Annual Report Txtiles06 07

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Vardhman Textiles Limited(Formerly known as Mahavir Spinning Mills Limited)

BOARD OF DIRECTORS

SH. SHRI PAUL OSWAL — Chairman & Managing DirectorSH. AJAY KUMAR CHAKRABORTY — (Nominee of ICICI Bank Ltd.)

SH.VINOD KUMAR SAXENA — (Nominee of IDBI)DR. TRILOKI NATH KAPOOR

SH. PRAFULL ANUBHAISH. SURINDER KUMAR BANSAL

SH. SUBASH KHANCHAND BIJLANISMT. SHAKUN OSWAL

SH. SACHIT JAIN — Executive DirectorSH. DARSHAN LAL SHARMA — President & Executive Director

CHIEF FINANCIAL OFFICERSH. NEERAJ JAIN

COMPANY SECRETARYSH. VIPIN GUPTA

AUDITORSM/s S.C. VASUDEVA & CO.,

CHARTERED ACCOUNTANTS,NEW DELHI

BANKERSSTATE BANK OF PATIALA, ALLAHABAD BANKICICI BANK LTD., PUNJAB NATIONAL BANKSTATE BANK OF INDIA, BANK OF BARODACORPORATION BANK, BANK OF AMERICAUNION BANK OF INDIA, CANARA BANK

STANDARD CHARTERED BANK,BANQUE NATIONALE DE PARIS

REGISTRAR & TRANSFER AGENTALANKIT ASSIGNMENTS LIMITED, NEW DELHI

CONTENTS

Notice ....................................................................................................................................................................................... 3-4Directors’ Report ..................................................................................................................................................................... 5-11Corporate Governance Report .............................................................................................................................................. 12-18Auditors’ Report .................................................................................................................................................................... 19-21Balance Sheet ....................................................................................................................................................................... 22-22Profit & Loss Account ............................................................................................................................................................ 23-23Cash Flow Statement ............................................................................................................................................................. 24-24Schedules to Accounts .......................................................................................................................................................... 25-46Auditors’ Report on Consolidated Financial Statements ........................................................................................................ 47-47Consolidated Balance Sheet .................................................................................................................................................. 48-48Consolidated Profit & Loss Account ...................................................................................................................................... 49-49Consolidated Cash Flow Statement ....................................................................................................................................... 50-50Consolidated Schedules to Accounts .................................................................................................................................... 51-65Statement under Section 212 of the Companies Act, 1956 ................................................................................................... 66-66

SUBSIDIARIESVMT Spinning Company Limited .......................................................................................................................................... 67-84Vardhman Threads Limited ................................................................................................................................................. 85-102Vardhman Yarns & Threads Limited ................................................................................................................................. 103-110


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ANANT SPINNING MILLS,MANDIDEEPARIHANT SPINNING MILLS,MALERKOTLA

ARISHT SPINNING MILLS, BADDIAURO SPINNING MILLS, BADDIAURO DYEING , BADDIAURO WEAVING MILLS, BADDIAURO TEXTILES, BADDI

MAHAVIR SPINNING MILLS(Gassed Mercerised Yarn Unit),HOSHIARPUR

MAHAVIR SPINNING MILLS,(Sewing Thread Unit I),HOSHIARPURMAHAVIR SPINNING MILLS,(Sewing Thread, Unit-II),LUDHIANA

MAHAVIR SPINNING MILLS,(Sewing Thread Unit III),PERUNDURAIMAHAVIR SPINNING MILLS(Textile Division) BADDIVARDHMAN SPINNING MILLS,BADDIVARDHMAN SPINNING AND GENERAL MILLS,(UNIT-I & II), LUDHIANAVARDHMAN SPECIAL STEELS, LUDHIANAVARDHMAN FABRICS,BUDHNIVARDHMAN YARNS,SATLAPUR

WORKS

REGISTERED & CORPORATE OFFICECHANDIGARH ROAD, LUDHIANA-141 010.

Phones : (0161) 2228943-48Fax : (0161) 2601048 & 2602710.

E-mail: [email protected] site: www.vardhman.com

• 30 & 33, Shri Krishna Centre,1st Floor, Near Mithakhali Six Road,Navrang Pura, Ahmedabad-380 009

• Building No. 101 & 102, JB Kaval, KHB Colony,Nandini Layout Post, Yeswantpur, Bangalore-560 022

• S.C.O. 1,2 & 3 Sector-17 B, Chandigarh- 160017• D8, Industrial Estate, Guindy, Chennai 600 032• 450/1, G.K. Industrial Estate, Arcot Road,

Alaparkkam, Porpur, Chennai-600 116• 36/2303, D & K, Ammankovil Road,

Ernakulam (Cochin)-682 035• Plot No. 543H, Pace City - II, Sector 37, Gurgaon• 3-6-270/2, Himayat Nagar,

Opp. Telugu Academy, Hyderabad-580 029• Plot No.141, Pipila Road, A.B. Road, Indore-452 017• B-34, Sangam Bhawan,

Vijay Path, Tilak Nagar, Jaipur-302 004• H.No. 23, Ambedkar Lane, Buta Nagar Paloura,

Teh. & Distt. Jammu• 84/55, G.T. Road, Near Zarib Chowki,

Near Bankey Bihari Dham Banquet Hall,Kanpur-208 003

• P-22, 3rd Floor, Flat No. 6,C.I.T. Road, Scheme-IV, Kolkata-700 014

• 55, Canal East Road, Belighatta, Kolkata-700 085

• Chandigarh Road, Ludhiana-141 010• 314, Solaris-II, Opp. L&T Gate No. 6, Saki Vihar Road,

Andheri (East), Mumbai-400 072• Solaris-II, Universal Industrial Estate,

Gala Number G-7 To G-14 & B-12 to B-14,Saki Vihar Road, Andheri (East), Mumbai-400 072

• C-40 & 42, Okhla Industrial Area, Phase-II,New Delhi-110 020

• 212, Deen Dayal Upadhyaya Marg,Urdu Ghar, Ist Floor, New Delhi-110 002

• 5th Floor Plot No. 19, Sagar Plaza Building,Laxmi Nagar, District Centre, New Delhi-110092

• 310, Surya Kiran Building,19, Kasturba Gandhi Marg, New Delhi-110001

• B-47, Sector-6, Noida-201 301• Plot No. 60, Sector 1, Parwanoo• Mezzanine Floor, Abhishek Plaza,

Exhibition Road, Patna-800 001• Realty Warehousing,

Gat No. 2323/1, Wagholi, Pune-411 014• Jyoti Sangam Lane, Upper Bazar, Ranchi-834 001• No-40-LRG Layout, Narayan Knitting Mills Compound,

Kongu Nagar Extension, Tirupur-641 607• 377-B, Muthuswami Industrial Complex,

Palladam Road, Tirupur

BRANCHES

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NOTICE

NOTICE is hereby given that the THIRTY FOURTH ANNUALGENERAL MEETING of Vardhman Textiles Limited will be heldon Saturday, the 18 th day of August, 2007 at 3.30 p.m. at theRegistered Office of the Company situated at Chandigarh Road,Ludhiana, to transact the following business:-ORDINARY BUSINESS:1. To receive, consider and adopt the Audited Balance Sheet

as at 31st March, 2007, Profit and Loss Account for theyear ended on that date, together with Report of Auditorsand Directors thereon.

2. a). To appoint a Director in place of Mr. S.K Bansal, whoretires by rotation in accordance with Article 108 of theArticles of Association of the Company and beingeligible, offers himself for re-appointment.

b) To appoint a Director in place of Mr. S.K Bijlani, whoretires by rotation in accordance with Article 108 of theArticles of Association of the Company and beingeligible, offers himself for re-appointment.

3. To appoint Auditors for the year 2007-2008 and to fix theirremuneration.

SPECIAL BUSINESS:4. To Consider and if thought fit, to pass with or without

modification(s), the following resolution as a SpecialResolution:-“RESOLVED THAT pursuant to the provisions of Section309,310, and other applicable provisions, if any, of theCompanies Act, 1956, approval of the Members of theCompany be and is hereby given to the enhancement ofthe sitting fee payable to the Directors from Rs. 8,000/-and Rs. 5,000/- per Meeting to Rs. 10,000/- and Rs. 6,000/- per Meeting for attending the Board Meeting andCommittee Meeting respectively.”

5. To Consider and if thought fit, to pass with or withoutmodification(s), the following resolutions as OrdinaryResolutions :-a) “RESOLVED THAT Mrs. Shakun Oswal, who was

appointed as an Additional Director by the Board ofDirectors under Section 260 of the Companies Act, 1956and hold office upto the date of this Annual GeneralMeeting and in respect of whom the Company hasreceived a notice under section 257 of the CompaniesAct, 1956, be and is hereby appointed a Director of theCompany, liable to retire by rotation, under the Articlesof Association of the Company.”.

b) “RESOLVED THAT Mr. A.K Purwar, who was appointedas an Additional Director by the Board of Directors underSection 260 of the Companies Act, 1956 and hold officeupto the date of this Annual General Meeting and inrespect of whom the Company has received a noticeunder section 257 of the Companies Act, 1956, be andis hereby appointed a Director of the Company, liableto retire by rotation, under the Articles of Association ofthe Company.”.

BY ORDER OF THE BOARD

PLACE : LUDHIANA (VIPIN GUPTA)DATED : 28th May, 2007 COMPANY SECRETARY

NOTES:

1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THEMEETING IS ENTITLED TO APPOINT A PROXY TOATTEND AND VOTE ON A POLL INSTEAD OF HIMSELF/HERSELF AND SUCH PROXY NEED NOT BE A MEMBEROF THE COMPANY. THE PROXY, IN ORDER TO BEEFFECTIVE, MUST BE RECEIVED BY THE COMPANY NOTLESS THAN 48 HOURS BEFORE THE MEETING. THEBLANK PROXY FORM IS ENCLOSED.

2. The information pursuant to Corporate Governance Clauseof the Listing Agreement(s) regarding the directors seekingappointment/re-appointment in the Annual GeneralMeeting as proposed in Item No. 2(a) & 2(b) and Item No.5(a) & 5(b) of the Notice is also being annexed heretoseparately and forms part of the Notice.

3. The Register of Members and the Share Transfer Books ofthe Company shall remain closed from 17th August, 2007to 18th August, 2007.

4. The Members holding shares in physical mode arerequested to notify the change in their address, if any, atthe earliest to the Registrar & Transfer Agent/Company.However members, holding shares in electronic mode maynotify the change in their address, if any, to their respectiveDepository Participants.

5. Members desiring any information, as regards Accounts,are requested to write to the Company at its RegisteredOffice at least 10 days before the date of Annual GeneralMeeting so as to enable the management to keep theinformation ready.

6. The copies of relevant documents can be inspected at theRegistered Office of the Company on any working daybetween 10.30 A.M. to 12.30 P.M.

7. Members are requested to bring their copy of Annual Reportalongwith them to the Annual General Meeting.

8. Members holding shares in the same/identical name(s)under different folios are requested to apply forconsolidation of such folios and send relevant sharecertificates to the Company/Registrar and Transfer Agent.




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ANNEXURE TO THE NOTICE :EXPLANATORY STATEMENT PURSUANT TO SECTION 173(2) OF THE COMPANIES ACT, 1956:ITEM NO. 4 OF THE SPECIAL BUSINESS

Article 96 of the Articles of Association of your Company providesfor the payment of sitting fee to every Director for attending ameeting of the Board or its Committee subject to such maximumfee as may be prescribed by Central Government from time totime. In terms of Circular No G.S.R 580 (E) dated 24.07.2003issued by the Central Government, your Company can pay amaximum amount of Rs. 20,000/- as sitting fee for each meetingof the Board of Directors or Committee of Directors.

Keeping in view the contribution made by Directors in framingthe progressive policies and giving their valuable guidance /suggestions from time to time to the Company , the Board ofDirectors in its meeting held on 28th May, 2007 had enhancedthe sitting fees from Rs. 8,000/- to Rs. 10,000/- and fromRs. 5,000/- to Rs. 6,000/- for attending the meeting of Board ofDirectors and Committee of Directors respectively.

Except Mr. S.P Oswal, Chairman and Managing Director,Mr. D.L Sharma, President & Executive Director and Mr. SachitJain, Executive Director, all other Directors of the Company areconcerned or interested in this resolution.

ITEM NO. 5 (a) & (b) OF THE SPECIAL BUSINESS :

(a) Mrs Suchita Jain had resigned from the Board of Directorsof the Company. The Board of Directors appointed MrsShakun Oswal as an Additional Director on the Board ofthe Company pursuant to Article 105 of the Articles ofAssociation of the Company and section 260 of CompaniesAct 1956, Mrs. Shakun Oswal is also on the Board ofVardhman Holdings Limited and various other Investment

Companies. The Company has received a notice from oneof the members of the Company u/s 257 of the CompaniesAct, 1956, together with the requisite deposit, proposingthe candidature of Mrs. Shakun Oswal as a Director of theCompany.

None of the Directors except Mrs. Shakun Oswal, theappointee herself, and Sh S.P Oswal and Sh Sachit Jain, beingrelatives of Mrs. Shakun Oswal, is concerned or interestedin this resolution.

(b) The Board of Directors in its meeting held on 28.05.2007had appointed Mr. A.K Purwar as Additional Director onthe Board of the Company pursuant to Article 105 of theArticles of Association of the Company and section 260 ofCompanies Act 1956, w.e.f. 01.06.2007. Mr. Purwar is aneminent Banker and was the Chairman of the State Bank ofIndia and its associate Banks upto May 31st, 2006. He has arich experience of more than 36 years. The Company hasreceived a notice from one of the members of the Companyu/s 257 of the Companies Act, 1956, together with therequisite deposit, proposing the candidature of Mr. A.K.Purwar as a Director of the Company.

Non of the Directors except Mr. A.K. Purwar, the appointeehimself is concerned or interested in this resolution.



Information Pursuant to Corporate Governance Clause of the Listing Agreement(s) regarding theDirectors seeking appointment/ re-appointment in the Annual General Meeting

Name of the Director Sh. S.K. Bansal Mrs. Shakun Oswal Mr. A.K Purwar Sh. S. K. Bijlani

Date of Birth 15.05.1946 18.08.1946 14.05.1946 06.09.1942

Date of Appointment 30.03.2005 28.05.2007 28.05.2007 30.03.2005(w.e.f. 01.06.2007)

Expertise in specific Practising Chartered Accountant having Investment Activities Eminent Banker having Experience Industrial & Business experienceof more functional area more than 34 years experience in Audit, of more than 36 years in Banking than 30 years

Accounts and Taxation & Finance

Qualification F.C.A. B.A M.Com, PGDBA B.Tech., PGDC In Mgt & Fin.

Directorships of Other 1. Marudhar Hotels Pvt. Ltd. 1. Vardhman Holdings Ltd. 1. Indiareit Fund Advisors Pvt. Ltd. 1. Magnus Engineers PrivateCompanies as on 2. Steel Strips Wheels Ltd. 2. Adinath Investment and Trading Company Limited31st March, 2007 3. Shri Bhavni Power Project Pvt. Ltd. 3. Devakar Investment and Trading Co. Pvt. Ltd. 2. Punjab Information &

4. Ramaniya Finance and Investment Co. Ltd. Communication Technology5. Flamingo Finance and Investment Co. Ltd. Corporation Limited6. Srestha Holdings Limited 3. Chandigarh Industrial &7. Santon Finance and Investment Co. Ltd. Tourism Development8. Pradeep Mercantile Co. Pvt. Ltd. Corporation Ltd.9. Plaza Trading Co. Pvt. Ltd.10. Vardhman Textile Processors pvt. Ltd.11. Marshal Investment & Trading Co. Pvt. Ltd.12. Sharda Investment & Trading Co. Pvt. Ltd.

Chairman/ Member of Audit Committee —— —— ——Committtees of Other 1. Steel Strips Wheels Ltd. (Member)Companies ason 31st March, 2007

No. of Shares Held Nil 1,53,583 Nil Nil

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DIRECTORS’ REPORT

Dear Members,The Directors of your Company have pleasure in presenting their 34th Annual Report on the affairs of the Companytogether with the Audited Accounts of the Company for the year ended, 31st March, 2007.1. FINANCIAL RESULTS:

The Financial Results for the year are as under :- (Rs. in Lac)PARTICULARS 2006-2007 2005-2006

Turnover 215,009.02215,009.02215,009.02215,009.02215,009.02 195,724.74Profit before Depreciation, Interest & Tax (PBDIT) 38,290.8238,290.8238,290.8238,290.8238,290.82 39,142.16Interest & Financial expenses 3,769.503,769.503,769.503,769.503,769.50 3,949.03Profit before Depreciation & Tax (PBDT) 34,521.3234,521.3234,521.3234,521.3234,521.32 35,193.13Depreciation 11,944.5311,944.5311,944.5311,944.5311,944.53 10,133.99Profit before Tax (PBT) 22,576.7922,576.7922,576.7922,576.7922,576.79 25,059.14Provision for Tax - Current 5,017.005,017.005,017.005,017.005,017.00 5,700.00

- Fringe Benefit Tax 100.00100.00100.00100.00100.00 110.00- Deferred (Net of adjustment) 294.77294.77294.77294.77294.77 (374.84)- Income Tax Adjustment for earlier years (5.06)(5.06)(5.06)(5.06)(5.06) (7.64)

Profit after Tax (PAT) 17,170.0817,170.0817,170.0817,170.0817,170.08 19,631.62Add: Debenture Redemption Reserve 625.00625.00625.00625.00625.00 625.00

Balance brought forward 5,023.595,023.595,023.595,023.595,023.59 3,877.49Balance available for appropriation 22,818.6722,818.6722,818.6722,818.6722,818.67 24,134.11

Appropriations:Interim Dividend on:

- Equity Shares 2,310.78 –––––- Corporate Dividend Tax 324.09 2,634.87 –––––

Proposed Dividend on:- Equity Shares ––––– 2,310.78- Corporate Dividend Tax – 324.09 2,634.87

Transfer to General Reserve 15,000.00 16,475.65Surplus carried to Balance Sheet 5,183.80 5,023.59

22,818.67 24,134.11Earnings per share (Rs.)

- Basic 29.72 33.98- Diluted 16.56 16.50

Dividend per share (Rs.) 4.00 4.00

2. MANAGEMENT DISCUSSION AND ANALYSISREPORT:

a) Textile Business:

The global textile industry is undergoing growth,restructuring and relocation in the wake ofdismantling of restrictions on the movement oftextile products across the world. The industry isgrowing at a rapid pace in countries like China,India, Pakistan, Bangladesh, Srilanka and EastEuropean countries. China has emerged the largestglobal player in the international textile businesswith a turnover of about $280 bn, of which exportsalone accounted for $146 bn in 2006.

The global fibre consumption is growing at about3.5 per cent per annum with synthetic fibresdominating the total fibre consumption. Theglobal fibre consumption increased from 52.7million tons in the year 2000 to 68.7 million tonsin 2006. Of this synthetic fibres accounted for40.8 million tons. It is worth mentioning herethat the cotton fibre consumption has recordedimpressive growth during the recent years.The global trade in textile and clothing recordedgrowth of about 7 per cent in 2005 at $479 bncompared to $453 bn a year ago. The textile traderecorded a growth of 5 per cent while clothinggrew faster at 7 per cent. A large part of the


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increase in trade was captured by China, whichis almost 25 per cent. China has also chalkedout an ambitious plan to increase its market shareto about 50 per cent in the coming years.According to study conducted by Technopak, theworld trade in textile and clothing is expected togrow to $805 billion by 2015.Though India enjoyed strong position in worldtrade of Textiles in early 80’s but we lost groundbetween this period by the reason of fiscalpolicies of reservations in the small scale sector.During this period, China took advantage bymodernizing and expanding at fast speed andhas emerged to capture more than 20% of worldtrade. Whereas India is still occupying about 4%of the world trade.The government introduced TUF scheme in 1999in order to increase investment for modernizingand expanding of certain sectors of TextileIndustry. In 2004, government brought in a majorchange in fiscal policy by bringing a level playingfield among the different sectors of the Industry.This has given a fillip to investment in TextileIndustry and offtake of loans under TUF pickedup in a massive way during the last three years.The investment need to continue for next 5 yearsif we have to reach a level where we are notseen as a minisucle player vis –a vis China andthat is the reason that the Finance Minister in hisbudget speech in 2007 extended the TUF schemefor another 5 years.Your Company has taken full advantage of thescheme by launching expansion andmodernization of its capacities. Theimplementation is going on and this will enablethe Company to serve various products, toprovide good service to its customers bysupplying materials like Yarns, Fabrics, Threadsto enable the garmentors to acquire a cutting edgein competitiveness.The Indian textile industry has been growing at 8-10 per cent in recent years. The growth of textileindustry has become more volatile in the wake ofgrowing production centres like Cambodia andVietnam. Further considering sensitivity to pricesand competitive conditions, the country’s relativemarket share undergoes major changes. Forexample, the exports from India recorded a growthof about 20 per cent during 2004 and 2005 butduring the last year, the exports recorded a meagregrowth of 7 per cent.Relocation, Consolidation and Collaboration areexpected to characterize the textile industry innext few years. At the same time a few largetextile conglomerates would emerge. The Indiantextile has seen rapid integration with the global

textile industry in terms of alliance andacquisitions.In view of global forces mentioned above, thecompetencies required in the textile industry arerapidly changing with cost, services andinnovation as the key drivers. The competitionin textile industry would further intensify and thesurvivors would be the one who understand thedirectional change and build bettercompetencies.

Outlook on opportunitiesThe fundamental growth drivers remain strong. Therewould be growing opportunities in the internationalmarket and the domestic market. The mill fibreconsumption has reached a level of 6.4 mn tons whichshows significant growth in the last three years. Theconsumption is growing in response to growing percapita income, population and strong retail push.Besides the growth opportunities in the World marketconsequent to opening of the world trade in 2005,there exists immense opportunities due to increasedconsumption that is expected to take place due togrowing income. It is estimated by Technopak in itsprojection upto 2015 that Domestic Economy willgrow from USD 20-25 Million to USD 50-55 Million.In order to reach that level, the country has to achievemuch bigger capacities in all sectors of textileproduction. Your Company has already plannedexpansion of 2.9 lac spindles at Satlapur and Budhniin Madhya Pradesh. Partial capacity of 34,800spindles has already been commissioned. The balancecapacity is likely to go on stream during the year 2007-2008.The fabric capacity in existing facility has alreadybeen increased to 54 million meter. Our new plantat Budhni will create a capacity of 40 million metersof processed fabric to start with. The provision hasalso been made to increase the capacity by 20 mnmeters. The fabric facility in Budhni shall also becoming up in the year 2007-2008.It has also been our continuous endeavour that wediversify the products so that the Company can offerto the buyers more and more value added products.

b) Steel BusinessThe steel division of the Company has focused onAlloy and Special Steel. This caters to the demand ofAutomobile Sector, Forging Industry and Special Steelusers in the Capital Goods Industry. The growth inAutomobile Sector and Auto Component Sector islikely to create increase in demand for these varietiesof Steel. The Steel business has performed well andlooking at the growth trend in the automobile sector,it is expected that the steel business of the Companyshould perform well in the coming years.

c) Financial Analysis and Review of Operations:

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Your directors are pleased to report performance ofthe business operations as follows :-

• PRODUCTION & SALES REVIEW:During the year under review, your company hasregistered a turnover of Rs. 215,009.02 lac ascompared to Rs. 195,724.74 lac showing an increaseof 9.85 % over the previous year turnover. The exportof the Company increased from Rs. 36,741.54 lac toRs. 43,401.84 lac, showing an increase of 18.13%over the previous year owing to enhanced productionand better product/market penetration. Thebusinesswise performance is as under:-i) Yarn: The production of yarn increased from

77,967 MT to 87,476 MT during 2006-2007. Thesales revenue of yarn increased fromRs. 92,619.62 lac to Rs. 102,873.31 lac duringthe year under review

ii) Sewing Thread: During the year, the productionof Sewing Thread was 8783 MT as against 8129MT in the previous year. The sales revenue ofSewing Thread Division decreased fromRs.32,281.52 lacs to Rs. 29,634.83 lacs mainlybecause of change in accounting system ofdiscounts allowed on sales which were earliergiven through credit notes, and now reduced fromthe invoice value it self.

iii) Steel: During the year, the production of SteelIngots/Billets has been 88378 MT (Previous year79452 MT) and that of Rolled Products has been81537 MT (Previous year 73087 MT). The salesrevenue of the division has been Rs. 34,702.19lac (Previous year Rs.31,850.21 lac.).

iv) Fabric: During the year, the production ofprocessed fabric increased from 32.62 millionmeters to 36.53 million meter, showing anincrease of 11.99 % over the previous year. Thesales revenue of processed fabric also increasedfrom Rs. 28,945.39 lac, to Rs 33,239.58 lac.showing an increase of 14.84% over the previousyear.

• PROFITABILITY:The Company earned profit before depreciation,interest and tax of Rs. 38,325.34 lac as againstRs.39,142.16 lac (including extraordinary income ofRs. 2,714 lac) in the previous year. After providingfor depreciation of Rs11,944.53 lac, (Previous yearRs.10,133.99 lac), provision for current taxRs. 5,017.00 lac (Previous year Rs.5,700.00 lac),provision for deferred tax (net of adjustments),Rs.294.77 lac (previous year Rs.374.84 lac), incometax adjustments for earlier years Rs.(5.06) Previousyear Rs.(7.64) lac) and provision for Fringe BenefitTax of Rs. 100 lac (Previous Year 110 lac) the netprofit worked out to Rs.17,170.08 lac as comparedto Rs.19,631.62 lac in the previous year.

The fabric business has suffered setback in the currentyear due to multiplicity of reasons. The expectedincrease in production could not be achieved becauseof some internal and external constraints which havesubstantially been overcome. Because certaincommitments with customers could not be properlyfulfilled, some extraordinary costs had to be borneby the Company. We are hopeful that this year therecould be significant improvement in fabric business.

• RESOURCES UTILISATION:i) Fixed Assets: The gross fixed assets (including

work-in-progress) as at 31st March, 2007 were Rs.264,933.62 lac as compared to Rs. 185,633.23lac in the previous year.

ii) Current Assets: Debtors outstanding for morethan six months were Rs. 1,058.30 lac ascompared to Rs. 1,392.70 lac in the previous year.The net current assets as on 31st March, 2007were Rs. 1,12,401.66 lac as against Rs.1,05,010.07 lac in the previous year. Inventorylevel was at Rs. 69584.82 lac which was morethan the previous year level of Rs. 56,899.59 lac.

• FINANCIAL CONDITIONS & LIQUIDITY:The Company enjoys a rating of “AA-“ and “P1+”from Credit Rating Information Services of IndiaLimited (CRISIL) for long term and short termborrowings respectively. Management believes thatthe Company’s liquidity and capital resources shouldbe sufficient to meet its expected working capitalneeds and other anticipated cash requirements. Theposition of liquidity and capital resources of theCompany is given below :-

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

Cash & Cash equivalents:Beginning of the year 27,154.81 2,272.43End of the Year 21,673.36 27,154.82Net cash provided (used) by:Operating Activities 19,481.15 23,294.18Investing Activities (78,355.81) (27,171.35)Financial Activities 53,393.19 28,759.56

D) Internal Control System:The Company has well defined internal controlsystem. The Company takes abundant care to design,review and monitor the working of internal controlsystem. Internal Audit in the organisation is anindependent appraisal activity and it measures theefficiency, adequacy and effectiveness of othercontrols in the organisation. All significant issues arebrought to the attention of the Audit Committee ofthe Board.

E) Management perception of Risk & concern:The textile business, like other businesses, is


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susceptible to various risks. The primary risk factor isthe raw material prices, which is the largestcomponent of cost, as the commodity prices arecyclical in nature. As a result, they exert significantimpact on profitability. Fortunately the availabilityof cotton in the country has improved considerablyduring the last few years. The Company has significantexports and large project imports. The recent volatilityin foreign exchange markets has a bearing on theprofitability and the cost of production. The rapidstrengthening of the rupee against the dollar is likelyto adversely affect the profitability of the company.We are taking all possible measures to mitigate theadverse impact of the movements in the foreignexchange markets. The rate of inflation in the countryhas gone up in the recent quarters. This hasconsequences for the cost of inputs used by theCompany. Coupled with price increase resistance,the increased input cost tend to reduce profitability.Finally the Company has chalked out major expansionin capacities. The successful installation andstabilization of operations is subject to projectexecution risk. However, the Company is fullyprepared to meet this challenge and execute theprojects keeping the down side risk to a minimum.

F) Human Resources/Industrial Relations:The Company continues to lay emphasis on buildingand sustaining an excellent organisation climatebased on human performance. Performancemanagement is the key word for the Company. Duringthe year the Company employed over 17600employees.Pursuit of proactive policies for industrial relationshas a peaceful and harmonious situation.

3. SUBSIDIARIES:The Company has following subsidiary companiesthe details of profitability of which is given below :-

VMT Spinning Company Limited (VMT):Business of this subsidiary of the Company which isa Joint Venture with Marubeni Corporation and TohoRayon Company Limited of Japan remained steady.The sales revenue of the Company increased to Rs.6,787.49 Lac from Rs.5,939.55 lac. The net profits ofthe Company increased from Rs.480.66 lac to Rs.1,139.51 lac.Out of the total present paid-up capital of Rs.2,070.02lac, your Company holds 73.33%. The Board ofDirectors of VMT has recommended a dividend of 9% for the year 2006-2007.

Vardhman Threads Limited (VTL):This 100% subsidiary of your Company recorded asales volume of Rs. 2,228.97 lac as againstRs. 2,137.67 lac, an increase of 4.27 percent. Thenet profit of the Company is Rs. 655.04 lac as against

Rs. 522.83 lac in the previous year.

Vardhman Yarns & Threads Limited (VYTL):This subsidiary of the Company has not yet startedits operations.A statement under Section 212 of the Companies Act,1956, relating to the subsidiaries of the Company viz.,VMT Spinning Company Limited, Vardhman ThreadsLimited and Vardhman Yarns & Threads Limited isenclosed herewith together with Annual Reports ofthe respective Companies.

6. BUSINESS RE-ORGANISATION:The Board of Directors of the Company had approvedthe Scheme of Arrangement, Re-orgenisation andDemerger among Vardhman Textiles Limited,Vardhman Threads Limited and Vardhman Yarns &Threads Limited and their respective Shareholders &Creditors with the end intent of consolidating theThread Business of the Company and that ofVardhman Threads Limited, a 100% subsidiary of theCompany. The Petition under Section 391 has beenfiled in the High Court for the States of Punjab &Haryana at Chandigarh for approval of the above saidscheme by the Hon,ble high Court, which was heardon 26th April, 2007. The Hon’ble High Court hasissued the necessary directions to convene theMeetings of the Equity Shareholders, Secured &Unsecured Creditors of the Company. The saidMeetings are scheduled to be held on 16th June, 2007at the Regd. Office of the Company.

7. PUBLIC DEPOSITS:

At the end of the year, fixed deposits from the Publicwere outstanding to the tune of Rs.266.64 lac. Outof these deposits, 20 deposits amounting to Rs. 3.51lac were due for payment on or before 31st March,2007 but were not claimed by the depositors. Sincethen, 2 deposits amounting to Rs. 0.47 lac haveeither been repaid or renewed and for the balance18 deposits amounting to Rs.3.04 lac, instructions ofthe depositors are awaited.

9. DIVIDEND:

The Board of Directors of your Company had declaredan interim dividend of Rs. 4 per share, which hasbeen paid in March, 2007. No final dividend has beenrecommended by the Board.

10. DIRECTORS:Mr. S.K Bansal & Mr. S.K Bijlani, Directors of theCompany, retire by rotation at the conclusion of theforthcoming Annual General Meeting of theCompany, pursuant to article 108 of the Articles ofAssociation of the Company and being eligible offerthemselves for re appointment. Mrs Suchita Jainresigned from the Board of Directors of the Companyw.e.f. 28.05.2007. The Board in its Meeting held on

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28th May, 2007 appointed Mrs Shakun Oswal asadditional Director on the Board of the Company.The Board also appointed Mr. A.K. Purwar, formerChairman of State Bank of India as Additional Directorw.e.f. from 1st June, 2007 pursuant to the provisionsof Section 260 of the Companies Act,1956. Noticeshave been received from members pursuant to section257 of the Companies Act 1956, together withrequisite deposits proposing the candidatures of Mrs.Shakun Oswal and Mr. A.K. Purwar as Directors ofthe Company. Requisite approval of the members fortheir appointment is being sought at the ensuingAnnual General Meeting.

11. CORPORATE GOVERNANCE:The Company has in place a system of CorporateGovernance. A separate report on CorporateGovernance forming part of the Annual Report of theCompany is annexed hereto. A certificate from theAuditors of the Company regarding compliance ofconditions of Corporate Governance as stipulatedunder Corporate Governance Clause of the ListingAgreement is annexed to the report on CorporateGovernance.

12. AUDITORS:M/s. S.C. Vasudeva & Company, CharteredAccountants, New Delhi, Auditors of the Company,retire at the conclusion of the forthcoming AnnualGeneral Meeting and being eligible, offer themselvesfor re-appointment.

13. AUDITORS’ REPORT:The Auditors’ Report on the Accounts of the Companyfor the year under review is self-explanatory andrequires no comments.

14. COST AUDITORS:The Board of Directors have re-appointed M/s.Ramanath Iyer & Company, Cost Accountants, NewDelhi, as the Cost Auditors of the Company underSection 233B of the Companies Act, 1956, subject tothe approval of the Central Government for the year2007-2008. The Cost Auditors’ Report for the financialyear 2006-2007 will be forwarded to the CentralGovernment as required under law.

15. STATEMENT OF PARTICULARS OF EMPLOYEES:A Statement of Particulars of Employees pursuant tothe provisions of Section 217(2A) of the CompaniesAct, 1956, is enclosed and forms part of this report.

16. GROUP:The Company, inter-alia with the following entities,constitute a ‘Group’ as defined under the Monopoliesand Restrictive Trade Practices Act, 1969:-a) Vardhman Holdings Limitedb) Vardhman Threads Limitedc) Adinath Investment and Trading Company

d) Devakar Investment and Trading CompanyPrivate Limited

17. CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGSAND OUTGO:Energy conservation continues to be an area of majoremphasis in your Company. Efforts are made tooptimise the energy cost while carrying out themanufacturing operations. Particulars with respect toconservation of energy and other areas as per Section-217(1) (e) of the Companies Act, 1956, read with theCompanies (Disclosure of Particulars in the Reportof Board of Directors) Rules, 1988, are annexed heretoand form part of this report.

18. DIRECTORS’ RESPONSIBILITY STATEMENT:Pursuant to Section-217(2AA) of the Companies Act,1956, the Directors confirm that -a) in the preparation of the annual accounts, the

applicable accounting standards have beenfollowed;

b) appropriate accounting policies have beenselected and applied consistently, and have madejudgements and estimates that are reasonable andprudent so as to give a true and fair view of thestate of affairs of the Company as at 31st March,2007 and of the profit of the Company for theyear ended on 31st March, 2007;

c) proper and sufficient care has been taken for themaintenance of adequate accounting records inaccordance with the provisions of the CompaniesAct, 1956, for safeguarding the assets of theCompany and for preventing and detecting fraudand other irregularities; and

d) the annual accounts have been prepared on agoing concern basis.

19. NAME CHANGE:The name of the Company has been changed formMahavir Spinning Mills Limited to Vardhman TextilesVardhman TextilesVardhman TextilesVardhman TextilesVardhman TextilesLimited w.e.f 5Limited w.e.f 5Limited w.e.f 5Limited w.e.f 5Limited w.e.f 5ththththth September, 2006. September, 2006. September, 2006. September, 2006. September, 2006.

20. ACKNOWLEDGMENT:Your Directors are pleased to place on record theirsincere gratitude to the Government, FinancialInstitutions, Bankers and Business Constituents fortheir continued and valuable co-operation andsupport to the Company. They also take thisopportunity to express their deep appreciation for thedevoted and sincere services rendered by theemployees at all levels of the operations of theCompany during the year.

FOR AND ON BEHALF OF THE BOARD

(S.P. OSWAL)PLACE : LUDHIANA CHAIRMAN &DATED : 28th May, 2007 MANAGING DIRECTOR


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I. CONSERVATION OF ENERGY:

The Company has over the previous years taken several steps to conserve energy wherever possible. This continues to remain thrust area withstudies, discussions and analysis being undertaken regularly for further improvements. The Company has put in heat recovery systems, lightingsystem to channelise heat energy and also condensate recovery system in its boilers. The use of inverters is being explored as well.

