Shareholders Value Creation

SHAREHOLDER VALUE CREATION: AN OVERVIEW creating shareholder value is the key to success in today's marketplace. There is increasing pressure on corporate executives to measure, manage and report the creation of shareholder value on a regular basis. In the emerging field of shareholder value analysis, various measures have been developed that claim to quantify the creation of shareholder value and wealth. INTRODUCTION More than ever, corporate executives are under increasing pressure to demonstrate on a regular basis that they are creating shareholder value. This pressure has led to an emergence of a variety of measures that claim to quantify value-creating performance. Creating value for shareholders is now a widely accepted corporate objective. The interest in value creation has been stimulated by several developments. * Capital markets are becoming increasingly global. Investors can readily shift investments to higher yielding, often foreign, opportunities. * Institutional investors, which traditionally were passive investors, have begun exerting influence on corporate managements to create value for shareholders. * Corporate governance is shifting, with owners now demanding accountability from corporate executives. Manifestations of the increased assertiveness of shareholders include the necessity for executives to justify their compensation levels, and wellpublicized lists of underperforming companies and overpaid executives. * Business press is emphasizing shareholder value creation in performance rating exercises. * Greater attention is being paid to link top management compensation to shareholder returns. Defining Shareholder Value, and Wealth Creation From the economist's viewpoint, value is created when management generates revenues over and above the economic costs to generate these revenues. Costs come from four sources: employee wages and benefits; material, supplies, and economic depreciation of physical assets; taxes; and the opportunity cost of using the capital. Under this value-based view, value is only created when revenues exceed all costs including a capital charge. This value accrues mostly to shareholders because they are the residual owners of the firm.

Shareholders expect management to generate value over and above the costs of resources consumed, including the cost of using capital. If suppliers of capital do not receive a fair return to compensate them for the risk they are taking, they will withdraw their capital in search of better returns, since value will be lost. A company that is destroying value will always struggle to attract further capital to finance expansion since it will be hamstrung by a share price that stands at a discount to the underlying value of its assets and by higher interest rates on debt or bank loans demanded by creditors. Wealth creation refers to changes in the wealth of shareholders on a periodic (annual) basis. Applicable to exchange-listed firms, changes in shareholder wealth are inferred mostly from changes in stock prices, dividends paid, and equity raised during the period. Since stock prices reflect investor expectations about future cash flows, creating wealth for shareholders requires that the firm undertake investment decisions that have a positive net present value (NPV). Although used interchangeably, there is a subtle difference between value creation and wealth creation. The value perspective is based on measuring value directly from accounting-based information with some adjustments, while the wealth perspective relies mainly on stock market information. For a publicly traded firm these two concepts are identical when (i) management provides all pertinent information to capital markets, and (ii) the markets believe and have confidence in management. Approaches for measuring shareholder value: 1. Marakon Approach: Marakan Associates, an international management-consulting firm founded in1978, has done pioneering work in the area of value-based management. This measure considers the difference between the ROE and required return on equity (cost of equity) as the source of value creation. This measure is a variation of the EV measures. Instead of using capital as the entire base and the cost of capital for calculating the capital charge, this measure uses equity capital and the cost of equity to calculate the capital (equity) charge. Correspondingly, it uses economic value to equity holders (net of interest charges) rather than total firm value. According to Marakan model shareholder wealth creation is measured as the difference between the market value3 and the book value of a firm's equity. Thee book value of a firm's equity, B, measures approximately the capital contributed by the shareholders, whereas the market value of equity, M, reflects how productively the firm has employed the capital contributed by the shareholders, as assessed by the stock market. Hence, the management creates value for shareholders if M exceeds B, decimates value if m is less than B, and maintains value is M is equal to B. According to the Marakon model, the market-to-book values ratio is function of thee return on equity, the growth rate of dividends, and cost of equity.

