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Hatsun Agro Product Limited

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H A T S U NAGRO PRODUCT LIMITED

REGISTERED & CORPORATE OFFICE5-A, VIJAYARAGHAVA ROAD

T.NAGAR, CHENNAI - 600 017.Phone: 091-044-28150014, Fax: 091-044-28152508

Website: www.hatsun.comE-mail: [email protected]

FACTORIES1. ATTUR MAIN ROAD

KARUMAPURAM VILLAGESALEM - 636 106, TAMIL NADU.

2. TIMMASAMUDRAM VILLAGECHENNAI-BANGALORE HIGHWAYKANCHEEPURAM TALUKKANCHEEPURAM - 631 502, TAMIL NADU.

3. NO.114, ANGADU ROADNALLUR, CHENNAI - 600 067, TAMIL NADU.

4. NO.277/2, DESUR VILLAGEBELGAUM - 590 014, KARNATAKA.

5. NO.109/2, KUNDUR VILLAGEHONNALI TALUK, DAVANGERE DISTRICTHONNALI, KARNATAKA.

6. NO.142/IB & IC, HOSUR ROADVELLISANDHAIPALACODE 606 806, TAMIL NADU.

7. NO.76/2B, DINDUGAL MADURAI MAIN ROADTHIRUVAZHAVAYANALLUR,VADIAPATTI TALUKMADURAI 625 221, TAMIL NADU.

BRANCHES/DEPOTS

BOARD OF DIRECTORSR.G. CHANDRAMOGAN

Chairman and Managing Director

K.S. THANARAJANJoint Managing Director

C. SATHYANExecutive Director - Operations

P. VAIDYANATHAN

KIRTI P. SHAH

S. THIAGARAJAN

B.S. MANI

N. CHANDRASEKARAN

COMMITTEES OF THE BOARDAUDIT COMMITTEE

P. VAIDYANATHANS. THIAGARAJAN

B.S. MANI

SHAREHOLDERS’/INVESTORS’GRIEVANCE COMMITTEE

S. THIAGARAJANP. VAIDYANATHANK.S. THANARAJAN

REMUNERATION COMMITTEEP. VAIDYANATHANS. THIAGARAJAN

B.S. MANI

COMPANY SECRETARYB.V. NATH

F AVINASHI

F BANGALORE

F CHENNAI

F KANCHEEPURAM

F MADURAI

F PUDUCHERRY

F SALEM

F THANJAVUR

F THIRUNELVELI

F VIJAYAWADA


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23rd ANNUAL GENERAL MEETING

DATE : 22nd SEPTEMBER, 2008

DAY : MONDAY

TIME : 11.00 A.M.

VENUE : ANDHRA SOCIAL & CULTURAL ASSOCIATIONNO.44, VIJAYARAGHAVA ROAD,T.NAGAR,CHENNAI - 600 017.

STATUTORY AUDITORSM/S. S R BATLIBOI & ASSOCIATES

CHARTERED ACCOUNTANTS“TPL HOUSE”, SECOND FLOOR, NO.3, CENOTAPH ROAD, TEYNAMPET, CHENNAI - 600 018.

BANKERSSTATE BANK OF INDIA • ICICI BANK LTD • STANDARD CHARTERED BANK LTD • AXIS BANK LTD

PUNJAB NATIONAL BANK • THE BANK OF RAJASTHAN LTD. • THE KARUR VYSYA BANK LTD.LAKSHMI VILAS BANK LTD. • THE SOUTH INDIAN BANK LTD. • YES BANK LTD.

Contents Page No.

Notice .............................................................................................3 3

Directors’ Report ............................................................................. 6 9

Corporate Governance Report ........................................................ 13

Management Discussion & Analysis Report .................................. 27 29

Auditors’ Report ............................................................................ 30 32

Balance Sheet .............................................................................. 34 36

Profit & Loss Account ................................................................... 35 37

Cash Flow Statement .................................................................... 36 38

Schedules to Accounts ................................................................. 38 40

Notes on Accounts ........................................................................ 44 48

Balance Sheet Abstract ................................................................ 55 56


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NOTICE TO SHAREHOLDERS

NOTICE is hereby given that the Twenty Third Annual General Meeting of HATSUN AGRO PRODUCT LIMITED will be heldon Monday, the 22nd September 2008 at 11.00 a.m. at Andhra Social and Cultural Association, No.44, Vijayaraghava Road,T.Nagar, Chennai - 600 017 to transact the following businesses :

ORDINARY BUSINESS

1. To receive, consider and adopt the audited Balance Sheet as at 31st March, 2008 and the Profit & Loss Account of theCompany for the year ended on that date and the Reports of the Directors and the Auditors thereon.

2. To ratify the Interim Dividend of 25% declared and paid for the year ended 31st March 2008 and declare final dividendof 35% as recommended by Board for the year ended 31st March, 2008.

3. To declare pro-rata dividend on 8% Non-Convertible Cumulative Redeemable Preference Shares.

4. To appoint a Director in place of Mr. K.S. Thanarajan, who retires by rotation and being eligible, offers himself for re-appointment.

5. To appoint a Director in place of Mr. N. Chandrasekaran, who retires by rotation and being eligible, offers himself forre-appointment.

6. To appoint M/s. S.R. Batliboi & Associates, Chartered Accountants, the retiring Auditors, as Auditors of the Companyto hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual GeneralMeeting and to fix their remuneration.”

SPECIAL BUSINESS

7. To consider and if thought fit, to pass with or without modification, the following Resolution as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of Section 81(1A) and other applicable provisions, if any of theCompanies Act, 1956, (including any statutory modifications, or re-enactment thereof for the time being in force)and relevant provisions of the Memorandum and Articles of Association of the Company and subject to such otherapproval(s), permission(s), sanction(s) and reporting as may be necessary, the consent, authority and approval ofthe Company be and is hereby accorded to the Board of Directors to offer, issue, and allot not exceeding 14,00,000(Fourteen Lakhs) 12% Non-Convertible Non Cumulative Redeemable Preference Shares of Rs.100/- (Rupees Onehundred only) each at par / premium, credited as fully paid-up, from the Authorised Share Capital of the Company toPromoters and their Associates on preferential (private placement) basis, either in one or more tranches and onsuch terms & conditions including dividend, preferential payment and redemption as the Board of Directors maydeem fit and that such shares need not be offered to the other existing Shareholders of the Company.”

“RESOLVED FURTHER THAT the Board of Directors be and is hereby authorised to do all acts and deeds as may benecessary, proper and expedient to give effect to this Resolution.”

Place : Chennai By order of the BoardDate : 7th August, 2008 for HATSUN AGRO PRODUCT LIMITEDRegistered Office: Sd/-5-A, Vijayaraghava Road, B.V. NATHT. Nagar, Chennai - 600 017. Company Secretary


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NOTES:

1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY TO ATTENDAND VOTE INSTEAD OF HIMSELF. A PROXY NEED NOT BE A MEMBER OF THE COMPANY. Proxies, in order to beeffective, must be received at the Company’s Registered Office not less than 48 hours before the commencement ofthe Annual General Meeting.

2. The Register of Members and the Share Transfer Books of the Company will remain closed for the purpose of theensuing Annual General Meeting from 16th September, 2008 to 22nd September, 2008 (both days inclusive).

3. Shareholders are requested to notify our Registrar and Share Transfer Agent, M/s Alpha Systems Private LimitedNo.30, Ramana Residency, 4th Cross Street, Sampige Road, Malleswaram, Bangalore – 560 003, any change in theiraddress, to ensure prompt receipt of all correspondence.

4. All correspondence with respect to transfer of shares, change of address, conversion of physical shares into Dematform etc., may be sent to the Registrar and Share Transfer Agent.

5. SHAREHOLDERS ARE ADVISED, IN THEIR OWN INTEREST THAT ALL THE COMMUNICATIONS TO THE COMPANYWHICH WOULD HAVE THE EFFECT OF AMENDING THE PERMANENT DETAILS OF THE LEDGER FOLIO SHOULDBE SIGNED BY ALL THE SHAREHOLDERS.

6. Shareholders may visit Company’s website : www.hatsun.com and contact us at e-Mail: [email protected].

7. Shareholders who are holding shares in more than one folio are requested to intimate to the Registrar the details of allfolio numbers for consolidation into a single folio.

8. Shareholders are requested to check whether they have encashed Dividend Warrants for the earlier years. If theDividend Warrants have become time-barred / lost, please apply for revalidation / fresh dividend warrant before thelast dates indicated below:

Dividend for Rate of Record Date on which unpaid Shareholdersthe year Dividend Date amount is required to be should applyended transferred to IE&PF latest by

2000-01 20% 08/09/2001 09/10/2008 19/09/20082002-03 30% 28/09/2002 29/10/2009 09/10/20092003-04 20% 29/09/2003 30/10/2010 10/10/20102005-06 20% 14/07/2006 25/07/2013 05/07/20132006-07 20% 06/07/2007 27/07/2014 07/07/20142007-08 25% 07/11/2007 06/12/2014 16/11/2014

During the 2007-08, an amount of Rs.26,600/- being unclaimed dividend pertaining to the accounting year 1999-2000 was transferred to Investor Education and Protection Fund (IE & PF).

In terms of Section 205C of the Companies (Amendment) Act, 1999, all dividend amounts, which remain unclaimedand unpaid for a period of seven years will be transferred to the IE & PF. Shareholders will not be entitled to claimthe dividend amounts once transferred to IE & PF.

PROFILE OF THE DIRECTORS BEING REAPPOINTED / APPOINTED

As per the Articles of Association of the Company, one-third of its Directors retire every year and, if eligible, offer themselvesfor re-election at every Annual General Meeting. Accordingly, Mr. K S Thanarajan and Mr. N Chandrasekaran are liable toretire at the ensuing Annual General Meeting and being eligible, are offering themselves for re-appointment, in accordancewith the provisions of the Companies Act, 1956. The brief Resume of each of the Directors who are proposed to bereappointed is given below:

• Mr. K S Thanarajan, is a post graduate in Economics and he is the Joint Managing Director of the Company and heis in-charge of day-to-day operations of the Dairy Division. He has held various executive positions during his careerspanning over 36 years. He joined the Board of the company, in 1995.

Mr. K S Thanarajan holds 91,100 Equity Shares in the Company as at 31st March 2008.


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• Mr. N Chandrasekaran, is a Mechanical Engineering Graduate with about 41 years experience. He has held variousexecutive positions during his career. He is the Managing Director of EPT Engineering Services Private Limited. He isalso on the Board of other companies viz., Fortune Valley Agro Farms Private Limited, Enmas Process TechnologiesPrivate Limited, Enmas Dynetics Limited, PSTS Heavy Lift and Shift Limited, Cethar Energy Limited and CetharVessels Limited. Mr. N Chandrasekaran joined the Board of the Company, on 28th March 2005 as an AdditionalDirector.

Mr. N Chandrasekaran has no Shareholding in the Company as at 31st March 2008.

EXPLANATORY STATEMENT PURSUANT TO SECTION 173(2) OF THE COMPANIES ACT, 1956

Item No.7

In order to augment the long term resources of the Company, it is proposed to offer, issue and allot Non-Convertible NonCumulative Redeemable Preference Shares on a preferential basis to Promoters and their Associates on such termsand conditions including dividend, preferential payment and redemption as the Board of Directors may deem fit. Theproposed issue will not be listed on any of the Stock Exchanges.

For making preferential allotment of shares the approval of shareholders is necessary. Hence the item is placed before themeeting for approval.

The Board recommends that the resolution be passed.

None of the Directors except the promoter directors Mr. R G Chandramogan and Mr. C Sathyan, is interested or concernedin the item of business.

Place : Chennai By order of the BoardDate : 7th August, 2008 for HATSUN AGRO PRODUCT LIMITEDRegistered Office: Sd/-5-A, Vijayaraghava Road, B.V. NATHT. Nagar, Chennai - 600 017. Company Secretary


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DIRECTORS’ REPORT

ToThe Members

Your Directors are delighted to present their 23rd Report along with the Audited Accounts of the Company for the yearended 31st March, 2008.

FINANCIAL RESULTS

The financial performance of your Company for the year ended 31st March, 2008 is summarised below:

(Rs. in Lakhs)

Current Year ended Previous Year ended31st March, 2008 31st March, 2007

IncomeNet Sales 86,319.36 58,528.28Other Income 624.07 694.72

86,319.36 59,223.00Profita) Profit before Depreciation 4,645.32 2,709.23b) Less : Depreciation 1,850.40 1,578.56

c) Profit after depreciation 2,794.92 1,130.67d) Less : Income-tax - Current Period 979.11 346.94

Deferred Tax - Current Period 12.74 24.30Reversal of Prior Period tax (18.89) (111.81)Fringe Benefit Tax 89.40 56.64

e) Profit after Taxes 1,732.56 814.60f) Add : Balance brought forward from previous year 236.12 204.80

h) Balance available for appropriation 1,968.68 1,019.40

Appropriationa) Dividend

- Interim Dividend paid on Preference Shares 20.38 —- Interim Dividend paid on Equity Shares 169.72 —- Proposed Final Dividend on Preference Shares 20.26 54.12- Proposed Final Dividend on Equity Shares 237.61 135.78

b) Corporate Dividend Tax- Equity 69.23 23.08- Preference 6.91 9.20

c) Transfer to General Reserve from current year profits 173.26 61.10d) Balance carried to Balance Sheet 1,271.31 736.12

1,968.68 1,019.40

PERFORMANCE OF THE COMPANY

OPERATING RESULTS

During the year, your Company registered a turnover (Net Sales) of Rs. 86319.36 Lakhs representing an increase of47.48% over that of the previous year. Your Company registered a gross profit of Rs. 2794.92 Lakhs, with an increase of


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47.19% over the previous year. This has been achieved through rigorous cost control measures and enhanced realizationcombined with a strong supply chain management and optimum collection system.

EXPORTS

The value of exports during the year under review was Rs. 11280 Lakhs representing 13.07 % of Net Sales. Your Companyis a Net Foreign Exchange Earner.

SEGMENTWISE PERFORMANCE

DAIRY SEGMENT

Your Company is a leading private Company in the dairy sector in the Country. Milk continues to have the major share inyour Company’s revenue. The revenue in the milk and milk products segment increased by 50.04% over that of theprevious year. The profit in this segment grew by 105.33% over the previous year.

ICE CREAM SEGMENT

Though the revenue in this segment showed an increase of 18.40% over the previous year, the segmental profit wasreduced by 25.15% due to heavy increase in basic raw material cost. Your Company is implementing stringent cost controltechniques to improve the returns from this segment. This segment is poised for good growth in the coming years with theincreasing disposable income of the population.

FUTURE PLAN

The major thrust areas in the current financial year would be Dairy Ingredients, Milk Products and Ice Cream. This will helpyour Company to diversify its product profile and enable it to maintain its leadership position.

