khaitan chemicals & fertilizers limited

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25th ANNUAL REPORT2006 - 2007

KHAITAN CHEMICALS & FERTILIZERS LIMITED


& KHAITAN CHEMICALS & FERTILIZERS LIMITEDANNUAL GENERAL MEETING :

DateDayTimePlace

: 30th July, 2007: Monday: 1.00P.M.: Registered Office

REGISTERED OFFICE : ;A. B. Road, Village Nimrani,Tehsil Kasrawad,Dist. Khargone - 451 569 (M.R)

INDORE OFFICE; :! t301-308, Apollo Arcade,1/2, Old Palasia,Indore - 452 018 (M.P.)

DELHI OFFICE 8 • , - • . -• -r, .201, Skipper House,62-63, Nehru Place,New Delhi-110 019

KOLKATA OFFICE : ;*;•*', ;-</.46-C, Rafi Ahmed Kidwai Road,3rd Floor,KoIkata-700 016

WORKS:"'; >f ' ' " ^ , •-*Fertilizers & Chemical Division:1. A.B.Road,

Village Nimrani, Tehsil Kasrawad,Dist. Khargone-451 569 (M.P.)

2. Village Goramachia,Kanpur Road,Jhansi-248 001 (U.P.)

3. Village Dhinva, Tehsil NimbaheraDist. Chittorgarh-312 601 (Rajasthan)

4. A- 1 , UPSIDC Industrial Area,Village Malwan,Dist. Fatehpur-212 664 (U.P.)

Sova Division (Khaitan Agro):Dosigaon Industrial Area,Ratlam-457 001 (M.P.)

BOARD OF DIRECTORS :

Shailash Khaitan : Chairman & Managing DirectorJ.L. Jajoo : DirectorO.P. Bagla : DirectorDr. P. Goyal : Director

PRESIDENT & SECRETARY;R. S. Vijayvargiya

AUDITORS:S. S. Kothari Mehta & Co.146-149, Tribhuvan Complex, Ishwar Nagar, Mathura Road,New Delhi-110 065

SOLICITORS: ,Khaitan & Partners,Himalaya House, 23, Kasturba Gandhi Marg,New Delhi-110 001

BANKERS: • . r. ' N ? , ' : " • -s > tt°r ' ' **• '* * "

State Bank of IndiaState Bank of IndoreIDBI Bank Ltd.

CONTENTS:Notice ' 3-5Directors' Report 6-8Management Discussion & Analysis Report 9-11Corporate Governance 12-17Auditors' Report 18-19Balance Sheet 20Profit & Loss Account 21Schedules to Accounts 22-32Balance Sheet Abstract 33Cash Flow Statement 34

Listing of Shares:The Mumbai Stock Exchange (B.S.E.)Stock Code: 507794IS1N No.: INE745B01010 (NSDL & CDSL)


KHAITAN CHEMICALS & FERTILIZERS LIMITEDNOTICE

NOTICE is hereby given that the TWENTYFIFTH ANNUAL GENERAL MEETING OF KHAITAN CHEMICALS &FERTILIZERS LTD. will be held at the Registered Office of the Company at A. B. Road, Village NIMRANI, Tehsil Kasrawad,Dist. Khargone, Madhya Pradesh on Monday, the 30th day of July, 2007 at 1.00 P.M. to transact the following business :

ORDINARY BUSINESS:

1. To receive, consider and adopt the Audited Accounts for the year ended 31 st March, 2007 and the Reports of theDirectors and Auditors thereon.

2. To declare dividend.

3. To appoint a Director in place of Shri O.P. Bagla, who retires by rotation and, being eligible, offers himself for re-appointment.

4. To appoint a Director in place of Dr. P. Goyal, who retires by rotation and, being eligible, offers himself for re-appointment.

5. To appoint Auditors and to fix their remuneration.

SPECIAL BUSINESS:

6. RE-APPOINTMENT OF SHRI SHAILESH KHAITAN AS CHAIRMAN & MANAGING DIRECTOR.

To Consider and if thought fit, to pass with or without modification(s) the following resolution as OrdinaryResolution:

"RESOLVED THAT pursuant to provisions of sections 198, 269,309, 310, read with part I and II of Schedule XIII andother applicable provisions of Companies Act, 1956 or any amendment or modification or re-enactment thereof, andsubject to approval of Financial Institutions/Banks, as may be required, the Company hereby approves terms ofappointment and remuneration of Shri Shailesh Khaitan, which has been approved by the Board of Directors of theCompany as Chairman & Managing Director for a further term of 5 years w.e.f. 26th April, 2007 in accordance withthe provisions specified in part I & II of Schedule XIII to the Companies Act, 1956 on the terms & Conditions includingremuneration as are set out in the Explanatory Statement attached to the notice convening this Annual GeneralMeeting a copy where of initialed by the Chairman for the purposes of identification is placed before this meeting, beand the same is hereby approved, with such modifications as may be agreed to by the Board of Directors of theCompany and Shri Shailesh Khaitan."

By Order of the BoardRegistered Office: S/dA. B. Road, Village-Nimrani, (R. S. Vljayvargiya)Dist. Khargone (M.P.) President & Secretary

Date: 30.04.2007

NOTES:

1. A member entitled to attend and vote is entitled to appoint a proxy and vote instead of himself and such proxyneed not be a member of the Company. Proxy Form must reach the Company's Registered Office at least 48hours prior to the time of holding the meeting.

2. Member(s)/Proxies should bring the attendance slip annexed herewith duly filled in for attending the meeting.

3. The Register of Members and Transfer Book of the Company will remain closed from 23rd July, 2007 to 30th July,2007 (both days inclusive).

4. Members are requested to notify to the Company immediately, quoting Registered Folio No., Change in their Address,if any, with the pin code number.

5. Non-resident members are requested to immediately notify: - (i) change in their residential status on return to Indiafor permanent settlement; and (ii) particulars of NRE account, if not furnished earlier.

6. Members who are holding shares in identical names in more than one folios, are requested to write to the Company/


KHAITAN CHEMICALS & FERTILIZERS LIMITEDAnkit Consultancy Pvt. Ltd. the Registrar and share transfer agent, to consolidate their holding in one folio.

7. Shareholders who are still holding physical share certificate are advised to dematerialised their shareholding to availbenefit of dematerialisation.

8. The Company has transferred all unpaid/unclaimed equity dividends up to the financial year 1998-99 to the InvestorEducation & Protection Fund (IEPF) established by the Central Government pursuant to section 205C of the CompaniesAct, 1956.

9. Members desirous of obtaining any information concerning the accounts and operations of the Company are requestedto send their queries to the President & Secretary at least seven days before the date of the meeting so that therequired information can be made available at the meeting.

10. Explanatory Statement pursuant to the provisions of Section 173(2) of the Companies Act, 1956 is annexed.

Explanatory Statement: Pursuant to Sec 173 (2) of the companies Act 1956.

Item No. 6

Shri Shailesh Khaitan was re-appointed as Managing Director in 20th Annual General Meeting of the Company w.e.f. April26, 2002 for a period of 5 years. Tenure of Shri Shailesh Khaitan expired on 25th April 2007.

Shri Shailesh Khaitan is a promoter director of the Company and associated as Managing Director since 1st September,1984. In his able leadership the performance of the Company has been satisfactory.

The Board of Directors of the Company at its meeting held on 30th April, 2007 has therefore re-appointed Shri ShaileshKhaitan as Chairman & Managing Director of the Company subject to the approval of members and shareholders of theCompany in General Meeting for a further term of five years w.e.f. 26th April 2007, at the remuneration, in accordance withthe norms laid down in Schedule XIII and other applicable provisions of the Companies Act, 1956, as reproduced hereinbelow:

1. Salary Rs; 4,00,OOO/- per month, with an annual increment of Rs. 40.000/- per month.2. Commission: 1% on the net profit of the Company, computed in manner laid down under Companies Act, 1956

subject to the maximum 100% of the Salary.3. Perquisites: Perquisites in part - A shall be restricted to an amount equal to the Annual Salary.Part-A

(i) Expenditure incurred by the Company on hiring accommodation for the Managing Director will be subject to 60% ofthe salary,

(ii) If the company does not provide accommodation to the Managing Director, House Rent Allowance will be paid by theCompany to the Managing Director subject to the ceiling mentioned hereinabove.

(iii) If accommodation in the company's owned house is provided, the Managing Director shall pay to the company byway of rent i.e. 10% of the salary,

(iv) The expenditure incurred by the Company on gas, electricity, water and furnishings will be valued as per Income TaxRules, 1962 subject to a ceiling of 10% of the salary

(v) Medical Reimbursement: Reimbursement of medical expenses actually incurred for self and family, subject to ceilingof one month's salary in a year with a right to carry forward. -

(vi) Leave Travel Concession: Leave Travel Concession for self and the family, subject to ceiling of 1 month salary,(vii) Club Fees: Fee of two clubs. This will not include admission and life membership fee.(viii) Personal Accident Insurance: The Annual Premium will not exceed Rs. 20000/-.

The salary and perquisites are restricted to 5% of the Net Profit of the Company as provided under section 309 of theCompanies Act, 1956.Part-8

(i) Company's contribution towards Provident Fund subject to a ceiling of 12% of the salary.(ii) Company's contribution towards Provident fund, Pension/ Superannuation fund/ Public Provident fund as per rules of

the Company to the extent that these are not taxable under the Income Tax Act.


KHAITAN CHEMICALS & FERTILIZERS LIMITEDPart - C

(i) Free use of Company's car for the Company's business(ii) Personal long distance call on telephone and use of car for private purpose shall be billed by the Company to the

Managing Director,(iii) Earned Privilege Leaves on full pay and allowance as per the Rules of the Company subject to the Condition that

leave accumulated but not availed of shall not be allowed to be encashed.Minimum Remuneration:

Where in any financial year closing on and after 31 st March, 2007, the Company has no profits or its profits are inadequate,the remuneration by way of salary, perquisites, benefits, allowances and amenities payable to Shri Shailesh Khaitan will bein accordance with the Para B, section II, Part II of Schedule XIII of the companies Act, 1956.

Details as required under Clause 49 of the Listing Agreement are annexed hereto and form part of the Notice.

None of the Directors (except Shri Shailesh Khaitan) is concerned or interested in the said resolution.

This explanation, together with the accompanied notice is and should be treated as an abstract under section 302 of theCompanies act, 1956 in respect of the appointment of Shri Shailesh Khaitan as Chairman & Managing Director.

The Board recommends the proposed resolution for your approval.

Registered Office:A. B. Road, Village-Nimrani,Dist. Khargone (M.P.)

Date: 30.04.2007

By Order of the BoardS/d

(R. S. Vijayvargiya)President & Secretary

Details of Director seeking re-appointment at the Annual General Meeting (In pursuance of Clause 49 of the ListingAgreement)

Name of Director

Age

Qualification

Date of Appointment

Expertise

Other Directorships(excluding r-"vt. Companies)as on 31st March, 2007

Chairman / Memberof the Committeesas on 31st March, 2007

Shri O. P. Bagla

64 years

C.A.

7th March, 1989

Rich and vast experiencein the field of Taxationand finance.

Nil

1 . Khaitan Chemicals &Fertilizers Ltd.:

Member:1 . Audit Committee2. Shareholder's/Investor's

Grievances CommitteeChairman:1 . Audit Committee2. Shareholder's/Investor's

Grievances Committee

Dr. P. Goyal

63 years

BSc Tech. (ChemicalsEngineering and Ph.D inChemical Engineering

16th July, 1999

Excellent GeneralManagement Skills &Vast Project ConsultingExperience.