For an all-equity firm, both EV and the equity-spread method will provide identical values because there are no interest charges and debt capital to consider. Even for a firm that relies on some debt, the two measures will lead to identical insights provided there are no extraordinary gains and losses, the capital structure is stable, and a proper re-estimation of the cost of equity and debt is conducted. A market is attractive only if the equity spread and economic profit earned by the average competitor is positive. If the average competitor's equity spread and economic profit are negative, the market is unattractive. For an all-equity firm, both EV and the equity spread method will provide identical values because there are no interest charges and debt capital to consider. Even for a firm that relies on some debt, the two measures will lead to identical insights provided there are no extraordinary gains and losses, the capital structure is stable, and a proper re-estimation of the cost of equity and debt is conducted. A market is attractive only if the equity spread and economic profit earned by the average competitor is positive. If the average competitor's equity spread and economic profit are negative, the market is unattractive. 2. ALCAR APPROACH The Alcar group Inc. a management and Software Company, has developed an approach to value-based management which is based on discounted cash flow analysis. In this framework, the emphasis is not on annual performance but on valuing expected performance. The implied value measure is akin to valuing the firm based on its future cash flows and is the method most closely related to the DCF/NPV framework. With this approach, one estimates future cash flows of the firm over a reasonable horizon, assigns a continuing (terminal) value at the end of the horizon, estimates the cost of capital, and then estimates the value of the firm by calculating the present value of these estimated cash flows. This method of valuing the firm is identical to that followed in calculating NPV in a capital-budgeting context. Since the computation arrives at the value of the firm, the implied value of the firm's equity can be determined by subtracting the value of the current debt from the estimated value of the firm. This value is the implied value of the equity of the firm. To estimate whether the firm's management has created shareholder value, one subtracts the implied value at the beginning of the year from the value estimated at the end of the year, adjusting for any dividends paid during the year. If this difference is positive (i.e., the estimated value of the equity has increased during the year) management can be said to have created shareholder value. The Alcar approach has been well received by financial analysts for two main reasons: * It is conceptually sound as it employs the discounted cash flow framework * Alcar have made available computer software to popularize their approach

However, the Alcar approach seems to suffer from two main shortcomings: (1) In the Alcar approach, profitability is measured in terms of profit margin on sales. It is generally recognized that this is not a good index for comparative purposes. (2) Essentially a verbal model, it is needlessly cumbersome. Hence it requires a fairly involved computer programme. 3. McKINSEY APPROACH: McKinsey & Company a leading international consultancy firm has developed an approach to value-based management which has been very well articulated by Tom Copeland, Tim Koller, and Jack Murrian of McKinsey & Company. According to them: Properly executed, value based management is an approach to management whereby the company's overall aspirations, analytical techniques, and management processes are all aligned to help the company maximize its value by focusing decision making on the key drivers of value. The key steps in the McKinsey approach to value-based maximization are as follows: * Ensure the supremacy of value maximization * Find the value drivers * Establish appropriate managerial processes * Implement value-based management philosophy 4. ECONOMIC VALUE ADDED Consulting firm Stern Steward has developed the concept of Economic Value Added. Companies across a broad spectrum of industries and a wide range of companies have joined the EVA badwagon. EVA is a useful tool to measure the wealth generated by a company for its equity shareholders. In other words, it is a measure of residual income after meeting the necessary requirements for funds. Computation of EVA: EVA is essentially the surplus left after making an appropriate charge for capital employed in the business. It may be calculated by using following equation. EVA= Net operating profit after tax- Cost charges for capital employed EVA is net earnings in excess of the cost of capital supplied by lenders and shareholders. It represents the excess return (over and above the minimum required return) to shareholders; it is the net value added to shareholders. In the above formula Net operating profit after tax [NOPAT] is calculated as follows: NOPAT= PBIT (1-T) =PAT+INT (1-T)

Chief features of EVA Approach: * It is a performance measure that ties directly, theoretically as well as empirically, to shareholder wealth creation. * It converts accounting information into economic reality that is readily grasped by non-financial managers. It is a simple yet effective way of teaching business literacy to everyone. * It serves as a guide to every decision from strategic planning to capital budgeting to acquisitions to operating decisions. * It is an effective tool for investor communication. - It is closest in both theory and construct to the net present value of a project in capital budgeting, as opposed to the IRR. - The value of a firm, in DCF terms, can be written in terms of the EVA of projects in place and the present value of the EVA of future projects. 5. THE DISCOUNT CASH FLOW APPROACH The true economic value of a firm or a business or a project or any strategy depends on the cash flows and the appropriate discount rate (commensurate with the risk of cash flow). There are several methods for calculating the present value of a firm or a business/division or a project. In following pages we will discuss three main methods that are mostly used under discount cash flow approach. The first method uses the weighted average cost of debt and equity (WACC) to discount the net operating cash flows. When the value of a project with an estimated economic life or of a firm or business over a planning horizon is calculated, then an estimate of the terminal cash flows or value will also be made. Thus, the economic value of a project or business is: Economic Value=Present Value of net operating cash flows+ Present value of terminal value The second method of calculating the economic value explicitly incorporates the value created by financial leverage. The steps that are involved in this method of estimation of the firm's total value are as follows: 1. Estimate the firm's unlevered cash flows and terminal value 2. Determine the unlevered cost of capital 3. Discount the unlevered cash flows and terminal value by the unlevered cost of capital. 4. Calculate the present value of the interest tax shield discounting at the cost of

debt. 5. Add these two values to obtain the levered firm's total value. 6. Subtract the value of debt from the total value to obtain the value of the firm's shares. 7. Divide the value of shares by the number of shares to obtain the economic value per share. The third method to determine the shareholder economic value is to calculate the value of equity by discounting cash flows available to shareholders by the cost of equity. The present value of equity is given as below: Economic value of equity= Present value of equity cash flows+ Present value of terminal investment