DIVIDEND

EQUITY SHARES

Your Company has declared and paid an Interim Dividend of Rs.2.50/- per Equity Share (25%) on 30th October 2007 onEquity Share Capital, for shareholders whose names appear on the Register of Members as at 7th November, 2007 (RecordDate), absorbing Rs.1,98,56,444/- (Dividend - Rs. 1,69,72,045/-; Corporate Dividend Tax – Rs. 28,84,399/-). The Directorsrecommend a final dividend at 35% per Equity Share for the year ended 31st March, 2008.

PREFERENCE SHARES

As per the terms of the issue of 8% Non-convertible Cumulative Redeemable Preference Shares of Rs.100/- each, yourDirectors recommended a pro rata Dividend to the Preference shareholder whose name appears on the Register ofMembers as at 7th November 2007 (Record Date) absorbing Rs.23,83,852/- (Dividend – Rs. 20,37,567/-; CorporateDividend Tax – Rs. 3,46,285/-). The directors recommend a pro rata dividend of Rs20,26,433/- in terms of the issue of 8%Non-convertible Cumulative Redeemable Preference Shares.

COMMUNITY DEVELOPMENT AND CHARITABLE WORK

Your Company has co-ordinated various Community Development Activities during the year. Your Company has organizedfree eye camps at Attur, Palacode, Edappady, Rasipuram and Valapatty. Your Company has also distributed stationery,uniforms and school bags to school students.

DIRECTORS

In accordance with the provisions of the Articles of Association of the Company, two of your Directors, Mr. K S Thanarajan,and Mr. N Chandrasekaran are liable to retire by rotation at the forthcoming Annual General Meeting and being eligible,offer themselves for re-appointment.

The profile of Directors seeking re-appointment is furnished in the Notice of the ensuing Annual General Meeting.


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DIRECTORS’ RESPONSIBILITY STATEMENT

Your Directors confirm

i) that in the preparation of the annual accounts for the financial year ended 31st March, 2008, the applicable accountingstandards have been followed and that there are no material departures;

ii) that your Directors have selected such accounting policies and applied them consistently and made judgementsand estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Companyat the end of the financial year and of the profit of the Company for the period;

iii) that your Directors have taken proper and sufficient care for the maintenance of adequate accounting records inaccordance with the provisions of the Act, for safeguarding the assets of the Company and for preventing and detectingfraud and other irregularities;

iv) that your Directors have prepared the annual accounts on a ‘going concern’ basis.

FINANCE

During the year under review the Company had to maintain its borrowings to run the operations. However, your companyhas taken care to ensure that such of the Company borrowings are obtained at very competitive rates.

In terms of the provisions of Investor Education and Protection Fund Rules 2001, Rs.26,600/- of unclaimed dividendpertaining to the accounting year 1999-00 was transferred to Investor Education and Protection Fund during the year.

DEPOSITORY SYSTEM

As the Shareholders are aware, your Company’s Shares are tradable in electronic form and the Company has establishedconnectivity with both the Depositories i.e. National Securities Depository Limited and Central Depository Services (India)Limited. In view of the advantages offered by the Depository System, the shareholders are requested to avail of the facilityof dematerialization of the Company’s shares.

FIXED DEPOSITS

The total amount of Fixed Deposits from the Public and Shareholders of the Company outstanding as at 31st March, 2008,was Rs.345.42 Lakhs out of which a sum of Rs.206.72 Lakhs represent 637 accounts of Fixed/Non Cumulative Depositsand Rs.138.70 Lakhs represent 433 accounts of Cumulative Deposits. A sum of Rs.11.03 Lakhs under 41 accounts wasunclaimed as on that date. Out of the above, Rs.6.22 Lakhs representing 24 accounts were since claimed and paid.

AUDITORS & AUDITORS’ REPORT

M/s. S R Batliboi & Associates, Chartered Accountants, Chennai, Statutory Auditors of the Company retire at the ensuingAnnual General Meeting and are eligible for reappointment. The Company has received a certificate from them confirmingthat this appointment, if made, will be within the limits laid down under Section 224(1B) of the Companies Act, 1956. Yourdirectors recommend the appointment of M/s. S R Batliboi & Associates, Chartered Accountants, Chennai as StatutoryAuditors of the Company at the ensuing Annual General Meeting

EXPLANATION TO AUDITORS’ REMARKS

Point No. 3 of the Auditors’ Report

As more fully described in Note 2 (a)(iii) of Schedule 19 to the financial statements, certain income tax matters (financialestimate by the management of Rs.15 million) in respect of the financial year ended 31st March 1996 are being contestedby the Company and the matter pending with the High Court of Judicature, Chennai. Pending a final resolution ofuncertainties in this connection, no provision towards tax and other consequential adjustment, if any have been consideredin the financial statements.

The Management believes based on the expert advice that the company has strong case and hence, no provision andconsequential adjustments, if any for such disputed amount have been considered in the financial statements.


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Point No. (xvii) of Annexure to the Auditors’ Report

According to the information and explanations given to us and on overall examination of the balance sheet of theCompany, we report that the Company has used funds raised on short-term basis for long-term investment. The Companyhas purchased certain fixed assets aggregating Rs. 438,309 (‘000s) by availing of short term loans.

As informed in the earlier years’ Annual Reports, the Company has a centralized treasury function where all the termloans and other borrowings in addition to the cash generated from operations are pooled through common bankaccounts to optimally use funds and reduce the interest cost to the Company. It is also to be mentioned here that theCompany obtains loans from banks, which inherently permit it, to be used interchangeably for long term and short termpurposes.

INDUSTRIAL RELATIONS

Industrial relations in all the units and branches of your Company remained cordial and peaceful throughout the year.

PARTICULARS OF EMPLOYEES UNDER SECTION 217(2A)

Information as per Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees)Rules, 1975 forming part of this report for the year ended March 31, 2008

Part A – Employed throughout the year and in receipt of remuneration aggregating to Rs 24,00,000/- or more during2007-2008.

S. No Name Age Designation/ Remuneration Qualification Date of Previous employmentNature of Duties (Gross) Rs and Experience commencement Name Designation (No of Years)

of employment of theorganisation

1 Mr. R G Chandramogan 59 Chairman andManaging Director 26,95,733 Industrialist 04.03.1986 — — —

2 Mr. K S Thanarajan 59 Joint Managing 28,88,933 Post Graduate 18.07.1995 — — —Director in Economics

3 Mr V K Sinha 43 SGM Tech 25,20,000 BSc Dairy Tech 01.08.2004 Dynamix GM 20 yearsDairy Ltd Production

Part B – Employed for part of the year and in receipt of remuneration aggregating to Rs 2,00,000/- or more during2007-2008.

S. No Name Age Designation/ Remuneration Qualification Date of Previous employmentNature of Duties (Gross) Rs and Experience commencement Name Designation (No of Years)

of employment of theorganisation

1 Mr. B Nandakumar 50 CMO 27,42,552 MA Economics 06.09.2004 LG Care COO 27 years

Notes : 1. All appointments are / were contractual.

2. Gross remuneration includes salary & allowances, contribution to PF & other Funds and other benefits

3. Except Mr C Sathyan, Executive Director who is the son of Mr R G Chandramogan, Chairman andManaging Director, None of the employee is a relative of any Director of the Company

CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION

The information required to be given under these heads in accordance with the provisions of Section 217(1)(e) of theCompanies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules,1988, has been set out in the Annexure to this Report.


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FOREIGN EXCHANGE EARNINGS AND OUTGO

The Foreign Exchange Earnings from Exports during the year 2007-08 amounted to Rs. 11,280.31 Lakhs.

Total outgo of Foreign Exchange during the year amounted to Rs.258.39 Lakhs.

CORPORATE GOVERNANCE

Your Company has complied with all mandatory provisions of Corporate Governance as prescribed under the ListingAgreement of Bombay Stock Exchange Limited with which the Company is listed.

The Management Discussion and Analysis Report and Corporate Governance Report form part of this Annual Report.

ACKNOWLEDGEMENT

Your Directors thank the Company’s Bankers and the Financial Institutions for their help and co-operation extended throughoutthe year. Your Directors place on record their appreciation for the support and co-operation that the Company receivedfrom its stakeholders and in specific its channel partners. Your Directors also record their appreciation for the excellentoperational performance of the staff of the Company that contributed to the achievements of the Company. The Directorsalso acknowledge with much gratitude, the continued trust and confidence reposed by the shareholders of the Company.

For and on behalf of the Board of DirectorsSd/-

Place : Chennai R.G. CHANDRAMOGANDate : 18th July, 2008 Chairman & Managing Director


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ANNEXURE TO THE DIRECTORS’ REPORT

FORM - A — DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGYEnergy conservation measures are being taken within our plants as an ongoing exercise, although, the Company’soperations are not power intensive.

1. Power and Fuel Consumption: 2007-2008 2006-2007

ELECTRICITY:

a) PurchasedUnits 3,36,74,352 2,65,44,289Total Amount (Rs.) 16,09,22,952 12,49,50,960Rate / Unit (Rs.) 4.78 4.71

b) Through Diesel GenerationUnits 28,03,421 19,72,523Total Amount (Rs.) 3,48,30,103 2,56,85,500Cost/Unit (excluding Overheads & Depreciation) (Rs.) 12.42 13.02Units per Litre of Diesel Oil 2.75 2.67

c) Furnace OilQuantity (KL) 6,94,780 8,58,566Total Amount (Rs.) 1,78,94,773 1,81,94,305Average Rate (Rs. / Litre) 25.76 21.19

d) CoalQuantity (Kg.) 1,82,14,955 79,27,000Total Amount (Rs.) 4,74,09,479 1,61,60,631Average Rate (Rs./kg.) 2.60 2.04

2. Consumption per Unit of Products, i.e., per Litre of Milk:Electricity (Units) - Milk 0.0624 0.0594

- Ice Cream 0.3692 0.3913Furnace Oil (Litres) - Milk 0.0011 0.0024

- Ice Cream 0.0194 0.0190Coal (Kg) - Milk 0.0332 —

FORM - B — DISCLOSURE OF PARTICULARS WITH RESPECT TO TECHNOLOGY ABSORPTIONa) Research and Development (R & D)

1. Specific areas in which R & D carried out by the Company

Process DevelopmentProduct DiversificationQuality enhancement to achieve International Standards.

2. Benefits Derived

Continuous upgradation of the quality of products has resulted in better acceptance of the products by all classes ofconsumers.

3. Future Plan of Action

More importance will be given on product / process development / innovation, to bring down cost without compromisingon product quality and to achieve international standards in quality and taste.

4. Expenditure on Research & Development

a) Capital NILb) Recurring NILc) Total NILd) Total R & D expenditure as a % of total turnover NIL


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b) Technology Absorption, Adaptation and Innovation

1. Efforts Made

The Company has undertaken efforts to absorb the best available technology for the processing of milk andmanufacturing related products.

2. Benefits

Absorption of the best technology reflects in Company’s products, which are clearly differentiated from itscompetitors and its processes that consistently deliver more with less expenditure.

For and on behalf of the Board of DirectorsSd/-



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REPORT ON CORPORATE GOVERNANCE

Your Company has complied with the requirements of Corporate Governance code as per the provisions of the listingagreement.

COMPANY’S PHILOSOPHY ON CODE OF GOVERNANCE

Your Company has been continuously committed to maximizing the shareholder value on a sustained basis, while cateringto the welfare of multiple stakeholders. Your Directors perceive their role as a trustee of the stakeholders in particular andthe society at large, inculcating a culture of transparency, accountability and integrity across the Company.

Your Company has been maintaining high standards of auditing, disclosure and reporting. These standards and the innatetransparent culture continue to define your Company’s corporate governance philosophy based on strong systems, policiesand procedures.

BOARD OF DIRECTORS

Composition of Board

The Board consists of eight Directors as at 31st March, 2008. Apart from the Chairman & Managing Director, who is anExecutive Promoter Director, the Board comprises of two Executive Directors, one of whom is a Promoter Director and fivenon-executive Directors, four of whom are independent Directors. The composition of the Board is in conformity withClause 49 of the listing agreement, which stipulates that not less than fifty percent of the Board should comprise of non-executive Directors and if the Chairman is an Executive Director, atleast half of the Board should be independent.

Number of Board MeetingsThe Board of Directors met six times during the year on 16th April 2007, 21st June 2007, 30th July 2007, 30th October 2007,21st December 2007 and 29th January 2008 The maximum gap between any two meetings was less than 3 months.

Table.1. Composition of the Board of Directors of Hatsun

Name of the Director Designation Category

Attendance particulars No. of Other DirectorshipsNo. of Board Last & committee memberships

Meetings AGM /Chairmanships

R.G. CHANDRAMOGAN Chairman & Managing Director Promoter/Executive Director 6 5 Yes 1 0 0

K.S. THANARAJAN Joint Managing Director Executive Director 6 6 Yes 0 0 0

C. SATHYAN Executive Director-Operations Promoter/Executive Director 6 3 Yes 1 0 0

P. VAIDYANATHAN Director Non-Executive/Independent Director 6 5 Yes 7 2 1

KIRTI P. SHAH Director Non-Executive/ Director 6 1 No 1 1 0

S. THIAGARAJAN Director Non-ExecutiveIndependent Director 6 5 Yes 2 0 0

B.S. MANI Director Non-ExecutiveIndependent Director 6 4 Yes 1 0 0

N. CHANDRASEKARAN Director Non-ExecutiveIndependent Director 6 5 Yes 7 7 0

None of the Directors is a member of more than ten Board level committees or Chairman of more than five such committeesas per Clause 49 requirement.

Othe

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(Yes

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Atten

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Held

Comm

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Memb

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Comm

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Chair

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Equity Shares held by Non – Executive Directors.

Mr. Kirti P Shah holds 50,800 Equity Shares of Rs. 10/- each and 5,08,000 Preference Shares of Rs. 100/- each andMr. B. S. Mani holds 300 Equity Shares of Rs. 10/- each, in the Company.

Information supplied to the Board

The Board has complete access to all information, with the Company. Inter-alia, the following information is regularlyprovided to the Board, whenever applicable and materially significant, either as a part of the agenda papers well in advanceof the Board meetings or tabled in the course of the Board meeting or tabled before the appropriate Committees of theBoard.

• Annual Operating plans & budgets and any updates thereof.

• Capital budgets and any updates thereof.

• Quarterly results for the Company and operating divisions and business segments.

• Minutes of the meetings of audit committee and other committees of the Board.

• The information on recruitment and remuneration of senior officers just below the Board level, including the appointmentor removal of Chief Financial Officer and Company Secretary.

• Materially important show cause, demand, prosecution notices and penalty notices.

• Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.

• Any material default in financial obligations to and by the Company, or substantial non-payment for goods sold by theCompany.

