Oswal Chemicals DrHP Mar 23

DRAFT RED HERRING PROSPECTUS Please read Section 60B of the Companies Act, 1956 Dated December 27, 2006 100% Book Built Issue (the Draft Red Herring Prospectus will be updated at the time of filing the Prospectus)

OSWAL WOOLLEN MILLS LIMITED(Incorporated on June 23, 1949 under the Indian Companies Act, 1913. For details relating to change in registered office of our Company, see the section titled History and Certain Corporate Matters, beginning on page [] of this Draft Red Herring Prospectus. Registered and Corporate Office: G.T. Road, Sherpur, Ludhiana 141 003, India. Tel: +91 161 2542 501-07 Fax: +91 161 2542 509. Contact Person: Mr. Nitin Sharma, Company Secretary. Tel: +91 161 2542 501-07. E-mail: [email protected]; Website: www.owmnahar.com.

PUBLIC ISSUE OF UP TO 8,320,000 EQUITY SHARES OF RS. 10 EACH ("EQUITY SHARES") FOR CASH AT A PRICE OF RS. [] PER EQUITY SHARE AGGREGATING RS. [] MILLION (THE "ISSUE"), BY OSWAL WOOLLEN MILLS LIMITED, ("THE COMPANY" OR "THE ISSUER"). THE ISSUE COMPRISES A NET ISSUE TO THE PUBLIC OF UP TO 8,305,000 EQUITY SHARES ("THE NET ISSUE") AND A RESERVATION OF UP TO 15,000 EQUITY SHARES FOR SUBSCRIPTION BY EMPLOYEES (AS DEFINED HEREIN) (THE "EMPLOYEE RESERVATION PORTION"), AT THE ISSUE PRICE. THE NET ISSUE WILL CONSTITUTE 25% OF THE FULLY DILUTED POST-ISSUE CAPITAL OF THE COMPANY. PRICE BAND: RS. [] TO RS. [] PER EQUITY SHARE OF FACE VALUE RS. 10 THE FACE VALUE OF EQUITY SHARES IS RS. 10 AND THE FLOOR PRICE IS [] TIMES OF THE FACE VALUE AND THE CAP PRICE IS [] TIMES OF THE FACE VALUEIn case of revision in the Price Band, the Bidding/Issue Period will be extended for three additional working days after revision of the Price Band subject to the Bidding/Issue Period not exceeding 10 working days. Any revision in the Price Band and the revised Bidding/Issue Period, if applicable, will be widely disseminated by notification to Bombay Stock Exchange Limited ("BSE") and National Stock Exchange of India Limited ("NSE"), by issuing a press release, and also by indicating the change on the website of the Book Running Lead Managers and at the terminals of the Syndicate. The Issue is being made through the 100% Book Building Process wherein not more than 50% of the Net Issue to the public shall be allocated on a proportionate basis to Qualified Institutional Buyers of which 5% shall be available for allocation to Mutual Funds only and the remaining QIB Portion shall be available for allocation to the QIB Bidders including Mutual Funds. Further, not less the 15% of the Net Issue to the public shall be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 35 % of the Net Issue to the public shall be available for allocation on a proportionate basis to Retail Individual Bidders, subject to valid Bids being received at or above the Issue Price. Up to 15,000 Equity Shares shall be available for allocation on a proportionate basis to the Employees, subject to valid Bids being received at or above the Issue Price and the maximum Bid in this portion is limited to Rs. [] million. RISK IN RELATION TO FIRST ISSUE This being the first public issue of the Equity Shares of the Company, there has been no formal market for the Equity Shares of the Company. The face value of the Equity Shares is Rs. 10 and the Issue Price is [] times of the face value. The Issue Price (as determined by the Company in consultation with the Book Running Lead Managers, on the basis of assessment of market demand for the Equity Shares offered by way of Book Building) should not be taken to be indicative of the market price of the Equity Shares after the Equity Shares are listed. No assurance can be given regarding an active and/or sustained trading in the Equity Shares or regarding the price at which the Equity Shares will be traded after listing. The Company has not opted for the grading of this Issue by a SEBI registered credit rating agency. GENERAL RISKS Investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely on their own examination of the Company and the Issue including the risks involved. The Equity Shares offered in the Issue have not been recommended or approved by the Securities and Exchange Board of India (SEBI), nor does SEBI guarantee the accuracy or adequacy of this Draft Red Herring Prospectus. Specific attention of the investors is invited to the section titled Risk Factors beginning on page [] of this Draft Red Herring Prospectus. ISSUERS ABSOLUTE RESPONSIBILITY The Issuer having made all reasonable inquiries, accepts responsibility for and confirms that this Draft Red Herring Prospectus contains all information with regard to the Issuer and the Issue, which is material in the context of the Issue, that the information contained in this Draft Red Herring Prospectus is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Draft Red Herring Prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The Equity Shares offered through this Draft Red Herring Prospectus are proposed to be listed on the NSE and the BSE. We have received in-principle approval from the NSE and the BSE for the listing of our Equity Shares pursuant to letters dated [] and [] respectively. The NSE shall be the Designated Stock Exchange. BOOK RUNNING LEAD MANAGERS REGISTRAR TO THE ISSUE

UTI BANK LIMITED Central Office: 111, Maker Towers F, Cuffe Parade, Colaba, Mumbai 400 005, India Tel: + 91 22 67074407 (Extn-1312) Fax: + 91 22 22162467 Email: [email protected] Website : www.utibank.com Contact Person : Mr. Manish Jain

BID/ISSUE OPENS ON

MOTILAL OSWAL INVESTMENT INTIME SPECTRUM REGISTRY LIMITED C-13, Pannalal Silk Mills Compound ADVISORS PRIVATE LIMITED 81/82, Bajaj Bhawan, LBS Road, Bhandup (West) 8th Floor, Nariman Point, Mumbai 400 078, India. Mumbai 400 021, India. Tel: +91 22 2596 0320 Tel: +91 22 3980 4380 Fax: +91 22 2596 0329 Fax: +91 22 3980 4315 E-mail: [email protected] Email: [email protected] Website: www.intimespectrum.com Website: www.motilaloswal.com Contact Person: Mr. Salim Shaikh Contact Person: Mr. Ajai Achuthan [] BID/ISSUE CLOSES ON []

TABLE OF CONTENTSParticulars SECTION I GENERAL ............................................................................................................................. DEFINITIONS AND ABBREVIATIONS........................................................................................ PRESENTATION OF FINANCIAL AND MARKET DATA......................................................... FORWARD-LOOKING STATEMENTS......................................................................................... SECTION II RISK FACTORS .................................................................................................................. SECTION III INTRODUCTION .............................................................................................................. SUMMARY OF OUR BUSINESS .................................................................................................. SUMMARY FINANCIAL INFORMATION ................................................................................... THE ISSUE ........................................................................................................................................ GENERAL INFORMATION ............................................................................................................ CAPITAL STRUCTURE .................................................................................................................. OBJECTS OF THE ISSUE................................................................................................................ TERMS OF THE ISSUE ................................................................................................................... BASIS FOR ISSUE PRICE ............................................................................................................... STATEMENT OF TAX BENEFITS................................................................................................. SECTION IV ABOUT US .......................................................................................................................... INDUSTRY OVERVIEW ................................................................................................................. OUR BUSINESS................................................................................................................................ FINANCIAL INDEBTEDNESS ....................................................................................................... REGULATIONS AND POLICIES ................................................................................................... HISTORY AND CERTAIN CORPORATE MATTERS ................................................................. OUR MANAGEMENT ..................................................................................................................... OUR PROMOTERS AND PROMOTER GROUP........................................................................... DIVIDEND POLICY......................................................................................................................... SECTION V FINANCIAL INFORMATION .......................................................................................... FINANCIAL STATEMENTS ........................................................................................................... SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND U.S. GAAP MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................................................................................................... SECTION VI LEGAL AND OTHER INFORMATION ........................................................................ OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS...................................... GOVERNMENT AND OTHER APPROVALS............................................................................... SECTION VII OTHER REGULATORY AND STATUTORY DISCLOSURES............................... SECTION VIII ISSUE RELATED INFORMATION ............................................................................ ISSUE STRUCTURE ........................................................................................................................ ISSUE PROCEDURE........................................................................................................................ SECTION IX MAIN PROVISIONS OF ARTICLES OF ASSOCIATION OF OUR COMPANY .. SECTION X OTHER INFORMATION................................................................................................... MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ........................................ DECLARATION ............................................................................................................................... Page No. i vii viii ix 1 5 8 9 15 22 33 35 37 41 50 64 66 69 72 81 116 117 152 155 166 190 195 200 203 230 254 255