The desired information is enclosed herewithConservation measure taken, proposed measures being implemented for reduction of consumption of energy and consequent impact thereofon the cost of production of goods:

S. Energy Consuption Measures Taken in Saving In KWH Saving In Rs. Proposed Saving Proposed SavingNo. 2006-07/proposed and being implemented in 2007-08 (Lac) /Year (Lac) /Year In KWH (Lac) /Year In Rs. (Lac) /Year

2006-07 2006-07 2007-08 2007-08

1 Installation Of Electronic Chokes, Cfl, Servo Stablizer. 3.94 16.37 5.52 23.032 Installation Of Vfds, Energy Efficient Motors. 16.57 59.40 12.16 53.683 Machine Section Installation of Energy Efficient Motors, Vfds, Optimisation of Motor Loading, 14.38 52.28 40.62 159.84

Automation of Boiler.4 Installation Of Capacitors, High Efficient Pumps, High Efficient Compressors, Operating High 25.62 356.68 242.92 1,013.49

Efficiency D.G. Sets.Saving In Husk(ton) /Year Saving In Rs. /Year

1 Heat Recovery From Compressors,D.G. Sets,. 906 101.87 - 136.40Saving In Water(kl) / Year Saving In Rs. /Year

2 Heat Recovery, Recovery Of Condenstae, Reuse of Used Water. 62700 94.54 - 4.26

Total Saving In Rs.in Lakh / Year 681.14 1390.70

ANNEXURE TO THE DIRECTORS’ REPORT

INFORMATION AS PER SECTION 217 (1) (e) READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OFBOARD OF DIRECTORS) RULES, 1988, AND FORMING PART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED31ST MARCH, 2007:

1. ELECTRICITY:a) Purchased:

Units (KWH in lac) 5207.07 4069.06Total amount (Rs.in lac) 19131.04 15744.54Rate per unit (Rs.) 3.67 3.87

b) Own generation through:Diesel Generator (KWH in lac) 700.71 1,332.12Unit/Ltr. of Diesel (KWH) 4.04 4.11Cost per unit (Rs.) 5.17 4.19

2. Coal (Used in Boiler):Quantity (MT) 59.46 773.15Total cost (Rs. in lac) 2.54 33.15Average rate (Rs. per MT) 4,271.64 4,287.65

3. Oil (LDO/HSP/RFO/HPS):Quantity (K.LTRS) 4,643.65 4,439.36Total Cost (Rs.in lac) 884.92 781.22Average rate (Rs. per Litre) 19.06 17.60

4. Others (Husk used in Boiler):Total quantity (MT) 96,126.65 85,790.58Total cost (Rs.in lac) 2,608.67 1,782.89Average cost (Rs. per MT) 2,713.78 2,078.19

FORM-A:PARTICULARS UNIT 2006-07 2005-06

B) CONSUMPTION PER UNIT OFPRODUCTION:

1. Yarn (Cotton & Acrylic):Electricity (KWH per Kg) 4.12 4.04Coal (In per kgs.) 1.70 0.12Husk (In per kgs.) 2.36 2.70

2. Fabric:Electricity-grey fabric (KWH/mtr) 0.85 0.85Electricity-Processed (KWH/mtr) 0.50 0.42fabricHusk (Kgs/mtr) 1.34 1.14Steam (used for grey (Kgs/mtr) 0.51 0.59Fabric)Steam (used for processed (Kgs/mtr) 6.12 4.96Fabric)

3. Sewing Thread:Electricity (KWH per Kg.) 3.46 3.48Diesel (Ltr per Kg.) – 0.03Husk (Kg. per Kg.) 1.90 1.93

4. Steel Billets/Ingots:Electricity (KWH per MT) 879.95 885.50Furnace Oil/LDO (Ltr. per MT) 12.11 11.88

5. Rolled Steel:Electricity (KWH per MT) 72.75 74.53Oil (FO/LDO) (Ltr. per MT) 41.98 40.25

II. TECHNOLOGY ABSORPTION:

Efforts made in Technology Absorption are furnished in FORM-B as under :-

A) RESEARCH AND DEVELOPMENT (R&D):

1. Specific areas in which Research & Development is carried out by the Company:

Research & Development is carried out for development of new products and for improvement in the production process and quality ofproducts. The Company has been able to pioneer the launch of new products which have been successful in the market due to its R & D efforts.

2. Benefits derived as a result of R & D:

The Company has been continuously improving the quality of its existing products and entered into new products and also been able to reducethe cost of production.

3. Future Course of action:

Management is committed to strengthen R & D activities further to improve its competitiveness in times to come.

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STATEMENT OF PARTICULARS OF EMPLOYEES

INFORMATION REQUIRED AS PER SECTION 217(2A) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES (PARTICULARS OF EMPLOYEES)RULES, 1975 AND FORMING PART OF DIRECTORS’ REPORT FOR THE YEAR ENDED 31ST MARCH, 2007.

S. Name of Employee Designation/Nature Remuner- Qualifica- Age Experience Date of ParticularsNo. of duties ation tion (Years) (Years) Employ- of last Employment

(In Rs.) ment

(A) PERSONS EMPLOYED THROUGHOUT THE FINANCIAL YEAR, WHO WERE IN RECEIPT OF REMUNERATION WHICH, IN THE AGGREGATE, WAS

NOT LESS THAN Rs. 24,00,000/- PER ANNUM.

1. Mr. S.P. Oswal Chairman & Managing 522.81 Lac M.Com. 65 40 1.6.2005 Chairman & Managing DirectorDirector Vardhman Spinning & General

Mills Limited

2. Mr. D.L. Sharma President & Executive 34.63 Lac B.S.C. (Engg.), 58 34 1.8.1985 General Manager, VardhmanDirector M.B.A. Spinning and General Mills

Limited3. Mr. Sachit Jain Executive Director 44.48 Lac B.Tech., M.B.A. 41 17 30.03.2005 Executive Director, Vardhman

Spinning and General MillsLimited

4. Mrs. Suchita Jain Executive Director 29.96 Lac M. Com. 39 14 30.03.2005 Executive Director, VardhmanSpinning and General MillsLimited

5.5.5.5.5. Mr. B.K Chaudary President 30.45 Lac B.Sc, M.Com, 56 31 23.12.1985 Chief Commercial Manager, Usha(Steel Division) M.B.A Alloys & Steels Ltd., Jamshedpur

6. Mr. IMJS Sidhu Chief Executive & 24.27 B.Text 59 36 03.03.1981 Chief Spinning Master, ShreeDirector Sewing Thread Bhiwani Cotton Mills & Industries,Manufacturing Abohar

(B) PERSONS EMPLOYED FOR A PART OF THE FINANCIAL YEAR, WHO WERE IN RECEIPT OF REMUNERATION FOR ANY PART OF THE YEAR, AT A

RATE WHICH, IN THE AGGREGATE, WAS NOT LESS THAN Rs. 2,00,000/- PER MONTH.

Not Applicable

NOTES :

1. Remuneration includes Salary, Commission, Contribution to Provident Fund, Leave Travel Concession, Medical Assistance and other allowancespaid in cash and taxable value of non cash perquisites.

2. Mr. S.P. Oswal, Mr. Sachit Jain and Mrs. Suchita Jain are not related to any of the Directors of the Company except themselves, being relatives.Mr. D.L. Sharma, Mr. B.K. Choudhary and Mr. IMJS Sidhu are not related to any of the Directors of the Company.

3. Appointment of Mr. S.P. Oswal, Mr. D.L. Sharma, Mr. Sachit Jain and Mrs. Suchita Jain are contractual in nature.

4. Expenditure on R & D:(Rs. in lac)

2006-2007 2005-2006

Capital 492.41 233.62Recurring 59.69 32.64Total :- 552.10 266.26Total R & D expenditure as aPrecentage of turn over is 0.26% 0.12%

B) TECHNOLOGY ABSORPTION, ADAPTATION ANDINNOVATION:

1. Efforts made:The Company is continuously making efforts for adaptation of latesttechnology in all its units. The Company has also created specificcell for studying and analyzing the existing processes for furtherimprovement.

2. Particulars of technology imported in the last five years.a) Technology imported Nilb) Year of import N.Ac) Has technology been fully absorbed N.A

III. FOREIGN EXCHANGE EARNINGS AND OUTGO:

Activities relating to export, initiatives takien to increase exports,development of new export market for products and services andexport plans are given hereunder:

— Developed products from new generation fibres like Fair TradeCotton, Tencel, Modal, Barnboo etc.

— Got registration for Fair trade and extended registartion to six unitsfor Organic Cotton and organic blended yarn

— We have developed new markets and thereby increasing ourmarket base like Honduras, Russia, Brazil, USA etc.

— We participated in trade fair and buyers sellers meet held duringMarch’ 2007 in Turkey which is an emerging and prospectivemarket.

— More concerted efforts on value added products from our existingrange and by modifying production process.

Total Foreign Exchange earned and used :

(Rs.in lac)

2006-2007 2005-2006

a) Earnings ( FOB value ofExports, commission earned 43,401.84 36,741.54

b) Outgo (CIF value ofImports and expenditure 47,952.55 26,417.04In foreign currency)


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CORPORATE GOVERNANCE REPORTThis Report on Corporate Governance forms part of the Annual Report. Corporate Governance refers to a combinationof laws, regulations, procedures, implicit rules and good corporate practices which ensure that a Company meets itsobligations to optimize shareholders’ value and fulfil its responsibilities to the community, customers, employees,Government and other segments of society. Your Company is committed on adopting the best practices of CorporateGovernance as manifested in the Company’s functioning to achieve the business excellence by enhancing long-termshareholders’ value. Efficient conduct of the business of the Company through commitment to transparency and businessethics in discharging its corporate responsibilities are hall marks of the best practices followed by the Company. Thisreport on Corporate Governance, besides being in compliance of the mandatory Listing Agreement, gives an insightinto the functioning of the Company.

1. COMPANY’S PHILOSOPHY:� Faith in bright future of Indian textiles and hence continued expansion in areas “which we know best”.� Total customer focus in all operational areas.� Products to be of best available quality for premium market segments through TQM and zero defect

implementation.� Global orientation targeting – at least 20% production for exports.� Integrated diversification/ product range expansion.� World class manufacturing facilities with most modern R&D and process technology.� Faith in individual potential and respect for human values.� Encouraging innovation for constant improvements to achieve excellence in all functional areas.� Accepting change as a way of life.� Appreciating our role as a responsible corporate citizen.

2. BOARD OF DIRECTORS:a) Board Meetings:

During the financial year 2006-2007, seven Board Meetings were held on the following dates :-- 20th May, 2006 - 15th January, 2007- 22nd July, 2006 - 29th January, 2007- 31st October, 2006 - 26th February, 2007.

- 10th March, 2007b) Composition as on March 31st, 2007:

The Board of Directors comprises of a Chairman & Managing Director, three Executive Directors and Six Non-Executive Independent Directors including two Nominee Directors of Financial Institutions.The composition of the Board of Directors and their attendance at the Board Meetings during the year and atlast Annual General Meeting of the Company as also the number of Directorship/Chairmanship of Board andChairmanship/Membership of Committees (as stipulated in clause 49 of the listing agreement) of other IndianPublic Limited Companies, are as follows :-

Name of Director Designation & No. of Board Attendance Total No. of No. of Total No. Total No. ofCategory meetings at last Directorships Committee of Board Committee

attended AGM in other Memberships in Chairmanship in Chairmanship inCompanies other Companies other Companies other Companies

Shri S.P. Oswal Chairman & Managing 7 Yes 11 1 5 1Director

Shri V.K. Saxena IDBI Nominee 1 No 2 1 — —Non-ExecutiveIndependent Director

Shri A.K. Chakraborty ICICI Nominee Non- 7 No 3 2 — —Executive IndependentDirector

Dr. J.C. Bakshi* Non-Executive 1 No — — — —Independent Director

Dr. T.N. Kapoor Non-Executive 6 No 6 9 — 4Independent Director

Shri Prafull Anubhai Non-Executive 7 Yes 6 9 — 3Independent Director

Shri S.K. Bansal Non-Executive 6 No 1 1 — —Independent Director

Shri S.K. Bijlani Non-Executive 2 No 2 — — —Independent Director

Shri Sachit Jain Executive Director 7 No 11 1 1 1Smt. Suchita Jain Executive Director 1 No 6 — — —Shri D.L. Sharma President & Executive 7 Yes 5 2 — —

Director*Resigned w.e.f. 22.7.2006

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Disclosure of ChangeMrs. Suchita Jain has resigned from the Board of Directors of the Company w.e.f. 28.05.2007. The Board of Directorsin its Meeting held on 28th May, 2007 appointed Mrs. Shakun Oswal as Additional Director. The Board alsoappointed Mr. A.K. Purwar former Chairman of State Bank Of India, as additional Director w.e.f. 01.06.2007pursuant to section 260 of the Companies Act 1956.

3. AUDIT COMMITTEE:

As at 31st March, 2007, the Audit Committee comprised of four Directors i.e. Mr. Prafull Anubhai, Mr. S.K. Bansal,Mr. S.K. Bijlani and Mrs. Suchita Jain. Mr. Prafull Anubhai is the Chairman of the Committee. Mr. Vipin Gupta isthe Secretary of the Committee. The terms of reference of the Audit Committee are as contained in Section 292A ofthe Companies Act, 1956 and also as contained in Corporate Governance Clause of the Listing Agreement.

The Audit Committee met four times during the financial year 2006-07 on the following dates :-

- 20th May, 2006 - 31st October, 2006- 22nd July, 2006 - 29th January, 2007

The attendance of present and past members of the Audit Committee during the financial year 2006-07 is givenbelow :-

Committee Category No. of AuditMembers Committee Meetings

Attended

Mr. Prafull Anubhai Non-Executive Independent Director 4Mr. S.K. Bansal Non-Executive Independent Director 4Mr. S.K. Bijlani Non-Executive Independent Director 1Mrs. Suchita Jain Executive Director 2

4. DIRECTORS’ REMUNERATION:i) Chairman and Managing Director/Executive Directors:

The Company pays remuneration to Chairman and Managing Director and to the Executive Directors as approvedby the Board of Directors and the Members of the Company in the General Meeting.Details of remuneration paid to the Directors is as given below:

(Rs. in lac)

Name Designation Salary Perquisites P.F. Contri- Commis- Gross remu-bution sion neration

Mr.S.P. Oswal Chairman & Managing Director 36.75 19.35 4.41 462.30 522.81Mr. D.L. Sharma President & Executive Director 14.25 7.98 1.71 10.69 34.63Mr. Sachit Jain Executive Director 16.80 15.06 2.02 12.60 46.48Mrs. Suchita Jain Executive Director 12.90 5.83 1.55 9.67 29.95

ii) Non-Executive Directors:Non-Executive Directors have not been paid any remuneration except sitting fees for attending Board &Committee Meetings.The detail of sitting fees paid to the Non-Executive Directors during the financial year 2006-07 is givenhereunder:-

S.No. Name of Director Sitting Fee (Rs.)1 Mr. A.K Chakraborty 48,000/-2. Mr. S.K Bijlani 21,000/-3. Mr. S.K Bansal 61,000/-4. Mr. Prafull Anubhai 69,000/-5. Dr. T.N Kapoor 53,000/-6. Dr. J.C Bakshi 11,000/-


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5. SHAREHOLDING OF DIRECTORS AS ON 31.03.2007

The shareholding of the Directors in the Equity Share Capital of the Company is given as follows:-

Name of Directors Number of Shares heldMr. S.P Oswal 6,43,156Ms. Suchita Jain 2,61,334Mr. Sachit Jain 40,005Mr. D.L Sharma 3,394Mr. Prafull Anubhai 1,513No other Director holds any share in the Equity Share Capital of the Company.

6. SHAREHOLDERS’/INVESTORS’ GRIEVANCE COMMITTEE:The Shareholders’/Investors’ Grievance Committee consisting of Dr. T.N. Kapoor as Chairman, Mr. S.K Bansal andMr. Sachit Jain as members.The Shareholders’/Investors’ Grievance Committee met 2 times during the year on 19.08.2006 and 29.01.2007.The Compliance Officer for this Committee is Mr. Vipin Gupta, Company Secretary.During the financial year 2006-07, the Company has received 259 complaints related to non receipt of Dividend,Bonus Shares, Annual Report and transfer of shares etc. All the complaints have been duly replied by the Companyand there is no pendency in respect of shares received for transfer during 2006-2007 except those that are disputed/ sub-judice.

7. GENERAL BODY MEETINGS:The details of General Body Meetings held during the last three financial years are given as follows :-

Meeting Day, Date and Time of Venue No. of Specialthe Meeting Resolutions

33rd Annual General Meeting Saturday, 26th August, Regd. Office, 2for the Financial Year 2006 at 3.00 p.m. Chandigarh Road,ended 31st March, 2006 Ludhiana-141 010.Extra Ordinary General Meeting Tuesday, 22nd November, 2005 Regd. Office, Chandigarh 1held on 22nd November, 2005 at 11.00 a.m. Road, Ludhiana-141 010.32nd Annual General Meeting for Saturday, 27th August, 2005 Regd. Office, Chandigarh 3the Financial Year ended at 3.30 p.m. Road, Ludhiana-141 010.31st March, 2005Extra Ordinary General Meeting Saturday, 5th March, 2005 Regd. Office, Chandigarhheld on 5th March, 2005 at 11.00 a.m. Road, Ludhiana-141 010 131st Annual General Meeting for Saturday, 28th August, 2004 Regd. Office, Chandigarh 2the Financial Year ended at 3.30 p.m. Road, Ludhiana-141 010.31st March, 2004

The Company has not passed any resolution through postal ballot, during the financial year 2006-2007. No resolutionis proposed to be passed by postal ballot in the forthcoming Annual General Meeting.

8. DISCLOSURES:During the year, there was no material significant transaction with the directors, management and their relativesetc. that have any potential conflict with the interest of the Company at large. Also there has not been any non-compliance by the Company in respect of which penalties or strictures were imposed by the stock exchanges, theSecurities and Exchange Board of India or any other statutory authority during the last three years.

Further, the Company has complied with all mandatory requirements of Clause 49 of the Listing Agreement. TheCompany may also take up the non-mandatory requirements of Clause 49 in due course of time.

9. MEANS OF COMMUNICATION:The Company communicates with the shareholders at large through its Annual Reports, publication of financialresults, press releases in leading newspapers and by filing of various reports and returns with the Statutory Bodieslike Stock Exchanges and the Registrar of Companies. The Quarterly Financial Results are published in prominentdaily newspapers viz., The Business Standard and Desh Sewak. The Financial Results of the Company are alsomade available at the Company’s web-site www.vardhman.in

Further, the financial results and shareholding pattern of the Company are also available on the EDIFAR web-siteviz., www.sebiedifar.nic.in

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GENERAL INFORMATION FOR SHAREHOLDERS

i) 34th Annual General MeetingDate : 18th August, 2007Time : 3.30 P.M.Venue : Regd. Office, Chandigarh Road, Ludhiana-141 010

ii) Financial Calendar 2007-2008 (Tentative)First Quarter Results : July, 2007Second Quarter Results : October, 2007Third Quarter Results : January, 2008Annual Results : May, 2008

iii) Dates of Book Closure : 17th August, 2007 to 18th August, 2007iv) Dividend payment date : No final dividend has been recommended by the Board of Directors.v) Listing : The equity shares of the Company are listed on the following Stock

Exchanges:-1. Bombay Stock Exchange Limited, Mumbai (BSE),

1st Floor, New Trading Ring, Rotunda Building, P.J. Towers,Dalal Street, Fort, Mumbai-400 001.

2. The National Stock Exchange of India Limited (NSE),“Exchange Plaza”, Bandra-Kurla Complex, Bandra (East), Mumbai.

– The Company has duly paid the listing fee to both the aforesaid Stock Exchanges for the financial year 2007-08

vi) Stock Code :� The Bombay Stock Exchange Limited, Mumbai : 502986� The National Stock Exchange of India Limited : VTL

vii) Stock Market Data :The month-wise highest and lowest and closing stock prices vis-a-vis BSE Sensex during the financial year 2006-07 aregiven below :-

Financial Year Share Prices of Vardhman Textiles Limited BSE Sensex2006-07

Highest Lowest Closing %age Highest Lowest Closing %age(Rs.) (Rs.) (Rs.) change change

over last over lastmonth’s month’sclosing closing

April 385.00 335.00 360.00 2.2 12102.00 11008.43 12042.56 6.76May 419.95 301.00 355.85 -1.15 12671.11 9826.91 10398.61 -13.65June 380.00 243.00 315.50 -11.34 10626.84 8799.01 10609.25 2.03July 329.00 250.00 297.65 -5.66 10940.45 9875.35 10743.88 1.27August 314.00 275.15 292.90 -1.60 11794.43 10645.99 11699.05 8.89September 315.00 265.00 271.10 -7.44 12485.17 11444.18 12454.42 6.46October 328.90 230.10 283.50 4.57 13075.85 12178.83 12961.90 4.07November 290.00 256.05 262.25 -7.50 13799.08 12937.30 13696.31 5.67December 283.00 255.00 274.30 4.59 14035.30 12801.65 13786.91 0.66January 292.00 251.00 252.40 -7.98 14325.92 13303.22 14090.92 2.20February 256.00 202.00 219.85 -12.90 14723.88 12800.91 12938.09 -8.18March 232.75 185.00 204.15 -7.14 13386.95 12316.10 13072.10 1.04

viii) Information regarding Dividend Payment :a) Dividends remaining unpaid/unclaimed upto the financial year 1998-99 have been transferred to the

Investors’ Education and Protection Fund (IEPF). Further, pursuant to the provisions of Section 205A readwith Section 205C of the Companies Act, 1956, dividend declared in the financial year 1999-2000 andonwards, which remains unpaid/unclaimed for a period of 7 years, is required to be transferred to theIEPF. It may be noted that no claim will lie against the Company or the “Fund” in respect of the saidunclaimed dividend amount so transferred to the “Fund”. Accordingly, Members who have not claimedtheir dividend for the financial year 1999-2000 and onwards are requested to make their claim to theCompany immediately.

b) The Company provides the facility of paying dividend through Electronic Clearing Service (ECS). Memberswho wish to avail this facility should give necessary directions to Depository Participants (in case sharesare held in demat form) and to the Registrar & Transfer Agent of the Company (in case shares are held inphysical form).


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ix) Registrar & Transfer Agent:The work related to Share Transfer Registry in terms of both physical and electronic mode is being dealt withby M/s. Alankit Assignments Limited at the address given below :-

M/s. Alankit Assignments Limited, (Unit: Vardhman Textiles Ltd.) 2E/21, Alankit HouseJhandewalan Extension, New Delhi - 110 055.

Phone: (011) 41540060-63, Fax: (011) 41540064, E-mail: [email protected]

x) Share Transfer System:The Company has constituted a Share Transfer Committee of its directors. The Committee meets on an averageonce in a fortnight. The list of valid transfers prepared by the Transfer Agent in respect of transfer casesreceived by them and objections, if any, are placed before the Committee for its approval/confirmation. TheShare Certificates are returned back to the shareholders by Transfer Agent normally within 15 days from thedate of receipt by them.The shares of the Company are traded on the Stock Exchanges compulsorily in demat form. The Company hasparticipated as an issuer both with National Securities Depository Limited (NSDL) and Central DepositoryServices (India) Limited (CDSL). The shareholders may operate through any of the depositories, based ontariffs, quality and range of services being offered by them. The International Securities Identification Number(ISIN) of the Company is INE 825 A01012.

xi) Distribution of Shareholding as on 31st March, 2007:

RANGE SHAREHOLDERS SHARESNo. of Shares Numbers of total Holders % to Total Holders Numbers % to Total Shares

to totalShares

Upto-500 19707 88.30 2330905 4.03501-1000 1372 6.14 937792 1.621001-2000 598 2.67 837692 1.452001-3000 181 0.81 452542 0.783001-4000 84 0.37 292778 0.514001-5000 60 0.26 272731 0.475001-6000 120 0.54 864999 1.5010001 & Above 194 0.86 51780088 89.64Total 22316 100.00 57769527 100.00

xii) Dematerialisation of shares:As on 31st March, 2007, 61.23% of the capital comprising 3,53,70,543 shares out of total of 5,77,69,527were dematerialised.

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xiii) Plant Location:• Arihant Spinning Mills

Industrial Area,Malerkotla-148 023.

• Anant Spinning Mills,New Industrial Area,Mandideep-462 046.

• Arisht Spinning MillsVill. Baddi, Teh. Nalagarh,Distt. Solan (H.P.)- 173 205

• Auro Spinning Mills,Vill. Baddi, Teh. Nalagarh,Distt. Solan (H.P.)- 173 205

• Auro Dyeing,Vill. Baddi, Teh. Nalagarh,Distt. Solan (H.P.)- 173 205

• Auro Textiles,Vill. Baddi, Teh. Nalagarh,Distt. Solan (H.P.)- 173 205

• Auro Weaving Mills,Vill. Baddi, Teh. Nalagarh,Distt. Solan (H.P.)- 173 205

• Mahavir Spinning Mills(Gassed Mercerised Yarn Unit)Phagwara Road,Hoshiarpur-146 001

• Mahavir Spinning Mills (Sewing Thread Unit-I)Phagwara Road,Hoshiarpur-146 001

xiv) Address for correspondence:Registered Office : Chandigarh Road, Ludhiana-141 010.Tel : 0161-2228943-48Fax : 0161-2601048, 2602710, 2222616E-mail (exclusively for redressalinvestors’ grievances) : [email protected]

• Mahavir Spinning Mills(Sewing Thread Unit-II)Phase-VIII, Focal Point,Ludhiana-141 123

• Mahavir Spinning Mills(Sewing Thread Unit-III)Plot No.E-13 & H-10, SIPCOT,Industrial Growth Centre,P.V. Palayam (P.O.)Perundurai-638 052

• Mahavir Spinning Mills,(Textile Division) Village Baddi, Teh. Nalagarh,Distt. Solan (HP) Pin : 173205

• Vardhman Spinning Mills,Vill. Baddi, Teh Nalagarh,Distt. Solan, (H.P.)-173 205.

• Vardhman Spinning andGeneral Mills (Unit-I & II),Chandigarh Road,Ludhiana-141 010.

• Vardhman Special Steels,C-58, Focal Point,Ludhiana-141 010.

• Vardhman FabricsBudhni, Distt. Sehore (M.P)

• Vardhman YarnsSatlapur, Distt. Raisen (M.P)


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Vardhman

Auditors’ Certificate on Compliance of Corporate Governance UnderCorporate Governance Clause of the Listing Agreement(s)

ToThe Members ofVardhman Textiles Limited

We have examined the compliance of the conditions of Corporate Governance by Vardhman Textiles Limited (formerlyknown as Mahavir Spinning Mills Ltd.) for the year ended on 31st March, 2007 as stipulated in Clause 49 of the ListingAgreement of the Company with Stock Exchanges.

The Compliance of conditions of Corporate Governance is the responsibility of the Management. Our examination waslimited to review of the procedures and implementation thereof, adopted by the Company, for ensuring the complianceof the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statementsof the Company.

In our opinion and to the best of our information and according to the explanations given to us and based on therepresentation made by the Directors and Management, we certify that the Company has complied with the conditionsof Corporate Governance as stipulated in the above mentioned Listing Agreement.We state that no investor grievance is pending for a period of exceeding one month against the Company as per therecords maintained by the Shareholders’/Investors’ Grievance Committee.

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.C. VASUDEVA & CO.CHARTERED ACCOUNTANTS

(SANJIV MOHAN)PLACE : LUDHIANA PARTNERDATED: 28th May, 2007 Membership No. 86066

Chairman & Managing Director’s (CMD) declaration

I, S.P. Oswal, Chairman & Managing Director of Vardhman Textiles Ltd. (formerly Mahavir Spinning Mills Limited)declare that all Board Members and Senior Management personnel have affirmed compliance with ‘Code of Conductfor Board & Senior Management Personnel’ for the year ended 31st March, 2007.

S.P. OswalChairman & Managing Director

PLACE : LUDHIANADATED: 28th May, 2007

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Vardhman


AUDITORS’ REPORTToThe Shareholders,Vardhman Textiles Limited (formerly known as MahavirSpinning Mills Limited)1. We have audited the attached Balance Sheet of Vardhman

Textiles Limited (formerly known as Mahavir Spinning MillsLimited) as at 31st March, 2007, the Profit and Loss Accountand the Cash Flow Statement for the year ended on thatdate annexed thereto. These financial statements are theresponsibility of the company’s management. Ourresponsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with auditingstandards generally accepted in India. These standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on test basis, evidence supportingthe amounts and disclosures in the financial statements.An audit also includes assessing the accounting principlesused and significant estimates made by management, aswell as evaluating the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditors’ Report) Order,2003 issued by the Central Government of India in termsof sub-section (4A) of Section 227 of the Companies Act,1956, we enclose in the annexure a statement on the mattersspecified in paragraph 4 and 5 of the said order.

4. Further to our comments in the annexure referred to inparagraph 3 above, we report that:a) we have obtained all the information and explanations,

which to the best of our knowledge and belief werenecessary for the purpose of our audit;

b) in our opinion, proper books of account as requiredby law have been kept by the company so far as appearsfrom our examination of those books;

c) the balance sheet, profit and loss account and cashflow statement dealt with by this report are in agreementwith the books of account;

d) in our opinion, the balance sheet, profit and lossaccount and cash flow statement dealt with by thisreport comply with the accounting standards referredto in sub-section (3C) of Section 211 of the CompaniesAct, 1956;

e) on the basis of the written representations received fromthe directors as on 31st March,2007 and taken on recordby the Board of Directors, we report that none of thedirector is disqualified as on 31st March, 2007 frombeing appointed as a director in terms of clause(g) ofsub-section (1) of section 274 of the CompaniesAct,1956;

f) in our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts read together with the significant accounting

policies and other notes thereon give the informationrequired by the Companies Act, 1956, in the mannerso required and give a true and fair view in conformitywith the accounting principles generally accepted inIndia:i) in the case of Balance Sheet, of the state of affairs

of the company as at 31st March, 2007;ii) in the case of Profit and Loss account, of the profit

for the year ended on that date; andiii) in the case of Cash Flow Statement, of the cash

flows for the year ended on that date.

For S.C. VASUDEVA & CO.,

CHARTERED ACCOUNTANTS

(SANJIV MOHAN)

PLACE : LUDHIANA PARTNERDATED : 28th May, 2007 Membership No. 86066

ANNEXURE TO THE AUDITORS’ REPORT(Referred to in paragraph 3)

i) a) The Company has maintained proper records showingfull particulars including quantitative details andsituation of fixed assets.

b) According to the information and explanations givento us, the company has adopted a policy of physicallyverifying the fixed assets once in every three years.The last verification of entire fixed assets was done inthe year ended March 31, 2004. Pursuant to the saidpolicy, the company had physically verified the entireblock of plant and machinery in the year ended 31st

March 2005 and the entire block of vehicles in theyear ended 31st March 2006. During the year underaudit the remaining fixed assets have been physicallyverified by the management. No material discrepancieswere noticed on such physical verification. Further,in our opinion, the frequency of physical verificationof fixed assets is reasonable having regard to the sizeof the company and nature of its business.

c) According to the information and explanations givento us, the company has not disposed off substantialpart of its fixed assets during the year.

(ii) a) According to the information and explanations givento us, inventories have been physically verified by themanagement at the close of the year. In our opinionthe frequency of verification is reasonable.


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Vardhman

b) In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventories followed by the managementas evidenced by the written procedures andinstructions are reasonable and adequate in relationto the size of the company and nature of its business.

c) On the basis of our examination of the records ofinventories, we are of the opinion that the company ismaintaining proper records of inventories. Asexplained to us, no material discrepancies werenoticed on physical verification between physicalstocks and book records.

(iii) (a) The Company has during the year granted unsecuredloan to one company covered in the registermaintained under section 301 of the Companies Act,1956. The aggregate amount involved in thetransaction together with the opening balance ofRs. 1300 lacs is Rs. 3440 lacs. No amount isoutstanding as at the close of the year.

(b) According to the information and explanations givento us, the rate of interest and other terms and conditionsin respect of unsecured loans given by the company,are not prima-facie prejudicial to the interest of thecompany.

(c) In our opinion and according to the information andexplanations given to us, the receipt of principalamount and interest in respect of the aforesaid loanswas regular.

(d) In our opinion and according to the information andexplanations given to us, there are no overdue amountsin respect of the unsecured loans given by thecompany.

(e) The Company has during the year taken unsecuredloans from one party covered in the register maintainedunder section 301 of the Companies Act, 1956. Theamount involved in the transaction is Rs. 70 lacs. Thereis no amount which is payable as at the close of theyear.

(f) According to the information and explanations givento us, the rate of interest and other terms and conditionsin respect of unsecured loan taken by the company, isnot prima-facie prejudicial to the interest of thecompany.

(g) In our opinion and according to the information andexplanations given to us, the payment of principalamount and interest in respect of the aforesaid loanwas regular.

(iv) In our opinion and according to the information andexplanations given to us, there is an adequate internalcontrol system commensurate with the size of the companyand nature of its business for the purchase of inventory andfixed assets and sale of goods and services. During thecourse of our audit, we have not observed any continuing

failure to correct major weaknesses in internal controlsystems.

(v) (a) In our opinion and according to the information andexplanations given to us, the particulars of contractsor arrangements referred to in section 301 of theCompanies Act, 1956 have been entered in the registermaintained under that section.

(b) In our opinion and according to the information andexplanations given to us, the transactions made inpursuance of contracts or arrangements entered in theregister maintained under section 301 of the CompaniesAct, 1956 and exceeding Rupees five lacs or more inrespect of each party during the year, have been madeat prices which are reasonable having regard to theprevalent market prices at the relevant time.

(vi) According to the information and explanations given to usthe company has complied with the provisions of section58A and 58AA or any other relevant provisions of theCompanies Act, 1956 and the Companies (Acceptance ofDeposits) Rules 1975 with regard to deposits accepted fromthe public. According to the information given to us, noorder has been passed by the Company Law Board orNational Company Law Tribunal or Reserve Bank of Indiaor any Court or any other Tribunal.

(vii) In our opinion the company has an internal audit systemcommensurate with its size and nature of its business.

(viii)We have broadly reviewed the books of account relatingto materials, labour and other items of cost maintainedby the company pursuant to the Rules made by theCentral Government for the maintenance of cost recordsunder section 209(1)(d) of the Companies Act, 1956 andwe are of the opinion that prima facie the prescribedaccounts and records have been made and maintained.We have however not made a detailed examination of therecords with a view to determine whether they are accurateor complete.

(ix) (a) According to the records of the company, undisputedstatutory dues including provident fund, investoreducation and protection fund, employees’ stateinsurance, income tax, sales tax, wealth tax, servicetax, custom duty, excise duty, cess and other materialstatutory dues applicable to the company, if any, havebeen regularly deposited with appropriate authorities.According to the information and explanations givento us, no undisputed amounts payable in respect ofthe aforesaid dues were outstanding as at 31st March,2007, for a period of more than six months from thedate they became payable.

b) According to the records of the company, the detailsof disputed statutory dues aggregating toRs. 121302413/- that have not been deposited onaccount of matters pending before the appellateauthorities in respect of sales tax, custom duty, servicetax and excise duty are given below:

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Nature of Dues/Name of Statute Disputed Amount (Rs.) Forum where Dispute is pending.Sales taxThe Central Sales Tax Act,1956 26,47,354 Additional Commissioner (Sales tax), New DelhiThe Delhi Sales Tax Act,1975 48,642 Additional Commissioner (Sales tax), New DelhiUttar Pradesh Sales Tax Act, 1948 59,291 Assistant Commissioner (Sales Tax ), KanpurAndhra Pradesh Sales Tax Act,1957 67,417 Andhra Pradesh High CourtGujrat Sales Tax Act,1969 2,51,327 Commisioner (Sales Tax), AhemdabadThe Central Sales Tax Act, 1956 10,45,145 Commissioner (Sales Tax Officer), TirpurRajasthan Sales Tax Act,1994 33,810 Deputy Commissioner, Commercial Tax , JaipurThe Punjab Sales Tax Act, 1957 1,04,740 Deputy Excise & Taxation Commissioner cum Joint Director, JalandharThe Punjab Sales Tax Act, 1957 3,66,750 Joint Director Mobile Wing Patiala Division , PatialaThe Punjab Sales Tax Act, 1957 82,500 Joint Director (Enforcement), PatialaThe Punjab Sales Tax Act, 1957 2,30,250 Excise & Taxation Officer Cum Assistant Director, PatialaM.P. Commercial Tax Act, 1994 6,28,339 Asstt. Commissioner, (Appeals), Commercial Tax Department,

Division- 2, BhopalExcise DutyExcise DutyExcise DutyExcise DutyExcise DutyThe Central Excise Act, 1944 7,01,362 Assistant Commissioner Central Excise, ShimlaThe Central Excise Act, 1944 5,32,70,410 Custom, Excise & Service Tax Appellate Tribunal, New DelhiThe Central Excise Act, 1944 27,78,084 Commissioner (Appeals) Central Excise , LudhianaThe Central Excise Act, 1944 9,51,035 Joint Commissioner, Central Excise, LudhianaThe Central Excise Act, 1944 4,64,622 Deputy Commissioner, Central Excise, LudhianaThe Central Excise Act, 1944 1,33,333 Deputy Commissioner, Central Excise, LudhianaThe Central Excise Act, 1944 16,18,315 Commissioner, Central Excise, ChandigarhCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms Act, 1962 1,47,147 Assistant Commissioner CFS, LudhianaService taxService taxService taxService taxService taxFinance Act, 1994 7,06,322 Assistant Commissioner Central Excise, ShimlaFinance Act, 1994 27,66,218 Adjudication Authority, LudhianaIncome-taxIncome-taxIncome-taxIncome-taxIncome-taxIncome-tax Act, 1961 5,22,00,000 Commissioner of Income-tax(Appeals)According to the information and explanations given to us there are no disputed statutory dues pending in respect of wealth tax and cess.

(x) The Company does not have accumulated losses as at 31st

March 2007. The latter part of the question relating to networth is thus not applicable to the company. Further, thecompany has not incurred cash losses during the financialyear covered under audit and in the immediately precedingfinancial year.

(xi) In our opinion and according to the information andexplanations given to us, the company has not defaulted inrepayment of dues to banks, financial institutions ordebenture holders.

(xii) According to the information and explanations given tous, the company has not granted any loans and advanceson the basis of security by way of pledge of shares,debentures and other securities. Therefore, the provisionsof clause 4(xii) of the above said order are not applicableto the company.

(xiii) The Company is not a chit fund or a nidhi mutual benefitfund/society. Accordingly, the provisions of clause 4 (xiii)of the above said order are not applicable to the company.

(xiv) According to the information and explanations given tous, the company has not dealt or traded in share, securities,debentures and other investments. Therefore, theprovisions of clause 4(xiv) of the above said order are notapplicable to the company.

(xv) The Company has given guarantees for loans taken byothers from banks. In our opinion and according to theinformation and explanations given to us, the terms andconditions thereof are not prima facie prejudicial to theinterest of the company.

(xvi) In our opinion and according to the information and

explanations given to us, the term loans taken during theyear have been applied for the purpose for which theywere obtained.

(xvii) According to information and explanations given to usand on an overall examination of the balance sheet of thecompany, we report that funds raised on short-term basishave not been used for long term investment.

(xviii)According to the information and explanations given tous, the company has not made any preferential allotmentof shares during the year to parties and companies coveredin the register maintained under section 301 of theCompanies Act, 1956.

(xix) According to the information and explanations given tous the company has not issued debentures during the year.Accordingly the provisions of clause 4 (xix) of the abovesaid order are not applicable to the company.

(xx) According to the information and explanations given tous, the company has not raised any money by way ofpublic issue during the year. Accordingly the provisionsof clause 4 (xx) of the above said order are not applicableto the company.

(xxi) According to the information and explanations given tous, no fraud on or by the company has been noticed orreported during the year ended 31st March 2007.