Nil

1 . Khaitan Chemicals &Fertilizers Ltd.:

Member:1 . Audit Committee2. Shareholder's/Investor's

Grievances Committee

Shri Shailesh Khaitan

51 years

B. Com (Hons.)

1st September, 1984

Industrialist

1 . Shradha Projects Ltd.2. Tribhuvan Properties Ltd.

Nil


KHAITAN CHEMICALS & FERTILIZERS LIMITEDDIRECTORS' REPORT

To the members,Your Directors have pleasure in presenting the 25th Annual Report of the Company together with Audited Accounts for theyear ended 31st March, 2007.FINANCIAL RESULTS

(Rs. in lacs)

Surplus before interest and depreciationLess: Interest & Financial ExpensesCash Profit before taxLess: DepreciationMisc. Expenses Written offSurplus before taxPrior Period adjustmentsProfit /(Loss) before taxationProvision for current taxDeferred TaxFringe Benefit TaxProfit /(Loss) after taxationIncome Tax of earlier yearAdd: Transfer from Capital SubsidyNet Profit/(Loss)Add: Profif(Loss) B/F from previous yearLess: Transfer to -

- General Reserve- Proposed Dividend- Corporate Dividend Tax

Balance carried to Balance Sheet

2006-20072922.121002.851919.27643.38

2.881273.01(13.63)

1259.38(156.22)(167.56)

(11.23)924.37(0.07)

0.79925.09364.77

100.00174.5829.67

985.61

2005-20062293.76

757.251536.51533.56

2.881000.07

52.151052.22(85.55)(66.98)(14.97)884.72(0.42)

0.79885.09376.53

700.00172.6424.21

364.77

DIVIDENDYour Directors are pleased to recommend 18% Dividend on Equity Shares subject to approvals of the Financial Institutions/Banks.PROJECT & FINANCEThe SSP Industry is facing a severe.crises on account of mis-match between enhanced cost of production and distributionon the one hand and comparitively low realiasion from adhoc subsidy fixed by the Central Government and MRP fixed bythe State Government on the other hand.The Project 'Green field integrated' Single Super Phosphate Plant in Andhra Pradesh has been delayed due to delay inallotment of land at proper location by APIDC. Though we expects the land may be allotted during the current year but theindecisive approach of the Central Government towards Fertilizer sector may cause further duly in implementation of theproject.The Company has put up the Lecithin plant at Ratlam as a forward integration to use the by-product of refinery. TheCompany is also taking necessary action to produce value added product of Soya meal.1.25 M.W. Wind Energy plant has been put up at Nandurbar in the state of Maharashtra.The Company has availed Rs. 1600 Lacs as Corporates Loan which inter-alia includes for advance to M/s. ShobhanEnterprises Private Ltd. having 800 TPD Solvent Extraction plant and 100 TPD Refinery plant with an agreement for longterm processing arrangement. The Company has started soybean processing at the plant of M/s. Shobhan EnterprisesPrivate Ltd. during the current year.PERFORMANCE & FUTURE PLANThe good crop of Soybean in consecutive second year with availability of higher capacity as leads to highest ever crushingin the year.

6


KHAITAN CHEMICALS & FERTILIZERS LIMITEDThe production of Single Super Phosphates has been again restricted due to availably of indigenous Rock Phosphate fromRajasthan State Mines & Minerals Ltd. consequently leading and lead to under utilisation of capacity. The Governmentindecisiveness approach towards Fertilizer industry in general and SSP industry in particular forced the management to'GO SLOW and 'Wait & Watch' policy for further expansion.The SSP industry is also facing huge problem due to the quality determination system adopted by the Government Agencies.

The cost escalation of raw material as well as logistic cost has eroded a large portion of margin in fertilizer segment.Your Directors reiterate that considering the basic strength of its manufacturing facilities, the performance of the Companyshall be comparable and better than industry average. The Company also hopes that the Government of India shall re-lookon the basis of subsidy on various fertilizers.DIRECTORSShri O.P. Bagla & Dr. P. Goyal retires by rotation and being eligible offer themselves for re-appointment. Particulars of theretiring Directors are given in the notes forming part of the notice for the ensuing Annual General Meeting.FIXED DEPOSITSDuring the year under review the Company has not accepted any deposits from the public, pursuant to the provisions ofSection 58A of the Companies Act, 1956 and the Deposit Rules.AUDITORS & AUDIT REPORTM/s. S. S. Kothari Mehta & Co., Chartered Accountants, New Delhi, Auditors of the Company hold office till the conclusionof ensuing Annual General Meeting and being eligible offer themselves for re-appointment.Regarding qualification remark under para VI of the Auditors reports the management is of the views that there is nomaterial liability in case of leave pay whereas there is no dues and receiveable on account of land revenue and capitalsubsidy respectively. All other notes on accounts referred to and the Auditors' Report are self-explanatory and therefore donot call for any explanatory note.M/s. M. P. Turakhia & Associates, Cost Accountants were appointed as Cost Auditors to conduct cost audit of the accountsmaintained by the Company in respect of its Fertilizers and Sulphuric Acid products for the financial year 2007-2008.COSERVATION OF ENERGY AND TECHNOLOGY ABSORPTIONInformation as specified U/S 217 (1) (e) of the Companies Act, 1956 is given in Annexure A in Form-A.Your Directors are of the opinion that the Company has already opted for latest technology for producing Single SuperPhosphate, Sulphuric Acid, Seed Processing & Oil Refinery. Hence, information specified to be given in Form-B is notapplicable.FOREIGN EXCHANGE EARNING AND OUTGOThe Company has earned Rs. 250.58 lacs on export of goods (Previous year Rs. NIL) and incurred Rs. 879.02 lacs(Previous year Rs. 1612.17 lacs) on import of Raw Materials, Fees & Subscription and Interest on Foreign Currency Loan.DIRECTORS' RESPONSIBILITY STATEMENTPursuant to the provisions of Section 217 (2AA) of the Companies (Amendment) Act, 2000, your Directors confirm that:1. in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper

explanation relating to material departures;2. the directors have selected such accounting policies and applied them consistently and made judgments and estimates

that are reasonable and prudent so as to give a true and fair view of the statement of affairs of the Company at theend of the Financial year ended 31.03.2007 and of the Profit or Loss of the Company for that period;

3. the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordancewith the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing anddetecting fraud and other irregularities;

4. the Directors have prepared the annual accounts on a going concern basis.MANAGEMENT DISCUSSION AND ANALYSIS REPORTIn accordance with the listing agreement, the management discussion and analysis report is given in Annexure - B.CORPORATE GOVERNANCEYour Company attaches considerable significance to good Corporate Governance as an important step towards buildinginvestors' confidence, improve investors' protection and maximizing long-term shareholder's value. Pursuant to Clause 49of the Listing Agreement with the Stock Exchange, a Compliance Report on Corporate Governance and Auditors' Certificateregarding compliance of conditions of Corporate Governance is given in Annexure - C.LISTING OF SHARESThe shares of the Company are listed at The Stock Exchange Mumbai (BSE), which provides wider access to the investornationwide.The Company has made all the compliances of Listing Agreement including payment of annual listing fees to the StockExchange BSE.


KHAITAN CHEMICALS & FERTILIZERS LIMITEDPARTICULARS OF EMPLOYMENTInformation as per the requirement of Section 217(2A) of the Companies Act, 1956 is given in Annexure-A.ACKNOWLEDGEMENTYour Directors would like to thank the State Bank of India, State Bank of Indore, IDBI Bank Ltd., various Departments/Agencies of Central/State Govt., Shareholders, Employees and Business Associates of the Company for their continuedcooperation received during the year.

For and on behalf of the BoardPlace: New DelhiDate: 30.04.2007 (SHAILESH KHAITAN)

CHAIRMAN & MANAGING DIPF .^OR

Annexure-'A'Form 'A' for disclosure of particulars with respect to conservation of energy and forming part of Directors Report:A) POWER & FUEL CONSUMPTION:

1.

2.

3.

Electricity:a) Purchased Units

Total amount (Rs. in Lacs)Rate/Unit (Rs.)

b) Own generation:i. Through diesel generator Units

Total amount (Rs. in Lacs)Rate/Unit (Rs.)

ii. Through steam turbine Units *Total amount(* Net of Self Consumption in TG)

Coal:Quantity (In MT)Total Cost (Rs. in Lacs)Rate/Unit (MT) (Rs.)Furnace oil:**Quantity (K. Lts.)Total Amount (Rs. in lacs)Average Rate /Lt.

Current Year

12555588617.82

4.92

52278357.4811.00

12418465,

14421- 485.49

3367

626130.9720,91

Previous Year

7859947435.22

5.54

1270903107.06

8.4214499644

.

5811185.74

3196

725152.0320.96

B. CONSUMPTION PER UNIT OF PRODUCTION:Item

Electricity (KWH/MT)

Coal (KG/MT)

Product

S.S.P./G.S.S.PS.A./Oleum/Liquid So3Soya Oil/DocSoya Oil/Doc

Current Year

':" 24- , - . ( . . 61' --' ,; -44

83

Previous Year

24634570

** The Company has converted its GSSP processing based from Furnace Oil to Bio-mass during the year.Statement Under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rule1975 & Forming part of Directors' Report:

Name of Employees/hisQualification/designation

Employed through out the year.Shri Shailesh KhaitanB.Com (Hons.)/Chairman & ManagingDirector

Age/No,of yearsExperience

51/27

Date ofCommencementof Employment

01-09-84

Remuneration includes salary, commission, leave travel assistance and expencperquisites valued in accordance with the Income Tax Rules, 1962.

Remuneration(Rs. in Lacs)

38.68 lacs

LastEmployment

Managing DirectorM/s. MajesticPackaging (P) Ltd.Calcutta.

iture incurred by the Company on other


KHAITAN CHEMICALS & FERTILIZERS LIMITEDAnnexure - 'B1

MANAGEMENT DISCUSSON AND ANALYSIS REPORTCAUTIONARY STATMENTSome of the statements in the report may be forward looking and are stated as required by applicable laws & regulations.Many factors may affect the actual results, which could be different from what the Directors envisage in terms of futureperformance and outlook.

BUSINESS OVERVIEW:The Company is mainly engaged in the manufacturing of Single Super Phosphate (Fertilizer) and Edible Oil. Both thesegments are related to Agriculture and dependent on monsoon.

The Government of India has so far not able to take decision on how to deal with mounting subsidy on fertilizer, which iscontinuously bleeding the fertilizer industry in general and SSP industry in particular.

Our Country is deficient in oil seeds and the Government of India has shown concern to encourage the production of oilseed crop, so as to reduce its dependence on large import, which is becoming dearer day by day due to increase use ofEdible Oil as bio-fuel.

1. INDUSTRY STRUCTURE AND OPPORTUNITIES & THREATSFertilizer Division:India is the second largest populous country in the world. To feed the total population of 1.10 billion, there is need foradequate food grains production in sustained manner. As the population grows we need to harness in the area of foodgrain production to match the growing population which has been made possible by scientific approach in agriculture,maintaining the idle N.P.K.S ratio in order to get desired result.