1. INTRODUCTION OF ECONOMIC VALUE ADDED: For an investor and potential investor, performance and profitability measurement is one of the significant yardsticks to evaluate / check their rationality behind the investment or potential investment of funds. There are different ways to measure the profitability of a concern but no perfect method or technique is available so far. For e.g.: Returns on investment (ROI) computation is based on profit and due to lack of uniform concept of profit, it is also debatable. Various techniques are to be found to eliminate the limitation of Return on investment (ROI) and to some extent Economic Value Added (EVA) satisfies this requirement. Simply, EVA is the return a firm earns in excess of minimum required return by the investors. EVA measures corporations true economic profit and help to understand which business units best utilized their assets to generate returns and maximize shareholder value. The following aspects of Economic Value have inspired me to take of this Project: EVA is better technique of measure of performance. EVA is better discloser of genuine addition or draining the net worth of shareholders. Unlike other taking techniques it can be used in decision- making process. Financial analysis is the process of understanding the financial strength and weakness of a firm by establishing the relationship between the term of the balance sheet and the profit and loss account. Financial Analysis is therefore the starting

point of making plans, before using any sophisticated forecasting and planning procedures. In a Enterprises like Forbes & company limited and Vardhaman textiles, different interested groups e.g.: legislators, consumers, Employees, suppliers, the local community and the investors and expectations from the enterprise according to criteria, norms and values suiting to their interest. FORBES & COMPANY LIMITED AND VARDHAMAN TEXTILES being a public enterprise operated under blaze of publicity and compounded to it there are so many success criteria and the expectation of the most interest groups mentioned above. This study makes a humble attempt to evaluate the company on financial performance criteria. While financial performance analysis comprise resolving the statements by creating them into simple statements by a process of re-arranging regrouping and calculation of ratios. Evaluating is the mental process of understanding the terms of such statement and forming opinions of inferences about the financial health, profitability, efficiency and such other aspects of undertaking. DEFINITION: To interpret means to put the meaning of a statement into simple terms for the benefit of a person F.Wood. OBJECTIVES OF THE STUDY: This empirical study has been taken up with the following objectives.

To compare and contrast EVA with other measures of performance. To measure the financial performance of Forbes & company limited and Vardhaman textiles using EVA.

To suggest and recommend, if any, ways of improving EVA.

SCOPE OF THE STUDY: This scope is limited to the operations of FORBES & COMPANY LIMITED AND VARDHAMAN TEXTILES. The information obtained from the primary and secondary sources were limited to FORBES & COMPANY LIMITED AND VARDHAMAN TEXTILES. The key performance indicators were taken from annual reports and other internal reports of FORBES & COMPANY LIMITED AND VARDHAMAN TEXTILES. The information regarding Annual reports, profit & loss Account, Balance

Sheet was of last six years. Comparison Analysis was done with information available in annual reports. LIMITATIONS OF THE STUDY: The study is based on accounting information. So all the limitations of accounting apply to this study. The study has only made a humble attempt at evaluating financial performance and does not and cannot claim as the perfect study. The data used for calculation is historical data and may have some adjustments made. Time constraint RESEARCH METHODOLOGY: This is a case study. Personal discussions were held with many executives for the collection of data. Secondary data has been collected from books, magazines, journals, newspapers and Internet. Financial data is collected from annual reports, records. RESEARCH DESIGN: Maximizing shareholders value is of vital importance to an organization s like FORBES & COMPANY LIMITED AND VARDHAMAN TEXTILES. so as to stand high in the present competitive and disinvestments scenario. Though ROI, popularly known as profit generation is an adequate measure of corporate performance, it does not provide the real picture. Economic Value Added is gaining popularity as the true measure of economic profit. The design of the study is as follows:

Determining the overall cost of capital. Comparing with the operating profit. Assessing the rupee value of wealth created. Determining EVA as a percentage of capital employed. Comparative Analysis with other measures of performance

PRIMARY DATA: Profit & loss accounts, Balance Sheets, cash and funds flow statements and various schedules attached to the preparation of the above statements, operating results were used for analysing the data. The period covered under the study is five financial years, which is from 2007-08 to 2011-12. The project was undertaken for a period from May 2013 to June 2013. SECONDARY DATA: The work is undertaken under many executives in the Financial Department of FORBES & COMPANY LIMITED AND VARDHAMAN TEXTILES. For collecting some specific information, went to Companys library and students science library at FORBES & COMPANY LIMITED AND VARDHAMAN TEXTILES.