For S.C. VASUDEVA & CO.,CHARTERED ACCOUNTANTS

(SANJIV MOHAN)PLACE : LUDHIANA PARTNERDATED : 28th May, 2007 MEMBERSHIP NO. 86066

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BALANCE SHEET as at 31st March, 2007

Particulars Schedule As at As atNo. 31.03.2007 31.03.2006

(Rs. in Lac) (Rs. in Lac)

I. SOURCES OF FUNDS1. Shareholders' Funds

a) Capital 1 5,776.91 5,776.91b) Reserves and Surplus 2 103,425.95 90,389.79

109,202.86 96,166.702. Loan Funds

a) Secured Loans 3 146,061.93 83,107.64b) Unsecured Loans 4 26,364.61 27,114.77

172,426.54 110,222.413. Deferred Tax Liability 9,509.93 9,215.16

TOTAL 291,139.33 215,604.27II. APPLICATION OF FUNDS

1. Fixed Assets 5a) Gross Block 210,865.79 175,985.49b) Less: Depreciation 93,074.72 81,876.97c) Net Block 117,791.07 94,108.52d) Capital Work-in-Progress 6 54,071.84 9,647.74

171,862.91 103,756.262 Investments 7 6,874.76 6,837.943 Current Assets, Loans and Advances 8

a) Inventories 69,584.82 56,899.58b) Sundry Debtors 25,241.09 22,204.18c) Cash and Bank Balances 21,673.36 27,154.82d) Loans and Advances 23,300.73 18,319.85

A 139,800.00 124,578.43Less: Current Liabilities and Provisions 9a) Liabilities 27,985.13 16,356.58b) Provisions (586.79) 3,211.78

B 27,398.34 19,568.36Net Current Assets (A-B) 112,401.66 105,010.07TOTAL 291,139.33 215,604.27

NOTES ON ACCOUNTS 18The Schedules refered to above form an integral part of the Balance Sheet

As per our report of even date attachedFor S.C. Vasudeva & Co.,Chartered AccountantsSANJIV MOHAN VIPIN GUPTA NEERAJ JAIN D.L. SHARMA S.P. OSWALPartner Company Secretary Chief Financial Officer President & Chairman &(M.No. 86066) Executive Director Managing Director

PLACE : LUDHIANADATED : 28th May, 2007

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PROFIT AND LOSS ACCOUNT for the year ended 31st March, 2007

Particulars Schedule Current Year Previous YearNo. (Rs. in Lac) (Rs. in Lac)

INCOMESales (Gross) 215,009.02 195,724.74Less: Excise Duty 6,246.02 6,808.54Sales (Net) 208,763.00 188,916.20Other Income 10 3,402.81 4,843.30

TOTAL 212,165.81 193,759.50EXPENDITURERaw Material Consumed and Purchase of Finished Goods 11 95,855.32 80,206.78Manufacturing Expenses 12 51,881.82 45,569.72Personnel Expenses 13 12,706.45 11,016.86Administrative and Other Expenses 14 5,567.99 4,964.80Interest and Financial Charges 15 3,769.50 3,949.03Selling and Distribution Expenses 16 10,542.98 14,529.49(Increase)/Decrease in Work in Process and Finished Stock 17 (2,828.02) (1,522.14)Difference of Excise Duty on Stocks 113.93 (139.59)Depreciation & Amortisation 11,944.53 10,133.99Prior Period Items 34.52 (8.58)

TOTAL 189,589.02 168,700.36Profit for the year before tax 22,576.79 25,059.14Less : Provision for

- Current Tax 5,017.00 5,700.00[Including Rs. 20.00 Lac (Previous Year Rs 15.00 Lac)for Wealth Tax]

- Fringe Benefit Tax 100.00 110.00- Deferred Tax 143.75 (99.53)- Deferred Tax Adjustment 151.02 294.77 (275.31) (374.84)- Income Tax Adjustment for earlier Years (5.06) (7.64)

Profit for the year after tax 17,170.08 19,631.62Add : Debenture Redemption Reserve Written Back 625.00 625.00Balance brought forward 5,023.59 3,877.49Balance available for appropriation 22,818.67 24,134.11Appropriations:

Interim Dividend- On Equity Shares 2,310.78 -- Corporate Dividend Tax thereon 324.09 2,634.87 - -Proposed Dividend- On Equity Shares - 2,310.78Corporate Dividend Tax thereon - - 324.09 2,634.87Transferred to General Reserve 15,000.00 16,475.65Balance carried to Balance Sheet 5,183.80 5,023.59

22,818.67 24,134.11Earning per share of Rs. 10/- each(Refer Note No 19 of Notes on accounts)

- Basic 29.72 33.98- Diluted 16.56 16.50

NOTES ON ACCOUNTS: 18The Schedules refered to above form an integral part of the Profit and Loss Account.

As per our report of even date attachedFor S.C. Vasudeva & Co.,Chartered AccountantsSANJIV MOHAN VIPIN GUPTA NEERAJ JAIN D.L. SHARMA S.P. OSWALPartner Company Secretary Chief Financial Officer President & Chairman &(M.No. 86066) Executive Director Managing Director


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CASH FLOW STATEMENT for the year ended 31st March, 2007Particulars Schedule Current Previous

No. Year Year(Rs. in Lac) (Rs. in Lac)

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before Tax and Extraordinary items 22,576.79 25,059.14Adjustments for :

Depreciation/Amortisation 11,944.53 10,133.99Interest Expense 3,897.60 3,831.82Interest/Dividend Income (1,838.06) (598.61)(Profit)/Loss on sale of Assets(Net) (125.68) (885.30)(Profit)/Loss on sale of Investments (Net) — (2,092.94)Provision no longer required written Back(Net) (317.41) (319.33)Sundry Balances Written Off(Net) 229.78 292.64Provision for Doubtful Debts — 58.23Exchange Rate Fluctuation (693.00) 85.97

13,097.76 10,506.47Operating Profit before Working Capital Changes 35,674.55 35,565.61Adjustments for :

(Increase)/Decrease in Trade & other Receivables (7,783.46) (6,560.47)(Increase)/Decrease in Inventories (12,685.24) (4,206.29)Increase/(Decrease) in Trade Payables & other Liabilities 10,482.40 3,886.88

(9,986.30) (6,879.88)Cash Generation from Operation 25,688.25 28,685.73Taxes Paid (6,207.10) (6,207.10) (5,391.55) (5,391.55)

Net Cash from Operating activities 19,481.15 23,294.18B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (80,734.11) (31,869.61)Sale of Fixed Assets 783.04 1,061.56Purchase of Investments (536.82) (253.00)Sale of Investments 500.00 3,293.51Interest/Dividend Received 1,632.09 596.19Net Cash used in investing activities (78,355.80) (27,171.35)

C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from issue of Share Capital — —Proceeds from Long Term Borrowings(Net) 62,144.31 15,649.04Proceeds from Short Term Borrowings(Net) 810.06 264.11Proceeds from Zero Coupon Foreign Currency Convertible Bonds — 26,765.30Proceeds from Unsecured Borrowings (55.42) (7,469.44)Capital Subsidy Received 30.00 —FCCB Issue Expenses Paid (94.75) (571.16)Dividend Paid (5,165.81) (1,988.68)Interest Paid (4,275.20) (3889.61)Net Cash from Financing Activities 53,393.19 28,759.56Net Increase in cash & cash equivalents (5,481.46) 24,882.39Cash & cash equivalents as on beginning 27,154.82 2,272.43Cash & cash equivalents as on end 21,673.36 27,154.82

NOTES ON ACCOUNTS 18The Schedules referred to above form an integral part of the Accounts

AUDITORS’ CERTIFICATEWe have checked the above Cash Flow Statement of Vardhman Textiles Limited (formerly known as Mahavir Spinning Mills Limited), derived fromthe audited financial statements for the year ended 31st March, 2007 with the books & records maintained in the ordinary course of business andfound the same in accordance therewith.

For S.C. Vasudeva & Co.,Chartered Accountants

Sanjiv MohanPLACE : LUDHIANA PartnerDATED : 28th May, 2007 (M.No. 86066)

As per our report of even date attachedFor S.C. Vasudeva & Co.,Chartered AccountantsSANJIV MOHAN VIPIN GUPTA NEERAJ JAIN D.L. SHARMA S.P. OSWALPartner Company Secretary Chief Financial Officer President & Chairman &(M.No. 86066) Executive Director Managing DirectorPLACE : LUDHIANADATED : 28th May, 2007

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Vardhman


As at 31.03.2007 As at 31.03.2006(Rs. in Lac) (Rs. in Lac)

SCHEDULE 1 — SHARE CAPITAL

Authorised9,00,00,000 Equity Shares of Rs. 10/- each

(Previous Year 9,00,00,000) 9,000.00 9,000.001,00,00,000 Redeemable Cumulative Preference Shares of

Rs. 10/- each (Previous Year 1,00,00,000) 1,000.00 1,000.00Issued, Subscribed & Paid-up 1,000.00 1,000.005,77,69,527 Equity Shares (Previous Year 5,77,69,527)

of Rs. 10/- each 5,776.96 5,776.96Less: Calls in arrears from others 0.05 0.05

5,776.91 5,776.91NOTES:Of the above:

(a) 1,35,916 (previous year 1,35,916) Equity Shares of Rs.10/- each are allotted as fully paid up, pursuant to a contract without payment beingreceived in cash.

(b) 3,54,27,580 (previous year 3,54,27,580) Equity Shares of Rs.10/- each are allotted as fully paid up, by way of bonus shares by capitalisation ofShare Premium, Capital Redemption Reserve and General Reserve.

Schedules 1 to 18 Annexed to and forming part of the Balance Sheet as at 31st March, 2007 andProfit & Loss Account for the year ended 31st March, 2007


SCHEDULE 2 — RESERVES AND SURPLUS

Capital Reserve 124.33 124.33Capital Redemption ReserveAs per last account — 450.00Less: Utilised for issuing fully paid up Bonus Shares — — 450.00 -Capital Subsidy ReserveAs per last account 75.00 75.00Add: Capital Investment Subsidy during the year 90.00 165.00 - 75.00Share PremiumAs per last account 8,542.30 9,404.77Less: Utilised for writing off expenses on issue of Zero Coupon — 665.91Foreign Currency Convertible BondsLess: Utilised for providing for the premium payable on redemption 1,589.05 196.56of Zero Coupon Foreign Currency Convertible Bonds

6,953.25 8,542.30Less : Calls in arrears from others 0.43 6,952.82 0.43 8,541.87Debenture Redemption ReserveAs per last account 1,625.00 2,250.00Less: Transferred to Profit and Loss Account 625.00 1,000.00 625.00 1,625.00General ReserveAs per last account 75,000.00 60,000.00Less: Utilised for issuing fully paid up Bonus Shares — 1,475.65Add: Transferred from Profit and Loss Account 15,000.00 90,000.00 16,475.65 75,000.00Surplus i.e., Balance as per annexedProfit and Loss Account 5,183.80 5,023.59

103,425.95 90,389.79

26

Vardhman



SCHEDULE 3 — SECURED LOANSDebentures

40 (Previous Year 40), 8.49% Secured RedeemableNon Convertible Debentures of Rs. 25 Lacs each(Previous Year Rs 50 Lacs each) 1,000.00 2,000.00

Nil (Previous Year 25), 7.90% Secured RedeemableNon Convertible Debentures of Rs. Nil(Previous Year Rs 100 Lacs each) — 2,500.00

Loans and Advances from Banks- Term Loans 122,561.75 56,017.44- Working Capital 22,500.18 21,690.12- Interest accrued and due on above — 145,061.93 0.08 77,707.64

Other Loans and Advances- Term Loans from others — — 900.00 900.00

146,061.93 83,107.64NOTES:1. The Debentures and Term Loans from Banks and Others are secured by mortgage created or to be created on all the immovable assets of the

Company, both present and future and hypothecation of all the movable assets including movable machinery, machinery parts, tools andaccessories and other movables both present and future (except book debts), subject to charges created or to be created in favour of the Bankersfor securing the working capital limits.

2. Working Capital Borrowings from Banks are secured by hypothecation of entire present and future tangible current assets of the Company as wellas a second charge on the entire present and future fixed assets of the company.

3. 40-8.49% Non Convertible Debentures of Rs 100 lac each are redeemable at par in four equal yearly instalments of Rs 25 lac each commencingfrom the end of the second year from the date of allotment i.e. 7th March,2003. The third instalment of Rs 25 lac each, amounting to Rs 1000 lachas been paid during the year. The earliest date of redemption of the fourth and last instalment is 7th March,2008.

4. 25 - 7.90% Non Convertible Debentures were redeemable at par at the end of 36th month after the deemed date of allotment i.e 3rd June, 2003.The said debentures have been redeemed during the year on due date.

5. Amount due for repayment out of Debentures and Term Loans within one year is Rs. 8,593.25 lac (Previous Year Rs. 8,866.65 lac).

SCHEDULE 4 — UNSECURED LOANSFixed Deposits 266.64 335.56Interest accrued and due on above 0.97 2.71Short Term Loan and Advancesa) From Others 15.00 1.50

Other Loans and AdvancesZero Coupon Foreign Currency Convertible Bonds 26,082.00 26,775.00

26,364.61 27,114.77NOTE:Amount due for repayment out of Fixed Deposits and Short term Loans and Advances within one year is Rs. 115.80 Lac (PreviousYear Rs. 144.43 Lac).


27

Vardhman


SCH

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incl

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incl

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(Pre

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Lacs

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as b

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-D

epre

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for

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year

incl

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Lac

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Pro

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and

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pens

es.

-D

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for

the

year

incl

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(-) 8

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lac

(Pre

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ear

lier

year

s.

28

Vardhman


As at As at31.03.2007 31.03.2006(Rs. in Lac) (Rs. in Lac)

SCHEDULE 6 — CAPITAL WORK-IN-PROGRESS

Building Under Construction 10,938.32 1,375.29Machinery Under Erection 29,429.41 2,682.52Machinery in Transit 4,092.80 2,128.25Capital Advances 7,615.15 2,987.27Project and Pre-operative Expenses 1,996.16 474.41(Pending Allocation : Refer Note No. 18 of notes on accounts)

54,071.84 9,647.74

SCHEDULE 7 — INVESTMENTS

I LONG TERM INVESTMENTS (AT COST)1. Trade

(a) (QUOTED)4,41,75,413 (Previous Year 4,41,21,673) Equity Shares of Rs. 10/- each

fully paid up of Vardhman Acrylics Limited 4,318.86 4,315.65(b) (UNQUOTED)

3,00,000 (Previous year 3,00,000) Equity Shares of Rs.10/-each fully paid-up of Vardhman Textile Components Limited 30.00 30.00

(ii) In Subsidiary Companies1,51,80,060 (Previous year 1,51,80,060) Equity Shares of Rs.10/- each

fully paid up of VMT Spinning Company Limited 1,518.01 1,518.0180,00,000 (Previous year 80,00,000) Equity Shares of Rs.10/- each

fully paid up of Vardhman Threads Limited 803.50 803.5050,000 (Previous year 50,000) Equity Shares of Rs.10/- each fully

paid up of Vardhman Yarns & Threads Limited 5.00 5.002. OTHERS

(UNQUOTED)4,495 (Previous year 4,495) Equity shares of Rs.10/- each fully paid-up of Srestha

Holdings Ltd.,80 shares (Previous Year 80 Shares)of Rs 50/- each fully paid-up in theValencia Co-operative Housing Society Limited, Mumbai and 5 shares(Previous Year5 Shares) Dalamal House Commercial Complex Society Ltd,Mumbai 0.46 0.46

8,461 Equity-Shares (Previous Year 7100 Shares ) of Rs 1000/- each fully paid-up ofPerundurai Common Effluent Treatment Plant (Section 25 Company) 84.61 71.00

2,50,000(Previous year 50,000) Equity Shares of Rs 10/- each fully paid-up of NimbuaGreenfield (Punjab) Limited 25.00 5.00

6,785.44 6,748.62II CURRENT INVESTMENTS (AT LOWER OF COST AND FAIR VALUE)

OTHER THAN TRADE(QUOTED)

1,69,120(Previous Year 1,69,120) Equity Shares of Rs.10/- each fully paid up ofIndustrial Devolpment Bank of India Limited 89.32 89.32

6,874.76 6,837.94

NOTES:

1. Aggregate value of quoted investments 4,408.18 4,404.972. Aggregate value of unquoted investments 2,466.58 2,432.973. Market Value of quoted investments 2,671.32 3,265.064. 49,98,900 units of PNB Principal Mutual Fund were purchased and sold during the year.

29

Vardhman



SCHEDULE 8 — CURRENT ASSETS, LOANS AND ADVANCES(A) CURRENT ASSETS

1. InventoriesRaw Materials 41,618.53 33,620.03Material in Transit 1,008.67 964.11Work-in-Process 5,457.41 4,506.12Finished Goods 16,289.20 14,179.86Stores and Spares 4,940.75 3,359.20Work-in-Progress 270.26 69,584.82 270.26 56,899.58Total (A) 69,584.82 56,899.58

2.2.2.2.2. Sundry Debtors Sundry Debtors Sundry Debtors Sundry Debtors Sundry Debtors (Considered goodunless otherwise stated)Unsecureda) Debts outstanding for a period exceeding six months

(i) Considered Good 880.75 1,174.55(ii) Considered Doubtful 177.55 218.15

b) Other Debts: Considered Good 24,360.34 21,029.63Less : Provision for doubtful debts 177.55 25,241.09 218.15 22,204.18

Total (B) 25,241.09 22,204.183. Cash and Bank Balances

(a) Cash BalancesCash in hand 252.79 259.36Cheques in hand 1,089.99 1,783.31Remittance in transit 27.10 1,369.88 47.35 2,090.02

(b) Bank BalancesWith Scheduled Banks:(i) in Current Accounts 1,724.94 1,335.30(ii) in Saving Bank Accounts 9.81 9.38(iii)Fixed Deposit Accounts

[Including Rs. 3.48 lac (Previous 18,568.73 20,303.48 23,720.12 25,064.80Year Rs. 0.80 Lac) pledged withGovernment Authorities]

Total (C) 21,673.36 27,154.82

(B)(B)(B)(B)(B) LOANS AND ADVANCES LOANS AND ADVANCES LOANS AND ADVANCES LOANS AND ADVANCES LOANS AND ADVANCES (Unsecured, consideredgood unless otherwise stated)(a) Advance to subsidiary company — 105.99(b) Advances recoverable in cash or in kind

or for value to be received 14,907.75 11,154.35(c) Amount recoverable from Mahavir Share

Trust in respect of Shares held in Trust(Refer Note No. 13 & 14 of notes on account) 1,787.24 1,786.79

(d) Balances with Government Authorities 6,605.74 5,272.72Total (D) 23,300.73 18,319.85Total (A+B+C+D) 139,800.00 124,578.43

30

Vardhman



SCHEDULE 9 — CURRENT LIABILITIES AND PROVISIONS

(A) CURRENT LIABILITIESSundry Creditors— Total outstanding dues to Small Scale Undertakings 5.12 39.30— Total outstanding dues to entities other than Small

Scale Undertakings 11,072.44 4,874.92Trade Deposits & Advances 1,662.32 1,137.95Unclaimed Dividends 225.96 122.03Other Liabilities 14,616.81 9,637.74Realisations under agreement to sell 229.85 229.85Interest accrued but not due 172.63 314.79

Total (A) 27,985.13 16,356.58(B) PROVISIONS:

Provision for Current Tax 25,831.21 20,882.74Provision for Fringe Benefit Tax 210.00 110.00Less: Prepaid Taxes 26,628.00 (586.79) 20,415.83 576.91Proposed Dividend — 2,310.78Corporate Dividend tax thereon — — 324.09 2,634.87

Total (B) (586.79) 3,211.78Total (A+B) 27,398.34 19,568.36

Note : Unclaimed Dividends do not include any amount due and outstanding to be credited to the Investors Educationand Protection Fund.

Current Year Previous Year(Rs. in Lac) (Rs. in Lac)

SCHEDULE 10 — OTHER INCOME

Interest received (Gross) [TDS Rs 2.29 lac (Previous Year Rs 1.70 lac)] 1,150.90 165.17Claims received 165.66 115.26Provisions no longer required written back 323.24 343.41Dividend Income from Long Term Trade Investments

- Subsidiaries 89.28 88.55- Other than Subsidiaries 127.90 69.96

Dividend Income from Current investments- Others 2.68 1.28

Profit on sale of Investmentsa) Long Term Investments — 2,083.72b) Current Investments — 9.22

Profit on sale of fixed assets 215.23 1,001.52Benefit under Duty Entitlement Pass Book Scheme / Duty Drawback 914.73 456.63Provision for Doubtful Debts written back 40.60 —Exchange rate fluctuation (Net) 17.91 60.08Miscellaneous 354.68 448.50

3,402.81 4,843.30

31

Vardhman



SCHEDULE 11 — RAW MATERIAL CONSUMED ANDPURCHASE OF FINISHED GOODS

Opening Stock 33,620.03 31,381.32Add : Purchases 102,863.57 81,636.00

136,483.60 113,017.32Less: Closing Stock 41,618.53 33,620.03Raw Material Consumed 94,865.07 79,397.29Add :Purchase of Finished Goods 990.25 809.49

95,855.32 80,206.78

SCHEDULE 12 — MANUFACTURING EXPENSES

Power and Fuel 27,246.91 24,405.35Packing Material and Charges 4,424.72 4,036.11Stores & Spares Consumed 3,920.41 3,580.54Dyes & Chemical Consumed 8,436.04 7,288.01Repairs to Plant and Machinery 6,397.86 5,034.19Processing Charges 903.58 675.08Techinal know-how 4.06 1.60Miscellaneous 548.24 548.84

51,881.82 45,569.72

SCHEDULE 13 — PERSONNEL EXPENSES

Salaries, Wages and Bonus 10,876.92 9,310.42Contribution to Provident and other Funds 1,565.24 1,405.53Workmen and Staff Welfare 216.85 210.14Miscellaneous 47.44 90.77

12,706.45 11,016.86

32

Vardhman


SCHEDULE 14 — ADMINISTRATIVE AND OTHER EXPENSES

Rent 214.05 170.25Fees,Rates and Taxes 132.76 109.41Building Repairs and Maintenance 753.71 459.27General Repairs and Maintenance 340.51 299.74Insurance 681.84 574.68Legal and Professional 321.19 254.38Travelling and Conveyance 420.61 421.03Printing and Stationery 243.26 231.61Postage and Telegrams 72.16 76.49Telephone and Telex 284.18 328.05Vehicle Maintenance 387.90 305.58Auditors Remuneration:

Audit Fee 11.94 10.50Tax Audit Fee 2.42 2.00Reimbursement of Expenses 4.09 3.30In other capacity (certification) 0.87 0.79

Cost Audit Fee 3.52 2.98Managerial Remuneration 617.13 600.01Directors’ Travelling 61.45 109.71Bad debts written off 323.56 411.70Provision for Doubtful Debts — 58.23Loss on sale and Discarded fixed assets 89.55 116.22Charity and Donation 149.62 81.28Electricity & Water 141.66 94.62Miscellaneous 310.01 242.97

5,567.99 4,964.80


SCHEDULE 15 — INTEREST AND FINANCIAL CHARGES

Commission and Expenses on procuring Deposits 0.96 1.44Interest:

On Debentures 197.53 461.30On Fixed Deposits 23.80 31.93On Term Loans 2,422.41 1,819.91On Working Capital (Net) 786.55 1,245.04

Bank & Other charges 338.25 389.413,769.50 3,949.03

33

Vardhman


SCHEDULE 16 — SELLING AND DISTRIBUTION EXPENSES

Forwarding Charges and Octroi 5,402.81 4,680.63Commission to Selling Agents 1,618.91 1,678.57Rebate and Discount 2,595.76 7,322.18Cess duty 69.79 60.21Advertisement 181.70 255.10Sales promotion 312.34 264.78Miscellaneous 361.67 268.02

10,542.98 14,529.49

SCHEDULE 17 — (INCREASE)/DECREASE IN WORK-IN-PROCESSAND FINISHED STOCK

Opening Stock:Work-in-Process 4,506.12 3,645.98Finished Goods 14,179.86 18,685.98 13,447.93 17,093.91

Add : Production during Trial Run PeriodWork-in-Process 96.07 52.03Finished Goods 136.54 232.61 17.90 69.93

18,918.59 17,163.84Less: Closing Stock:

Work-in-Process 5,457.41 4,506.12Finished Goods 16,289.20 21,746.61 14,179.86 18,685.98

(2,828.02) (1,522.14)


34

Vardhman


SCHEDULE 18 — NOTES ON ACCOUNTS

1. SIGNIFICANT ACCOUNTING POLICIES:a) Accounting Convention:

The accounts are prepared on accrual basis under the historical cost convention in accordance with theaccounting standards referred to in section 211(3C) of the Companies Act, 1956 and other relevant provisionsof the said Act.

b) Revenue Recognition:i) Sales:

Revenue from sale of goods is recognised :(i) when all the significant risks and rewards of ownership are transferred to the buyer and the company

retains no effective control of the goods transferred to a degree usually associated with ownership; and(ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from

the sale of goods.ii) Interest:

Interest is recognised on a time proportion basis taking into account the amount outstanding and the rateapplicable.

iii) Dividend:Dividend is recognised as income when the right to receive the payment is established.

(iv) Benefit under Duty Entitlement Pass Book Scheme / Duty Drawback SchemeRevenue in respect of the above benefit is recognised on post export basis.

(v) Insurance and Other ClaimsRevenue in respect of claims is recognised when no significant uncertainity exists with regard to theamount to be realised and the ultimate collection thereof.

c) Retirement Benefits:i) Gratuity:

Provision for gratuity liability to employees is made on the basis of actuarial valuation as on 31.03.2007 andthe amount so determined is paid to an approved gratuity fund.

(ii) Superannuation:The liability in respect of eligible employees covered under the scheme is provided through a policy takenfrom Life Insurance Corporation of India by an approved trust formed for the purpose. The premium in respectof such policy is recognised as an expense in the period in which it falls due.

(iii) Provident Fund:Contribution to Provident Fund is made in accordance with the provisions of the Employees Provident Fundand Miscellaneous Provisions Act, 1952 and is charged to the profit and loss account.

(iv) Leave Encashment:Provision for leave with wages is made on the basis of actuarial valuation as on 31.03.2007.

d) Fixed Assets:Fixed Assets are stated at historical cost less accumulated depreciation.

e) Intangible Assets:Intangibles are stated at cost less accumulated amount of amortisation.

f) Depreciation:i) Depreciation on all assets except computers is provided on straight line method in accordance with and in

the manner specified in Schedule XIV to the Companies Act,1956. In case of computers, depreciation ischarged on a systematic basis to each accounting period during the estimated useful life thereof.

ii) Depreciation on assets costing Rs.5000/ or below is charged @ 100% per annum on proportionate basis.g) Amortisation:

Intangible assets are amortised on straight line method. These assets are amortised over their estimated usefullife.

h) Investments:Long term Investments are carried at cost less provision, if any, for decline in value which is other than temporary.Current investments are carried at lower of cost and fair value.

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i) Inventories:Inventories are valued at cost or net realisable value,whichever is lower. The cost in respect of the various itemsof inventory is computed as under:• In case of raw materials at weighted average cost plus direct expenses.• In case of stores and spares at weighted average cost plus direct expenses.• In case of work in process at raw material cost plus conversion cost depending upon the stage of completion.• In case of finished goods at raw material cost plus conversion costs, packing cost, excise duty and other

overheads incurred to bring the goods to their present location & condition.• In case of work in progress at the construction cost incurred in respect of the flats.

j) Cenvat Credit:Cenvat credit on excise duty paid inputs, capital assets and input services is taken in accordance with the CenvatCredit Rules,2004.

k) Expenditure incurred during construction period:In respect of new/major expansion of units, the indirect expenditure incurred during construction period uptothe date of the commencement of commercial production, which is attributable to the construction of theproject, is capitalised on various catagory of fixed assets on proportionate basis.

l) Subsidy:Government grants available to the company are recognised when there is a resonable assurance of compliancewith the conditions attached to such grants and where benefits in respect thereof have been earned and it isresonably certain that the ultimate collection will be made. Government subsidy in the nature of promoter’scontribution is credited to Capital Reserve. The Government subsidy received for specific asset is reduced fromthe cost of the asset.

m) Borrowing Costs:Borrowing costs that are directly attributable to the acquisition,construction or production of a qualifying assetare capitalised as part of the cost of the asset. Other borrowing costs are recognised as an expense in the theperiod in which they are incurred.

n) Foreign Currency Conversion:i) Foreign currency transactions are recorded on initial recognition at the rate prevailing on the date of the

transaction. Where export bills are negotiated with the bank, the export sales are recorded at the rate onthe date of negotiation as the said rate approximates the actual rate at the date of the transaction.

ii) Foreign currency monetary items are reported using the closing rate. Exchange differences arising on thesettlement of monetary items or on reporting the same at the closing rate as at the balance sheet date arerecognised as income or expense in the period in which they arise except in case of liabilities incurred forthe purpose of acquiring the fixed assets from outside India in which case such exchange differences areadjusted in the carrying amount of fixed assets.

iii) The premium or discount arising at the inception of forward exchange contracts is amortised as an expenseor income over the life of the contract. Exchange difference on such a contract is recognised in the statementof profit and loss in the reporting period in which the exchange rates change. Profit or Loss arising oncancellation or renewal of such contracts is recognised as income or expense in the period in which suchprofit or loss arises.

o) Accounting for Taxes on Income and Fringe Benefit Tax(i) The accounting treatment followed for taxes on income is to provide for Current Tax and Deferrred Tax.

Current Tax is the aggregate amount of income-tax determined to be payable in respect of taxable incomefor a period. Deferred tax is the tax effect of timing differences between taxable income and accountingincome that originate in one period and are capable of reversal in one or more subsequent periods.

(ii) Fringe Benefit Tax is provided on the aggregate amount of fringe benefits determined in accordance withthe provisions of the relevant enactment at the specified rate of tax.

p) Impairment of Assets:At each balance sheet date an assessment is made whether any indication exists that an asset has been impaired.If any such indication exists, an impairment loss i.e. the amount by which the carrying amount of an assetexceeds its recoverable amount is provided in the books of account.

q) Provision and Contingent Liabilities(i) Provisions are recognised for liabilities that can be measured by using a substantial degree of estimation, if:

(a) the company has a present obligation as a result of a past event;

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(b) a probable outflow of resources embodying economic benefits is expected to settle the obligation; and(c) the amount of the obligation can be reliably estimated

(ii) Contingent liability is disclosed in the case of :(a) a present obligation arising from a past event when it is not probable that an outflow of resources

embodying economic benefits will be required to settle the obligation or(b) a possible obligation, unless the probability of outflow in settlement is remote

(iii) Re-imbursement expected in respect of expenditure required to settle a provision is recognised only whenit is virtually certain that the re-imbursement will be received.


2. There are contingent liabilities in respect of the following items:No outflow is expected in view of the past history relating to these items:a) Claims not acknowledged as debts 1,362.49 619.06b) Guarantees given by the Company on behalf of others 37.14 37.14

(The Company has received a legal notice in respect of one guaranteewhich it is repudating and legal steps are being taken up in this behalf)

c) Guarantees given by the Company on behalf of associates to the extentloans availed by such associates 1,020.96 3,547.60

d) Bank Guarantees and Letters of Credit outstanding 22,432.28 5,842.04e) Bills discounted with banks 6,104.74 6,767.68

3. Estimated amount of contracts remaining to be executed on Capital Account(Net of Advances) 38,094.35 19,327.25

4. The Company has contested the additional demand in respect of Sales Tax and Excise Duty amounting toRs. 1053.33 Lac (Previous Year Rs. 1685.73 Lac). As against this a sum of Rs. 316.12 Lac (Previous Year Rs. 461.67Lac) has been deposited under protest and stands included under the head “Advances and other recoverables incash or in kind”.The Company has filed an appeal with the Appellate Authorities and is advised that the demand isnot in accordance with law. No provision, therefore, has been made in accounts in respect thereof.

5. The Company has executed bonds for an aggregate amount of Rs. 9906.00 Lac (Previous Year Rs. 4757.59 Lac) infavour of the President of India under sections 59(2) and 67 of the Customs Act, 1962 and Central Excise and SaltAct, 1944, for fulfilment of the obligation under the said Acts.

6. The company has contested the additional demand not provided for in the books of accounts in respect of incometax amounting to Rs. 1325 Lac (Previous Year Rs 828.00 Lac). Pending appeal with appellate authorities, no provisionhas been made in the books of account as the company is hopeful to get the desired relief in appeal.

7. An injuction was obtained against the London Branch of the textile undertaking of Vardhman Holdings Limited(formerly known as Vardhman Spinning & General Mills Limited), preventing disposal of assets upto the value ofPound Sterling 2.99 Lac as a result of a court case pending in London for alleged non-fulfilment of an agreement ofcotton purchase. The said matter had been decided against such textile undertaking and accordingly, Pound Sterling0.48 Lac lying in the bank account at London had been paid to the claimant pursuant to the Order of the Court. Thesaid amount was written off by Vardhman Holdings Limited (formerly known as Vardhman Spinning & GeneralMills Limited), by way of debit to the Profit and Loss Account. No provision has been made for the balance decreeamount in view of the fact that Vardhman Holdings Limited (formerly known as Vardhman Spinning & GeneralMills Limited), was prevented by force majure in fulfilling its part of contract. The Company having taken over thetextile undertaking by a scheme of arrangement and demerger is contesting this matter in Indian Courts and isconfident that there would not be any further liability in this regard.

8. Loans and Advances includes Rs. 12.50 Lacs at at 31.03.2007 ( Rs 14.00 Lacs as at 31.03.2006) due from President& Executive Director of the Company granted as Housing Loan. Maximum balance outstanding during the yearwas Rs. 14.00 Lac (Previous Year Rs. 15.00 Lac ).

9. The erstwhile amalgamating Company i.e. Mohta Industries Limited had entered into an agreement to sell majorarea of building at Bhikaji Cama Place, New Delhi which had been constructed by the said amalgamated Company.However, the execution of Transfer Deeds and handing-over of possession is pending as the relevant permissionfrom the concerned authorities is yet to be obtained. Further, the Company is likely to incur certain expenses tomake some modifications / alterations in the building to get the necessary permission. These expenses will be

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accounted for as the construction cost in the year in which the same are incurred and sale will also be bookedthereafter. The building is being carried over as work- in-progress and the amounts realised under the agreement tosell are being shown separately under the head ‘Current Liabilities’ in the Balance Sheet. The amount has beenshown separately under the above head as there is no separate heading as per Schedule VI to the Companies Act,1956.

10. Loans and advances includes National Saving Certificates amounting to Rs 0.29 Lac ( Previous Year Rs 0.29 Lac)pledged with Sales Tax Department as securities.

11. The Company has provided depreciation on Computers @ 25% on straight line basis as the useful life of thecomputers has been estimated to be not more than four years.

12. Intangible assets have been amortised @ 25% on straight line basis as the useful life of the software has beenestimated to be not more than four years.

13. The company is holding 15,98,741 (Previous year 15,98,741 ) equity shares of Vardhman Textiles Limited (formerlyknown as Mahavir Spinning Mills Limited) through a trust, which were received by it in its capacity as a shareholderof Vardhman Holdings Limited (formerly known as Vardhman Spinning & General Mills Ltd) in accordance withthe ‘Scheme of Arrangement and Demerger’. The said trust has been exclusively formed for the benefit of thecompany. As per the provisions of the trust deed, all money received by the trust (including dividend and theproceeds of the sale of shares) shall be forthwith paid by the trust to the company. Accordingly, the company hasreceived a sum of Rs. 63.95 Lacs and Rs. 63.95 Lacs towards final dividend for the year 2005-06 and interimdividend for the year 2006-07 respectively.

14. The detail of the amount recoverable from Mahavir Share Trust is as under :

Rs. in LacCost of 15,98,741 Shares 1,785.40Other Recoverable 1.84

1,787.24

15. An amount of Rs. 601.70 Lacs has been paid to Madhya Pradesh Power Transmission Company Limited, Bhopal forexpenditure on power lines. The said amount has been disclosed as Expenditure on power lines in the balancesheet as recommended by ICAI in its guidance note on ‘Expenditure during construction period’. As per the saidguidance note the aforesaid expenditure has to be written off over a period of five years. Accordingly a sum of Rs.120.34 Lacs has been charged to the statement of Profit & Loss and is included in the total figure of ‘Depreciation& Amortisation’ amounting to Rs. 11944.53 Lacs.

16. Segment Information as required by Accounting Standard (AS)-17 on Segment Reporting issued by the Institute ofChartered Accountants of India has been compiled on the basis of the consolidated financial statements and isdisclosed in the notes to accounts forming part of the consolidated financial statements in accordance with theabove standard. Therefore segment information in respect of separate financial statements of the company is notbeing disclosed in the stand alone financial statements.

17. In accordance with the Accounting Standard (AS)-28 on Impairment of Assets, the Company has assessed as on thebalance sheet date, whether there are any indications (listed in paragraphs 8 to 10 of the Standard) with regard tothe impairment of any of the assets. Based on such assessment it has been ascertained that no potential loss ispresent and therefore, formal estimate of recoverable amount has not been made. Accordingly no impairment losshas been provided in the books of account.