India is the third largest producer and consumer of fertilizer in the world, as it is predominantly an agricultural country. TheGovernment of India has already decontrolled the Phosphatic & Potashic Fertilizers (including SSP) except allowing someadhoc subsidy.The Govt. is well aware that the higher subsidy to Urea has led to imbalanced use of fertilizers, which need to be corrected.Thus the further reduction in subsidy to fertilizer industry, which should inter-alia aims to encourage balanced use offertilizers, shall increase the consumption of phosphatic fertilizers including SSP. However the indifferent policy of theCentral Government with regards to subsidy on the Single Super Phosphate as compared to the Urea and DAP is a matterof concern.

SSP fertilizer is the cheapest source of phosphatic fertilizer with other inputs i.e. Sulphur, Calcium etc. and is poor man'sfertilizer and will remain popular among farmers community. The management feels that due to its lower economical valuewith high distribution cost, there should be no impact of "WTO" as well as "No Subsidy Era".

To get the higher yields of our Agriculture produce, maintaining the idle N.P.K.S. ratio is must. Out of the N.P.K.S., the P &S. are supplied by SSP. SSP supplies three nutrients i.e. Phosphate, Sulphur and Calcium. The Single Super Phosphatefertilizer is the only efficient means of supply of Sulphur nutrient. The deficiencies of Sulphur across India is another areawhich is endorsed by the eminent organisation and thus sulphur carrying fertilizers has to be encouraged

SSP belongs to partial decontrolled segment and low cost fertilizer with other additional nutrients (i.e. Sulphur and Calcium)and present imbalanced use of fertilizers in favour of highly subsidized urea should lead to growth in SSP after rationalizationof subsidy.

However government's indecisiveness towards mounting cost of fertilizer viz a viz price charges from the farmer, leadingto heavy subsidy burden or un-recovered cost is cause of concern for the Government anql industry. Though the totalsubsidy outgo on SSP sector is marginal, the SSP industry is the most suffering industry amongst the fertilizer industries.The SSP industry is also continuously fighting for its credential amongst farmers due to the existence of short-term playerin the industry.

Soya Division

Your Company is engaged in the business of edible oil mainly Soya oil. Different crude edible oils are imported like palmoil etc every year for blending and refining with other edible oil based products. Soya oil shall remain to be an importsubstitute commodity for many years to come.

Local demand of Soymeal is growing day by day, with increasing shift from Non-veg to Veg cattle feed etc. It is expectedthat local demands of Soymeal, shall increase to a considerable extent, which shall de-link the pricing with USA/SouthAmerican countries.


KHAITAN CHEMICALS & FERTILIZERS LIMITEDBetter quality (Non GMO) and high protein contents makes the Indian Soymeal preferred buy and thus have a readymarket for Soymeal, in countries like Indonesia, China, Japan, Korea, Pakistan. Nepal, Bangladesh and Middle East. Butincreasing local demand alongwith higher cost of production and appreciation of rupees may be detrains to export ofSoymeal.

With first forecasting of the about normal monsoon in the current year, the acreage and production of soybean are expectedto stable in the current year as the Soybean still remains the profitable as well the most liquid crop for the fa'—^rs. Soyagrowing is also gaining popularity in states like Maharashtra and Rajasthan.

For last four years, the NCDEX, NBOT and MCX (the future commodity & derivatives exchanges) have appeare^ a^ n j jrmarket force in the edible oil sector. Your company also deals in the same to hedge its oil inventory to cour er the highvolatility in the Oil prices and also take position in the oilseeds to overcome the slow arrival of the soyse H in the market.This has benefited to the company by way of satisfactory capacity utilization.

The crushing of Soybean has been increased during the year after installation of 1000 TPD Plant. The Company would beable to grab the opportunity of higher crushing in the period of high parity besides the benefits of low overheads and higherefficiency in the operations.

2. SEGMENT-WISE BUSINESS REVIEW AND OPERATIONAL AND FINANCIAL PERFORMANCE:

The Company has two business segments viz. Fertilizer and Soya. Segment-wise details of the business are given in theforegoing paragraphs:

The summarized performance in terms of production and Sales for last 5 years is as under:

Particular

Production:SSPSulphuric AcidOleum/Liquid So3Seed CrushingRefined Oil

Sales:SSPSulphuric AcidSoya OilDe-Oiled Cake

Unit

MTMTMTMTMT

MTMTMTMT

2006-07

327308137056

494514949323478

3077765314324479

125365

2005-06

299739167971

59387050112778

294834896481314158467

2004-05

262571125061

4722445296464

262081 •5445T

825436840

2003-04

267926120804

61705973110027

256956391391004648398

2002-03

221751112557

936927386

5049

22247747919

531222797

The summarized financial performance for last 5 years is as under:

(Rs. In Lacs)

Particular

Sales:FertilizerSoya

PBIDT:FertilizerSoya

2006-07

14493.6423023.51

994.561801.12

2005-06

13883.2610579.25

1603.53592.71

2004-05

10708.847708.87

989.67650.46

2003-04

9512.089828.85

1045.761049.53

2002-03

8022.854617.66

926.39158.52

From the above it is very clear that the Company is strengthening its position in both the segment.

The performance of Fertilizer division is largely depends upon availability of Rock Phosphate clubbed with rational policyof subsidy by Government of India. At present the Company don't envisages problem of marketing due to its existingstrong marketing network.

The performance of Soya division shall be depends upon timely monsoon as well as international price of edible oil andSoymeal.

Soya division comprises two products i.e. De-Oiled cake (DOC) and Edible Oil (Oil). DOC is mostly exported eitherdirectly or through merchant Exporter and being sent to port on Rake Load basis. No distributor is involved in this processand it is sold directly to the bulk purchaser. Edible oil is mass consumption item and is sold directly to the re-packers/vanaspati manufacturers and other retailers on ex factory basis in tanker load in bulk. Hence no distributor/dealer isinvolved in this process as well.

To


KHAITAN CHEMICALS & FERTILIZERS LIMITED3. FUTURE OUTLOOK:

Fertilizers Division

Future outlook for Fertilizer Industry is linked with Government's strategic approach to self-sufficiency in Agro products.Additional production of food grain will have to come from increased productivity in the farming sector, resulting in higherdemand for fertilizers and other Agri-inputs. The Company is of strong conviction that the resurgence of the Indian Economycan be sustained only upon the modernization and revival of the Agricultural sector.

The Company would like to remain leader in the areas of its operation i.e. Madhya Pradesh, Rajasthan and Uttar Pradesh.However It will be difficult to increase its presence in more area i.e. Chhattishgarh and Maharashtra due to higher cost oflogistic.

The performance of the Company expected to be better in coming year considering its basic strength.

Soya DivisionThe oil seed production for the current year 2007-08 is expected to be better due to forecast of normal rainfall. The highercrushing capacity shall present a good opportunity for crushing of larger tonnage in peak season.

4. RISKS AND CONCERNS

The Company is exposed to risks in fertilizers business due to uncertainty in the availabilities of Raw Materials andchanges in the government policies.

As the Company is Agro based Company and therefore its performance shall always dependent on vagaries of monsoon.The delayed and uneven monsoon affects the capacity utilisation and profitability of the industry.

We are continuously repositioning ourselves according to changing market scenario and strengthening our competitiveposition.

5. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has an adequate system of internal controls which ensures that its assets are protected against loss fromunauthorized use or disposition and all transactions are authorized, recorded and reported in conformity with generallyaccepted accounting principles. The financial and commercial functions have been structured to provide adequate supportand controls for the business of the company.

The Company has a regular process of internal audit by M/s. Krishan Rakesh & Co., Chartered Accountants whose scopeof work and work programme is agreed with the Audit Committee. The findings of Internal Auditors are discussed with theAudit Committee and adequate mitigatery steps are taken accordingly to plug control weaknesses pointed out.

The Board of Directors has an Audit Committee, whose Chairman is an Independent Director. The Committee meetsperiodically to review internal controls, Audit Programmes and Results and Recommendations of the Auditors andManagement's Replies to those recommendations.

The Company has also put lot of emphasis in the systemization of the various plant operations and has also been accreditwith the ISO 9001-2000, ISO 14001 and OHSAS 18001 certification.6. HUMAN RESOURCE AND INDUSTRIAL RELATIONS:

The Company considers its highly motivated and well-maintained team as its most valuable asset. Both the divisionscontinue to have extremely cordial industrial relations.

7. ENVIRONMENTS AND SAFTY:

The Company possesses good environmental management system for treatment and safe disposal of all process wastesensuring strict compliance with the environmental legislation for prevention of air and water pollution.

The Company has received consecutive last two years "Environmental Protection Award" from THE FERTILIZERASSOCIATION OF INDIA' for its NIMRANI Plant.

8. CONCLUSION

The government policy of fertilizer subsidy has hit hard to the Company's financial performance and future profitabilityshall depend on government policy on subsidy.

In both the business segments, a focus on assets utilization, earning maximization, continuous growth and relentlessstrengthening of the internal efficiencies will enable the Company to deliver superior value for its shareholders on asustained basis in future.

11


KHAITAN CHEMICALS & FERTILIZERS LIMITEDAnnexure-'C'

REPORT ON CORPORATE GOVERNANCE1. COMPANY'S PHILOSOPHY ON CODE OF GOVERNANCE:The Company's Philosophy on Corporate Governance envisages the attainment of the high level of transparency andaccountability in the functioning of the Company and the conduct of its business internally and externally, including itsinter-action with employees, shareholders, creditors consumers, institutional and other term lenders and places due emphasison regulatory compliance.

2. BOARD OF DIRECTORS:COMPOSITION, MEETINGS AND ATTENDANCE:The present strength of the Board of Directors is four. Mr. Shailesh Khaitan, an Executive Promoter Director, is the Chairman& Managing Director of the Company. Out of four directors, three directors are Non-Executive and independent. TheComposition of the Board of Directors meets the stipulated requirement.

During the financial year ended on March 31, 2007, Eight Board Meetings were held on April 12, 2006, June 7, 2006, July31, 2006, September 20, 2006, October 16, 2006, October 31, 2006, November 17, 2006 and January 30, 2007.

The Company's last Annual General Meeting (AGM) was held on 31st July, 2006.

The Board's Composition and Categories as on 31 st March, 2007 and the attendance of each Director at Board Meetingsand the last Annual General Meeting (AGM) are as under:

Name ofDirector


Shri J. L. Jajoo

Shri 0. P. Bagla

Dr. P. Goyal

Category

Promoter, Executive

Independent, Non-Executive



No. of Director shipin other Cos.

(excluding Pvt. Cos.]

2

NIL

NIL

NIL

No. of BoardCommittee

Membershipsin other Cos.

1NIL

NIL

NIL

No. of BoardCommitteefor which

Chairperson

NIL

NIL

2

NIL

No. of BoardMeetingsattended

Eight

Three

Eight

Seven

Whetherattended

lastAGM

YesYesYesYes

3. COMMITTEES OF THE BOARD:A. AUDIT COMMITTEE:BROAD TERMS OF REFERENCEThe present strength of the Audit Committee is three. Shri O. P. Bagla, is the Chairman of the Audit Committee of theCompany. All the members of the Audit Committee are Independent and Non-Executive Directors. The terms of referenceand the role of Audit Committee is to overview the accounting systems, financial reporting and internal control system ofthe Company. The powers and role of the Audit Committee are set out in the clause 49 of Listing Agreement and section292A of the Companies Act, 1956.(a) Composition, Name of Members, Chairperson, Meetings and Attendance during the year

The Audit Committee consisted of the following members as on 31st March, 2007:

S. No.

1.

2.

3.