2. REVIEW OF LITERATURE PAPER TITLE: The Economic Value Added (EVA): An Analysis of Market Reaction. AUTHOR NAMES: Bartolom Dey Tortella & Sandro Brusco (2001) FINDINGS: Using different event case study methodologies and test statistics we test the market reaction to the introduction of the Economic Value Added (EVA1) management technique. Additionally we also analyze the effects over the main company variables, looking at the evolution before and after EVA adoption of three sets of company variables: profitability, investment and cash flow variables. We first observe that the EVA introduction does not generate significant abnormal returns, either positive or negative. In other words, the market does not appear to react to EVA adoption. Next, our analysis shows that firms adopt EVA after a long period of bad performance, and performance indicators improve only in the long run after EVA adoption. With respect to the investment variables, we observe that EVA adoption provides incentives for the managers to increase firm investment activity, and this appears to be linked to higher levels of debt. Finally, we can observe that the EVA adoption affects positively and significantly cash flow measures. We test if this

positive relation between EVA adoption and cash flow measures can be due to the fact that such measures affect directly part of managerial compensation, but we do not obtain definitive robust results. PAPER TITLE: Economic Value Measurement: Investment Recovery and Value Added IRVA AUTHOR NAMES: Ignacio Velez-Pareja (2001) FINDINGS: In Velez-Pareja, (1999b and 1999c), some difficulties of EVA as an approach for the measurement of economic added value were considered. In those papers, the use of real economic value added based on the real free cash flow was suggested. This means the real cash flow calculated from the immediately previous period. In VelezPareja (1999a and 2000), a methodology was presented to determine and to construct the free cash flow of a firm. The present article studies based on the previous works, an indicator of value added derived from the real free cash flow. PAPER TITLE: Economic value addition by Indian Banks: A study AUTHOR NAMES: INDIAN BANKS (2001) FINDINGS: This research paper studies Indian banks profile to demonstrate a direct correlation between the investment in stakeholder relationships and corporate performance. Many Indian banking seems to have destroyed sharehol ders wealth over a period of time and only a few have positively contributed to their wealth. With the help of EVA (Economic Value Added) and MVA (Market Value Added) which tell what the institution is doing with investors hard earned money, the paper ex amines an appropriate way of evaluating banks performance and also finds out which Indian banks have been able to create (or destroy) shareholders wealth since 1996-1997 to 2000-2001.

The overriding message of this paper is that banks must always strive to maximize shareholders value without which their stocks can never be fancied by the market. This analysis helps us to dig below the surface numbers to tell us more about the underlying business and whether there is a prima facie case for using EVA as one of the range of performance measurement tools.

PAPER TITLE: Economic Value-Added: A Review of the Theoretical and Empirical Literature AUTHOR NAMES: Andrew C. Worthington & Tracey West (2001) FINDINGS: With increasing pressure on firms to deliver shareholder value, there has been a renewed emphasis on devising measures of corporate financial performance and incentive compensation plans that encourage managers to increase shareholder wealth. One professedly recent innovation in the field of internal and external performance measurement is a trade-marked variant of residual income known as economic value-added (EVA). This paper attempts to provide a synoptic survey of EVAs conceptual underpinnings and the comparatively few empirical analyses of value-added performance measures. Special attention is given to the GAAP- related accounting adjustments involved in EVA-type calculations. PAPER TITLE: The Validity of the Economic Value Added Approach: an Empirical Application AUTHOR NAMES: Dimitris kyriazis, & christos anastassis (2007) FINDINGS: This study investigates the relative explanatory power of the Economic Value Added (EVA) model with respect to stock returns and firms' market value, compared to established accounting variables (e.g. net income, operating income), in the context of a small European developing market, namely the Athens Stock Exchange, in its first market-wide application of the EVA measure. Relative information content tests reveal that net and operating income appear to be more value relevant than EVA. Additionally, incremental information tests suggest that EVA unique components add only marginally to the information content of accounting profit. Moreover, EVA does not appear to have a stronger correlation with firms' Market Value Added than the other variables, suggesting that for our Greek dataset EVA, even though useful as a performance evaluation tool, need not necessarily be more correlated with shareholder's value than established accounting variables. PAPER TITLE: Whats Wrong with the Economic Value Added? AUTHOR NAMES: Sergei Vasilievich Cheremushkin (2008) FINDINGS: The paper reveals some substantial defects crept in the conventional method of calculating EVA's essential component - Capital Charge. Presently the Capital

