AFFLUENCE

DIRECTORS' REPORT

Dear Shareholders,

Your Directors have pleasure in presenting the Thirty First Annual Report of the Company together with the Audited Accounts for the year ended 31 st March, 2015.

CORPORATE OVERVIEW:

Your Company is the sole manufacturer of Oxo-Alcohols in India. The Oxo-Alcohols consist of the following products viz., 2 Ethyl Hexanol, Normal Butanol and Iso Butanol. Your Com­pany is an associate of The Andhra Sugars Ltd., and has its Regd. Office at Tanuku.

OPERATIONAL AND FINANCIAL PERFORMANCE:

During the Financial Year 2014-15, the Plant produced 18,765 MTs (previous year 26,460 MTs), which works out to 26% (approx.) capacity utilisation. Sales during the year were 19,101 MTs (previous year 29,157 MTs). Lower production was due to lower Propylene availability with HPCL as a con­sequence of fire accident on 23rd August, 2013 in HPCL's Cooling Tower, non-remunerative selling prices of the prod­ucts and Hudhud cyclone on 12th October, 2014. Company had incurred a Net Loss of Rs.44.52 crores during the cur­rent Financial Year 2014-15 against Rs.25.67 crores Net Loss incurred during the previous year.

DIVIDEND:

Due to loss incurred during the year under report, your Direc­tors are unable to recommend any dividend for the Financial

Year 2014-15.

CAPITAL & RESERVES:

Authorised and Paid-up Capital:

The Authorised Capital of the Company is Rs.85 crores and the Paid-up Capital is Rs.84.97 crores.

Reserves:

The total Reserves position as on 31.3.2015 stood at Rs.58.55 crores against Rs.105.19 crores in the previous year.

MANAGEMENT DISCUSSION AND ANALYSIS:

INDUSTRY STRUCTURE AND DEVELOPMENTS:

Company's operations were affected for the whole year under review on account of un-remunerative product prices. The product prices were very low for major part of the year, well below the variable cost of production itself. For certain periods Propylene supplies by HPCL were also somewhat lower due to the outage of one of the product Condensers in the Propylene Recovery Unit of HPCL, damaged due to a Fire accident earlier. A new imported Condenser was installed and commissioned during the first week of April, 2015 which removed the bottleneck in Propylene production by HPCL. The bottleneck has arisen on a Force Maejure condition. HPCL have since demonstrated higher Propylene produc­tion, meeting full scale requirement of our Company. Poor product prices and consequently unit shutdown for prolonged period during the year resulted in poor financial performance.

The Company has negotiated with HPCL for revision in the basis of Propylene pricing related to crude prices on a short-term basis, in order to avoid wide variation between Propy-lene and product prices.

The Company has taken up with the Government of India for levy of Anti-dumping Duty on both the main products, 2-Ethyl Hexanol and Normal Butanol in view of the injury to the Com­pany caused by dumping of these products into India by ex­porting countries. At this stage, the Company feels that it is likely that certain Anti-dumping Duties will be levied on both the products that may result in improved performance of the Company. HPCL has since established full scale operations of their Propylene Recovery Unit which will assist your Com­pany in operating the unit at full capacity that can also con­tribute to better performance of the Company.

OPPORTUNITIES AND THREATS:

The Company is expected to realise full capacity in view of HPCL's capability to operate their Propylene Recovery Unit at full capacity which can contribute for favourable perfor­mance of the Company. Expected levying of Anti-dumping Duties also contribute towards improved performance of the Company. However, international product prices, strength­ening of Rupee against Dollar may impact the Company's performance to some extent.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has internal control systems commensurate with the size of the business operations. A Chartered Ac­countants' firm is engaged to carry internal audit covering the entire operations. The Audit firm submits internal audit report periodically with their suggestions and / or corrections. Audit Committee critically deliberates and reviews such in­ternal audit reports and ensures effectiveness of the internal control systems.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS:

As far as the Human Resources is concerned, the employ­ees are being trained to meet the Plant requirements from time to time by motivating them in a positive way and the industrial relations continue to be cordial throughout the year.

The total number of employees employed as on 31.3.2015 is 268.

FUTURE OUTLOOK:

Your Company has overcome the raw material supply con­straints faced due to fire accident in supplier's premises dur­ing August, 2013. However, the Company's performance to a large extent is influenced by International demand and sup­ply position and prices, crude prices, exchange fluctuations etc. Overall operations are expected to improve in the com­ing years.

