rupees as on December 31, 1998:

The Printing Inks Market Worldwide: Estimates/Projections for 1998-2004 by Region

Region/Country Rs. Sales (bn) %CAGR

1998 1999 2000 2001 2002 2003 2004

USA 179.69 187.51 195.88 204.85 214.50 224.87 235.96 4.65Canada 23.25 23.89 24.57 25.29 26.05 26.86 27.75 3.00Japan 145.01 149.39 154.06 159.04 164.35 170.00 176.04 3.28Europe 162.39 168.85 175.74 183.09 191.00 199.45 208.51 4.25Asia-Pacific 43.52 46.33 49.34 52.66 56.23 60.10 64.35 6.73Middle East 8.71 9.22 9.78 10.37 11.01 11.69 12.45 6.13Latin America 23.21 24.65 26.22 27.92 29.75 31.71 33.87 6.51World 585.82 609.83 635.59 663.21 692.84 724.67 758.88 4.41

Source : Printing Inks – A Global Strategic Business Report by Global Industry Analysts, Inc.

Against these projections, of Global Industry Analysts, Inc., the US printing ink market is valued by the Company at between US$ 5-6bn (Rs. 229.8 – 275.8 bn, August 13, 2003). The past two years (calendar years 2001 and 2002) have been challenging for the US inkindustry due to a slowdown in the economy and geo-political considerations (source : Ink World Magazine):

� In calendar 2001, sales declined by 5.8% in value terms and 8.5% in volume terms

� In calendar 2002, sales declined by 5.2% in value terms and 2.5% in volume terms

End-Use Profile

The printing, publishing and packaging industries are major end-users of printing inks. Quality and technical specifications of end product,service levels, degree of customization and pricing play an important role in selection of an ink supplier.

Major ink producers

Major ink producers of the world are as under:

Rank Company Ink Sales (US$ bn) Ink Sales (Rs. bn)*

1. Dainippon Ink & Chemicals/Sun Chemical 3.85 184.952. Flint Ink 1.60 76.863. Sakata Inx 0.78 37.474. Sicpa 0.69 33.155. Toyo Ink 0.66 31.716. BASF Drucksysteme GmbH 0.62 29.787. Tokyo Printing Ink 0.43 20.668. Huber Group 0.38 18.269. Siegwerk Druckfarben AG 0.34 16.3310. Inctec Inc. 0.34 16.3311. Dainichiseika Color & Chemicals 0.23 11.0512. Sericol International 0.20 9.6113. Akzo Nobel Inks 0.17 8.1714. Royal Dutch Printing Ink Van Son 0.15 7.2115. Hindustan Inks and Resins Ltd. 0.11 5.28

91

16. Epple Druckfarben 0.06 2.8817. Zeller+Gmelin 0.06 2.8818. Trenal Ltd. 0.05 2.4019. Environmental Inks & Coatings 0.04 1.9220. Ruco Druckfarben 0.04 1.9221. Cromos S.A. Tintas Graficas 0.03 1.4422. Encres Dubuit 0.03 1.4423. Brancher Company 0.03 1.44

* As on December 31, 2002

Source : Inkworld Magazine, 2002

The details of leading companies in the US market along with each company’s share in the Top 20 companies is mentioned below:

Rank Company Ink sales (US $ million) Ink sales (Rs. million*) Share in Top 20

1 Sun Chemicals 3,000 142,950 52.0%

2 Flint Ink 1,400 66,710 24.2%

3 INX International 300 14,295 5.2%

4 Color Converting 112 5,337 1.9%

5 Sicpa 110 5,242 1.9%

6 Wikoff Color 81 3,860 1.4%

7 Toyo Ink America 71 3,383 1.2%

8 Superior 70 3,336 1.2%

9 Central Ink 68 3,240 1.2%

10 Nazdar 65 3,097 1.1%

11 Van Son 64 3,050 1.1%

12 Micro Inks Corporation 60 2,859 1.0%13 Sericol 60 2,859 1.0%

14 Du Pont 50 2,383 0.9%

15 Sensient 50 2,383 0.9%

16 Color Resolutions 48 2,287 0.8%

17 Braden Sutphin Ink 43 2,049 0.7%

18 Environmental Inks 43 2,049 0.7%

19 Handschy 41 1,954 0.7%

20 Ink Systems 38 1,811 0.7%

Total 5,774 275,131 100.0%

* As on March 31, 2003

Source Ink World Magazine – April 2003

While the market share of MIC USA is estimated at 1.0% of the Top 20 companies as depicted above, most companies in the Top 20list in the US inks market are either privately held and financial information on these is not available, or are engaged in multiple businesses/different product segments and are, therefore, not comparable to MIC, USA, which is engaged in the business of printing inks.

Domestic ink market

According to All India Print Manufacturers’ Association (May 07, 2002), the Indian market for printing inks manufactured and sold in Indiais between Rs 7.5 bn and Rs 8 bn (net). The growth in the printing ink market is estimated in the range of 12% and 15% p.a. The netsales do not include sales of security inks and specialty inks. The Company is the market leader during the past three years and hada market share of 33%. The leading Indian ink manufacturers are shown below:

No Name of company Total Market share

1 Hindustan Inks and Resins Limited 33%

2 Coates of India 23%

3 Incowax Ltd 3.75%

4 United Inks & Varnish Co Ltd 3.75%

5 Sicpa India Ltd 2.75%

Source : All India Printing Ink Manufacturers’ Association letter dated May 07, 2002

Rank Company Ink Sales (US$ bn) Ink Sales (Rs. bn)*

92

The Company expects that the domestic market demand will be characterised by an increasing usage of ink in future on account of thefollowing broad industry trends:

� Increased use of packaging in various industries, such as foods and FMCG

� The publication and printing industry is growing, despite the increase in Internet penetration

The Company estimates that India has more than 200 ink manufacturers, with a large number being in the unorganized sector. With thepassage of time, due to increasing complexity of the business including demand from end users, changes in technologies, scaling uprequirements due to globalization in the country, decreasing tarrif barriers and the increasing demands from regulatory agencies forimprovement in standards including pollution control standards, many of the small and medium sized companies may not be in a positionto remain competitive thereby trigerring consolidation in the industry.

93

BUSINESS OF THE COMPANY

Background

The Company manufactures a wide range of printing, publishing and packaging inks, resins, wire enamels and adhesives at its plantsin Vapi, Gujarat (Vapi-I, Vapi-II and Vapi-III) and in the Union Territories of Daman and Silvassa. The Company’s operations are integrated,with significant proportion of key raw materials such as pigments, solvents, oils, chemicals and resins, which are required in themanufacture of inks, being produced in-house. By virtue of a wide product portfolio in liquid and paste inks, a wide distribution network,integrated processes that allow greater control on input costs and innovative manufacturing techniques enabling optimisation of productioncosts, the Company has successfully emerged as the leading manufacturer of inks in India. The Company believes that it is the only inkcompany in the world to have implemented the integrated SAP R/3 system across the company, thus providing effective control anddirection to its management processes.

Product Mix Customer Focus Critical Inputs Technology

� Presence across a � Strong nation-wide � Captive resin and � State of the art plant atrange of segments distribution network pigment manufacturing Vapi, designed andand niche areas at Vapi engineered in-house

� Emphasis on value � Focussed direct � Ability to procure raw � Innovations in inkadded segments marketing to key materials for conversion production process such

customers by suppliers, at better as flushing etc. to reduceprices production costs

� Product acceptance � Backward integrationacross customer provide ability to changelocations in various product specifications atcountries in developed minimal incremental costworld

Key Products

Since incorporation in 1991, the Company has consistently expanded its product portfolio to manufacture a wide range of resins, pigments,water based adhesives, wire enamel, metal decorative inks and coatings, screen inks, paste inks, liquid inks etc.

The table below highlights the key end use markets for some of the Company’s products. The Company believes that its ink productsare distributed over a wide array of end use segments (both consumer and industrial), thereby minimising the risk of dependence onfew consumer segments:

Screen Inks Paste Inks Liquid Inks Metal Publication UV / EB InksDecorative Inks Gravure

Visiting cards Magazines Flexible packaging Metallised polyester Graveure printing Labelsof magazines

Letter heads Books Graphics BOPP Wrappers

HDPE/PP bottles Newspapers Paper printing Folding cartons

Ceramic and glass Yellow pages, HDPE and LDPE Printing on PVC,printing catalogues, brochures, acrylics

calenders, productliterature , mail orderand other forms.

While the Company is a focused manufacturer of inks, it also manufactures other related products such as adhesives and enamels byexploiting synergies in the manufacturing process. In inks, together with manufacture and marketing of its traditional products, the Companyis now also developing value added products such as Ultra Violet (UV)/ Energy Based (EB) inks for the domestic markets.

Printing inks are basically classified into the following categories:

� Inks for publication purposes, widely known as General / Publication / Paste Inks; and� Flexo and graveure inks� Speciality inks e.g. UV/EB� Screen Inks� Metal decorative inks

Depending upon the printing technology available with the printer, the inks are further categorized as under:

Heatset Inks

Heatset inks are set in the printing process through evaporation on the print surface. The wet printing material passes through a heatchamber installed after the printing stations. The printing paper is supplied in the form of web from an unwinding reel and therefore, thisink is used for mass printing mainly in cases where productivity and cycle time is of prime importance, e.g. magazines, books, newspapers, catalog books, yellow pages, forms etc.

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Newscolour Inks and newsblack

Newscolours and Black inks resemble Heatset inks, but they dry through penetration rather than evaporation. The widest use of theseinks is in newspaper printing. Newscolour inks are used in color pages/photographs and have glossy characteristics. Newspaper publishersare prime customers of such inks.

Sheet Fed Inks

Sheet Fed Inks are inks used for printing on sheets of paper. Unlike Heatset inks, the printing material on the machines is suppliedindividually and each sheet is printed individually. Normal application of these inks is in the production of calendars, posters, inserts,catalogues, brochures etc. and in packaging materials for carton manufacturers.

Flexo and gravure inks

Packing / Lamination / Liquid Inks

Packaging inks are used for printing on Polyester and on BOPP films. These inks are reverse printed and then laminated to variousrelevant substrates like LDPE, BOPP and CPP. These inks require qualities of printability, bond strength, low solvent retention and lowodour. These inks are suitable for various press speeds ranging from 50-250 m / min and are used for flexible packaging and graphics.

Publication Gravure

The gravure printing process involves a printing plate, on which the image is engraved. Gravure ink has low viscosity and is very fluid,since the ink has to fill the cavities of the engraved image and is required to transfer easily. The Gravure process is mostly used for highquality prints that are produced in a very large number of copies. This could be either magazines and brochures (i.e. the gravure –publication market), or packaging material (i.e. the gravure – packaging market). A typical example of the latter is, printed cigarettepackages.