Charge is derived as combination of market capital structure based WACC and accounting based Invested Capital, which is likewise joining apples with oranges. This cross-breeding deflects EVA from the Residual Income and the concept of Economic Profit, formulated by Alfred Marshall. The paper proves that the correct way to calculate Capital Charge is to use accounting WACC embracing relevant adjustments made to the Invested Capital. Properly calculated EVA adequately reflects firm's performance compared with initial opportunity costs existed when the capital was contributed. However shareholders' dollar amount opportunity costs at the moment of performance evaluation depend on the market value of capital and market WACC. The paper also establishes the Residual Market Profit that is based on Market Profit and Market Capital Charge defined as market WACC multiplied Market Value of the Firm. The Residual Market Profit effectively accounts for time value effects and manifests either the firm justifies market expectations about her performance or fails to satisfy them. PAPER TITLE: Economic Value Added: The Invisible Hand at Work AUTHOR NAMES: Michael Durant FINDINGS: Adam Smith, one of the fathers of classical economic thought, observed that firms and resource suppliers, seeking to further their own self-interest and operating within the framework of a highly competitive market system, will promote the interest of the public, as though guided by an invisible hand. (Smith, 1776) The market mechanism of supply and demand communicates the wants of consumers to businesses and through businesses to resource suppliers. Competition forces business and resource suppliers to make appropriate responses. The impact of an increase in consumer demand for some product will raise that goods price. The resulting economic profits signal other producers that society wants more of the product. Competition simultaneously brings an expansion of output and a lower price. Profits cause resources to move from lower valued to higher valued uses. Prices and sales are dictated by the consumer. In the quest for higher profits, businesses will take resources out of areas with lower than normal returns and put them into areas in which there is an expectation of high profits. Profits allocate resources. The primary objective of any business is to create wealth for its owners. If nothing else the

organization must provide a growth dividend to those who have invested expecting a value reward for their investment. As companies generate value and grow, society also benefits. The quest for value directs scarce resources to their most promising uses and most productive users. The more effectively resources are employed and managed, the more active economic growth and the rate of improvement in our standard of living as a society. Although there are exceptions to the rule relating to the value of economic wealth, most of the time there is a distinct harmony between creating increased share value of an organization and enhancing the quality of life of people in society. In most companies today the search for value is being challenged by a seriously out of date financial management system. Often, the wrong financial focus, cash strategies, operating goals, and valuation processes are emphasized. Managers are often rewarded for the wrong achievements and in many cases they are not rewarded for the efforts that lead to real value. Balance sheets are often just the result of accounting rules rather than the focus of value enhancement. These problems beg for approaches to financial focus that are completely different from current approaches. New approaches must start nothing less than a revolution in thinking in the process of economic evaluation. One of the focuses that have proved to be incorrect in the valuation of economic worth is earnings per share (EPS). Earnings per share has long been the hallmark of executives that appear in meetings of the shareholders, as the measure of their accomplishments. This, along with return on equity has long been thought of as the way to attract Wall Street investment. There is nothing that points to EPS as anything more than a ratio that accounting has developed for management reporting. Many executives believe that the stock market wants earnings and that the future of the organizations stock depends on the current EPS, despite the fact that not one shred of convincing evidence to substantiate this claim has ever been produced. To satisfy Wall Streets desire for reported profits, executives feel compelled to create earnings through creative accounting. Accounting tactics that could be employed to save taxes and increase value are avoided in favor of tactics that increase profit. Capital acquisitions are often not undertaken because they do not meet a hypothetical profit return. R&D and market expanding investments get only lip service. Often increased earnings growth is sustained by overzealous monetary

support of businesses that are long past their value peak. We must ask then, what truly determines increased value in stock prices. Over and over again the evidence points to the cash flow of the organization, adjusted for time and risk that investors can expect to get back over the life of the business. Economic Value Added (EVA) is a measurement tool that provides a clear picture of whether a business is creating or destroying shareholder wealth. EVA measures the firms ability to earn more than the true cost of capital. EVA combines the concept of residual income with the idea that all capital has a cost, which means that it is a measure of the profit that remains after earning a required rate of return on capital. If a firms earnings exceed the true cost of capital it is creating wealth for its shareholders.