DEFINITIONS AND ABBREVIATIONS General Terms Term Description

"Oswal Woollen Mills Limited" or Oswal Woollen Mills Limited, a public limited company incorporated "OWM" or "the Company" or "our under the Indian Companies Act, 1913. Company" or "Oswal" or "we" or "us" or "our" Issue Related Terms Term Allotment Allottee Articles/Articles of Association Auditors Banker(s) to the Issue Bid Bid Amount Bid cum Application Form Description Unless the context otherwise requires, the allotment of Equity Shares pursuant to the Issue. A successful Bidder to whom the Equity Shares are offered Articles of Association of our Company. M/s Gupta Vigg & Company, Chartered Accountants. []. An indication to make an offer during the Bidding Period by a Bidder to subscribe to Equity Shares at a price within the Price Band, including all revisions and modifications thereto. The highest value of the optional Bids indicated in the Bid cum Application Form and payable by the Bidder on submission of a Bid in the Issue. The form in terms of which the Bidders shall make an indication to make an offer to subscribe to the Equity Shares and which will be considered as the application for the issue of the Equity Shares pursuant to the terms of the Red Herring Prospectus. Any prospective investor who makes a Bid pursuant to the terms of the Red Herring Prospectus and the Bid cum Application Form. The period between the Bid/ Issue Opening Date and the Bid/ Issue Closing Date inclusive of both days and during which prospective Bidders can submit their Bids, including any revisions thereof. The date after which the Syndicate shall not accept any Bids for the Issue, which shall be the date notified in an English national newspaper, a Hindi national newspaper and a Punjabi newspaper, with wide circulation. The date on which the Syndicate shall start accepting Bids for the Issue, which shall be the date notified in an English national newspaper, a Hindi national newspaper, and a Punjabi newspaper with wide circulation. The board of directors of our Company or a committee constituted thereof. Book building route as provided in Chapter XI of the SEBI Guidelines, in terms of which this Issue is being made. Book Running Lead Managers to the Issue, in this case being UTI Bank Limited and Motilal Oswal Investment Advisors Private Limited. Bombay Stock Exchange Limited earlier known as The Stock Exchange, Mumbai. Means the note or advice or intimation of allocation of Equity Shares sent to the Bidders who have been allocated Equity Shares after discovery of the Issue Price in accordance with the Book Building Process, including any revisions thereof. The higher end of the Price Band, above which the Issue Price will not be finalized and above which no Bids will be accepted. The Companies Act, 1956, as amended from time to time.

Bidder Bidding/ Issue Period Bid/Issue Closing Date

Bid/ Issue Opening Date

Board of Directors/Board Book Building Process BRLMs/ Book Managers BSE CAN/ Confirmation of Allocation Note Cap Price Companies Act Running Lead

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Term Cut-off Price Depository Depositories Act Depository Participant Designated Date

Designated Stock Exchange Director(s) Draft Red Herring Prospectus

Eligible NRIs

Employee

Employee Reservation Portion Equity Shares Escrow Account Escrow Agreement

Escrow Collection Bank(s) FEMA FII

FVCI

First Bidder

Description Any price within the Price Band finalised by us in consultation with the BRLMs. A Bid submitted at Cut-off Price is a valid Bid at all price levels within the Price Band. A depository registered with SEBI under the SEBI (Depositories and Participant) Regulations, 1996, as amended from time to time. The Depositories Act, 1996, as amended from time to time. A depository participant as defined under the Depositories Act. The date on which the Escrow Collection Banks transfer the funds from the Escrow Account to the Issue Account, which in no event shall be earlier than the date on which the Prospectus is filed with the RoC. National Stock Exchange of India Limited, Mumbai. Director(s) of our Company, unless otherwise specified. This Draft Red Herring Prospectus dated December 27, 2006 issued in accordance with Section 60B of the Companies Act and SEBI Guidelines, which does not have complete particulars of the price at which the Equity Shares are offered and the size of the Issue. Upon filing with RoC at least three days before the Bid/Issue Opening Date it will become the Red Herring Prospectus. It will become a Prospectus upon filing with RoC after the determination of Issue Price. An NRI resident in a jurisdiction outside India where it is not unlawful to make an offer or invitation under the Issue and in relation to whom this Red Herring Prospectus constitutes an invitation to subscribe for the Equity Shares. All or any of the following: (a) a permanent employee of our Company as of [], 2006 and based, working and present in India as on the date of submission of the Bid cum Application Form. (b) a Director of our Company, whether a whole time Director, part time Director or otherwise, except any Promoters or members of the Promoter Group, as of the date of the Red Herring Prospectus and based and present in India as on the date of submission of the Bid cum Application Form. The portion of the Issue being up to 15,000 Equity Shares available for allocation to Employees. Equity shares of our Company of face value of Rs. 10 each. Accounts opened with the Escrow Collection Bank(s) and in whose favour the Bidder will issue cheques or drafts in respect of the Bid Amount when submitting a Bid. Agreement dated [] to be entered into among the Company, the Registrar, the Escrow Collection Bank(s), the BRLMs and the Syndicate Members for collection of the Bid Amounts and for remitting refunds, if any, of the amounts collected, to the Bidders. The banks, which are clearing members and registered with SEBI as Banker to the Issue at which the Escrow Account will be opened. The Foreign Exchange Management Act, 1999, as amended from time to time, and the regulations framed there under. Foreign Institutional Investor (as defined under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995) registered with SEBI under applicable laws in India. Foreign Venture Capital Investors (as defined under the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000) registered with SEBI under applicable laws in India. The Bidder whose name appears first in the Bid cum Application Form or Revision Form.

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Term Floor Price Indian GAAP Issue

Issue Price Issue Account Margin Amount Memorandum/Memorandum of Association Mutual Fund NSE Net Issue/Net Issue to the public Non-Institutional Bidders Non-Institutional Portion Non Residents NRI/ Non Resident Indian

Description The lower end of the Price Band, below which the Issue Price will not be finalised and below which no Bids will be accepted. Generally accepted accounting principles in India. Public issue of up to 8,320,000 Equity Shares at a price of Rs. [] each for cash aggregating up to Rs. [] million by our Company. The Issue comprises a Net Issue to the public of up to 8,305,000 Equity Shares and the Employees Reservation Portion of up to 15,000 Equity Shares. The Net Issue will constitute 25% of the fully diluted post-issue capital of our Company. The final price at which Equity Shares will be Allotted in terms of the Red Herring Prospectus, as determined by our Company in consultation with the BRLMs, on the Pricing Date. Account opened with the Banker(s) to the Issue to receive monies from the Escrow Accounts for the Issue on the Designated Date. The amount paid by the Bidder at the time of submission of his/her Bid, being 10% to 100% of the Bid Amount. The memorandum of association of our Company. A mutual fund registered with SEBI under the SEBI (Mutual Funds) Regulations, 1996. National Stock Exchange of India Limited. The Issue less the Employees Reservation Portion. Bidders that are neither Qualified Institutional Buyers nor Retail Individual Bidders and who have Bid for an amount more than Rs. 100,000. The portion of the Net Issue being not less than 1,245,750 Equity Shares available for allocation to Non-Institutional Bidders. A person resident outside India, as defined under FEMA. A person resident outside India, who is a citizen of India or a person of Indian origin and shall have the same meaning as ascribed to such term in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. A company, partnership, society or other corporate body owned directly or indirectly to the extent of at least 60% by NRIs including overseas trusts, in which not less than 60% of beneficial interest is irrevocably held by NRIs directly or indirectly as defined under Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. Bid/Issue Closing Date or the last date specified in the CAN sent to the Bidders, as applicable. (i) With respect to Bidders whose Margin Amount is 100% of the Bid Amount, the period commencing on the Bid/Issue Opening Date and extending until the Bid/Issue Closing Date; and (ii) with respect to Bidders whos Margin Amount is less than 100% of the Bid Amount, the period commencing on the Bid/Issue Opening Date and extending until the closure of the Pay-in Date. The price band with a minimum price (Floor Price) of Rs. [] and the maximum price (Cap Price) of Rs. [], including any revisions thereof. The date on which our Company in consultation with the BRLMs finalises the Issue Price. The natural persons who are promoters are: a. Mr. Jawahar Lal Oswal; b. Mr. Kamal Oswal; and c. Mr. Dinesh Oswal. The corporate entities which are our promoters are:

OCB/ Overseas Corporate Body

Pay-in Date Pay-in-Period

Price Band Pricing Date Promoters

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Term a. b. c. d. e. f. g. h. i. j. k. Promoter Group

Description Nahar Spinning Mills Limited; Atam Vallabh Financers Limited; Abhilash Growth Fund Private Limited; Girnar Investment Limited; Kulu Investment and Trading Private Limited; Ludhiana Holdings Limited; Nagdevi Trading and Investment Company Limited; Neha Credit and Investment Private Limited; Ogden Trading and Investment Company Private Limited; Vanaik Investors Limited; and Vardhman Investments Limited.