UV / EB Inks

Inks / coatings are cured instantly by absorbing the energy received from a short wavelength ultra violet light source. A high-energyelectron beam is used for curing in case of EB curable materials. Almost instant curing inks and coatings facilitate the post printingoperations to be carried out immediately after printing, resulting in better productivity vis-à-vis normal inks. These materials are moreenvironment friendly vis-à-vis conventionally produced inks.

Silk Screen Inks

These inks, manufactured using a versatile printing process, enables printers to print on various substrates like plastics, papers, ceramics,glass, textile, metals etc. This process allows printing on curved surfaces as well as on surfaces that have other shapes. It is mainlyemployed in printing visiting cards, letter heads, HDPE/PP round bottles and many other items. This is the only printing ink used inmanufacturing of Printed Circuit Boards used extensively in electronics goods.

Metal decorative/ Surface printing Inks

These inks are used for printing on various substrates, like metallized Polyester/ BOPP, metallized PVC Plain & Opaque BOPP, PearlisedBOPP, LDPE, HDPE and various types of paper. These inks have good gloss qualities, sharp printability and high strength and good printcoverage. These inks can be printed either by gravure or Flexo processes, as per the customer requirements.

Other products

Alkali Blue

Alkali Blue is a specialized product and is used as dispersion agent for inks. It is an ecologically friendly product with greater use ofvegetable oils than its mineral counterparts. Used for manufacturing of the flushed paste, the product offers excellent tinctorial strength,leading to reduced wastage. Alkali Blue is also an important pigment, which is used as toner in black inks. All the black ink manufacturersuse it for imparting good gloss properties. Black inks are most commonly used in printing newspapers and magazines, which results ina good demand for Alkali Blue.

Pigments / Flushed Colors

Pigments are amongst the most critical raw materials required in manufacturing inks. Pigments add color and gloss to the finishedproduct. The proportion of pigments typically vary from 30% to 40% in inks. The Company is one of the few manufacturers in the worldto use flushed technology for manufacturing pigments.

Resins

Resins are a critical component for manufacturing inks, and the composition of a resin greatly affects the overall characteristics of theink. Resins are essential to the ink making process, as they provide key properties to the final ink. Resins serve several importantfunctions.

� Resins disperse the pigment and prevent its re-agglomeration

� Resin acts as a pigment binder to provide adhesion to a substrate

� Resins provide viscosity (or flow), which is required for transferring the ink from press to substrate, and it contributes to the gloss,drying speed and resistance properties of ink. The type of resin that is used varies according to the type of ink that is beingmanufactured.

The resin chemistry and/or functionality are carefully selected to ensure suitability for the printing process, solvent requirements in theprinting process, and performance requirements of the printed product (i.e. brightness of colour, packaging specifications, cost targets).

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Adhesives

Adhesives are of many varieties including pressure-sensitive adhesives, which are used for making such products as tags, labels,tapes and films while film laminating adhesives are used mainly for the food packaging industry.

Sales and Marketing

The Company’s key products (Inks, Resins and Pigments) are sold to different markets.� Consumer Packaging Industry (Flexible packaging manufacturing for health care products, soaps and detergents, food and beverages,

carry bags etc.), labels and pressure sensitive tape (BOPP, Polyester tapes etc.)� Industrial Packaging (HDPE bags, paper bags, cartons bottles etc.)� Publications (Newspapers, Magazines, Annual Reports)� Chemicals (paints and varnishes, inks, surface coating material)

The Company has a customer base of nearly 5,000 in the above segments. A diversified customer base spread across the countryensures a wide distribution and franchise for the Company, limiting risks associated with geographical market concentration. The tablebelow highlights the Company’s key customers in printing inks:

Newsprint Flexible packaging

The Times of India Suburban Press Ltd. The Paper Products Ltd.The Sandesh Press Ltd. Positive Packaging Industries Pvt. Ltd.Lokprakashan Ltd. Uma Polymers Ltd.Jagran Prakashan Ltd. Nirma Ltd.Bhaskar Graphics & Printing Arts Ltd. Packaging (I) Pvt. Ltd.Indian Express News Papers Pvt. Ltd. Creative Polypack Limited

Nationwide Distribution

As on March 31, 2003, the Company had a wide and well established nationwide network of 463 distributors (West-189, North-116,South-113 & East-45), which it believes, enabled it to maintain a leadership position in product distribution.

DepotsDue to backward integration of manufacturing facilities and process and the consequent ability of the Company to manufacture a widerange of raw materials, the Company believes that it is in a position to manufacture a wide spectrum of products to suit customerrequirements, at desirable parameters of cost and quality. As at March 31, 2003, the Company had 4 matching centers at Mumbai,Noida, Kolkata and Ahmedabad, which are equipped with finishing facilities that enable it to custom finish products. The Company alsohas 8 branches (Mumbai, Delhi, Noida, Kolkata, Ahmedabad, Chennai, Sivakashi and Hyderabad) where certain inks can be storedprior to actual supply to either customers or distributors.

Direct Marketing Initiatives

The Company has a large direct sales and marketing organisation, which as on March 31, 2003 included 89 personnel, responsible fordeveloping its direct marketing initiatives with key clients. The Company’s own sales force initiates and maintains relationships withimportant clients, negotiates sales contracts, facilitates and co-ordinates product tests where required, understands periodic productrequirements and ensures timely delivery. The sales force also maintains relationships with distributors and services their requirements.

For the purpose of co-ordinating marketing efforts, the country has been broken up into 4 Regions and a Regional Manager overseeseach Region. The Regional Manager is responsible for the overall business for the Region, from all segments and product categories,and has individual sales executives reporting on specific product categories. The Regional Manager is also responsible for the functioningof all the depots in the Region.

In order to provide clients and distributors with better service, the Company has integrated all its marketing offices at the Regions andBranches using satellite communication linkages.

Exports

The Company is one of India’s leading exporters of inks to the USA and to other developed markets (e.g. United Kingdom, France,Belgium, Germany, Spain, China, Singapore, Australia, South Africa, Japan). The Company’s export revenues from Inks and other productsduring the previous 5 years ending March 31, 2003 are as under :

(Rs. million)

Year ended March 31, 1999 2000 2001 2002 2003

Exports 28 52 923 2358 2877

Memorandum of Understanding with Henkel KGaA

In June, 2003, the Company has entered into a non-binding Memorandum of Understanding (MoU) with Henkel KGaA (Henkel), acorporation existing under the laws of the Federal Republic of Germany which sets out the basis and the concept according to whichHenkel and the Company intend to co-operate and establish a business relationship in the field of certain solvent based and solvent freeadhesives in India and in certain countries outside India. One of the terms of the MoU states that the Company and Henkel shallendeavour to enter into definitive agreements within a period of 90 days from the date of the MoU.

Trade Mark Registration Details:

The Company has registered (including provisional registrations) certain trademarks relating to its brands and logo. In addition, theCompany has also filed applications with the Controller of Patents, Mumbai towards grant of patent for the following inventions:

� Printing Ink Composition for Image and Non-Image area of printing plate in High Speed Lithographic printing

� Printing Ink Composition

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Manufacturing Operations

Overview

The Company’s manufacturing operations are spread over 3 locations, namely Vapi, Daman and Silvassa. Summary details of themanufacturing facilities available with the Company is as under:

(Tons p.a.)

Location Products manufactured Current Capacities

Vapi – I AzoPthalocyanineFlushed Pigments 17,440Proprietary AdditivesFine Chemicals

Daman Sheet Fed Offset InksScreen InksMetal Decorative Coatings and Inks 23,000Lamination AdhesivesWire EnamelsSpecialty Vehicles

Silvassa Heat Set InksBase Black for heat setNews Black 60,000No Heat Web Offset InksLiquid Inks (Flexo & Gravure)Coatings (UV & Aqua based)

Vapi – II Flushed ColoursPigments 46,000Resins, Waxes and Additives

Vapi-III (100% EOU) Printing Inks130,000Flushed Pigments

Source : Company

Product Capacities

The following table provides a summary of manufacturing capacities of key products of the Company actual production and capacityutilisation:

Capacity

Year ended March 31, Units 1998 1999 2000 2001 2002 2003

Class of Goods

Printing Inks MT 12000 15960 77450 77450 180000 180000Resins MT 1600 1600 1600 19600 45000 45000Adhesives MT 1680 3600 3600 3600 7800 7800Wire Enamels MT 2400 2400 2400 2400 3000 3000Fine Chemicals MT 540 640 640 640 640 640Pigments & Flushed Colors MT 0 0 3300 9300 40000 40000


Production

Year ended March 31, Units 1998 1999 2000 2001 2002 2003

Class of Goods

Printing Inks MT 8076 11505 17081 42642 52907 54423

Resins MT 834 767 1177 2978 14973 21706

Adhesives MT 1534 2635 3634 7098 8606 7865

Wire Enamels MT 1483 1906 1950 1902 1987 1934

Fine Chemicals MT 240 474 266 355 216 276

Pigments & Flushed Colors MT 0 0 1136 3963 7650 6180


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Capacity utilisation

Year ended March 31, 1998 1999 2000 2001 2002 2003

Class of Goods

Printing Inks 67% 72% 22% 55% 29% 30%

Resins 52% 48% 74% 15% 33% 48%

Adhesives 91% 73% 101% 197% 110% 101%

Wire Enamels 62% 79% 81% 79% 66% 64%

Fine Chemicals 44% 74% 42% 55% 34% 43%

Pigments & Flushed Colors NA NA 34% 43% 19% 15%


In February 2000, the Company set up a wholly owned subsidiary, MIC, at Chicago, USA to focus on the US ink market by exploitingthe relatively low cost structure of the Company. The Company expects that MIC would be the cornerstone of its future growth strategyin the inks’ business. In order to cater to the needs of the US market and other export markets, the Company has set up fresh capacitiesfor inks and raw materials over the past 4 years as follows:

� In FY1999, the Company increased ink manufacturing capacity from 12,000 tpa to 15,960 tpa

� In FY2000, the Company set up an ink manufacturing plant in Silvassa, with a capacity of 57,450 tpa for manufacture of variousproducts such as news black, heat set, liquid and sheet fed inks

� During August 2000, the Company commissioned Specialty Flushed Colours/ Pigments plant of 3000 tpa and a high performanceresins plant of 18000 tpa.

� In October 2001, the Company set up a 100% Export Oriented Unit at Vapi having a “Single Stream” plant for seamless manufactureof 100,000 tpa printing inks and also expanded manufacturing capacities for resins and flushed pigments.

� The Company also commissioned its 25000 tpa capacity of resins plant (expansion) at Vapi-II unit.