RISKS AND CONCERNS:

The Company is depending for its major raw material i.e., Propylene from a single source i.e., HPCL, Visakha Refin­ery. However, the risk is built in the project evaluation. The crude prices, exchange fluctuations and middle-east political stability is a major concern to the Company's performance.

CAUTIONARY STATEMENT:

The statements describing the Company's outlook, estimates or predictions may be forward-looking statements based on certain assumptions of future events. Actual results may dif­fer materially from those expressed or implied, since the Company's operations are influenced by external or internal factors. Your Company closely monitors all major develop­ments likely to affect the operations and will respond to meet the potential threats and to gain from any possible opportuni­ties.

DEPOSITS:

During the year under review, your Company did not accept any deposits within the meaning of provisions of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014.

SAFETY, HEALTH AND ENVIRONMENT:

Your company has been awarded the following:-

Silver Trophy in National Safety Awards (NSA) -2012 for

Lowest Average Frequency Rate (2010, 2011, 2012) awarded by Directorate General, Factory Advice Services and Labour Institutes (DGFASLI), Mumbai / Faridabad.

Silver Trophy in National Safety Awards (NSA) - 2012 for

Accident Free Year awarded by Directorate General, Factory Advice Services and Labour Institutes (DGFASLI), Mumbai / Faridabad.

Suraksha Puraskar (Bronze Trophy) in NSCI Awards -2014 for the assessment year 2011, 2012, 2013 by National Safety Council India (NSCI), Mumbai.

Safety of human and Plant assets is of top priority of the Company. Continuous training of personnel at various levels on safety and strict compliance of regulations is ensured which resulted in another accident-free year. Your Company has established several process measures and a number of en­vironmental control systems to contain environmental impact and ensures their close monitoring. It may be noted that your Company is always in the forefront and proactive in imple­menting environment protection measures.

INSURANCE:

All the insurable assets of the Company including Plant and Machinery, Buildings and Inventories are insured on reinstate­ment value basis.

LISTING:

The Equity Shares of your Company are listed on the Bombay Stock Exchange. Listing fees has been paid.

EXTRACT OF ANNUAL RETURN:

The details forming part of the extract of the Annual Return in Form MGT-9, as required under Section 92 of the Compa­nies Act, 2013, is included in this Report as Annexure - "A" and forms an integral part of this report.

DIRECTORS:

During the year under report, Sri Justice G Ramanujam (Retd.) retired as Director of the Company from 10.9.2014.

IDBI Bank Ltd., withdrew Sri Anirudha Behera as its Nomi­nee Director from the Board of the Company from 31.10.2014 and in his place Sri A Mallikarjun was nominated from 1.11.2014 who was also withdrawn from the Board of the Company from 10.2.2015.

Dr.(Smt.) D Manjulatha was co-opted as Additional Director on the Board of the Company w.e.f., 27.3.2015 on the rec­ommendation of the Nomination and Remuneration Commit­tee at its Meeting held on 27.3.2015.

APIDC withdrew the nomination of Smt. Anita Rajendra, I.A.S., and Sri K Rajendra Prasad as its Nominee Directors from the Board of the Company w.e.f., 19.10.2014 and 29.5.2015 respectly. Further, it has nominated Smt. Y V Anuradha, I.A.S., and Sri Shamsher Singh Rawat, I.A.S., on the Board of the Company and they have been co-opted as Additional Direc­tors on the Board of the Company w.e.f., 23.7.2015 on the recommendation of Nomination and Remuneration Commit­tee at its meeting held on 23.7.2015.

Your Directors place on record their warm appreciation for the valuable guidance rendered by Sri Justice G Ramanujam (Retd.), Smt. Anita Rajendra, I.A.S., Sri K Rajendra Prasad, Sri Anirudha Behera and Sri A Mallikarjun during their tenure as Directors of the Company.

As per the provisions of the Companies Act, 2013, during the year under review, Sri M R B Punja, Sri A A Krishnan and Sri Surinder Kumar Kapoor were appointed as Independent Directors on the Board of the Company for a period of 5 con­secutive years from 12.9.2014.