The natural persons who are a part of our promoter group (due to their relationship with our Promoters), other than the Promoters, are as follows: a. Ms. Abhilash Oswal; b. Ms. Monica Oswal; c. Ms. Ruchika Oswal; d. Ms. Manisha Oswal; e. Ms. Ritu Oswal; f. Ms. Neha Oswal; g. Mr. Abhinav Oswal; h. Mr. Rishab Oswal; i. Mr. Sambhav Oswal; and j. Ms. Tanvi Oswal. The companies which are a part of the promoter group, other than the Promoters, are as follows: a. Nahar Industrial Enterprises Limited; b. Nahar Exports Limited; c. Kovalam Investment and Trading Company Limited; d. Nahar Financial and Investment Limited; e. Oswal Leasing Limited; f. Sankheshwar Holding Company Limited; g. Bermuda Insurance Brokers Private Limited; h. Cabot Trading and Investment company Private Limited; i. J.L. Growth Fund Limited; j. Monica Growth Fund Private Limited; k. Nahar Growth Fund Private Limited; l. Nahar Capital and Financial Services Limited; m. Nahar Industrial Infrastructure Corporation Limited; n. Nahar Retail Limited; o. Palam Motels Limited; p. Ruchika Growth Fund Private Limited; q. Shri Atam Fabrics Limited; r. Vigil Investment Private Limited; s. Vanaik Spinning Mills Limited; and t. White Tiger Breweries and Distilleries Limited. The HUF which form a part of our promoter group are as follows: a. Jawahar Lal & Sons

Prospectus

Qualified Institutional Buyers or QIBs

The prospectus, to be filed with the RoC after pricing containing, among other things, the Issue Price that is determined at the end of the Book Building Process, the size of the Issue and certain other information including the final private placement memorandum and any addendum or corrigendum thereof. Public financial institutions as specified in Section 4A of the Companies Act, FIIs, scheduled commercial banks, mutual funds

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Term

QIB Portion Refund Account Registered Office Registrar/ Registrar to the Issue Retail Individual Bidders Retail Portion Revision Form RHP or Red Herring Prospectus

RoC or Registrar of Companies SEBI SEBI Act SEBI Guidelines Stock Exchanges Syndicate or members Syndicate Syndicate Agreement

of

the

Description registered with SEBI, venture capital funds registered with SEBI, state industrial development corporations, insurance companies registered with the Insurance Regulatory and Development Authority, provident funds with minimum corpus of Rs. 250 million and pension funds with minimum corpus of Rs. 250 million. The portion of the Net Issue being up to 4,152,500 Equity Shares available for allocation to QIBs. The account opened with (an) Escrow Collection Bank(s) from which refunds if any of the whole or part of the Bid Amount shall be made. G.T. Road, Sherpur, Ludhiana 141 003, Punjab, India. Registrar to the Issue, in this case being Intime Spectrum Registry Limited. Individual Bidders (including HUFs applying through their karta) who have Bid for Equity Shares for an amount less than or equal to Rs. 100,000 in any of the bidding options in the Issue. The portion of the Net Issue being not less than 2,906,750 Equity Shares available for allocation to Retail Individual Bidder(s). The form used by the Bidders to modify the quantity of Equity Shares or the Bid Price in their Bid cum Application Forms or any previous Revision Form(s). The Red Herring Prospectus dated [] to be issued in accordance with Section 60B of the Companies Act, which will not have complete particulars of the price at which the Equity Shares are offered and the size of the Issue including the preliminary private placement memorandum and any addendum or corrigendum thereof. The Red Herring Prospectus will be filed with the RoC at least three days before the Bid/Issue Opening Date and will become a Prospectus after filing with the RoC after determination of the Issue Price. Unless otherwise specified, the Registrar of Companies, Punjab, Chandigarh and Himachal Pradesh and Chandigarh located at Kothi No. 286, Defence Colony, Jallandhar 144 001, Punjab, India. The Securities and Exchange Board of India constituted under the SEBI Act. The Securities and Exchange Board of India Act, 1992, as amended from time to time. The SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI, as amended, including instructions and clarifications issued by SEBI from time to time. NSE and BSE. The BRLMs and the Syndicate Members. The agreement dated [] to be entered into among our Company and the members of the Syndicate, in relation to the collection of Bids in this Issue. Motilal Oswal Securities Limited and [] The slip or document issued by any of the members of the Syndicate to a Bidder as proof of registration of the Bid. The BRLMs and the Syndicate Members. The agreement among the members of the Syndicate and our Company to be entered into on or after the Pricing Date.

Syndicate Members TRS/ Transaction Registration Slip Underwriters Underwriting Agreement

Industry Related Terms & Abbreviations Term CAD Description Computer aided design

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Term DGCI&S, Kolkata OGL TFO VM YCP Abbreviations Abbreviation AS ACS BPRL CAGR CC CEO CENVAT ECS EGM EPS FIPB FY/ Fiscal Financial year /Fiscal Year GoI HUF ICAI I.T. Act LTPR MTPLR Motilal Oswal NBFC NEFT NAV NSDL OWM p.a. P/E Ratio PAN PLR RBI RoNW RTGS WCDL U.S. GAAP UTI Bank TUFS

Description Directorate General of Commercial Intelligence and Statistics, Kolkata open general license Two for one machine Vegetable matter Yarn conditioning plant

Full Form Accounting Standards as issued by the Institute of Chartered Accountants of India Associate Company Secretary Bank prime lending rate Compounded Annual Growth Rate Cash credit Chief Executive Officer Central Excise Value Added Tax Electronic Clearing Services Extraordinary General Meeting Earnings per share Foreign Investment Promotion Board Financial year/ Fiscal year Period of twelve months ended March 31 of that particular year, unless otherwise stated Government of India Hindu Undivided Family Institute of Chartered Accountants of India The Income Tax Act, 1961, as amended from time to time Long term prime lending rate Medium term prime lending rate Motilal Oswal Investment Advisors Private Limited Non banking financial institution National Electronic Fund Transfer Net Asset Value National Securities Depository Limited Oswal Woollen Mills Limited per annum Price/Earnings Ratio Permanent Account Number Prime Lending Rate The Reserve Bank of India Return on Net Worth Real Time Gross Settlement Working capital demand loan Generally accepted accounting principles in the United States of America UTI Bank Limited Technology Upgradation Fund Scheme