A summary of the build up of installed capacity of printing and packaging inks over the past decade is provided below:

(tpa)

Year ended March 31, 1993 1995 1997 1999 2001 2003


While the Company has set up capacities upfront for its products and raw materials to cater to the demand in export markets (includingUSA), the expansion of capacities of ink and its raw materials over the past 4 years has not been accompanied by a commensurateincrease in production and sales volume due to rollout of marketing infrastructure in US and other export markets and challenging geo-political situation in USA over FY2002 and FY2003. Due to the mismatch between build-up of capacity and production, the capacityutilization of these products has decreased between FY1998 and FY2003. However, while the production for adhesives has been takenat gross levels (aggregate of adhesive content and water), the capacities are stated at actual adhesive content, resulting in a highercapacity utilization even in recent years.

Manufacturing process

The Company manufactures printing inks, adhesives and wire enamels as also key ingredients required for manufacturing inks such asresins, additives, varnishes, pigments & flushes. Ink comprises finely dispersed pigments in a vehicle, which is made up of resins &additives dissolved in solvent or oils. In order to achieve a fine dispersion of pigment powder, grinding is the major manufacturing processin case of flexo, gravure inks, screen inks and metal printing inks. However, in case of offset inks, fine dispersion of pigments isachieved by the process of flushing. So in case of offset ink mixing, the key steps involved in the manufacturing process are filtration& packing whereas for other inks manufacturing process comprise premixing, grinding, filtration & packing.

Resins

The Company manufactures standard resins as well as modified phenolic resins, structured resins, hydro carbon resins, hybrid resins,ketonic resins and PVB resins. For manufacturing different resins the Company uses different raw materials and different processconditions. External heat and pressure is applied in most cases, with specific additions of raw materials at particular intervals andtemperatures. In some cases, resins pass through certain exothermic reactions where temperature and pressure need to be controlled.During each addition of raw material and at specified intervals in-process checks are carried out. Once the product is produced andapproved by quality control it is filtered, cooled, solidified, broken & packed.

Pigments

Pigments used in inks are broadly classified into organic, inorganic & fillers (extenders). The Company manufactures only organicpigments, which are broadly classified as Azo Pigments and Cyclic Pigments. These pigments are manufactured in different stages asbase Diazo preparations, coupler preparations and coupler development with specific surface treatment, if required. When pigments aremanufactured, it is in the form of crystals of different particle sizes which are suspended in water. These crystals/particles are washedwith water several times to remove impurities, prior to filtration. The pigment cake thus formed is used in manufacturing flush pigmentwhich is stored as wet cake or further processed by drying and pulverizing to manufacture pigment powder.

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Wet cake manufactured in the pigment plant has pigment particles in its original size and shape. This wet cake is mixed with varnishusing oil as a solvent. Wet cake has over 80 % water in it, which is separated when it is mixed with oil based varnish. Most of the wateris removed through decantation by applying heat and pressure. The resulting product is Flushed Pigment.

Adhesives

Manufacturing of adhesives involves two steps in a reaction; in the first step polyol is formed & in the second step further reaction takesplace to manufacture polyurethane.

Glycols & acids are charged into the reaction vessels & the mixture is heated to 2400 C for about 24-26 hours to ensure polymerisation.

Vacuum is also applied to the process to create necessary viscosity and molecular weight. Polyol thus formed is checked for desiredspecifications. The waste solvent produced in this reaction is collected separately. The polyol thus manufactured is transferred to anotherkettle for further reaction to manufacture polyurethane resin, which is then checked for desired specifications & then blended withdesired solvents to manufacture adhesives. After a complete quality analysis, adhesives are filtered & packed in sellable packets.

Varnishes

Varnishes are resins dissolved in solvent or oil with certain additives. Depending upon the application of varnish in different inks, differentvarnishes are manufactured using specific proportions of resins & additives. The manufacturing process involves simple dissolution ofresins in these solvents. Once the resin is totally dissolved, the finished product is checked against required specifications and packed.

Wire enamel

Raw materials & other additives are charged in to reaction vessel & heated up to 2400 C for 14 to 15 hours. At this temperature the

ingredients react with each other & they are checked for their desired viscosity. During this reaction, whatever byproduct is generatedis called as waste solvent, which is collected separately. Then vacuum is applied to build viscosity and molecular weight and once thedesired molecular weight has been achieved, material is transferred to another kettle & cooled down to 210

0 C. The polymer thus formed

is dissolved in Phenol & stored at 550 C after checking once again for desired specifications. On approval, the same is filtered & packed

in the sellable packs.

Paste inks

Paste Inks are manufactured by blending flush, concentrates, mediums, oils, additives all of which are weighed as per the bill of materialin kettles and given to Quality Assurance dept. for approval. After approval, the same is filtered and packed in sellable packs.

Raw materials

While the Company produces a significant component of its resin and pigment requirements, it also sources some of its raw materialrequirements from a large number of suppliers, local and overseas. The top 26 items that are sourced from domestic sources andimports accounted for about 53% of the cost of total raw materials.

Research and Development

The Company has in-house Research and Development facilities at Daman, undertakes R&D at its Corporate Research Centre, Vapiand has an application oriented Reasearch Centre at Silvassa. At the Corporate Research Centre, R&D efforts are dedicated to synthesisof complex chemistry, polymer chemistry and radiation curable oligomers and monomers and development of new technologies andformulations and processes while the Silvassa Research Centre researches improvements in inks such as heatset, publication gravure,news inks, sheetfed offset and flexo news and specific printing processes.

The Company’s R&D efforts have resulted in in-house development of the process technology for manufacturing flush pigments (whichresults in optimising production time and cost), manufacturing processes for alkali blue (a complex pigment) and development of highlystructured viscoelastic resins. In addition, the Company’s R&D efforts have also enabled it to develop Security Inks for currency printingand specialised UV cured inks. The Company’s R&D team also focuses on continuous improvement of operating parameters. Engineersat the plant locations meet regularly to brainstorm possible measures for reducing cost and optimising outputs. The Company is arecipient of the National Award for outstanding contribution in R&D in the field of Chemicals and Allied sector from DSIR, Ministry ofScience and Technology, 1999.

Land and property

All land acquired by the Company is registered in the name of the Company and has a clear title, except as stated below. Further, thereis no property that the Company has purchased or acquired or proposed to be purchased or acquired from the proceeds of this Issue.

Details of the land and property at manufacturing locations :

No Manufacturing Plant Area not registered in name Area not having a clearof the Company (sq. m.) title (sq. m.)

1 Vapi-I - -

2 Vapi-II - -

3 Vapi-III - -

4 Silvassa - -

5 Daman 7,500 7,500

Total 7,500 7,500

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An area aggregating 7500 sq. m at Daman has not been registered in the name of the Company, and does not have a clear title due tonon-receipt of “NA” permission.

Details of the land and property at office premises and residential quarters:

No Location Area not registered in name Area not having a clearof the Company (sq. m.) title (sq. m.)

1 Residential quarters at Vapi 750 750

2 Office premises - -

Total 750 750

An area aggregating 750 sq. m at Vapi has not been registered in the name of the Company and does not have a clear title due to non-execution of lease agreement with Gujarat Industrial Development Corporation.

All the immovable properties of the Company are mortgaged or to be mortgaged to various lenders of the Company. The Companybelieves that no Government approvals are required for immovable properties owned and registered in the name of the Company.

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MANAGEMENT DISCUSSION AND ANALYSIS

A. Business Strategy

A.1 Focus on US business

The Company enjoys a market share of 33% (Source: All India Printing Ink Manufacturers’ Association, May 2002) in the domestic inksmarket. The Company believes that after having achieved leadership in the domestic market and due to the preference of customers ofhaving atleast two suppliers, the growth opportunities in the domestic market are limited to market and economic growth. In light of thesame, the Company has entered the overseas ink markets through wholly owned subsidiaries, Micro Inks GmbH, Austria (MIC GmbH)and Micro Inks Corporation, USA (MIC). MIC has set up certain limited production and blending facilities in Kankakee, Illinois, USA andset up corporate office as well as distribution and marketing infrastructure that operates out of Schaumburg, both close to Chicago. MICsources near-finished inks from HIRL and blends and markets the products to consumers based in different parts of USA. MIC’s installedcapacity for manufacturing finished inks at US is about 60,000 MT.

The Company believes that US inks market is the single largest market for inks in the world and is dominated by a few large suppliers.The Company believes that due to its unique integrated production processes and backward integration into pigments, flushes andresins and varnishes, it can offer value to customers, both in terms of product quality and product prices. The Company believes thatdue to adoption of indigenous and innovative technologies, it has a cost advantage in producing paste inks. Based on such quality andcost advantages and focus on high service levels, the Company believes that it can obtain good response from large printers in theUSA.

In addition to the inks market in USA, in FY2003, the Company exported inks to different customers in over 40 countries. The Company’sproduction facilities are ISO 9001:2000 (at Vapi, Silvassa and Daman) and ISO 14001:1996 (at Silvassa) certified. The Company expectssuch certifications to be a key requirement for product acceptability for exports. The Company believes that it is poised for high exportgrowth as a result of its competitive position.

MIC has a diversified income stream comprising recurring income from 8 customers under long-term supply contracts aggregating US$65 mn (Rs. 2987.4 mn, August 13, 2003) per annum and income from 80 small and medium customers who source materials from MICon a non-contractual basis. Over a period of time, the Company expects that several more of MIC’s customers would enter into long-term supply agreements with MIC. More than 14 of MIC’s customers have either undertaken product trials or placed orders in smallquantities over the past year with MIC. MIC has also initiated negotiations on long-term supply contracts with several large potentialcustomers in USA.

The Company expects that MIC would be the cornerstone of its future growth strategy in the inks’ business. Given the size of themarket and the competitive costs that it is in a position to offer, the Company expects that, over a period of time, export sales (USA andother export markets) are likely to be in excess of domestic sales in the next few years.

A.2 Development of other international markets

The Company has also initiated a foray into other international markets besides the USA, in order to tap growth opportunities anddiversify its export base. Currently, the Company exports to over 40 countries and has a regular base of 127 customers (includingdistributors). Significant breakthroughs have been achieved during the year across all such markets as indicated by the growth inrevenue:

(Rs. million)

Regions FY2003 FY2002

Africa 20 13Asia Pacific 325 99Europe 48 08Eastern Europe 172 32Middle East 52 20Latin America 75 16

Total 692 188

In FY2003, the Company exported its products to various countries such as United Kingdom, France, Belgium, Germany, Spain, China,Singapore, Australia, South Africa, Japan etc.

The Company intends to consolidate its position in several export markets with the intention of achieving rapid growth and broad basingcustomer and export bases. The Company may widen and deepen its presence in export markets by entering into strategic alliancesfor specific markets or creating its own distribution networks and establishing stock points to gain further proximity to customers. Theshare of Non USA exports in the total consolidated sales increased from about 4% to 11% between FY2002 and FY2003. The Companyexpects this trend to continue and increase the share of Non-USA exports during the coming years.