COMPANY PROFILE Forbes and company limited Forbes & Company Ltd, formerly known as Forbes Gokak Ltd is one of the oldest companies of world that is still in business. The company operates with a diversified portfolio comprising shipping, automation, precision tools, energy systems, and consumer durables. They are having their manufacturing facilities located at Aurangabad, Thane and Mumbai in Maharashtra and Hosur in Tamil Nadu. The company operates in four divisions namely, Engineering, Logistics Solutions including shipping related activity, Upmarket Brands and Others. The Engineering Division comprises precision tools, business automation, coding business, motor manufacturing, measuring instruments and turbine agency. The Logistics Solutions Division comprises of two Container Freight Stations at Veshvi and Mundra, MTO, logistics, liner agencies, tramp, ship broking and chartering business. Upmarket Brands comprises retailing of Savile Row brand products through their own outlets and channel partners. Others include, Realty Division, for creating value from the real estates owned by the company at various locations. The company traces their origin to the year 1767, when John Forbes of Aberdeenshire, Scotland started his business in India. Over the years, the management of the company moved from the Forbes Family to the Campbell to the Tata Group and now finally to the well-known Shapoorji Pallonji Group, leaders in infrastructure,

construction and real estate businesses, amongst many others. Forbes & Company Ltd was originally incorporated on November 18, 1919 under the name The Gokak Mills Ltd. In the year 1972, Patel-Volkart Ltd was amalgamated with the company with effect from June 30, 1972 and the name was changed to Gokak Patel Volkart Ltd on December 31, 1973. In the year 1979, the company undertook a modernization programme involving an outlay of Rs 366 lakh. In the year 1983, the company acquired a hydro power generating set of 1 Megawatt capacity. In the year 1989, they acquired the spinning unit at Vadodara having an installed capacity of 25 000 spindles, which was named as Gokak Vadodara Spinning Mills. Also, they set up a textile mill in Indonesia with a capacity of 30,000 spindles during the year. In the year 1992, Forbes Campbell & Co Ltd was amalgamated with the company and the name of the company was changed to Forbes Gokak Ltd with effect from September 28, 1992. In the year 1995, the company commissioned new 15,000 spindles cotton yarn EOU project at Gokak Falls. In the year 1999, the company and Barwil Agencies of Wilh Wilhemsed Norway formed a joint venture company for providing shipping agency transport logistics and related services in India with their headquarters in Mumbai. During the year 2001-02, the company undergone a restructuring in the shareholding pattern and Shapoorji Pallonji Group acquired a majority stake of the share capital of the company and Forbes Gokak Ltd became a subsidiary of Shapoorji Pallonji & Company Ltd. Also, the company made a tie up with DAKS Simpson for licensing rights for distribution of DAKS products in India. In the year 2003, they became a company in the Pallonji Mistry's lottery venture Dhandhanadhan Infotainment as the company bought out 49% holding in Dhandhanadhan for a consideration of Rs 5.88 crore. During the year 2003-04, Bradma of India Ltd and Champbell Knitwear Ltd, wholly owned subsidiaries of the company were amalgamated with the company with effect from April 1, 2003. Also, the company entered into a marketing tie up with DAKS Simpson British apparel major to manufacture & market DAKS range of brands in India. During the year 2004-05, the company set up first overseas subsidiary, namely Forbes Sterling Star Ltd, which owns an 11138 gross ton, RORO Container Ship, named, M V X-Press Alexander. The company installed new equipments, namely Auto striper Machines, Jacquard Collar Machines and T-Shirt printing machines, which are operating at full capacities. Also, the company bought 19, 80,000 shares of Eureka Forbes Ltd for aggregate amount of Rs 524.20 million and thus Eureka Forbes Ltd became a wholly

owned subsidiary of the company. During the year 2005-06, the FAL Industries Ltd was amalgamated with the company with effect from April 1, 2005. The company increased the yarn dyeing capacity from 10 MT to 15 MT per day. Forbes Patvolk Shipping division entered into a strategic alliance and set up a joint venture company, Forbes Bumi Armada Ltd for looking after the offshore markets. During the year, the company together with the Sterling Investment Corporation Pvt Ltd, the holding company entered into an agreement with the Shipping Corporation of India Ltd for setting up a joint venture company to own and operate vessels. Also, the company promoted Forbes Edumetry Ltd and Edumetry Inc USA, which are engaged in the business of creating a value in the process of education measurement at international level. During the year 2006-07, the company commissioned K441 Reiter Ring Frames to produce compact yarn for a better price realization. Also, they commissioned Container Freight Station at Veshvi near JNPT. The company set up joint venture company, namely SCI Forbes Ltd as a part of a process to seek alliance and benefits from mutual strengths. They sold a vessel named 'X-Press Alexander' during the year. The company's Forbes Precision Tools division entered into marketing alliance with a Swiss company for trading in high performance tools, which improved their presence in the high-end tools market. Also, the division installed CNC grinding machines for manufacture of Solid Carbide Custom Tools, which cater to new application segments resulting into a higher unit realization. In June 2007, the company commissioned Container Freight Station at Mundra. The company de-merged their Textiles Undertaking, which include Yarn business with their manufacturing unit at Gokak Falls in Karnataka and Knitwear business with their manufacturing unit at Marihal in Karnataka into a separate company, namely Gokak Textiles Ltd with effect from April 1, 2007. Subsequently, the name of the company was changed from Forbes Gokak Ltd to Forbes & Company Ltd with effect from October 25, 2007. Forbes Campbell Holdings Ltd and Warrior (Investment) Ltd, two investment subsidiaries of the company were amalgamated into another investment subsidiary namely, Forbes Finance Ltd with effect from June 1, 2007. During the year 2008-09, the company made an additional investment of Rs 307.90 million in the equity shares of Forbes Finance Ltd, a wholly owned subsidiary company. Further, Forbes Finance Ltd has made investment of Rs 1500 lakh in the equity shares of Forbes Technosys Ltd by subscribing to the rights issue and purchase of shares from another subsidiary, namely Eureka Forbes Ltd.