Name of Members

Shri O. P. Bagla

Shri J. L. Jajoo

Dr. P. Goyal

Status

Chairman of the Committee

Member

Member

No. of Meetings Attended

4

3

4

(b) During the financial year ended March 31, 2007, four Audit Committee Meetings were held on June 7, 2006, July 31,2006, October 31, 2006 and January 30, 2007.

(c) Quorum: Two independent Directors.

(d) Secretary to the Committee: Mr. R. S. Vijayvargiya, President & Secretary acts as the Secretary of the Committee.

B. REMUNERATION COMMITTEENo Remuneration Committee has been constituted by the Board of Directors of the Company.

Details of remuneration paid to Executive Director in the financial year 2006-2007

(Rs. In lacs)

Name of the Director


Designation

Chairman & Managing Director

Salary

22.08

Commission

9.15

Perks & Allowances

7.45

Total

38.68

Tenure

5 years

12


KHAITAN CHEMICALS & FERTILIZERS LIMITEDDetails of Sitting Fee paid to Non-Executive Directors in the financial year 2006-2007.Non-executive Directors are paid sitting fees of Rs. 2000/- for attending each meeting of the Board and committeesthereof.

S. No.1

2

3

Name of the DirectorShri J. L. Jajoo

Shri O. P. Bagla

Dr. P. Goyal

Sitting Fees (in Rs.)

12,000

32,000

30,000

C. SHAREHOLDERS/INVESTOR GRIEVANCE COMMITTEE:FUNCTIONThe Board of Khaitan Chemicals & Fertilizers Ltd. has constituted a Shareholders/Investor Grievance Committee consistingof three members, Chaired by an Independent, Non-Executive Director. The Committee meets at frequent intervals toapprove inter-alia, transfer/transmission of shares, issue of duplicate share certificates, non receipt of declared dividendand to review the status of investors' grievances and redressal mechanism and recommends measures to improve thelevel of investor services. Details of Share transfers/transmissions approved by the committee are placed at the BoardMeetings from time to time.COMPOSITIONThe constitution of the Shareholders/Investor Grievance Committee is as under:

S. No.

1.

2.

3.

Name

Shri O. P. Bagla

Dr. P. GoyalShri R. S. Vijayvargiya

Chairman/Member

Chairman- Independent, Non-Executive

Member- Independent, Non-Executive

Member- Executive

No. of Meeting Attended

4

4

4

(a) During the financial year ended March 31, 2007, four Shareholders/Investor Grievance Committee Meetings wereheld on June 7, 2006, July 31, 2006, October 31, 2006 and January 30, 2007.

(b) Quorum: Two Members.(c) Secretary to the Committee: Mr. R. S. Vijayvargiya, President & Secretary of the Company and also member of the

Shareholders/Investor Grievance Committee acts as the Secretary of the Committee.4. NAME AND DESIGNATION OF COMPLIANCE OFFICER:

Shri R. S. VijayvargiyaPresident & SecretaryKhaitan Chemicals & Fertilizers Ltd.Apollo Arcade, 3rd Floor,1/2, Old Palasia,INDORE-452018.Tel. No. 0731-2564936-37,Fax No. 0731-2562572

5. DETAILS OF SHAREHOLDERS COMPLAINTS RECEIVED, NOT SOLVED AND PENDING SHARE TRANSFERSThe total number of complaints received, and replied to the satisfaction of the SEBI and shareholders etc. during the yearended March 31, 2007 were 1384, outstanding complaints as on March 31, 2007 were Nil. The number of pending sharetransfers was NIL and pending requests for dematerialisation was for 160 shares as on March 31, 2007. These have beenapproved/dematerialised by April 30, 2007.6. ANNUAL GENERAL MEETINGS:Location and time, where the last three Annual General Meetings were held are given below:

Financial Year

2003-2004

2004-2005

2005-2006

Date

July 28, 2004

July 28, 2005

July 31 , 2006

Location of the Meeting

Registered Office of the Company



Time

1.00P.M.

1.00P.M.

1 .00 P.M.


KHAITAN CHEMICALS & FERTILIZERS LIMITED

b.

c.

DISCLOSURES:There are no materially significant transactions with the related parties viz Promoters, Directors or the Management,their subsidiaries or relatives conflicting with the company's interests. Suitable disclosure as required by the AccountingStandard (AS18) has been made in the Annual Report.No penalties or strictures have been imposed on the Company by Stock Exchange or SEBI or any statutory authority,on any matter related to capital markets, during the last three years.The Company has in place mechanism to inform Board Members about the Risk Management and minimizationprocedures and periodical reviews to ensure that risk is controlled by the Executive Management. A detailed note onrisk management is given in the financial review section of the Management Discussion and Analysis Report elsewherein this report.The senior Management of the Company has confirmed to the Board of Directors that they do not have any personalinterest relating to material, financial and commercial transactions with the Company that may have a potentialconflict with the interest of the company at large.The Board of Directors has approved a code of business conduct and ethics for directors and senior management ofthe Company. The Code of Conduct is being available on the website of the Company: www.khaitanchemfert.comPresident & Secretary Certification issued pursuant to Clause 49(V) of the Listing Agreement:To,The Board of DirectorsKhaitan Chemicals & Fertilizers Ltd.New DelhiI, R.S. Vijayvargiya, President & Secretary of the company, be and is hereby certify that:I have reviewed financial statements and cash flow statement of Khaitan Chemicals & Fertilizers Ltd. for the yearended Marc 31, 2007 to the best of my knowledge and belief and state that:

i) these statements do not contain any materially untrue statement or omit any material fact or contain statementsthat might be misleading,

ii) These statement together present a true and fair view of the Company's affairs and are in compliance withexisting accounting standards, applicable law and regulations.

There are to the best of my knowledge and belief, no transactions entered into by the Company during the year thatare fraudulent, illegal or violative of the Company's code of Conduct.I accept responsibility for establishing and marinating internal controls for financial reporting and that I have evaluatethe effectiveness of internal control system of the Company pertaining to financial reporting and have disclosed tothe Auditors and the Audit Committee, deficiency in the design or operatiph of such internal controls, if any, of whichI am aware and the steps I have taken or propose to rectify the deficiencies.I have indicated to the Auditors and the Audit Committee.

significant changes in internal control over financial reporting during the year;significant changes in accounting policies during the year and that the same have been disclosed in the notesto the financial statements; andinstances of significant fraud of which I have become aware and the involvement therein, if any, of themanagement or an employee having a significant role in the Company's internal control system over financialreporting.

Your Sincerely

Place: New DelhiDate: April 30, 2007

R.S. VIJAYVARGjYAPRESIDENT & SECRETRY

8. MEANS OF COMMUNICATION:(i) The quarterly and half-yearly results are published in the following newspapers namely The Free Press (English) and

Chautha Sansar (Hindi),(ii) Management Discussion and Analysis forms part of the Annual Report, which is posted to the shareholders of the

Company,(iii) Company has a WEBSITE, which can be visited at www.khaitanchemfert.com. The website contains the profile of

the Company, quarterly/yearly financial results and other necessary details.9. COMPLIANCE CERTIFICATE

The Certificate regarding compliance of conditions of Clause 49 of the Listing Agreement from the Auditors of theCompany is armexad hereto.

14


KHAITAN CHEMICALS & FERTILIZERS LIMITEDSHAREHOLDERS INFORMATION

Regd. office: A. B. Road, Village Nimrani, Tehsil Kasrawad, Dist. Khargone (M.P.)-451569Annual General Meeting: Date and Time : 30th day of July, 2007, at 1.00 P.M.

Venue : Registered office of the Company at- A. B. Road,Village Nimrani, Tehsil Kasrawad, Dist. Khargone (M.P.)-451 569

Financial Calendar:

Financial reporting for the quarter ending June 30, 2007Financial reporting for the half year ending September 30, 2007Financial reporting for the quarter ending December 31, 2007Financial reporting for the year ending March 31, 2008

On or before July, 2007On or before October, 2007On or before January, 2008On or before May, 2008

Date of Book Closure: 23rd July, 2007 to 30th July, 2007 (both days inclusive) for payment of Dividend.

Listing on Stock Exchanges:The Stock Exchange, Mumbai (BSE).Stock Code: 507794Stock Market Data:The monthly high and low quotations and volume of shares traded on the Stock Exchange, Mumbai (BSE) is as follows:

(Price in Rs.)

Month

April, 2006

May, 2006

June, 2006

July, 2006

August, 2006

September, 2006

October, 2006

November, 2006

December, 2006

January, 2007

February, 2007

March, 2007

High

88.90

89.35

70.50

58.45

75.00

70.00

71.00

74.00

72.00

64.95

68.50

57.00

Low

66.80

64.65

48.40

43.15

50.30

54.20

58.15

57.00

56.55

57.60

52.05

38.00

Volume of Shares Traded

85315

88449

67291

45429

179757

81022

182952

356252

J 57478

121545

134032

124551

Registrar and Share Transfer Agents (Physical & Electronic Connectivity):The Company has appointed M/s Ankit Consultancy Pvt. Ltd. as Registrar and Share Transfer Agent, having its RegisteredOffice at 2nd Floor, Alankar Point, Geeta Bhawan Chouraha, Indore (M.P.)-452 018 for bath connectivity (Physical &electronic).Share Transfer System:Share transfer requests received in physical form are registered within 15 days from the date of receipt and Dematrequests are normally confirmed within an average of 7 days from the date of receipt.Share Transfer Record :

Year

Shares transferred

No. of transfers

January, 2007 Till March 2007

2129

75

2006

12471

503

2005

36560

929

2004

244610

247

2003

43129

109

15


KHAITAN CHEMICALS & FERTILIZERS LIMITEDShareholder services, enquiries, complaints:It has been our endeavor to provide prompt, efficient and satisfactory services to our esteemed Shareholders. We havetaken special care in answering the queries of shareholders within the shortest possible time frame. We provide shareholderservices in the following time frame:

S. No.

1.

2.

3.

4.

5.

6.

Nature of Query

Share Transfers

Demat of Shares

Dividend Revalidation

Issue of New Shares on surrender of old

Change of Address / Bank Mandate

General Queries

No. of days for Disposal

1 5 days

7 days

7 days

2 days

2 days

2 days

Distribution of shareholding as on March 31, 2007:

No. of Equity Shares held

Upto 500

501 to 1000

1001 to 2000

2001 to 3000

3001 to 4000

4001 to 5000

5001 to 10000

10001 and above

Grand Total

No. of shareholders

34267

186

88

29

15

13

19

35

34652

% of share-holders

98.89

0.54

0.25

0.08

0.04

0.04

0.06

0.10

100.00

No. of shares held

1029848

148.072

137108

73113

51638

60793

139405

8058943

9698920

% of shareholding

10.62

1.53

1.41

0.75

0.53

0.63

1.44

83.09

100.00

Categories of Shareholders as on March 31, 2007:

Category

Promoters

Financial Institutions, Mutual Fund and Banks

Private Corporate Bodies

Non-residents / OCBs

Indian Public

Total

No. of shares Held

7415184

145664

562145

124614

1451313

9698920

% of Shareholding

76.45

1.51

5.80

1.28

14.96

100.00

Dematerlalisation of Shares and liquidity:Trading in Khaitan Chemicals & Fertilizers Limited shares is permitted only in dematerialised form with effect from 26thMarch, 2001, as per notification issued by the Securities and Exchange Board of India (SEBI).At present, the Company's shares are fully available for trading in the depository systems of both NSDL and CDSL. As on31st March, 2007, 84,47,911 equity shares of the Company, which amount to 87.10% of the equity capital exist under theelectronic form. Those shareholders who have still not got their shares demateriallsed, are advised to do so, assoon as possible, in view of many advantages that exist therein.The equity shares of the Company are actively traded on BSE.International Security Identification No. (ISIN): NSDL and CDSL: INE745B01010


KHAITAN CHEMICALS & FERTILIZERS LIMITEDPlant Locations: The Company has the following manufacturing and operating divisions:

Fertilizer Division:1. A. B. Road, Village Nimrani, Tehsil Kasrawad,

Dist. Khargone - 451 569 (M.P.)