A.3 Maintain leadership and dominance in domestic Market

The Company’s domestic sales revenue has increased from Rs. 1027 mn in FY1997 to Rs. 3203 mn in FY2003 at a CAGR of 21%. TheCompany has nearly 5000 customers and 463 distributors spread all over India.

The Company’s key customers include, inter-alia, prestigious printing, publishing and packaging companies such as The Times of IndiaSuburban Press Ltd., The Sandesh Press Ltd., Lokprakashan Ltd., Jagran Prakashan Ltd., Bhaskar Graphics & Printing Arts Ltd.,Indian Express News Papers Pvt. Ltd., The Paper Products Ltd., Positive Packaging Industries Pvt. Ltd., Uma Polymers Ltd., Nirma Ltd.,Packaging (I) Pvt. Ltd. and Creative Polypack Ltd.

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As mentioned earlier, the Company expects to continue as a dominant player in the domestic markets and maintain its leadershipposition. A wide product range, continuous innovation and customer base coupled with a competitive cost position are, in the Company’sopinion, a key differentiator vis-à-vis other inks manufacturers and helps reduce market risks.

A.4 Product and manufacturing developments using Research and Development (R&D)

The Company has made investments to set up a dedicated R&D center at Daman. The R&D efforts of the Company have resulted inthe in-house development of process technology for producing flush pigments, making the Company one of the few companies worldwideto be in a position to do so. Also, the Company is one of the few global producers capable of manufacturing alkali blue, a complexpigment used in manufacturing newsblack inks. The Company has the capability to produce structured visco-elastic resins used inmanufacturing inks. The Company has developed products such as UV and EB inks, Security inks, Special inks for Compact Disks, andnumerous such applications, demonstrating its capability to develop new products using its R&D skills. All of these enable the Companyto produce a wide range of inks with significant control over quality and cost of key raw materials.

B. Analysis of Financial Performance

Statement of adjusted Profits and Losses

(Rs. million)

Particulars Year ended Year ended Year endedMarch 31, 2001 March 31, 2002 March 31, 2003

Income


a. Sales of products manufactured by the Company(including other operating income) 3,453.25 5,196.78 5,795.85

b. Sales of products traded by the Company 17.90 21.06 49.01

c. Total 3,471.15 5,217.84 5,844.86

Other Income 42.60 100.57 229.34

Increase / (Decrease) in Inventories 99.70 (136.26) (31.72)

3,613.45 5,182.15 6,042.48

Expenditure Raw Material consumed 2,257.12 3,038.96 3,676.19Manufacturing Expenses 188.82 261.18 318.72Staff Costs 155.46 217.19 253.33Administration Expenses 104.68 161.74 209.07Selling and Distribution Expenses 302.02 350.94 425.36Depreciation 86.37 129.02 166.81Interest 172.31 422.11 441.05

Total 3,266.78 4,581.14 5,490.53Net Profit before Tax and Extraordinary item 346.67 601.01 551.95Taxation 29.38 38.24 37.50Deferred Tax 45.72 79.94 73.70Net Profit before Extraordinary item 271.57 482.83 440.75Extraordinary items (Net of Tax) (0.88) 0.41 0.00Net Profit after Extraordinary item 270.69 483.24 440.75

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Statement of adjusted Assets and Liabilities

(Rs. million)

Particulars March 31, 2001 March 31, 2002 March 31, 2003

A. Fixed Assets: Gross Block 1,995.35 2,920.88 3,177.90Less Depreciation 191.16 320.06 482.21Net Block 1,804.19 2,600.82 2,695.69Capital Work in Progress 130.49 140.64 77.80

Total 1,934.68 2,741.46 2,773.49

B. Investments 501.97 1,754.60 2,849.49

C. Current Assets, Loans and Advances:

Inventories 688.77 575.27 710.20

Sundry Debtors 1,171.75 1,805.11 2,012.63

Cash and Bank Balances 80.49 905.35 685.76

Loans and Advances 630.24 980.08 892.94

Other Current Assets 0.04 0.04 0.04

Total 2,571.29 4,265.85 4,301.57


Secured Loans 1,524.96 3,206.07 3,177.02

Unsecured Loans 524.12 597.68 545.46

Current liabilities and Provisions 752.35 894.09 1,418.59

Total 2,801.43 4,697.84 5,141.07

E. Deferred Tax liability 133.56 213.50 287.20

F. Networth 2,072.95 3,850.57 4,496.28

G. Represented by

1. Share Capital 186.62 586.62 571.62

2. Share Capital Suspense Account - 1,000.00 1,500.00

3. Reserves and SurplusReserves earmarked for redemption of Cumulative Redeemable

Preference Shares (Refer note no.1 in Annexure IV) 450.00 450.00 315.00

Other Reserves and Surplus 1,436.33 1,813.95 2,109.66

Total 1,886.33 2,263.95 2,424.66

Networth (1+2+3) 2,072.95 3,850.57 4,496.28

B.1 Comparison of FY2003 with FY2002

Revenue

Sales grew from Rs. 5218 mn in FY2002 to Rs. 5845 mn in FY2003 representing an increase of about 12%, primarily on account ofhigher ink exports. The Company attributes this sales growth to better product acceptance, higher penetration and better revenues fromthe export markets, particularly from the non-USA markets. Non-USA exports witnessed an increase in revenue of 3.7 times (to Rs. 692mn in FY2003) over the previous year.

MIC achieved revenue of over US$ 56.5 mn (Rs. 2692.2 mn, March 31, 2003) in FY2003 vis-à-vis US$ 36.1 mn (Rs. 1764.93 mn,March 31, 2002) in FY2002 and signed long term contracts with 3 new customers during the FY2003, aggregating US$ 12.6 mn (Rs.600.39 mn). More than 14 of MIC’s customers have either undertaken product trials or placed orders in small quantities in FY2003.

The overall geo-political environment, particularly in the USA, continued to be tough in FY2003, which resulted in nearly flat prices forthe Company’s printing ink products on an overall basis as shown below, in the segmentwise break-up of ink product sales value andvolumes:

(Qty in tons, Value in Rs. million)

Ink segments FY2003 FY2002 Growth%

Qty Value Qty Value Qty Value

Printing Inks 45,849 4,494 44,922 4,500 2.1% -0.1%- Liquid Inks 13,813 1,350 13,134 1,307 5.2% 3.3%

-General Inks 32,036 3,144 31,788 3,193 0.8% -1.5%

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In the domestic market, the Company continues to enjoy a reasonably diversified customer base, with the greatest concentration ofproduct sales in Western India, as shown in the table below:

Markets FY2003 FY2002

Western India 44% 45%

Northern India 34% 36%

Southern India 14% 12%

Eastern India 8% 7%

Raw material and manufacturing expenses

Raw materials and manufacturing costs increased by 21% from Rs 3300 mn in FY2002 to Rs 3995 mn in FY2003 as follows:

� Raw material costs increased by 21% and manufacturing expenses increased by 22% in FY2003

� Cost of raw materials as a percentage of total revenue has increased from 58.6% in FY2002 to 60.8% in FY2003, primarily due toincrease in price of petroleum products in FY2003 and product mix changes and market factors.

� Manufacturing costs increased marginally from 5.0% to 5.3% of total revenue due to higher fuel costs. The Company hascommissioned a captive power plant in the EOU in July 2002 to enable it to reduce its power costs

Personnel costs

The Company has identified the development of human resources as a critical activity and invests regularly in training and developmentof human resources. Although personnel costs increased by 16.6% in FY2003, they have remained nearly constant at about 4.2% oftotal revenue between FY2002 and FY2003. At the end of FY2003, the Company’s manpower stood at the same levels as at endFY2002, resulting in a higher revenue per employee. The Company believes that with marginal increase in manpower, it can achievehigher capacity utilization, due to inherent advantages of the processes and plant design.

Administration, selling and distribution costs

Although administration and marketing costs increased by about 23.7% in FY2003, as a percentage of total revenue, such costs haveincreased marginally from 9.9% in FY2002 to 10.5% in FY2003. Selling and distribution expenses increased from 6.8% to 7.0% of totalrevenue. Selling and distribution expenses consist of domestic and export marketing and transportation costs, in addition to conventionalsales related expenses. The Company attributes this increase to higher sales to the non-USA export markets as percentage of totalsales.

Interest costs

Interest costs as a component of total revenue has decreased from 8.1% in FY2002 to 7.3% over FY2003. This was accompanied bya reduction in overall leverage (preference capital and its premium treated as a part of networth) from 0.99 to 0.83. The infusion of capitalof Rs. 500 million by the promoters of the Company in FY2003 over and above Rs. 1000 million already brought in during FY2002 hasresulted in control over overall leverage. The Company has also replaced certain high cost borrowings with low cost rupee/foreigncurrency borrowings. It also availed of working capital facilities in foreign currency resulting in lower cost of funds on account of rupeeappreciation and relatively lower interest rates.

The company has a current credit rating of A+ for its long-term debentures and PR1 for its commercial paper (downgraded by twonotches each by CARE over the previous year).

In order to sustain growth in future, the Company intends to use part of the proceeds of this Issue to reduce debt levels and consequently,the financial risks. The Company expects to lower these costs with increasing focus on foreign currency debt to utilize the natural hedgeavailable from the Company’s exports. Further, stringent control measures for improvement in working capital parameters have beeninitiated by the Company.

Profitability

In spite of higher costs, EBITDA has remained nearly constant (Rs. 1160 mn in FY2003 vis-à-vis Rs. 1152 mn in FY2002) on accounthigher sale volumes. EBITDA as a percentage of total revenue has declined from 22.2% to 19.2%. Increase in raw material prices,certain changes in product mix and impact of reduction in export benefits due to downward revision of customs duties have resulted inthis cost increase.

Depreciation during FY2003 increased to Rs. 167 million from Rs.129 million in FY2002 due to full year operations of the EOU andcommissioning of captive power generation unit. PAT decreased by 9% from Rs. 483 mn to Rs. 441 mn due to constant EBITDA andhigher depreciation charge.

B.2 Comparison of FY2002 with FY2001

Revenue

Sales grew from Rs. 3471 mn in FY2001 to Rs. 5218 mn in FY2002 representing an increase of about 50%, mainly on account ofincreased ink volumes sold by the Company in the export markets. Ink sales volume increased from 30,888 tons in FY2001 to 44,922tons in FY2002, representing an increase of nearly 45%. Sales growth is attributed to enhanced production capability, better acceptance,higher penetration and better revenue from the export markets. The additional ink capacity of 100,000 tpa created in FY2002 in the EOUwas also available, enabling the increase in sales volumes.

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The Company’s foray in the export markets resulted in revenues of US$ 36.1 mn (Rs. 1764.93 mn, March 31, 2002) in MIC in FY2002.MIC also signed long term (3-5 years) contracts with certain customers in the North American market. This was despite the sluggishstate of the US economy, particularly its printing ink industry during the year.