• Any issue, which involves possible public or product liability claims of substantial nature, including any judgment ororder which, may have passed strictures on the conduct of the Company or taken an adverse view regarding anotherenterprise that can have negative implications on the Company.

• Details of any joint venture or collaboration agreement.

• Transactions that involve substantial payment towards goodwill, brand equity or intellectual property.

• Significant labour problems and their proposed solutions. Any significant development in human resources/industrialrelations front like signing of wage agreement, implementation of voluntary retirement scheme etc.

• Sale of material nature, of investments, subsidiaries, assets, which is not in the normal course of business.

• Quarterly details of foreign exchange exposures and the steps taken by the management to limit the risks of adverseexchange rate movement, if material.

• Non-compliance of any regulatory, statutory nature or listing requirements and shareholders service such as non-payment of dividend, delay in share transfer etc.

The Board has established procedures to enable the Board to periodically review compliance reports of all laws applicableto the Company, prepared by the company as well as steps taken by the Company to rectify instances of non-compliances.

Risk Management

The Company has established a robust risk assessment and minimization procedures, which are reviewed by the Boardperiodically. Hatsun has a structure in place to identify and mitigate the various risks that would be faced by it from time totime. At every Board meeting the risks are reviewed, new risks if any, are identified, assessed, and control measures aredesigned to put in place within a fixed timeline for mitigating the risk.

AUDIT COMMITTEE

The Audit Committee of the Board comprises of three Directors, all of whom are non-promoter, non-executive and independentDirectors. They are Mr. P Vaidyanathan(Chairman), who is a Fellow member of the Institute of Chartered Accountants ofIndia, Mr. S Thiagarajan and Mr. B S Mani. The Audit Committee met four times during the year on 20th June, 2007,30th July, 2007, 30th October, 2007 and 29th January, 2008. The time gap between any two meetings was less than fourmonths.


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Table:2. Attendance record of Audit Committee.

Name of MembersCategory of

StatusNo. of Meetings

Directors Held Attended

P. Vaidyanathan Independent Chairman 4 4S. Thiagarajan Independent Member 4 4B.S. Mani Independent Member 4 3

The functions of the Audit Committee include the following

• Oversight of the Company’s financial reporting process and the disclosure of its financial information to ensure thatthe financial statement is correct, sufficient and credible.

• Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of thestatutory auditor and the fixation of audit fees.

• Approval of payment to statutory auditors for any other services rendered by the statutory auditors.

• Reviewing, with the management, the annual financial statements before submission to the Board for approval, withparticular reference to:

Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report interms of clause (2AA) of Section 217 of the Companies Act, 1956.Changes, if any, in accounting policies and practices and reasons for the same.Major accounting entries involving estimates based on the exercise of judgment by management.Significant adjustments made in the financial statements arising out of audit findings.Compliance with listing and other legal requirements relating to financial statements.Disclosure of any related party transactions.Qualifications in the draft audit report.

• Reviewing, with the management, the quarterly financial statements before submission to the Board for approval.

• Reviewing with the management, the statement of uses / application of funds, raised through an issue (public issue,rights issue, preferential issue, etc) the statement of funds utilized for purposes other than those stated in the offerdocument/ prospectus/notice and the report submitted by the monitoring agency monitoring the utilization of proceedsof a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter.

• Reviewing, with the management, performance of statutory and internal auditors, and adequacy of the internal controlsystems.

• Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department,staffing and seniority of the official heading the department, reporting structure coverage and frequency of internalaudit.

• Discussion with internal auditors any significant findings and follow up there on.

• Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspectedfraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board.

• Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.

• To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (incase of non payment of declared dividends) and creditors.

• To review the functioning of the Whistle Blower mechanism, in case the same exists.

• Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.


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The Audit Committee is empowered to

• Investigate any activity within its terms of reference.

• Seek information from any employee.

• Obtain outside legal or other professional advice.

• Secure attendance of outsiders with relevant expertise, if it considers necessary.

The Company has systems in place to ensure that the Audit Committee reviews:

• Management discussion and analysis of financial condition and results of operations;

• Statement of significant related party transactions (as defined by the audit committee), submitted by management;

• Management letters / letters of internal control weaknesses issued by the statutory auditors;

• Internal audit reports relating to internal control weaknesses; and

• The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by theAudit Committee

REMUNERATION COMMITTEE

The Remuneration Committee of the Board comprises of three Directors, all of whom are non-executive and independentdirectors. They are Mr. P Vaidyanathan(Chairman), Mr. S Thiagarajan and Mr. B S Mani. The Committee met on 30th July,2007, during the year.

Table:3. Attendance record of Remuneration Committee.




P. Vaidyanathan Independent Chairman 1 1S. Thiagarajan Independent Member 1 1B.S. Mani Independent Member 1 0

The Remuneration Committee of the Company recommends to the Board, the compensation terms of the Executive Directorsand its responsibilities include:

• Dealing with appointments, remuneration, promotion and other related aspects in respect of the Managing Directorand other Executive Directors of the Company

• Reviewing the Remuneration policy of the Company from time to time. This is in consonance with the existing industrypractice i.e. directed towards rewarding performance, based on review of achievement on a periodical basis.

Compensation Philosophy in respect of Non-Executive Directors

The objective of the Compensation Philosophy is to attract and retain high calibre individuals and motivate them towardsthe achievement of exceptional performance that enhances the value of the Company.

The sitting fee of Rs.5,000/- (Rupees Five thousand only) has been increased to Rs.10,000/- at the Board Meeting held on30th October 2007, effective from subsequent meeting and is being paid to all Non-executive Directors of the Board,attending the Board meeting.

Table.4. Remuneration paid to Executive Directors

Salary & Contribution to OtherName Allowances P.F. & Other Benefits

(Rs.) Funds (Rs.)

Mr. R.G. Chandramogan 25,80,000 10,800 1,04,933Mr. K.S. Thanarajan 25,80,000 2,04,000 1,04,933Mr. C. Sathyan 14,90,000 9,360 73,683


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Note: All the Executive Directors are covered under the Company’s Group Gratuity Scheme along with the other employeesof the Company. Proportionate amount of gratuity is included in the above disclosure.

Table.5. Sitting fee paid to Non-Executive Directors

Name of the Director Sitting Fees (Rs.)

Mr. P Vaidyanathan 35,000Mr. Kirti P Shah 10,000Mr. S Thiagarajan 35,000Mr. B S Mani 30,000Mr. N Chandrasekaran 35,000

SHAREHOLDERS / INVESTORS GRIEVANCE COMMITTEE

The Shareholders / Investors Grievance Committee of the Board of Directors comprises of three members, namelyMr. S. Thiagarajan (Chairman), Mr. P. Vaidyanathan and Mr. K.S. Thanarajan, two of whom are independent and non-executive Directors, The Committee met four times during the year on 21st June, 2007, 30th July, 2007, 30th October, 2007and 29th January, 2008.

Table.6. Attendance record of Shareholders’/Investors’ Grievance Committee




S. Thiagarajan Independent Chairman 4 4P. Vaidyanathan Independent Member 4 3K.S. Thanarajan Executive Member 4 4

The Committee supervises the mechanism for redressal of Investor grievances and ensures cordial investor relations. TheCommittee takes care of investor greivances on the following matters:

• Transfer/Transmission of shares.

• Split-up/Sub-division and Consolidation of shares.

• Issue of new and duplicate share certificates.

• Registration of Power of Attorneys, Probate Letters of transmission or similar other documents.

• Redressal of Shareholders’ and investors’ complaints like transfer of Shares, non-receipt of Balance Sheet, nonreceipt of declared dividend etc.

• Oversee the performance of the Registrar & Transfer Agent and recommends measures for overall improvement ofthe quality of service.

• Any allied matter(s) out of and incidental to these functions and not here in above specifically provided for.

There were no pending complaints as on 31st March 2008.

Details of Complaints

Number of complaints received from investors - 36

Number not solved to the satisfaction of investors - Nil

Number of Share Transfers pending - Nil


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Table.7. Nature of complaints received and attended during 2007-08

Sl. No. Nature of ComplaintsReceived & Redressed

during the year

1. Correspondence regarding demat / general 112. Correspondence regarding loss of shares and

issuance of duplicate Share Certificates 33. Correspondence regarding non-receipt of

share certificate, transmission of shares 94. Revalidation of dividend warrants / Non-receipt of dividend warrants 25. Correspondence regarding Deposits 11

Compliance Officer

The Name and designation of the Compliance Officer of the Company

Mr. B.V. Nath, Company SecretaryNo.5-A, Vijayaraghava Road, T.Nagar, Chennai - 600 017, Tamil Nadu.

Phone No. : 091-044-28150014Fax No. : 091-044-28152508,e-mail ID : [email protected]

SHARE TRANSFER COMMITTEE

The Committee comprises of Mr. R G Chandramogan (Chairman), Mr. K S Thanarajan and Mr. P Vaidyanathan. Transfer ofshares are processed and registered within the stipulated time, provided all the documents are valid and complete in allrespects. As on 31st March, 2008, there were no share transfers pending for registration for more than 30 days.

During the Financial Year 2007-2008, Share Transfer Committee met ten times on the following dates namely, 27th April2007, 8th June 2007, 6th July 2007, 3rd August 2007, 24th August 2007, 19th October 2007, 7th December 2007, 18th January2008, 22nd February 2008 and 31st March 2008.

SUB-COMMITTEE OF BOARD

The Sub-Committee of the Board of Directors of the Company comprises of four Directors viz., Mr. K S Thanarajan(Chairman),Mr. R.G.Chandramogan, Mr. C Sathyan and Mr. B S Mani.

During the Financial Year 2007-2008, the Committee met twenty six times on the following dates, 24th April 2007, 5th May2007, 21st May 2007, 6th June 2007, 3rd July 2007, 16th July 2007, 27th July 2007, 17th August 2007, 21st August 2007, 31st

August 2007, 6th September 2007, 19th September 2007, 25th September 2007, 8th October 2007, 1st November 2007, 28th

November 2007, 17th December 2007, 26th December 2007, 11th January 2008, 14th January 2008, 23rd January 2008, 4th

February 2008, 12th February 2008, 1st March 2008, 17th March 2008 and 26th March 2008.

The Committee is assigned the following roles:

• To review the position of funds of the Company, borrow monies required for the purpose of business, negotiate andfinalize the terms of borrowings with the lenders, approve borrowings and look into its repayments.

• To exercise generally all such powers and to do all such acts and things as the Board of Directors may delegate fromtime to time.

CORE COMMITTEE

The Core Committee for implementation of SEBI (Prohibition of Insider Trading) Regulations includes Mr.R.G.Chandramogan(Chairman), Mr. K S Thanarajan and Mr. C Sathyan. During the year the Committee met on 30th January,2008. There were no cases involving insider trading in the Company during the year.

The Company has instituted a comprehensive Code of Conduct for its management and staff. The code lays down guidelines,which advises them on procedures to be followed and disclosures to be made, while dealing with shares of Hatsun andcautioning them of the consequences of violations.


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MANAGEMENT

Management discussion and analysis report has been included and forms part of this Annual Report.

Disclosure

Disclosures on materially significant related party transactions i.e. transactions of the Company of material nature, with itspromoters, the Directors or the management, their subsidiaries or relatives etc., that may have potential conflict with theinterests of the Company at large.

Dealings in Company’s shares on the part of persons in management have been reported to Board periodically.

Related party transactions

None of the transactions with any of the related parties were in conflict with the interests of the Company.

Dealings in Company’s shares on the part of persons in management are being reported to the Core Committee.

Key Management Personnel and their Relatives

Key management personnel and the statement of transactions are provided under Schedule 19(2)(f) of the AnnualAccounts Statements.

There were no relatives of key management personnel who were paid remuneration during the year.

Details of non-compliance by the Company

Hatsun has complied with all the requirements of regulatory authorities. No penalties/strictures were imposed on theCompany by the Bombay Stock Exchange, where the shares are listed, or by SEBI or by any other statutory authority onany matter related to capital market during the last three years.

Code of Conduct

The Board has laid down a Code of Conduct for its members and Senior Management Personnel of the Company. Thecode of conduct is available on the website of the Company www.hatsun.com. All Board members and senior managementpersonnel have affirmed compliance with the Code of Conduct.

The CEO has affirmed to the Board that this Code of Conduct has been complied by the Board members and SeniorManagement.

Code for prevention of insider trading practices

In compliance with the SEBI regulation on prevention of insider trading, the Company has instituted a comprehensive codeof conduct for its management and staff. The code lays down guidelines, which advises them on procedures to be followedand disclosures to be made, while dealing with shares of Hatsun, and cautioning them of the consequences of violations.

Disclosure of accounting treatment in preparation of financial statements

Hatsun has followed the guidelines of accounting standards laid down by the Institute of Chartered Accountants of India(ICAI) in preparation of its financial statements.

CEO/CFO Certification

The CEO and CFO certification of the financial statements and the cash flow statement for the year is enclosed and formspart of this report.

SHAREHOLDERS

Reappointment of Directors

As per the Articles of Association of Hatsun, one-third of its Directors retire every year and, if eligible, offer themselves forre-election at every Annual General Meeting. Accordingly, Mr. K.S. Thanarajan and Mr. N. Chandrasekaran are liable toretire at the ensuing Annual General Meeting and being eligible, are offering themselves for re-appointment, in accordancewith the provisions of the Companies Act, 1956. The brief Resume of each of the Directors who are proposed to bereappointed is given below:


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• Mr. K S Thanarajan, is a post graduate in Economics and he is the Joint Managing Director of the Company and heis in-charge of day-to-day operations of the Dairy Division. He has held various executive positions during his careerspanning over 36 years. He joined the Board of Hatsun in 1995.

Mr. K S Thanarajan holds 91,100 Equity Shares in the Company as at 31st March 2008.

• Mr. N Chandrasekaran, is a Mechanical Engineering Graduate with about 41 years experience. He has held variousexecutive positions during his career. He is the Managing Director of EPT Engineering Services Private Limited. Heis also on the Board of other companies viz., Fortune Valley Agro Farms Private Limited, Enmas Process TechnologiesPrivate Limited, Enmas Dynetics Limited, PSTS Heavy Lift and Shift Limited, Cethar Energy Limited and CetharVessels Limited. Mr. N Chandrasekaran joined the Board of Hatsun on 28th March 2005 as an Additional Director.

Mr. N Chandrasekaran has no Shareholding in the Company as at 31st March 2008.

Means of Communication

Hatsun has its own website and all vital information relating to the Company and its performance including quarterlyresults are posted on that website, www.hatsun.com.

The quarterly, half yearly and annual results of the Company’s performance are published in leading English andVernacular newspapers like The Financial Express (English) and Malai Murasu(Tamil). The results are also posted in theEDIFAR link in the website of Securities and Exchange Board of India. Hatsun also comply with such other disseminationof information as specified by the Listing Agreement from time to time.