2. Village Goramachia, Jhansi-Kanpur Road,Jhansi - 248 001 (U.P.)

3. Village Dhinva, Tehsil Nimbahera,Oist. Chittorgarh (Rajasthan)

4). A-1, UPSIDC Industrial Area, Malwan,Dist. Fatehpur-212 664 (U.P.)

Soya Division (Khaitan Agro):Industrial Area, Dosigaon,Ratlam - 457 001 (M.P.)

Investor Correspondence:For any assistance regarding dematerialisation of shares, share transfers, transmissions, change of address, non-receipt of dividend or any query relating to the shares of the Company, please write to:

Secretarial Department:Khaitan Chemicals & Fertilizers Ltd.Apollo Arcade, 3rd Floor,1/2, Old Palasia,lndore-452018

Registrar & Shar»Transfer Agent:M/s Ankit Consultancy Pvt. Ltd.2nd Floor, Alankar Point,Geeta Bhawan Chouraha,lndore-452018(M.P.)

AUDITORS' CERTIFICATE ON CORPORATE GOVERNANCEThe Members,Khaitan Chemicals & Fertilizers Limited,New Delhi

We have examined the compliance of conditions of Corporate Governance by Khaitan Chemicals & Fertilisers Limited, forthe year ended March 31, 2007, as stipulated in clause 49 of the Listing Agreement of the said Company with StockExchange(s).The compliance of conditions of Corporate Governance is the responsibility of the Management. Our examination waslimited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditionsof Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Compainy.In our opinion and to the best of our information and according to the explanations given to us and the representationsmade by the Directors and the Management, we certify that the Company has complied with the conditions of CorporateGovernance as stipulated in the above mentioned Listing Agreement.As required by the Guidance Note issued by the Institute of Chartered Accountants of India, we have to state that as perthe records maintained by the Company, there were no investor grievances remaining unattended/pending for more than30 days.

We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiencyor effectiveness with which the management has conducted the affairs of the Company.

for S.S. KOTHARI MEHTA & CO.Chartered Accountants

Place : New Delhi (CA J. Krishnan)Date: 30-04-2007 Partner

Membership No. : 84551

17


KHAITAN CHEMICALS & FERTILIZERS LIMITEDAUDITORS' REPORT TO THE MEMBERS OF KHAITAN CHEMICALS & FERTILISERS LTD.1. We have audited the attached balance sheet of KHAITAN CHEMICALS & FERTILISERS LIMITED, as at 31 st March,

2007, and also the profit and loss account and the cash flow statement for the year ended on that date annexedthereto. These financial statements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors' Report) Order, 2003 {as amended by the Companies (Auditors' Report)(Amendment) Order, 2004} issued by the Central Government of India in terms of sub-section (4A) of section 227 ofthe Companies Act, 1956 and on the basis of such checks of the books and records of the Company as we consideredappropriate and according to the information and explanations given to us, we enclose in the Annexure a statementon the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:(i) We have obtained all the information and explanations, which to the best of our knowledge and belief were

necessary for the purposes of our audit;(ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears

from our examination of those books;(iii) The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreement

with the books of account;(iv) In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report

comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act,1956, except as stated in (vi) below;

(v) On the basis of written representations received from the directors, as on 31st March, 2007 and taken onrecord by the Board of Directors, we report that none of the directors is disqualified as orf 31st March, 2007from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the CompaniesAct, 1956;

(vi) Expenses on account of leave pay and land revenue and capital subsidies receivable are accounted for oncash basis. The impact of the above on the ' profit' for the year has not been ascertained.

(vii) Subject to our observations in para (vi) above, in our opinion and to the best pf our information and accordingto the explanations given to us, the said accounts give the information required by the Companies Act, 1956,in the manner so required and give a true and fair view in conformity with the accounting principles generallyaccepted in India:(a) in the case of the balance sheet, of the state of affairs of the Company as at 31st March, 2007;(b) in the case of the profit and loss account, of the profit for the year ended on that date; and(c) in the case of the cash flow statement, of the cash flows for the year ended on that date.

for S.S. KOTHARI MEHTA & CO.Chartered Accountants

(CA J. Krishnan)Place : New Delhi PartnerDate : 30.04.2007 Membership No. 84551

"Annexure"Re: Khaitan Chemicals & Fertilisers LimitedReferred to in paragraph 3 of our report of even date,1. The Company has maintained proper records showing full particulars including quantitative details and situation of

fixed assets.2. All the assets have not been physically verified by the management during the year but there is a regular programme

of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of itsassets. No material discrepancies were noticed on such verification.

3. In our opinion and according to the information and explanations given to us, a substantial part of fixed assets hasnot been disposed off by the Company during the year.

4. The inventory of the Company has been physically verified by the management during the year (except for stock intransit and stock lying with outside parties for which confirmation certificates have been obtained in respect of a smallportion of such stocks). In our opinion, the frequency of verification is reasonable.

5. In our opinion and according to the information and explanations given to us, the procedures of physical verificationof inventory followed by the management are reasonable and adequate in relation to the size of the Company andnature of its business.

6. On the basis of our examination of the records of inventory, in our opinion, the Company has maintained properrecords of inventory and as explained to us, the discrepancies noticed on physical verification of inventory as comparedto book records were not material and have been properly dealt with in the books of account.

7. The Company has not granted or taken any loans, secured or unsecured, to/from companies, firms or other parties, _


KHAITAN CHEMICALS & FERTILIZERS LIMITEDcovered in the register maintained under section 301 of the Companies Act, 1956.

8. In our opinion and according to the information and explanations given to us, there are adequate internal controlprocedures commensurate with the size of the Company and the nature of its business with regard to purchase ofinventory and fixed assets and for the sale of goods. Further, on the basis of our examination of the books andrecords of the Company, carried out in accordance with the generally accepted auditing practices in India, we haveneither come across nor have we been informed of any instance of a continuing failure to correct major weaknessesin the aforesaid internal control procedures.

9. Based on the audit procedures applied by us and according to the information and explanations provided by themanagement, we are of the opinion that the particulars of contracts or arrangements that need to be entered into theregister maintained under section 301 of the Companies Act, 1956 have been so entered.

10. In our opinion and according to the information and explanations given to us, the transactions made in pursuance ofsuch contracts or arrangements have been made at prices which are reasonable having regard to prevailing marketprices at the relevant time.

11. In our opinion and according to the information and explanations given to us, the Company has not accepted anydeposits within the meaning of section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 andrules framed thereunder.

12. In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.13. We have broadly reviewed the books of account maintained in pursuance to section 209(1) (d) of the Companies Act,

1956 in respect of single super phosphate, sulphuric acid and refined vegetable oil manufactured by the Companyand are of the opinion that, prima facie, the prescribed records and accounts have been made and maintained.However, we have not carried out a detailed examination of such records to verify its authenticity and accuracy.

14. According to the records of the Company examined by us and the information and explanations given to us, in ouropinion, the Company is, except for slight delay in a few cases, generally regular in depositing with appropriateauthorities undisputed statutory dues including provident fund, income-tax, sales-tax, wealth-tax, service tax, customsduty, excise duty, cess and other statutory dues applicable to it.

15. According to the records of the Company examined by us and the information and explanations given to us, noundisputed amounts payable in respect of income tax, wealth tax, sales tax, service tax, customs duty, excise dutyand cess were outstanding, as at 31st March, 2007 for a period of more than six months from the date they becamepayable.

16. According to the records of the Company examined by us and the information and explanations given to us, there areno dues of sales tax, income tax, customs duty, wealth tax, service tax, excise duty and cess which have not beendeposited on account of any dispute, other than the following:-

Nature of dues1 . Sales Tax/Trade Tax2. Sales Tax/Trade Tax3. Interest on Trade Tax4 Excise Dutv

Amount due (Rs.)2.98 lacs3.28 lacs16.31 lacs3.06 lacs

Forum where pendingDeputy Commissioner- Commercial Tax, Ratiam

Joint Commissioner of Trade Tax, LucknowJoint Commissioner of Trade Tax, Lucknow

Commissioner Anneals. Indore

17. The Company does not have accumulated losses as at the close of the financial year. The Company has not incurredany cash losses during the financial year covered by our audit and the immediately preceding financial year.

18. According to the records of the Company examined by us and the information and explanations given to us, in ouropinion, the Company has not defaulted in repayment of dues to any financial institution or bank during the year.

19. According to the information and explanations given to us, the Company has not given any guarantee for loans takenby others from banks or financial institutions during the year.

20. According to the records of the Company examined by us and the information and explanations given to us, in ouropinion, the term loans taken by the Company have been applied for the purpose for which they were obtained.

21. According to the information and explanations given to us and on the basis of an overall examination of the balancesheet of the Company, in our opinion, generally, there are no funds raised by the Company on short-term basis,which have been used for long-term investment.

22. During the year, the Company has not made any preferential allotment of shares to parties and companies coveredin the register maintained under section 301 of the Companies Act, 1956.

23. During the period covered by our audit report, the Company has not issued any debentures.24. During the period covered by our audit report, the Company has not raised any money by public issue.25. During the course of our examination of the books and records of the Company carried out in accordance with the

generally accepted auditing practices in India, we have neither come across any instance of fraud on or by theCompany, noticed or reported during the year, nor have we been informed of such case by the management.

26. The other provisions of the Order do not appear to be applicable for the year under report.for S.S. KOTHARI MEHTA & CO.

Chartered Accountants(CA J. Krishnan)

Place : New Delhi PartnerDate : 30.04.2007 Membership No. 84551

19


& KHAITAN CHEMICALS & FERTILIZERS LIMITEDBALANCE SHEET AS AT 31 ST MARCH, 2007

(Rs. in lacs)Schedule

No.

1. SOURCES OF FUNDS

Share Holders' Funds:Capital 1Reserves & Surplus 2

Loan Funds :Secured Loans 3

Deferred Tax 4

Total

2. APPLICATION OF FUNDS

Fixed Assets: 5Gross Block 15,015.14Less:Depreciation 6,404.58

Net Block 8,610.56Add : Capital Work in Progress 38.07

Investments 6Current Assets, Loans & Advances: 7

Inventories 7,327.68Sundry Debtors 1,117.89Cash & Bank Balances . 391.05Other Current Assets 650.27

• Loans & Advances 2,108.81

11,595.70

Less: Current Liabilities & Provisions 8 2,560.78

Net Current Assets

Miscellaneous Expenditure 9

Total

Significant Accounting Policies and Notes onAccounts 1 7 . ' ' . - ,

R.S. VIJAYVARGIYA SHAILESH KHAITAN(President & Secretary) (Chairman & Managing Director)

PLACE: NEW DELHIDATED: 30.04.2007

As at As at31.03.2007 31.03.2006

969.895,344.31

9,885.471,509.35

17,709.02

• "»*••*

8,648.63

21.50

9,034.92

3.97

17,709.02

, ,.,''" ~ \

959.124,634.96

8,317.531,341.78

15,253.39

13,971.985,774.99

8,196.9923.70

8,220.69

238.00

6,545.141,461.67

355.40631 .46524.14

9,517.81

2,729.96

6,787.85

6.85

15,253.39

O.P. BAGLADR. P. GOYAL

(Directors)

As per our report of even date attachedfor S.S. Kothari Mehta & Co.