A segment wise break-up of sales value and volumes during these periods is presented below:

(Qty in tons, Value in Rs. million)

Ink segments FY2002 FY2001 Growth%

Qty Value Qty Value Qty Value

Printing inks 44,922 4,500 30,888 3,082 45.4% 46.0%

-Liquid Inks 13,134 1,307 11,088 1,178 18.5% 11.0%

-General Inks 31,788 3,193 19,800 1,904 60.5% 67.7%

During FY2002, exports recorded an increase of over 2.5 times to Rs. 2358 mn. The exports were predominantly to the USA. In thedomestic market, the Company continued to realise the largest sales from the Western region:

Markets FY2002 FY2001

Western India 45% 48%

Northern India 36% 35%

Southern India 12% 11%

Eastern India 7% 6%

Raw material and manufacturing expenses:

Raw materials and manufacturing costs increased by 34.9% from Rs. 2446 mn in FY2001 to Rs. 3300 mn in FY2002 as follows:

� Raw material costs increased by 34.6% and manufacturing expenses increased by 38.3% in FY2002

� Increase in production volume (all products) in FY2002 was 46.5% to about 86,300 tons.

� Imported raw materials (primarily chemicals, solvents and mineral oils) accounted for 45% of the total consumption of raw materialsin FY2002 vis-à-vis 40% in FY2001. Rupee depreciation of under 5% in FY2002 and sourcing of raw materials in large quantitiesaided in better control over raw material costs. The average cost of raw materials per ton of raw materials consumed reduced fromRs. 45,175 per ton in FY2001 to Rs. 40,711 in FY2002.

The Company’s initiatives relating to greater backward integration, higher scale of operations, increased global sourcing and emphasison vendor development yielded benefits and resulted in reduction in raw material cost and manufacturing expenses from 67.7% of totalrevenue in FY2001 to 63.7% in FY2002.

Personnel costs

Although personnel costs increased by 40% in FY2002, they decreased from 4.3% of total revenue in FY2001 to 4.2% in FY2002.During the year, the Company recruited 249 persons in order to cater to the increased level of business activity, particularly caused byan increase in production capacity.

Administration, selling and distribution costs

Although administration, selling and distribution costs increased by about 26% in FY2002, as a percentage of total revenue they decreasedmarginally from 11.3% in FY2001 to 9.9% in FY2002. Selling and distribution costs comprise export and domestic marketing expenses.

Interest costs

Interest costs as a component of total revenue has increased from 4.8% in FY2001 to 8.1% in FY2002. Overall (including secured andunsecured loans) leverage (preference capital included in networth) remained constant at 0.99. In order to part finance the capitalexpenditure program at the EOU in Vapi, invest in MIC and to cater to enhanced working capital requirements arising from the enhancedlevel of business, the Company tapped the following sources of finance:

� Availed rupee term loan of Rs. 717.5 mn from ICICI and IDBI and foreign currency term loan of US $5.38 mn (Rs. 263.02 mn) fromICICI

� Raised Rs. 400 mn through issue of 9% cumulative redeemable preference shares

� Received Rs. 1000 mn from the promoters as advance subscription towards equity capital

Profitability

EBITDA increased by 90.3% from Rs. 605 mn in FY2001 to Rs. 1,152 mn in FY2002. As a result of certain cost reduction measures,entry into more lucrative markets and gradual migration to value added products and economies of scale, EBITDA as a percentage oftotal revenue increased from 16.8% to 22.2%. However, while PAT increased by 78% from Rs. 271 mn to Rs. 483 mn, the PAT marginimproved from 7.5% to 9.3% during this period as interest costs were significantly higher in FY2002.

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C. Factors affecting the financial performance

a. Unequal or infrequent events or transactions

MIC has implemented manufacturing and blending facilities in USA, has set up a corporate office and has recruited technical andmarketing manpower, all of which enables the Company to market its products in the US inks market. During FY2002 and FY2003,the cost of operating the US facilities, supply of trial products for key US customers, market research and other market developmentalactivities have largely been financed directly or indirectly (through borrowings in the Company or borrowings in MIC guaranteed bythe Company) by the Company. As on March 31 2003, the Company has invested a total equity of Rs. 2045 mn in MIC, hasprovided loans of Rs. 150 mn to MIC and has also invested Rs. 804 mn in preference shares issued by MIC.

The Company has taken several initiatives in other export markets and this has resulted in significant revenues to the Companyin FY2003. It is possible that the Company may enter new export markets and this in turn, could entail additional investments orcosts by the Company, as and when such opportunities present themselves.

b. Significant economic changes

Prices of inks in India are influenced by demand supply conditions, competitive environment, raw material prices, import duties(including applicable customs duty, surcharge, special additional duty, countervailing duty) on raw materials and finished products,international prices, exchange rate of the Rupee vis-à-vis the US$ etc. Reduction of import duties could increase the pricecompetitiveness of imported inks. The Company believes that a reduction in import duties for finished products would also beaccompanied by reduction in import duties of raw materials used by domestic manufacturers and such a reduction would alsoimprove the competitiveness of domestic manufacturers. Reduction in import duties may also been accompanied by a correspondingreduction in duty benefits, for exporters such as the Company. The Company has over 50% of its consolidated revenues comingfrom USA and other export markets. Changes in the economic environment in these territories could affect the financial performanceof the Company.

c. Known trends or uncertainties

Population growth, GDP growth and literacy rates impact the consumption of printing and packaging inks, which are the key productsmanufactured by the Company. India’s GDP has grown in the range of 5-7.8% p.a. since 1993-94. Literacy rate has increased from43% in 1981 to 52% in 1991 and approximately 65% in 2001. The Company would benefit from higher GDP growth rates andimproving literacy rates.

d. Future changes in relationship between costs and revenues

In FY2003, as against average realizations of Rs. 107.8 / kg of heatset inks and Rs 161.6 / kg of sheetfed inks in the domesticmarkets, the average realization per kg of heatset and sheetfed inks sold by MIC in the US market was Rs. 117.7 / kg and Rs.269.7/ kg respectively. In addition, the Company was able to import raw materials at zero duty against product exports. Thus higherunit realizations and lower input costs resulted in better profitability from exports. Therefore, as the Company moves towards amore export oriented business model, the Company believes that its profitability margins will likely improve vis-à-vis earlier whenits market was substantially domestic.

MIC has already recruited substantially its entire requirement of technical and marketing manpower from the USA. In FY2003,manpower related costs in MIC were 19 % of its revenues as compared to 31% in the previous year. The Company believes thatmanpower requirements in MIC are mostly met and therefore, as sales volume increases in MIC, manpower cost as a percentageof sales will reduce, enhancing profitability. MIC has carried out steps to control manpower costs by a restructuring exercise inMarch-May 2002. As the Company’s products become more accepted in the export markets (including non USA markets), productand market development expenses are expected to reduce (as % of sales), which could also lead to better profitability.

e. Seasonality of the business

The Company does not believe that its business is seasonal. However, in certain festive seasons such as Diwali and Christmasin India and Christmas in the USA, there is an increase in sale of certain varieties of printing and packaging inks manufactured bythe Company. However, the Company manufactures a wide variety of products, the sales of which are largely not impacted byseasons, as a result of which there is no material impact of seasons in the Company’s overall sales.

f. Competitive conditions

The Company has a marketshare of 33% (Source: All India Printing Ink Manufacturers’ Association) of the Indian printing andpackaging inks industry and is a market leader. The Company has successfully achieved this market leadership in 10 years sinceits inception in 1991, in the face of existing and new competition in the organized and the unorganized segment.

The Company is the only producer in India with integrated operations, with the ability to manufacture a substantial component of itsresin and pigment requirements, both of which are key raw materials. It is also the only manufacturer in India to have set up largescale integrated manufacturing facilities at one location and expects to benefit from economies of scale as production volumesincrease. The Company’s largest domestic market is Western India, which accounted for nearly 44% of its revenues in FY2003 andproximity of its manufacturing plants to Western Indian markets ensures reduced transportation costs and economies in logisticsmanagement while marketing in the region. The Company’s plant at Silvassa and Daman also benefit from certain Income Tax andSales Tax concessions, while the EOU at Vapi is entitled to Income Tax benefits applicable for EOUs, all of which add to thecompetitiveness of the Company’s products.

In the export markets, the Company believes that it has significant cost advantages vis-à-vis incumbent competitors. The integratednature of its operations provides the Company with flexibility in changing the raw material specifications and mix to suit customer

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requirements at minimal incremental cost. The Company believes that its leadership on the price-performance matrix is sustainableon account of its low manufacturing cost position and its integrated operations.

g. Dependence of revenues on sales volume, new products and prices

Please refer to analysis of revenues given above.

h. Turnover of each major industry segment in which the Company operated

Please refer to analysis of revenue given above

i. Status of any publicly announced new products or business segment

None

j. Significant dependence on a single or few suppliers or customers

Customers

The Company currently has a customer base of about 5000, which includes 463 distributors. Sales through distributors accounted fornearly 24% of its total domestic sales in FY2003. The single largest customer accounted for almost 1.92% of the domestic sales of theCompany in FY2003 against 1.62% in the previous year. The contribution to domestic sales of the top customers of the Company in thedomestic market is as follows:

% share of sales value in the domestic market

FY2003 FY2002




Source : Company Annual Reports

In the US market, in FY2003 83% of MIC’s revenue was to top 10 customers, with the single largest customer (R.R. Donnelley & Sons)accounting for 31% of MIC’s revenue. In the non-US export market, in FY2003 57% of the Company’s non-US export revenue was totop 10 customers, with the single largest customer (Imperial Ink Pte Ltd., Singapore) accounting for 8% of the Company’s non-USexport revenue.

Suppliers

The Company aided with its integrated operations produced a substantial component of its resin and pigment requirements in FY2002and FY2003. The Company sources some of its other raw material requirements from a large number of suppliers, local and international.The top 26 items that are sourced from domestic sources and imports accounted for about 53% of the cost of total raw materials. Itemsother than these are fragmented across various categories and no single item accounts for more than 0.8% of the total external rawmaterial cost. In FY2003, imported raw materials (including packing materials) accounted for 57.9% of the total raw material cost vis-à-vis 44.6 % in FY2002 and 40.0% in FY2001.