COMPLIANCE

The Certificate dated 17th July, 2008 obtained from Company’s Secretarial Auditor, Mr. T.P. Sridhar, Practising CompanySecretary, regarding compliance of conditions of corporate governance forms part of this report.

GENERAL BODY MEETINGS

Details of the last three Annual General Meetings are given in Table 8.

Table.8. Date, time and venue of the last three AGMs.

Financial Year Date Time Venue

2004-05 29th September, 2005 11.00 hrs Andhra Social & Cultural Assn., Chennai.2005-06 19th September, 2006 11.00 hrs Andhra Social & Cultural Assn., Chennai.2006-07 19th September, 2007 11.00 hrs Andhra Social & Cultural Assn., Chennai.

No Postal ballots were used/invited during the year.

GENERAL SHAREHOLDER INFORMATION

Annual General Meeting

• Date and Time : 22nd September, 2008 at 11.00 a.m.

• Venue : Andhra Social & Cultural Association, No.44, Vijayaraghava Road,T.Nagar, Chennai – 600 017, Tamil Nadu.

Compliance Report

Hatsun is fully compliant with the applicable mandatory requirements of the revised Clause 49.


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Table 9. Compliance Report

ParticularsClause of listing Compliance

agreement status

I. Board of Directors 49 I(A) Composition of Board 49 (IA) Yes(B) Non executive Directors Compensation and disclosures 49 (IB) Yes(C) Other provisions as to Board And Committees 49 (IC) Yes(D) Code of Conduct 49 (ID) Yes

II. Audit Committee 49 (II)(A) Qualified & Independent Audit Committee 49 (II A) Yes(B) Meeting of Audit Committee 49 (II B) Yes(C) Powers of Audit Committee 49 (II C) Yes(D) Role of Audit Committee 49 (II D) Yes(E) Review of Information by Audit Committee 49 (II E) Yes

III. Subsidiary companies 49 (III) N.A.

IV. Disclosures 49 (IV)(A) Basis of related party transactions 49 (IV A) Yes(B) Board disclosures 49 (IV B) Yes(C) Proceeds from public, rights, Preference issues etc. 49 (IV C) N.A.(D) Remuneration of Directors 49 (IV D) Yes(E) Management 49 (IV E) Yes(F) Shareholders 49 (IV F) Yes

V. CEO/CFO Certification 49 (V) Yes

VI. Report on Corporate Governance 49 (VI) Yes

VII. Compliance 49 (VII) Yes

Financial Calendar

Financial Year : 1st April to 31st March

For the year ended 31st March 2008, results were announced ono First Quarter : 30th July, 2007o Half Year : 30th October, 2007o Third Quarter : 29th January, 2008o Annual : 16th June, 2008

For the year ending 31st March, 2009, results will be announced ino First Quarter : 18th July, 2008o Half Year : End October, 2008o Third Quarter : End January, 2009o Annual : End June, 2009

Book Closure dateThe date of book closure is from 16th September, 2008 to 22nd September, 2008, inclusive of both days.

Dividend paymentAn Interim Dividend of Rs.2.50/- per Equity Share was paid to those shareholders whose name appeared in the Register ofMembers as on 7th November 2007. The Board has recommended a final dividend of 35% for eligible shareholders whosename appear on the record date subject to the approval of the members at the Annual General Meeting.

ListingAt present, the Equity Shares of the Company are listed on Bombay Stock Exchange Limited(BSE). The annual listing feefor the year 2008-09 has been paid.


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Hatsun’s Stock Exchange Codes

ISIN No. INE473B01019BSE Stock Code 531531

Table. 10. Stock Market Data.

Month Bombay Stock Exchange Limited BSE Indices - Sensex

High (Rs.) Low (Rs.) High Low

April-07 170.90 130.05 14383.72 12425.52May-07 144.90 131.00 14576.37 13554.34June-07 182.00 131.00 14683.36 13946.99July-07 198.70 153.00 15868.85 14638.88August-07 205.00 161.00 15542.40 13779.88September-07 245.00 190.00 17361.47 15323.05October-07 309.90 216.00 20238.16 17144.58November-07 359.95 265.00 20204.21 18182.83December-07 370.00 299.00 20498.11 18886.40January-08 400.00 295.00 21206.77 15332.42February-08 447.00 301.00 18895.34 16457.74March-08 444.00 306.05 17227.56 14677.24

Share Price Movement

0.0050.00

100.00150.00200.00250.00300.00350.00400.00450.00500.00

Apr-07

May-07

Jun-0

7Ju

l-07

Aug-0

7

Sep-0

7

Oct-07

Nov-0

7

Dec-0

7

Jan-0

8

Feb-08

Mar-08

Month

Sha

re P

rice

( Rs.

)

HighLow

Market Performance - Broad-based Indices

0

5000

10000

15000

20000

25000

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Month

Sens

ex High Low


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Registrar and Transfer Agents

As per the requirement of Securities and Exchange Board of India, M/s. Alpha Systems Private Limited has been appointedas the Registrar and Transfer Agent to take care of all work related to Share Registry. The contact details of the Registrarand Transfer Agent are given below:

M/s. ALPHA SYSTEMS PRIVATE LIMITED,30, Ramana Residency, 4th CrossSampige Road, Malleswaram, Bangalore – 560 003.Tel : 091 - 080 - 23460815 – 818Fax : 091 - 080 - 23460819E-mail : [email protected]

All communication on share transfers, share certificates, changes of address, dividends and any other query relating toshares should be addressed to the above Registrar and Transfer Agents.

Share Transfer System

The share transfers in physical form are presently processed and the share certificates returned within a period of 30 daysfrom the date of receipt, subject to the documents being clear in all respects. M/s Alpha Systems Private Limited, a SEBIapproved Registrar and Share Transfer Agent has been appointed to effect the transfer of shares and other related jobs.The transfer of shares in physical mode is approved by the Share Transfer Committee.

Table 11. Distribution of Shareholding as on 31st March, 2008

No. of No. of folios/ No. of folios/ No. of ShareholdingShares held Shareholders Shareholders(%) Shares (%)

001 – 100 2391 69.85 140561 2.07101 – 200 597 17.44 116912 1.72201 – 300 75 2.19 22157 0.33301 – 400 36 1.05 14059 0.21401 – 500 58 1.69 28496 0.42501 – 1000 117 3.42 91849 1.35

1001 – 5000 69 2.02 150177 2.215001 – 10000 35 1.02 260130 3.8310001 & above 45 1.31 5964477 87.86

Total 3423 100 6788818 100

Dematerialisation of Shares

About 91.90% of the shares are being held in dematerialised form as at 31st March, 2008.

Table 12. Distribution of Shares with break-up of Physical and Electronic form as on 31st March, 2008.

Sl. No. of No.of folios/ No. of folios/ No. of Shareholding

No. Equity Shares Shareholders Shareholders (%) Shares %

Phy. Elect. Phy. Elect. Phy. Elect. Phy. Elect.

1. 001 - 100 1055 1336 30.82 39.03 94989 45572 1.40 0.672. 101 - 200 452 145 13.20 4.24 89910 27002 1.32 0.403. 201 - 300 52 23 1.52 0.67 15600 6557 0.23 0.104. 301 - 400 15 21 0.44 0.61 6000 8059 0.09 0.125. 401 - 500 28 30 0.82 0.88 14000 14496 0.21 0.216. 501 - 1000 63 54 1.84 1.58 47900 43949 0.71 0.657. 1001 - 5000 18 51 0.53 1.49 46700 103477 0.69 1.528. 5001 - 10000 9 26 0.26 0.76 57950 202180 0.85 2.989. 10001 & ABOVE 11 34 0.32 0.99 177000 5787477 2.61 85.25

Total 1703 1720 49.75 50.25 550049 6238769 8.10 91.90


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Table 13. Shareholding Pattern as at 31st March 2008

CategoryNo. of folios/ No. of Shares Shareholding

Shareholders held (%)

Promoters 7 4668626 68.77Directors and their relatives *12 310100 4.57Overseas Body Corporate 1 339300 5.00Other Bodies Corporate 64 249847 3.68NRIs 17 60472 0.89Others 3322 1160473 17.09

Total 3423 6788818 100.00

* A Non-Resident Director holding 50,800 shares accumulating to 0.75% is classified under Directors and relatives.

Location of Plants

1. Attur Main Road, Karumapuram Village 2. Timmasamudram Village (White Gate)Salem - 636 106 Chennai-Bangalore HighwayTamil Nadu. Kancheepuram - 631 502, Tamil Nadu.

3. No.114, Angadu Road 4. No.277/2, Desur VillageNallur, Chennai - 600 067 Belgaum - 590 014Tamil Nadu. Karnataka.

5. No.109/2, Kundur Village 6. No.142/1B & 1C, Hosur RoadHonnali Taluk, Davangere District VellisandhaiHonnali, Karnataka. Palacode 636 806, Tamil Nadu.

7. No.76/2B, Dindugal madurai Main RoadThiruvazhavayanallur, (P.O)Vadipatti (Tk)Madurai 625 221, Tamil Nadu.

Address for Correspondence.

For share transfer, share certificates, changes of address, dividends and any other query relating to shares,

M/s. ALPHA SYSTEMS PRIVATE LIMITED30, Ramana Residency, 4th CrossSampige Road, MalleswaramBangalore – 560 003.Tel: 091 - 080 - 23460815 – 818Fax: 091 - 080 - 23460819E-mail: [email protected]

For Investors’ Assistance

Mr. B. V. NathGeneral Manager (Systems) and Company SecretaryHatsun Agro Product LimitedNo.5-A, Vijayaraghava RoadT.Nagar, Chennai – 600 017Tamil Nadu.Phone: 091 - 044 - 28150014Fax: 091 - 044 - 28152508e-Mail: [email protected]: www.hatsun.com


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NON MANDATORY REQUIREMENTS

1. Remuneration Committee

The Company has constituted a Remuneration Committee comprising of three independent directors.

2. Shareholder Rights

The statements of quarterly / yearly results are being published in the Press.

3. Postal Ballot

The Company has had no occasion to use the postal ballot during the year.

4. Whistle-Blower Policy

Hatsun has put in place an un-codified system through which employees and business associates may report unethicalbusiness practices at work place without the fear of reprisal. The Company has set up a direct contact initiative underwhich all employees/business associates have direct access to the Chairman of the Audit Committee. The “WhistleBlower Protection Policy” aims to:

• Allow and encourage employees and business associates to bring to the management’s notice concerns aboutsuspected unethical behaviour, malpractice, wrongful conduct, fraud, violation of policies etc.

• Ensure timely and consistent organizational response.

• Build and strengthen a culture of transparency and trust.

• Provide protection against victimisation.

CERTIFICATE ON CORPORATE GOVERNANCETO THE MEMBERS OF

HATSUN AGRO PRODUCT LIMITED

I have examined the compliance of conditions of Corporate Governance by Hatsun Agro Product Limited (“the Company”)for the year ended 31st March, 2008 as stipulated in Clause 49 of the Listing Agreement of the said Company with BombayStock Exchange Limited.

The Compliance of conditions of Corporate Governance is the responsibility of the Management. My examination waslimited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditionsof the Corporate Governance.

In my opinion and to the best of my information and according to the explanations given to me, I hereby certify that theCompany has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement.

I state that no investor grievances are pending for a period exceeding one month against the Company as per the recordsmaintained by the Shareholders’/Investors’ Grievance Committee, except in cases of any legal dispute or constraints.

I further state that, such compliance is neither an assurance as to the future viability of the Company nor the efficiency oreffectiveness with which the management has conducted the affairs of the Company.

Sd/-T P Shridhar

Company SecretaryC.P. No. 4530

Place : ChennaiDate : 17th July, 2008


26

DECLARATION

TO THE MEMBERS OF HATSUN AGRO PRODUCT LIMITED

This is to declare that the Code of Conduct envisaged by the Company for members of the Board and the SeniorManagement Personnel have been complied with by all the members of the Board and the Senior Management Personnelof the Company respectively.

For HATSUN AGRO PRODUCT LIMITEDSd/-


CERTIFICATION BYCHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

We, R.G.Chandramogan, Chairman and Managing Director and S. Subramanian, Chief Financial Officer of Hatsun AgroProduct Limited, certify that

1. We have reviewed the financial statements and the cash flow statement for the year and that to the best of ourknowledge and belief

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

b) these statements present a true and fair view of the state of affairs of the Company and of the results of operationsand cash flows. The financial statements have been prepared in conformity, in all material respects, with theexisting generally accepted accounting principles including Accounting Standards, applicable laws and regulations;

2. There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year,which are fraudulent, illegal or violative of the Company’s code of conduct.

3. We accept the responsibility for establishing and maintaining internal controls for financial reporting. The same ismonitored by the internal audit function, which encompasses examination and evaluation of adequacy and effectiveness.Internal Audit works with all levels of management and statutory auditors, and reports significant issues to the AuditCommittee of the Board. The auditors and audit committee are apprised of any corrective action taken with regard tosignificant deficiencies and material weakness.

4. We indicate to the auditors and to the audit committee

a) significant changes in internal control over financial reporting during the year;

b) significant changes in accounting policies during the year;

c) instances of significant fraud of which we have become aware of and which involve management or other employeeswho have significant role in the Company’s internal control system over financial reporting.

However, during the year there were no such changes or any such instances.

Sd/- Sd/-Place : Chennai R.G. Chandramogan S. SubramanianDate : 18th July, 20087 Chairman & Managing Director Chief Financial Officer


27

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Indian economy has managed to sustain a GDP growth of around 8.7% for the year 2007 despite in the increase inthe prices of primary commodities. The growth of agriculture has also been encouraging at around 4.5%. This growthrate in agriculture can be increased by creating a conducive environment for dairy farmers to increase their productivityand sell their products at competitive prices, There is still a lot of scope for increasing the milk production in India byadopting scientific methods of breeding, nutrition and calving. An increase in the production of milk can really pay richdividends for the farmers and in general to the agricultural sector since milk is the only product which offers instantmarketability and simultaneous availability of cash for the farmers. In India, milk farming is still regarded as a subsidiaryand collateral activity to agriculture. This trend has to change since milk farming offers a steady and constant source ofincome to the farmers. Our nation can achieve development only when our villages witness a favourable impact on theirper capita income and on the other basic amenities that they are able to receive and use and this is where the role of thedairy industry is of paramount importance.

India still holds the position of the largest milk producing country in the world, producing over 100 million tons of milk during2007-08. The milk production is growing at a pace of about 4% in India as against the growth rate of around 1.2% in theworld. India accounts for one sixth of the production in the world in spite of having only 3% of land and 5% of waterresources of the world. Against this backdrop your company has become the number one private dairy in the country.