Chartered Accountants

(CA J. KRISHNAN)Partner

20


KHAITAN CHEMICALS & FERTILIZERS LIMITIEDf|PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2007

{Rs. in lacs)

Schedule Year Ending Year EndingNo. 31.03.2007 31.03.2006

INCOME:Sales (Gross) 37,517.15Less: Excise Duty 252.95

Sales (Net) 37,264.20Other Income 10 173.87lncrease/(Decrease)in stock of Finished goodsand Stock in process 11 2,438.21

39,876.28

EXPENDITURE:Raw Material consumed 12 28,692.36Purchase of Trading goods 1 ,625.47Salaries, Wages & Other Benefits to Employees 13 459.07Manufacturing & Other Expenses 14 3,520.64Selling Expenses 15 2,656.62Financial Expenses 16 1,002.85Miscellaneous Expenditure written off 2.88

37,959.89

Profit before depreciation and extraordinary items 1,916.39Depreciation 643.38

Profit before extraordinary items 1,273.01Add : Depreciation of earlier year written backLess: Prior period adjustments (Note 14-Schedule 17) 13.63

Profit before taxation 1 ,259.38Provision for Current tax (156.22Provision for Deferred tax , (167.56Fringe Benefits Tax . ' (11.23

Profit after taxation 924.37Less: Income Tax/FBT of earlier year 0.07Add : Transferred from Capital Subsidy 0.79

Net Profit 925.09Add: Profit/(Loss) brought forward from previous year 364.77

Amount available for appropriation 1,289.. 86Appropriations:

Transfer to General Reserve > v 100.00Proposed DividendDividend 1745&Dividend Distribution Tax thereon 29.67 204.25Balance carried to Balance Sheet V &£•'% 986.61

•v,yj|;_; 1,289.86Earnings per share ( Basic & Diluted )(in Rs.) mt&T 9.54(Note 1 3-Schedule 1 7) ,'" ?'Significant Accounting Policies and Notes on Accounts 17 '< <> ,

24,873.99411.48

24,462.5197.99

140.82

24,701.32

17,448.6482.42

424.742,460.831,990.93

757.252.88

23,167.69

1,533.63533.56

1 ,000.0758.806.65

1 ,052.2285.55)66.98)14.97)

884.720.420.79

885.09376.53

1,261.62

700.00

172.6424.21

364.77

1 ,261 .62

9.23

O.P. BAGLAR.S. VIJAYVARGIYA SHAILESH KHAITAN DR. P. GOYAL

(President & Secretary) (Chairman & Managing Director) (Directors)



PLACE: NEW DELHI (CA J. KRISHNAN)DATED: 30.04.2007 Partner

21


KHAITAN CHEMICALS & FERTILIZERS LIMITEDSchedule No.1 to 17 annexed to and forming part of the Balance Sheet as at 31st March, 2007 and the Profit & LossAccount for the year ended 31st March, 2007:

(Rs. in lacs)

As At31.03.2007

As At31.03.2006

SCHEDULE -1SHARE CAPITAL:Authorised:22000000 (Previous year 12000000) Equity Shares of Rs. 10/- each

Issued :9712442 (Previous year 9604690) Equity Shares of Rs. 10/- each ;

Subscribed & Paid up :

9698920 (Previous year 9591168) Equity Shares of Rs. 107- each fully paid up ;

Note: Equity Shareholders of erstwhile Mahadeo Fertilizers Ltd havebeen issued shares (1 Equity Share of Rs. 10 each credited asfully paid up of the Company for every 20 Equity Shares of Rs.10each fully paid up of Mahadeo Fertilizers Ltd.) pursuant to Schemeof Amalgamation duly sanctioned by the Board for Industrial &Financial Reconstruction (BIFR) vide their Order dated 12th April, '";2006.( refer note B.1- schedule 17)Pursuant to the above, the Issued, Subscribed and Paid up Capital 'of the Company has increased by an amount of Rs.10.77 lacs on '*allotment of shares during the year.

SCHEDULE - 2RESERVES & SURPLUS:

Capital Reserve:Share Capital of erstwhile Mahadeo Fertilizers Ltd.Reserve arising on waiver of Loans(related to erstwhile Mahadeo Fertilizers Ltd)Amalgamation ReserveShare Forfeiture ReserveCentral Investment Capital SubsidyState Investment Pioneer SubsidyShare Premium Account

General Reserve:As per last Balance Sheet

Add: Transfer from Profit & Loss account

Less: Debit balance in Profit & Loss account of erstwhileMahadeo Fertilizers Limited as on 01.04.2005

Surplus in Profit & Loss account

2,200.00

971.24

969.89

969.89

554.48906.96

2.6136.7230.00

675.35985.61

5,344.31

1,200.00

960.47

959.12

959.12

213.73

554.48702.42

4.1237.5130.00

2,152.58

905.96700.00

1,605.96

(1,030.61)

575.35364.77

4,634.96

22


KHAITAN CHEMICALS & FERTILIZERS LIMITED &(Rs. in lacs)

As At As At31.03.2007 31.03.2006

SCHEDULE - 3SECURED LOANS:TERM LOANS:- From Banks(Secured by equitable mortgage of Company's immovable properties and alsohypothecation by way of first charge of movable as well as immovable assets bothpresent and future ranking pari-passu subject to prior charge in favour of the Company'sbankers on Stock of Raw Materials, Finished Goods, Stores and Spares and Bookdebts for working capital borrowings and second charge on the entire currentassets of the Company and guaranteed by Shri Shailesh Khaitan in his personalcapacity, except for vehicle loans which are secured by hypothecation thereof )CASH CREDIT & WORKING CAPITAL DEMAND LOAN :(Secured by hypothecation of Company's stock of Raw Materials, FinishedGoods, Stock in Process, Stores and Spares, Packing Materials etc. includingGoods in Transit, Outstanding monies, Book-debts, Receivables etc. and securedby way of second charge over the Company's entire fixed assets and guaranteedby Shri Shailesh Khaitan in his personal capacity).

NOTE : Term Loans Repayable within one year

SCHEDULE - 4DEFERRED TAX :Deferred Tax Liabilities

DepreciationOthers

Deferred Tax AssetsUnabsorbed DepreciationMAT credit

Deferred Tax Liabilities (Net)

SCHEDULE - 5FIXED ASSETS :

5,476.60 5,062.29

J 4,408.87 3,255.24

9,885.47 8,317.531,128.68 1,189.60

1,510.53 1,317.09" ; 23.13 24.69

1,533.66 1,341.78

24.31

24.31

1,509.35 1,341.78

DESCRIPTION GROSS BLOCK DEPRECIATION • NET BLOCKOF ASSETS As at Addi- Adjustments/ As at up to Sale /Adj-

31.03.2006 tions Deduction 31.03.2007 31.03.2006 ustmentsFreehold Land & SiteDevelopment 60.80 188.63 - 249.43Leasehold Land 35.08 - - 35.08Building 2,427.31 44.49 - 2,471.80 519.02Plant & Machinery 10,729.36 789.46 - 11,518.82 4,950.13Electric Installation 301.03 4.18 - 305.21 124.27Furniture & Fixtures 93.85 6.12 - 99.97 58.85Office Equipments 77.29 3.75 - 81.04 28.86Lab & Other Equipments 15.82 1.07 - 16.89 5.71Vehicles 184.30 15.90 19.18 181.02 59.70 13.79Electrical Appliances 8.88 0.53 - 9.41 6.08Fire Fighting Equipments 2.75 0.09 - 2.84 1.13Computers 35.51 8.12 • 43.63 21.24Total (A) 13,971.98 1,062.34 19.18 15,015.14 5,774.99 13.79Capital Work in Progress 23.70 14.37 - 38.07Total (8) 13,995.68 1,076.71 19.18 15,053.21 5,774.99 13.79Previous year 11,903.98 2,693.80 602.10 13,995.68 5,31125 69,82

During up to as at as atthe year 31.03.200731.03.2007 31.03.2006

• 249.43 60.8035.08 35.08

69.14 588.16 1,883.64 1,908.29534.56 5,484.69 6,034.13 5,779.23

8.87 > 133.14 172.07 176.765.57 64.42 35.55 35.004.10 32.96 48.08 48.430.92 6.63 10.26 10.11

15.44 61.35 119,67 124.600.43 6.51 2.90 2.800.20 1.33 1.51 1.62 ,4.15 25.39 18.24 14.27

643.38 6,404.58 8,610.56 8,196.9938.07 23.70

643.38 6,404.58 8,648,63 8,220.69533.56 "5,774.99 8,220.69 $£92^

23


KHAITAN CHEMICALS & FERTILIZERS LIMITEDNOTES:1. Depreciation has been provided on SLM rates after taking into consideration the revised rates of depreciation vide

Circular No. 14/93-1/12/92 -CL-V dated 20.12.93 issued by Ministry of Law, Justice and Company Affairs, Departmentof Company Affairs. Further, while applying the new rates of depreciation, the Company has adopted the option ofapplying the new rates on the original cost of the assets in accordance with the above Circular.

2. Amortisation of Leasehold Land is not being done as the same is on perpetual lease.3. The Company has treated its Sulphuric Acid Plant, Soya Oil Plant and Turbo Generator as continuous process plant

and depreciation charged accordingly.4. Vehicles includes one bus purchased for Rs.4.00 lacs for which registration in the name of the Company is still pending.5. Vehicles includes motor cars taken on hire purchase of Rs.9290821 (previous year Rs.9290821).

(Rs. in lacs)

As At31.03.2007

As At31.03.2006

SCHEDULE - 6INVESTMENTS:

LONG TERM (NON-TRADE, AT COST)QUOTED:Fully paid Equity Shares In Body Corporates:Shradha Projects Limited[NIL shares (Previous year 1102524) of face value Rs. 10/- per share]UNQUOTED:Khaitan Commercial Services Private Limited[175000 shares (Previous year 175000) of face value Rs. 10/- per share]Shobhen Enterprises Pvt. Ltd.[4000 shares (Previous year NIL) of face value Rs. 10/- per share]

Note:i) No investment is held in bodies corporate under the same management,ii) Market value of listed Equity Shares has not been given as they are currently

not quoted.