18. Project and Pre-operative expenses(Rs. in lac)

Current Year Previous YearPower & Fuel 203.57 6.54Stores, Oil & Lubricants 51.89 10.67Machinery Repair 8.93 0.71Salary, Wages & Bonus 486.19 147.07Staff Welfare 4.30 3.51Rent, Rates and Taxes 79.72 7.13Insurance 113.69 0.52Miscellaneous 800.61 383.91Interest 940.04 155.05Depreciation 30.05 10.44Total (A) 2,718.99 725.55

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Trial Run ExpensesRaw Material Consumed 356.73 56.52Power & Fuel 178.67 20.26Stores, Oil, Lubricants, Dyes & Chemicals 1.74 11.75Machinery Repairs — 0.65Salary, Wages & Bonus 18.63 19.99Staff Welfare 0.44 0.85Rent, Rates and Taxes 5.15 4.61Insurance 3.61 1.04Miscellaneous 69.07 29.73Interest 191.39 29.73Depreciation 5.66 0.07

Total (B) 831.09 145.47

Total (A+B) 3,550.08 871.02Less : Miscellaneous Receipt 17.58 3.59Less : Allocated to Plant & Machinery 607.44 234.83

Buildings 222.92 58.66Capital work in progress 220.46 –

Less : Sale of Finished Goods 252.91 29.60Transfer to Profit & Loss Account

-Work in Process 96.07 52.03-Finished Goods 136.54 17.90

Pending Allocation 1,996.16 474.41

19. Earning Per Share(a) The calculation of Earning Per Share (EPS) as disclosed in the Statement of profit and loss has been made inaccordance with Accounting Standard (AS)-20 on “Earning Per Share” issued by the Institute of Chartered Accoun-tants of India.A statement on calculation of diluted EPS is as under:

(Rs. in lac)Current Year Previous Year

Profit after tax 17,170.08 19,631.62Add : Increased earnings on account of interest savings

on dilutive potential equity shares (net of taxes) 149.82 198.21Total (A) 17,319.90 19,829.83

Weighted average number of equity shares (No in lac) 577.70 577.70Weighted average number of equity shares which would beissued on conversion of dilutive potential equity shares (No in lac)* 467.98 624.40

Total (B) 1,045.68 1,202.10Earning per share : diluted (A/B) Rs. 16.56 16.50

(b) *The diluted earning per share has been disclosed in accordance with the requirements of the aforesaid Standard.There has been no default on any account during the relevant year which would require the conversion of debt/loans into equity. Further, there are no outstanding warrants.(c) The conversion price of zero coupon foreign currency convertible bonds is higher than the fair value of theequity share as at the close of the year and is accordingly anti-dilutive. Therefore, the same has not been consideredfor computing the diluted earnings per share.

20. Deferred Tax Liability (Net) as on 31st March, 2007 is as follows : (Rs in lac)Current Year Previous Year

Timing Difference on account of Depreciation /Amortisation 10,334.29 9,275.06Less : Deferred Tax Asset arising on account of timing difference

Due to disallowances u/s 43-B of the Income Tax Act, 1961. 77.03 52.92Due to provision for doubtful debts 60.35 6.98Due to deduction u/s 35D of the Income Tax Act, 1961. 4.86 -Due to brought forward capital loss 682.12 -Total 9,509.93 9,215.16

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21. Any change in the amount of deferred tax liability on account of change in the enacted tax rates and change in thequantum of depreciation allowable under the tax laws, is disclosed in the statement of profit and loss account as‘Deferred tax adjustment’

22. The Interest on Working Capital is net of interest received from Customers & Others amounting to Rs 312.90 lac(Previous Year Rs 273.64 lac).

(Rs. in Lac)23. The details of prior period items are as under: Current Year Previous Year

Expenses 187.38 122.24Income 152.86 130.82

34.52 (8.58)

24. Related Party Disclosure(a) Details of transactions entered into with the related parties during the year as required by Accounting Standard (AS)

-18 on “Related Party Disclosures” issued by the Institute of Chartered Accountants of India are as under :(Rs. in Lac)

Particulars Subsidiary Associates Key Management Relatives of KMP Enterprises over which TOTALPersonnel (KMP) KMP is able to exercise

significant influence

Current Previous Current Previous Current Previous Current Previous Current Previous Current PreviousYear Year Year Year Year Year Year Year Year Year Year Year

Purchase/processing of goods 1,607.22 1,442.92 13,311.80 11,579.38 14,919.02 13,022.30Purchase of DEPB licences — 2.24 1.53 20.13 1.53 22.37Sale/processing of goods 977.59 744.73 1.27 977.59 746.00Sale of DEPB licences 5.60 1.98 134.79 146.43 140.39 148.41Purchase of fixed assets 0.46 — 400.00 — 400.46 —Sale of fixed assets 45.05 — — — — 95.00 — 82.57 — 502.69 45.05 680.26Donation — — — — 141.38 75.00 141.38 75.00Rent Paid — — — — 6.01 5.86 6.01 5.86Payment against licence agreement(excluding service tax) — — — — 37.50 27.55 37.50 27.55Interest paid 16.17 13.34 7.72 9.68 53.34 129.13 77.23 152.15Interest received 4.62 7.60 149.88 60.34 — — 154.50 67.94Rent Received 27.41 27.41 — — 27.41 27.41Guarantees given — — 1,020.96 3,547.60 1,020.96 3,547.60Managerial remuneration — — — — 617.13 600.01 617.13 600.01Sale of Investments — — — — — 1,558.49 — 1,558.49Purchase of Investment — 253.00 — — 253.00Loan Given (Including Opening Balance) — 1,840.00 16,170.00 9,825.00 14.00 15.00 — — 16,184.00 11,680.00Loan Repayment — 1,840.00 16,170.00 8,525.00 1.50 1.00 — — 16,171.50 10,366.00Closing Balance — — — 1,300.00 12.50 14.00 — — 12.50 1,314.00Loan Taken (Including Opening Balance) — 4,529.50 — 1,165.00 1,590.50 6,395.24 1,590.50 12,089.74Loan Repayment — 4,529.50 — 1,165.00 1,575.50 6,393.74 1,575.50 12,088.24Closing Balance — — — — 15.00 1.50 15.00 1.50

— 105.99 — — — — — 105.99

(b) Disclosure of Related Parties with whom Business transactions took place during the year.

1. Subsidiary VMT Spinning Co. LimitedVardhman Threads LimitedVardhman Yarns & Threads Limited

2. Associates Vardhman Textile Components LimitedVardhman Acrylics Limited

3. Key Management Personnel Mr. S.P.Oswal, Mr. D.L.Sharma, Mr. Sachit Jain and Mrs. SuchitaJain

4. Relatives of KMP Mrs. Shakun Oswal5. Enterprises over which Key Management Vardhman Holdings Limited

Personnel and relative of such personnel is (formerly known as Vardhman Spinning & General Mills Limited)able to exercise significant influence Vardhman Apparels Limited

Banarso Devi Oswal Public Charitable TrustSri Aurobindo Socio Economic and Management Research Institute

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*Adinath Investment & Trading Co.*Devakar Investment & Trading Co. (P) Limited*Srestha Holdings Limited*Santon Finance & Investment Co. Limited*Flamingo Finance & Investment Co. Limited*Ramaniya Finance & Investment Co. Limited*Marshall Investment & Trading Co. (P) Limited*Pradeep Mercentile Co. (P) Limited*Plaza Trading Co. (P) Limited*Vardhman Textile Processors (P) Limited*Anklesh Investments (P) Limited*Syracuse Investment & Trading Co. (P) Limited

Note: *Only Loan Transactions have taken place with these Companies.

(c) Disclosure of Related Parties with whom no Business transactions took place during the year.

1. Enterprises over which Key ManagementPersonnel and relative of such personnel isable to exercise significant influence Vardhman Linen Limited

25. Computation of net profit for section 198 read with Section 349 of the Companies Act, 1956, for the purpose ofcommission payable to the Chairman & Managing Director and Executive Directors.

(Rs. in Lac)Current Year Previous Year

Profit before tax 22,576.79 25,059.14Add: Depreciation as per Books of account 11,944.53 10,133.99

Managerial Remuneration 617.13 600.01

Less : Depreciation allowable 11,886.06 10,033.99Profit on sale of Assets as per Section 349(3)(d) of the Companies Act, 1956 137.23 785.19Profit on sale of Investment — 2,092.94

Profit for computation of Commission 23,115.16 22,881.02Maximum permissible i.e. 10% of profits 2,311.52 2,288.10a) Computation of commission payable to Executive Directors :

75% of salary 32.97 30.93b) Computation of Commission payable to Chairman & Managing Director :

Commission @ 2% 462.30 457.62 495.27 488.55

Remuneration paid/payable to Chairman & Managing Director and Executive Directorsa) Chairman & Managing Director

Salary 36.75 32.30Commission 462.30 457.62Contribution to Provident & Other Funds 4.41 3.88Others including perquisites* 19.35 17.54

b) Executive DirectorsSalary 43.96 41.25Commission 32.97 30.93Contribution to Provident & Other Funds 6.18 4.95Others including perquisites* 27.95 31.52TOTAL ** 633.87 619.99

* Perquisites calculated as per Income Tax Rules, 1962.** The above excludes contribution to the approved group pension and gratuity fund which are actuarially

determined on an overall basis.

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26. Name of Small Scale industrial undertakings to whom the company owes any amount which is outstanding for overa period of more than 30 days.Name of the SSI Undertaking :

1. Perfect Equipments Pvt. Ltd. 2. Rotomag Motors & Controls Pvt. Ltd. 3. J.K. Polyfibres

27. The Company has requested its suppliers to intimate whether they are registered under ‘ The Micro, Small andMedium Enterprises Development Act, 2006 ‘. Pending receipt of intimation from suppliers, the amount due to thesuppliers under the said Act could not be determined.

28. Previous year’s figures have been recast/regrouped wherever necessary to make these comparable with current year’sfigures.

29. Fixed Deposits with Scheduled Banks include Rs. 17993.52 Lacs (Previous Year Rs. 23498.01 Lacs) as unutilisedmonies out of the issue of Zero Coupon Foreign Currency Convertible Bonds. The amount of Rs. 5707.59 Lacs(Previous Year Rs. 2667.80) Lacs has been utilised towards the capital expenditure in connection therewith.

30. Disclosure required by Clause 32 of Listing Agreement:The Company has given inter corporate deposits aggregating to Rs 14870.00 Lacs to M/s Vardhman Acrylics Ltd.during the year. The maximum amount outstanding during the year was Rs. 3440.00 Lacs. The Balance outstandingas on 31.03.07 is Rs Nil.

31. Excise Duty amounting to Rs. 6246.02 Lacs (Previous Year Rs. 6808.54 Lacs) has been reduced from gross turnoveras the same is included in the figure of gross turnover. Further the difference of excise duty between the closingstock and opening stock has been disclosed separately in the statement of profit and loss.

32. Figures in bracket indicate deductions.

33. The Foreign Currency exposure of the Company is as under :a) Category wise quantitative data

Current YearCurrent YearCurrent YearCurrent YearCurrent Year Previous YearPrevious YearPrevious YearPrevious YearPrevious Year

No. ofNo. ofNo. ofNo. ofNo. of AmountAmountAmountAmountAmount No. ofNo. ofNo. ofNo. ofNo. of AmountAmountAmountAmountAmountContractsContractsContractsContractsContracts ContractsContractsContractsContractsContracts

- Forward contracts against exportsIn US Dollar (million) 18 14.25 20 15.00(Equivalent approximate in Rs. Lacs) 6,449.22 6,729.30

- Put and Call option contracts against exports *In US Dollar (million) - - 1 2.00(Equivalent approximate in Rs. Lacs) - 868.00

- Forward contracts against importsIn US Dollar (million) 17 27.50 - -(Equivalent approximate in Rs. Lacs) 12,091.79 -In Euro (million) - - 10 6.50(Equivalent approximate in Rs. Lacs) - 3,485.79In CHF (million) 3 4.46 9 7.05(Equivalent approximate in Rs. Lacs) 1,588.48 2,425.78In Yen (million) 3 588.53 2 295.44(Equivalent approximate in Rs. Lacs) 2,172.36 1,127.62

- Put and Call option contracts against imports *In Euro (million) 6 25.22 2 3.00(Equivalent approximate in Rs. Lacs) 13,936.38 1,587.91In CHF (million) 5 19.83 1 15.14(Equivalent approximate in Rs. Lacs) 6,952.55 5,352.99In Yen (million) 3 1,117.18 1 115.60(Equivalent approximate in Rs. Lacs) 4,128.64 446.20

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- Forward contracts against foreign Currency LoansIn US Dollar (million) 11 23.08 7 10.67(Equivalent approximate in Rs. Lacs) 10,553.42 4,853.98

b) All the derivative instruments are for hedging foreign exchange exposures against firm commitments and/orhighly probable forecast transactions.

c) Foreign currency exposures remaining unhedged at the year end :- Against Debtors & Exports

In US Dollar (million) 5.75 3.00(Equivalent approximate in Rs. Lacs) 2,498.95 1,338.60

- Against LoansIn US Dollar (million) 3.70 3.36(Equivalent approximate in Rs. Lacs) 1,608.02 1,499.23

* Option Contracts are based on the maximum coverage under options.

34. The information required by para 3 & 4 of Part II of Schedule VI to the Companies Act, 1956:-

Unit Licensed Capacity Installed CapacityCurrent Year Previous Year Current Year Previous Year

(A) CAPACITY1. Spindles No. N.A. N.A. 5,43,432 4,77,9202. Looms No. N.A. N.A. 460 4323. Rotors No. N.A. N.A. 1,248 1,2484. Steel Ingots/ Billets MT N.A. N.A. 1,00,000 1,00,0005. Rolled Products MT N.A. N.A. 80,400 80,400

(Installed capacity has been certified by the Management and not verified by the Auditors, being a technical matter)Unit Current Year Previous Year

(B) ACTUAL PRODUCTIONYarn * MT 87,476 77,967Sewing thread MT 8,783 8,129Fabric $ MN Mtrs 54.25 41.47Processed Fabric MN Mtrs 36.53 32.62Steel Ingots/Billets MT 88,378 79,452Rolled Products* MT 81,537 73,087

* Including goods processed by/for others on job basis and consumed for captive consumption.$ Including fabric transferred to Process House.

Current Year Previous YearUnit Quantity Value Quantity Value

(Rs. in Lac) (Rs. in Lac)(C) PURCHASE OF FINISHED GOODS

Yarn MT 267 345.10 427 540.22Sewing thread MT 3 14.36 2 8.89Billets MT 95 21.58 110 20.17Fabric MN Mtrs 0.97 609.21 0.40 240.21

990.25 809.49

(D) SALESYarn * MT 67,266 102,873.31 65,055 92,619.62Sewing thread MT 8,851 29,634.83 8,045 32,281.52Fabric ** MN Mtrs 16.53 7,660.77 7.75 3,577.08

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Processed Fabric MN Mtrs 37.42 33,239.58 32.31 28,945.39Garments Nos — — 938 1.54Raw Material (Yarn & Scrap) MT 1,002 372.45 1,202 460.71Raw Material (Fabric) MN Mtrs 0.02 8.83 0.08 33.24Billets MT 411 176.68 151 66.64Rolled Products MT 78,816 34,525.51 70,152 31,783.57Processing Charges *** 120.36 164.84Waste 5,545.08 5,084.86Miscellaneous 851.62 705.73

2,15,009.02 1,95,724.74

*Excludes 182 MT amounting to Rs. 252.91 lacs (Previous Year Nil) for Trial run period**Excludes Nil (Previous Year 46 MT amounting to Rs. 21.58 lacs) for Trial run period***Excludes Nil (Previous Year Rs. 8.02 lacs) for Trial run period

(E) RAW MATERIAL CONSUMEDCotton * MT 86,307 47,626.52 77,499 39,251.82Manmade Fibre MT 22,996 22,894.97 23,771 20,901.37Yarn ** MT 5,030 7,248.59 3,108 5,754.38Fabric MN Mtrs 0.48 278.97 1.34 644.75Scrap MT 93,171 13,155.90 85,530 11,334.36Others 3,423.53 2,926.16

94,628.48 80,812.84

*Excludes 685 MT amounting to Rs. 356.73 lacs (Previous Year Nil) for Trial run period**Excludes Nil (Previous Year 68 MT amounting to Rs 56.52 lacs) for Trial run period

(F) STOCK PARTICULARS OF FINISHED GOODS

(I) OPENING STOCKS:Yarn MT 5,246 6,057.49 6,083 7,161.08Sewing Thread MT 884 2,159.92 815 1,872.50Fabric MN Mtrs 2.96 1,386.74 1.05 754.09Processed Fabric MN Mtrs 1.59 943.48 1.02 690.30Garments Nos — — 938 1.88Billets MT 4,462 1,166.96 3,607 951.00Rolled Products MT 7,274 2,465.27 5,795 2,017.08

14,179.86 13,447.93

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Vardhman



(G) CIF VALUE OF IMPORTSRaw Materials 9,836.38 9,812.24Components & Spare Parts 2,999.80 2,401.08Capital Goods 33,918.93 13,061.47

46,755.11 25,274.79(H) EXPENDITURE IN FOREIGN CURRENCY

Travelling 56.58 72.49Commission 787.40 841.37Technical Knowhow Fee 10.83 1.70Interest 229.38 180.75Miscellaneous 113.25 45.94

1,197.44 1,142.25(I) EARNING IN FOREIGN CURRENCY

FOB Value of Exports 43,401.84 36,741.54Interest 675.76 0.64

44,077.60 36,742.18

Current Year Previous Year(Rs. in Lac) % (Rs. in Lac) %

(J) VALUE OF RAW MATERIALS, COMPONENTSAND SPARE PARTS CONSUMED(1) Raw Materials:

Imported 11,227.46 11.86 11,262.14 13.94Indigenous 83,401.02 88.14 69,550.70 86.06

94,628.48 100.00 80,812.84 100.00(2) Components and Spare Parts :

Imported 2,662.38 15.52 1,834.21 12.20Indigenous 14,486.63 84.48 13,199.19 87.80

17,149.01 100.00 15,033.40 100.00

Current Year Previous YearUnit Quantity Value Quantity Value

(Rs. in Lac) (Rs. in Lac)(II) CLOSING STOCKS :

Yarn MT 5,110 6,813.10 5,246 6,057.49Sewing Thread MT 833 2,223.97 884 2,159.92Fabric MN Mtrs 3.43 1,546.44 2.96 1,386.74Processed Fabric MN Mtrs 1.66 1,101.74 1.59 943.48Billets MT 4,329 1,264.89 4,462 1,166.96Rolled Products MT 8,347 3,339.06 7,274 2,465.27

16,289.20 14,179.86

45

Vardhman


I. REGISTRATION DETAILS

Registration No. State Code

Balance Sheet Date Date Month Year

II. CAPITAL RAISED DURING THE YEAR (Amount in Rs. Thousand)

Public Issue Rights Issue

Bonus Issue Private Placement

III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs. Thousand)Total Assets Total Liabilities

SOURCES OF FUNDSPaid-up Capital Reserves & Surplus*

Secured Loans Unsecured Loans

APPLICATION OF FUNDSNet Fixed Assets Investments

Net Current Assets Miscellaneous Expenditure...

Accumulated Losses

*including Deferred Tax Liability amounting to Rs. 950993 thousand

IV. PERFORMANCE OF THE COMPANY (Amount in Rs. Thousand)

Turnover (including other income) Total Expenditure

Profit/Loss before Tax Profit/Loss after Tax

Earnings per Share (in Rs.) Dividend Rate (%)

BASIC

DILUTED

1 63 3 4 5

3 1 0 3

N I L

N I L N I L

+

N I L

N I L

+ –

Information required byPart IV of Schedule-VI to the Companies Act, 1956:BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

1 1 2 9 3 5 8 8

2 2 5 7 6 7 9

1 6 . 5 6

2 0 0 7

N I L

2 9 1 1 3 9 3 3

5 7 7 6 9 1

1 4 6 0 6 1 9 3

1 7 1 8 6 2 9 0

1 1 2 4 0 1 6 6

2 1 2 1 6 5 8 1

2 9 . 7 2

2 9 1 1 3 9 3 3

2 6 3 6 4 6 1

6 8 7 4 7 6

1 8 9 5 8 9 0 2

1 7 1 7 0 0 8

4 0

46

Vardhman


V. GENERIC NAMES OF THREE PRINCIPAL PRODUCTS / SERVICES OF THE COMPANY (As per Monetary Terms)

Item Code No. (ITC Code)

Product Description


Product Description


Product Description


Product Description


Product Description

As per our report of even date attachedFor S.C. Vasudeva & Co.,Chartered AccountantsSANJIV MOHAN VIPIN GUPTA NEERAJ JAIN D.L. SHARMA S.P. OSWALPartner Company Secretary Chief Financial Officer President & Chairman &M.No. 86066 Executive Director Managing DirectorPLACE : LUDHIANADATED : 28th May, 2007

5 2 . 0 5

C O T T O N Y A R N

5 4 . 0 1

P O L Y E S T E R S E W I N G T H R E A D

5 2 . 0 8

W O V E N F A B R I C O F C O T T O N

5 5 . 0 9

Y A R N O F S Y N T H E T I C

7 2 . 0 6

S T E E L

47

Vardhman

Consolidated Results of Vardhman Textiles Limited(Formerly known as Mahavir Spinning Mills Limited)

ToThe Board of DirectorsVardhman Textiles Limited

1. We have examined the attached Consolidated BalanceSheet of Vardhman Textiles limited (formerly known asMahavir Spinning Mills Ltd.), (“the Company”), itssubsidiaries and associates as at 31st March, 2007 andthe Consolidated Profit and Loss Account for the yearended and Cash Flow Statement for the year ended onthat date annexed thereto. These financial statementsare the responsibility of the Company’s Management.Our responsibility is to express an opinion on thesefinancial statements based on our audit.

2. We conducted our audit in accordance with auditingstandards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance whether the financial statementsare free of all material misstatements. An auditincludes, examining on a test basis, evidencesupporting the amounts and disclosures in the financialstatements. An audit also includes assessing theaccounting principles used and significant estimatesmade by Management, as well as evaluating theoverall financial statements. We believe that our auditprovides a reasonable basis for our opinion.

3. We did not audit the financial statements of oneconsolidated entity, whose financial statements reflecttotal assets of Rs. 9856.47 lacs as at 31st March, 2007and total revenue of Rs. 6827.31 lacs. The financialstatement and other financial information have beenaudited by another auditor whose report has beenfurnished to us, and our opinion, in so far as it relatesto the amounts included in respect of that entity isbased solely on the report of other auditor.

4. We report that the consolidated financial statementshave been prepared by the Company’s Managementin accordance with the requirements of the AccountingStandard (AS) 21, “Consolidated Financial Statement”and Accounting Standard (AS) 23 “Accounting for

Investment in Associates in Consolidated FinancialStatements” issued by the Institute of CharteredAccountants of the India and on the basis of theseparate audited financial statements of the Company,its subsidiaries and associates included in theconsolidated financial statement.

5. On the basis of the information and explanations givento us and on the consideration of the separate auditreports on individual audited financial statements ofthe parent Company, its subsidiaries and associates,we are of the opinion that the consolidated financialstatements read together with the notes thereon, givea true and fair view in conformity with the accountingprinciples generally accepted in India;

(a) in the case of the consolidated balance sheet, ofthe consolidated state of affairs of the company,its subsidiaries and associates as at 31st March,2007;

(b) in the case of the consolidated profit and lossaccount, of the consolidated results of operationsof the Company, its subsidiaries and associatesfor the year then ended; and

( c ) in the case of consolidated cash flow statement,of the consolidated cash flow of the Company,its subsidiaries and associates for the year thenended.

FOR S.C. VASUDEVA & CO.,CHARTERED ACCOUNTANTS

(SANJIV MOHAN)PLACE : LUDHIANA PARTNERDATED : 28th May, 2007 MEMBERSHIP NO. 86066

AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

48

Consolidated Results of Vardhman Textiles Limited(Formerly known as Mahavir Spinning Mills Limited)Vardhman

CONSOLIDATED BALANCE SHEET as at 31st March, 2007

As per our report of even date attachedFor S.C. Vasudeva & Co.,Chartered AccountantsSANJIV MOHAN VIPIN GUPTA NEERAJ JAIN D.L. SHARMA S.P. OSWALPartner Company Secretary Chief Financial Officer President & Chairman &(M.No.86066) Executive Director Managing DirectorPLACE : LUDHIANADATED : 28.05.2007

Schedule As At As AtPARTICULARS No. 31.03.2007 31.03.2006

( Rs in Lac) (Rs in Lac)

I. SOURCES OF FUNDS1. Shareholders’ funds

a) Capital 1 5,663.51 5,663.51b) Reserves and Surplus 2 1,09,380.82 94,984.08

1,15,044.33 1,00,647.592. Loan Funds

a) Secured Loans 3 1,50,824.99 85,105.77b) Unsecured Loans 4 26,364.61 27,114.77

1,77,189.60 1,12,220.543. Minority Interest

a) Capital 552.12 552.02b) Reserves & Surplus 1,023.58 590.61

1,575.70 1,142.63

4. Deferred Tax Liability 9,730.16 9,459.52TOTAL 3,03,539.79 2,23,470.28

II. APPLICATION OF FUNDS1. Fixed Assets 5

a) Gross Block 2,23,221.44 1,84,345.31b) Less: Depreciation 99,234.54 87,763.12c) Net Block 1,23,986.90 96,582.19d) Capital Work-in-Progress 6 54,148.81 9,927.12

1,78,135.71 1,06,509.312. Investments 7 5,763.23 5,677.51

3. Current Assets, Loans and Advances 8a) Inventories 73,034.32 59,877.17b) Sundry Debtors 26,187.40 22,982.71c) Cash and Bank Balances 22,284.32 27,400.77d) Other Current Assets 0.19 0.18e) Loans and Advances 26,085.57 20,961.53

A 1,47,591.80 1,31,222.36Less: Current Liabilities and Provisions 9a) Liabilities 28,559.62 16,788.04b) Provisions (608.67) 3,150.86

B 27,950.95 19,938.90

Net Current Assets (A-B) 1,19,640.85 1,11,283.46

TOTAL 303,539.79 2,23,470.28

SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS 18The Schedules referred to above form an integral part of the Balance Sheet.

49

Vardhman


CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31st March, 2007

Particulars Schedule Current Year Previous YearNo. (Rs. in Lac) (Rs. in Lac)

INCOMESales (Gross) 2,21,509.46 2,01,693.74Less: Excise Duty 6,280.63 6,882.99Sales (Net) 2,15,228.83 1,94,810.75Other Income 10 3,523.17 4,903.40Income from Associates 396.07 -

Total 2,19,148.07 1,99,714.15

EXPENDITURERaw Material Consumed and Purchase of Finished Goods 11 98,314.22 82,127.96Manufacturing Expenses 12 52,587.62 46,434.63Personnel Expenses 13 13,249.02 11,480.95Administrative and Other Expenses 14 5,969.58 5,166.77Interest and Financial Charges 15 3,834.47 4,003.92Selling and Distribution Expenses 16 11,104.22 15,208.38(Increase)/Decrease in Work in Process and Finished Stock 17 (2,901.31) (1,526.85)Difference of Excise Duty on Stocks 109.07 (134.58)Miscellaneous Expenditure Written Off — 0.04Depreciation & Amortisation 12,240.65 10,663.31Prior Period Items 41.97 2.63Loss from Associates — 186.05

Total 1,94,549.51 1,73,613.21

Profit for the year before tax 24,598.56 26,100.94Less: Provision for– Current Tax 5,229.71 5,873.20

[Including Rs. 20.16 Lacs (Previous Year Rs. 15.00 Lacs)for Wealth Tax]

– Deferred Tax 119.29 (28.03)– Deferred Tax Adjustment 151.34 270.64 (275.31) (303.34)– Fringe Benefit Tax (FBT) 105.97 113.93– Income Tax Adjustment for earlier Years (5.06) (7.64)

Profit for the year after tax but before Minority Interest 18,997.30 20,424.79Minority Interest 432.97 129.06Profit after tax and minority Interest 18,564.33 20,295.73Add: Debenture Redemption Reserve Written Back 625.00 625.00

Adjustment on account of dividend received by Subsidiary Companyon its investment in Holding Company — 34.02

Less: Accumulated profits reversed on account of sale of shares in Associate — 19.31

Balance brought forward 5,374.34 4,253.60Balance available for appropriation 24,563.67 25,189.04Appropriations:Interim Dividend— On Equity Shares 2,265.42 — —— Corporate Dividend Tax thereon 324.09 2,589.51 — —

Proposed Dividend— On Equity Shares 49.68 2,297.89— Corporate Dividend Tax thereon 31.66 81.34 341.16 2,639.05Transferred to General Reserve 16,140.82 17,175.65Balance carried to Balance Sheet 5,752.00 5,374.34

24,563.67 25,189.04Earning per share of Rs. 10/– each(Refer Note No. 5 of Notes on accounts)– Basic 33.54 36.06– Diluted 18.51 17.32

SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS 18The Schedules referred to above form an integral part of the Profit and Loss Account.


50


CONSOLIDATED CASH FLOW STATEMENT for the year ended 31st March, 2007Particulars Schedule Current Year Previous Year

No. (Rs. in Lac) (Rs. in Lac)

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before Tax and Extra-ordinary Items 24,598.56 26,100.94Adjustments for:

Depreciation & Amortisation 12,240.65 10,663.31Interest Expense 3,972.86 3,865.99Miscellaneous Expenditure written off — 0.04(Income) / Loss from Associates (396.07) 186.05Interest/Dividend Income (1,912.46) (558.47)(Profit)/Loss on sale of Assets (Net) (123.65) (885.06)(Profit)/Loss on sale of Investments (Net) (8.30) (2,100.30)Provision no longer required written Back (Net) (336.83) (330.47)Sundry Balances Written Off (Net) 244.74 303.48Provision for Doubtful Debts — 63.22Exchange Rate Fluctuation (693.00) 12,987.94 86.55 11,294.34

Operating Profit before Working Capital Changes 37,586.50 37,395.28Adjustments for :

(Increase)/Decrease in Trade & other Receivables (8,179.60) (8,644.67))(Increase)/ Decrease in Inventories (13,157.14) (4,623.98)Increase/( Decrease) in Trade Payables & other Liabilities 10,644.83 (10,691.91) 4,040.04 (9,228.61)Cash Generation from Operation 26,894.59 28,166.67Taxes Paid (6,473.82) (6,473.82) (5,628.83) (5,628.83)

Net Cash from Operating activities 20,420.77 22,537.84B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (84,557.00) (32,233.39)Sale of Fixed Assets 788.02 1,061.38Sale of Investments 857.78 3,310.12Purchase of Investments (536.82) (349.48)Interest/Dividend Received 1,586.23 550.93Net Cash used in investing activities (81,861.79) (27,660.44)

C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from issue of Share Capital — 92.00Proceeds from Long Term Borrowings (Net) 65,069.31 16,649.04Proceeds from Short Term Borrowings (Net) 649.99 245.46Proceeds from Zero Coupon Foreign Currency Convertible Bonds — 26,765.30Proceeds from Unsecured Borrowings (55.42) (7,469.44)Capital Subsidy Received 30.00 —FCCB Issue Expenses Paid (94.74) (571.16)Dividend Paid (5,124.63) (1,986.86)Interest Paid (4,149.94) (3,923.78)Net Cash from Financing Activities 56,324.57 29,800.56Net Increase in cash & cash equivalents (5,116.45) 24,677.96Cash & cash equivalents as on beginning 27,400.77 2722.81Cash & cash equivalents as on end 22,284.32 27,400.77

SIGNIFICANT ACCOUNTING POLICIESAND NOTES ON ACCOUNTS 18

The Schedules referred to above form an integral part of the Accounts.


AUDITORS’ CERTIFICATEWe have checked the above Cash Flow Statement of Vardhman Textiles Limited (formerly known as Mahavir Spinning Mills Limited), derived from theaudited financial statements for the year ended 31st March, 2007 with the books & records maintained in the ordinary course of business and foundthe same in accordance therewith.

For S.C. Vasudeva & Co.,Chartered Accountants

Sanjiv MohanPLACE : LUDHIANA PartnerDATED : 28.05.2007 (M.No. 86066)

51

Vardhman



SCHEDULE 1 — SHARE CAPITAL

Authorised9,00,00,000 Equity Shares of Rs. 10/- each

(Previous Year 9,00,00,000) 9,000.00 9,000.001,00,00,000 Redeemable Cumulative Preference Shares of

Rs. 10/- each (Previous Year 1,00,00,000)1,000.00 1,000.00

10,000.00 10,000.00

Issued, Subscribed & Paid-up5,66,35,527 Equity Shares (Previous Year 5,66,35,527)

of Rs. 10/- each 5,663.55 5,663.55Less: Calls in arrears from others 0.04 0.04

5,663.51 5,663.51NOTES:Of the above:

(a) 1,35,916 (previous year 1,35,916) Equity Shares of Rs.10/- each are allotted as fully paid up, pursuant to contract without payment beingreceived in cash.

(b) 35,049,580 (previous year 35,049,580) Equity Shares of Rs.10/- each are allotted as fully paid up, by way of bonus shares by capitalisation ofShare Premium, Capital Redemption Reserve and General Reserve.

Schedules 1 to 18 Annexed to and forming part of the Balance Sheet as at 31st March, 2007 andProfit & Loss Account for the year ended 31st March, 2007


SCHEDULE 2 — RESERVES AND SURPLUSCapital ReserveAs per last account 90.33 405.55Less : Goodwill created on consolidation — 313.98Less : on account of sale of Shares in Associate Company — 1.24Add : on account of purchase of Shares in Associate Company 2.31 92.64 – 90.33Capital Redemption Reserve 600.00 1,050.00Less: Utilised for issuing fully paid up Bonus Shares — 600.00 450.00 600.00Capital Subsidy ReserveAs per last account 105.00 105.00Add: Subsidy for the year 90.00 195.00 — 105.00Share PremiumAs per last account 8,542.30 9,404.77Less : Utilised for writing off expenses on issue of

Zero Coupon Foreign Currency Convertible Bonds — 665.91Less : Utilised for providing premium on redemption

of Zero Coupon Foreign Currency Convertible Bonds 1,589.05 196.566,953.25 8,542.30

Less : Calls in arrears from others 0.43 6,952.82 0.43 8,541.87

Debenture Redemption ReserveAs per last account 1,625.00 2,250.00Less: Transferred to Profit and Loss Account 625.00 1,000.00 625.00 1,625.00

General ReserveAs per last account 78,647.54 62,947.54Less: Utilised for issuing fully paid up Bonus Shares — 1,475.65Add: Transferred from Profit and Loss Account 16,140.82 94,788.36 17,175.65 78,647.54Surplus i.e., Balance as per annexed Profit and Loss Account 5,752.00 5,374.34

109,380.82 94,984.08

52



SCHEDULE 3 — SECURED LOANS1. Debentures

40 (Previous Year 40), 8.49% Secured Redeemable Non ConvertibleDebentures of Rs. 25.00 Lacs each (Previous Year Rs. 50.00 Lacs each) 1,000.00 2,000.00Nil (Previous Year 25), 7.90% Secured Redeemable Non ConvertibleDebentures of Rs. Nil each (Previous Year Rs. 100.00 Lacs each) — 2,500.00

2. Loans & Advances from Banks– Term Loans 126,486.75 57,017.44– Working Capital 23,338.24 22,688.25Interest accrued and due on above — 0.08

3. Other Loans & Advances– Term Loan from Others — 900.00

1,50,824.99 85,105.77

NOTES:1. The Debentures and Term Loans from Banks and others are secured by mortgage created or to be created on all the immovable assets of the

Company, both present and future and hypothecation of all the movable assets including movable machinery, machinery parts, tools andaccessories and other movables both present and future (except book debts), subject to charges created or to be created in favour of the Bankersfor securing the working capital limits.

2 Working Capital Borrowings from Banks are secured by hypothecation of entire present and future tangible current assets of the Company as wellas a second charge on the entire present and future fixed assets of the Company.

3 40-8.49% Non Convertible Debentures of Rs. 100 lac each are redeemable at par in four equal yearly instalments of Rs. 25 lac each commencingfrom the end of the second year from the date of allotment i.e. 7th March, 2003. The third instalment of Rs. 25 lac each, amounting to Rs. 1000lac has been paid during the year. The earliest date of redemption of the fourth and last instalment is 7th March, 2008.

4 25 - 7.90% Non Convertible Debentures were redeemable at par at the end of 36th month after the deemed date of allotment i.e 3rd June, 2003.The said debentures have been redeemed during the year on due date.

5 Amount due for repayment out of Debentures and Term Loans within one year is Rs. 8,617.25 lacs (Previous Year Rs. 1,1971.78 lacs)


SCHEDULE 4 — UNSECURED LOANSFixed Deposits 266.64 335.56Interest accrued and due on above 0.97 2.71

Short Term loans and advancesa) From Others 15.00 1.50

Other Loans & Advances– Zero Coupon Foreign Currency Convertible Bonds 26,082.00 26,775.00

26,364.61 27,114.77

NOTE: Amount due for repayment out of Fixed Deposits and Short term Loans & Advances within one year isRs. 115.80 Lacs (Previous Year Rs. 144.43 Lacs).