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PRESENTATION OF FINANCIAL AND MARKET DATA Financial Data Unless indicated otherwise, the financial data in this Draft Red Herring Prospectus is derived from our restated financial statements prepared in accordance with Indian GAAP and included in this Draft Red Herring Prospectus. Our Fiscal year commences on April 1 and ends on March 31, so all references to a particular Fiscal year are to the twelve-month period ended March 31 of that year. In this Draft Red Herring Prospectus, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding off. There are significant differences between Indian GAAP and U.S. GAAP; accordingly, the degree to which the Indian GAAP financial statements (consolidated or unconsolidated) included in this Draft Red Herring Prospectus will provide meaningful information is entirely dependent on the readers level of familiarity with Indian accounting practices, Indian GAAP, the Companies Act and SEBI Guidelines. Any reliance by persons not familiar with Indian accounting practices, Indian GAAP, the Companies Act and SEBI Guidelines on the financial disclosures presented in this Draft Red Herring Prospectus should accordingly be limited. Our Company has not attempted to quantify those differences or their impact on the financial data included herein, and our Company urges you to consult your own advisors regarding such differences and their impact on our financial data. For more information on these differences, see the section titled Summary of Significant Differences between Indian GAAP and U.S. GAAP, beginning on page [] of this Draft Red Herring Prospectus. Currency of Presentation All references to "Rupees" or "Rs." are to Indian Rupees, the official currency of the Republic of India. All references to "US$", "U.S. Dollar" or "USD" are to United States Dollars, the official currency of the United States of America. All References to EUR are to the EURO, the official currency of Europe. Solely for the convenience of the reader, this Draft Red Herring Prospectus contains translations of certain US$ and EUR amounts into Rupees. No representation is made that the EUR or USD amount represent Rupees or have been, could have been or could be converted into Rupees at such rates or any other rates. Market Data Unless stated otherwise, industry data used throughout this Draft Red Herring Prospectus has been obtained from industry publications. All industry sources, obtained from websites have been relied upon as on the date of filing this Draft Red Herring Prospectus. We Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although we believe industry data used in this Draft Red Herring Prospectus is reliable, it has not been verified by any independent sources. The extent to which the management estimates or market and industry data used in this Draft Red Herring Prospectus is meaningful depends on the readers familiarity with and understanding of methodologies used in compiling such data. There are no standard data gathering methodologies in the textile industry in India and methodologies and assumptions may vary widely among different industry sources.

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FORWARD-LOOKING STATEMENTS We have included statements in this Draft Red Herring Prospectus which contain words or phrases such as "will", "aim", "will likely result", "believe", "expect", "will continue", "anticipate", "estimate", "intend", "plan", "contemplate", "seek to", "future", "objective", "goal", "project", "should", "will pursue" and similar expressions or variations of such expressions, that are "forward-looking statements". Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, regulatory changes pertaining to the industries in India in which our Company has its businesses and our ability to respond to them, our ability to successfully implement our strategy, our growth and expansion, our dependence on key managerial employees, extent to which our projects qualify for completion under the percentage of completion method of accounting, technological changes, our exposure to market risks, general economic and political conditions in India and which may have an impact on our business activities or investments, impairment of our title to land, action of third parties, the monetary and fiscal policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, raw material prices, equity prices or other rates or prices, the continued availability of applicable tax benefits, conflict of interests with Promoter Group companies and companies in which we have a substantial investment, the performance of the financial markets in India and globally, changes in domestic laws, regulations and taxes and changes in competition in our industry. For further discussion of factors that could cause our actual results to differ, see the section titled "Risk Factors" beginning on page [] of this Draft Red Herring Prospectus. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Neither our Company, nor the members of the Syndicate, nor any of their respective affiliates have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI requirements, our Company and the BRLMs will ensure that investors in India are informed of material developments until such time as the grant of trading permission by the Stock Exchanges for the Equity Shares allotted pursuant to the Issue.

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RISK FACTORS An investment in equity shares involves a degree of financial risk. You should carefully consider all information in this Draft Red Herring Prospectus, including the risks described below, before making an investment in our Equity Shares. This section addresses general risks associated with the industry in which we operate and specific risks associated with our business. Any of the following risks, as well as the other risks and uncertainties discussed in this Draft Red Herring Prospectus, could have a material adverse effect on our business, financial condition and results of operations and could cause the trading price of our Equity Shares to decline. In addition, the risks set out in this Draft Red Herring Prospectus may not be exhaustive and additional risks and uncertainties, not presently known to us, or which we currently deem immaterial, may arise or become material in the future. Internal Risk Factors 1. Brand recognition is important to the success of our business and the success of our products, sales and profitability could be harmed if we are unable to maintain our brand image. The strength of our brands such as Monte Carlo, Canterbury and OWM has significantly contributed to the success of our business. We believe that our success depends on our ability to anticipate, identify and respond to changing fashion trends in a timely manner. If we are unable to respond in a timely and appropriate manner to changing consumer demand our brand name and brand image may be impaired and may result in a significant decrease in net sales or leave us with a substantial amount of unsold inventory. Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. We may not be able to continue to develop appealing styles or successfully meet constantly changing consumer demands in the future. In addition, any new products or brands that we introduce may not be successfully received by retailers and consumers. Although we have expanded, and expect to continue to spend a significant amount of resources, financial and otherwise, on establishing and maintaining our brands, no assurance can be given that our brands will be effective in attracting and growing user and client base for our businesses or that such effort will be cost-effective. Any failure to maintain our brand may negatively affect our business, financial condition and results of operations. 2. We are dependent upon foreign producers for greasy wool. Any interruption in the supply of quality greasy wool will have a material adverse effect on our operations. We import all our wool requirements, mainly from producers in Australia and New Zealand. In addition we also import wool from producers in South Africa and a minor portion from United States of America. Scarcity of production of greasy wool in these countries, failure of these producers to ship products to us in a timely manner or to meet required quality standards could cause us to miss the delivery schedules to our customers. Further factors affecting the economies and production of wool in these countries could have an adverse effect on our operations. For example, a lack of late winter and early spring rain across eastern Australia combined with the prospect of below average rainfall till the end of December, has resulted in a significant downward revision to Australian greasy raw wool production in 2006/07 season. The forecast for Australian shorn wool production in the 2006/07 season is 434 million kilograms, 6% or 27 million kilograms greasy lower on the previous season. The new forecast is also 22 million kilograms greasy lower than the previous forecast in July 2006. The current forecast for the 2006/07 season reflects that for many of the major wool producing areas across Australia, current seasonal conditions are significantly worse than for the same time last year. In particular, a lack of rainfall in August and September 2006 in the eastern states has compounded the already late start to the 2006 pasture-growing season. According to the Australian Bureau of Meteorology, August 2006 was the driest month for average rainfall across Australia as per the historical record from 1900. Also, the supply and price of greasy wool is vulnerable to animal diseases as well as natural disasters that can affect the supply and price of wool. For example, in the past, the outbreak of mad-cow and foot-andmouth disease in Europe, and its after effects, adversely affected the supply of leather. Any occurrence of such or other diseases in sheep could adversely affect our operations. The failure to make timely deliveries could cause customers to cancel orders, refuse to accept delivery of products or demand reduced prices, any of which could have a material adverse effect on our business. We

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do not have long-term written agreements with any of the producers. As a result, any of these producers may unilaterally terminate its relationship with us at any time. 3. We depend on third parties for significant elements of our sales and distribution efforts. If these third parties do not continue to assist us in our sales and distribution, our revenue could decrease, which would have an adverse impact on our business. We limit our marketing efforts to product advertisements during winters, advertisement support to our dealers and franchisees etc. We depend substantially upon third parties for several critical elements of our business including, among other things, sales and distribution activities. There can be no assurance that we or these third parties will be able to establish or maintain adequate sales and distribution capabilities, that we will be able to enter into agreements or relationships with third parties, in the areas we currently operate in or in areas we intend to expand, on financially acceptable terms or that any third parties with whom we enter into such arrangements will be successful in selling or distributing our products. In the absence of these, our business could be negatively impacted. Additionally, most of our existing relationships with our dealers and sales agents are based on long-term relationships and not on any formal contracts or exclusive basis. If we are unable to maintain our relationships with these sales agents and distributors or if these sales agents and distributors begin selling our competitors products, then our ability to generate revenues through the sale of our products could be negatively impacted. 4. If our competitors misappropriate our proprietary trademarks, it could have a material adverse affect on our business. We depend heavily on the value of our trademarks and the design expertise. Our success depends to a significant extent on our ability to protect and preserve our intellectual property, including copyrights, trademarks and similar intellectual property. The loss of or inability to enforce our trademark Monte Carlo, OWM and other proprietary know-how and trade secrets could adversely affect our business. If any of our competitors copy or otherwise gains access to our design database, we would not be able to compete effectively. Further, the laws of foreign countries may not provide adequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources. 5. We are expanding our Monte Carlo product range to make it an All Season Brand. Any inability in repositioning the brand may adversely affect our business. We introduced the brand Monte Carlo in 1985 for our woollen hosiery products, which has since then become a reputed brand in the Indian woollen hosiery market. However, the sales in this segment are mainly made during the winter season. Starting Fiscal 2002, in our endeavor to make Monte Carlo an all season brand and to increase its presence in the country we started the cotton segment of Monte Carlo products mainly comprising of trousers, shirts and knitted T-shirts. The success of this diversification will depend upon our ability to reposition the brand Monte Carlo such that market starts recognizing it from a winter product to an all season product. Our inability or delay in repositioning the Monte Carlo brand from winter to all season brand or expand our market in new geographical areas may adversely affect business operations and overall profitability of our Company. 6. We might not be able to successfully implement our business strategies. In order to achieve our goal of being a company with presence across the country with efforts to capture additional market share, we are constantly evaluating the possibilities of expanding our business by introducing new products and expanding our presence across India. Our key strategic initiatives, which include our expansion plans, are: Establishing Monte Carlo as an all season pan India brand; Further strengthening our retail presence; Increasing our product range; Cost reduction; and Enhancing manufacturing capacities.