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STOCK MARKET DATA

The high and low closing prices in the last three years and period to date, recorded at the Mumbai Stock Exchange as well as themonthly high or low closing prices during the last six months recorded at the Mumbai Stock Exchange are shown below :

Year High Date of Volume on Low Date of Volume on Averageending (Rs.) High date of (Rs.) Low date of price for

high (no. low (no. the yearof shares) of shares)

2001 456.10 July 18, 2000 6,234 255.65 October 26, 2000 200 331.32

2002 417.75 November 29, 2001 1,428 284.00 April 16, 2001 300 339.76

2003 375.85 January 3, 2003 26,930 199.65 October 28, 2002 4,599 284.06

Month High Date of Volume on Low Date of Volume on Average(Rs.) High date of (Rs.) Low date of price for

high (no. low (no. the yearof shares) of shares)

March 2003 294.75 March 3, 2003 372 244.00 March 31, 2003 3,560 206,801

April 2003 277.65 April 8, 2003 3,580 235.15 April 1, 2003 2,392 82,440

May 2003 254.65 May 16, 2003 12,166 229.60 May 14, 2003 1,310 226,795

June 2003 234.25 June 18, 2003 17,940 208.00 June 16, 2003 7,801 398,726

July 2003 294.00 July 21, 2003 52,088 227.20 July 1, 2003 13,396 684,802

August 2003 282.80 August 28, 2003 4,671 268.45 August 6, 2003 6,378 352,467

* Aggregate volume for the month in BSE and NSE

The market price immediately on the date on which the Committee of Directors passed a resolution approving the Issue was a high ofRs. 245.00 and a low of Rs. 232.00 on the BSE and a high of Rs. 243.00 and a low of Rs. 232.00 on the NSE.

The average share trading volume on BSE and NSE for the past 1 year is as follows:

No. Month and Year Aggregate share trading volume (shares)

1 August 2003 352,467

2 July 2003 684,802

3 June 2003 398,726

4 May 2003 226,795

5 April 2003 82,440

6 March 2003 206,801

7 February 2003 167,318

8 January 2003 746,889

9 December 2002 868,189

10 November 2002 619,183

11 October 2002 97,906

12 September 2002 37,603

Average share trading volume 374,093

Number of equity shares listed 13,662,000

108

BASIS FOR ISSUE PRICE

Adjusted Earnings Per Share (EPS)#

Year EPS (Rs.) Weight

2000-01 18.86 12001-02 31.55 22002-03 26.71 3

# After extraordinary items.

Based on the above, Weighted Average EPS is Rs. 27.02

Price / Earning Ratio (P/E) in relation to issue price

Offer price 240.00Weighted Average EPS 27.02P/E based on weighted average EPS 8.88P/E based on EPS of 2002-03 8.99

Adjusted Average Return on Net Worth (RONW)#

Year RONW (%) Weight

2000-01 16.48 12001-02 20.44 22002-03 14.45 3

# After extraordinary items

Based on the above, Weighted Average RONW is 16.79%

Minimum Return on increased Net Worth required to maintain pre-issue EPS

(Rs. million)

Offer price (Rs.) 240.00

Adjusted Net Worth as on 31.03.2003 4,496.28

Issue Proceeds* 467.33Post Issue Net worth 4,963.61Pre Issue EPS (Rs.) 26.71Min RONW required to maintain pre-issue EPS (%) 13.28

* Of the Issue proceeds Rs. 1500 million is reduced as the same has been received in advance and is included in adjusted net worthas on 31.03.2003.

Adjusted Net Asset Value (NAV) per Share

NAV as at 31.03.2003 (Rs.) 164.42

NAV after the Issue (Rs.) 192.76

Offer Price (Rs.) 240.00

Comparison of all accounting ratios of the Company with industry average and accounting ratios of peer companies:

Company EPS (Rs.) P/E RONW NAV (Rs.) Year ended

HIRL# 26.71 10.03@ 14.45% 164.42 March 31, 2003HIRL (consolidated)*** (19.25) NA (14.08%) 16.38 March 31, 2003Coates of India* 12.30 9.00 10.40% 122.40 December 31, 2002Ind. Average** 19.51 9.78 12.43% 143.41

# Figures are calculated on the basis of Statement of Adjusted Profits and Losses and Statement of Adjusted Assets and Liabilities,on page 35.

* Based on “Capital Market” Volume XVIII/13 dated September 14, 2003, Coates of India Limited is the only company of comparablesize in the ink industry.

** Industry average is a simple average of HIRL and Coates of India.*** Based on consolidated financial information.@ Based on the BSE’s closing market price of Rs. 268 (ex-rights) as on September 5, 2003, as extracted from www.equitymaster.com.

The information in respect of Coates of India Limited is sourced from “Capital Market”, volume XVIII/13 dated September 14, 2003, andthe methodology of computing the results given above for Coates of India Ltd. by Capital Market may be different from the basis usedin the case of HIRL. The data for HIRL has been sourced from the Auditors Report and not from “Capital Market”.

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UNAUDITED WORKING RESULTS FOR THE LATEST PERIOD

Information as required to be given vide Ministry of finance circular No. 82/5/SE/76 dated February 5, 1977 read with circular of evennumber dated 8

th March 1977 is given below:

Working results of the Company for the four months ended July 31, 2003 during the current Financial Year

Particulars Rs. million

Net Sales/ Income from Operations 1,699.6Total Expenditure 1,551.1Gross Profit before Interest, depreciation & Taxation 376.3Interest 132.5Gross Profit/ (Loss) after Interest but before Depreciation and tax 243.8Depreciation 57.6Profit/ (Loss) before taxation 186.2Provision for taxation 33.4Net Profit/(Loss) 152.8Paid up equity share capital 136.6

Share prices of the Company:

Weekend prices of the equity shares of the Company for the last four weeks on The Stock Exchange - Mumbai:

Week Ended On Closing Price Rs. per share Date of closing price

1st Week 269.80 August 14, 2003

2nd

Week 275.10 August 22, 2003

3rd Week 282.00 August 29, 2003

4th Week 268.00 (ex-rights) September 5, 2003

The closing price of the Company’s share on The Stock Exchange - Mumbai on September 10, 2003 was Rs. 262.25 per share (ex-rights price).

Highest and the lowest prices of the equity share in the period between September 1, 2002 to August 30, 2003

Rs. per share

Highest price 375.85

Lowest price 199.65

110

PROMISE VERSUS PERFORMANCE IN THE LAST ISSUE

In November 1992, the Company made a public issue of 3,011,000 shares of Rs 10 each aggregating Rs 30.11 million. This compriseda firm allotment to promoters, directors, friends, relations and associates of 1,060,000 shares at Rs 10 each and an offer to public of1,951,000 shares at Rs 10 each. The actual performance achieved by the Company against the projections specified is shown in thetable below:

Financial projections vis-à-vis performance

Parameter Unit FY1994 FY1995 FY1996

Projection Actual Projection Actual Projection Actual

Installed capacities

Printing inks MT 4,950 4,950 4,950 5,400 4,950 6,400

Resins MT 1,050 400 1,050 800 1,050 1,600

Capacity utilization

Printing Inks % 35% 36% 47% 54% 58% 65%

Resins % 35% 58% 47% 61% 58% 39%

Production

Printing Inks MT 1,760 1,766 2310 2,905 2,860 4,131

Resins MT 373 233 490 485 607 616

Turnover Rs. mn. 160 181 210 381 260 595

Material cost Rs. mn. 113 140 148 262 183 409

Operating Profits (EBITDA) Rs. mn. 22 38 33 106 44 158

Net Profits after Tax Rs. mn. 17 20 25 75 34 101

EPS Rs. / share 4.23 5.06 6.41 19.03 8.56 25.80

Book value Rs. / share 10.95 14.41 13.60 36.82 17.25 72.92

The actual performance of the Company against the objects of the issue for the last public issue is shown below:

Objects Project Cost Promise Performance

Part finance the Company’s Rs. 49.5 mn After completion of the project, the Due to changes in market for resins andprogramme to manufacture ink capacity would be 4,950 MT and inks, a change in product mix of resinsFlexographic and Graveure resin capacity would be 1,050 MT was carried out in FY1994, whichPrinting Inks as well as resulted in a reduction of resin capacitySynthetic Resins from 1,050 MT in FY1993 to 400 MT in

FY1994

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OUTSTANDING LITIGATIONS

There are no outstanding litigations, disputes, non payment of statutory dues, overdues to banks / financial institutions, defaults againstbanks / financial institutions, defaults in dues towards instrument holders like debenture holders, fixed deposits and arrears on cumulativepreference shares issued by the Company, defaults in creation of full security as per terms of issue / other liabilities, proceedingsinitiated for economic / civil / any other offences (including past cases where penalties may or may not have been awarded and irrespectiveof whether they are specified under paragraph (i) of part 1 of Schedule XIII of the Companies Act, 1956) against the Company save andexcept the following:

Litigations against the Company

� A criminal case no. 1210/03 has been filed by Gujarat Factory Inspector, Valsad, Gujarat against the Company in respect of deathof a contract labour worker due to accident caused by fire. While the case is before the Chief Judicial Magistrate, Valsad, Gujarat,summon has been issued and the date of next hearing has been fixed as October 8, 2003. The maximum financial penalty underthis case is fine upto Rs. 200,000.

� A suit has been filed on April 24, 2000 before the Civil Judge, Rajkot Civil Court by Parag Agencies, Rajkot for recovery of aboutRs. 0.04 mn, which they have claimed as sales commission. The matter is pending for further hearing.

� Sales Tax: Three cases regarding addition of branch transfer sales to regular sales are pending before appellate authorities involvingtotal amount of about Rs. 7.63 million as follows:

AY Net Sales Grounds of AppealTax Liability(Rs. million)

1993-94 1.33 Company has filled an appeal at the office of Deputy Commissioner of Sales Tax , Surat againstthe order of assessing officer disputing the addition of branch transfer sales to regular sales ofGujarat and disputing interest and penalty imposed by assessing officer. The appellate authorityhas confirmed the sales tax order with small relief in interest amount. The Company preferred anappeal to Sales Tax Appellate Tribunal on this matter and the appeal is pending.

1994-95 2.51 Company has filled an appeal at the office of Deputy Commissioner of Sales Tax, Surat againstthe order of assessing officer disputing the addition of branch transfer sales to regular sales ofGujarat and disputing interest and penalty imposed by assessing officer. The appellate authorityhas confirmed the sales tax order with small relief in interest on interest amount. The Companypreferred an appeal to Sales Tax Appellate Tribunal on the matter and the appeal is pending.

1995-96 3.79 Company has filled an appeal to the office of Deputy Commissioner of Sales Tax , Surat againstthe order of assessing officer disputing the addition of branch transfer sales to regular sales ofGujarat and disputing interest and penalty imposed by assessing officer. The appellate authorityhas extended partial relief in terms of reduction in sales tax demand as well reduction in interestand penalty amounting totally to Rs. 791,936 . For the balance demand, the Company preferredan appeal to Sales Tax Appellate Tribunal on the matter and the appeal is pending.