The second half of the financial year 2007-08 had seen an unprecedented rise in the prices of petroleum products andcommodities which has resulted in an inflationary trend in the world in general. With the increasing globalization of theIndian economy., our country has also been affected by inflation. The prices of all primary commodities are on the increaseand this trend is expected to continue for at lease the next six months before there is a softening of the prices.The price ofmilk has also increased due to the increase in the cattle feed prices as a result of increase in cattle feed exports fromRs.5000 crores to Rs.9000 crores. In this scenario, the Government should take necessary steps to ensure that Indianmilk producers get a fair chance to sell their produce in the global market making use of India’s competitive strengths in thedairy sector.

Your Company while being alert to this situation is focused on long term, sustainable and profitable growth. This long termperspective stems mainly from in the strength of its brands, and in its varied portfolio, which have over the years built arelationship of trust and confidence with consumers. Your Company therefore remains confident of its long term businessprospects and its ability to sustain a fair return to the shareholders.

OPPORTUNITIES

In spite of the current inflationary conditions, the long term prospects for the Indian economy remains very upbeat due tothe growing per capita income, the positive demographic skew towards a growing and young population, the constantlyincreasing number in the middle class and the resultant changes in life styles and aspirations etc., All these factors presenta tremendous opportunities for your Company since there is a every increasing demand for quality products at affordableprices. The challenge is however to understand the needs of the Indian consumer and address them on a sustained andcompetitive way.

Your Company has set high standards of quality and safety practices which gives it an inherent advantage. Your companyhas a diversified product portfolio and well differentiated brands which have become very popular with the consumersince they offer value at affordable prices. There is also a constant and conscious effort to add further value to theconsumer by offering new products and better quality of services in the distribution chain. Milk lends itself to the creationof the multiple nutritional products which still has not been completely exploited in India and this by itself offers atremendous growth opportunity for the company. The improvement in the standard of living of consumers and the higherdisposable incomes has increased the demand for high quality dairy products that provide nutrition and health, thusopening up more avenues for introduction of such products. The production infrastructure of the company is constantlybeing upgraded to take advantage of this opportunity.

Your Company’s strength is in its efficient and effective supply chain. This allows it wide reach and coverage in the targetmarkets. Your Company also has talented and committed human resources who work as a team to the attainment oforganizational objectives.

The dairy ingredients market offers great prospects for your company. There is an increasing demand for quality dairyingredients in South East and West Asia, and Africa. Your Company apart from having a natural advantage of geographicalproximity has leveraged on its twin proposition of quality and reasonable price to penetrate these markets for export. Thedomestic market is also having a great potential for these products in the coming years and your company is wellpositioned to take advantage of this opportunity.


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THREATS

In spite of the efforts taken by the dairy industry, this sector is still considered to be anon organized sector due to theprevalence of small players who have little or no concern for safety and quality practices. It is expected that with theincreasing consumer awareness the organized sector will play in a dominant role in this industry.

Milk, being a perishable commodity demands an efficient cold chain management. Many new processes are being developedto improve the quality of milk so processed and to extend its shelf life. Your company is in the forefront of such initiativesin establishing this infrastructure.

In spite of various programmes being implemented with a view to create awareness among farmers in increasing the yield,we continue to have milch animals with very low yields. However, genetic improvement, scientific feeding, properly managedanimal husbandry practices etc. should improve the milk yield. Your Company is sourcing the good quality feed to besupplied to the farmers and is working with experts in the field to see the possibilities of increasing productivity and costeffectiveness. Towards this end your Ccompany continues to extend the scope of its White Gold Project which providestechnical inputs to dairy farmers to improve the yield per animal and to make the dairy farming a viable and profitableoption.

The astronomical rise in the prices of petroleum products and the increasing cost of power has increased the productionand distribution costs significantly. Your Company has a solid cold chain network which is being constantly upgraded toincrease the shelf life so that quality milk reaches the consumer. Your company has introduced increased number ofrefrigerated vehicles with constant monitoring of temperature to achieve this objective.

The industry has become highly competitive with diverse players. Your Company is well positioned to face these challengesas it has already created the infrastructure to leverage on economies of scale.

Apart from these, availability and retention of talented human resources, and periodic changes in fiscal benefits/laws allstand as threats to the development of this industry which have to be managed effectively. Your company is confident ofsurmounting these challenges given its scale and size of operations.

Performance of the Company

During the year 2007-08, your Company’s processed milk output was valued at Rs. 54188 Lakhs. The ice cream segmentcontributed a sales of Rs. 4375 Lakhs during the year. Tamil Nadu accounted for the maximum sales of Arokya andKomatha milk followed by Karnataka and Kerala. The Company has a market share of about 18% in Tamil Nadu and 5%in Karnataka. The market share for ice cream in South India is around 30%. Your Company recorded a turnover ofRs.26537 Lakhs in the dairy ingredient section in both export and domestic market.

The financial year under review witnessed a strong growth in profits with a corresponding growth in the revenues.

The turnover for the year increased by 47.48% to Rs. 86319.36 Lakhs from Rs. 58528.28 Lakhs. Profit before interest,depreciation and tax increased by 64.72% to Rs.6148.16 Lakhs from Rs. 3,732.44 Lakhs. Profit before tax has increasedby 43.87% to Rs. 2794.92 Lakhs from Rs. 1,146.03 Lakhs. Provision for taxation increased to Rs. 1081.25 Lakhs (includinga fringe benefit tax of Rs. 89.40 Lakhs) from Rs. 427.88 Lakhs(including a fringe benefit tax of Rs. 56.64 Lakhs). Profit aftertax increased by 112.69% to Rs. 1732.56 Lakhs from Rs. 814.60 Lakhs.

Your Company has been able to reap the benefits of the steps it had taken in terms of capacity creation and utilisation,leveraging on the scale of its operations to reduce costs to notch up a 100% rise in its profit after tax. This has beenachieved by savings on power cost through better technology, efficient utilization of distribution chain and overall costcontrol in all the major and significant areas of its operations.

Internal Control

Your Company has put in place an adequate system of internal controls to ensure that transactions are properly recorded,authorised and the assets are continuously monitored and safegaurded. The internal control system is backed up by well-documented policies, guidelines and procedures and concurrent reviews are carried out by the Company’s internal auditdepartment, which submits reports periodically to the Audit Committee of the Board and the Management. The AuditCommittee reviews significant observations made in the internal audit reports along with actions initiated and reports tothe Board periodically.


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Information technology

Your Company is using the ERP package of Oracle Applications. This facilitates an effective online MIS system, whichfacilitates centralized control of operations at all the units of the Company. Your company is currently upgrading andreconfiguring this application to effectively monitor the increasing scale of operations of the company. The hardware andnetwork infrastructure is being constantly reviewed to increase the bandwidth and reduce operational cost. This is anongoing process and Your Company is committed to leverage the benefits of IT to enhance and optimize benefits to itselfand its customers.

Human resources

Your Company has a favourable work environment that motivates performance, customer focus and innovation whileadhering to the highest degree of quality and integrity. Your Company provides a congenial working atmosphere whichwill foster creative thinking. As part of manpower development and to enhance operational efficiency, training programmeshave been organized for employees at all levels, wherever necessary. Your Company values its human resource as themost significant assets and the key focus is to attract, retain and develop talent as a resource. The total strength of theCompany as on 31st March 2008 was 1458.

Outlook and risks & concerns are covered under Opportunities and Threats.

Statements in this report describing the Company’s objectives, projections, estimates and expectations may constitute“forward looking statements” within the meaning of applicable laws and regulations. Such statements represent theintention of the Management and the efforts being put into place by them to achieve certain goals. Actual results mightdiffer materially from those either expressed or implied in the statement depending on the circumstances. Therefore theinvestors are requested to make their own independent assessments and judgements by considering all relevantfactors before making any investment decision.


30

AUDITORS’ REPORT

To the members of Hatsun Agro Product Limited

1. We have audited the attached Balance Sheet of Hatsun Agro Product Limited (‘the Company’) as at Match 31, 2008and also the profit and loss account and the cash flow statement for the year ended on that date annexed thereto.These financial statements are the responsibility of the Company’s management. Our responsibility is to expressan opinion on these financial statements based on our audit.

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

3. As required by the Companies ( Auditor’s Report) Order, 2003 ( as amended) issued by the Central Government ofIndia in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure astatement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:

i. We have obtained all the information and explanations, which to the best of our knowledge and belief werenecessary for the purposes of our audit;

ii. In our opinion, proper books of account as required by law have been kept by the Company so far as appearsfrom our examination of those books;

iii. The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreementwith the books of account;

iv. In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this reportcomply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act,1956;

v. As more fully described in Note 2(a) (iii) of Schedule 19 to the Financial Statements, certain income tax mattersin respect of the financial year ended 31 March 1996 (financial estimate by the management of Rs. 15 million)are being contested by the Company and the matter is pending with the High Court of judicature, Madras.Pending a final resolution of the uncertainties in this connection, no provision towards tax and other consequentialadjustment relating to this matter, if any, have been considered in the financial statements. Audit report issuedon the financial statements for the year ended March 31, 2007 was qualified accordingly;

vi. On the basis of the written representations received from the directors, as on March 31, 2008, and taken onrecord by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2008 frombeing appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act,1956;

vii. In our opinion and to the best of our information and according to the explanations given to us, subject to theeffect of adjustments, if any, that may be required had the outcome of the matter referred to paragraph (v) abovebeen known, the said accounts give the information required by the Companies Act, 1956, in the manner sorequired and give a true and fair view in conformity with the accounting principles generally accepted in India;

a) in the case of the balance sheet, of the state of affairs of the Company as at March 31,2008;

b) in the case of the profit and loss account, of the profit for the year ended on that date; and

c) in the case of cash flow statement, of the cash flows for the year ended on that date.

For S.R. Batliboi & AssociatesChartered Accountants

per S BalasubramanyamPlace : Chennai PartnerDate : June 16, 2008 Membership No.:053315


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ANNEXURE TO AUDITORS’ REPORT Annexure referred to in paragraph 3 of our report of even date

Re. Hatsun Agro Product Limited (the Company)

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situationof fixed assets.

(b) All fixed assets have not been physically verified by the management during the year but there is a regularprogramme of verification which, in our opinion, is reasonable having regard to the size of the Company and thenature of its assets. As informed, no material discrepancies were noticed on such verification.

(c) There was no substantial disposal of fixed assets during the year.

(ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year.

(b) The procedures of physical verification of inventory followed by the management are reasonable and adequatein relation to the size of the Company and the nature of its business.

(c) The Company is maintaining proper records of inventory and no material discrepancies were noticed onphysical verification.

(iii) As informed, the Company has not granted or taken any loans, secured or unsecured to companies, firms or otherparties covered in the register maintained under section 301 of the Companies Act, 1956 (“the Act”).

(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal controlsystem commensurate with the size of the Company and the nature of its business, for the purchase of inventory andfixed assts and for the sale of goods. During the current year, the activities of the Company did not involve any saleof services. During the course of our audit, no major weakness has been noticed in the internal control system inrespect of these areas.

(v) According to the information and explanations provided by the management, we are of the opinion that there are nocontracts and arrangements that need to be entered into the register maintained under section 301 of the Act duringthe period.

(vi) In respect of deposits accepted , in our opinion and according to the information and explanations given to us,directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevantprovisions of the Companies Act,1956 and the rules framed there under, to the extent applicable, have been compliedwith. We are informed by the management that no order has been passed by the Company Law Board, NationalCompany Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

(vii) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

(viii) To the best of our knowledge and as explained, the Central Government has not prescribed maintenance of costrecords under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 for the products of theCompany.

(ix) (a) Undisputed statutory dues including provident fund, investor education and protection fund, or employees’state insurance, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess have generallybeen regularly deposited with the appropriate authorities through there has been a slight delay in a few casesrelating to remittance of provident fund and employees’ state insurance dues.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect ofprovident fund, investor education and protection fund, employees’ state insurance, income-tax, wealth-tax,service tax, sales tax, customs duty, excise duty, cess and other undisputed statutory dues were outstanding, atthe year end, for a period of more than six months from the date they became payable.

(c) According to the records of the Company, the dues outstanding of income-tax, sales tax, wealth tax, service tax,customs duty, excise duty and cess on account of any dispute, are as follows:


32

**- Refer to note 2(a) (iii) of Schedule 19 to the financial statements.

(x) The Company has no accumulated losses at the end of the financial year and it has not incurred cash losses in thecurrent and immediately preceding financial year.

(xi) Based on our audit procedures and as per the information and explanations given by the management, we are of theopinion that the company has not defaulted in repayment of dues to a financial institution or bank.

(xii) According to the information and explanations given to us and based on the documents and records produced tous, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debenturesand other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions ofclause 4 (xiii) of the Companies (Auditor’s Report) order, 2003 (as amended) are not applicable to the Company.

Name of the Statute Nature of the Dues Amount Period to which Forum where dispute(Rs in 000’s) the amount relates is pending

Income tax Act 1961 Disallowance of ** 1996-97 High Court of Judicature,non compete fees Madras

The Tamil Nadu GeneralSales Tax Act, 1959 Sales tax in dispute 182 1993-94 Commercial Tax officer

The Tamil Nadu General Sales tax in dispute 247 1995-96 Sales Tax Appellate TribunalSales Tax Act

The Tamil Nadu General Sales tax in dispute 158 1995-96 Sales Tax Appellate TribunalSales Tax Act

The Tamil Nadu General Sales tax in dispute 932 1996-97 Commercial Tax OfficerSales Tax Act

The Tamil Nadu General Sales tax in dispute 1,083 1996-97 Appellate AssistantSales Tax Act Commissioner

The Tamil Nadu General Sales tax in dispute 193 1997-98 Appellate AssistantSales Tax Act Commissioner

The Tamil Nadu General Sales tax in dispute 175 1998-99 Appellate AssistantSales Tax Act Commissioner

The Tamil Nadu General Sales tax in dispute 235 1999-00 Sales Tax appellate TribunalSales Tax Act

The Tamil Nadu General Sales tax in dispute 4,012 2000-01 High Court of Judicature,Sales Tax Act Madras

Central Sales Tax Sales tax in dispute 298 2000-01 Sales Tax Applellate Tribunal

The Tamil Nadu General Penalty in dispute 1480 2003-04 Appellate AssistantSales Tax Act Commissioner


33

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments.Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor’s Report) order, 2003 (as amended) are notapplicable to Company.

(xv) 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.

(xvi) Based on information and explanations given to us by the management, term loans were applied for the purpose forwhich the loans were obtained.

(xvii) According to the information and explanations given to us and on overall examination of the balance sheet of theCompany, we report that the company has used funds raised on short-term basis for long-term investment. Thecompany has purchased certain fixted assests aggregating Rs. 438,309 (000’s) by availing of short term loans.

(xviii)The Company has not made any preferential allotment of shares to parties or companies covered in the registermaintained under section 301 of the Companies Act, 1956.

(xix) The company did not have any outstanding debentures during the year.