SCHEDULE - 7CURRENT ASSETS, LOANS & ADVANCES :

a. Inventories (as taken, valued and certified by the management):Finished Goods/Traded GoodsStock in ProcessRaw MaterialsRaw Materials in TransitStores & Spares

b. Sundry Debtors:(Unsecured)Debts over six months:

Considered GoodConsidered Doubtful

Less: Provision for Doubtful debts

Other Debts (Considered good)

24

17.50

4.00

21.50

4,748.1023.05

1,726.36121.13709.04

7,327.68

35.815.82

41.635.82

35.811,082.08

1,117.89

220.50

17.50

238.00

2,310.3022.64

3,335.06282.31594.83

6,545.14

47.4336.21

83.6436.21

47.431,414.24

1,461.67


KHAITAN CHEMICALS & FERTILIZERS LIMITED ®(Rs. in lacs)

c. Cash & Bank Balances:Cash in handWith Scheduled Banksin current accountin fixed deposit account[kept as Margin Money with Bank Rs. 307.85 lacs, (previousyear Rs. 255.36 lacs) and deposited with Govt. Authorities assecurity Rs. 0.20 lacs, (previous year Rs. 2.70 lacs)With M.P. Rajya Sahkari Bank Ltd. (Max. balance during the yearRs.39.99 lacs, (previous year Rs. 1 1 .09 lacs)

d. Other Current Assets :Fertilizer Subsidy receivable:

Own accountLess: Subsidy payable to Bank of India on realisation

HLCL accountLess: Subsidy payable to HLCL

Other receivables

e. Loans & Advances:(Unsecured - considered good, unless otherwise stated, recoverablein cash or in kind or for value to be received):

-Advances to Plant Suppliers, Contractors, Stores & Raw MaterialSuppliers (Including Capital Advances Rs. 62.22 lacs; previous yearRs. 1 .85 Lacs and net of provision for doubtful advances of Rs.3.20lacs, previous year Rs.3.20 lacs)

Staff Advances• - Other Advances

Security Deposits ( including with Govt. Dept. Rs. 84.85lacs; previous year Rs. 60.52 lacs)Tax/Duty deposited under protestSales Tax / VAT RefundableCenvat Credit ReceivableBalance with Central Excise Department

SCHEDULE - 8CURRENT LIABILITIES & PROVISIONS :Current Liabilities:

Sundry Creditors- Capital Goods / Services- OthersAdvances from CustomersSecurity DepositsOther LiabilitiesInvestor Education and Protection Fund- DividendInterest accrued but not due

Provisions:Proposed Dividend( including Dividend Distribution Tax thereon)Provision for Tax(Net of Advance Tax)

As At31.03.2007

15.32

67.22308.05

V/./;.^- •:..- . - '0.46

^;,;i,;u.*9i-o5-;- ''"•'. ' "????>, /- <;/; ' -' . '-

791,64142.87 648.77

24.7224,72

648.771.50

650.27

271.3118.32

1,433.22

181.554.72

148.2050.62

0.87

2, 108.81

• » 62.80: 1,525.41

358.0t.> 29.90

342.59

>.:.••»• i = -7.351

' ' * , • ' " • ta

2,326.06

204.2530.47

2,560.78

As At31.03.2006

11.82

84.93258.06

0.59

355.40

767.72(142.87)

24.72(24.72)

624.856.61

631 .46

274.7412.2486.02

111.106.83

15.7910.377.05

524.14

113.401 ,720.83

260.2326.19

360.66

10.4631.06

2,522.83

196.8510.28

2,729.96

25


® IKHAITAN CHEMICALS & FERTILIZERS LIMITED

SCHEDULE - 9MISCELLANEOUS EXPENDITURE (TO THE EXTENT NOTWRITTEN OFF OR ADJUSTED):Preliminary / Share Issue Expenses :

Balance as per last Balance Sheet 1.68Add : Additions during the year

1 68Less : Written off to the Profit & Loss Account 0.79*; >

Deferred Revenue Expenses :Balance as per last Balance Sheet 5.17Add : Additions during the year -

Less : Written off to the Profit & Loss Account 2.09,,

SCHEDULE -10OTHER INCOME :

Interest (T.D.S. Rs.12.95 lacs, previous year Rs. 2.11 lacs) ....Miscellaneous SalesMiscellaneous ReceiptsBalances & Provisions written off/written back (net)Profit on Sale of Fixed Assets

SCHEDULE -11INCREASE /( DECREASE ) IN STOCK OF FINISHED GOODSAND STOCK IN PROCESS:

Closing StockLess : Opening Stock

SCHEDULE -12RAW MATERIALS CONSUMED :

Opening Stock ,Add : Purchases including related expenses upto the factorysite (net of claims)

Less : Closing Stock

SCHEDULE -13SALARIES, WAGES & OTHER BENEFITS TO EMPLOYEES:

Salaries , Wages & Other BenefitsEmployees Welfare , LTA & Medical ReimbursementGratuityContribution towards Employees' Provident Fund/E.S.I.Bonus

As At31.03.2007

0.89

3.08

3.97

Year ending31.03.2007

63.2167.9617.4716.278.96

173.87

4,771.152,332.94 ,

2,438.21

3,335.06

27,083.66

30,418.721,726.36

28,692.36

373,7947.125.45

26.895-82

459.07

(Rs. in lacs)As At

31.03.2006

1.68

5.17

6.85

(Rs. in lacs)Year ending

31.03.2006

10.1023.2449.237.557.87

97.99

2,332.942,192.12

140.82

1 ,560.97

19,222.73

20,783.703,335.06

17,448.64

339.1250.235.23

24.525.64

424.74

26


KHAITAN CHEMICALS & FERTILIZERS LIMITED Q(Rs. in lacs)

SCHEDULE - 14MANUFACTURING & OTHER EXPENSES :

Stores & Spares consumedPower & FuelCommunication ExpensesRentInsuranceRates & Taxes

- Repairs & Maintenance :- Plant & Machinery- Building- Others

- Travelling & Conveyance :- Directors- Others

Recruitment ExpensesAuditors Fees & ExpensesCost Audit Fees & ExpensesOther Manufacturing ExpensesMiscellaneous ExpensesLoss on Sale of Fixed AssetsBad debts written off

SCHEDULE -15SELLING EXPENSES :

TransportationStorage ChargesLoading & UnloadingAdvertisementSales PromotionCash DiscountRebate & ShortageOthers

SCHEDULE - 16FINANCIAL EXPENSES :Interest on :

Term LoanCash CreditOthersBank Charges & Guarantee Commission


1,284.911,160.04

37.5326.5658.8525.06

333.2424.5942.05 399.88

6.0195.43 101.44

2.016.850.56

240.65141.09

-

35.21

3,520.64

2,175.3132.41

164.6512.747.54

30.35189.4044,22

2,656.62

494.14370.98

14.17123.56

1,002.85


945.08732.02

39.31165347.5214.29

231 .099.67

30.16

4.3595.37

1.115.810.44

161.06125.70

1.32-

2,460.83

1 ,704.5518.9375.6717.8212.5824.82

118.8617.70

1,990.93

254.25255.80152.5694.64

757.25

27


& FERTILIZERS LIMITEDSCHEDULE-17SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS[Annexed to and forming part of the Balance Sheet and Profit & Loss Account for the year ended 31st March, 2007]

A. SIGNIFICANT ACCOUNTING POLICIES:1. Accounting Convention:

The accounts have been prepared in accordance with historical cost convention and on going concern basis andcomply with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI).

2. Method of Accounting:The Company maintains its accounts on accrual basis except in the case of Leave pay, L.T.A., Land revenue expensesand Capital subsidies receivable from the Government.

3. Revenue Recognition:Revenue on sale of products is recognised on passage of title to the consumer. Sales (Gross) are inclusive of ExciseDuty and Fertilizer Subsidy and net of discounts and sales return.

4. Fertilizer Subsidy:Fertilizer subsidy, wherever applicable, is accounted for on actual sales.

5. Fixed Assets:Fixed Assets are stated at Historical Cost less depreciation.

6. Depreciation:Depreciation on Fixed assets is provided on straight line method (prorata on additions and deletions of the period) atrates prescribed in Schedule XIV to the Companies Act, 1956.

7. Investments:Investments are stated at cost provision for deminution in the value of long-term investments is made only if such adecline is other than temperory in the opinion of the management.

8. Inventories:Finished goods, Raw materials and Stores & spares are valued at cost or net realisable value, whichever is lower.Stock in process is valued at cost. Stores & spares cost is based on annual weighted average. Raw material cost isbased on quarterly weighted average for Fertilizer division and FIFO for Agro division.

9. Foreign Currency Transactions:Current Assets and Current Liabilities are restated at the rate prevailing on the Balance1 Sheet date. Gains and lossesarising out of such restatement are taken into the Profit & Loss Account for the year.

10. Provisions. Contingent Liabilities & Contingent Assets:Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligationas a result of past events and it is probable that there will be an outflow of resources. Contingent Liabilities are notrecognized but are disclosed in the notes. Contingent assets are neither recognized nor disclosed in the financialstatements.

11. Retirement Benefits:The Company's contribution to Provident Fund, Superannuation Fund and Gratuity (under group policies of LIC ofIndia) are charged to revenue.

12. Capital Subsidy:Capital subsidy against fixed assets is accounted for on receipt basis and is being shown under Capital Reserve.Further, in accordance with the guidelines issued by ICAI, proportionate amount to the extent of depreciation charged,is being transferred to the Profit & Loss Account.

13. Miscellaneous Expenditure:Preliminary and Share issue expenses are charged to revenue over a period of 10 years.Expenses incurred in relation to mergers/acquisitions are considered as deferred revenue expenditure to beamortised over a period of five years from the year in which the mergers/acquisitions become effective.

(iii) Payments towards entrance fees of Future Commodity Exchanges and refinery product launch expenses areconsidered as deferred revenue expenditure and amortised over a period of five years.

(iv) In accordance with Accounting Standard - 26 on 'Intangible Assets', from the year 2003-04, Miscellaneousexpenditure incurred by the Company is being charged off to the Profit & Loss Account, unless it qualifies tobe an 'Intangible Asset', in which case it shall be carried forward as permitted by the standard.

B. NOTES ON ACCOUNTS:1. In terms of the scheme of amalgamation sanctioned by the Board for Industrial & Financial Reconstruction (BIFR),

vide their Order dated 12th April, 2006, Mahadeo Fertilizers Limited, a company engaged in the manufacture ofsingle super phosphate and sulphuric acid, has merged with the Company with retrospective effect from 1st April,2005 (the merger date). The aforesaid Order was filed with the Registrar of Companies, M.P. at Gwalior on 17th day

28


& KHAITAN CHEMICALS & FERTILIZERS LIMITED12. Related Party Disclosure, as required by Accounting Standard - 18, is as under:

A. Relationships:a) Enterprises in which Key Management personnel have significant influence.

Shradha Projects Ltd.b) Key Management personnel and their relatives

i) Mr Shailesh Khaitanii) Mrs Swapana Khaitan

B. The following transactions were carried out with the related parties in the ordinary course of business:(Rs. in lacs)

Enterprises in which Key Management Key Managementpersonnel have significant influence personnel and their relatives

Current Year Previous Year Current Year Previous YearOffice Rent 18.00 6.00Managerial Remuneration - - 38.68 36.92

13. Earnings Per Share (EPS):

Particulars Year e31.03

Net Profit/(Loss) available for equity shareholders. (Rs./lacs) 9Weighted average number of equity shares outstanding 96£

Basic earnings per share in rupees of face value Rs. 107- per share

Diluted earnings per share in rupees of face value Rs. 10/- per share

14. Prior Period adjustments include:

2006

Freight

Power Charges

Sales Tax/Entry Tax

Others(net)

nded Year ended.2007 31.03.2006

25.09 885.09

(8920 9591168

9.54 9.23

9.54 9.13

Rs. In lacs

•2007 2005-2006

0.87

2.73

7.07 3.62

2.96 3.03

13.63 6.65

15. Payment to Auditors:Audit FeeTax Audit FeeIn Other CapacityReimbursement For Expenses

2.20 2.200.56 0.392.04 1.362.05 1 .86

6.85 5.81

16 Additional information, wherever applicable, pursuant to paragraphs 3 & 4 of Part II of Schedule VI to the CompaniesAct,1956.