Total 7.63

� Income Tax : Ten cases are pending before appellate authorities involving total amount of Rs. 3.34 million as follows:

AY Disputed Disputed Estimated ReasonsIncome Income IT Liability

before CIT(A) before ITAT(Rs. mn) (Rs. mn) (Rs. mn)

1992-93 0.00 0.43 0.04 The assessing officer while making the assessment addedamount of subscription received to the returned loss onthe ground that the Company could not explain the sourceof amount received by the Company. The Company filedthe appeal to CIT (Appeal). CIT(Appeal) confirmed the orderof assessing officer. Subsequently, the Company filedthe appeal to ITAT.

1993-94 0.00 4.03 1.39 The assessing off icer while making the assessmentdisallowed certain items of expense and added them backto the income declared by the Company. The Companypreferred an appeal to CIT (Appeals) wherein some of thedisallowances were deleted and some confirmed or referredback to the assessing officer. Subsequently a reassessmentorder was passed by the Income Tax Department Thecompany filed the appeal to ITAT.

112

AY Disputed Disputed Estimated ReasonsIncome Income IT Liability

before CIT(A) before ITAT(Rs. mn) (Rs. mn) (Rs. mn)

1994-95 1.06 0.48 1.01 The Company filed the appeal to CIT (Appeal) against thedisallowance made by the assessing officer. The CIT (Appeal)referred back the order to assessing officer after deletingand confirming some disallowances. The Company filed theappeal to ITAT against the order of the CIT (Appeal).Meanwhile the Income tax department passed a secondassessment order to rectify the mistakes apparent from therecord. Subsequently, the Company appealed to CIT(Appeal).

1996-97 5.14 0.00 0.00 The Company preferred an appeal to CIT (Appeals) againstthe order of assessing officer regarding disallowance ofcertain expenses and taxing of certain income on notionalbasis

1997-98 0.00 0.99 0.00 The assessing officer added to the total income certainexpenditure and reduced the quantum of deductions claimedby the Company in respect of export earnings and backwardarea allowances. The company filed appeal to CIT (Appeal)where in some decisions were taken against the company.The same was appealed to ITAT which is pending.

1998-99 3.29 0.00 3.93 The assessing officer disallowed certain expenses andreduced the quantum of deduction claimed by the Companyin respect of backward area allowances. The Company haspreferred an appeal to CIT (Appeals) and the matter ispending.

1999-00 0.00 0.00 -1.15 Provision of income tax has been made in excess of theregular Income Tax liability. While summary assessment waspassed for AY 1999-00, the provision for taxation was Rs.3,346,328 against the Income Tax payable of Rs. 2,191,957.

2000-01 6.44 0.00 1.92 The assessing officer disallowed certain expenses andreduced the quantum of deduction claimed by the Company.The Company has preferred an appeal to CIT (Appeals) andthe matter is still pending. Out of net tax liabilty, Rs. 64,210pertains to TDS liability.

2001-02 0.00 0.00 -3.36 Provision of income tax was made in excess of the regularIncome tax liability. Provision for taxation was Rs. 29,043,812against the Income Tax payable of Rs. 25,679,203.Assessment proceedings are under progress.

2002-03 0.00 0.00 -0.43 Provision of Income tax was made in excess of the regularIncome tax liability. Provision for taxation was Rs. 38,000,000against the Income Tax payable of Rs. 37,572,584.Assessment proceedings are not yet started.

Total 15.93 5.92 3.34

Litigations filed by the Company

� Ten criminal cases filed under Section 138 of the Negotiable Instruments Act for trade recovery involving a total sum of Rs. 4.71million

� Nine civil cases of trade recovery filed involving a total sum of Rs.13.60 million

Litigations involving promoters / directors

There are no outstanding litigations, disputes, non payment of statutory dues, overdues to banks / financial institutions, defaults againstbanks/ financial institutions, defaults in dues towards instrument holders like debenture holders, fixed deposits, and arrears on cumulativepreference shares issued by the company / other liabilities, proceedings initiated for economic / civil / any other offences (including pastcases where penalties may or may not have been awarded and irrespective of whether they are specified under paragraph (i) of part1 of Schedule XIII of the Companies Act, 1956) against the promoters / directors save and except the following:

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� Mr. Yunus Bilakhia: Under the Income Tax Act, 1961, a case of AY2000-01 is pending before Appellate Tribunal, Ahmedabad involvinga total amount of Rs. 55.1 mn, with a disputed tax demand of Rs. 12.12 mn. The amount of Rs. 55.1 mn relates to receipts by wayof non compete fees, where the Income Tax authorities have treated the same as long term capital gain, as against the claim ofnon taxable receipt. Pending decision, Rs. 12.12 mn has been paid against the above tax demand.

� Mr. Anjum Bilakhia: Under the Income Tax Act, 1961, a case of AY2000-01 is pending before Appellate Tribunal, Ahmedabad involvinga total amount of Rs. 100.0 mn, with a disputed tax demand of Rs. 21.51 mn. The amount of Rs. 100.0 mn relates to receipts byway of non compete fees, where the Income Tax authorities have treated the same as long term capital gain, as against the claimof non taxable receipt. Pending decision, Rs. 21.84 mn has been paid against the above tax demand.

Litigations against promoter group companies

There are no outstanding litigations, disputes, non payment of statutory dues, overdues to banks / financial institutions, defaults againstbanks / financial institutions, defaults in dues towards instrument holders like debenture holders, fixed deposits, and arrears on cumulativepreference shares issued by the company / other liabilities, proceedings initiated for economic / civil / any other offences (including pastcases where penalties may or may not have been awarded and irrespective of whether they are specified under paragraph (i) of part1 of Schedule XIII of the Companies Act, 1956) against the promoter group save and except the following:

� Mitsu Limited:

Show cause cum demand notice no. P.N.R-II/SCN/Mitsu/97/835 was issued by the Central Excise authorities on October 28, 1997,on account of difference in opinion for classification of certain products. An appeal was filed by the Government against the orderof the Tribunal. The Supreme Court, vide order dated October 23, 2002 has dismissed the appeal filed by the Government inrespect of the order passed by the tribunal and upheld the classification as decided by the tribunal.

A show cause notice no. ORC/383-A/2003/38905/10598 dated February 11, 2003 has been received from the office of the Registrarof Companies, Gujarat, for non-compliance of Section 383A of the Companies Act, 1956. Against this, the company has filed acompounding application on March 4, 2003.

� Bilag Industries Pvt. Limited:

Income Tax: 8 income tax cases filed in Surat are pending before appellate authorities involving a total amount of Rs. 111.8 mn. Outof this, an amount of Rs. 50.0 mn relates to non-allowance of benefits by the Asst. Commissioner of Income Tax, Surat undersections 80IB and 80HHC of the IT Act, 1961. Details are as follows:

Particulars of the proceedings Before Principal Parties Current Status LiabilitiesRs.

1992-93

Penalty imposed under Sec 271(1)(c) in connection Appeal with ITAT Commissioner of Income Tax, Surat Vs. Pending 403,935with Rs. 603,000 added as undisclosed income Bilag Industries Pvt. Limitedas capital brought in by a Director as Loan/Sharecapital for which disclosure has not been establishedat the time of assessment.

1993-94

Penalty u/s 271(1)(c) in connection with Rs. 501,000 Appeal with ITAT Commissioner of Income Tax, Surat Vs. Pending 792,560added as undisclosed income on account of receivable/ Bilag Industries Pvt. Limitedbalance confirmation outstanding fromM/s. Ankur Agro-Chem at the time of assessment

1994-95

Demand raised under Sec 143(1A) due to disallowance of : Appeal with ITAT Commissioner of Income Tax, Surat Vs. Pending 819,735(i) Technical Fees paid to Asmita Patel Rs. 50,000 Bilag Industries Pvt. Limited(ii) Depreciation on account of ETP Rs. 1,238,347

1995-96

Order of CIT (Appeals) due to disallowance of : Appeal with ITAT Commissioner of Income Tax, Surat Vs. Pending 5,568,980(i) Export Benefits considered as Notional Income Bilag Industries Pvt. Limited

Rs. 8,552,950(ii) Sales commission not allowed Rs. 1,386,279(iii) Wind farm depreciation at 100% Rs. 639,374

1996-97

Demand raised under Sec 143(3) due to: Appeal with ITAT Joint Commissioner of Income Tax, Surat Vs. Pending 7,460(i) Export Benefit treated as income Rs. 20.2 mn Bilag Industries Pvt. Limited.(ii) Depreciation disallowed Rs. 0.9 mn(iii) Other additions Rs. 0.3 mn

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Particulars of the proceedings Before Principal Parties Current Status Liabilities (Rs.)

1997-98

Order of CIT due to :(i) Export Benefits treated as income Rs. 721.96 lacs. Appeal with ITAT Commissioner of Income Tax, Surat Vs. Pending 374,479(ii) Disallowance of expenses like Advertisement (Rs. 0.1 mn), Bilag Industries Pvt. Limited

Staff Welfare (Rs. 0.2 mn), CETP (Rs. 0.05 mn)(iii) Other income not considered in 80HHC & 80IA benefits &

non granting of 80M benefits.

1998-99

Order of CIT for not considering Sec. 80IA deductions of Appeal with ITAT Commissioner of Income Tax, Surat Vs. Pending Nilother income to the tune of Rs. 38.19 mn and deductions Bilag Industries Pvt. Limitedu/s 80HHC not fully considered.

2000-01

Demand raised under Sec. 156 due to: Appeal to CIT Asstt. Commissioner of Income Tax, Pending 103,901,082(i) Disallowance of Expenses like ; Surat Vs. Surat Vs. Bilag Industries

Staff Welfare (Rs. 0.09 mn), Gifts (Rs. 0.03 mn), Pvt. LimitedLegal & Prof. (Rs. 0.1 mn),Foreign travel expenses (Rs. 1.77 mn),PF & ESIC Payments (Rs. 1.92 mn), AmountOther expenses (Rs. 0.03 mn) under (ii)

(ii) Sec. 80IB benefits. and (iii)(iii) Deductions U/s 80 HHC not fully considered. aggregates

Rs. 50 mn

Sales Tax: 3 cases are pending before Gujarat Sales Tax Tribunal, Ahmedabad involving a total amount of Rs. 4.9 mn. Details areas follows:

Particulars of the proceedings Before Principal Parties Current Status Liabilities (Rs.)

1995-96

Penalty u/s 45(6) of GST Act. Quantum of Gujarat Sales Tax Asst. Commissioner of Sales Tax, Pending Rs. 1,593,384dispute amount Rs. 1,593,384 Tribunal, Ahmedabad Valsad Vs. Bilag Industries Pvt. Limited

1997-98

Sale of advance license not taxable Gujarat Sales Tax Asst. Commissioner of Sales Tax, Pending Rs. 1,323,201Tribunal, Ahmedabad Valsad Vs. Bilag Industries Pvt. Limited

1998-99

Sale of advance license not taxable Gujarat Sales Tax Asst. Commissioner of Sales Tax, Pending Rs. 1,976,570Tribunal, Ahmedabad Valsad Vs. Bilag Industries Pvt. Limited

Excise duty : 4 cases relating to classification of capital goods are pending before Deputy Commissioner Central Excise (Appeals)involving a total amount of Rs. 3.5 mn. Details are as follows:

Date Particulars of the Before Principal Parties Current Status Liabilitiesproceedings Rs.