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Implementation of our expansion plans and introduction of new products may pose significant challenges to our administrative, financial and operational resources and additional risks, including some of which we may not be specifically aware of. If we are unable to successfully implement some or all of our key strategic initiatives in an effective and timely manner, we may face an adverse effect on our business prospects, competitiveness, market position, brand name, financial condition and results of operations. 7. The success of our business is substantially dependent on retaining the services of our key management personnel and attracting talented professionals. The loss of the services of any of these persons may adversely affect our business and results of operations. We have built a strong team of talented senior professionals, several of whom have been with our Company since its inception, to oversee the operations and growth of our business. Our success is substantially dependent upon the expertise and services of these members of the management team. Furthermore, we do not have any key man insurance policies covering our key management personnel. The loss of the services of any of these persons or our inability to attract suitable replacements could have an adverse effect on our business, results of operations and financial condition. In addition, attracting and retaining talented professionals is key to our business growth. Any inability on attract talented professionals personnel may adversely affect our business and results of operations. 8. We may face strikes, lockouts and other labour unrests which could adversely affect our operations. Our performance as a manufacturing company is largely dependent on the efforts and abilities of the labourers engaged by us. Whilst we have not faced any strikes or lock out by our workmen in the past, any strikes, lockouts or other form of labour unrest, any strikes or other form of labour unrest could adversely affect our business, financial position, results of operations and cash flows. If we are unable to negotiate with the workmen or the contractors, it could result in work stoppages or increased operating costs as a result of higher than anticipated wages or benefits. 9. Our business and future results of operations could be adversely affected if Monte Carlo is not recognized as a Superbrand. Monte Carlo has been recognized as a Superbrand for woollen hosiery garments since Fiscal 2003 by International Society for Superbrands. The Superbrand recognition has contributed to the growth of Monte Carlo. The increase in our sales volume and profitability for our Monte Carlo products will continue to be affected by the Superbrand recognition. There can be assurance that in future we will be successful in securing Superbrand for our Monte Carlo products. Any failure to obtain such recognition in future could have an adverse effect on our sales and operations. 10. We operate in a highly competitive and fragmented industry and our failure to successfully compete could result in a loss of one or more significant customers. The textile industry is highly competitive and fragmented. Our competitors include numerous apparel designers, manufacturers, and other established companies. We believe that the principal competitive factors in the apparel industry are: brand name and brand identity; timeliness, reliability and quality of products delivered; price; and the ability to anticipate customer and consumer demands and maintain appeal of products to customers. If we do not maintain our brand names and identities and continue to provide high quality and reliable products on a timely basis at competitive prices, or if our competitors are able to compete more effectively, we may not be able to continue to compete in our industry. If we are unable to compete successfully, we could lose one or more of our significant customers, which, if not replaced, could negatively impact our sales and financial performance.

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11.

If the number of multi brand outlets and national chain stores continue to increase or consolidate, our business could be negatively affected Whilst we sell a significant portion of our woollen hosiery products in exclusive retail outlets, we also sell our products to multi brand outlets and national chain stores. Continued consolidation in the retail industry could negatively impact our business. With increased consolidation in the retail industry, we are increasingly dependent on retailers whose bargaining strength may increase and whose share of our business may grow. As a result, we may face greater pressure from these customers to provide more favorable terms. If purchasing decisions become more centralized, the risks from consolidation, such as competition increases. Customers may also concentrate purchases among a narrowing group of vendors which could adversely affect our business.

12. Risk associated with use of Issue proceeds for setting up exclusive retail outlets owned by our Company. Out of total net proceeds of the Issue, Rs. 400 million, amounting to 15.82 % of the total project cost has been earmarked for setting up Monte Carlo Exclusive Brand Outlets (Exclusive Outlets) owned by our Company. All of these Exclusive Outlets are to be set up in identified metros or other big cities for the promotion of our brands. For further details kindly refer to the section titled Objects of the Issue beginning on page [] of this Draft Red Herring Prospectus. However, we may not generate significant direct revenues from these Exclusive Outlets and further may not achieve the expected brand recognition. We had opened the first Monte Carlo Exclusive Retail Outlet in Fiscal 2005. Our business model of retailing Monte Carlo products through Monte Carlo Exclusive Retail Outlets is not very old and so far we are operating only with 23 outlets, whether owned by our Company or on a franchisee basis. From the present level of 23 outlets, we are contemplating opening a total of 150 Monte Carlo Exclusive Retail Outlets by the end of Fiscal 2009. Any delay or failure in generating revenues commensurate with growth of such outlets may adversely affect business operations and the overall profitability of our Company. 13. Expansion of products portfolio and expansion of capacity involve significant costs and uncertainty and could adversely affect our results of operations. An important part of our strategy is to ramp up our existing manufacturing capacities and expand the range of products we offer. For example, in March 2006, we had introduced denim fabric to our product portfolio. We are proposing to double our capacities of denim fabric from 10 million to 20 million meters per annum. We are also proposing to add spinning capacities as a backward integration for our denim fabric manufacturing plant. Further, we intend to continue to add additional product lines in the future. As is typical while introducing any new product, the demand and market acceptance for new products introduced are subject to uncertainty. Further, we have limited experience in designing, producing and marketing denim products and the same will require substantial expenditures. 14. There could be changes in the implementation schedule of our expansion and diversification programme which may result in delay of our projects and make them incur significant cost overruns. Our estimated fund requirements are based on our current business plan and strategy. However, we operate in a highly competitive and dynamic industry and we may have to revise our business and capital outlay plans from time to time. Our current and future projects may be significantly delayed by failure to receive regulatory approvals or renewal of approvals, technical difficulties due to human resource, technological or other resource constraints or other unforeseen events or circumstances. As a result, these projects may incur significant cost overruns and may not be completed in time, or at all. Accordingly, investors in this Issue will need to rely upon the judgment of our management with respect to the use of proceeds. 15. The objects of the Issue for which funds are being raised have not been not appraised by any bank, financial institution or an independent organisation. As such our estimates for the projects may exceed fair market value or the value that would have been determined by third party appraisals. The requirement of funds as stated in the section titled Objects of the Issue beginning on page [] of this Draft Red Herring Prospectus is based on the internal management estimates and has not been appraised independently by any bank, financial institution or any independent organisation. The deployment of funds is entirely at the discretion of our Board of Directors.