(xx) The company has not raised any money by public issues during the year and accordingly, the provisions of clause4 (xx) of the Companies (Auditor’s Report) Order, 2003 (as amended) are not applicable.

(xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financialstatements and as per the information and explanations given by the management, we report that no fraud on or bythe company has been noticed or reported during the course of our audit.

For S.R. Batliboi & AssociatesChartered Accountants

per S BalasubramanyamPlace : Chennai PartnerDate : June 16, 2008 Membership No.:053315


34

BALANCE SHEET AS AT MARCH 31, 2008

Schedule As at As at No. 31st March, 2008 31st March,2007

SOURCES OF FUNDSShareholders’ FundsShare capital 1 118,721 118,721Reserves and surplus 2 362,855 242,010

481,576 360,731Loan FundsSecured loans 3 837,156 523,582Unsecured loans 4 443,981 350,217

1,281,137 873,799Deferred Income 8,325 13,966Deferred tax liability 19(2)(g) 99,186 97,912

Total 1,870,224 1,346,408

APPLICATION OF FUNDSFixed Assets 5Gross Block 2,332,619 2,092,664Less: Accumulated depreciation (801,060) (698,251)Net block 1,531,559 1,394,413Capital work-in-progress 222,652 41,628

1,754,211 1,436,041Current Assets, Loans and AdvancesInventories 6 421,349 169,675Sundry debtors 7 149,654 52,549Cash and bank balances 8 118,440 34,554Loans and advances 9 203,535 123,814

(A) 892,978 380,592Current Liabilities and ProvisionsCurrent liabilities 10 (658,946) (411,326)Provisions 11 (118,019) (58,899)

(B) (776,965) (470,225)Net Current Assets (A) – (B) 116,013 (89,633)

Total 1,870,224 1,346,408

Significant accounting policies and notes to the financial Statements 19

The Schedules referred to above and the notes thereon For and on behalf of the Board of Directors ofform an integral part of theBalance Sheet. Hatsun Agro Product Limited

As per our report attached of even date Sd/- Sd/-For S.R. BATLIBOI & ASSOCIATES R.G. CHANDRAMOGAN K.S. THANARAJANChartered Accountants Chairman & Managing Director Joint Managing DirectorSd/-per S. BalasubrahmanyamPartner,Membership No.053315Sd/-Place : Chennai Place : Chennai B.V. NATHDate : June 16, 2008 Date : June 16, 2008 Company Secretary

(All amounts are in thousands of Indian Rupees unless otherwise stated)


35

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2008

Schedule Year ended Year endedNo. 31 st March, 2008 31st March, 2007

INCOMESales (Gross) 12 8,631,936 5,852,828Less: Excise Duty — —Net Sales 8,631,936 5,852,828Other income 13 62,407 69,472

8,694,343 5,922,300EXPENDITURECost of manufactured goods 14 6,529,960 4,379,985Cost of traded goods 15 107,968 60,289Employee costs 16 210,398 169,052Manufacturing, administrative and selling expenses 17 1,231,201 939,730Interest and finance charges 18 150,284 102,321Depreciation 5 185,040 157,856

8,414,851 5,809,233Profit before tax 279,492 113,067Provision for tax - Current tax 97,911 34,694

- Fringe benefit tax 8,940 5,664- Deferred tax expense 1,274 2,430

Reversal of provision pertaining to earlier years (1,889) (11,181)Profit after tax 173,256 81,460Balance brought forward from previous year 23,612 20,480Profit available for appropriation 196,868 101,940Appropriations:Transfer to General reserve 17,326 6,110Transfer to Capital redemption reserve — 50,000Dividend - Interim dividend paid on preference shares 2,038 —

- Interim dividend paid on equity shares 16,972 —- Proposed Final dividend on preference shares 2,026 5,412- Proposed Final dividend on equity shares 23,761 13,578

Dividend tax - Preference 691 920- Equity 6,923 2,308

Surplus carried to Balance Sheet 127,131 23,612196,868 101,940

Earnings per share: - Basic & Diluted (Rs.) (Refer to Note 2 (q) of schedule 20) 24.82 11.07- Weighted average number of equity shares outstanding 6,788,818 6,788,818- Par value of equity shares (Rs.) 10 10

Significant accounting policies and notes to the financial Statements 19

The Schedules referred to above and the notes thereon For and on behalf of the Board of Directors ofform an integral part of the Profit & Loss Account. Hatsun Agro Product Limited

As per our report attached of even date Sd/- Sd/-For S.R. BATLIBOI & ASSOCIATES R.G. CHANDRAMOGAN K.S. THANARAJANChartered Accountants Chairman & Managing Director Joint Managing DirectorSd/-per S. BalasubrahmanyamPartner,Membership No.053315

Sd/-Place : Chennai Place : Chennai B.V. NATHDate : June 16, 2008 Date : June 16, 2008 Company Secretary



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CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2008

Year ended Year ended31st March, 2008 31st March, 2007

Cash Flow from Operating ActivitiesNet profit before taxation 279,492 113,067

Adjustments for:

Depreciation on fixed assets 185,040 157,856

Bad debts written off 4,686 157

(Profit)/loss on sale of fixed assets 6,189 (5,007)

Deferred Income recognised (441) (923)

Interest income (1,119) (3,101)

Interest and finance charges 150,284 102,321

Operating profit before working capital changes 624,131 364,370

Adjustments for:

(Increase)/Decrease in inventories (251,674) (65,031)

(Increase)/Decrease in sundry debtors (101,791) 11,324

(Increase)/Decrease in loans and advances (79,177) (11,035)

Increase/(Decrease) in current liabilities and provisions 237,712 119,058

Increase/(Decrease) in provisions (3,843) 1,525

Cash generated from operations 425,358 420,211

Direct taxes paid (net of refunds) (49,951) (14,675)

Net cash from/(used in) operating activities 375,407 405,536

Cash Flows (used in) / from Investing ActivitiesPurchase of fixed assets (including capital work in progress) (520,530) (265,474)

Proceeds from sale of investments — 5

Proceeds from sale of fixed assets 20,800 16,921

Interest received 575 3,082

Net cash from/(used in) investing activities (499,155) (245,466)



37



Cash Flow (used in) / from Financing ActivitiesTerm loans availed during the year 390,000 52,647

Term loans repaid during the year (220,443) (268,573)

Increase/(decrease) in other borrowings from financial institutions 232,969 184,051

Public deposits accepted during the year 16,635 14,124

Public deposits repaid during the year (9,986) (25,652)

Issue of Redeemable Preference Shares — 50,000

Redemption of Redeemable Preference Shares — (50,000)

Subsidy repaid to Government of Tamil Nadu (5,200) —

Proposed dividends paid (38,000) (15,464)

Tax on proposed dividends paid (6,459) (2,180)

Interest and finance charges paid (151,882) (101,029)

Net cash (used in) from financing activities 207,634 (162,076)

Net (Decrease)/ Increase in cash and cash equivalents 83,886 (2,006)

Cash and cash equivalents at the beginning of the year 34,554 36,560

Cash and cash equivalents at end of the year 118,440 34,554

a) Components of cash and cash equivalents

Cash and cheques on hand 4,250 2,302

Balances with Scheduled Banks- in current accounts 102,403 23,403 - in deposit accounts 8,680 4,442 - in unpaid dividend accounts 307 307- in designated bank accounts towards security for repayment of public deposits 2,800 4,100

118,440 34,554

b) Adjustments for increase/decrease in current liabilities related to acquisition of fixed assets have beenmade to the extent identified.Significant accounting policies and notes to the financial Statements 19

For and on behalf of the Board of Directors ofHatsun Agro Product Limited




38

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS(All amounts are in thousands of Indian Rupees unless otherwise stated)

As at As at31st March, 2008 31st March, 2007

1. Share CapitalAuthorised10,000,000 (31st March, 2007 : 10,000,000) equity shares of Rs.10/- each 100,000 100,0002,000,000 (31st March, 2007 : 2,000,000) Preference shares of Rs.100/- each 200,000 200,000

300,000 300,000Issued and Subscribed6,801,818 (31st March, 2007 : 6,801,818) equity shares of Rs.10/- each 68,018 68,018508,000 (31st March, 2007 : 508,000) 8% Non-Convertible CumulativeRedeemable Preference Shares of Rs.100/- each 50,800 50,800

118,818 118,818Paid-up6,788,818 (31st March, 2007 : 6,788,818) equity sharesof Rs.10/- each fully paid-up 67,888 67,888508,000 (31st March, 2007 : 508,000) 8% Non-Convertible CumulativeRedeemable Preference Shares of Rs.100/- each 50,800 50,80013,000 equity shares partly paid-up, forfeited 33 33

118,721 118,721Paid-up equity shares of the Company include:a) 30,728 (31st March 2007: 30,728) equity shares of Rs.10/- each, allotted pursuant to

amalgamation of Hatsun Foods Company Limited, for consideration other than cashb) 69,090 (31st March 2007: 69,090) equity shares of Rs.10/- each, allotted pursuant

to amalgamation of Ajith Dairy Industries Limited, for consideration other than cash.c) 1,058,400 (31st March 2007: 1,058,400) equity shares of Rs.10/- each, issued as

fully paid up bonus shares in July 1995, pursuant to capitalisation of surplus in theProfit and Loss Account and free reserves.

d) Redemption terms for preference shares: The 8% Non-Convertible CumulativeRedeemable Preference Shares are redeemable at par in three equal half yearlyinstalments of Rs. 16,933, the first instalment falling due on 5th October, 2009.

2. Reserves and SurplusSecurities Premium Account 86,722 86,722Capital reserveBalance brought forward 7,445 7,445

7,445 7,445Capital Redemption ReserveBalance brought forward 75,000 25,000Add: Additions during the year — 50,000

75,000 75,000General ReserveBalance brought forward 49,231 47,260Add: Appropriation from Profit and Loss Account 17,326 6,110

66,557 53,370Less: Pursuant to adoption of AS - 15 (Revised)** — 4,139

66,557 49,231Balance in Profit and Loss Account 127,131 23,612

362,855 242,010** Refer Note 2(r) of Schedule 19


39

As at As at 31st March, 2008 31st March, 2007

(Rs. in ’000s) (Rs. in ’000s)

3. Secured LoansTerm Loans from Banks 554,967 385,409

(Secured by a charge on the fixedassets and movable assets of the Company)(including interest accrued and due: Rs.Nil)(31st March 2007: Rs.1,838)

Working Capital loans from banks 157,524 99,554(Secured by charge on the entire currentassets of the Company)

Finance Lease Obligations 18,852 26,923(Secured by assets acquired on lease)

Assets refinance obligation (Secured by assets refinanced) 105,813 11,696

837,156 523,582

4. Unsecured LoansShort Term Loans from Banks 180,000 50,000Public Deposits 34,542 27,893[(Include unclaimed deposits : Rs.1,103) (31st March, 2007 : Rs.859)][Repayable within one year - Rs. 18,180 (31 March 2007: Rs. 18,371)] Inter corporate deposits [Repayable within one year - Rs. 65,178

(31 March 2007: Rs. Nil)] 65,178 — Others [Repayable within one year - Rs. 164,261

(31 March 2007: Rs. 272,324)] 164,261 272,324

443,981 350,217

Of the above secured and unsecured loans, the Chairman & Managing Director hasgiven personal guarantee (including those by pledge of equity shares ofHatsun Agro Product Limited) for the following:

Term loans 554,967 385,409Working capital loans 157,524 99,554Short term loans from banks 180,000 50,000Others 164,261 70,674



40

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41


(Rs. in ’000s) (Rs. in ’000s)6. Inventories

Raw Materials and Packing Materials 76,036 50,519Work-in-process 43,824 19,672Finished Goods

- manufactured 238,915 74,990- traded 3,834 1,789

Stores, Spares and Loose Tools* 58,740 22,705

421,349 169,675* Includes goods in transit of Rs.17,314 (Previous year - Rs. Nil)

7. Sundry DebtorsUnsecured, considered goodDebts outstanding for a period exceeding six months 888 4,588Other debts 116,762 23,002

117,650 27,590Secured, considered goodDebts outstanding for a period exceeding six months 303 315Other debts 31,701 24,644

32,004 24,959

149,654 52,5498. Cash and Bank Balances

Cash in hand 4,250 2,302Balances with Scheduled Banks

- in Current Accounts 102,403 23,403- in Deposit Accounts 8,680 4,442- in Unpaid Dividend Accounts 307 307- Deposits in designated Bank Accounts towardssecurity for repayment of Public Deposits 2,800 4,100

118,440 34,554

9. Loans and AdvancesUnsecured, considered goodAdvances recoverable in cash or in kind or for value to be received 65,153 39,590Deposits 99,399 65,219Advance to Suppliers 38,420 18,986Accrued Interest 563 19

203,535 123,814

10. Current LiabilitiesSundry Creditors- Total outstanding dues to Micro and Small Enterprises — — (Refer to note 2 (o) of Schedule 19)- Total outstanding dues to Creditors other than Micro and Small Enterprises 493,990 275,538Security Deposits 135,451 111,608Advance from Customers 5,982 11,015Other Liabilities 16,582 11,210Unclaimed Dividend 307 307Bank Overdraft 5,219 472Interest Accrued and not due 1,415 1,176

658,946 411,326

(All amounts are in thousands of India Rupees unless otherwise stated)


42


(Rs. in ’000s) (Rs. in ’000s)11. Provisions

For Gratuity 3,958 8,293For Leave Encashment 3,199 2,707For Income Tax (net) 71,706 21,586For Fringe Benefit Tax (net) 8,986 4,095For Proposed Dividend for Equity share capital 23,761 13,578For Proposed Dividend on Preference share capital 2,026 5,412For Dividend tax payable 4,383 3,228

118,019 58,89912. Sales

Milk 5,418,855 4,323,309Ice cream 437,597 388,570Milk products 2,653,676 1,057,031Others 121,808 83,918

8,631,936 5,852,828

13. Other IncomeInterest IncomeBank deposits [Tax deducted at source - Rs.150 (31 March 2007: Rs.122)] 691 562Others [Tax deducted at source - Rs.57 (31 March 2007: Rs.547)] 428 2,539Profit on Sale of Assets, net — 5,007Foreign Exchange Gain, net 10,883 18,007Royalty 675 1,256Export Benefits 44,220 27,867Miscellaneous Income 5,510 14,234

62,407 69,472

14. Cost of Manufactured GoodsA. Consumption of raw materials and packing materialsOpening inventory 50,519 45,073Add: Purchases 6,722,011 4,425,455

6,772,530 4,470,528Less: Closing Inventory 76,036 50,519

Total [A] 6,696,494 4,420,009B. (Increase)/Decrease in WIP & Finished GoodsAdd: Opening Inventory