53

Vardhman


SCHEDULE 5 — FIXED ASSETS

A) TANGIBLE ASSETS (Rs. in Lac)

GROSS BLOCK DEPRECIATION NET BLOCK

Sr. Particulars As at Additions Sales/ As at As at For the Adjustment Upto As at As atNo. 01.04.2006 during the year Adjustments 31.03.2007 01.04.2006 year 31.03.2007 31.03.2007 31.03.20061. Freehold land 3,598.29 1,551.82 67.55 5,082.56 — — — — 5,082.56 3,598.30

2. Leasehold land 839.88 8.94 2.73 846.09 7.76 8.35 ** 7.03 9.08 837.01 832.12

3. Buildings 28,454.99 6,377.06 10.90 34,821.15 # 5,823.94 769.23 0.23 6,592.94 28,228.21 22,631.05

4. Plant & machinery 148,667.64 31,298.01 1,056.85 178,908.80 80,471.24 11,154.36 630.64 90,994.96 87,913.84 68,196.39

5. Furniture & fixture 1,779.67 255.55 210.03 1,825.19 991.82 136.57 144.65 983.74 841.45 787.85

6. Vehicles 733.57 215.97 85.73 863.81 250.73 71.52 42.79 279.46 584.35 482.84

Total (A) 1,84,074.04 39,707.35 1,433.79 222,347.60 87,545.49 12,140.03 825.34 98,860.18 123,487.42 96,528.54

B) INTANGIBLE ASSETS

GROSS BLOCK AMORTISATION NET BLOCK

Sr. Particulars As at Additions Sales/ As at As at For the Adjustment Upto As at As atNo. 01.04.2006 during the year Adjustments 31.03.2007 01.04.2006 year 31.03.2007 31.03.2007 31.03.2006

1. Computer Software 271.27 0.91 0.04 272.14 217.63 5.86 (30.53) 254.02 18.12 53.65

Total (B) 271.27 0.91 0.04 272.14 217.63 5.86 (30.53) 254.02 18.12 53.65

C) EXPENDITURE ON POWER LINE

GROSS BLOCK AMORTISATION NET BLOCK

Sr. Particulars As at Additions Sales/ As at As at For the Adjustment Upto As at As atNo. 01.04.2006 during the year Adjustments 31.03.2007 01.04.2006 year 31.03.2007 31.03.2007 31.03.2006

Expenditure on Power Line — 601.70 — 601.70 — 120.34 — 120.34 481.36

Total (C) — 601.70 — 601.70 — 120.34 — 120.34 481.36 —

Grand Total (A+B+C) 1,84,345.31 40,309.96 1,433.83 2,23,221.44 87,763.12 12,266.23 794.81 99,234.54 1,23,986.90 96,582.19

Previous Year 1,56,782.52 28,813.42 1,250.63 1,84,345.31 78,163.62 10,677.07 1,077.57 87,763.12 96,582.19 —

NOTES:# Includes Rs. 248.20 lac (Previous year Rs. 248.20 lac) cost of Residential flats at Mandideep, the land cost of which has not been excluded from this cost. The

depreciation for the year has been taken on the entire cost of Rs. 248.20 lac (Previous Year Rs. 248.20 lac).** Represents proportionate premium for acquisition of leasehold land being amortised over the period of lease.- Freehold land includes Rs. 113.00 lac (Previous Year Rs. 113.00 lac) for the cost of land at Baddi for which title deeds are yet to be executed in favour of the Company,

though the possession thereof has been taken by the company.- Freehold land includes Rs. 396.50 lac (Previous Year Rs Nil) for the cost of land at Ludhiana for which title deeds are yet to be executed in favour of the Company,

though the possession thereof has been taken by the company.- Freehold land includes Rs. 339.59 lac (Previous Year Rs Nil) for the cost of land at Baddi for which title deeds are yet to be executed in favour of the Company, though

the possession thereof has been taken by the company.- Freehold land includes Rs Nil (Previous Year Rs 498.43 lac) for the cost of land at Budhni (Madhya Pradesh) for which title deeds are yet to be executed in favour of

the Company.- Buildings includes Rs. 21.72 Lacs (Previous Year Rs. 21.72 Lacs) for the cost of Leasehold Building at Ludhiana, (Punjab).- Plant & Machinery includes Rs. 607.44 Lacs (Previous Year Rs 234.83 lac) and building includes Rs. 222.92 Lacs( Previous Rs. 58.66 lac) for the amount allocated

out of project and pre-operative expenses.- Borrowing cost amounting to Rs. 566.92 lac (Previous Year Rs. 39.85 Lacs) has been capitalised.- Depreciation for the year includes Rs. 25.58 lac (Previous Year Rs. 10.51 Lac) which has been charged to Pre-operative Expenses.- Depreciation for the year includes Rs. (-) 8.91 lac (Previous Year Rs. 18.50 lac) pertaining to earlier years.

54



SCHEDULE 6 — CAPITAL WORK-IN-PROGRESS

Building Under Construction 10,982.31 1,536.91Machinery Under Erection 29,455.81 2,691.08Machinery in Transit 4,092.80 2,128.25Capital Advances 7,621.73 3,093.60Project and Pre-operative Expenses 1,996.16 477.28(Pending Allocation to fixed Assets)

54,148.81 9,927.12

SCHEDULE 7 — INVESTMENTS

I LONG TERM INVESTMENTS (AT COST)

In Government Securities 0.10 0.10

1. TRADE(a) (QUOTED)4,41,75,413 (Previous Year 4,41,21,673) Equity Shares of Rs. 10/– eachfully paid–up of Vardhman Acrylics Limited 3,828.13 3,824.92Add: Accumulated profit from Associate Companies 1,450.56 1,059.53Add: Capital Reserve arising on account of carrying value of Investment 112.73 5,391.42 110.42 4,994.87(b) (UNQUOTED)3,00,000 (Previous year 3,00,000) Equity Shares of Rs. 10/–each fully paid–up of Vardhman Textile Components Limited 30.00 30.00Less: Goodwill arising on acquisition of shares in associates 0.70 0.70Add: Accumulated profit from Associate Company 36.17 65.47 31.13 60.43

2. OTHERSa) (QUOTED)1,89,000 (Previous Year 1,89,000) Equity Shares of Rs. 10/– each 106.85 106.85fully paid–up of Vardhman Holdings Limited (formerly known asVardhman Spinning & General Mills Limited)(b) (UNQUOTED)4,495 (Previous year 4,495) Equity shares of Rs. 10/– eachfully paid-up of Srestha Holdings Ltd., 80 shares (Previous year 80 Shares)of Rs. 50/- each fully paid-up in the Valencia Co-operative Housing SocietyLimited, Mumbai and 5 shares (Previous year 5) in the Dalamal HouseCommercial Complex Society Ltd, Mumbai 0.46 0.468,461 (Previous Year 7,100) Equity-Shares of Perundurai Common EffluentTreatment Plant (Section 25 Company) of Rs. 1000/- each fully paid-up 84.61 71.002,50,000 Equity Shares (Previous year 50,000) of Nimbua Greenfield (Punjab) Limitedof Rs. 10/- each fully paid-up. 25.00 5.00

5,673.91 5,238.71II. CURRENT INVESTMENTS (AT LOWER OF COST AND FAIR VALUE)

OTHER THAN TRADE(QUOTED)1,69,120 (Previous year 1,69,120) Equity Shares of Rs.10/– eachfully paid-up of Industrial Devolpment Bank of India Limited 89.32 89.32Nil (Previous year 81,600) Equity Shares of Rs.10/– eachfully paid up of Videocon Industries Ltd. — 349.48

5,763.23 5,677.51NOTES:1. Aggregate value of quoted investments 5,587.69 5,540.622. Aggregate value of unquoted investments 175.54 136.893. Market Value of quoted investments 3,148.08 4,496.734. 49,98,900 units of PNB Principal Mutual Fund wer purchased and sold during the year

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SCHEDULE 8 — CURRENT ASSETS, LOANS AND ADVANCES(A) CURRENT ASSETS

InventoriesRaw Materials 44,440.86 35,928.96Material in Transit 1,118.38 1,035.07Work-in-Process 5,708.87 4,681.93Finished Goods 16,645.11 14,538.13Stores and Spares 5,091.40 3,479.89Work-in-Progress 270.26 270.26

73,274.88 59,934.24Less: Unrealised profit on Consolidation 240.56 73,034.32 57.07 59,877.17Total (A) 73,034.32 59,877.17

Sundry Debtors (Considered goodunless otherwise stated)(a) Secured

(i) Debts outstanding for a periodexceeding six months — —

(b) Sundry Debtors (Unsecured)a) Debts outstanding for a period exceeding six months

(i) Considered Good 968.55 1,239.27(ii) Considered Doubtful 182.93 223.53

b) Other Debts: Considered Good 25,218.85 21,743.44Less : Provision for doubtful debts 182.93 26,187.40 223.53 22,982.71

Total (B) 26,187.40 22,982.71Cash and Bank Balances(a) Cash Balances

Cash in hand 276.42 272.72Cheques in hand 1,212.42 1,864.38Remittance in transit 27.10 1,515.94 47.35 2,184.45

(b) Bank Balances with Scheduled Banks:(i) Current Accounts 2,189.84 1,486.82(ii) Saving Bank Accounts 9.81 9.38(iii) Fixed Deposit Accounts [Including

Rs. 3.48 lac (Previous Year Rs. 0.80 lac) 18,568.73 20,768.38 23,720.12 25,216.32pledged with Government Authorities]

Total (C) 22,284.32 27,400.77Interest Accured on Investment 0.19 0.18

Total (D) 0.19 0.18(B) LOANS AND ADVANCES (Unsecured considered

good unless otherwise stated)(a) Advances recoverable in cash or in

kind or for value to be received 17,561.03 13,667.14(b) Shares held by Mahavir Share Trust 1,787.25 1,786.79(c) Balances with Government Authorities 6,737.29 5,507.60

Total (E) 26,085.57 20,961.53Total (A+B+C+D+E) 1,47,591.80 1,31,222.36

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SCHEDULE 9 — CURRENT LIABILITIES AND PROVISIONS

(A) CURRENT LIABILITIESSundry Creditors— Total outstanding dues to Small Scale Undertakings 6.93 40.46— Total outstading dues to entities other than Small Scale Undertakings 11,200.76 4,952.67Trade Deposits & Advances 1,703.07 1,175.41Unclaimed Dividends 225.96 122.03Other Liabilities 15,020.32 9,952.73Realisations under agreement to sell 229.95 229.95 Interest accrued but not due 172.63 314.79

Total (A) 28,559.62 16,788.04

(B) Provisions:Provision for Taxation (Current Tax) 26,724.37 21,563.40Provision for Taxation (Fringe Benefit Tax) 219.90 113.93Less: Prepaid Taxes 27,634.28 (690.01) 21,165.52 511.81Proposed Dividend 49.68 2,297.89Corporate Dividend tax thereon 31.66 81.34 341.16 2,639.05Total (B) (608.67) 3150.86Total (A+B) 27,950.95 19,938.90

Note: Unclaimed Dividends do not include any amount due and outstanding to be credited to Investor Education and Protection Fund.


SCHEDULE 11 — RAW MATERIAL CONSUMED ANDPURCHASE OF FINISHED GOODS

Raw MaterialOpening Stock 35,928.96 33,357.94Add: Purchases 106,126.93 84,412.82

142,055.89 117,770.76Less: Closing Stock 44,440.86 35,928.96Raw Material Consumed 97,615.03 81,841.80Add: Purchase of Finished Goods 699.19 286.16

98,314.22 82,127.96

SCHEDULE 10 — OTHER INCOME

Interest received (Gross) [TDS Rs. 29.05 lac (Previous Year Rs. 15.20 lac)] 1,260.16 207.61Claims received 173.99 126.94Provisions no longer required written back 342.68 354.54Dividend Income from Long Term Investments

- Trade 127.90 69.96- other than trade 9.60 4.52

Dividend Income from Current investments- Other than trade 2.68 1.28

Profit on sale of Investmenta) Long Term Investment — 2,083.72b) Current Investment 8.29 16.58Profit on sale of fixed assets 215.32 1,001.52Benefit under Duty Entitlement Pass Book Scheme / Duty Drawback 984.13 452.85Provision for Doubtful Debts written back 40.60 —Exchange rate fluctuation (Net) 17.33 59.45Unrealised Loss on Consolidation — 95.13

Miscellaneous 340.49 429.303,523.17 4,903.40

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SCHEDULE 12 — MANUFACTURING EXPENSES

Power and Fuel 28,063.09 25,155.97Packing Material and Charges 4,623.05 4,215.47Stores & Spares Consumed 3,805.70 3,625.76Dyes & Chemical Consumed 8,609.83 7,465.14Repairs to Plant and Machinery 6,643.86 5,184.53Processing Charges 267.28 246.86Techinal know-how 4.06 1.60Miscellaneous 570.75 539.30

52,587.62 46,434.63

SCHEDULE 13 — PERSONNEL EXPENSES

Salaries, Wages and Bonus 11,343.53 9,701.95Contribution to Provident and other Funds 1,627.98 1,464.91Workmen and Staff Welfare 228.04 219.50Miscellaneous 49.47 94.59

13,249.02 11,480.95

SCHEDULE 14 — ADMINISTRATIVE AND OTHER EXPENSES

Rent 214.65 170.25Fees, Rates and Taxes 138.73 113.02Building Repairs and Maintenance 776.44 468.84General Repairs and Maintenance 351.55 319.23Insurance 719.40 612.16Legal and Professional 333.89 264.14Travelling and Conveyance 436.78 430.16Printing and Stationery 252.06 239.05Postage and Telegrams 73.14 77.99Telephone and Telex 291.77 341.85Vehicle Maintenance 440.82 345.64Auditors Remuneration:

Audit Fee 14.25 12.66Tax Audit Fee 2.72 2.24Reimbursement of Expenses 5.04 3.73In other capacity (certification) 0.99 1.25

Cost Audit Fee 3.72 3.08Managerial Remuneration 629.21 611.40Directors’ Travelling 61.50 109.72Bad debts written off 338.71 422.50Provision for Doubtful Debts — 63.22Loss on sale and Discarded fixed assets 91.67 116.45Charity and Donation 149.63 81.29Electricity & Water 141.94 100.77Unrealised Profit on Consolidation 183.50 —Miscellaneous 317.47 256.12

5,969.58 5,166.77

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SCHEDULE 15 — INTEREST AND FINANCIAL CHARGES

Commission and Expenses onprocuring Deposits 0.96 1.44Interest:

On Debentures 197.53 461.30On Fixed Deposits 23.81 31.93On Term Loans 2,451.85 1,819.92On Working Capital 787.55 1,274.16

Bank & Other charges 372.77 415.17

3,834.47 4,003.92

SCHEDULE 16 — SELLING & DISTRIBUTION EXPENSES

Forwarding Charges and Octroi 5,775.85 4,986.14Commission to Selling Agents 1,744.69 1,797.51Rebate and Discount 2,616.32 7,541.73Cess duty 73.53 63.62Advertisement 183.90 256.01Sales promotion 315.11 267.56Miscellaneous 394.82 295.81

11,104.22 15,208.38

SCHEDULE 17 — (INCREASE)/DECREASE IN WORK–IN–PROCESSAND FINISHED STOCK

Opening Stock:Work-in-Process 4,681.93 3,801.33Finished Goods 14,538.13 19,220.06 13,821.95 17,623.28

Add: Production during Trial Run PeriodWork-in-Process 96.07 52.03Finished Goods 136.54 232.61 17.90 69.93

19,452.67 17,693.21Less: Closing Stock:

Work-in-Process 5,708.87 4,681.93Finished Goods 16,645.11 22,353.98 14,538.13 19,220.06

(2,901.31) (1,526.85)


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SCHEDULE 18 — SIGNIFICANT ACCOUNTING POLICIES & NOTES ON ACCOUNTS

1. SIGNIFICANT ACCOUNTING POLICIES:(a) Accounting Convention:

The accounts are prepared on accrual basis under the historical cost convention in accordance with the accounting standardsreferred to in section 211(3C) of the Companies Act, 1956 and other relevant provisions of the said Act.

(b) Revenue Recognition:

(i) Sales

Revenue from sale of goods is recognised :

(i) When all the significant risks and rewards of ownership are transferred to the buyer and the seller retains noeffective control of the goods transferred to a degree usually associated with ownership and

(ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale ofgoods.

(ii) Interest

Interest is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(iii) Dividend

Dividend is recognised as income when the right to receive the payment is established.

(iv) Benefit under Duty Entitlement Pass Book Scheme/Duty Drawback SchemeRevenue in respect of the above benefit is recognised on post export basis.

(v) Insurance and Other Claims

Revenue in respect of claims is recognised when no significant uncertainty exists with regard to the amount to berealised and the ultimate collection thereof.

(c) Retirement Benefits :

(i) Gratuity:

Provision for gratuity liability to employees is made on the basis of actuarial valuation as on 31.03.2007 and theamount so determined is paid to an approved gratuity fund.

(ii) Superannuation:

The liability in respect of eligible employees covered under the scheme is provided through a policy taken from LifeInsurance Corporation of India by the approved trust formed for the purpose. The premium in respect of such policy isrecognised as an expense in the period in which it falls due.

(iii) Provident Fund:

Contribution to Provident Fund is made in accordance with the provisions of the Employees Provident Fund andMiscellaneous Provisions Act, 1952 and is charged to the profit and loss account.

(iv) Leave Encashment:Provision for leave with wages is made on the basis of actuarial valuation as on 31.03.2007.

(d) Fixed Assets:

Fixed Assets are stated at historical cost less depreciation.

(e) Intangible assets

Intangibles are stated at cost less accumulated amount of amortisation.

(f) Depreciation:i) Depreciation on all assets except computers is provided on straight line method in accordance with and in the manner

specified in Schedule XIV to the Companies Act,1956. In case of computers depreciation is charged on a systematicbasis to each accounting period during the estimated useful life thereof.

ii) Depreciation on assets costing Rs.5000/ or below is charged @ 100% per annum on proportionate basis.

(g) Amortisation

Intangible assets are amortised on straight line method. These assets are amortised over their estimated useful life.

(h) Investments:

Long term Investments are carried at cost less provision, if any, for diminution in value which is other than temporary andcurrent investments are carried at lower of cost and fair value.

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(i) Inventories:Inventories are valued at cost or net realisable value, whichever is lower. The cost in respect of the various items ofinventory is computed as under:

* In case of raw materials at weighted average cost plus direct expenses.

* In case of stores and spares at weighted average cost plus direct expenses .

* In case of work in process at raw material cost plus conversion cost depending upon the stage of completion.

* In case of finished goods at raw material cost plus conversion costs, packing cost, excise duty and other overheadsincurred to bring the goods to their present condition & location.

* In case of work in progress at the construction cost incurred in respect of the flats.

(j) Cenvat Credit :

Cenvat credit on excise duty paid inputs, capital assets and input services is taken in accordance with the Cenvat CreditRules, 2004.

(k) Expenditure incurred during construction period :

In respect of new/major expansion of units, the indirect expenditure incurred during construction period upto the date ofthe commencement of commercial production which is attributable to the construction of the project is capitalised onvarious categories of fixed assets on proportionate basis.

(l) Subsidy :

Government grants available to the company are recognised when there is a reasonable assurance of compliance with theconditions attached to such grants and where benefits in respect thereof have been earned and it is reasonably certain thatthe ultimate collection will be made. Government subsidy in the nature of promoter’s contribution is credited to CapitalReserve. The Government subsidy received for specific asset is reduced from the cost of the asset.

(m) Borrowing Costs :

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalisedas part of the cost of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.

(n) Foreign Currency Conversion:

(i) Foreign currency transactions are recorded on initial recognition at the rate prevailing on the date of the transaction.Where export bills are negotiated with the bank, the export sales are recorded at the rate on the date of negotiation asthe said rate approximates the actual rate at the date of transaction.

(ii) Foreign currency monetary items are reported using the closing rate. Exchange differences arising on the settlement ofmonetary items or on reporting the same at the closing rate as at the balance sheet date are recognised as income orexpense in the period in which they arise except in case of liabilities incurred for the purpose of acquiring the fixedassets from outside India in which case such exchange differences are adjusted in the carrying amount of fixed assets.

(iii) The premium or discount arising at the inception of forward exchange contracts is amortised as an expense or incomeover the life of the contract. Exchange differences on such a contracts are recognised in the statement of profit and lossin the reporting period in which the exchange rate change. Profit or loss arising on cancellation or renewal of suchcontracts is recognised as income or expense in the period in which such profit or loss arises.

(o) Accounting for Taxes on Income & Fringe Benefit Tax

(i) The accounting treatment followed for taxes on income is to provide for Current Tax and Deferred Tax. Current Tax isthe aggregate amount of income-tax determined to be payable in respect of taxable income for a period. Deferred taxis the tax effect of timing differences between taxable income and accounting income that originate in one period andare capable of reversal in one or more subsequent periods.

(ii) Fringe Benefit Tax is provided on the aggregate amount of fringe benefits determined in accordance with the provisionsof the relevant enactment at the specified rate of tax.

(p) Impairment of Assets

At each balance sheet date an assessment is made whether any indication exists that an asset has been impaired . If anysuch indication exists, an impairment loss i.e. the amount by which the carrying amount of an asset exceeds its recoverableamount is provided in the books of account.

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(q) Provisions and Contingent Liabilities

(i) Provisions are recognised for liabilities that can be measured by using a substantial degree of estimation, if :

(a) the company has a present obligation as a result of a past event;

(b) a probable outflow of resources embodying economic benefits is expected to settle the obligation; and

(c) the amount of the obligation can be reliably estimated.

(ii) Contingent liability is disclosed in the case of :

(a) a present obligation arising from a past event when it is not probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligation or

(b) a possible obligation, unless the probability of outflow in settlement is remote

(iii) Re-imbursement expected in respect of expenditure required to settle a provision is recognised only when it is virtuallycertain that the re-imbursement will be received.

2. NOTES ON ACCOUNTS

(A) SUBSIDIARIES1. The Consolidated Financial Statements present the consolidated Accounts of Vardhman Textiles Limited (Formerly

known as Mahavir Spinning Mills Limited),

Name of Subsidiary Extent of Parent Company’s Shareholdinga) VMT Spinning Co. Ltd. 73.33%b) Vardhman Threads Ltd. 100.00%c) Vardhman Yarns & Threads Ltd. 98.04%

2. Principles of consolidation

i) The consolidated financial statements comprise the financial statements of the parent company and its subsidiaries.Minority interest in the net assets of the subsidiary companies has been disclosed separately.

ii) Difference between the cost of investment and the parent’s portion of equity in the subsidiary companies as on thedate of the holding-subsidiary relationship coming into existence and at anytime thereafter is recognised as capitalreserve/goodwill as the case may be.

iii) Investments made by the parent company in the subsidiary companies subsequent to the holding –subsidiaryrelationship coming into existence are eliminated while preparing the consolidated financial statements.

iv) Intra group balances and intra group transactions are eliminated to the extent of share of the parent company in fullv) Unrealised profits on account of intra group transactions have been accounted for depending upon whether the

transaction is an upstream transaction or a downstream transaction.

3. Consolidated financial statements have been prepared after making the following adjustments:

a) The dividend received by the holding company amounting to Rs. 89.28 lac (Previous Year Rs. 88.55 lac) from itssubsidiary companies included in the schedule of ‘Other Income’ in its individual balance sheet has been elimi-nated on consolidation.

b) The dividend received by the subsidiary company amounting to Rs. 90.72 lac (Previous Year Rs. 34.02 Lac) fromits holding company included in the schedule of ‘Other Income’ in its individual balance sheet has been eliminatedon consolidation.

c) The Parent’s portion of the proposed dividend amounting to Rs. 136.62 lac (Previous Year Rs. 89.28 lac) has beenreduced from the aggregate of the proposed dividend as reflected in the financial statements of the subsidiarycompanies, as a result of which the profit carried to the consolidated balance sheet stands increased to that extent.

d) The Subsidiary’s portion of the proposed dividend amounting to Rs. Nil (Previous Year Rs. 45.36 lac) has beenreduced from the aggregate of the proposed dividend as reflected in the financial statements of the holding company,as a result of which the profit carried to the consolidated balance sheet stands increased to that extent.

e) The unrealised profit on intra group transactions amounting to Rs. 240.56 lac (Previous Year 57.06 lac) has beenreduced from the share of profits of the Parent Company in the Consolidated Profit & Loss Accounts

f) Unrealised profit for the previous year amounting to Rs. 57.06 lac (Previous Year Rs. 152.19 lac) has been reversedduring the year and has been reduced from the figure of unrealised profit amounting to Rs. 240.56 lac (PreviousYear Rs. 57.06 lac) made during the year.

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(B) ASSOCIATES(i) Investment in associates has been accounted for as per the Equity Method of accounting as prescribed by Accounting

Standard (AS) - 23 on “Accounting for Investments in Associates “ as issued by the ICAI in the Consolidated FinancialStatements.

a) Goodwill amounting to Rs. 0.70 lac arising on the investment made by the company in the equity of its associatei.e.Vardhman Textile Components Ltd. ‘has been reduced from the carrying amount of investment in ConsolidatedFinancial statements. The carring amount of investment has also been adjusted thereafter to account for the sharein the net assets of the associate after the date of acquisition of such shares.

b) As at 31st March, 2006, the amount of Rs. 110.42 lacs was included in the original cost of investment of VardhmanAcrylic Limited. During the year 53,740 no. of equity shares have been purchased. Accordingly, capital reserveamounting to Rs. 2.31 lac has been added to the carrying amount of investment.

(ii) The details of investment in associates made by Vardhman Textiles Limited are given below:–(Rs in lacs)

Associate Company Ownership Interest Original cost of Amount of Capital Amount of Goodwill Accumulated Carrying amount at& Voting Power Investment Reserve included included in profit at the Investment at the

in original cost original cost year end year endVardhman TextileComponents Ltd 21.43% 30.00 – 0.70 36.17 65.47Vardhman Acrylics Ltd 40.70% 3,828.13 * 112.73 ** – 1,450.56 5,391.42

* After adding cost amounting to Rs. 3.21 lac of 53,740 shares purchased during the year.** After adding capital reserve amounting to Rs. 2.31 lac on account of purchased of 53,740 no of shares during the year.

(iii) Company’s share of contingencies and capital commitment in its associate for which the Company is also contingentlyliable is Rs. Nil and (Previous year Rs. Nil.)

(C) OTHERS

1. There are contingent liabilities in respect of: 31.3.2007 31.3.2006(Rs. In Lac) (Rs. In Lac)

a) Claims not acknowledged as debts 1,362.49 619.06b) Guarantees given by the Company on behalf of others 37.14 37.14

(The Company has received a legal notice against oneGuarantee which it is repudiating and legal steps are beingtaken up in this behalf)

c) Guarantees given by the Company on behalf of AssociateCompany to the extent utilised 1,020.96 3,547.60

d) Bank Guarantees and Letters of Credit outstanding 22,602.58 7,439.52e) Bills discounted with banks 6,702.95 7,242.14

2. Estimated amount of contracts remaining to be executed onCapital Account (Net of Advances) 38,313.76 21,410.56

3. SEGMENT REPORTING

Segment Information as required by Accounting Standard (AS)-17 on Segment Reporting issued by the Institute of CharteredAccountants of India and as compiled on the basis of the consolidated financial statements is disclosed below :-

The company has identified four segments as reportable segments viz. yarn, sewing thread, steel and fabric. The yarn segmentcomprises production of various types of yarns (from cotton, man-made fibers and blends thereof) and yarn processing activities.

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The financial information about the business segments is presented in the table below:(Rs. in Lacs)

Yarn Fabric S.Thread Steel Total

Current Year Previous Year Current Year Previous Year Current Year Previous Year Current Year Previous Year Current Year Previous Year

REVENUEExternal sales 112,581.02 100,515.25 41,272.91 32,900.31 31,196.94 33,744.39 30,177.96 27,650.80 215,228.83 194,810.75Inter-segment sales 32,721.96 28,005.67 32,721.96 28,005.67Other income 1,468.37 1,249.57 175.96 177.68 454.35 228.19 26.24 40.56 2,124.92 1,696.00Total revenue 146,771.35 129,770.49 41,448.87 33,077.99 31,651.29 33,972.58 30,204.20 27,691.36 2,50,075.71 224,512.42

RESULTSegment results 18,379.00 16,872.14 2,228.27 3,301.78 4,460.97 4,274.81 4,366.90 4,840.29 29,435.14 29,289.02Unallocated Corporate Expenses (Net) 1,002.12 (815.84)Operating profit 28,433.02 30,104.86Interest expense 3,834.47 4,003.92Income tax - current 5,224.65 5,865.56

- deferred 270.63 (303.34)- fringe benefit 105.97 113.93

Profit from ordinary activities 18,997.30 20,424.79Extra-ordinary loss / (income) — —Net profit 18,997.30 20,424.79

OTHER INFORMATIONSegment assets 160,985.04 130,085.56 39,635.42 37,438.91 21,466.38 18,788.00 19,372.35 16,371.88 241,459.19 202,684.35Unallocated Corporate Assets 33,404.16 36,140.32Total assets 160,985.04 130,085.56 39,635.42 37,438.91 21,466.38 18,788.00 19,372.35 16,371.88 274,863.35 238,824.67Segment Liabilities 18,656.73 9,026.61 1,560.91 2,226.61 2,082.19 1,339.55 1,993.79 2,426.52 24,293.62 15,019.29Unallocated Corporate Liabilities 185,224.26 126,533.68Total liabilities 18,656.73 9,026.61 1,560.91 2,226.61 2,082.19 1,339.55 1,993.79 2,426.52 209,517.88 141,552.97Capital expenditure 32,817.19 11,317.80 3,206.06 15,511.63 1,699.44 1,746.81 319.12 148.35 38,041.81 28,724.59Depreciation 8,242.00 7,559.28 2,634.16 1,855.04 730.17 582.22 370.72 337.07 11,977.05 10,333.61Non-cash expenses other than - 0.04 - - - - - - - 0.04depreciation

Geographical Segment:

There is no reportable segment as none of the conditions as laid down for determining the geographical segments are satisfied.

Segment Revenue & Expenses :Segment Revenue & Expenses :Segment Revenue & Expenses :Segment Revenue & Expenses :Segment Revenue & Expenses :

Segment revenue comprises sales to external customers and inter segment sales. Segment expenses comprises expenses that aredirectly attributable to the segment and expenses relating to transactions with other segments of the enterprise.

Segment Assets & LiabilitiesSegment Assets & LiabilitiesSegment Assets & LiabilitiesSegment Assets & LiabilitiesSegment Assets & Liabilities

Segment assets include all operating assets used by a segment and consist of cash and bank balances, debtors, inventories andfixed assets. Segment liabilities include all operating liabilities and consist of creditors and other liabilities. Segment assets andliabilities do not include current and deferred taxes. For the purpose of Segment Assets & Liabilities, expenditure incurred inrespect of its expansion projects viz. Vardhman Yarns at Satlapur and Vardhman Fabrics at Budhni, other than expansion atSatlapur of 34,800 spindles, has not been taken into account, as it is still under Capital work in progress. The said expenditureis Rs. 553.74 Crores as on 31st March 2007, 45.09 Crores as on 31st March 2006, which is inclusive of Captive Power Plant andCommon utilities.

Inter Segment Transfers :Inter Segment Transfers :Inter Segment Transfers :Inter Segment Transfers :Inter Segment Transfers :

Inter segment transfers are accounted for at prevailing market prices. These transfers are eliminated in consolidation.

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4. RELATED PARTY DISCLOSURE(a) Details of transactions entered into with the related parties during the year as required by Accounting Standard (AS) -18 on

“Related Party Disclosures” issued by the Institute of Chartered Accountants of India are as under :(Rs. In Lacs)

Particulars Associates Key Management Relatives of Enterprises over TOTALPersonnel (KMP) KMP which KMP is able to

exercise significantinfluence

Current Previous Current Previous Current Previous Current Previous Current PreviousYear Year Year Year Year Year Year Year Year Year

Purchase/processing of goods 13,311.86 11,291.25 13,311.86 11,291.25Purchase of DEPB licences 1.53 20.13 1.53 20.13Sale/processing of goods - 285.34 - 285.34Sale of DEPB licences 134.79 146.43 134.79 146.43Purchase of Fixed Assets 400.00 - 400.00 -Sale of Fixed Assets - 95.00 - 82.57 - 502.69 - 680.26Donation 141.38 75.00 141.38 75.00Rent Paid 6.01 5.86 6.01 5.86Payment against licence agreement 37.50 38.57 37.50 38.57Interest paid 7.72 9.68 53.34 129.13 61.06 138.81Interest received 149.86 60.34 149.86 60.34Commission Paid - 4.43 - 4.43Guarantees given 1,020.96 3,547.60 1,020.96 3,547.60Managerial remuneration 629.21 611.40 629.21 611.40Sale of Investments - 1,558.49 - 1,558.49Loan Given(Including Opening Balance) 16,170.00 9,825.00 14.00 15.00 - - 16,184.00 9,840.00Loan Repayment 16,170.00 8,525.00 1.50 1.00 - - 16,171.50 8,526.00Closing Balance - 1,300.00 12.50 14.00 - - 12.50 1,314.00Loan Taken - 1,165.00 1,590.50 6,395.24 1,590.50 7,560.24Loan Repayment - 1,165.00 1,575.50 6,393.74 1,575.50 7,558.74Closing Balance - - 15.00 1.50 15.00 1.50

(b) Disclosure of Related Parties with whom Business transactions took place during the year.1. Subsidiary VMT Spinning Co. Ltd

Vardhman Threads Ltd.Vardhman Yarns & Threads Ltd

2. Associates Vardhman Textile Components Ltd , Vardhman Acrylics LtdMarubeni Corporation ,Marubeni Textile Asia Ltd, Toho TenaxCompany Ltd

3. Key Management Personnel Mr. S.P.Oswal, Mr. D.L.Sharma ,Mr. Sachit Jain , Mrs. Suchita JainMr R K Riwari

4. Relatives of Key Management Personnel Mrs. Shakun Oswal5. Enterprises over which Key Management Personnel *Vardhman Holdings Ltd. ( formerly known as Vardhman Spinning

and relative of such personnel is able to exercise & General Mills Ltd.)significant influence Vardhman Apparels Ltd

Banarso Devi Oswal Public Charitable TrustSri Aurobindo Socio Economic and Management Research Institute*Adinath Investment & Trading Co.*Devakar Investment & Trading Co. (P) Ltd.*Srestha Holdings Ltd.*Santon Finance & Investment Co. Ltd.*Flamingo Finance & Investment Co. Ltd.*Ramaniya Finance & Investment Co. Ltd.*Marshall Investment & Trading Co. (P) Ltd.*Pradeep Mercentile Co. (P) Ltd.*Plaza Trading Co. (P) Ltd.*Vardhman Textile Processors (P) Ltd.*Anklesh Investments (P) Ltd.*Syracuse Investment & Trading Co. (P) Ltd.

Note: *Only Loan Transactions have taken place with these Companies.(c) Disclosure of Related Parties with whom no Business

transactions took place during the yearEnterprises over which Key Management Personnel and Vardhman Linen Ltdrelative of such personnel is able to exercise significantinfluence

65

Vardhman


5. EARNING PER SHARE(a) The calculation of Earnings Per Share (EPS) as disclosed in the Balance Sheet Abstract has been made in accordance withAccounting Standard (AS)-20 on “Earnings Per Share” issued by the Institute of Chartered Accountants of India.A statement on calculation of diluted EPS is as under:

(Rs. in Lacs)Current Year Previous Year

Profit after tax 18,997.30 20,424.79Add : Increased earnings on account of interest savings

on dilutive potential equity shares (net of taxes) 149.82 198.21

Total (A) 19,147.12 20,623.00

Weighted average number of equity shares (No in lac) 566.35 566.35Weighted average number of equity shares which would beissued on conversion of dilutive potential equity shares (No in lac)* 467.98 624.40

Total (B) 1,034.33 1,190.75

Earnings per share : diluted (A/B) Rs. 18.51 17.32

(b) The diluted earnings per share has been disclosed in accordance with the requirements of the aforesaid Standard. Therehas been no default on any account during the relevant year which would required the conversion of debt/loans intoequity. Further, there are no outstanding warrants .

(c) The conversion price of zero coupon foreign currency convertible bonds is higher than the fair value of the equity shareas at the close of the year and is accordingly anti-dilutive. Therefore, the same has not been considered for computing thediluted earnings per share.

6. Deferred Tax Liability (Net) as on 31st March, 2007 is as follows:(Rs. in Lac)

As At As At31.03.2007 31.03.2006

Timing Difference on account of Depreciation 10,569.10 9,530.28 Less : Deferred Tax Asset arising on account of timing difference

Due to disallownaces u/s 43-B of the Income Tax Act, 1961. 91.61 63.78 Due to Provision for doubtful debts 60.35 6.98 Due to deduction u/s 35-D of the Income Tax Act, 1961. 4.86 — Due to brought forward capital loss 682.12 —

Total 9,730.16 9,459.52

7. The change in the amount of deferred tax liability on account of any change in the enacted tax rates and change in the quantumof depreciation allowable under the tax laws, is disclosed in the statement of profit and loss account as ‘Deferred tax adjustment’

8. Previous year’s figures have been recast/regrouped wherever necessary to make these comparable with current Year’s figures.

9. Figures in brackets indicate deductions.

10. Figures pertaining to the subsidiary company have been regrouped/recast wherever necessary to bring them in line with theparent Company’s financial statements.

66

Vardhman


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67

VMT Spinning Company Limited Vardhman

Dear Members,

The Directors of your Company have pleasure in presenting theSeventeenth Annual Report together with the Audited Accountsof the Company for the year ended 31st March, 2007.

1. FINANCIAL RESULTS :The Financial Results for the year under review vis-a-vis thefinancial results for the previous year are as under :-

(Rs.)

Particulars 2006-07 2005-06

Sales (Gross) 67,87,48,844 59,39,54,777Profit before Depreciation,Interest & Tax (PBDIT) 14,85,67,219 11,52,67,846Interest and Financial expenses 50,10,030 63,11,790Depreciation 1,89,95,716 4,42,53,445Profit before Tax (PBT) 12,45,61,473 6,47,02,611Provision for Tax

-Current Tax 1,40,00,000 1,25,00,000-Deferred Tax (37,75,972) 38,63,339- Fringe Benefit Tax (FBT) 3,70,000 2,53,000-Wealth Tax 16,000 20,000

Profit after Tax (PAT) 11,39,51,445 4,80,66,272Add: Depreciation Adjustments 3,24,998Add: Balance brought forward 2,36,41,732 91,32,307Profits available for 13,75,93,177 5,75,23,577appropriationAppropriations:Proposed Dividend on 1,86,30,216 1,21,74,388Equity Share CapitalCorporate Tax on Proposed Dividend 31,66,205 17,07,458Transfer to General Reserve 8,40,82,035 2,00,00,000Balance carried to Balance Sheet 3,17,14,721 2,36,41,732

13,75,93,177 57,52,35,777

Earnings per Share (Rs.) 5.50 2.76

a) Turnover and Profits :During the year under review, the gross sales of theCompany were Rs. 67,87,48,844 as compared toRs. 59,39,54,777 during the previous year registeringan increase of 14.28%. The net profit, however,increased from Rs. 4,80,66,272 in the previous year toRs. 11,39,51,445 during the year under review,registering an increase of 137.07 per cent.

b) Production :The production of Yarn increased from 3,708 M.T. inthe previous year to 3,788 M.T. during the year underreview, showing an increase of 2.16 per cent.

c) Exports :The FOB value of exports of the Company increasedfrom Rs.33,35,37,482 in the previous year toRs.40,08,86,957 during the year under review,registering an increase of 20.19 per .cent.

2. EXPANSION :

During the year, the Company undertook expansion in itsspindlage capacity by addition of 16800 spindles. Theexpanded capacity has been commissioned during the year.The expenses on some of the auxiliaries is yet to be incurred.

3. DIRECTORS :Dr. D.R. Singh and Mr. S.P. Oswal, Directors of yourCompany, retire by rotation at the forthcoming AnnualGeneral Meeting and being eligible, offer themselves forre-appointment.