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16. We have not entered into definitive and binding agreements for deploying a significant portion of the proceeds of the Issue. The net proceeds of the Issue are proposed to part fund the expansion project as detailed in the section titled Objects of the Issue beginning on page [] of this Draft Red Herring Prospectus. We have not yet entered into binding and definitive agreements for the planned expansion of Monte Carlo Exclusive Retail Outlets, which we currently propose to fund from the net proceeds of the Issue. Non-availability or delay in availability of these retail spaces at the desired place/ location or increase in prices of the proposed retail spaces, for which definitive agreements have not been entered, may adversely affect our estimates of project cost. There can be no assurance that we will be able to enter into such agreements on terms and conditions favorable to us. Accordingly, prospective investors in the Issue will need to rely upon the judgment of our management with respect to the use of proceeds in this respect. Also, we have not placed orders and have not firmed up contracts for majority of the plant and machinery. Further, we intend to import certain second hand plant and machinery from the net proceeds of this Issue. Any delay or failure to enter into such agreements will have a material adverse affect on our operations. 17. We face risks relating to the price volatility in the import of wool. Exchange rates and commodity prices, including prices for wool, are volatile. Risk management tools, such as futures and their derivatives and forward contracting, allow participants to manage the risk. However, the presence of liquid futures market or significant forward contracting will not reduce the volatility in prices in the spot market, but enables industry participants to manage the price volatility to stabilise their incomes. For the wool segment these risk management tools are sparsely used as compared to cotton and other commodities. Approximately 85% of Australias wool is sold at auction, with only a small proportion of this hedged by a futures contract. The lack of extensive use of sophisticated risk management tools in the wool industry exposes all involved, including wool producers and processors, to significant risk and volatility of income. 18. We face risks in relation to outsourcing of cotton segment of the Monte Carlo Products. As opposed to the woollen products of our Company where our operations are completely integrated right from the manufacture of wool top from greasy raw wool to retailing of branded products, in the cotton segment we get all our requirements outsourced. Accordingly, we are subject to all the risks such as, timely availability of products, quality of products, etc. which are generally associated with outsourcing of garments. Also, because of outsourcing we may not be able to compete effectively with readymade garment manufacturers having integrated operations. 19. We outsource our requirements of cotton. Any shortage or interruption in the supply of cotton could adversely effect our operations. Cotton is the main raw material for our denim plant and will constitute a significant percentage of our total manufacturing expenses. We will be purchasing cotton from the domestic market. Domestic cotton prices have been lower than world prices in the recent past but there can be no assurance that the price levels of cotton will continue to remain favorable. Any increase in cotton prices would have a material adverse effect on our business. The use of domestic hedging techniques against the risks associated with fluctuation in cotton prices is a new development in India and the concept has not yet picked up. Further, cotton is an agricultural product, and its supply and quality are subject to forces of nature. Any material shortage or interruption in the domestic supply or decrease in the quality of cotton due to natural causes or other factors could result in increased production costs that we may not successfully be able to pass on to customers, which in turn would have a material adverse effect on our business. 20. We have recently introduced denim fabric to our product portfolio and have limited experience of manufacturing and marketing denim products.

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We are in the early stages of our business relating to denim, which makes it difficult for us to predict the nature and extent of competition and consumer demand therein. We have limited prior experience of designing, manufacturing and marketing denim products. No assurance can be given that we will be able to replicate our leading position in the woollen hosiery segment in this segment as well. Further, denim is considered to be a commodity and is cyclical in nature. Denim prices had seen downward price volatility in the recent past. Any unfavorable trends in the denim industry may adversely effect our denim operations. 21. Our business could be harmed if we fail to maintain adequate inventory levels. We place orders for our raw materials in the case of wool or for other products prior to the time we receive all of our customers orders. We do this to minimize purchasing costs, the time required to fulfill customer orders and the risk of non-delivery. We also maintain an inventory of certain products that we anticipate will be in greater demand. However, we may be unable to sell the products that we have ordered in advance from the producers of raw materials or manufacturers of other products or that we have in our inventory. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have a material adverse effect on our operating results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the quality products that we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay our delivery schedules to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty. 22. Our operations are subject to a variety of environmental laws and regulations including those covering hazardous materials. Our operations are subject to numerous environmental protection laws and regulations, which are complex and stringent. Significant fines and penalties may be imposed for non-compliance with environmental laws and regulations. Certain environmental laws provide for joint and several strict liabilities for remediation of releases of hazardous substances, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. In addition to potential liabilities that may be incurred in satisfying these requirements, we may be subject to claims alleging personal injury or property damage as a result of our operations. We may be exposed to liability arising out of the conduct of operations or conditions caused by others or for our own acts including those, which were in compliance with all applicable laws at the time such acts were performed. Failure to comply with these laws, rules and regulations, may include administrative, civil and criminal penalties, revocation of permits and corrective action orders. These factors, if applicable to us may adversely affect our operations. 23. An inability to renew or maintain the statutory and regulatory permits and approvals required to operate our business may have a material adverse effect on our business. We require certain statutory and regulatory permits, licenses and approvals to operate our business. We have made renewal applications for the same, but are yet to receive, certain approvals that have expired, or that are required for our business. For details of the same, see section tilted Government and Other Approvals, beginning on page [] of this Draft Red Herring Prospectus. Addtionally, we are yet to apply for registration under Bombay Shops and Establishments Act, 1948 for our branch office which have recently opened at Mumbai. Any failure to obtain the same, or obtain the other approvals which we have applied for but not received, may adversely affect our business. 24. If we fail to obtain trademark registrations for our brand names, our brand building efforts may be hampered and our business could be adversely affected. In order to protect our brand names, we have applied for registration of a number of trademarks and of our logos. Some of these applications, which relate to Monte Carlos Canterbury, Blue- cult, Indigo- cult, Yaguchi and Bellerina are currently pending. However, we cannot guarantee that any of our pending applications will be approved by the appropriate regulatory authorities. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge these or other registrations. If our applications for such registration are not approved, our brand-building efforts could suffer and our business

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may be adversely affected. For further details of our trademark registrations, see the section titled Government and Other Approvals beginning on page [] of this Draft Red Herring Prospectus. 25. All our manufacturing facilities are located in and around Ludhiana. All our manufacturing facilities are located in and around Ludhiana. Our proposed expansion plan shall also be based in our existing manufacturing locations. Ludhiana has traditionally been a hub for knitting and hosiery industry. Punjab had in past seen unrest due to terrorist activities. Any political or other unrest may severely affect our business operations. Also, knitting and hosiery is a labour intensive industry. Our inability to continuously source and maintain skilled and unskilled labour at competitive rates may have an adverse impact on our business. 26. We have in the past faced losses in the past due to a break out of fire. Due to outbreak out of fire in November 7, 1973 at our office located at Miller Ganj, Ludhiana, we faced significant losses of immovable and movable properties, including our records. Whilst we believe that have installed adequate fire safety arrangements along with insurance policies, any similar outbreak of fire in the future, could have a material adverse effect on our business. 27. Changes in technology may impact our business by making our plants less competitive. Advancement in technology may require us to make additional capital expenditure for upgrading our manufacturing facilities or may make our competitors plants more competitive. If we are not able to respond to such technological advancement well in time or at all, we may lose our competitiveness. 28. Some of our Promoter Group companies have failed to meet certain projections made in their last offer document. Nahar Spinning Mills Limited, one of our Promoter Group companies and Nahar Industrial Enterprises Limited one of our Promoter Group companies, have failed to meet projections made in their last offer documents. For further details, see the section titled Our Promoters and Promoter Group beginning on page [] of this Draft Red Herring Prospectus. 29. Equity shares of some of our listed Promoter and Promoter Group companies are infrequently traded on the stock exchanges. The equity shares of some of our listed Promoter Group companies, namely Kovalam Investment and Trading Company Limited, Nahar Financial and Investment Limited, Oswal Leasing Limited and Sankheshwar Holding Company Limited have not been frequently traded on the stock exchanges on which they are listed. For further details see section titled Our Promoters and Promoter Group beginning on page [] of this Draft Red Herring Prospectus. 30. One of our Promoter Group companies are not in compliance with continued listing requirements. One of our Promoter Group companies, namely Kovalam Investment and Trading Company Limited is not in compliance with the requirement for continued listing relating to minimum public shareholding requirement of 10% on the stock exchange on which it is listed, i.e. the BSE. However, it has made an application for delisting of its equity shares from the BSE. 31. Our existing indebtedness and the conditions and restrictions imposed by our financing agreements could adversely affect our ability to conduct business and operations. As of September 30, 2006, we have availed of term loans and other facilities of Rs. 875.54 million. In addition, we may incur additional indebtedness in the future. Our indebtedness could have several important consequences, including but not limited to the following: A portion of our cash flow may be used towards repayment of our existing debt, which will reduce the availability of our cash flow to fund working capital, capital expenditure, acquisitions other general corporate requirements and pay dividends.