Work-in-process 19,672 15,274Finished Goods 74,990 27,162

Sub Total 94,662 42,436Less: Closing inventory

Work-in-process 43,824 19,672Finished Goods 238,915 74,990

Sub Total 282,739 94,662

Total [B] (188,077) (52,226)

C. Outside Processing Charges 21,543 12,202Total [(A) + (B) + (C)] 6,529,960 4,379,985



43

Year ended Year ended 31st March, 2008 31st March, 2007

(All amounts are in thousands of Indian Rupeesunless otherwise stated)15. Cost of Traded Goods

Opening Inventory 1,789 2,067Add: Purchases 110,013 60,011

111,802 62,078Less: Closing Inventory 3,834 1,789

107,968 60,289

16. Employee CostsSalaries, Wages and Other Allowances 160,198 122,518Contribution to Provident and Other Funds 10,787 9,206Gratuity 289 493Staff Welfare Expenses 39,124 36,835

210,398 169,052

17. Manufacturing, Administrative and Selling ExpensesPower and Fuel [net of power credits of Rs.1,383 (Previous year: Rs.1,081)] 276,592 213,320Stores and Spares Consumed 64,650 24,836Sales Promotion Expenses 193,919 178,649Freight Outwards 317,353 251,034Bad Debts Written Off 4,686 157Repairs and Maintenance - Buildings 5,087 2,938

- Plant and machinery 48,100 24,834- Others 25,693 23,225

Travelling and Conveyance 61,631 39,898Printing and Stationery 15,597 10,619Rent 43,131 29,737Rates and Taxes 16,383 11,496Insurance 14,204 10,146Directors’ Sitting fees 145 140Service Charges 67,034 55,792Loss on sales of assets (net) 6,189 —Miscellaneous Expenses 70,807 62,909

1,231,201 939,73018. Interest and Finance Charges

Interest- on Term Loans 61,638 52,510- others 32,570 16,683

94,208 69,193Less: Interest Capitalised — 1,653

94,208 67,540Other Finance Charges 37,232 23,927Bank Charges 18,844 10,854

150,284 102,321



44

Schedules Forming part of the Financial Statements(All amounts are in thousands of Indian Rupees unless otherwise stated)

19. Significant Accounting Policies and Notes to the Financial Statements

1. Significant Accounting Policiesa. Basis of Preparation of Financial Statements

The financial statements have been prepared to comply in all material respects in respects with the notified accountingstandards by Companies Accounting Standards Rules, 2006 and the relevant provisions of the Companies Act, 1956.The financial statements have been prepared under the historical cost convention on accrual basis. The accountingpolicies have been consistently applied by the Company and are consistent with those used in the previous year.

b. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosureof contingent liabilities on the date of the financial statements and reported amounts of income and expenses during theperiod. Although these estimates are based upon management’s best knowledge of current events and actions, actualresults could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current andfuture periods.

c. Fixed Assets and Capital work in progress

Fixed Assets are stated at cost of acquisition less accumulated depreciation and impairment losses, if any. Cost comprisesthe purchase price and any attributable cost of bringing the asset to its working condition for its intended use andincludes freight, duties and taxes and other incidental expenses related to the acquisition. Borrowing costs directlyattributable to acquisition of those fixed assets which necessarily take a substantial period of time to get ready for theirintended use are also included to the extent they relate to the period till such assets are ready to be put to use.

Capital work-in-progress includes advances paid to acquire fixed assets and cost of assets not ready for intended useas at the balance sheet date.

d. Impairment of Fixed Assets

i. The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairmentbased on internal/external factors. An impairment loss is recognized wherever the carrying amount of an assetexceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value inuse. In assessing value in use, the estimated future cash flows are discounted to their present value at the weightedaverage cost of capital.

ii. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

iii. A previously recognised impairment loss is increased or reversed depending on changes in circumstances. Howeverthe carrying value after reversal is not increased beyond the carrying value that would have prevailed by chargingusual depreciation if there was no impairment.

e. Depreciation

Depreciation on assets is provided using the straight-line method based on rates specified in Schedule XIV of theCompanies Act, 1956 or on estimated useful lives of assets estimated by the management, whichever is higher. Individualassets costing less than Rs. 5 are depreciated fully in the year of purchase.

The estimated useful lives considered for depreciation / amortisation fo fixed assets are as follows:

Sl No. Asset category Estimated Useful Life (years)

Tangible assets1. Buildings 292. Plant and machinery 1-103. Furniture & Fixtures 1-164. Office Equipment 3-215. Vehicles 1-106. Leasehold improvements 5 or over the lease period if lower than

the estimated useful lifeIntangible assets

7. Software 3-5


45


f. Leased Assets

Finance Lease

Leases under which the Company assumes substantially all the risks and rewards of ownership are classified asfinance leases. Such assets are capitalized at fair value of the asset or present value of the minimum lease payments atthe inception of the lease, whichever is lower. Lease payments are apportioned between finance charges and reductionof the lease liability at the implicit rate of return. Finance charges are charged to the profit and loss account. Leasemanagement fees, legal charges and other initial direct costs are capitalised.

If there is no reasonable certainty that the Company will obtain the ownership by the end of the lease term, capitalizedleased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.Operating Lease

Leases, where the lessor, effectively retains substantially all the risks and benefits of ownership of the leased asset, areclassified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account ona straight line basis over the lease term.g. Inventories

Inventories are stated at the lower of cost and net realisable value. However, materials and other items held for use in theproduction of inventories are not written down below cost if the finished products in which they will be incorporated areexpected to be sold at or above cost. Cost of raw materials and traded goods is determined using the moving weightedaverage method and includes freight, taxes and duties wherever applicable.

The valuation of manufactured finished goods and work in progress includes the combined cost of materials, labour and allapplicable manufacturing overheads, based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completionand estimated costs necessary to make the sale.h. Revenue recognition

Revenue from sale of goods is recognised on dispatch of goods to customers which corresponds with transfer of allsignificant risks and rewards of ownership. The amount recognized as sale is exclusive of sales tax, and trade and quantitydiscounts.

Interest income on deposits is recognized on the time proportionate method taking into account the amount outstandingand the rate applicable.

Royalty income is recognized on accrual basis.

Income in respect of export benefits, such as duty credit entitlement and the transport assistance is recognized in the yearof exports.i. Foreign currency transactions(i) Initial RecognitionForeign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount theexchange rate between the reporting currency and the foreign currency at the date of the transaction.(ii) ConversionForeign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms ofhistorical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; andnon-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reportedusing the exchange rates that existed when the values were determined.(iii) Exchange DifferencesExchange differences arising on the settlement of monetary items or on reporting company’s monetary items at ratesdifferent from those at which they were initially recorded during the year, or reported in previous financial statements, arerecognised as income or as expenses in the year in which they arise. Exchange differences arising in respect of fixedassets acquired from outside India on or before accounting period commencing after December 7, 2006 are capitalizedas a part of fixed asset.


46

Schedules Forming part of the Financial Statements(All amounts are in thousands of Indian Rupees unless otherwise stated)(iv) Forward contracts in foreign currencies

The Company uses foreign exchange forward contracts to hedge its exposure to movements in foreign currency rates. Theuse of these foreign exchange forward contracts reduces the risk or cost to the Company and the Company does not usethe foreign exchange forward contracts for trading or speculation purposes.

Forward exchange contracts that are not hedges of forecasted transactions are accounted for using the guidance inAccounting Standard (‘AS’) 11, ‘The effects of changes in foreign exchange rates’. The premium or discount on all suchcontracts arising at the inception of each contract is amortised as income or expense over the life of the contract. Any profitor loss arising on the cancellation or renewal of forward contracts is recognized as income or as expense for the period.The exchange difference is calculated as the difference between the foreign currency amount of the contract translated atthe exchange rate at the reporting date, or the settlement date where the transaction is settled during the reporting period,and the corresponding foreign currency amount translated at the latter of the date of inception of the forward exchangecontract and the last reporting date. Such exchange differences are recognised in the profit and loss account in thereporting period in which the exchange rates change.

Pursuant to the Announcement of the Institute of Chartered Accountants of India (‘ICAI’) dated March 29, 2008, the Companyrecords net mark-to-market losses, if any, in respect of forward exchange contracts entered in to hedge a highly probableforecast transaction against which hedged items have been identified as at year end, but net mark-to-market gains are notrecorded for such transactions.

j. Taxation

Tax expense comprises of current, deferred and fringe benefit tax. Current income tax and fringe benefit tax is measuredat the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act. Deferred incometaxes reflects the impact of current year timing differences between taxable income and accounting income for the yearand reversal of timing differences of earlier years.

The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the taxrates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets arerecognized only to the extent there is a reasonable certainty that the assets can be realized in future.

Deferred tax assets are reviewed as at each balance sheet date and written down or written up to reflect the amount thatis reasonably certain to be realized.

k. Earnings per share

Basic earnings per share amounts are computed by dividing net profit or loss for the period attributable to equityshareholders (after deducting preference dividends and attributable taxes) by the weighted average number of sharesoutstanding during the year.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equityshareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of alldilutive potential equity shares.

l. Government grants

Grants and subsidies from the government are recognised when there is reasonable assurance that the grant / subsidy willbe received and all attaching conditions will be complied with. Government grants related to depreciable fixed assets aretreated as deferred income which is recognised in the profit and loss account over the useful life of the asset in theproportion in which the depreciation on those assets is charged.

m. Employee benefitsI. Short term employee benefit plansAll short term employee benefit plans such as salaries, wages, bonus, special awards and medical benefits which falldue within 12 months of the period in which the employee renders the related services which entitles him to avail suchbenefits are recognized on an undiscounted basis and charged to the profit and loss account.II. Defined Contribution PlanContributions to the provident funds are made monthly at a predetermined rate to the Regional Provident FundCommissioner and debited to the profit and loss account on an accrual basis.


47

Schedules Forming part of the Financial Statements(All amounts are in thousands of Indian Rupees unless otherwise stated)III. Defined Benefit Plan

The Company has an arrangement with Life Insurance Corporation of India (LIC) to administer its gratuity scheme. Thecontribution paid/payable is debited to the profit and loss account on an accrual basis. Liability towards gratuity is providedon the basis of an actuarial valuation using the Projected Unit Credit method and debited to the profit and loss account onan accrual basis. Actuarial gains and losses arising during the year are recognized in the profit and loss account.

IV. Leave Salary

Short term encashment of accumulated leave balances are accounted for in the year in which the leave balances arecredited to employees on actual basis.

n. Cash flow statements

Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of anon–cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regularrevenue generating, financing and investing activities of the Company are segregated.

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term investments with anoriginal maturity of three months or less.

o. Provisions

A provision is recognised when an enterprise has a present obligation as a result of past event; it is probable that an outflowof resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are notdiscounted to its present value and are determined based on best estimate required to settle the obligation at the balancesheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Provision forexpenditure relating to voluntary retirement is made when the employee accepts the offer of early retirement.

p. Segment Reporting PoliciesIdentification of segments:The Company’s operating businesses are organized and managed separately according to the nature of the productsprovided with each segment representing a strategic business unit that offers different products and serves differentmarkets. The analysis of geographical segments is based on the areas in which major operating divisions of theCompany operates.Segment accounting policies:The accounting policies consistently used in the preparation of the financial statements are also applied to recordrevenue and expenditure in individual segments.

Revenue and direct expenses in relation to segments are categorized based on items that are individually identifiable tothat segment, while other costs, where allocable, are apportioned to the segments on an appropriate basis.

Fixed assets used in the Company’s business or liabilities contracted, other than those specifically identifiable, have notbeen identified to any of the reportable segments, as such fixed assets and services are used interchangeably betweensegments.Unallocated items:Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably.The Company believes that it is not practicable to provide segment disclosures relating to such expenses, and accordinglysuch expenses are separately disclosed as ‘unallocable’ and directly charged against total income.

2. Notes to the financial statements

a. Capital Commitments and ContingenciesAs at As at

31st March, 31st March,2008 2007

(i) Estimated amount of contracts remaining to be executed oncapital account (net of capital advances) and not provided for 600,355 22,277


48

As at As at31st March, 31st March,

2008 2007(ii) Claims made against the Company not acknowledged as

debts in respect of sales tax and income tax matters 21,873 26,127(iii) In respect of the Income tax assessment year 1996-1997, the Company’s claim for deduction towards non-

compete fees of Rs 40,000 was disallowed by the Income tax Assessing Officer. The Commissioner of Incometax (Appeals) ruled in favour of the Company. However, the Income tax Appellate Tribunal has upheld thedisallowance of the aforesaid expenditure and the Company has filed an appeal in the High Court of Judicature,Madras. Management’s estimate of the tax impact of such disallowance is Rs.15,000 (including estimated interestbut excluding penalties etc, if any). Based on the expert advice, the management believes that the Company hasstrong case and hence, no provision and consequential adjustments, if any for such disputed amount have beenconsidered in the financial statements.

b. Export Obligations

The Company has imported certain items at concessional rates of customs duty under the Export Promotion Capital GoodsScheme (EPCG). As at the balance sheet date, total export obligations under the EPCG scheme is USD 24,610,490(March 31, 2007 USD 5,907,222) which is to be fulfilled over a period of eight years from the date of the licenses. As atMarch 31, 2008, the Company has fulfilled export obligations amounting to USD 9,299,306 (March 31, 2007 USD 1,873,144)and has outstanding export obligation of USD 15,311,184 (March 31, 2007 USD 4,034,078).

Year ended Year endedc. Managerial Remuneration 31st March, 2008 31st March, 2007

Salaries and Allowances 6,650 3,360Contribution to Provident and Other Funds 224 124Other Benefits 284 211

Total 7,158 3,695

The Chairman and Managing Director, and other Whole-time directors are covered under the Company’s leave encashmentpolicy and group gratuity scheme along with other employees of the Company. Contribution to gratuity is based on theactuarial valuation made on an overall company basis and hence individual figures for the director are not available.

Year ended Year endedd. Auditor’s Remuneration (included under Miscellaneous expenses) 31st March, 2008 31st March, 2007

Audit Fees 1,500 1,500*Other Services 300** 325*Out of Pocket Expenses 13 84*

Total* Paid to previous auditors BSR & Co, Chartered Accountants.

** Includes Rs.100 paid to previous auditors BSR & Co., Chartered Accountants.

e. Segment Information

The Company’s operations predominantly relate to manufacture and sale of milk and milk products, and ice creams andothers. Accordingly, business segments comprise the primary basis of segmental information set out in these financialstatements. Secondary segment reporting is made on the basis of the geographical location of customers.