All Independent Directors have given declarations at the first meeting of the Board of Directors held during the Financial Year 2015-16 (i.e., on 22.5.2015) that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agree­ment.

Dr.(Smt.) D Manjulatha, Smt. Y V Anuradha, I.A.S., and Sri Shamsher Singh Rawat, I.A.S., hold office upto the date of the ensuing 31 st Annual General Meeting (AGM). Resolu­tions seeking their appointment as Directors are being placed for the approval of the shareholders at the ensuing 31st AGM.

In accordance with the provisions of the Companies Act, 2013 and Articles of Association of the Company, Directors Sri Mullapudi Thimmaraja and Sri P Narendranath Chowdary retire by rotation at the ensuing 31st AGM and being eligible offer themselves for reappointment.

AUDIT COMMITTEE:

Audit Committee consists of three Non-Executive Indepen­dent Directors Sri A A Krishnan (Chairman) with Sri M R B Punja and Sri Surinder Kumar Kapoor as its members.

SECRETARIAL AUDIT:

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and rules made thereunder, the Company has ap­pointed D Hanumanta Raju & Co., Practising Company Sec­retaries (CP No.1709), Hyderabad, to undertake the Secre­tarial Audit of the Company. The Secretarial Audit Report is included as Annexure - "B" and forms an integral part of this report.

BOARD EVALUATION:

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, your Board has carried out a formal process of evaluation of the Board, its Commit­tees and the individual Directors.

The performance was evaluated based on the parameters such as effectiveness of Board / Committee process and functioning, contribution of Board / Committee members to overall effectiveness of the Board / Committee, avoiding con­flict with Company's interest, bonafide discharge of respon­sibilities in the interest of the Company and upholding ethical standards, integrity and probity etc.

The performance evaluation of the Chairman and the Non-Independent Directors was carried out by the Independent Directors. The evaluation process reflected valuable contri­bution of members of the Board / Committee thereof.

NUMBER OF MEETINGS OF THE BOARD:

The details of the number of Meetings of the Board held dur­ing the Financial Year 2014-15 are given in the Corporate Governance Report which forms part of this report.

PARTICULARS OF LOANS, GUARANTEES OR INVEST­MENTS BY THE COMPANY:

Your Company has not given any loans or guarantees cov­ered under the provisions of Section 186 of the Companies Act, 2013. Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to financial statements.

WHISTLE BLOWER POLICY:

As per the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, your Company has established a Vigil Mechanism / Whistle Blower Policy for Directors and employees to report genuine concerns (unethical behaviour, actual or suspected fraud or violation of the Company's Code of Conduct) in prescribed manner.

The Policy provides adequate safeguards against victimisation of the complainant and direct access to the Chairman of the Audit Committee. The protected disclosures, if any, reported under this Policy will be appropriately and expeditiously in­vestigated.

The Whistle Blower Policy may be accessed on the Company's website at the link: <http://> www.andhrapetrochemicals.com/Whistle  Blower Policy.pdf.

RISK MANAGEMENT:

Your Board of Directors at its Meeting held on 27.3.2015 framed and adopted a Risk Management Policy of the Com­pany to identify and mitigate the risks. The risk management framework defines the risk management approach of the Com­pany and includes periodic review of such risks and also risk mitigation measures and reporting mechanism of such risks. Risk Management Policy of your Company can be viewed by entering the url <http://www.andhrapetrochemicals.com/>

POLICY ON CORPORATE RISK MANAGEMENT.pdf in the web browser.

CORPORATE SOCIAL RESPONSIBILITY (CSR) COMMITTEE:

For details of CSR Committee composition, please refer Cor­porate Governance section of this report.

As a part of its initiative under the Corporate Social Respon­sibility (CSR) drive, the Company has undertaken a project in the area of plantation of trees. This project is in accordance with Schedule VII of the Companies Act, 2013 and Company's CSR Policy. The Report on CSR activities as required un­der Companies (CSR Policy) Rules, 2014 is set out as Annexure - "C" forming part of this report.

NOMINATION AND REMUNERATION COMMITTEE:

As required by the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, your Board of Direc­tors at its Meeting held on 24.5.2014 constituted Nomination and Remuneration Committee comprising Directors viz., Sri Surinder Kumar Kapoor as Chairman and Sri M R B Punja and Sri P Narendranath Chowdary as its members.