August 19, 1998 Pertaining to Classification of Appeal filed before Dy. Commissioner of Central Excise(Div.- I), Pending 516,150Capital Goods Vapi-II/SCN Commissioner, Vapi Vs Bilag Industries Pvt. Limited

Central Excise (appeals)May 21, 2001 Pertaining to Classification of Appeal filed before Dy. Commissioner of Central Excise(Div.- I), Pending 1,425,060

Capital Goods SCN Commissioner, Vapi Vs Bilag Industries Pvt. LimitedCentral Excise (appeals)

August 30, 2001 Penalty imposed – pertaining to Appeal filed before Dy. Commissioner of Central Excise(Div.- I), Pending 100,000Classification of capital goods Commissioner of Vapi Vs BIPLVapi-II/SCN Central Excise (appeals)

November 27, 2001 Penalty imposed – pertaining to Appeal filed before Dy. Commissioner of Central Excise(Div.- I), Pending 1,425,060Classification of capital goods Commissioner, Vapi Vs Bilag Industries Pvt. LimitedVapi-II/SCN Central Excise (appeals)

There are no outstanding litigations towards tax liabilities or any criminal/ civil prosecution for any offences (irrespective of whether theyare specified under paragraph (i) of part 1 of Schedule XIII of the Companies Act, 1956), disputes, defaults, non-payment of statutorydues, proceedings initiated for economic offences against the directors of the Company.

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MECHANISM FOR REDRESSAL OF INVESTOR GRIEVANCES

The Company has a team of qualified and experienced staff in its Secretarial Department at the Registered Office, Bilakhia House,Muktanand Marg, Chala, Vapi, Gujarat, for attending to the correspondence/ queries of its investors. The Company has appointed IntimeSpectrum Registry Limited, a category I registrar, registered with SEBI as its Registrar to this Issue. The Company ensures that all thecorrespondence/ queries of its Investors are replied satisfactorily and promptly.

As on September 1, 2003, the Registrar has confirmed that all complaints received from the investors of the Company upto August 31,2003 were attended and no complaint was pending as on August 31, 2003.

MATERIAL DEVELOPMENTS

In the opinion of the Board of Directors of the Company, there have not arisen, since the date of the last financial statement disclosedin the Letter of Offer, any circumstances that materially and adversely affect or are likely to affect the trading or profitability of theCompany or the value of its assets or its ability to pay its liabilities within the next twelve months.

Auditors’ Certificate:

“As requested by you, we confirm that based on our examination of the books of account of Hindustan Inks and Resins Limited (theCompany) and to the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, thefinancial statements of the Company for the year ended 31

st March 2003, audited by us in terms of our report dated 10

th May 2003 and

referred to in the Auditors’ Report dated 29th May 2003 issued by us for incorporation in the Letter of Offer for the above Rights Issue,

have been prepared in accordance with Accounting Standard (AS) 4 “Contingencies and Events Occurring after the Balance SheetDate” issued by the Council of the Institute of Chartered Accountants of India.”

For S. B. Billimoria & Co.Chartered Accountants

August 1, 2003

EXPERT OPINION

Save and otherwise stated in the Letter of Offer, the Company has not obtained any expert opinions.

PURCHASE OF PROPERTY

There is no property which we have purchased or acquired or propose to purchase or acquire which is to be paid for wholly or partlyout of the proceeds of the present Issue or the purchase or acquisition of which has not been completed on the date of this Letter ofOffer, other than property in respect of which:

� The contracts for the purchase or acquisition were entered into in the ordinary course of the business, and the contracts were notentered into in contemplation of the Offer nor is the Offer contemplated in consequence of the contracts;

� Or the amount of the purchase money is not material.

� Or there are relevant disclosures in the Letter of Offer

Except as elsewhere stated in this Letter of Offer, we have not purchased any property in which any of its promoters and/or Directors,have any direct or indirect interest in any payment made thereof.

OPTION TO SUBSCRIBE

Equity Shareholders who hold shares in electronic form on the Record Date will be compulsorily allotted Equity Shares in Electronic(dematerialized) form. Equity Shareholders who hold shares of the Company in physical form will have the option of applying for theEquity Shares in physical or dematerialized form. (Refer the “Terms of Issue” on page 72 of this Letter of Offer for details)

MATERIAL CONTRACTS AND INSPECTION OF DOCUMENTS

The following contracts (not being contracts entered into in the ordinary course of business carried on by the Company), which are ormay be deemed material have been entered or are to be entered into by the Company. These contracts and also the documents forinspection referred to hereunder, have been delivered to Vadodara Stock Exchange and may be inspected from 11:00 am to 2:00 pmat the Registered Office of the Company on all working days, from the date of this Letter of Offer until the Issue Closing Date.

Material contracts

1. Memorandum of Understanding entered into between the Company and Kotak Mahindra Capital Company Limited dated June 2,2003.

2. Memorandum of Understanding entered into between the Company and Intime Spectrum Registry Limited dated May 28, 2003.

3. Tripartite Agreement between the Company, National Securities Depository Limited and Intime Spectrum Registry Limited datedJune 16, 1997.

4. Tripartite Agreement between the Company, Central Depository Services (India) Limited and Intime Spectrum Registry Limiteddated January 20, 2000.

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5. In-principle listing approval from Vadodara Stock Exchange (“VSE”), The Stock Exchange - Mumbai (“BSE”), National Stock Exchangeof India Limited (“NSE”), The Delhi Stock Exchange Association Limited (“DSE”) and The Stock Exchange – Ahmedabad (“ASE”)dated July 5, 2003, July 18, 2003, July 17, 2003, July 22, 2003 and July 15, 2003.

Material Documents

1. Memorandum and Articles of the Company

2. Certificate of incorporation

3. Certificate of commencement of business

4. Resolution of the Board of Directors dated March 27, 2002 and May 10, 2003

5. Resolution of the Committee of Directors dated May 28, 2003 for approval of the Issue

6. Resolution of the Board of Directors approving : (a) Draft Letter of Offer on June 6, 2003, (b) Letter of Offer on August 25, 2003and September 11, 2003 (circular resolution)

7. Copy of the report on tax benefits from the Auditors, S.B. Billimoria & Co., dated May 29, 2003 as set out in the Letter of Offer

8. Resolution of the Committee of Directors dated May 28, 2003 authorizing the Registrar to the Issue to sign Stockinvests on behalfof the Company for realizing proceeds of the Stockinvests

9. Copies of approvals and letters received from RBI regarding investment by the Company in its subsidiaries and Annual PerformanceReport filed by the Company with RBI on June 27, 2003

10. Letter dated July 16, 2003 issued by Hindustan Inks and Resins Limited confirming that there have been no regulatory restrictionsin Austria with respect to holding pattern for investment in MIC USA or for the payment of dividend to Hindustan Inks and ResinsLimited. The letter also confirms that there is no restriction, which MIC GmbH, Austria is subject to in Austria, which may hamperthe interest of Hindustan Inks and Resins Limited in future

11. Consent from Kotak Mahindra Capital Company Limited, Lead Manager to the Issue

12. Consent from Intime Spectrum Registry Limited, Registrar to the Issue

13. Consent from S.B. Billimoria & Co., Auditors to the Company

14. Consents from Kotak Mahindra Bank Limited, Bankers to the Issue

15. Consents from Punjab National Bank, UTI Bank Limited, Central Bank of India, ICICI Bank Ltd., Development Credit Bank Ltd.,Bank of India, Standard Chartered Bank Ltd. and State Bank of India, Bankers to the Company

16. Consent from Kanga & Co., Legal Advisor to the Issue

17. Consent from the Compliance Officer of the Company

18. Due Diligence certificate dated June 20, 2003 from Kotak Mahindra Capital Company Limited, Lead Manager to the Issue

19. SEBI observation letters dated July 14, 2003 and July 29, 2003

20. Approval from FIPB vide letter no. 03/43/SIA/NFC/2003-NRI dated August 19, 2003 and letter dated September 1, 2003, through anamendment to approval letter no. 03/43/SIA/NFC/2003-NRI dated August 19, 2003, issued by the Ministry of Commerce & Industry

21. Correspondence with RBI for allotment and export of share certificates for the Issue: a) Application made by the Company to RBIdated August 11, 2003, b) Letter no. EC.CO.FID1774/10.02.40(208)/2003-04 dated August 26, 2003 from the RBI, c) Letter datedAugust 30, 2003 sent by the Company to RBI and d) Letter no. CO.FID.2030.10.02.40(408)/2003-04 dated September 4, 2003issued by RBI.

22. Certificate from Auditor dated August 1, 2003, on Sources and Uses of Advance up to July 31, 2003

23. Letters dated November 28, 2002 from CARE relating to Short Term Debt programme (including Commercial Paper) for an enhancedamount upto Rs. 400 mn and review of rating assigned to secured NCD issues aggregating Rs. 760 mn

24. Annual Reports of the Company for the last five years for FY1999 to FY2003

25. Annual Reports of the subsidiaries since inception

26. Annual Reports of the group companies for the last three years for FY2000 to FY2003, as applicable

27. Power agreement between Bilag Industries Pvt. Ltd., Mitsu Ltd. and the Company

28. Job work agreements between Bilag Industries Pvt. Ltd. and the Company

29. Leave and Licence agreement between Bilakhia Properties Pvt. Ltd. and the Company

30. Details of changes in Memorandum and Articles of Association of the Company since inception

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DECLARATION

All the relevant provisions of the Companies Act, 1956, and the guidelines issued by the Government or the guidelines issued by theSecurities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992, as thecase may be, have been complied with and no statement made in prospectus is contrary to the provisions of the Companies Act, 1956or the Securities and Exchange Board of India Act, 1992 or rules made thereunder or guidelines issued, as the case may be.

Yours faithfully

For Hindustan Inks and Resins Limited

Sd/- Sd/-Mr. Yunus Bilakhia, Chairman Mr. Anjum Bilakhia, Managing Director

Sd/- Sd/-Mr. Shivram Angne, Director Mr. Mansingh Bhakta, Director

Sd/- Sd/-Mr. K.K. Unni, Director Mr. Hasmukh Shah, Director

Sd/- Sd/-Mr. Prashant A. Desai, Director Mr. Vinay Pandya, Director (Finance)

Date : September 11, 2003

Encl : Composite Application Form

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