M/s Marubeni Corporation appointed Mr. KenichiYamaguchi as a Director on the Board of the Company inplace of Mr. Haruyasu Chihaya. The Board places on recordits appreciation for the services rendered by Mr. HaruyasuChihaya during his tenure as a Director of the Company.

4. DIVIDEND :

The Board of Directors of your Company is pleased torecommend a dividend @ 9% on the paid-up Equity ShareCapital of the Company.

5. AUDITORS :

M/s S.S. Kothari and Company, Chartered Accountants,Chandigarh, retire at the conclusion of the forthcomingAnnual General Meeting and being eligible, offerthemselves for re-appointment.

6. AUDITORS’ REPORT :

The Auditors’ Report on the Accounts is self-explanatoryand requires no comments.

7. COST AUDITORS :

The Board of Directors have re-appointed M/s. J.L. Chawla& Company, Cost Accountants, as Cost Auditors of theCompany under Section 233-B of the Companies Act, 1956subject to the approval of the Central Government for thefinancial year 2007-08. The Cost Auditor’s report for thefinancial year 2006-07 will be forwarded to the CentralGovernment as required under law.

8. AUDIT COMMITTEE :

The Company has an Audit Committee of its Board ofDirectors. The constituent members of the Audit Committeeare Mr. Sachit Jain, Mr. Kenichi Yamaguchi and Mr. D.L.Sharma. The Committee met thrice during the year.

9. PERSONNEL & HUMAN RESOURCES :

Your Company continues to lay emphasis on continuedqualitative growth of its human resources by providing acongenial and conducive work environment in consonancewith its belief that the real strength of its organisation liesin its employees.

10. INDUSTRIAL RELATIONS :

The Company follows a policy of creating a healthy

DIRECTORS’ REPORT

VMT Spinning Company Limited

68

Vardhman

ANNEXURE TO THE DIRECTORS’ REPORTINFORMATION AS PER SECTION 217 (1) (e) READ WITH COMPANIES ( DISCLOSURE OF PARTICULARS

IN THE REPORT OF BOARD OFDIRECTORS RULES, 1988 AND FORMING PART OF THEDIRECTORS’ REPORT FOR THE YEAR ENDED 31ST MARCH, 2007.

environment and work culture resulting in harmoniousinterpersonal relations. The industrial relations remainedpeaceful in the unit of the Company at Baddi during the year.

During the year, no employee of the company received asalary of more than Rs.24.00 lac per annum or Rs.2.00 lacper month. Accordingly, no particulars of employees are tobe given pursuant to the provisions of Section 217(2A) ofthe Companies Act, 1956.

11. DIRECTORS’ RESPONSIBILITY STATEMENT :Pursuant to Section-217(2AA) of the Companies Act, 1956,the Directors confirm that -

i) in the preparation of the annual accounts, theapplicable accounting standards have been followed;

II) appropriate accounting policies have been selectedand applied consistently, and have made judgementsand estimates that are reasonable and prudent so asto give a true and fair view of the state of affairs of theCompany as at 31 st March, 2007 and of the profit ofthe Company for the year ended on 31st March, 2007;

III) proper and sufficient care has been taken for themaintenance of adequate accounting records inaccordance with the provisions of the Companies Act,1956 for safeguarding the assets of the Company andfor preventing and detecting fraud and otherirregularities; and:

IV) the annual accounts have been prepared on a going

concern basis.

12. CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION AND FOREIGN EXCHANGE EARNINGS &OUTGO :Energy conservation continues to be an area of majoremphasis in your Company. The Company has adopted thestrategy of bringing about a general awareness amongst allregarding energy conservation. Particulars with respect toconservation of energy and other areas as per Section-217(1)(e) of the Companies Act- 1956, read with the Companies(Disclosure of Particulars in the Report of Board of Directors)Rules, 1988, are annexed hereto and form part of this report.

13. ACKNOWLEDGEMENT :Your Directors are pleased to place on record their sinceregratitude to Government, Bankers and Business Constituentsfor their continued valuable co-operation and support tothe Company.

Your Directors also express their deep appreciation for thedevoted and sincere services rendered by workers, staff andexecutives at all levels of operations of the Company duringthe year and we are confident that your Company will continueto receive such co-operation from them in future also.


PLACE: LUDHIANA (S.P. OSWAL)DATED: 14th MAY, 2007 CHAIRMAN

FORM-B:A. RESEARCH AND DEVELOPMENT (R&D) :

The R&D efforts in the Company are focused on productivityimprovement and better control parameters, qualityimprovement and higher efficiencies.

Expenditure on R&D equipment (Rs.)2006-07 2005-06

Capital 19,39,616 12,91,990Recurring 1,14,345 1,75,504Total 20,53,961 14,67,494Total R&D expenditure aspercentage of turnover 0.30 0.25

B. TECHNOLOGY ABSORPTION, ADAPTATION ANDINNOVATION :The Company has machinery of latest technology and iscontinuously adapting the process of production to the State-of-the-Art Technology. As a result, the Company has beenable to further strengthen its position in the internationalmarket.

3. FOREIGN EXCHANGE EARNINGS AND OUTGO :(Rs.)

2006-07 2005-06Foreign Exchange earned (FOBValue of exports) 40,08,86,957 33,35,37,482Foreign Exchange used (CIFvalue of imports and 23,25,76,838 2,28,34,959Expenditure in foreign cuuuency

1. CONSERVATION OF ENERGY :The Company has initiated several steps to conserve energywherever possible. This has been earmarked as a thrust areawith studies, discussions and analysis being undertakenregularly for further improvement.

FORM-A:PARTICULARS UNIT 2006-07 2005-06

A) POWER AND FUEL CONSUMPTION :Electricity:a) Purchased

Units KWH 1,69,99,314 1,66,26,000Total amount Rs. 5,31,83,326 5,41,75,628Rate per unit Rs. 3.13 3.26

b) Own Generation through DieselGenerator KWM 26,46,470 12,42,900Units per litre of Diesel KWM 3.69 3.69Cost per Unit Rs. 7.28 5.88

B) CONSUMPTION PER UNIT OF PRODUCTION :Cotton Yarn:Electricity (KWH/KG) 5.10 5.01

2. TECHNOLOGY ABSORPTION :Efforts made in Technology Absorption are furnished inForm-B as under:-

69


AUDITORS’ REPORT

ToThe Members,VMT Spinning Company Limited

1. We have audited the attached balance sheet of VMTSPINNING COMPANY LIMITED, Ludhiana as at 31st March,2007, and also the profit and loss account and the cash flowstatement for the year ended on that date annexed thereto.These financial statements are the responsibility of thecompany’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditingstandards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financial statementsare free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used andsignificant estimates made by management, as well asevaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for ouropinion.

3. As required by the Companies (Auditor’s Report)(Amendment) Order, 2004 issued by the Central Governmentof India in terms of sub-section (4A) of section 227 of theCompanies Act, 1956, we enclose in the enclosed Annexurea statement on the matters specified in paragraphs 4 and 5 ofthe said Order.

4. Further to our comments in the Annexure referred to in Para3 above, we report that:

(i) We have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purposes of our audit;

(ii) In our opinion, proper books of account as required bylaw have been kept by the company so far as appearsfrom our examination of those books;

(iii) The balance sheet, profit and loss account and cash flowstatement dealt with by this report are in agreement withthe books of account;

(iv) In our opinion, the balance sheet, profit and loss accountand cash flow statement dealt with by this report complywith the accounting standards referred to in sub-section(3C) of section 211 of the Companies Act, 1956;

(v) On the basis of written representations received from thedirectors, as on 31st March, 2007 and taken on record bythe Board of Directors, we report that none of the directorsare disqualified as on 31st March, 2007 from beingappointed as a director in terms of clause (g) of sub-section(1) of section 274 of the Companies Act, 1956;

(vi) In our opinion and to the best of our information andaccording to the explanations given to us, the said Balance

Sheet and Profit & Loss Account, and read together withsignificant Accounting Policies and other notes thereon,give the information required by the Companies Act,1956, in the manner so required and give a true and fairview in conformity with the accounting principlesgenerally accepted in India:

(a) in the case of the balance sheet, of the state of affairsof the Company as at 31st March, 2007;

(b) in the case of the profit and loss account, of the profitfor the year ended on that date; and

(c) in the case of the cash flow statement, of the cashflows for the year ended on that date.

For S.S. KOTHARI & CO.,CHARTERED ACCOUNTANTS

PLACE : New Delhi (CA DINESH K. ABROL )DATED : 14TH MAY, 2007 PARTNER

Membership No. 87899

ANNEXURE TO THE AUDITORS’ REPORT(Referred to in paragraph 3 of our report of even date)

1. The Company has maintained proper records showing fullparticulars including quantitative details and situation offixed assets.

2. During the financial year all the Fixed Assets were physicallyverified and the discrepancies observed have been properlyadjusted in the books of accounts.

3. During the year, the company has not disposed offsubstantial portion of fixed assets. Therefore, it has notaffected the ability of Company to continue as goingconcern.

4. The inventory of the Company has been physically verifiedduring the year by the management. In our opinion, thefrequency of verification is reasonable.

5. In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventories followed by the management arereasonable and adequate in relation to the size of thecompany and the nature of its business.

6. On the basis of our examination of the records of inventory,we are of the opinion that the company is maintaining properrecords of inventory. The discrepancies noticed onverification between the physical stocks and the bookrecords were not material and have been adequately dealtwith in books of accounts.

7. The Company has not granted any loans to companies, firmsand other parties covered in the register maintained undersection 301 of the Companies Act, 1956.


70

Vardhman

8. The Company has not taken any loans from companies,firms and other parties covered in the Register maintainedunder Section 301 of the Companies Act, 1956.

9. In our opinion and according to the information andexplanations given to us, there are adequate internal controlprocedures commensurate with the size of the Companyand the nature of its business with regard to purchases ofinventory, fixed assets and with regard to the sale of goodsand services. Further, on the basis of our examination of thebooks and records of the Company, carried out inaccordance with the generally accepted auditing practicesin India, we have neither come across nor have we beeninformed of any instance of major weaknesses in theaforesaid internal control procedures.

10. Based on the audit procedures applied by us and accordingto the information and explanations provided by themanagement, we are of the opinion that the transactionsthat need to be entered into the register maintained undersection 301 have been so entered.

11. In our opinion and according to the information andexplanations given to us, the transactions made in pursuanceof contracts or arrangements entered in the registersmaintained under Section 301 have been made at priceswhich are reasonable having regard to prevailing marketprices at the relevant time.

12. In our opinion and according to the information andexplanations given to us, the Company has not acceptedany deposits within the meaning of section 58A, 58AA orany other relevant provisions of the Companies Act, 1956and rules framed thereunder. We have been explained thatno order has been passed by Company Law Board orNational Company Law Tribunal or Reserve Bank of Indiaor any other tribunal against the Company during the year.

13. In our opinion, the company has an internal audit systemcommensurate with the size and nature of its business.

14. We have broadly reviewed the books of account maintainedby the company pursuant to the Rules made by the CentralGovernment for the maintenance of cost records underSection 209 (1) (d) of the Companies Act, 1956 and we areof the opinion that prima facie the prescribed accounts andrecords have been made and maintained. However, we havenot made a detailed examination of the said records with aview to determine whether they are accurate or complete.

15. According to the records of the Company examined by usand the information and explanations given to us, in ouropinion, the company is generally regular in depositing withappropriate authorities undisputed statutory dues includingprovident fund, employees’ state insurance, income-tax,wealth tax, service tax, sales tax, custom duty, excise duty,cess and other statutory dues applicable to it.

16. According to the records of the Company examined by usand the information and explanations given to us, in ouropinion, no undisputed amounts payable in respect ofprovident fund, employees’ state insurance, income-tax,wealth tax, service tax, sales tax, custom duty, excise duty,

cess and other statutory dues were outstanding, as at31.03.2007 for a period of more than six months from thedate they became payable.

17. According to the records of the Company examined by usand the information and explanations given to us, in ouropinion, there are no dues of sale tax, income-tax, wealthtax, service tax, customs duty, excise duty, cess which havenot been deposited on account of any dispute, except thefollowing:

Sl. Nature of dues Amount Forum where pendingNo. due (Rs.)

1. Income Tax Basic 9,26,818 Commissioner of Income Tax(AY 2003-04) Interest 1,63,218 (Appeals).

2. Utilised Cenvat 1,60,984 Assistant Commissioner CentralCredit for payment Excise, Shimla.of Service tax onGTA (01.01.2005to 30.09.05)


4. Non Payment of Basic 10,07,859 Commissioner Central ExciseService Tax on Interest 36,614 (Appeals), ChandigarhExport Commission Penalty 10,29,759(09.07.2004 to30.06.05)


18. The Company does not have accumulated losses as at theend of the financial year. The company has not incurredany cash losses during the financial year covered by ouraudit and the immediately preceding financial year.

19. Based on our audit procedures and on the information andexplanations given by the management, we are of theopinion that the company has not defaulted in repaymentof dues to any financial institution or bank during the year.

20. According to the information and explanations given to us,the company has not given any guarantee for loans takenby others from bank or financial institutions.

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

22. According to the information and explanations given to usand on the basis of an overall examination of the balancesheet of the Company, in our opinion, generally, there areno funds raised by the Company on short-term basis, whichhave been used for long-term investment.

23. The Company has not made any preferential allotment ofshares during the year.

24. The Company has not issued any debentures during theperiod covered by our audit report.

71


For S.S. KOTHARI & CO.CHARTERED ACCOUNTANTS

PLACE : NEW DELHI (CA DINESH K. ABROL)DATED : 14TH MAY, 2007 PARTNER

Membership No. 87899

25. The Company has not raised any money by way of publicissue during the period covered by our audit report.

26. During the course of our examination of the books andrecords of the Company carried out in accordance with thegenerally accepted auditing practices in India, we haveneither come across any instance of fraud on or by theCompany, noticed or reported during the year, nor havewe been informed of such case by the management.

27. The other provisions of the Order do not appear to beapplicable for the year under report.


72

Vardhman



(Rs.) (Rs.)

I. SOURCES OF FUNDS

1. Shareholders' Funds

a) Share Capital 1 20,70,02,400 20,70,02,400b) Reserves & Surplus 2 29,17,14,721 19,95,59,697

2. Loan FundsSecured Loans 3 40,39,42,010 19,11,44,878

3. Deferred Tax 1,73,73,563 2,11,49,535TOTAL 92,00,32,694 61,88,56,510

II. APPLICATION OF FUNDS1. Fixed Assets 4

a) Gross Block 1,03,79,66,442 66,35,02,354b) Less: Depreciation 51,92,56,043 50,20,46,675c) Net Block 51,87,10,399 16,14,55,679d) Capital Work-in-Progress 5 58,55,778 2,59,81,997

52,45,66,177 18,74,37,6762. Current Assets, Loans & Advances 6

a) Inventories 30,34,27,640 25,09,48,622b) Sundry Debtors 4,55,40,008 3,59,05,146c) Cash & Bank Balances 1,27,26,929 99,56,497d) Loans & Advances 9,93,86,471 17,89,02,695

(A) 46,10,81,048 47,57,12,960Less: Current Liabilities & Provisions 7

a) Liabilities 4,32,80,110 3,07,98,280b) Provisions 2,23,34,421 1,34,95,846

(B) 6,56,14,531 4,42,94,126Net Current Assets ( A-B ) 39,54,66,517 43,14,18,834

TOTAL 92,00,32,694 61,88,56,510

NOTES ON ACCOUNTS 16The Schedules referred to above form an integral part of the Balance Sheet

As per our report of even date attachedFor S.S. Kothari & Co.Chartered AccountantsCA DINESH K. ABROL G.K. SHARMA ALOK AGGARWAL SACHIT JAIN S.P. OSWALPartner Company Secretary Chief Manager (Comm. & Admn.) Executive Director ChairmanMembership No. 87899PLACE : NEW DELHIDATED : 14th May, 2007

73



Particulars Schedule Current Year Previous YearNo. (Rs.) (Rs.)

INCOMESales (Gross) 67,87,48,844 59,39,54,777Less: Excise Duty 46,18,994 74,45,506Sales (Net) 67,41,29,850 58,65,09,271Other Income 8 86,01,633 24,56,011TOTAL 68,27,31,483 58,89,65,282EXPENDITURERaw Material Consumed & Purchase of Finished Goods 9 33,82,28,330 29,85,72,893Manufacturing Expenses 10 11,41,06,190 9,76,99,655Personnel Expenses 11 3,14,78,251 2,75,89,074Administrative & Other Expenses 12 1,51,18,230 1,12,53,509Interest & Financial Charges 13 50,10,030 63,11,790Selling & Distribution Expenses 14 4,56,88,127 3,59,38,294(Increase) / Decrease in Work-in-process & Finished Stock 15 (99,69,336) 28,84,172Difference of Excise Duty on Stocks (4,85,528) (2,44,365)Miscellaneous Expenditure Written off — 4,204Depreciation 1,89,95,716 4,42,53,445TOTAL 55,81,70,010 52,42,62,671Profit before Tax 12,45,61,473 6,47,02,611Less : Provision for

- Current Tax 1,40,00,000 1,25,00,000- Deferred Tax (37,75,972) 38,63,339- Fringe Benefits Tax (FBT) 3,70,000 2,53,000- Wealth Tax 16,000 20,000

Profit after Tax 11,39,51,445 4,80,66,272Add : Depreciation Adjustments — 3,24,998Add : Balance brought forward 2,36,41,732 91,32,307Balance available for appropriation 13,75,93,177 5,75,23,577Appropriations :Proposed Dividend on Equity Capital 1,86,30,216 1,21,74,388Corporate Tax on Proposed Dividend 31,66,205 17,07,458Transfer to General Reserve 8,40,82,035 2,00,00,000Balance carried to Balance Sheet 3,17,14,721 2,36,41,732

13,75,93,177 5,75,23,577Earnings per share ( Basic & Diluted)(Face Value of Rs.10 per share) 5.50 2.76


NOTES ON ACCOUNTS 16The Schedules referred to above form an integral part of the Profit and Loss Account


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CASH FLOW STATEMENT for the period 1st April, 2006 to 31st March, 2007Particulars Current Year Previous Year

(Rs.) (Rs.)

A. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit before Tax and Extraordinary items 12,45,61,473 6,47,02,611Adjustments for :

Depreciation 1,89,95,716 4,42,53,445Interest charged 24,24,741 42,45,970Miscellaneous expenses written off — 4,204Interest/Dividend Received (1,84,523) (1,54,295)Excess Provision written Back (7,32,517) (10,84,092)Sundry Balances Written Off 4,68,744 2,38,717Loss on sale of fixed asset 2,08,364 —

2,11,80,525 4,75,03,949Operating Profit before Working Capital Changes 14,57,41,998 11,22,06,561Adjustments for :

Decrease/(Increase) in Trade & other Receivables 6,79,96,271 (15,37,20,933)Decrease/( Increase) in Inventories (5,24,79,018) (2,56,98,770)(Decrease)/Increase in liabilities 1,32,30,347 28,96,494

2,87,47,600 (17,65,23,209)Cash Generation from Operations 17,44,89,598 (6,43,16,649)Taxes Paid (1,55,55,458) (1,48,52,538)

(1,55,55,458) (1,48,52,538)Net Cash from Operating activities 15,89,34,140 (7,91,69,187)B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (35,46,45,034) (2,50,15,183)Sale of Fixed Assets 98,800 —Interest/Dividend Received 1,84,523 1,54,295Net Cash used in investing activities (35,43,61,711) (2,48,60,888)

C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from Issue of Capital — 3,45,00,400Proceeds from Secured Borrowings(Net) 21,27,97,132 9,20,15,354Interest Paid (24,24,741) (42,45,970)Dividend Paid (1,21,74,388) (1,20,75,140)

Net Cash from Financing Activities 19,81,98,003 11,01,94,644Net Increase in cash & cash equivalents 27,70,432 61,64,570Cash & cash equivalents (Opening) 99,56,497 37,91,927Cash & cash equivalents (Closing) 1,27,26,929 99,56,497


75


As at As at31.03.2007 31.03.2006

(Rs.) (Rs.)SCHEDULE 1 – SHARE CAPITALAuthorised:2,50,00,000 Equity Shares (Previous Year 2,50,00,000) 25,00,00,000 25,00,00,000

of Rs. 10/- each1,00,00,000 Redeemable Cumulative Preference

Shares (Previous Year 1,00,00,000) of Rs.10/-each 10,00,00,000 10,00,00,000

35,00,00,000 35,00,00,000ISSUED :2,07,00,690 Equity Shares (Previous Year 2,07,00,690)

of Rs. 10/- each 20,70,06,900 20,70,06,90060,00,000 12% Redeemable Cumulative Preference 6,00,00,000 6,00,00,000

Shares (Previous Year 60,00,000) of Rs.10/-each26,70,06,900 26,70,06,900

SUBSCRIBED & PAID-UP :2,07,00,240 Equity Shares (Previous Year 2,07,00,240)

of Rs. 10/- each fully paid up 20,70,02,400 20,70,02,400

TOTAL 20,70,02,400 20,70,02,400

NOTE:Out of the above 1,51,80,060 Equity shares (Previous Year 1,51,80,060 equity shares,) of Rs.10/- each fully paid up areheld by Vardhman Textiles Limited (formerly Mahavir Spinning Mills Ltd.) i.e. the Holding Company.

SCHEDULE 2 – RESERVES AND SURPLUS

Capital Redemption Reserve 6,00,00,000 6,00,00,000

General ReserveAs per last Account 11,59,17,965 9,59,17,965Add : Transferred from Profit & Loss Account 8,40,82,035 2,00,00,000

20,00,00,000 11,59,17,965

Surplus i.e. Balance as per annexed Profit & Loss Account 3,17,14,721 2,36,41,732

TOTAL 29,17,14,721 19,95,59,697

SCHEDULE 3 – SECURED LOANSLoans and Advances from Banks :

- Term Loans 33,00,00,000 10,00,00,000- Working Capital Borrowings 7,39,42,010 9,11,44,878

TOTAL 40,39,42,010 19,11,44,878

NOTE :1. Term Loans from Banks are secured by hypothecation of indigenous and imported fixed assets, both present and future and by equitable

mortgage created or to be created on all immovable assets both present and future.2 Working Capital Borrowings from Banks are secured by hypothecation of inventories, confirmed and irrevocable letters of credit and export bills

and collaterally secured by way of equitable mortgage created or to be created on all immovable assets both present and future and hypothecationof plant and machinery and other miscellanous fixed assets .

3 Amount due for repayment out of term loan within one year is Rs. 24,00,000/- ( Previous Year Nil)

Schedule 1 to 16 Annexed to and forming part of the Balance Sheet as at 31st March, 2007and Profit and Loss Account for the year ended 31st March, 2007


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SCHEDULE 4 – FIXED ASSETS (Amount in Rs.)

Sr. Particulars GROSS BLOCK DEPRECIATION NET BLOCKNo.

As at Additions Sales/ As at As at For the Sales/ As at As at As at01.04.2006 Adjust- 31.03.2007 01.04.2006 year Adjust- 31.03.2007 31.03.2007 31.03.2006

ments ments

1. LAND 63,40,061 — — 63,40,061 — — — — 63,40,061 63,40,061

2. BUILDINGS 10,65,45,989 4,95,58,774 — 15,61,04,763 2,53,87,362 29,29,379 — 2,83,16,741 12,77,88,023 8,11,58,627

3. PLANT & MACHINERY 54,30,66,647 32,61,11,486 17,15,063 86,74,63,069 47,32,90,383 1,55,33,360 16,29,310 48,71,94,433 38,02,68,636 6,97,76,264

4. FURNITURE & FIXTURES 30,55,599 2,52,350 13,012 32,94,936 18,86,013 1,27,716 12,754 20,00,975 12,93,962 11,69,586

5. VEHICLES 44,94,058 6,26,509 3,56,954 47,63,613 14,82,917 4,05,261 1,44,283 17,43,895 30,19,718 30,11,141

CURRENT YEAR 66,35,02,354 37,65,49,119 20,85,029 103,79,66,442 50,20,46,675 1,89,95,716 17,86,347 51,92,56,043 51,87,10,399 16,14,55,679

PREVIOUS YEAR 65,91,56,171 43,46,183 — 66,35,02,354 45,81,18,228 4,42,53,445 3,24,998 50,20,46,675 16,14,55,679 —

As at As at31.03.2007 31.03.2006

(Rs.) (Rs.)SCHEDULE 5 – CAPITAL WORK-IN-PROGRESS

Machinery under erection 26,40,695 8,34,038Building under construction 25,57,023 1,42,28,597Capital Advance 6,58,060 1,06,33,061Project and Pre-operative Expenses — 2,86,301

TOTAL 58,55,778 2,59,81,997

SCHEDULE 6 – CURRENT ASSETS, LOANS AND ADVANCES

A. CURRENT ASSETS1. Inventories (Valued at cost or net realisable

value, whichever is lower, as certified by theExecutive Director of the Company)– Raw Materials 25,35,96,143 21,70,27,973– Work-in-Process 1,95,13,337 1,27,22,848– Finished Goods 1,59,93,540 1,28,14,693– Stores & Spares 58,04,296 27,18,616– Material in transit 85,20,324 56,64,492

Sub-Total 30,34,27,640 25,09,48,622

2. Sundry Debtors (Unsecured) (considered good, unless otherwise stated)i) Debts outstanding for a period exceeding six months 3,47,417 1,47,224ii) Other debts 4,51,92,591 3,57,57,922

Sub-Total 4,55,40,008 3,59,05,146

3. Cash and Bank Balancesi) Cash Balances

Cash, Cheques in hand and remittances in transit 1,08,82,224 16,66,123ii) Bank Balances

With scheduled banks:In current accounts 18,44,705 82,90,374

Sub-Total 1,27,26,929 99,56,497

B. LOANS AND ADVANCES(Unsecured) (considered good, unless otherwise stated)i) Advances recoverable in cash or in kind or 8,65,70,874 15,54,43,988

for value to be receivedii) Balance with Government Authorities 1,28,15,597 2,34,58,708

Sub-Total 9,93,86,471 17,89,02,695

TOTAL 46,10,81,048 47,57,12,961

* Adjustment relating to earlier year.

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As at As at31.03.2007 31.03.2006

(Rs.) (Rs.)SCHEDULE 7 – CURRENT LIABILITIES AND PROVISIONS

A. CURRENT LIABILITIES– Sundry Creditors

Total outstanding dues to Small Scale Industrial Undertakings 1,80,845 1,16,554Total outstanding dues of creditors other than Small Scale Industrial Undertakings 95,81,687 61,16,795

– Trade Deposits & Advances 11,29,758 17,46,495– Other Liabilities 3,23,87,820 2,28,18,436

Sub-Total 4,32,80,110 3,07,98,280

B. PROVISIONS– Provision for Taxation 1,40,00,000– Less : Prepaid Tax 1,34,00,000 6,00,000 (4,00,000)– Provision for Wealth Tax 16,000 20,000– Provision for Fringe Benefits Tax 3,70,000– Less : Prepaid Tax 4,48,000 (78,000) (6,000)– Proposed Dividend 1,86,30,216 1,21,74,388– Corporate Dividend Tax thereon 31,66,205 17,07,458

Sub-Total 2,23,34,421 1,34,95,846

TOTAL 6,56,14,531 4,42,94,126

Current Year Previous Year(Rs.) (Rs.)

SCHEDULE 8 - OTHER INCOME

Interest Received (Gross) (TDS Rs. 29,435/- 1,84,523 1,54,295Previous Year Rs. 20,565/-)Profit on Sale of Assets 8,621 -Provisions no Longer Required Written Back 7,32,517 10,84,092Prior Period Income 3,69,803 2,99,152Claims Received 2,50,125 7,87,608Sundry Balances Written Back 17,968 12,330Duty Draw Back Received 69,26,088 —Miscellaneous Receipts 1,11,988 1,18,534

Total 86,01,633 24,56,011

SCHEDULE 9 – RAW MATERIAL CONSUMED & PURCHASE OF FINISHED GOODS

Opening Stock 21,70,27,973 18,82,47,357Add: Purchases 33,29,92,729 29,21,37,676

55,00,20,702 48,03,85,033Less: Closing Stock 25,35,96,143 21,70,27,973

Raw Material consumed 29,64,24,559 26,33,57,060Add : Purchase of Finished Goods 4,18,03,771 3,52,15,833

Total 33,82,28,330 29,85,72,893


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SCHEDULE 10 – MANUFACTURING EXPENSES

Power & Fuel 7,24,56,336 6,14,77,810Stores and Spares Consumed 32,82,365 30,22,429Packing Charges 1,04,79,384 83,75,607Machinery Repairs 1,55,22,233 1,09,99,766Electric Repair 5,81,049 7,27,448Processing Charges 1,17,84,823 1,30,96,595

Total 11,41,06,190 9,76,99,655

SCHEDULE 11 – PERSONNEL EXPENSES

Salaries , Wages & other Allowances 2,75,18,279 2,43,90,369Contribution to Provident and other Funds 29,22,919 26,55,733Workmen and Staff Welfare 10,37,053 5,42,972

Total 3,14,78,251 2,75,89,074

SCHEDULE 12 – ADMINISTRATIVE AND OTHER EXPENSES

Managerial Remuneration 11,57,613 10,89,178Rates & taxes 3,16,679 1,14,633Insurance 27,81,815 27,54,618Auditors’ Remuneration

- As Audit Fee 89,792 60,000- As Tax Audit Fee 22,448 15,000- Out of Pocket Expenses 68,842 17,850

Cost Auditors’ Remuneration- As Audit Fee 20,000 10,000- Out Of Pocket Expenses 6,939 2,752

Legal & Professional 3,13,878 3,23,029Travelling & Conveyance :

- Directors’ 5,040 1,000- Others’ 9,28,842 2,66,008

Printing & Stationery 2,99,211 2,86,683Communication & ERP Expenses 4,58,576 5,75,374General Repair & Office Maintenance 4,49,599 3,91,097Building Repair & Maintenance 14,90,492 4,57,217Vehicle Expenses 43,62,968 33,43,391Previous Year Expenses 11,26,193 7,76,096Sundry Balances Written Off 3,04,538 2,33,572Exchange Rate Fluctuation 1,64,206 5,145Loss on Sale of Fixed Asset 2,08,364 —Miscellaneous Expenses 5,42,195 5,30,866

Total 1,51,18,230 1,12,53,509

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SCHEDULE 13 – FINANCIAL EXPENSES

Interest on :

- Term Loans 16,81,362 —- Working Capital : 62,31,487 58,05,937Less :Interest Received 54,88,109 15,59,967(TDS Rs.12,22,475/- Previous Year Rs. 3,40,082/-)

Bank and other Charges 25,85,290 20,65,820

Total 50,10,030 63,11,790

SCHEDULE 14 – SELLING EXPENSES

Forwarding Charges & Octroi 3,08,73,420 2,37,72,479Business Promotion 78,280 84,880Commission 1,17,59,247 1,03,12,014Rebate and Discount 96,103 1,26,604Cess on Yarn 2,91,234 2,61,034Service Tax 18,16,716 1,31,749Miscellaneous Expeneses 7,73,127 12,49,534

Total 4,56,88,127 3,59,38,294

SCHEDULE 15 – (INCREASE)/DECREASE IN WORK-IN-PROCESS & FINISHED STOCK

Opening StockWork-in-Process 1,27,22,848 86,25,751 Finished Goods 1,28,14,693 1,97,95,962

2,55,37,541 2,84,21,713Less :

Closing StockWork-in-Process 1,95,13,337 1,27,22,848Finished Goods 1,59,93,540 1,28,14,693

Total (99,69,336) 28,84,172



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SCHEDULE 16 - NOTES ON ACCOUNTS

1. Significant Accounting Policies :a) Accounting Convention :

The accounts are prepared on accrual basis under the historical cost convention in accordance with the accounting standardsreferred to in sub - section (3C) of section 211 of The Companies Act, 1956 and other relevant provisions of the said Act.

b) Revenue Recognition :i) Sales :

a) Export sales are converted at negotiated rate, that approximates the actual rate prevailing on the date of thetransaction and / or at the forward contract rate, if so applicable. The unnegotiated export sale at the end of theyear has been recognised at the closing conversion rate, as previously followed.

b) Domestic Sales (Gross) include excise duty and freight and is recognised on despatch of goods to customers.ii) Insurance and Other Claims :

The revenue in respect of claims is recognised when no significant uncertainty exists with regard to the amount to berealised and the ultimate collection thereof.

iii) Benefit under Duty Entitlement Pass Book / Duty Drawback Scheme :Revenue in respect of the above benefits is recognised on post export basis.

c) Retirement Benefits :i) Gratuity : Provision for gratuity liability to employees is made on the basis of actuarial valuation.ii) Leave Encashment : Provision for leave encashment is made on the basis of leave accrued to the employees during the

calendar year and has been determined on actuarial valuation.iii) Provident Fund : Contribution to Provident Fund is made in accordance with the provisions of the Provident Fund Act,

1952 and is treated as revenue expenditure.iv) Superannuation: The liability in respect of eligible employees covered under the scheme is provided as per the Company’s

policy on an accrual basis. d) Fixed Assets :

Fixed Assets are stated at historical cost less depreciation.e) Depreciation :

i) Depreciation is provided on straight line method in accordance with and in the manner specified in Schedule XIV tothe Companies Act, 1956 , except in case of computers on which depreciation has been provided @ 25 % on straightline basis.

ii) Depreciation on assets costing Rs.5,000/- or below acquired during the year is charged @ 100%.f) Inventories :

Inventories are valued at cost or net realisable value, whichever is lower. The cost in respect of various items of inventoriesis computed as under:* In case of raw materials at weighted average cost plus direct expenses.* In case of stores & spares at weighted average cost plus direct expenses.* In case of work-in-process at raw material cost plus conversion cost depending upon the stage of completion.* In case of finished goods at raw material cost plus conversion cost, packing cost, excise duty and other overheads

incurred to bring the goods to their present condition and location.g) Foreign Currency Conversion/Translation :

- Foreign currency transactions are recorded on initial recognition at the rate prevailing on the date of the transaction.Where export bills are negotiated with the bank, the export sales are recorded at the rate on the date of negotiation as thesaid rate approximates the actual rate at the date of the transaction.

- Foreign Currency monetary items are reported using the closing rate. Exchange differences arising on the settlement ofmonetary items or on reporting the same at the closing rate as at the balance sheet date are recognised as income orexpense in the period in which they arise except in case of liabilities incurred for the purpose of acquiring the fixed assetsfrom outside India in which case such exchange differences are adjusted in the carrying amount of fixed assets.

- The premium or discount arising at the inception of forward exchange contracts is amortised as an expense or income overthe life of the contract.

- Exchange differences on the aforesaid forward exchange contract are recognised in the statement of profit & loss in thereporting period in which the exchange rates change. Profit or loss arising on cancellation or renewal of such contracts isrecognised as income or as expense in the period in which such profit or loss arises.

h) Borrowing Costs :Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalisedas part of the cost of the asset. Other borrowing costs are recognised as expense in the period in which they are incurred.

i) Expenditure incurred during construction period :In respect of major expansion, the indirect expenses incurred during construction period upto the date of commercialproduction is capitalised on various categories of fixed assets on proportionate basis.

j) Accounting for Tax on Income :The accounting treatment followed for taxes on income is to provide for Current Tax and Deferred Tax. Current Tax is theamount of income-tax determined to be payable in respect of taxable income for a period. Deferred Tax is the tax effect ofall timing differences.

k) Impairment of AssetsAt each balance sheet date, an assessment is made whether any indication exists that an asset has been impaired.If any such indication exists, an impairment loss i.e. the amount by which the carrying amount of an asset exceeds itsrecoverable amount is provided in the books of accounts.

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2. There are contingent liabilities in respect of :As at As at

31.03.2007 31.03.2006(Rs.) (Rs.)

a) Bank Guarantees and Letters of Credit outstanding 1,34,33,995 15,31,88,148b) Export Bills discounted with banks 5,87,77,059 4,74,45,489

against irrevocable letters of creditc) Other contingent liabilities 39,28,857 10,90,036

3. Estimated amount of contracts remaining to 2,12,69,304 20,40,39,368be executed on Capital Account (Net of Advances)

4. The Company has executed bond for aggregate amount of Rs.3,000 lacs (Previous Year Rs.3,000 lac) in favour of the Presidentof India under Sections 59 (2) and 67 of the Customs Act, 1962 and Central Excise Act, 1944 for fulfilment of obligations underthe said Acts.

5. The Company has contested the additional demand in respect of Excise Duty/Custom Duty/Income Tax amounting toRs. 3,928,857/- (Previous Year Rs.1,090,036/-) in different cases.The Company has filed an appeal with the Appellate Authorities.No provision has been made in the books of accounts in respect thereof.

6. The company has de-bonded it’s unit during the current financial year and has converted it to Domestic Tariff Area (DTA) unitfrom Export Oriented Unit (EOU). All the legal formalities/obligations for this conversion have been adhered to.

7. Computation of net profit under Section 198 read with Section 349 of the Companies Act,1956,for the purpose of commissionpayable to the Executive Director:


Profit before tax 12,45,61,473 6,47,02,611Add: Depreciation for the year 1,89,95,716 4,42,53,445

Executive Director’s Remuneration 11,57,613 10,89,178Less : Depreciation for the year 1,89,95,716 4,42,53,445Profit for computation of commission 12,57,19,085 6,57,91,789Maximum permissible i.e. 5% of profits 62,85,954 32,89,589Commission payable to Executive Director 3,80,625 3,58,125@ 75 % of Salary

Remuneration has been given to the Executive Director as per terms of appointment.

8. Remuneration paid/payable to the Executive Director:- Current Year Previous Year

(Rs.) (Rs.)

Salary 5,07,500 4,77,500House Rent Allowance 2,03,000 1,91,000Commission ( 75% of salary) 3,80,625 3,58,125Contribution to Provident & Other Funds 66,488 62,553

9. Previous year’s figures have been recast/regrouped wherever necessary, to make these comparable with current year’s figures.