Thus, Forbes Technosys Ltd became a subsidiary of Forbes Finance Ltd. The company proposes to sell, transfer or dispose off the business of Business Automation Group of the Company to one of their subsidiary companies.

Board Of Directors Chairman Managing Director Shapoor P Mistry Ashok Barat D B Engineer R N Jha S L Goklaney T R Doongaji Kaiwan D Kalyaniwalla A T Shah D Sivanandhan Jai L Mavani Jimmy J Parakh

Director

Company Secretary Director

Products & Services % of Stock 37.7 27.1 10.0 7.7 6.2 5.8 2.2 1.9 1.0 0.2 % Cap. Util. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Inst. Sales Prod. Prodn Qty Cap 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Sales (Cr.) Sales (Rs.) / Unit -

Product Name Job Work & Services charges Threading Tool Carbide Tools Steam Turbines Spring Washers Other Operating Revenue Precision interchangeable stee Automated Impact Markers Accessories & Components Print. & Embosing Machin- Hand

Unit NA NA NA NA NA NA NA NA NA NA

0 112.77 0 0 0 0 0 0 0 0 0 81.05 29.84 22.96 18.45 17.34 6.52 5.73 2.99 0.58

Other traded tools instruments Cutting Tools (Traded goods) Cutting Tools Collating & Jogging M/c.Set Electric Machines Time Data Machines Steam Turbine (Traded goods) Paper Shredders Inkjet Machines LoomsCotton/Canvas & Duck Looms-Cycle Tyre Cord Looms-Terry Cloth/Towels Spindles-Yarn Cutters-Rotary M/C Vision Cash Register Mach.-Electronic MICR Eqpt. Printers-Ink Jet Perforator Control Systems Note Counting Machines Safety Valves Electric Motors Current Transformers Transformers-Current Vacuum Cleaners Electric Plugs CTF Lighting Products Mechanical Typewriters Opthalmic Lenses

NA NA NA No No No NA NA NA No No No No No NA No No No No No No No No No No No No NA No No Pcs

0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0.46 0.15 0.07 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Currency Counting Machine Time-registers/time recorders Excise Duty Income from services rendered Plates Air Tools-Hi.Speed Solid Carbide Tools Base Plate & Coupling Hand Hand Held Terminals Hard Resin (ADCM) Other Business Automation Prod Others Trading Sales of Yarn/Fabrics Intermediate Products Other Textile Articles Other Textile Goods Textile Goods Fabric Blended Yarn Yarn Plastic Cards Cotton- Trading Canvas & DuckCotton Knitted Fabrics Garments Knitted Garments Terry Towel (in Pcs) Prec. inter steel types (sets)

No No NA NA No No NA No No NA MT No NA No Kg NA No NA Mtr MT MT No MT Mtr NA NA Pcs No NA