Business (primary) segments of the Company are:a) Milk and milk products; and b) Ice creams and others

1813 1909



49

Primary Segment Information Previous years figures have been shown in italics

ParticularsMilk and Ice Cream

TotalMilk Products and Others

Segment Revenue 8,072,531 559,405 8,631,936 5,380,340 472,488 5,852,828Segment Results 497,252 36,376 533,628 241,933 48,597 290,530Unallocated Expenses (net of unallocated income) (104,971) (75,143)Operating Profit 428,657 212,287Finance Charges (149,165) (99,220)Profit / (Loss) before taxation 279,492 113,067Taxes (expense) / benefit (106,236) (31,607)Profit / (Loss) after taxation 173,256 81,460Segment Assets 2,113,409 208,684 2,322,093 1,489,340 196,873 1,686,213Unallocated Assets 325,096 130,420Total Assets 2,647,189 1,816,633Segment Liabilities 524,211 60,019 584,230

337,888 45,327 383,215Unallocated Liabilities 1,581,383 1,072,686Total Liabilities 2,165,613 1,455,902Capital Expenditure incurred 316,568 17,313 333,881

232,376 28,437 260,813Unallocated Capital Expenditure incurred 8,938 7,171Total Capital Expenditure 342,819

267,984Depreciation & Amortisation 157,220 14,291 171,511

132,920 12,826 145,746Unallocated Depreciation & Amortisation 13,529

12,110Total Depreciation & Amortisation 185,040

157,856Non cash expenditure other than depreciation — — —

157 — 157Unallocated non-cash expenditure other than depreciation —

—Total non-cash expenditure other depreciation 157



50

Secondary Segment Information

Secondary segment reporting is performed on the basis of the geographical location of customers.Segment Revenue:

Year ended Year endedLocation 31st March, 2008 31st March, 2007

India 7,503,905 5,319,402Others 1,128,031 533,426

Total 8,631,936 5,852,828

Segment Assets: Receivables as at Year ended Year endedLocation 31st March, 2008 31st March, 2007

India 87,781 44,479Others 61,873 8,070

Total 149,654 52,549

f. Related Party Disclosures

Related parties of the Company

Key management personnel R.G. Chandramogan (Chairman and Managing Director),K.S. Thanarajan (Joint Managing Director) andC. Sathyan (Executive Director - Operations).

(i) Details of remuneration paid to the key management personnel are provided in Note 2c above and guaranteesgiven by Directors towards loans obtained by the Company are provided in Schedules 3 and 4 to the financialstatements.

g. Deferred TaxesThe major components of the deferred tax assets / ( liabilities) are outlined below:

As at As at31st March, 2008 31st March, 2007

Effect of expenditure debited to profit and loss account in the current yearbut allowed for tax purposes in following years 4,680 7,824

Differences in depreciation and other differences in block of fixed assetsas per tax books and financial books and lease accounting (103,866) (105,736)

Total (99,186) (97,912)

h. Movement in Deferred Income Year ended Year ended31st March, 2008 31st March, 2007

Opening balance of subsidy 13,966 14,889Less: Subsidy returned during the year (5,200) —Less: Income recognized during the year (441) (923)

Closing balance of subsidy 8,325 13,966

(000 litres per day)i. Licensed and Installed Capacities Year ended Year ended

31st March, 2008 31st March, 2007Licensed capacity (represents registered capacity for dairy) NA NALicensed capacity for ice cream NA NAInstalled capacity for dairy 1,850 1,620Installed capacity for ice cream 25 25

Being a technical matter, licensed and installed capacities are as certified by management and relied upon by theauditors.



51

j. Consumption of Raw Materials and Packing Materials and Stores and SparesYear ended Year ended

31st March, 2008 31st March, 2007(i) Raw Materials and Packing Materials Qty. Value Qty. Value

Milk (quantity in 000’s litres) 533,679 5,704,892 402,770 3,679,449Other —** 991,572 —** 740,560

Total 6,696,464 4,420,009** It is not practicable to furnish quantitative information in view of the large number of items which differ in size

and nature, each being less than 10% in value of the total.

k. Consumption of Imported and Indigenous Raw Materials, Packing Materials and Stores and Spares


(i) Raw Materials and Packing Materials % Value % ValueImported 0.11 7,085 0.02 757Indigenous 99.89 6,689,409 99.98 4,419,252

Total 100 6,696,494 100 4,420,009


(ii) Stores and Spares % Value % ValueImported — — — —Indigenous 100 64,650 100 24,836

Total 100 64,650 100 24,836

l. Quantitative information Previous years figures have been shown in italics

Opening Stock Purchases/ Sales Closing StockProduction#Description UOM Qty. Value Qty. Qty. Value Qty. Value

(’000s) (’000s) (’000s) (’000s)

Traded goods- Cattle feed Kgs. 259 1,695 13,872 13,644 101,090 487 3,401

68 1,208 10,103 9,912 64,690 259 1,695- Others Kgs. ** 94 ** ** 20,718 ** 433

** 859 ** ** 19,228 ** 94Manufactured goods- Ice cream Ltrs. 167 6,518 5,553 5,528 437,597 192 8,340

145 6,173 4,899 4,877 388,570 167 6,518- Milk and Skimmed Milk Ltrs. 180 2,080 323,782 323,794 5,418,855 168 2785

144 1,801 292,296 292,260 4,323,309 180 2,080- Milk Powders Kgs. 570 57,351 13,809 12,902 1,711,091 1,477 182,770

163 13,550 6,755 6,348 608,238 570 57,351- Others Kgs. 121 9,041 10,013 9,699 942,585 435 45,020

76 5,638 5,598 5,553 448,793 121 9,041

** Represents items for which units of measurement cannot be quantified

# The production figures shown are adjusted for normal wastage.



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m. Other Financial Information Year ended Year ended31st March, 2008 31st March, 2007

i) Earning on foreign exchange (Accrual basis)Exports on FOB basis 1,128,031 533,426Royalty income 675 1,256

Total 1,128,706 534,682

ii) CIF value of ImportsCapital goods 7,242 14,507Raw materials and packing materials 10,394 757

Total 17,636 15,264

iii) Expenditure in Foreign Currency- Travel 3,104 1,653- Professional charges — 1,754- Others 5,099 7,312

Total 8,203 10,719

(iv) Derivative instruments and unhedged foreign currency exposure

Forward contracts outstanding as at balance sheet date:As at As at

31st March, 2008 31st March, 2007Sell USD 19,400,000 —Purpose Hedging of highly probable

forecast receivables from exports —Unhedged foreign currency exposure:

EUR – 111,002 EUR – 77,938(Rs. 6,998) (Rs.4,519)

Advance paid to suppliers USD – 11,331 USD – 1,060(Rs.452) (Rs.47)

n. Outstanding Lease Obligations As at As at Finance Lease Obligations 31st March, 2008 31st March, 2007

Future minimum lease paymentsTotal minimum lease payments at the year end 20,763 29,608Less : amount representing finance charges (1,911) (2,685)Present value of minimum lease payments (Rate of interest: 7.0% - 12.4% p.a.) 18,852 26,923Lease payments for the year 17,309 16,677Minimum Lease PaymentsNot later than one year [Present value Rs.12,276 as on 31.3.2008(Rs. 13,652 as on 31.3.2007)] 13,580 15,478Later than one year but not later than five years[Present value Rs.6,576 as on 31.3.2008 (Rs. 13,271 as on 31.3.2007)] 7,183 14,130Later than five years [Present value Rs. Nil as on 31.3.2008 (Rs. Nil as on 31.3.2007) — —

o. There are no overdue amounts payable to Micro, Small and Medium Enterprises as defined under the Micro, Smalland Medium Enterprises Development Act, 2006 based on information available with the Company. Further, theCompany has not paid any interest to any Micro, Small and Medium Enterprises during the current year.



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P. Earnings Per Share

Basic earnings per share are computed and disclosed using the weighted average number of common sharesoutstanding during the year.


Net Profit after taxation 173,256 81,460Less : Preference share dividend 4,064 5,412Less : Tax thereon 691 920

Net Profit considered for computing earnings per share 168,501 75,128

Weighted average number of equity shares outstanding 6,788,818 6,788,818Basic and diluted earnings per share (in Rs.) 24.82 11.07

q. Employee Benefits

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of servicegets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme isfunded with LIC in the form of a qualifying insurance policy.

Reconciliation of opening and closing balances of the present value of defined benefit obligation:Year ended Year ended

31st March 2008 31st March 2007Projected benefit obligation at the beginning of the year 14,547 15,184Current service cost 1,063 2,594Interest cost 1,163 1,146Actuarial (gain)/ loss (1,233) (2,685)Benefits settled (1,422) (1,692)

Projected Benefit Obligation at the end of the year 14,118 14,547

Change in fair value of Plan AssetsFair value of plan assets at the beginning of the year 6,253 7,382Expected return on plan assets 500 491Actuarial (gain) / loss 204 72Employer contributions 4,625 —Benefits paid (1,422) (1,692)

Fair Value of Plan Assets at the end of the year 10,160 6,253

Reconciliation of Present Value of Obligation on the Fair Value of Plan AssetsPresent value of projected benefit obligation at the end of the year 14,118 14,547Funded status of the plans 10,160 6,254

Unfunded status amount of liability recognized in the balance sheet 3,958 8,293

Net employee benefit expense recognized towards gratuity is as follows:

Current Service cost 1,063 2,594Interest cost on benefit obligation 1,163 1,146Expected returns on plan assets (500) (490)Recognized net actuarial (gain)/ loss (1,437) (2,757)Net Gratuity Costs 289 493

Actual return on planned assets 704 563

Financial Assumptions at Balance Sheet date:Discount rate 8.00% p.a. 8.00% p.a.Attrition rate 5.00% p.a. 5.00% p.a.Long-term rate of compensation increase 6.00% p.a. 8.00% p.a.Estimated rate of return on plan assets 8.00% p.a. 7.50% p.a.



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The fund is administered by Life Insurance Corporation of India (“LIC”). The overall expected rate of return on assetsis determined based on the market prices prevailing on that date, applicable to the year over which the obligation is tobe settled.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority,promotion and other relevant factors, such as supply and demand in the employment market.

r. Effective 1, April 2006, the Company adopted Accounting Standard (‘AS’) 15 (revised 2005) – “Employee Benefits”issued by the Institute of Chartered Accountants of India. As per the transitional provisions specified in the Standard,the difference in the liability as per the existing policy followed by the Company and that arising on adoption of thisstandard is required to be charged to opening reserves and surplus account. Pursuant to this, the net additionalliability as on 1 April 2006 for defined benefit plans towards Gratuity liability amounting to Rs 4,139 (net of deferred taxof Rs 2,101) has been adjusted against the revenue reserve in the previous year.

s. The board of directors of the Company have proposed, in their meeting held on May 21, 2008; subject to the approvalof the shareholders in the extraordinary general meeting to be held on June 24, 2008, to allot on preferential basismaximum of 1,200,000 Zero Percent Compulsorily Convertible Preference Shares of Rs.100 each, amounting toRs.120,000.

t Previous year comparatives have been regrouped wherever necessary to conform to current year classification. Thefigures of previous year were audited by a firm of Chartered accountants other than S.R. Batliboi & Associates.

For and on behalf of the Board of Directors ofHatsun Agro Product Limited





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BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. Registration DetailsRegistration No. 1 2 7 4 7 State Code 1 8Balance Sheet Date 3 1 0 3 2 0 0 8

Date Month Year

II. Capital Raised during the year (Amounts in Rs. Thousands)Public Issue Rights IssueN I L N I LBonus Issue Private PlacementN I L N I L

III. Position of Mobilisation and Deployment of Funds (Amounts in Rs. Thousands)Total Liabilities Total Assets

1 8 7 0 2 2 4 1 8 7 0 2 2 4Sources of Funds

Paid-up Capital Reserves & Surplus1 1 8 7 2 1 3 6 2 8 5 5

Secured Loans Unsecured Loans8 3 7 1 5 6 4 4 3 9 8 1

Deferred Income Deferred Tax Liabilities8 3 2 5 9 9 1 8 6

Application of FundsNet Fixed Assets Investments

1 7 5 4 2 1 1 N I LNet Current Assets Miscellaneous Expenditure

1 1 6 0 1 3 N I LAccumulated Losses

N I L

IV. Performance of Company (Amounts in Rs. Thousands)Turnover, (including other income) Total Expenditure

8 6 9 4 3 4 3 8 4 1 4 8 5 1+ – Profit / Loss before tax + – Profit / Loss after tax3 2 7 9 4 9 2 3 1 7 3 2 5 6

Earning per Share in Rs. Dividend Rate %2 4 . 8 2 2 5

V. Generic Names of Three Principal Products / Services of Company (as per monetary terms)

Item Code No. (ITC Code) 0 4 0 1 2 0 . 0 0Production Description MILK

Item Code No. (ITC Code) 2 1 0 5 0 0 . 0 0Production Description ICE CREAMS OF ALL VARIETIES

For and on behalf of the Board

R.G. CHANDRAMOGAN K.S. THANARAJANChairman & Managing Director Joint Managing Director

Place : Chennai B.V. NATHDate : 16th June, 2008 Company Secretary

*

* The Board has recommended a final dividend at 35% per equity share for the year ended 31st March, 2008


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ATTENDANCE SLIPATTENDANCE SLIPATTENDANCE SLIPATTENDANCE SLIPATTENDANCE SLIP

HATSUN AGRO PRODUCT LIMITEDRegd. Office: No.5-A, Vijayaraghava Road, T.Nagar, Chennai 600 017.

Name of the ShareholderFolio No./Client I.D.

Name of the ProxyNo. ofshares held

I hereby record my presence at the 23rd Annual General Meeting of the Company held on Monday, the22nd September, 2008 at 11.00 a.m. at Andhra Social & Cultural Association, No.44, Vijayaraghava Road, T.Nagar,Chennai - 600 017.

Notes: Signature of the Shareholder / Proxy1. Please fill Attendance Slip and hand it over at the entrance of the meeting hall.2. If you are attending the meeting in person / by proxy, your copy of Annual Report may please be brought by

you/your proxy for reference at the meeting.

– – – – – – – – – – – – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – – – – – – – – – – – –

HATSUN AGRO PRODUCT LIMITEDRegd. Office: No.5-A, Vijayaraghava Road, T.Nagar, Chennai 600 017.

Folio No./Client I.D.

I/We ...................................................................................... of .............................................................................

being a member/members of Hatsun Agro Product Limited hereby appoint .......................................................

..............................................................................of............................................................................ or failing him

............................................................................................. of ..........................................................................asmy/our Proxy to attend and vote on behalf of me/us at the 23rd Annual General Meeting to be held on Monday, the22nd September, 2008 at 11.00 a.m. or at any adjournment thereof.

Signed this ................................................day of..............................2008.

Note: The Proxy in order to be effective should be duly stamped, completed and signed and must be deposited atthe Registered Office of the Company not less than 48 hours before the commencement of the aforesaid meeting.The Proxy need not be a member of the Company.

AffixRevenue

Stamp

Signature of shareholder

PROXY FORMPROXY FORMPROXY FORMPROXY FORMPROXY FORM

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