NOMINATION AND REMUNERATION POLICY:

The Board of Directors of your Company has, on recommen­dation of the Nomination & Remuneration Committee, adopted a Nomination & Remuneration Policy which lays down the framework in relation to the criteria for selection and appoint­ment of Board members and remuneration of Directors / Key Managerial Personnel and Senior Management of the Com­pany. This Policy can be accessed on the Company's website at the link: <http://www.andhrapetrochemicals.com/NOMINA->TION REMUNERATION POLICY.pdf.

M/s Brahmayya & Co., Chartered Accountants, Vijayawada, have been appointed as Statutory Auditors of the Company for the Financial Years 2014-15, 2015-16 and 2016-17 by the shareholders at the 30th Annual General Meeting held on 12th September, 2014. Now approval of shareholders is sought for ratification of appointment and fixation of remu­neration for the Financial Year 2015-16.

COST AUDITORS:

M/s Narasimha Murthy & Co., Cost Accountants, Hyderabad, were appointed as Cost Auditors of the Company for the year ended 31 st March, 2015. Cost Auditors' Report in re­spect of Financial Year 2013-14 has been filed with the Min­istry of Corporate Affairs on 23rd June, 2014 i.e., within the stipulated date.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORP­TION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

Particulars prescribed under Section 134 (3) (m) of the Com­panies Act, 2013 read with the Rule 8 (3) of Companies (Accounts) Rules, 2014 are given below:

I) CONSERVATION OF ENERGY

1. Steps taken or impact on conservation of energy: Dur­ing the year under report no new initiatives were taken up. The benefits of previous year's investments have been validated in this Financial Year.

2. Steps taken by the Company for utilisting alternative sources of energy: Company continues to draw cheaper power from APGPCL thereby reducing the average power cost.

3. Capital Investment on energy conservation equip­ments: Nil

II) TECHNOLOGY ABSORPTION, ADAPTATION AND IN­NOVATION:

a) Efforts made: Oxo and Butanols Plant technology has been fully absorbed and the Company is able to operate the Plant at higher loads.

b) Benefits: The Company has realised the benefits after Modernisation-cum-Optimisation by way of improved pro­cess efficiencies and also reduction of specific power consumption.

c) Imported Technology: NIL

d) Expenditure incurred on R & D: In view of prolonged Plant shutdown during the year due to disruption in sup­plies of major raw material, Propylene, and loss incurred by the Company, an amount of Rs.20 lakhs expenditure has been incurred on R & D activities.

PARTICULARS OF EMPLOYEES:

Statement of particulars of employees of the Company as required under Section 197 (12) of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forming part of this report is annexed hereto (Annexure-"D").

Employee mentioned in the said Annexure is not a relative of any Director of the Company. None of the employees holds (by himself or along with his spouse and dependent children) more than 2% of the Equity Shares of the Company.

DEMATERIALISATION OF SHARES:

As on 31st March, 2015, out of the total number of 8,49,71,600 Equity Shares, 7,69,05,669 Equity Shares constituting 90.51% stand dematerialised.

RELATED PARTY TRANSACTIONS:

As per the provisions of Clause 49 of the Listing Agreement, your Company has established a Policy on materiality of Re­lated Party Transactions and on dealing with Related Party Transactions.

The Policy on Related Party Transactions as approved by the Board of Directors is available on the website of the Company. The weblink of the same is <http://> www.andhrapetrochemicals.com/POLICY  ON RELATED PARTY TRANSACTIONS.pdf .

All transactions entered with Related Parties for the year un­der review were on arm's length basis and in the ordinary course of business.

All Related Party Transactions are placed before the Audit Com­mittee and the Board for approval. Omnibus approval was granted by the Audit Committee on yearly basis for transac­tions which are repetitive in nature. A statement giving details of all Related Party Transactions are placed before the Audit Committee and the Board for review and ratification on a quar­terly basis.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013:

Your Company has in place a Prevention of Sexual Harass­ment Policy in line with the requirement of the Sexual Harass­ment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. An Internal Complaints Committee (ICC) was set up to redress complaints received regarding sexual harassment. During the year 2014-15, there were no complaints received by the ICC.