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Vardhman Textiles Limited Vardhman Textiles, incorporated in 1973, is one of the pioneers in textile industry with operations in the segments of yarn, sewing thread, steel, and fabric. Formerly known as Mahavir Spinning Mills, it is a part of Vardhman Group managed by Paul Oswal. In 1975, Vardhman Textiless first plant was commissioned with 25,088 spindles in Hoshiarpur, Punjab. In 1977-78, the company set up a 25,000-spindle textile mill at Malerkotla in Sanazur, Punjab. In 1992-93, a 100% Export Oriented Unit (EOU) was commissioned by Vardhman Textiless at Mandideep. Both the Malerkotla mill and EOU unit was awarded the ISO 9002/BIS 14002 by Bureau of Indian Standards (BIS). In March 1995, its gassed and mercerized dyed yarn project at Hoshiarpur commenced production. In order to set up 100% EOU located at Baddi, Himachal Pradesh, the company formed joint venture with Marubeni Corporation and Toho Rayon of Japan. For this company established Vardhman Acrylics and started commercial production in September 1996. In 1998-99 company set up its 3rd 100% EOU at Mandideep with an installed production capacity of 25000 spindles. Company set up unit-II at Ludhiana in order to expand its sewing thread capacity. This unit had an installed capacity of 5 TPD. Company entered an agreement with Amercian & Effird Inc., USA to manufacture superior sewing thread. Much later in 2004 the textile business of Vardhman Spinning and General Mills was merged with Vardhman Textiles. The company added new units of Looms and Rotors with a installed capacity of 264 Nos and 528 Nos respectively Companies like VMT Spinning Company (VMT), Vardhman Threads (VTL) and Vardhman Yarns & Threads and Vardhman Acrylics are the subsidiaries of Vardhman Textiles. Vardhman Textiles is promoted by Ludhiana based Vardhman Group, a major textile business house in India. Company has received ISO 9002/ ISO 14002 certification for its quality management. Vardhman Textiles, exports its products to more than 25 countries and has a strong presence in markets like the EEC, USA, Canada, China, Japan, Korea, Mexico, Brazil and Mauritius, Middle East. PRODUCT

Yarn: Under this segment, the company manufactures wide range of yarn such as Grey Cotton, Grey Acrylic, Crayons, Hank Dyed Acrylic, Vardhman Knitting, Gassed Mercerised Cotton and many more. Companys annual manufacturing capacity of yarn is to 98,736 MT. Fabrics- Company manufactures fabric for shirting and bottom weights. It produces fabrics of various types viz. 100% Cotton, Polyester cotton, Chief Value Cotton and Cotton Stretch. Companys fabric manufacturing capacity is 30 million meters per annum Sewing Threads- Company manufactures wide range of threads such as cotton, polyester, core spun (polyester cotton/ polyester polyester), trilobal embroidery thread, bonded nylon and lubricated nylon thread including specialized threads like button fusing, bead fusing and anti-wicking, button shanking, indigo dyed and so on. Steel- Under this, company has an installed capacity of 1, 00,000 Metric tonnes per annum. Awards The Company was awarded Golden trophy by Textile Export Promotion Council (Merchant Export Category for Fabrics) for the various export performance in the year 1993-94. Vardhman Textiles received the award of merit from the Government of India in the year 1994-95 and 1995-96. Vardhman Group (Parent Company)Vardhman Group was set up in the year 1965 at Ludhiana, Northern India. The group has business interest in area of Yarns, Fabrics, Sewing Threads, Fibre and Alloy Steel. Vardhman group is one of the largest spinning group of the country with a spindlage of over 5,50,000. The group has 12 production plants located in the states of Punjab, Himachal Pradesh and Madhya Pradesh. Currently the group has manufacturing capacity of approximately 25 metric tonne/per day of sewing thread in its plant at Hoshiarpur, Ludhiana, Baddi and Perundurai. Currently the group employs 20,000 people.Future ProspectsVardhman Textiles is undertaking Research and Development activities in order to develop of new products and for improvement in the production process and quality of products. Key Executives Mr. Shri Paul Oswal Dr. Subash Khanchand Bijlani Mr. Arun Kumar Purwar Mr. Ashok Kumar Kundra Chairman & Managing Director Director Director Director

Mr. Darshan Lal Sharma

Director

Finished Products PRODUCT NAME Yarn Processed Fabrics Fabric Miscellaneous Other Fiscal Benefits Sale of services Cotton Other Operating Revenue Raw Fibres Power Raw Materials Waste Garments Steel Ingots/Billets Rolled Product Billets Looms Spindles Rotors Fibres Man Made UNITS N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. SALES INSTALLEDPRODUCTIONSALES VALUE CAPACITY QUANTITY QUANTITY (Rs Cr.) 0.00 0.00 0.00 2421.7746 0.00 0.00 0.00 953.6990 0.00 0.00 0.00 246.1071 0.00 0.00 0.00 176.1482 0.00 0.00 0.00 82.4450 0.00 0.00 0.00 14.5002 0.00 0.00 0.00 10.4198 0.00 0.00 0.00 8.9260 0.00 0.00 0.00 3.7442 0.00 0.00 0.00 1.1274 0.00 0.00 0.00 0.5652 0.00 0.00 0.00 0.0000 0.00 0.00 0.00 0.0000 0.00 0.00 0.00 0.0000 0.00 0.00 0.00 0.0000 0.00 0.00 0.00 0.0000 0.00 0.00 0.00 0.0000 0.00 0.00 0.00 0.0000 0.00 0.00 0.00 0.0000 0.00 0.00 0.00 0.0000