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Our ability to obtain additional financing in the future at reasonable terms may be restricted; There could be a material adverse effect on our business, financial condition and results of operations if we are unable to service our existing indebtedness or otherwise comply with financial and other covenants specified in the financing agreements; and

Our financing agreements are secured by a pari passu charge on our Companys entire present and future movable and immovable assets including equitable mortgage of factory land held in the name of our Company. Specifically under certain circumstances, we require and may be unable to obtain lender consents to, change our capital structure, effect any scheme of amalgamation or reconstitution, implement a new scheme of expansion or take up allied line of business or manufacture amongst others. For details of the same see the section titled Financial Indebtedness beginning on page [] of this Draft Red Herring Prospectus. There can be no assurance that our lenders will grant us required consents on time or at all. Any failure to comply with the requirement to obtain consents, or other condition or covenant under our financing agreements that is not waived by our lenders or otherwise cured by us, could lead to a termination of our credit facilities, and could adversely affect our ability to conduct our business and operations or implement our business plans. 32. One of our Promoter Group companies has incurred losses. Shri Atam Fabrics Limited, one of our Promoter Group companies, has incurred losses in the Fiscals 2006 and 2005. For further details see the section titled Our Promoters and Promoter Group beginning on page [] of this Draft Red Herring Prospectus. 33. We have high working capital requirements. If we experience insufficient cash flows to meet required payments of our debt and working capital obligations, our results of operations could be adversely affected. Our business is capital intensive and significant amount of working capital is required to finance the purchase of raw materials, maintain our manufacturing facilities and equipments and carry own our operations in a smooth manner. Moreover, we may need to incur additional indebtedness in the future to satisfy our working capital needs. Our working capital requirements are also affected by the credit lines that we extend to our customers, in line with industry practice. All of these factors have resulted, or may result, in increase in the amount of our receivables and short-term borrowings. There can be no assurance that we will continue to be successful in arranging adequate working capital for our existing or expanded operations on acceptable terms or at all, which could adversely affect our financial condition and results of operations. 34. Failure to comply with the conditions of the Technology Upgradation Fund Scheme shall make us ineligible for interest or capital subsidy. Out of total project cost of Rs. 2,529.87 million excluding issue expenses for the expansion project, the rupee term loan component is of Rs. 749 million being raised under Technology Upgradation Fund Scheme (TUFS). All of these loans are eligible for an interest rate subsidy subject to conditions provided therein. We are also entitled to a one time capital subsidy for investments in specified processing machinery. If we fail to comply with conditions stipulated under TUFS, the interest or capital subsidy may be denied to us making our operations less cost effective. 35. We are subject to risks arising from interest rate fluctuations, which could adversely affect our business, financial condition and results of operations. Changes in interest rates could significantly affect our financial condition and results of operations. As of September 30, 2006, Rs. 875.54 million of our borrowings were at floating rates of interest. If the interest rates for our existing or future borrowings increase significantly, our cost of servicing such debt will increase. This could adversely impact our results of operations, planned capital expenditures and cash flows. Although we may in the future enter into hedging arrangements against interest rate risks, there can be no assurance that these arrangements will successfully protect us from losses due to fluctuations in interest rates. 36. There has been almost no growth in our total revenues during last five years.

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Our top-line has been almost stagnant during last five years. For the Fiscal 2002 and Fiscal 2006, our gross operational incomes were at Rs. 2,031.61 million and at Rs. 2,381.02 million respectively. Though, restated profits after taxes for the same period have increased at a CAGR of 21.41% from Rs. 68.34 million during Fiscal 2002 and Rs. 148.48 million during Fiscal 2006 due to change in product mix and our focus on more value added products. If we are not able to generate additional operational income and continue to show the improved profitability as in the past, our operational results may be adversely affected. 36. We are dependent on sales of our woollen hosiery products during winters. The woollen hosiery products of our Company are mainly sold during winters. Any difficulties, which we may encounter during this season as a result of weather or disruption of manufacturing or transportation of our products, will have a magnified effect on our net sales and net income for the year. Revenues from our woolen hosiery products during winters are expected to continue to provide a disproportionate amount of our net sales and net income for the foreseeable future. 37. Our ability to pay dividends in the future will depend upon our future earnings, financial condition, cash flows, working capital requirements, capital expenditures and other factors. So far our Company has not paid any dividend. The amount of our future dividend payments, if any, will depend upon our future earnings, financial condition, cash flows, working capital requirements, capital expenditures and other factors. 38. We had contingent liabilities amounting to Rs. 129.25 million as on September 30, 2006. As on September 30, 2006, we had contingent liabilities aggregating to Rs. 129.25 million, consisting of outstanding central excise demand of Rs. 40.33 million, liability of arbitral award of Rs. 6.47 million etc. For complete details of contingent liabilities, see the section titled Financial Statements beginning on page [] of this Draft Red Herring Prospectus. 39. We are deriving significant revenues from our landed properties in Gurgaon and Chennai, which have been leased out. The lessees may vacate these properties by serving a prior notice of six months. We have landed properties in Gurgaon and Chennai, which have been leased out. The lease rentals are contributing significantly to the overall revenues and profitability of our Company. The lease agreements that we have entered into, in respect of these properties provides for termination of the lease agreement by either parties upon serving a six months notice after a lock in period of two years. Such termination may affect profitability of our Company temporarily till such time this property is put to an alternative use. 40. Your holdings may be diluted by additional issuances of Equity Shares or sales of Equity Shares by our Promoters, which may also adversely affect the market price of our Equity Share. Any future issuance of our Equity Shares by us, including pursuant to the exercise of stock options under any future employee stock option scheme or any other similar scheme in the future, may dilute the positions of investors in our Equity Shares, which could adversely affect the market price of our Equity Shares. We may issue Equity Shares in the future in order to help fund expansion plans, as well as improvements to our facilities and other business activities. Any such future issuance of Equity Shares, or the possibility of such sales, could negatively impact the market price of our Equity Shares. Such Equity Shares also may be issued at prices below the then-current market price. Sale our Equity Shares by our Promoters, or the possibility of such sale, also could adversely affect the market price of our Equity Shares. Upon completion of the Issue, all Equity Shares that are outstanding prior to the Issue, will be subject to selling restrictions for a period of one year from the date of allotment of Equity Shares in the Issue. In addition, approximately, 20% of our post-Issue paid-up capital held by certain of our Promoters will be subject to such selling restrictions for a period of three years. For further information relating to such selling restrictions, see the section titled Capital Structure beginning on page [] of this Draft Red Herring Prospectus. 41. Some of our lease documents are in adequately stamped or registered, which could adversely affect us.

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We have leased some of our properties to third parties for providing storage facilities to other entities. Some of these agreements may not be adequately stamped or registered. As such, these agreements may not be enforceable. 42. No title search/land search has been conducted on the properties possessed/ leased by our Company. We have not conducted a title search on the lands owned by us and consequently cannot assure you that these lands are validly held under law. 43. There may occur a conflict of interest in the business of our Company and that of our Promoter Group companies. Some of our Promoter Group companies have main objects and business similar to our Company. At present the product range of each of these companies and their respective business models are different and do not compete with each other, e.g., Nahar Spinning Limited, a Promoter Group company, is in the business of manufacture and exports of cotton based knitted ready made garments for foreign brands. Similarly, Nahar Industrial Enterprises Limited, another Promoter Group company, is in the business of manufacture and sale of cotton based ready-made garments for middle and lower middle class consumers. However, we cannot assure you that these Promoter Group companies will not compete with each other or with us in future. 44. Our Promoters will hold a majority of our Equity Shares after the Issue and can therefore determine the outcome of any shareholder voting After completion of this Issue, our Promoters will hold approximately 70.31% of our paid up share capital. So long as our Promoters own a majority of our Equity Shares, they will be able to elect our entire Board of Directors and control most of the matters affecting us, including appointment and removal of our officers, our business strategy and policies, any decision with respect to mergers, amalgamations, acquisitions or disposal of assets, our dividend policy and our capital structure and financing. The interests of our Promoters may conflict with interests of our other investors, and you may not agree with the manner in which they exercise their powers of management or voting rights. Further, the extent of the Promoters shareholding in our Company may result in the delay or prevention of a change of management or control of our Company, even if such a transaction may be beneficial to our other shareholders. 45. There are a number of legal proceedings against us, our directors, our Promoters and certain Promoter Group companies. There are outstanding legal proceedings against us, our Directors, our Promoters and Promoter Group companies. These proceedings are pending at different levels of adjudication before various courts, tribunals, enquiry officers and appellate tribunals. There are nine excise cases, nine income tax cases, 12 sales tax cases, three civil cases and three notices from various statutory authorities pending against us before various courts and authorities in India. The aggregate liability claimed against us, as on the date of institution of these case is approximately Rs. 105.02 million. In addition there is one labour case pending against our Company. For further details see the section Outstanding Litigation and Material Developments beginning on page [] of this Draft Red Herring Prospectus. In addition there are various cases pending against our Directors, Promoters and Promoter Group. For details relating to them see the section Outstanding Litigation and Material Developments beginning on page [] of this Draft Red Herring Prospectus. Should any new developments arise in respect of any of these proceedings, such as a change in Indian law or rulings against us by appellate courts or tribunals, we may need to make provisions in our financial statements, which could adversely impact our business and results of operations. External Risks Factors 1. Any changes in regulations or applicable government incentives would materially adversely affect our operations and growth prospects.