10. The Company owes Rs. 70,510/- (Previous Year Rs. 101,676/-) to Bhandari Deepak Industries, Rs. 58,545/- (Previous Year Rs.Nil) to Essel Industries, Rs. 20,865/- (Previous Year Rs. 4,556/-) to Dinesh Printing Press, Rs. 275/- (Previous Year Rs.Nil) to JyotiRubber & Plastic Co., Rs.716/- (Previous Year Rs.Nil), to Shailja Graphic Art, Rs. Nil (Previous Year Rs. 6,874/-) to JayantiPolymers Industries, Rs. Nil (Previous Year Rs.1,500/-) to Usha Engineering Services, Rs.8,449/- (Previous Year Nil) to PackwellProducts India, Rs. 20,046/- (Previous Year Nil) to Vir Engineering Works, Rs.1,439/- (Previous Year Rs. Nil) to Manya Engg. &Services, Rs. Nil (Previous Year Rs. 1,948/-) to Alfa Electronics, being total amounting to Rs. 1,80,845/- (Previous Year Rs.1,16,554/-) to Small Scale Industrial Undertakings as at March 31st, 2007.

11. Segment Reporting :The Company operates only in one business segment viz. ‘Yarn’ which is the reportable segment in accordance with therequirements of Accounting Standard (AS ) - 17 on Segment Reporting issued by The Institute of Chartered Accountants of India.


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12. Related Party Disclosure:Details of transactions entered into with related parties during the year as required by Accounting Standard (AS) - 18 on “RelatedParty Disclosures” issued by The Institute of Chartered Accountants of India are as under :

(Amount in Rs.)

Particulars Holding Fellow Associates Key Enterprises over TotalCompany Subsidiary Management which KMP is

Company Personnel able to exercise(KMP) significant

influence

Purchase/Processing of goods 7,01,27,572 7,01,27,572Purchase of DEPB licences 3,04,575 3,04,575Sale/Processing of goods 9,66,22,414 94,71,654 10,60,94,068Sale of Fixed Assets 98,008 98,008Commission Paid 17,29,145 17,29,145Interest paidInterest received 82,200 82,200Payment against licence 5,61,200 5,61,200agreementManagerial Remuneration 11,57,613 11,57,613

Note:1. (a) Holding Company : Vardhman Textiles Limited

(b) Fellow Subsidiary Company : Vardhman Threads Limited2. Associates : Marubeni Corporation, Japan

Marubeni Textiles Asia Limited, JapanToho Tenax Company Limited, Japan

3. Key Management Personnel : Mr Sachit Jain4. Enterprises over which Key Management Personnel : Vardhman Holdings Limited

(KMP) is able to exercise significant influence

13. Earnings Per Share:The calculation of Earnings Per Share (EPS) as disclosed in the Profit & Loss Account has been made in accordance with therequirements of Accounting Standard(AS) - 20 on Earnings Per Share issued by the Institute of Chartered Accountants of India.(Previous Year 34,50,040 shares issued in terms of the Rights Issue of the Company were considered in the calculation ofEarnings Per Share and weighted average of these shares have been taken considering the allotment date of 17th March, 2006as these new shares were entitled to pro-rata dividend for the F.Y. 2005-06).

14. Deferred TaxAccounting entries for deferred tax have been passed in accordance with the provisions of Accounting Standard (AS )-22 on‘Accounting for Taxes on Income’ read with Accounting Standard Interpretation (ASI ) 5 on ‘Accounting for Taxes on Income inthe situation of Tax Holiday under section 10 A and 10 B of the Income Tax Act ,1961 issued by the Institute of CharteredAccountants of India.Deferred Tax Asset /(Liability) Net as on 31st March, 2007 is as follows : (Amount in Rs.)

31.03.2007 31.03.2006Difference between Depreciation as per Companies Act,1956 and (1,84,63,921) (2,22,35,926)Income Tax Act, 1961Less Deferred Tax Asset arising on account of expenses allowable for 10,90,358 10,86,391tax purposes when paidNet Deferred Tax Asset/(Liability) (1,73,73,563) (2,11,49,535)Deferred Tax Liability provided during the year (37,75,972) 38,63,339

Deferred tax asset in respect of unabsorbed depreciation has been recognised on the basis that the Company will have sufficientfuture taxable income. There is a virtual certainty that the said asset will be realizable on account of the fact that there has beena reduction in the interest costs and depreciation as per tax laws, the combined effect of which would result in higher taxableprofits.

15. No asset qualifies for impairment for the current year according to AS-28 issued by Institute of Chartered Accountants of India.


83


17. The information required by para 3 & 4 of Part II of Schedule VI to the The Companies Act, 1956.Licensed Capacity Installed Capacity

As at As at As at As at31.03.2007 31.03.2006 31.03.2007 31.03.2006

(A) CapacitySpindles 50,000 50,000 45,120 28,320

Installed capacity has been certified by the management and not verified by the auditors being a technical matter.

(B) Actual Production Unit Current Year Previous YearYarn Kgs. 37,87,682 * 37,08,318 *

Note : * Including a quantity of 59,940 kgs (Previous Year 1,39,532 kgs) processed by others on job basis and another quantity of 121,624 kgs(Previous Year Nil) processed for others on job basis.

Quantity Value QUANTITY VALUE(C) Purchase Of Finished Goods : ( Rs.) ( Rs.)

Yarn Kgs. 3,86,911 4,18,03,772 3,22,151 3,52,15,833(D) Sales

Yarn Kgs. 40,43,252 63,23,79,176 40,76,531 56,12,44,704Raw Material Kgs. 1,170 96,804 9,878 9,29,458Waste 3,37,47,131 3,11,64,275Processing Charges 1,06,96,508 0Miscellaneous 18,29,225 6,16,340

67,87,48,844 59,39,54,777(E) Raw Material Consumed

Cotton Kgs. 46,78,038 26,74,59,920 49,13,316 26,09,54,611Man Made Fibre Kgs. 2,09,301 2,89,64,639 10,390 24,02,449

48,87,339 29,64,24,559 49,23,706 26,33,57,060(F) Stock Particulars of Finished Goods

Opening Stock:Yarn Kgs. 113,605 1,22,42,397 1,66,339 1,90,12,804Others - - 5,72,296 - 7,83,158Closing Stock:Yarn Kgs. 1,19,602 1,44,45,631 1,13,605 1,22,42,397Others - 15,47,909 5,72,296

Current Year Previous Year(G) CIF Value Of Imports : (Rs.) (Rs.)

Components & Spare Parts 69,25,631 69,72,555Capital Goods 16,72,13,228 19,87,899Raw Material 4,41,33,378 42,97,373

21,82,72,237 1,32,57,827(H) Expenditure In Foreign Currency

Commission 1,02,44,445 62,91,507Others 40,60,156 32,85,625

1,43,04,601 95,77,132(I) Fob Value Of Exports 40,08,86,957 33,35,37,482

Current Year Previous YearValue (Rs.) % Value (Rs.) %

(J) Value of Raw Materials, ComponentsAnd Spare Parts Consumed 1 Raw Materials:

Imported 4,36,07,867 14.71 4,05,36,438 15.39Indigeneous 25,28,16,692 85.29 22,28,20,622 84.61

29,64,24,559 100.00 26,33,57,060 100.00 2 Components & Spare Parts:

Imported 87,31,304 19.21 57,21,288 19.37 Indigeneous 3,67,22,028 80.79 2,38,13,940 80.63

4,54,53,332 100.00 2,95,35,228 100.00


84

Vardhman

17. Information Pursuant to Part IV of Schedule-VI attached to the Companies Act, 1956 :

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. REGISTRATION DETAILSRegistration No. State Code


II. CAPITAL RAISED DURING THE YEAR (Amount in Rs. Thousand)Public Issue Right Issue


III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs. Thousand)Total Assets Total Liabilities

SOURCES OF FUNDSPaid-up Capital Reserves and Surplus*




Accumulated Losses

IV. PERFORMANCE OF THE COMPANY (Amount in Rs. Thousand)Turnover (including other Income) Total Expenditure


Earnings per Share (in Rs.) Dividend Rate %

V. GENERIC NAMES OF THREE PRINCIPAL PRODUCTS / SERVICES OF THE COMPANY (As per Monetary Terms)Item Code No. (ITC Code)

Product Description


Product Description

Item code No. (ITC Code)

Product Description

1 61 4 0 7 0

3 1 0 3 2 0 0 7

N I L

N I L

N I L

N I L

9 2 0 0 3 39 2 0 0 3 3

2 0 7 0 0 2

4 0 3 9 4 2

3 0 9 0 8 9

5 2 4 5 6 6 N I L

1 1 3 9 5 1+1 2 4 5 6 1

5 . 5 0

+

9 . 0 0

N I L

3 9 5 4 6 7 N I L

6 8 2 7 3 1 5 5 8 1 7 0

5 2 . 0 5

C O T T O N Y A R N

N I L

N I L

+ –

N I L

N I L

N I L


+ –

* Including Deferred Tax Liability amounting to Rs. 17,374 thousand.

85

Vardhman Threads Limited Vardhman

DIRECTORS’ REPORT

Dear Members,

The Directors of your Company have pleasure in presenting theThirteenth Annual Report together with the Audited Accountsof the Company for the year ended 31st March, 2007.

1. FINANCIAL RESULTS :The financial results are as follows:—

(Rs. in lac)

Particulars 2006-07 2005-06

Turnover 2,228.97 2,137.67Profit before depreciation,interest & Tax (PBDIT) 870.88 700.23Interest & Financial charges 21.29 5.09Profit before depreciation &Tax (PBDT) 849.59 695.14Depreciation 106.16 90.04Profit before Tax (PBT) 743.43 605.10Provision for Tax

— Current Tax 72.50 48.00— Fringe Benefit Tax 2.27 1.40— Deferred Tax 13.30 3.12— Deferred Tax Adjustment 0.32 29.75

Profit after Tax (PAT) 655.04 522.83Balance brought forward from last year 295.82 272.99

Profit available for appropriation 950.86 795.82Appropriations:Transfer to General Reserve 300.00 500.00Balance carried to Balance Sheet 650.86 295.82Earnings per share 8.19 6.54(Basic & Diluted (in Rs.)

The detailed performance is given below:–

a) Turnover :During the year under review, the gross sales of theCompany were Rs.2228.97 Lacs as compared toRs.2137.67 Lac in the previous year registering anincrease of 4.27 %.

b) Production :The production of Sewing Thread increased from4,89,463 Kgs. in the previous year to 5,45,488 Kgs.during the year under review, showing an increase of11.45 per cent.

c) Exports :The FOB value of exports of the Company increasedfrom Rs. 189.61 Lacs during the previous year toRs.207.11 Lacs during the year under review.

c) Profitability :The profit before depreciation interest and tax (PBDIT)is Rs. 870.88 Lacs (Previous Year Rs. 700.23 Lac).However, after providing for depreciation of Rs. 106.16Lac (Previous Year Rs. 90.04 Lac), Interest and financial

charges of Rs. 21.29 Lac (Previous Year Rs. 5.09 Lac)and taxes of Rs. 88.39 Lac (Previous Year Rs. 82.27Lac), the Company earned a net profit of Rs. 655.04Lac (Previous year Rs. 522.83 Lac).

2. DIRECTORS :Mr. D.L Sharma, Director of your Company, retire byrotation at the forthcoming Annual General Meeting andbeing eligible, offer Himself for re-appointment.

3. AUDITORS :M/s. S.C Vasudeva and Company, Chartered Accountants,New Delhi, retire at the conclusion of the forthcomingAnnual General Meeting and being eligible, offerthemselves for re-appointment.

4. AUDITORS’ REPORT :The Auditors' Report on the Accounts is self-explanatoryand requires no comments.

5. AUDIT COMMITTEE:The Company has an Audit Committee of its Board ofDirectors pursuant to the provisions of section 292A of theCompanies Act, 1956, with Mr. S.P Oswal, Mr. D.L. Sharmaand Mr R.K Rewari as its members.

6. PERSONNEL:During the year, no employee of the company received asalary of more than Rs.24.00 lac per annum or Rs.2.00 lacper month. Accordingly, no particulars of employees areto be given pursuant to the provisions of Section 217(2A)of the Companies Act, 1956

7. INDUSTRIAL RELATIONS:The industrial relations remained peaceful and harmoniousin the unit of the Company at Baddi during the year. TheCompany continue to pursue its efforts for creating a healthywork environment and positive work culture.

8. DIRECTORS’ RESPONSIBILITY STATEMENT :Pursuant to Section-217(2AA) of the Companies Act, 1956,the Directors confirm that :

i) in the preparation of the annual accounts, the applicableaccounting standards have been followed;

ii) appropriate accounting policies have been selected andapplied consistently, and have made judgements andestimates that are reasonable and prudent so as to givea true and fair view of the state of affairs of the Companyas at 31 st March, 2007 and of the profit of the Companyfor the year ended on 31st March, 2007;

iii) proper and sufficient care has been taken for themaintenance of adequate accounting records inaccordance with the provisions of the Companies Act,1956 for safeguarding the assets of the Company andfor preventing and detecting fraud and otherirregularities; and:

Vardhman Threads Limited

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Vardhman

iv) annual accounts have been prepared on a going concernbasis.

9. CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGS ANDOUTGO:Energy conservation continues to be an area of majoremphasis in your Company. The Company has adoptedthe strategy of bringing about a general awareness amongstall regarding energy conservation. Particulars with respectto conservation of energy and other areas as per Section-217 (1)(e) of the Companies Act-1956, read with theCompanies (Disclosure of Particulars in the Report of Boardof Directors) Rules, 1988, are annexed hereto and formpart of this report.

10. ACKNOWLEDGEMENT :Your Directors are pleased to place on record their sinceregratitude to Government, Bankers and Business Constituentsfor their continued valuable co-operation and support tothe Company.

Your Directors also express their deep appreciation for thedevoted and sincere services rendered by workers, staffand executives at all levels of operations of the Companyduring the year and we are confident that your Companywill continue to receive such co-operation from them infuture also.


PLACE : LUDHIANA (S.P. OSWAL)DATED : May 28, 2007 CHAIRMAN

ANNEXURE TO THE DIRECTORS’ REPORTINFORMATION AS PER SECTION 217(1)(e) READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF

BOARD OF DIRECTORS) RULES, 1988 AND FORMING PART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED31ST MARCH, 2007 :

1. CONSERVATION OF ENERGY:

FORM—A:

PARTICULARS UNIT 2006-07 2005-06

A) POWER AND FUEL CONSUMPTION:

1. ELECTRICITY:

a) Purchased Units (KWH in lac) 23.69 22.73Total amount (Rs. in lac) 69.89 68.41Rate per unit (Rs./KWH) 2.95 3.01

b) Own generation:

i) Through dieselgenerator (KWH in lac) 32.32 5.13Units/Litre of Diesel (KWH) 3.73 3.95Cost per unit (Rs./KWH) 7.78 6.79

ii) Through Steam Nil NilTurbine/Generator

B) CONSUMPTION PER UNIT OF PRODUCTION:

Sewing Thread:Electricity (KWH/KG) 5.10 5.69

2. TECHNOLOGY ABSORPTION:Efforts made in Technology Absorption are furnished inForm-B as under:-

FORM—B:

A. RESEARCH AND DEVELOPMENT (R&D):(Rs in lac)

2006-07 2005-06Capital 9.62 3.30Recurring 9.22 0.55

Total 18.84 3.85Total R&D expenditure as apercentage of turnover 0.84% 0.18%

B. TECHNOLOGY ABSORPTION, ADAPTATION ANDINNOVATION :

1. The Management has created a work culture in theOrganisation to foster innovation in all functions includingproduction. The Company has machinery of latesttechnology and is continuously adapting the process ofproduction to the State-of-the-art technology.

2. Particulars of technology imported in the last five years:

a) Technology Imported : Nilb) Year of Import : N.A.c) Has technology been : N.A.

fully absorbed?

3. FOREIGN EXCHANGE EARNINGS AND OUTGO :(Rs in lac)

2006-07 2005-06Foreign Exchange earned : 207.11 189.61(FOB Value of Exports)Foreign Exchange used : 225.63 235.19(CIF value of imports andexpenditure in foreign currency)

87


AUDITORS’ REPORT

ToThe Shareholders,Vardhman Threads Limited

1. We have audited the attached balance sheet of VardhmanThreads Limited as at 31st March, 2007, the profit and lossaccount and the cash flow statement for the year ended onthat date annexed thereto. These financial statements areresponsibility of the Company’s management. Ourresponsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with auditingstandards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on test basis, evidence supporting theamounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles usedand significant estimates made by the management, as wellas evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis forour opinion.

3. As required by the Companies (Auditors’ Report) Order,2003 issued by the Central Government of India in termsof sub-section (4A) of Section 227 of the Companies Act,1956, we enclosed in the annexure a statement on thematters specified in paragraph 4 of the said order.

4. Further to our comments in the annexure referred to inparagraph 3 above, we report that:

a) we have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purpose of our audit;

b) in our opinion, proper books of account as requiredby law have been kept by the company so far as appearsfrom our examination of those books;

c) the balance sheet, profit and loss account and cashflow statement dealt with by this report are in agreementwith the books of accounts;

d) in our opinion, the balance sheet, profit and lossaccount and cash flow statement dealt with by thisreport comply with the accounting standards referredto in sub-section (3C) of Section 211 of the CompaniesAct,1956;

e) on the basis of the written representations received fromthe directors as on 31st March,2007 and taken on recordby the Board of Directors, we report that none of thedirector is disqualified as on 31st March, 2007 frombeing appointed as a director in terms of clause(g) ofsub-section (1) of Section 274 of the CompaniesAct,1956;

f) in our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts read together with the significant accountingpolicies and other notes thereon give the informationrequired by the Companies Act, 1956, in the mannerso required and give a true and fair view in conformitywith the accounting principles generally accepted inIndia:

i) in the case of balance sheet, of the state of affairsof the company as at 31st March, 2007;

ii) in the case of profit and loss account, of the profitfor the year ended on that date; and

iii) in the case of cash flow statement, of the cash flowsfor the year ended on that date.

For S.C. VASUDEVA & CO.,Chartered Accountants

(SANJIV MOHAN)PLACE : LUDHIANA PartnerDATED : 28th May, 2007 Membership No. 86066


(i). a) The Company has maintained proper records showingfull particulars including quantitative details andsituation of fixed assets.

b) According to the information and explanations givento us, the fixed assets have been physically verified bythe management during the year. No materialdiscrepancies were noticed on such physicalverification. In our opinion the frequency of physicalverification of fixed assets is reasonable having regardto the size of the company and nature of its business.

c) According to the information and explanations givento us, the company has not disposed off substantialpart of its fixed assets during the year and the goingconcern status of the company is not affected.

(ii) a) According to the information and explanations givento us, inventories have been physically verified by themanagement at the close of the year. In our opinionthe frequency of verification is reasonable.

b) In our opinion and according to the information andexplanations given to us, the procedures of physical


88

Vardhman

verification of inventories followed by the managementas evidenced by the written procedures and instructionsare reasonable and adequate in relation to the size ofthe company and nature of its business.

c) On the basis of our examination of the records ofinventories, we are of the opinion that the company ismaintaining proper records of inventories. As explainedto us, no material discrepancies were noticed onphysical verification between physical stocks and bookrecords.

(iii) (a) The Company has during the year granted unsecuredloan to one company covered in the register maintainedunder section 301 of the Companies Act, 1956. Theaggregate amount involved in the transaction togetherwith the opening balance of Rs 250 lacs is Rs. 1,785lacs. The amount due as at the close of the year isRs. 1,395 lacs.

(b) According to the information and explanations givento us, the rate of interest and other terms and conditionsin respect of unsecured loans given by the company,are not prima-facie prejudicial to the interest of thecompany.

(c) In our opinion and according to the information andexplanations given to us, the receipt of principalamount and interest in respect of the aforesaid loans isregular.

(d) In our opinion and according to the information andexplanations given to us, there are no overdue amountsin respect of the unsecured loans given by the company.

(e) According to the information and explanations givento us, the company has not taken secured or unsecuredloans from companies, firms or other parties coveredin the register maintained under section 301 of theCompanies Act, 1956. Therefore the provision of clause4(iii) (f) and (g) of the order are not applicable to thecompany.

(iv) In our opinion and according to the information andexplanations given to us, there is an adequate internalcontrol system commensurate with the size of the companyand nature of its business, for the purchase of inventoryand fixed assets and sale of goods and services. Duringthe course of our audit, we have not observed anycontinuing failure to correct major weaknesses in internalcontrol.

(v) (a) In our opinion and according to the information andexplanations given to us, the particulars of contractsor arrangements referred to in section 301 of theCompanies Act, 1956 have been entered in the registermaintained under that section.

(b) In our opinion and according to the information andexplanations given to us, the transactions made inpursuance of contracts or arrangements entered in theregister maintained under section 301 of the CompaniesAct, 1956 and exceeding Rupees five lacs or more inrespect of each party during the year, have been madeat prices which are reasonable having regard to theprevalent market prices at the relevant time.

(vi) According to the information and explanations given tous, the company has not accepted deposits from publicduring the year as covered under the provisions of section58A or 58AA or any other relevant provisions of theCompanies Act, 1956 and the Companies (Acceptance ofDeposits) Rules, 1975.

(vii) In our opinion the company has an internal audit systemcommensurate with its size and nature of its business.

(viii) We have broadly reviewed the books of account relatingto materials, labour and other items of cost maintained bythe company pursuant to the rules made by the CentralGovernment for the maintenance of cost records undersection 209(1)(d) of the Companies Act, 1956, and we areof the opinion that prima facie, the prescribed accountsand records have been made and maintained.

(ix) (a) According to the records of the company, undisputedstatutory dues including provident fund, investoreducation and protection fund, employees’ stateinsurance, income tax, sales tax, wealth tax, servicetax, custom duty, excise duty, cess and other materialstatutory dues applicable to the company, if any, havebeen regularly deposited with appropriate authorities.According to the information and explanations givento us, no undisputed amounts payable in respect ofthe aforesaid dues were outstanding as at 31st March2007, for a period of more than six months from thedate they became payable.

(b) According to the records of the company, the disputedstatutory dues aggregating to Rs 17,81,382/-. that havenot been deposited on account of matters pendingbefore the appellate authorities in respect of sales taxis given below :

Name of the Statute Nature of Dues Disputed Amount Forum where Dispute is pending(Rs.)

Karnataka Sales Tax Act, 1957 Local Sales Tax 13,233 Joint Commissioner of Commercial Taxes, Bangalore

Central Sales Tax, 1956 Central Sales Tax 90,577 Deputy Commissioner Zone-5 Delhi

Delhi Sales Tax, 1975 Local Sales Tax 3,862 Deputy Commissioner Zone-5 Delhi

Income-tax Act, 1961 Income Tax 16,73,710 Commissioner of Income-tax (Appeals), Chandigarh

89


For S.C. VASUDEVA & CO.,Chartered Accountants

(SANJIV MOHAN)PLACE : LUDHIANA PartnerDATED : 28th May, 2007 Membership No. 86066

According to the information and explanations given tous there are no disputed statutory dues pending in respectof custom duty, excise duty, service tax, wealth tax, andcess.

(x) The Company does not have accumulated losses and hasnot incurred cash losses during the financial year coveredunder audit and in the immediately preceding financialyear.

(xi) In our opinion and according to the information andexplanations given to us, the company has not defaultedin repayment of dues to banks.

(xii) According to the information and explanations given tous, the company has not granted any loans and advanceson the basis of security by way of pledge of shares,debentures and other securities. Therefore, the provisionsof clause 4(xii) of the above said order are not applicableto the company.

(xiii) The Company is not a chit fund or a nidhi mutual benefitfund/society. Accordingly, the provisions of clause 4(xiii)of the above said order are not applicable to the company.

(xiv) According to the information and explanations given tous, the company has not dealt or traded in share, securities,debentures and other investments. Therefore, theprovisions of clause 4(xiv) of the above said order are notapplicable to the company.

(xv) According to the information and explanations given tous, the company has not given any guarantee for loanstaken by others from bank or financial institutions.Accordingly, the provisions of paragraph 4(xv) of the orderare not applicable to the company.

(xvi) In our opinion and according to the information andexplanations given to us, the term loans taken during theyear have been applied for the purpose for which theywere obtained.

(xvii) According to information and explanations given to usand on an overall examination of the balance sheet ofthe company, we report that funds raised on short-termbasis have not been used for long term investment.

(xviii) According to the information and explanations given tous, the company has not made any preferential allotmentof shares during the year to parties and companies coveredin the register maintained under section 301 of theCompanies Act, 1956.

(xix) According to the information and explanations given tous, the company has not issued debentures during theyear. Accordingly the provisions of clause 4(xix) of theabove said order are not applicable to the company.

(xx) According to the information and explanations given tous, the company has not raised any money by way of apublic issue during the year. Accordingly the provisionsof clause 4(xx) of the above said order are not applicableto the company.

(xxi) According to the information and explanations given tous, no fraud on or by the company has been noticed orreported during the year.


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Vardhman



(Rs.) (Rs.)

SOURCES OF FUNDS

1. Shareholders’ Fundsa) Share Capital 1 8,00,00,000 8,00,00,000b) Reserves & Surplus 2 33,80,85,888 27,25,81,888

2. Loan FundsSecured Loans 3 7,23,66,837 86,68,838

3. Deferred Tax Liability 46,49,266 32,86,899TOTAL 49,51,01,991 36,45,37,625

APPLICATION OF FUNDS1. Fixed Assets 4

a) Gross Block 19,75,99,080 17,24,79,118b) Less: Depreciation 9,67,26,262 8,65,67,582c) Net Block 10,08,72,818 8,59,11,536d) Capital Work-in-Progress 21,48,422 19,55,116

10,30,21,240 8,78,66,6522. Investments 5 5,34,33,000 8,83,81,2343. Current Assets, Loans & Advances 6

a) Inventories 6,52,71,404 5,25,16,850b) Sundry Debtors 4,90,90,741 4,19,48,198c) Cash & Bank Balances 4,82,76,750 1,43,09,478d) Other Current Assets 19,161 17,988e) Loans & Advances 18,13,92,631 9,74,06,468

(A) 34,40,50,687 20,61,98,982

Less: Current Liabilities & Provisions 7a) Liabilities 1,44,07,880 2,29,45,953b) Provisions (90,04,944) (50,36,711)

(B) 54,02,936 1,79,09,242Net Current Assets (A-B ) 33,86,47,751 18,82,89,739TOTAL 49,51,01,991 36,45,37,625

NOTES ON ACCOUNTS 16The Schedules referred to above form an integral part of the Balance Sheet.

As per our report of even date attachedFor S.C. Vasudeva & Co.Chartered Accountants

SANJIV MOHAN MUKESH BANSAL SURESH GADODIA D.L. SHARMA R.K. REWARIPartner Company Secretary Vice-President Director Director-in-chargeM. No. 86066 (Operations)


91


PROFIT & LOSS ACCOUNT for the year ended 31st March, 2007


INCOMETurnover 22,28,96,919 21,37,67,311Other Income 8 2,49,44,121 1,08,34,487

TOTAL 24,78,41,040 22,46,01,798

EXPENDITURE

Raw Material Consumed and Purchase of Finished goods 9 6,07,22,214 4,73,70,790Manufacturing Expenses 10 5,34,07,451 4,69,16,535Personnel Expenses 11 2,24,04,609 1,88,16,031Administrative & Other Expenses 12 1,08,39,045 1,23,86,234Interest & Financial Charges 13 21,29,211 5,09,608Selling & Distribution Expenses 14 1,07,47,139 3,18,00,211(Increase) /Decrease in Work -in -Process and Finished Goods 15 26,40,393 (33,55,033)Depreciation 1,06,15,968 90,03,803Prior Period item (8,357) 6,43,775

TOTAL 17,34,97,673 16,40,91,954

Profit for the year before tax 7,43,43,367 6,05,09,844Less :Provision for

-Current Tax 72,50,000 48,00,000- Fringe Benefit Tax 2,27,000 1,40,000- Deferred Tax 13,30,142 3,12,365- Deferred Tax Adjustment 32,225 29,74,534

Profit for the year after tax 6,55,04,000 5,22,82,945

Balance brought forward 2,95,81,888 2,72,98,943

Balance available for appropriation 9,50,85,888 7,95,81,888

Appropriations:Transfer to General Reserve 3,00,00,000 5,00,00,000Balance carried to Balance Sheet 6,50,85,888 2,95,81,888

9,50,85,888 7,95,81,888

Earnings per share (Basic & diluted) 8.19 6.54

NOTES ON ACCOUNT 16The Schedules referred to above form an integral part of the Profit and Loss Account.





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Vardhman

CASH FLOW STATEMENT for the period 1st April, 2006 to 31st March, 2007Particulars Current Year Previous Year

(Rs.) (Rs.)

CASH FLOW FROM OPERATING ACTIVITIESNet profit before tax & extraordinary items 7,43,43,367 6,05,09,844Adjustments for:

Depreciation 1,06,15,968 90,03,803Sundry balances written off 12,10,077 8,46,362Interest paid 16,92,679 504,366Interest received (1,17,95,888) (55,68,738)Dividend received (1,00,32,000) (38,54,427)Profit on sale of Investments (8,29,536) (7,36,143)Excess provision written back (12,11,114) (29,605)Sundry balances written back (905) (1,033)Difference in exchange rate 3,379 57,913Loss on fixed assets discarded 3,058 23,667Provision for doubtful debts — 4,99,782

(1,03,44,282) 7,45,947

Operating profit before working capital changes 6,39,99,085 6,12,55,790Adjustments for:

Decrease/(Increase) in trade & other receivables (9,23,43,337) (5,46,99,320)Decrease/(Increase) in inventories (1,27,54,554) (65,56,926)(Decrease)/Increase in trade payables & other liabilities (73,26,054) 1,25,81,847

(11,24,23,945) (4,86,74,399)

Cash generation from operations (4,84,24,860) 1,25,81,391

Taxes Paid (1,14,45,233) (1,14,45,233) (88,76,234) (88,76,234)

Net Cash from Operating activities (5,98,70,093) 37,05,157

CASH FLOW FROM INVESTING ACTIVITIESPurchase of fixed asset (2,61,72,578) (1,13,81,163)Sale of fixed assets 3,98,965 -Interest received 1,17,95,888 50,57,119Dividend received 1,00,32,000 38,54,427Sale of Investments 3,57,77,770 (3,32,87,011)

Net cash used in investing activities 3,18,32,045 (3,57,56,628)

CASH FLOW FROM FINANCING ACTIVITIESProceeds from long term borrowings 6,25,00,000 -Proceeds from short term borrowings 11,97,999 61,19,200interest paid (16,92,679) (5,04,366)

Net cash flow from financing activities 6,20,05,320 56,14,834

Net increase in cash & cash equivalents 3,39,67,272 (2,64,36,637)Cash & cash equivalents (Openings) 1,43,09,478 4,07,46,115Cash & cash equivalents (Closings) 4,82,76,750 1,43,09,478




93


Schedules Annexed to and forming part of the Balance Sheet as at 31st March, 2007 and Profitand Loss Account for the year ended 31st March, 2007

As at As at31.03.2007 31.03.2006

(Rs.) (Rs.)SCHEDULE 1 – SHARE CAPITAL

Authorised:1,00,00,000 (Previous Year 1,00,00,000) 10,00,00,000 10,00,00,000

Equity Shares of Rs.10/- each

ISSUED, SUBSCRIBED & PAID UP :80,00,000 (Previous year 80,00,000) 8,00,00,000 8,00,00,000

Equity Shares of Rs.10/- each8,00,00,000 8,00,00,000

NOTE : All the above Equity Shares are held by Vardhman Textiles Limited (formerly Mahavir Spinning Mills Ltd),the Holding Company

SCHEDULE 2 – RESERVES & SURPLUSCapital Reserve 30,00,000 30,00,000General ReserveAs per last Account 24,00,00,000 19,00,00,000Add : Transferred from Profit & Loss account 3,00,00,000 5,00,00,000

27,30,00,000 24,30,00,000

Surplus i.e. Balance as per annexed Profit and Loss account 6,50,85,888 2,95,81,88833,80,85,888 27,25,81,888

SCHEDULE 3 – SECURED LOANS

Loans and Advances from Banks- Term Loans 6,25,00,000 —- Working Capital Borrowings 98,66,837 86,68,838

7,23,66,837 86,68,838NOTES :-

1. Term Loans from banks are secured by mortgage created or to be created on all immovable and movable assetsof the company, both present and future.

2. Working Capital limits from banks are secured by hypothecation of all movable assets, present and future belongingto the company.

SCHEDULE 4 – FIXED ASSETS (Rs.)

Sr. Particulars GROSS BLOCK DEPRECIATION NET BLOCKNo.

As at Additions Sales/ As at As at Depreci- Sales/ As at As at As at01.04.2006 Adjust- 31.03.2007 01.04.2006 ation for Adjust- 31.03.2007 31.03.2007 31.03.2006

ments the year ments

1. Freehold Land

& Site Development 42,75,514 — — 42,75,514 — — — — 42,75,514 42,75,514

2 Buildings 2,86,80,721 97,57,136 — 3,84,37,858 79,21,897 8,46,735 — 87,68,633 2,96,69,225 2,07,58,824

3 Plant & Machinery 13,32,88,655 1,56,87,140 3,79,311 14,85,96,484 7,44,47,434 92,66,663 3,60,346 8,33,53,751 6,52,42,733 5,88,41,222

4 Furniture & Fixture 18,40,039 2,82,158 — 21,22,197 12,49,695 1,99,769 — 14,49,464 6,72,733 5,90,345

5 Office Equipment 38,90,374 2,52,838 — 41,43,212 28,36,130 2,96,665 — 31,32,795 10,10,417 10,54,244

6 Vehicles 5,03,815 — 4,80,000 23,815 1,12,427 6,135 96,942 21,620 2,195 3,91,388

Current Year 17,24,79,118 2,59,79,272 8,59,311 19,75,99,080 8,65,67,582 1,06,15,968 4,57,288 9,67,26,262 10,08,72,818 8,59,11,536

Previous Year 16,23,40,435 97,71,617 (3,67,067) 17,24,79,118 7,72,15,067 90,03,803 (3,48,713) 8,65,67,582 8,59,11,536


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Vardhman

As at As at31.03.2007 31.03.2006

(Rs.) (Rs.)SCHEDULE 5 – INVESTMENTSI Long Term Investments (At Cost)(a) Other than trade, (Quoted)

1,89,000 (Previous year 1,89,000) Equity Shares of Rs. 10.00 each 1,06,84,600 1,06,84,600fully paid -up of Vardhman Holdings Ltd11,34,000 (Previous year 11,34,000) Equity Shares of Rs. 10.00 each 4,27,38,400 4,27,38,400fully paid -up of Vardhman Textiles Ltd(formerly Mahavir Spinning Mills Limited)

(b) Government securities, (Unquoted) :In National Saving Certificates 10,000 10,000(Pledged with Government Authorities)

II Current Investments (At lower of cost or fair value)(Quoted)NIL (Previous year 81,600 ) Equity Shares of Rs. 10.00 each fully paid up — 3,49,48,234of Videocon Industries Limited

5,34,33,000 8,83,81,234

Notes : Rs. Rs.1. Aggregate amount of quoted investments 5,34,23,000 8,83,71,2342. Aggregate amount of unquoted investments 10,000 10,0003. Market Value of quoted investments 27,91,81,350 52,26,18,780

95


As at As at31.03.2007 31.03.2006

(Rs.) (Rs.)SCHEDULE 6 – CURRENT ASSETS, LOANS AND ADVANCES

(A) CURRENT ASSETS1. Inventories (valued at cost or net

realisable value whichever is lower)- Raw Materials 2,86,36,527 1,38,65,414- Work-in-Process 56,32,149 48,57,755- Finished Goods 1,95,97,625 2,30,12,412- Stores & Spares 89,53,921 93,50,076- Goods-in-Transit 24,51,182 14,31,192

6,52,71,404 5,25,16,849

2. Sundry Debtors(Considered good unless otherwise stated)Unsecured(i) Debts outstanding for a period exceeding six months

- Considered Good 84,32,933 63,25,751- Considered Doubtful 5,38,167 5,38,167

(ii) Other Debts : Considered Good 4,06,57,808 3,56,22,4474,96,28,908 4,24,86,365

Less : Provision for doubtful debts 5,38,167 5,38,1674,90,90,741 4,19,48,198

3. Cash and Bank Balancesa) Cash Balances :

Cash in Hand 6,57,274 4,92,069Cheques in Hand 30,66,254 72,85,033

b) Bank Balances :With Scheduled Banks :in Current Accounts 4,45,53,222 65,32,376

4,82,76,750 1,43,09,4784. Interest accrued on investments 19,161 17,988

(B) LOANS AND ADVANCES(Unsecured, considered good unless otherwise stated)i) Advances recoverable in cash or in kind or for value to be received 18,10,47,064 9,73,73,005ii) Deposits with Government Authorities 3,45,567 33,463

18,13,92,631 9,74,06,468


96

Vardhman


SCHEDULE 8 – OTHER INCOMEInterest Received ( Gross) [TDS Rs. 26,46,998 (Previous Year Rs. 13,29,831)] 1,13,66,024 54,21,278Provision No Longer Required Written Back 12,11,114 29,605Dividend Income on Long Term Investment

– Other than trade 1,00,32,000 38,54,427Income from Investments (Gross)

– Long term investments other than trade 1,173 1,817Profit on sale of Investments

– Current investments 8,29,536 7,36,143Sundry Balances Written Back 905 1,033Benefit under DEPB Scheme 14,278 43,762Miscellaneous Receipts 14,89,091 7,46,422

2,49,44,121 1,08,34,487

SCHEDULE 9 – RAW MATERIAL CONSUMED AND PURCHASE OF FINISHED GOODSOpening Stock 1,38,65,414 94,14,542Add: Purchases 7,54,93,327 5,14,75,308

8,93,58,741 6,08,89,850Less: Closing Stock 2,86,36,527 1,38,65,414

Raw Material Consumed 6,07,22,214 4,70,24,436Purchase of Finished Goods — 3,46,354

6,07,22,214 4,73,70,790

SCHEDULE 10 – MANUFACTURING EXPENSESPower & Fuel 1,33,31,846 1,35,83,776Packing Material & Charges 93,70,195 95,75,578Stores & Spares Consumed 20,64,429 17,40,509Dyes & Chemicals 1,74,03,019 1,78,10,666Repairs to Plant & Machinery 97,08,738 39,85,447Processing Charges 50,115 97,672Miscellaneous 14,79,109 1,22,887

5,34,07,451 4,69,16,535

As at As at31.03.2007 31.03.2006

(Rs.) (Rs.)