(a) Computation of Net Profit u/s 349 of the Companies Act, 1956 Rs. In lacs2006-2007 2005-2006

Profit after taxation as per P & L a/c 924.37 884.72Less: Profit on sale of fixed assets 8.96 7.87

915.41 876.85Commission to Managing Director @ 1% 9.15 8.77

Restricted to 100% of Salary i.e. Rs.22.08 lacs,

previous year Rs.20.28 lacs)

30


KHAITAN CHEMICALS & FERTILIZERS LIMITED fftRs. In lacs

2006-2007 2005-2006

Managerial Remuneration u/s 198 of the Companies Act, 1956

i) Salary & Allowances

ii) Perquisites & Benefits

ill) Commission

22.08 20.28

7.45 7.87

9.15 8.77

38.68 36.92

(b) Particulars of Capacity & Production: (as certified by the management)

S. Particulars Unit Licensed Capacity Installed CapacityNo.

2006-2007 2005-2006 2006-2007 2005-2006

1. Single Super Phosphate MT 1,010,500 1,010,500 845400 845,500

2. Sulphuric Acid MT 400,000 400,000 221,100 221,100

3. Oleum MT 26,500 26,500 26,500 26,500

4. Liq.Sulphur Trioxide MT 5,000 5,000 3,300 3,300

5. Seed Crushing MT 420,000 420,000 420,000 420,000

6. Refined Oil MT 30,000 30,000 30,000 30,000

Actual Production

2006-2007 2005-2006

327,308 299,739

137,056 167,971

3,939 4,508

1,006 1,430

149,493 70,501

23,478 12,778

(c) Particulars of Opening and Closing Stocks & Sales :

S. Class of Goods Unit Openinq Stock Closina StockNo. -

2006-2007 2005-2006 2006-2007 2005-2006

1. Single Super Phosphate MT 56,207 51,377 75,600 56,207(Rs. In lacs) 1,805.78 1,502.49 2,374.61 1,805.78

2. Sulphuric Acid MT 5,431 3,512 6,126 5,431(Rs. In lacs) 119.62 69.49 117.41 119.62

3. Soya Oil MT 686.72 1,289 3,459.84 686.72( Rs. In lacs ) 240.97 485.60 1,274.92 240.97

4. De-Oiled Cake MT 1,938 1,352 208 1,938(Rs. In lacs) 152.62 127.44 18.23 152.62

5. Others (Rs. In lacs) 13.95 7.10 985.97 13.95(including trading goods)

Sales

2006-2007 2005-2006

307,776 294,834'12,153.63 11,311.06

53,143 * 89,6481,225.83 2,342.13

24,479 13,14110,099.63 4,755.94

125,365 58,46712,003.64 5,441.66''?••; • ' '•.'•,

1,781.47 ** 611.73

* Excluding self consumption of 83,217.918 MT (previous year 76403.44 MT)** Including revenue from Commodity Futures & Derivatives transactions

31


(d) FKHAITAN CHEMICALS & FERTILIZERS LIMITED

'articulars of Raw Material Consumed :

S. Description 2006-2007No. Quantity Value

( in M.T.) (Rs. in lacs)

1 Sulphur 47,418 2,486.982 Rock Phosphate 187,349 6,127.83

3 Sulphuric Acid /Spent Acid 38,559 546.164 Soya Seed 149,493 19,526.015 Others - '.. ,:"^,3J .

2005-2006Quantity( in M.T.)

58,575171,181

36,01270,501

e) Value of Imports calculated on CIF Basis: *K I

S.No.

1

2

3

Particulars

Raw Material (Including through other Importer Rs.373.04lacs, previous year Rs. 1139.94 lacs)

Capital Goods

Components & Spare parts

2006-2007

1,118.01

3.44

Value(Rs. in lacs)

3,323.44

5,039.12

561 .30

8,511.4013.37

Rs. in lacs )

2005-2006

2,466.08

(f) Value of Imported & Indigenous Raw Materials, Spare Parts, Components & Stores consumed during the year :( Rs. in lacs )

2006-2007Amount % of Total

a) Raw Material :-Imported 1,482.45 , 5.17- Indigenous 27,209.91 " 94.83

Total 28,692.36 100.00

b) Stores, Spares & Components :- Imported , 3.44 , 0.27- Indigenous 1,281.47 99.73

Total 1,284.91 100.00

(g) Earning in foreign currency on account of export of goods Rs. 250.58 lacs

(h) Expenditure in Foreign Currency:

Fees & SubscriptionTravelling expensesInterest on foreign currency loan(lncluding exchange flctuation)

2005-2006Amount

3,355.2314,093.41

17,448.64

945.08

945.08

(previous year Rs. Nil).

2006-20071.890.23

131.93

134.05

% of Total

19.2380.77

100.00

100.00

100.00

Rs. in lacs )

2005-20060.99

285.04

286.03

(i) All other information may be read as Nil.

17 Previous year figures have been re-arranged and/or re-grouped wherever considered necessary.18 Figures are rounded off to the nearest lac of rupees in terms of value and nearest M.T. for quantities.

32


I KHAITAN CHEMICALS & FERTILIZERS LI MITED &19. Balance Sheet Abstract and Company's General Business Profile :I. Registration Details:

Registration No. : 10-04937 State Code : 10Balance Sheet Date : 31st March, 2007

II. Capital Raised During the Year:

Public IssueRights IssueSubscription through WarrantsBonus IssuePrivate PlacementOthers

III. Position of Mobilisation And Deployment of Funds:Total LiabilitiesTotal AssetsSource of FundsPaid - up CapitalReserves & SurplusSecured LoansDeferred Tax

Application of FundsNet Fixed AssetsInvestmentsNet Current AssetsMisc. Expenditure

IV. Performance of the Company:Total IncomeTotal Expenditure.Profit/ (Loss) Before TaxProfit/ (Loss) After TaxEarnings Per Share (Rs.)Dividend @ 18% (last year 18%)

V Generic Names of three principal products / services of the Company (as per monetary terms):Item Code No : (ITC Code ) 31031000Product Description Single Super PhosphateItem Code No : (ITC Code ) 28070001Product Description Sulphuric AcidItem Code No : (ITC Code ) 15079000.10Product Description Soyabean Oil Edible GradeItem Code No : (ITC Code ) 230400.03Product Description Meal of Soya Bean

(Rs.in lacs)

2006-2007

10.77

20,269.8020,269.80

969.895,344.319,885.471,509.35

8,648.6321.50

9,034.923.97

39,876.2838,616.90

1,259.38925.09

9.54174.58

R.S. VIJAYVARGIYA(President & Secretary)


SHAILESH KHAITAN(Chairman & Managing Director)


(Directors)




33


KHAITAN CHEMICALS & FERTILIZERS LIMITEDCASH FLOW STATEMENT FOR THE YEAR ENDING 31st MARCH, 2007

(Rs. in lacs)2006-2007 2005-2006

A. Cash Flow from Operating Activities :Net Profit before Tax , Interest, Miscellaneous Expenditure andExtra Ordinary itemsAdd: Loss on sale of Fixed Assets & InvestmentsAdd: DepreciationLess: Interest ReceivedLess: Profit on Sale of Fixed Assets/InvestmentOperating Profit before Working Capital ChangesAdjustment for:(Increase)/Decrease in InventoriesSundry DebtorsOther Current AssetsLoans & AdvancesCurrent Liabilities & Provisions

Cash Generation from OperationsIncome Tax Paid(lncluding FBT)Extra-ordinary and prior period itemsNet Cash from Operating Activities ( A)

B. Cash Flow from Investing Activities :Purchases of Fixed AssetsCapital Work in ProgressSale of Fixed AssetsInterestInvestment

Net Cash from Investing Activities ( B )

C. Cash Flow from Financing Activities :Share CapitalProceeds from Long Term BorrowingsRepayments of Long Term BorrowingsBank BorrowingsMisc. ExpensesInterestDividend including Dividend Distribution TaxNet Cash from Financing Activities ( C)

NET CASH GENERATION ( A+B+C )

Cash and Cash Equivalents as at the beginning of the yearCash and Cash Equivalents as at the end of the yearNet Increase ( Decrease ) in Cash and Cash Equivalents

2,155.182.07

643.3863.2111.03

; 2,726.39

(782.54)343.78

, (1831)(1 £84.67)

(169.18)

514.97(167.45)(13.70)

333.82

(1,062.34)(14.37)

3.4063.21

227.53(782.57)

1,600.00(1,185.69)

1,153.63

(879.29)

484.40

i 3SUO$91.05

1,665.561.32

533.5610.107.87

2,182.47

(2,272.36)(630.71)

71.72(43.91)143.44

(549.35)(100.52)

(7.07)(656.94)

(2,689.77)573.1820.4410.10

200.00

(1,886.05)

(20.21)3,874.63

(1,132.53)854.76(2.81)

(662.61)(196.85)

2,714.38171.39

184.01355.40

171.39

R.S. VIJAYVARGIYA(President & Secretary)


SHAILESH KHAITAN(Chairman & Managing Director)


(Directors)As per our report of even date attached

for S.S. Kothari Mehta & Co.Chartered Accountants


34

^Regd. Office: A. B. Road, Village Nimrani, Dist. Khargone (M.P.) - 451 569

ATTENDANCE SLIPTo be handed over at the entrance of the Meeting Hall

Full Name of the member attending

Full name of the first joint holder

Name of Proxy

(To be filed in if first name joint-holder does not attend the meeting)

(To be filed in if Proxy form has been duly deposited with the Company)

I/we, hereby record my presence at the 25th Annual General Meeting of the Company held at the Registered of theCompany at A. B. Road, Village Nimrani, Dist. Khargone (M.P.) on Monday, the 30th day of July, 2007 at 1.00 P.M.

Regd. Folio No. :

DP ID/Client ID No. :

No. of Shares held :

Member's / Proxy's Signature(To be signed at the time of handing over this slip)

Note: Members are requested to bring their copies of the Annual Report to the Meeting.

KHAITAN CHEMICALS & FERTILIZERS LIMITEDRegd. Office: A. B. Road, Village Nimrani, Dist. Khargone (M.P.) - 451 569

PROXY FORM

I/Wedistrict of.appoint _of

.of in the. being a member/members of KHAITAN CHEMICALS & FERTILIZERS LIMITED, hereby. of in the district of or failing him,

in the district of _ as my/our proxy to vote for me / us on my / ourbehalf at the 25th Annual General Meeting of the Company to be held on Monday, the 30th day of July, 2007, at 1.00P.M. at A. B. Road, Village Nimrani, Dist. Khargone (M.P.) and any adjournment thereof.

Signed this

Regd. Folio No.

DP ID/Client ID No.

No. of Shares held

day of . 2007.I 1

I AFFIX |I Rupee 1.00 ji Revenue |I Stamp jI 1

NOTES:1 . The Proxy Form must be lodged at the Registered Office of the Company, not less than 48 Hours before the

commencement of the Meeting.2. The Proxy should be signed according to the Specimen Signature(s) of the Member(s) recorded with the Company.* Strike out whichever is not applicable

FOR OFFICE USE ONLY:

PROXY NO.: DATE OF RECEIPT:


BOOK - POST

To,

If undelivered, please return to :KHAITAN CHEMICALS & FERTILIZERS LIMITED

W 301-308, Appolo Arcade,1/2, Old Palasia,Indore - 452 018 (M.P.)

modi 98260-16543

khaitan chemicals & fertilizers limited

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