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We currently receive benefits, under various incentives provided by the Government of India for the textile sector, including: a) Textile Upgradation Fund Scheme (TUFS): In order to encourage the textile industry the Government of India has announced the TUFS under which eligible units investing in particular technology, plant and machinery along with other specified assets are eligible for grant of interest subsidy of 5% subject to compliance with certain conditions. The TUFS is valid until March 31, 2007; b) Capital Subsidy: In order to encourage investment in processing industries the Government of India has announced a scheme whereby units investing in specified processing equipment during the period from April 20, 2005 to March 31, 2007 are eligible for a capital subsidy of 10%; c) Duty Entitlement Pass Book (DEPB) credit: The DEPB scheme is an export incentive in the form of customs duty credit which can be set off against customs duty payable on imported products and applied towards exports of certain products at specified rates as notified in EXIM Policy; and d) Excise Duty Benefits: Textile producers have the option (which we have exercised) to adopt a zeroexcise duty structure with effect from July 2004. Accordingly, at present, we do not pay excise duty on fabric, garments or yarn. These incentives could be modified or removed at any time, which could adversely affect our business and profitability. Relevant authorities in India may also introduce additional or new regulations applicable to our business, which could adversely affect our business and profitability. We are also subject to various regulations and textile policies. For details see the section titled Regulations and Policies beginning on page [] of the Draft Red Herring Prospectus. Our business and prospects could be materially adversely affected by changes in any of these regulations and policies, including the introduction of new laws, policies or regulations or changes in the interpretation or application of existing laws, policies and regulations. There can be no assurance that we will succeed in obtaining all requisite regulatory approvals in the future for our operations or that compliance issues will not be raised in respect of our operations, either of which would have a material adverse affect on our business, financial condition and results of operations. 2. Purchases of the merchandise we sell are generally discretionary and are therefore particularly susceptible to economic slowdowns. Consumers are generally more willing to make discretionary purchases, including purchases of fashion products and high-end textile products, during periods in which favorable economic conditions prevail. Uncertainties regarding future economic prospects could affect consumer-spending habits and have an adverse effect on our results of operations. Uncertainty with respect to consumer spending as a result of weak economic conditions has in the past caused our customers to delay the placing of initial orders and to slow the pace of reorders during the seasonal peak of our business. Weak economic conditions have had a material adverse effect on our results of operations at times in the past and could have a material adverse effect on our results of operations in the future as well. 3. Our performance is linked to the stability of policies and the political situation in India. The role of the Indian central and state governments in the Indian economy has remained significant over the years. Since 1991, the Government has pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. There can be no assurance that these liberalization policies will continue in the future. The rate of economic liberalization could change, and specific laws and policies affecting textile and apparel companies, foreign investment, currency exchange rates and other matters affecting investments in Indian companies could change as well. A significant change in Indias economic liberalization and deregulation policies could disrupt business and economic conditions in India, thus affecting our business. The current Government is a coalition of several parties. The withdrawal of one or more of these parties could result in political instability. Any political instability could delay the reform of the Indian economy, which could materially adversely impact our business. 4. Any acts of war or conflicts involving India or other countries could adversely affect business sentiment and the financial markets and adversely affect our business.

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India has from time to time experienced hostilities with neighbouring countries. Such events could create a perception that investments in Indian companies involve a higher degree of risk. This, in turn could have an adverse effect on the market for securities of Indian companies, including our Equity Shares. The consequences of any armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business. 5. Terrorist attacks or war or conflicts involving countries in which we operate or where our customers are located could adversely affect the financial markets and adversely affect our business. Terrorist attacks and other acts of violence, war or conflicts, particularly those involving India, as well as the U.S. and the EU may adversely affect Indian and worldwide financial markets. Such acts may negatively impact business sentiment, which could adversely affect our business and profitability. India has from time to time experienced, and continues to experience, social and civil unrest, terrorist attacks and hostilities with neighboring countries. Most recently, Mumbai, Indias financial capital experienced a series of train bombings. Also, some of Indias neighboring countries have experienced, or are currently experiencing internal unrest. Such social or civil unrest or hostilities could disrupt communications and adversely affect the economy of such countries. Such events could also create a perception that investments in companies such as ours involve a higher degree of risk than investments in companies in other countries. This, in turn, could have a material adverse effect on the market for securities of such companies, including our Equity Shares. The consequences of any armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business. 6. Natural calamities could have a negative impact on the Indian economy and harm our Companys business. India has experienced natural calamities such as earthquakes, floods, droughts and a tsunami in recent years. The extent and severity of these natural disasters and pandemics determines their impact on these economies. Prolonged spells of abnormal rainfall and other natural calamities could have an adverse impact on the economies in which we have operations, which could adversely affect our business and the price of our Equity Shares. 7. We will need final listing and trading approvals from the BSE and the NSE before trading commences. An active market for the Equity Shares may not develop, which may cause the price of the Equity Shares to fall and may limit your ability to sell the Equity Shares. The present Issue is of fresh issue of Equity Shares for which there is currently no trading market. Our Company will apply to the BSE and NSE for final listing and trading approvals after the allotment of the Equity Shares in the Issue. There can be no assurance that we will receive such approvals on time or at all. Also, no assurance can be given that an active trading market for the Equity Shares will develop or as to the liquidity or sustainability of any such market, the ability of holders of the Equity Shares to sell their Equity Shares or the price at which shareholders will be able to sell their Equity Shares. If an active market for the Equity Shares fails to develop or be sustained, the trading price of the Equity Shares could fall. If an active trading market were to develop, the Equity Shares could trade at prices that may be lower than their initial offering price. 8. Fluctuations in operating results and other factors may result in decrease in our Equity Share price. Stock markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market volatility and fluctuations may adversely affect the trading price of our Equity Shares. There may be significant volatility in the market price of our Equity Shares. If we are unable to operate profitably or as profitably as we have in the past, investors could sell our Equity Shares when it becomes apparent that the expectations of the market may not be realized, resulting in a decrease in the market price of our Equity Shares. The SENSEX is trading at its historic peak level and most of the stocks are trading at an all-time high price. The current prices may not be reflective of the intrinsic value of the respective companies. Therefore, in future, the sustainability of such valuation seems to be difficult.

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In addition to our operating results, the operating results of other apparel companies, changes in financial estimates or recommendations by analysts, governmental investigations and litigation, speculation in the press or investment community, the possible effects of a war, terrorist and other hostilities, adverse weather conditions, changes in general conditions in the economy or the financial markets, or other developments affecting the apparel industry, could cause the market price of our Equity Shares to be issued to fluctuate substantially. 9. You will not be able to sell immediately on an Indian Stock Exchange any of the Equity Shares you purchase in the Issue. Under the SEBI Guidelines, we are permitted to allot equity shares within 15 days of the closure of the public issue. Consequently, the Equity Shares you purchase in this Issue may not be credited to your demat account, with the Depository Participants until approximately 15 days after the Bid/Issue Closing Date. You can start trading in the Equity Shares only after they have been credited to your demat account and final listing and trading approvals are received from the Stock Exchanges. Further, there can be no assurance that the Equity Shares allocated to you will be credited to your demat account, or that trading in the Equity Shares will commence, within the specified time periods or at all. Notes to Risk Factors: 1. Public Issue of up to 8,320,000 Equity Shares at a price of Rs. [] each for cash aggregating up to Rs. [] million by our Company. The Issue comprises a Net Issue to the public of up to 8,305,000 Equity Shares and the Employees Reservation Portion of up to 15,000 Equity Shares. The