PARTICULARS OF REMUNERATION:

The information required under Section 197 of the Companies Act, 2013 and the rules made thereunder in respect of em­ployees of the Company, is as follows:-

(a) the ratio of the remuneration of each Director to the me­dian remuneration of the employees of the Company for the Financial Year:

Our Directors draw remuneration only by way of sitting fees. The details of the same are provided in Corporate Gov­ernance Report which forms an Annexure to this report. No other remuneration is drawn by them including the Man­aging Director. Hence, the ratio of remuneration of each Director to the median remuneration could not be given.

(b) the percentage increase in remuneration of each Director, Chief Executive Officer, Chief Financial Officer, Company Secretary or Manager, if any, in the Financial Year;

There is no change in sitting fee during the current Finan­cial Year. Other details are as follows:

(c) the percentage increase in the median remuneration of employees in the Financial Year: 8.26%

(d) the number of permanent employees on the rolls of Com­pany: 268

(e) the explanation on the relationship between average in­crease in remuneration and Company performance;

On an average, employees received an increase of 8.26%. The increase in remuneration is in line with the market trends. A direct co-relation of employee remu­neration and Company performance as envisaged in the rules is not feasible considering the qualitative factors involved in measuring performance.

(g) variations in the market capitalisation of the Company, price earnings ratio as at the closing date of the current Financial Year and previous Financial Year and percent­age increase over decrease in the market quotations of the shares of the Company in comparison to the rate at which the Company came out with the last public offer in case of listed companies, and in case of unlisted com­panies, the variations in the networth of the Company as at the close of the current Financial Year and previous Financial Year;

(h) average percentile increase already made in the sala­ries of employees other than the managerial personnel in the last Financial Year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any excep­tional circumstances for increase in the managerial re­muneration

The average increase in salaries of employees other than managerial personnel in 2014-15 was 8.26%. Percent­age increase in the managerial remuneration for the year was NIL.

j) the key parameters for any variable component of remu­neration availed by the Directors: Not applicable as Direc­tors do not draw any remuneration except by way of sitting fees.

(k) the ratio of the remuneration of the highest paid Director to that of the employees who are not Directors but receive remuneration in excess of the highest paid Director during the year:

Not applicable as Directors' remuneration consists of only sitting fees.

(l) affirmation that the remuneration is as per the Remunera­tion Policy of the Company

The Company's Remuneration Policy is driven by the suc­cess and performance of the individual employees and the Company. Through its compensation package, the Company endeavours to attract, retain, develop and motivate a high performance staff. The Company follows a compensation mix of fixed pay, benefits and performance based variable pay. Individual performance pay is determined by business performance and the performance of the individuals mea­sured through the annual appraisal process. The Company affirms that the remuneration is as per the Remuneration Policy of the Company.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE

REGULATORS OR COURTS:

There are no significant and material orders passed by the Regulators / Courts that would impact the going concern status of the Company and its future operations.

DIRECTORS' RESPONSIBILITY STATEMENT:

To the best of knowledge and belief and according to the information and explanations obtained by them, your Direc­tors make the following statement in terms of Section 134(3)(c) of the Companies Act, 2013:

i) that in the preparation of the Annual Accounts for the year ended 31 st March, 2015, the applicable Accounting Stan­dards have been followed along with proper explanation relating to material departures, if any;

ii) that Accounting Policies have been selected and applied consistently and that judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st March, 2015 and of the loss of the Company for the year ended on that date;

iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accor­dance with provisions of the Companies Act, 2013 for safe­guarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv) the annual accounts have been prepared on a going con­cern basis;

v) that the Directors had laid down internal financial controls to be followed by the Company and that such internal finan­cial controls are adequate and were operating effectively; and

vi) that the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

REPORT ON CORPORATE GOVERNANCE:

As required under Clause 49 of the Listing Agreement with the Stock Exchange, the report on Corporate Governance and the Auditors' Certificate on the compliance of Corporate Governance are annexed and form part of the Directors' Report (Annexure - "E").

ACKNOWLEDGEMENTS:

Your Directors acknowledge the co-operation and continued valu­able support received from Central and State Government au­thorities, the Promoters - The Andhra Sugars Limited and APIDC, Financial Institutions, Banks, Shareholders, Customers, HPCL, GAIL and other Suppliers. Your Directors also wish to place on record their deep sense of appreciation of the valuable contribution made by the employees at all levels.

On behalf of the Board

M R B PUNJA

Chairman

Hyderabad

23-7-2015