SCHEDULE 7 – CURRENT LIABILITIES AND PROVISIONS

A. CURRENT LIABILITIESSundry Creditors– Total outstanding dues to Small Scale Industrial Undertakings — —– Total outstanding dues of creditors otherthan Small Scale

Industrial Undertakings 32,49,281 16,58,649Trade Deposits and Advances 16,05,268 18,69,412Other liabilities 95,53,331 88,18,885Due to holding company — 1,05,99,007

1,44,07,880 2,29,45,953

(B) PROVISIONSProvision for Taxation– Current Tax 5,66,26,000 4,93,76,000– Less: Prepaid Tax 6,55,89,944 (89,63,944) 5,45,18,711 (51,42,711)– Fringe Benefit Tax 3,67,000 1,40,000– Less: Prepaid Tax 4,08,000 (41,000) 34,000 1,06,000

(90,04,944) (50,36,711)

97



SCHEDULE 11 – PERSONNEL EXPENSESSalaries, Wages and Other Allowances 1,96,02,775 1,59,30,645Contribution to Provident & Other Funds 23,47,577 22,30,870Workmen & Staff Welfare 4,54,257 6,54,516

2,24,04,609 1,88,16,031

SCHEDULE 12 – ADMINISTRATIVE & OTHER EXPENSESRent 28,01,704 27,41,304Rates & Taxes 21,833 49,672Building Repairs 7,82,128 4,99,254Other Repairs 2,13,915 83,804Insurance 9,74,488 9,92,905Legal & Professional 9,55,725 6,52,556Travelling & Conveyance 6,87,978 6,47,166Printing & Stationary 5,84,378 4,51,623Postage & Telegram 38,805 80,565Telephone & Telex 3,59,999 8,74,746 Vehicle Maintenance 9,28,863 6,62,339Auditors’ Remuneration :

- As Audit Fee 1,40,300 1,40,300- As Tax Audit Fee 7,857 7,857- In Other Capacity 11,734 62,235- Out of Pocket Expenses 26,030 25,095

Managerial Remuneration 50,000 50,000Sundry Balances written off 12,10,077 8,46,362Provision for Doubtful Debts — 4,99,782Loss on Fixed Assets discarded/sold 3,058 23,667Exchange Rate Fluctuation 3,379 57,913Miscellaneous Expenses 10,36,794 29,37,089

1,08,39,045 1,23,86,234

SCHEDULE 13 – INTEREST AND FINANCIAL CHARGESInterest On :

- Term Loans 12,62,815 —- Working Capital Borrowings from Banks & Others (Net) — —

Bank & Other Charges 8,66,396 5,09,60821,29,211 5,09,608

SCHEDULE 14 – SELLING & DISTRIBUTION EXPENSESForwarding Charges & Octroi 64,54,711 67,78,635Commission to Selling Agents 8,87,101 15,82,866Rebate & Discount 19,59,253 2,18,26,074Advertisement 2,20,281 91,250Sales Promotion 28,254 21,005Cess Duty 82,841 79,488Royalty 8,41,800 5,51,000Miscellaneous 2,72,898 8,69,893

1,07,47,139 3,18,00,211

SCHEDULE 15 – (INCREASE)/DECREASE IN WORK-IN-PROCESS AND FINISHED GOODS

Opening Stock :Work-in-process 48,57,755 69,09,737Finished Goods 2,30,12,412 1,76,05,397

2,78,70,167 2,45,15,134Less : Closing Stock:Work-in-process 56,32,149 48,57,755Finished Goods 1,95,97,625 2,30,12,412

26,40,393 (33,55,033)


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Vardhman

SCHEDULE 16 – NOTES ON ACCOUNT

1. Significant Accounting Policies :

(a) Accounting Convention :The accounts are prepared on accrual basis under the historical cost convention in accordance with the accounting standards referred toin section 211(3C) of the Companies Act, 1956 and other relevant provisions of the said Act.

(b) Revenue Recognition(i) Sales :

Revenue from sale of goods is recognised :• when all the significant risks and rewards of ownership are transferred to the buyer and the Company retains no effective control

of the goods transferred to a degree usually associated with ownership and• no significant uncertainity exists regarding the amount of the consideration that will be derived from the sale of goods.

(ii) Interest:Interest is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(iii) Dividend:Dividend is recognised as income when the right to receive the payment is established.

(iv) Other Claims:The revenue in respect of claims is recognised when no significant uncertainity exists with regard to the amount to be realised andultimate collection thereof.

(v) Benefit under Duty Entitlement Pass Book / Duty Draw Back Scheme:The revenue in respect of above benefit is recognised on post export basis

(c) Retirement Benefits :(i) Gratuity :

Provision for gratuity liability to employees is made on the basis of actuarial valuation as at 31st March.2007.(ii) Provident Fund :

Contribution to provident fund is made in accordance with the provisions of the Employees’ Provident Fund and MiscellaneousProvisions Act,1952 and is charged to profit and loss account.

(iii) Leave with Wages :Provision for leave with wages is made on the basis of actuarial valuation as at 31st March, 2007.

(iv) Superannuation :The liability in respect of eligible employees covered under the scheme is provided as per the Company’s policy on accrual basis.

(d) Fixed Assets :The fixed assets are stated at historical cost less depreciation.

(e) Depreciation :(i) Depreciation is provided on straight line method in accordance with and in the manner specified in schedule XIV to the Companies

Act,1956 ,except in case of computers on which depreciation has been provided @ 25 % on straight line basis.(ii) Depreciation on assets costing Rs.5000/- or below is charged @100% per annum on proportionate basis.

(f) Inventories :Inventories are valued at cost or net realisable value, whichever is lower. The cost in respect of the various items of inventory is computedas under:(i) In case of raw material at weighted average cost plus direct expenses.(ii) In case of stores and spares at weighted average cost plus direct expenses.(iii) In case of work-in-process at raw material cost plus conversion cost depending upon the stage of completion.(iv) In case of finished goods at raw material cost plus conversion costs, packing cost and other overheads incurred to bring the inventories

to their present condition and location.

(g) Investments :Long term investments are carried at cost less provision,if any ,for dimunition in value which is other than temporary and current investmentsare carried at lower of cost and fair value.

(h ) Foreign currency conversion :i) Foreign currency transactions are recorded on initial recognition at the rate prevailing on the date of the transaction. Where export bills

are negotiated with the bank, the export sales are recorded at the rate on the date of negotiation as the said rate approximates the actualrate at the date of the transaction.

(ii) Foreign currency monetary items are reported using the closing rate. Exchange differences arising on the settlement of monetary itemsor on reporting the same at the closing rate as at the balance sheet date are recognised as income or expense in the period in which theyarise except in case of liabilities incurred for the purpose of acquiring the fixed assets from outside India in which case such exchangedifferences are adjusted in the carrying amount of fixed assets.

(i) Subsidy :Government subsidy in the nature of promoter’s contribution is credited to capital reserve. The government subsidy received for specificasset is reduced from the cost of the asset.

(j) Borrowing Costs :Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of thecost of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.

99


(k) Accounting for Taxes on Income and Fringe Benefit Tax :i) The Accounting treatment followed for taxes on income is to provide for Current Tax and Deferred Tax. Current Tax is the amount of

income tax determined to be payable in respect of taxable income for a period. Deferred tax is the tax effect of timing differencesbetween taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequentperiods.

(ii) Fringe Benefit Tax is provided on the aggregate amount of fringe benefits determined in accordance with the provisions of the relevantenactments at the specified rate of tax.

(l) Expenditure incurred during construction period :In respect of new/major Expansion ,the indirect expenditure incurred during construction period upto the date of the commencement ofcommercial production is capitalized on various categories of fixed assets on proportionate basis.

(m) Impairment of Assets :At each balance sheet date an assessment is made whether any indication exists that an asset has been impaired. If any such indicationexists, an impairment loss i.e. the amount by which the carrying amount of an asset exceeds its recoverable amount is provided in thebooks of account.

(n) Provisions and Contingent Liabilities :(i) Provisions are recognised for liabilities that can be measured by using a substantial degree of estimation, if :

(a) the company has a present obligation as a result of a past event ;(b) a probable outflow of resources embodying economic benefits is expected to settle the obligation; and(c) the amount of the obligation can be reliably estimated

(ii) Contingent liability is disclosed in the case of :(a) a present obligation arising from a past event when it is not probable that an outflow of resources will be required to settle

the obligation(b) a possible obligation, unless the probability of outflow of resources is remote

(iii) Re-imbursement expected in respect of expenditure required to settle a provision is recognised only when it is virtually certainthat the re-imbursement will be received

2. There are Contingent Liability in respect of: As at As at

31.03.2007 31.03.2006(Rs.) (Rs.)

Bank Guarantees and Letters of credit outstanding 35,96,000 65,60,300

Estimated amount of Contracts remaining 6,72,000 42,92,300to be executed on capital Account.(Net of Advances )

3. The Company does not owe any amount to any small scale industrial undertaking as at the close of the year.

4. The Company has requested its suppliers to intimate whether they are registered under ‘ The Micro, Small and Medium Enterprises DevelopmentAct, 2006 ‘. Pending receipt of intimation from suppliers, the amount due to the suppliers under the said Act, could not be determined.

5. The Company has executed bonds for aggregate amount of Rs.17,59,250/- (Previous year Rs. 64,15,574/-) in favour of the President of Indiaunder Section59(2) and 67 of the Customs Act, 1962 and Central Excise and Salt Act, 1944 for fulfillment of obligation under the said Acts.

6. The Company has contested the additional demand in respect of sales tax amounting to Rs.2,22,981/- (Previous Year Rs.2,22,981/-) pending appealwith Appellate Authorities. As against this a sum of Rs.1,15,309/- (Previous Year Rs.1,15,309/-) has been deposited under protest and standsincluded under the head ‘Advances and other recoverable in cash or in kind ‘. The Company has filed an appeal with the appellate authorities andis advised that the demand raised is not in accordance with law . No provision , therefore , has been made in accounts in respect thereof.

7. The Company has contested the additional demand in respect of Income tax amounting to Rs. 21,61,321/- (Previous Year Rs.77,18,155/- )pending appeal with appellate authorities. No provision has been made in the books of account as company is hopeful to get desired relief inappeal.

8. The Company is not availing cenvat credit on excise duty paid on purchase of capital goods and the other inputs and the same is recognised asan expense or added to the cost of the fixed asset as the case may be.

9. Computation of Net Profit for Section 198 read with Section 349 of the Companies Act, 1956, for the purpose of commission payable to thewhole time director.

As at 31.03.2007 As at 31.03.2006(Rs.) (Rs.)

Profit before tax 7,43,43,367 6,05,09,844Add: Managerial Remuneration 50,000 50,000Depreciation for the year as per books of accounts 1,06,15,968 90,03,803

8,50,09,335 6,95,63,647Less : Depreciation allowable 1,05,25,124 88,69,846

Profit for computation of Managerial 7,44,84,211 6,06,93,801RemunerationCommission payable to Whole time Directorrestricted to 1% of net profits,further restricted to Rs 50000/-p.a. 50,000 50,000


100

Vardhman

10. Segment Reporting :

The Company is a single segment Company manufacturing Industrial Sewing Thread. Accordingly, the disclosure requirements as prescribed inthe Accounting Standard (AS) –17 on Segment Reporting issued by the Institute of Chartered Accountants of India are not applicable.

11. Related Parties Disclosure :

A. Details of transactions entered into with related parties during the year as required by Accounting Standard (AS) – 18 on “Related Party Disclosures”issued by the Institute of Chartered Accountants of India are as under :

(Rs.)Particulars Holding Company Fellow Subsidiary Key Management TOTAL

Personnel (KMP)Current Previous Current Previous Current Previous Current Previous

Year Year Year Year Year Year Year YearPurchase/processing of goods 3,21,39,510 1,93,08,552 3,21,39,510 1,93,08,552Purchase of DEPB licences 2,55,174 1,98,273 2,55,174 1,98,273Sale/processing of goods 6,41,13,620 4,81,80,180 6,41,13,620 4,81,80,180Sale of DEPB licences - 2,24,462 - 2,24,462Rent Paid 27,41,304 27,41,304 27,41,304 27,41,304Interest paid 14,159 - - 14,159Interest received 10,87,068 13,34,140 - 4,07,363 10,87,068 17,41,503Managerial remuneration 50,000 50,000 50,000 50,000LoanGiven (Including Opening Balance) - 20,89,50,000 - 21,30,00,000 - 421,950,000Loan Repayment - 20,89,50,000 - 21,30,00,000 - 421,950,000Closing Balance of Loan - -Loan Taken (Including Opening Balance) - 2,75,00,000 - 1,10,00,000 - 3,85,00,000Loan Repayment - 2,75,00,000 - 1,10,00,000 - 3,85,00,000Closing Balance of Loan - - - -

Notes:1. (a) Holding Company : Vardhman Textiles Limited (formerly

Mahavir Spinning Mills Limited)(b) Fellow Subsidiary Company : VMT Spinning Company Limited

2. Key Management Personnel : Mr. R.K. Rewari

12. Earnings Per Share :

The Calculation of Earnings Per Share (EPS) as disclosed in the profit & loss account has been made in accordance with the requirements ofAccounting Standard (AS)-20 on Earnings Per Share issued by the Institute of Chartered Accountants of India.

13. Deferred tax liability as on 31st March, 2007 is as follows:Current Year Previous Year

(Rs.) (Rs.)

Timing Difference on account of depriciation 50,17,590 32,86,899Less Deferred Tax Asset arising on account of timing differenceDue to Provision for gratuity & superannuation 3,68,324 —

Total 46,49,266 32,86,899

14. Any change in the amount of deferred tax liability on account of change in the enacted tax rates and change in the quantum of depriciationallowable under the Tax laws , is disclosed in the Statement of Profit and Loss Account as Deferred tax adjustment.

15. The Company has assessed as on the date of applicability of Accounting Standard (AS 28) on Impairment of Assets as well as on the date ofbalance sheet date, whether there are any indications(listed in paragraph 8 to 10 thereof)with regard to the impairment of any of the assets.Basedon such assessment it has been ascertained that no potential loss is present and therefore formal estimate of recoverable amount has not beenmade. Accordingly no impairment loss has been provided in the books of account.

16. In accordance with the provisions of Section 42 of the Companies Act, 1956 the Company does not have any voting right in respect ofinvestment in shares of the Holding Company i.e. Vardhman Textiles Limited (formerly Mahavir Spinning Mills Limited).

17. The Company has provided depreciation on Computers @ 25% on Straight Line Basis.

18. The interest on working capital is net of interest received from customers and others amounting to Rs. 4,29,864/- (Previous Year Rs.5,04,366/-).

19. The detail of prior period items is as under: Current Year Previous Year(Rs.) (Rs.)

Expenses 3,57,565 8,00,274Income 3,65,922 1,56,499

(8,357) 6,43,775

20. Previous year’s figures have been recast/regrouped ,wherever necessary,to make these comparable with current year’s figures.


22. Information pursuant to the provisions of the paragraph 3 & 4 of Part II of Schedule VI to the Companies Act, 1956:-

101


(A) Licensed and Installed Capacity

Particulars Unit Licensed Capacity Installed Capacity31.03.2007 31.03.2006 31.03.2007 31.03.2006

Sewing Thread Kgs NA NA 6,89,700 4,62,000

Note: Installed capacity has been certified by the Management and not verified by the auditors, being a technical matter.

(B) Actual Production *Sewing Thread Kgs 5,45,488 4,89,463* Includes goods processed by/for others on job basis.

(C) Purchase of finished goods

Particulars Unit Current Year Previous YearQty Value Qty Value

(Rs.) (Rs.)Sewing Thread Kgs — — 525 3,46,354

(D) Opening Stock of Finished GoodsSewing Thread Kgs 81,883 2,30,12,412 45,633 1,76,05,397

(E) Closing Stock of Finished GoodsSewing Thread Kgs 62,763 1,95,97,625 81,883 2,30,12,412

(F) TurnoverSewing Thread Kgs 2,57,420 16,52,28,377 2,07,848 16,91,20,960Raw Material Kgs 14,397 27,84,591 1,955 2,43,524Waste 2,61,804 1,49,240Miscellaneous 13,22,245 6,80,258Processing charges 5,32,99,902 4,35,73,329

Total 22,28,96,919 21,37,67,311

(G) Raw Material ConsumedYarn Kgs 2,33,407 5,78,42,319 2,17,215 4,68,03,041Cotton Kgs 1,157 1,57,013 660 60,403

Total 5,79,99,332 4,68,63,444

(H) CIF Value of Imports

Raw Material 1,62,44,367 1,77,69,516Components ,Stores and Spares 13,89,719 13,35,254Capital Goods 44,74,304 39,49,666

Total 2,21,08,390 2,30,54,436

(I) Expenditure in Foreign CurrencyCommission 4,34,057 4,65,207Travelling 20,242 —

Total 4,54,299 4,65,207

(J) FOB Value of Exports 2,07,10,776 1,89,61,498

(K) Value of Raw Material, Components and Spare Parts Consumed

Current Year % Previous Year %Value (Rs.) Value (Rs.)

1 Raw Materials:Imported 1,65,68,407 28.57 1,76,16,348 37.59Indigenous 4,14,30,925 71.43 2,92,47,096 62.41

TOTAL 5,79,99,332 100.00 4,68,63,444 100.00

2 Components & Spare Parts :Imported 32,13,585 12.39 16,25,642 05.75Indigenous 2,27,20,352 87.61 2,66,63,275 94.25

Total 2,59,33,937 100.00 2,82,88,917 100.00


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Vardhman

23. Information required by part IV of Schedule-VI attached to the Companies Act, 1956:

Balance Sheet Abstract and Company’s General Business Profile

I. Registration DetailsRegistration No. State Code


II. Capital Raised during the Year (Amount in Rs. Thousand)Public Issue Rights Issue


III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousand)Total Assets Total Liabilities

Sources of FundsPaid-up Capital Reserves & Surplus*


Application of FundsNet Fixed Assets Investments

Net Current Assets Miscellaneous Expenditure

Accumulated Losses

IV. Performance of the Company (Amount in Rs. Thousand)Turnover (including other Income) Total Expenditure



V. Generic Names of Three Principal Products / Services of the Company (As per Monetary Terms)Item Code No. (ITC Code)

Product Description


Product Description


Product Description

1 4 2 5 6

3 1 0 3 2 0 0 7

N I L

N I L

4 9 5 1 0 2

8 0 0 0 0

7 2 3 6 7

1 0 3 0 2 1

6 5 5 0 4+7 4 3 4 3

8 . 1 9

+

N I L

N I L

3 3 8 6 4 8

2 4 7 8 4 1 + –

1 6

N I L

N I L

4 9 5 1 0 2

3 4 2 7 3 5

N I L

5 3 4 3 3

N I L

1 7 3 4 9 8 + –

As per our report of even date attachedFor S.C. Vasudeva & Co.Chartered AccountantsSANJIV MOHAN MUKESH BANSAL SURESH GADODIA D.L. SHARMA R.K. REWARIPartner Company Secretary Vice-President Director Director-in-chargeM. No. 86066 (Operations)PLACE : LUDHIANADATED : 28th May, 2007

5 4 . 0 2 6 2

N Y L O N F I L A M E N T Y A R N

5 4 . 0 2 6 1

S E W I N G T H R E A D O F M A N M A D E

S Y N T H E T I C F I L A M E N T

5 4 . 0 1 1 0

P O L Y E S T E R F I L A M E N T Y A R N

* Including Deferred Tax Liability amounting to Rs. 4649 thousand.

103

Vardhman Yarns & Threads Limited Vardhman

Dear Members,

The Directors of your Company have pleasure in presenting theirThird Annual Report together with the Audited Accounts ofthe Company for the year ended 31st March, 2007.

1. FINANCIAL RESULTS :

During the year, your Company has earned interest ofRs. 17,877 (Previous Year, Nil) and has incurred anexpenditure of Rs. 3,563/- (Previous Year Rs. 8,743/-) onaccount of Development.

2. DIRECTORS :

Mr. Sachit Jain, Director of your Company, retires by rotationat the forthcoming Annual General Meeting and beingeligible, offers himself for re-appointment.

3. AUDITORS :

M/s. S.C. Vasudeva & Company, Chartered Accountants,New Delhi, retire at the conclusion of the forthcomingAnnual General Meeting of the Company and being eligible,offer themselves for re-appointment.

4. AUDITORS’ REPORT :

The Auditors’ Report on the Accounts is self-explanatoryand requires no comments.

5. DIRECTORS’ RESPONSIBILITY STATEMENT :

Pursuant to Section 217 (2AA) of the Companies Act, 1956,the Directors confirm that -

i) in the preparation of the annual accounts, theapplicable Accounting Standards have been followed;

ii) appropriate accounting policies have been selectedand applied consistently, and have made judgementsand estimates that are reasonable and prudent so asto give a true and fair view of the state of affairs of

the Company as at 31st March 2007 and of theprofit/loss of the Company for the year ended 31stMarch 2007;

iii) proper and sufficient care has been taken for themaintenance of adequate accounting records inaccordance with the provisions of the CompaniesAct, 1956 for safe guarding the assets of the Companyand for preventing and detecting fraud and otherirregularities; and

iv) the annual accounts have been prepared on a goingconcern basis.

6. PERSONNEL :

During the year under review, the Company has notemployed any person who received a remuneration of morethan Rs. 2,00,000/- per month or Rs. 24,00,000/- per annum.Hence, the Statement of Particulars of Employees pursuantto the provisions of Section 217(2A) of the Companies Act,1956, is not applicable.

7. ENERGY CONSERVATION, TECHNOLOGYABSORPTION AND FOREIGN EXCHANGE EARNINGS& OUTGO :

As the Company has yet to start any activity, the informationrequired under Section 217(1) (e) of the Companies Act,1956, read with Companies (Disclosure of Particulars inthe Report of the Board of Directors) Rules, 1988 with respectto these matter is not applicable to the Company.


PLACE: LUDHIANA (S.P. OSWAL)DATED: 28th May, 2007 CHAIRMAN

DIRECTORS’ REPORT

Vardhman Yarns & Threads Limited

104

Vardhman

AUDITORS’ REPORT

ToThe Members,Vardhman Yarns & Threads Limited1. We have audited the attached balance sheet of Vardhman

Yarns & Threads Limited as at 31st March, 2007 and theprofit and loss account for the year ended on that dateannexed thereto. These financial statements are theresponsibility of the company’s management. Ourresponsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with auditingstandards generally accepted in India. Those standards requirethat we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on testbasis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing theaccounting principles used and significant estimates madeby management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditors’ Report) Order,2003 issued by the Central Government of India in terms ofsub-section (4A) of Section 227 of the Companies Act, 1956,we enclosed in the annexure a statement on the mattersspecified in paragraph 4 of the said order.

4. Further to our comments in the annexure referred to inparagraph 3 above, we report that:

a) we have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purpose of our audit;

b) in our opinion, proper books of account as required bylaw have been kept by the company so far as appearsfrom our examination of those books;

c) the balance sheet and profit and loss account dealt withby this report are in agreement with the books ofaccount;

d) in our opinion, the balance sheet and profit and lossaccount dealt with by this report comply with theaccounting standards referred to in sub-section (3C) ofSection 211 of the Companies Act, 1956;

e) on the basis of the written representations received fromthe directors as on 31st March,2007 and taken on recordby the Board of Directors, we report that none of thedirector is disqualified as on 31st March, 2007 frombeing appointed as a director in terms of clause(g) ofsub-section (1) of Section 274 of the CompaniesAct,1956;

f) in our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts read together with the significant accountingpolicies and other notes thereon give the informationrequired by the Companies Act, 1956, in the mannerso required and give a true and fair view in conformitywith the accounting principles generally accepted inIndia:

i) in the case of balance sheet, of the state of affairs ofthe company as at 31st March, 2007; and

ii) in the case of profit and loss account, of the profitfor the year ended on that date.

For S.C. VASUDEVA & Co.CHARTERED ACCOUNTANTS

SANJIV MOHANPLACE : LUDHIANA PARTNERDATED : 28th May, 2007 Membership No. 86066


(i) The company has not purchased fixed assets during theyear, therefore, the provisions of clause 4(i) of the orderare not applicable.

(ii) There is no inventory during and at the close of the year,therefore, the provision of clause 4(ii) of the order are notapplicable to the company.

(iii) (a) The company has during the year granted unsecuredloan to one company covered in the registermaintained under section 301 of the Companies Act,1956. The aggregate amount involved in thetransaction is Rs 3 lacs. No amount is outstanding asat the close of the year.

(b) According to the information and explanations givento us, the rate of interest and other terms andconditions in respect of unsecured loans given by thecompany, are not prima-facie prejudicial to theinterest of the company.

(c) In our opinion and according to the information andexplanations given to us, the receipt of principalamount and interest in respect of the aforesaid loansis regular.

105


(e) The company has not taken any loan secured orunsecured from any companies, firms or other partiescovered in the register maintained under section 301of the Companies Act, 1956. Therefore the provisionof clause 4(iii) (f) and (g) of the order are not applicableto the company.

(iv) The provisions of clause 4(iv) of the order are not applicableto the company.

(v) In our opinion and according to the information andexplanations given to us, we are of the opinion that thereare no contracts or arrangements the particulars of whichneed to be entered in the register maintained under thatsection 301 of the Companies Act, 1956.

(vi) According to the information and explanations given tous the company has not accepted deposits covered underthe provisions of section 58A and 58AA or any otherrelevant provisions of the Companies Act, 1956 and theCompanies ( Acceptance of Deposits) Rules 1975.

(vii) The provisions of clause 4(vii) of the order are notapplicable to the company.

(viii) The provisions of clause 4(viii) of the order are notapplicable to the company.

(ix) The provisions of clause 4(ix) of the order are not applicableto the company.

(x) The provisions of clause 4(x) of the order are not applicableto the company.

(xi) In our opinion and according to the information andexplanations given to us, the company has not borrowedfrom banks, financial Institutions or debentureholders.Therefore, the provisions of clause 4(xi) of the order arenot applicable to the company.

(xii) According to the information and explanations given tous, the company has not granted any loans and advanceson the basis of security by way of pledge of shares,debentures and other securities. Therefore, the provisionsof clause 4(xii) of the order are not applicable to thecompany.

(xiii) The company is not a chit fund or a nidhi mutual benefitfund/society. Accordingly, the provisions of clause 4 (xiii)of the order are not applicable to the company.

(xiv) According to the information and explanations given tous, the company has not dealt or traded in share, securities,debentures and other investments. Therefore, theprovisions of clause 4(xiv) of the order are not applicableto the company.

(xv) According to the information and explanations given tous, the company has not given any guarantees for loanstaken by others. Therefore, the provisions of clause 4(xv)of the order are not applicable to the company.

(xvi) In our opinion and according to the information andexplanations given to us, the company has not taken termloans during the year.

.(xvii) According to the information and explanations given to

us, and on an overall examination of the balance sheet,the company has not raised any short-term funds duringthe year. Therefore, the provisions of clause 4(xvii) of theorder are not applicable to the company.

(xviii) According to the information and explanations given tous, the company has not made any preferential allotmentof shares during the year to parties and companies coveredin the register maintained under section 301 of theCompanies Act, 1956.

(xix) According to the information and explanations given tous, the company has not issued debentures during the year.Accordingly the provisions of clause 4 (xix) of the orderare not applicable to the company.

(xx) According to the information and explanations given tous, the company has not raised any money by way of publicissue during the year. Accordingly the provisions of clause4 (xx) of the order are not applicable to the company.

(xxi) According to the information and explanations given tous, no fraud on or by the company has been noticed orreported during the year.

For S.C. VASUDEVA & Co.CHARTERED ACCOUNTANTS

SANJIV MOHANPLACE : LUDHIANA PARTNERDATED : 28th May, 2007 Membership No. 86066


106

Vardhman



(Rs.) (Rs.)

I. SOURCES OF FUNDSShareholders' FundsShare Capital 1 5,10,000 5,00,000

TOTAL 5,10,000 5,00,000

II. APPLICATION OF FUNDSCurrent Assets, Loans & Advances 2 3,54,211 3,29,597

(A) 3,54,211 3,29,597

Less: Current Liabilities & Provisions 3

(a) Liabilities 1,422 1,122

(b) Provisions 5,000 —

(B) 6,422 1,122

Net Current Assets (A-B) 3,47,789 3,28,475

Profit and Loss Account 1,62,211 1,71,525

TOTAL 5,10,000 5,00,000

NOTES ON ACCOUNTS 4

The Schedules referred to above form an integral part of the Balance Sheet


SANJIV MOHAN D.L. SHARMA SACHIT JAINPartner Director DirectorMembership No. 86066


107




INCOMEInterest Received (Gross) [TDS Rs. 4,013] 17,877 –

TOTAL 17,877 –

EXPENDITUREAudit Fees 1,122 1,122Printing & Stationery — 5,349Filing Fee 2,000 1,500Bank Charges — 622Miscellaneous Expenses 441 150

TOTAL 3,563 8,743

Profit / (Loss) before Tax 14,314 (8,743)Less: Provision for

- Current Tax 5,000 —- Deferred Tax — —- Fringe Benefit Tax — —

Profit / (Loss) After Tax 9,314 (8,743)Add:Profit / (Loss) brought forward (1,71,525) (1,62,782)

Balance carried to the Balance Sheet (1,62,211) (1,71,525)

Earning per share of Rs. 10/- each (Rs.)(Refer Note No 4 of Notes on Accounts)

- Basic & Diluted 0.19 (0.17)

NOTES ON ACCOUNTS 4The Schedules referred to above form an integral part of the Profit and Loss Account





108

Vardhman

As at As at31.03.2007 31.03.2006

(Rs.) (Rs.)SCHEDULE 1 – SHARE CAPITALAuthorised:10,00,000 (Previous year 10,00,000) Equity shares of Rs. 10/- each 1,00,00,000 1,00,00,000

1,00,00,000 1,00,00,000Issued, Subscribed & Paid-up51,000 (Previous year 50,000) Equity Shares of Rs. 10/- each 5,10,000 5,00,000

Total 5,10,000 5,00,000

NOTE: Out of the above, 50,000 (Previous Year 50,000) Equity Shares are held by Vardhman TextilesLimited (Formerly known as Mahavir Spinning Mills Limited), the Holding Company.

SCHEDULE 2 – CURRENT ASSETS, LOANS AND ADVANCES

Current AssetsCash and Bank Balances :

Balances with Scheduled Bank in Current Account 3,36,334 3,29,597

Loans and Advances (Unsecured considered goodunless otherwise stated)

Advances recoverable in cash or in kind or for value to be received 17,877 —3,54,211 3,29,597

SCHEDULE 3 – CURRENT LIABILITIES AND PROVISIONS

A. Current Liabilities :Other Liabilities 1,422 1,122

Total (A) 1,422 1,122

B. PROVISIONS :Provision for Taxation (Current Tax) 5,000 —

Total (B) 5,000 —

Total (A+B) 6,422 1,122

Schedules 1 to 4 Annexed to and forming part of the Balance Sheet as at 31st March, 2007and Profit and Loss Account for the year ended 31st March, 2007

SCHEDULE 4 - NOTES ON ACCOUNTS

1. Significant Accounting Policies :(a) Accounting Convention :

The accounts are prepared on accrual basis under the historical cost convention in accordance with the applicable accounting standardsreferred to in section 211(3C) and other relevant provisions of the Companies Act, 1956.

(b) Revenue Recognition :Interest IncomeInterest Income is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(c) Accounting for Taxes on Income :The accounting treatment followed for taxes on income is to provide for Current Tax, Deferred Tax and Fringe Benefit Tax. Current Tax is theamount of income-tax determined to be payable in respect of taxable income for a period. Deferred tax is the tax effect of timing differences.Fringe Benefit Tax has been determined in accordance with the provision of Income tax Act. 1961.

2. Deferred tax asset in respect of brought forward business loss has not been created as there is no virtual certainty that there will be sufficientprofits against which such asset will be realised.

3. The Company did not have any employee till 31st March 2007.4. Earning Per Share

The calculation of Earning Per Share (EPS) as disclosed in the Profit & Loss Account has been made in accordance with Accounting Standard(AS)-20 on ‘Earning Per Share’ issued by the Institute of Chartered Accountants of India.

5. The company has not started its Commercial activities, accordingly the information pursuant to the paragraphs 3, 4C, 4D of Part II of ScheduleVI to the Companies Act, 1956 are not applicable.

109


6. Related Party Disclosure(A) Details of transactions entered into with related parties during the year ended on 31.03.2007 as required by Accounting Standard (AS)-18 on

‘Related Party Disclosures’ issued by the Institute of Chartered Accountants of India are as under:(Amount in Rs.)

Particulars Holding Company Fellow Subsidiary Key Management Enterprises over TotalCompany Personnel (KMP) which KMP is

able to exercisesignificant influence

Current Pevious Current Pevious Current Pevious Current Pevious Current PeviousYear Year Year Year Year Year Year Year Year Year

Interest received on Inter Corporate Deposits — — — — — — 17,877 — 17,877 —Loans given (including opening balance) — — — — — — 3,00,000 — 3,00,000 —Loans repaid — — — — — — 3,00,000 — 3,00,000 —Closing Balance — — — — — — — — — —

(B) Disclosure of related parties with whom Business transactions took place during the year.1. (a) Holding Company Vardhman Textiles Limited (Formerly known as Mahavir Spinning Mills Limited )

(b) Fellow Subsidiary Companies VMT Spinning Company LimitedVardhman Threads Limited

2. Key Menagement Personnel Mr. Shri Paul Oswal3. Enterprises over which Key Management Personnel and

relative of such personnel is able to exercise significantinfluence Vardhman Acrylics Limited

(C) Disclosure of Related Parties with whom no businesstransactions took place during the year.Enterprises over which Key Management Personnel and relativesof such personnel are able to exercise significant influence Adinath Investment and Trading Company

Anklesh Investments Private LimitedBanarso Devi Oswal Public Charitable TrustDevakar Investment and Trading Company Private LimitedFlamingo Finance and Investment Company LimitedMarshall Investment and Trading Company Private LimitedPlaza Trading Company Private LimitedPradeep Mercentile Company Private LimitedRamaniya Finance and Investment Company LimitedSanton Finance and Investment Company LimitedSrestha Holdings LimitedSri Aurobindo Socio Economic and Management Research InstituteSyracuse Investment and Trading Company Private LimitedVardhman Apparels LimitedVardhman Textile Processors Private LimitedVardhman Linen Limited


110

Vardhman

7. Information Pursuant to Part IV of Schedule-VI to the Companies Act, 1956 :

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. REGISTRATION DETAILSRegistration No. State Code


II. CAPITAL RAISED DURING THE YEAR (Amount in Rs. Thousand)Public Issue Rights Issue


III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs. Thousand)Total Liabilities Total Assets

SOURCES OF FUNDSPaid-up Capital Reserves and Surplus




Accumulated Losses (including deferred tax asset)

IV. PERFORMANCE OF COMPANY (Amount in Rs. Thousand)Turnover (including other income) Total Expenditure



V. GENERIC NAMES OF THREE PRINCIPAL PRODUCTS / SERVICES OF THE COMPANY (As per Monetary Terms)The company has not started commercial production as yet.

Item Code No. (ITC Code) : NOT APPLICABLE

Product Description : NOT APPLICABLE

1 62 7 9 3 6

3 1 0 3 2 0 0 7

1 0

N I L

N I L

N I L

5 1 05 1 0

5 1 0

N I L

N I L

N I L N I L

91 4

0 . 1 9 N I L

1 6 2

3 4 8 N I L

1 8 4

N I L




+ +

+ – + –

B A S I C

111

Mahavir Spinning Mills Ltd. Vardhman

VARDHMAN TEXTILES LIMITED(Formerly known as Mahavir Spinning Mills Limited)

REGD. OFFICE: CHANDIGARH ROAD, LUDHIANA - 141 010

PROXY FORM

I/We............................................................................................................................................................................................................................

of....................................................................................................................................................................................................................

in the District .............................................................................................................................................................being a Member/Members

of Vardhman Textiles Limited hereby appoint..................................................................................................................................................

of................................................................................................................................................................................................................in the

District of.......................................................................................................................................................................................failing him/her

..................................................................................... .....................of................................................................................................................

......................................................................................................in the District of...............................................................................................

as my/our proxy to vote for me/us on my/our behalf at the 34th Annual General Meeting of the Company to be held at Registered Office of the

Company situated at Chandigarh Road, Ludhiana, at 3.30 P.M., on Saturday, the 18th day of August, 2007 and at any adjournment thereof.

Signed this...........................................................................................day of........................................................................................2007.

Signature....................................................................................................................................

Address......................................................................................................................................

Folio No./ Client-Id ......................................................................................................................

NOTES :1. A Member entitled to attend and vote is entitled to appoint a proxy to attend and vote on poll instead of himself/herself.2. The Proxy form duly signed across Revenue Stamp should reach the Company’s Registered Office at least 48 hours before the time of

meeting.



ATTENDANCE SLIPI hereby record my presence at the 34th Annual General Meeting of the above named Company being held at Registered Office of the Companysituated at Chandigarh Road, Ludhiana, at 3.30 P.M., on Saturday, the 18th day of August, 2007.

...................................................................................... ....................................................................................

Full Name of the Member Signature

(IN BLOCK LETTERS)

Folio No./ Client-Id ....................................................... No. of Shares held......................................................

...................................................................................... ..................................................................................Full Name of the Proxy Signature(IN BLOCK LETTERS)

NOTE: Members attending the meeting in person or by proxy are requested to complete the attendance slip and hand it over at theentrance of the meeting hall.

AffixRevenue

Stamp here

---------------------- -------------------------------------------------------- (TEAR HERE) ----------------------------------------------------------------------------------



SUGGESTIONS

In case you have any suggestion for the betterment of your Company, please do write to us.

Suggestion.............................................................................................................................................................................................................

...........................................................................................................................................................................................................................

................................................................................................................................................................................................................................

Name...............................................................................................Folio No./ Client-Id ..........................................................................................

Address................................................................................................................................................................................................................

..............................................................................................................................................................Pin Code---------------------- -------------------------------------------------------- (TEAR HERE) ----------------------------------------------------------------------------------

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Vardhman

Vardhman

Vardhman

Annual Report Txtiles06 07

Documents

equal yearly instalments

depb licences sale processing

selling agents rebate

straight line method

exercise significant influence

mahavir spinning mills

alankit assignments limited

chemical consumed repairs