AFFLUENCE

DIRECTORS' REPORT 2013-14

Dear Members,                                                                      

Your Directors are pleased to present the 22ndAnnual Report of your Company together with the Audited Statement of Accounts and the Auditors' Report of your Company for the financial year ended,  31st March, 2014. The summarized financial results for the year ended 31st March, 2014 are as under:

FINANCIAL HIGHLIGHTS

The comparable financial performance of the Company (standalone) for the Financial 2013-2014 is summarized as under:

                                                                                               (INR Crores)

EQUITY DIVIDEND

In order to conserve resources for working capital and new projects your Directors' do not recommend any dividend for the Financial Year 2013-2014.

RESPONSIBILITY STATEMENT

In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, in relation to the Annual Financial Statements for the financial year 2013-14, your Directors confirm that:

i.       The Financial  Statements have been prepared in the revised format of Schedule VI of the Companies Act, 1956 on a going concern and on the accrual basis and  in the preparation of these Financial  Statements, applicable accounting standards have been followed and there are no material departures;

ii.      Accounting policies selected were applied consistently and the judgments and estimates related to the financial statements have been made on a prudent and reasonable basis, so as to give a true and fair view of the state of affairs of the company as at 31st March, 2014 and of the profit of the company for the year ended on that date; and

iii.    Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

BUSINESS OVERVIEW

The Company has marked a total income of Rs. 1,075.22  inthe Financial Year 2013-2014 as against Rs. 926.82Crore during the Financial Year 2012-2013, an increase by 16%during the year. Profit before tax (PBT) for the year is Rs. 12.88against Rs. 27.46Croreas a decrease of 53% during the previous Financial Year, this was mainly due to substantial increase in the cost of procurement of milk which the Company has only partially been able to pass on to the customer.

 Earnings per share of the Company for the Financial Year 2013-2014 is Rs.6.78 per share (Previous Year Rs.8.26 per Shares).

Review of Operations

Last year was a tough year with overall sentiments down which has also impacted our business specially consumer business. There was also an impact of procurement and milk prices which led to abrupt increase in consumer products. Within these constraints, the consumer business has grown by 15% in value terms. Consumer cheese delivered a 14% volume growth. Ghee saw a decline in volumes of 10%.Paneer has shown potential of being a future growth driver .UHT has established itself during the year with primarily distribution in East and North India .Horeca segment has seen rapid expansion and establishing the channel for future growth. Topp Up was launched last year as a beverage brand. Fresh Milk business saw a tough year with pricing being a factor. Significant achievement was in establishing the business in Nagpur city in  Maharashtra .Amongst powders, Gulab Jamun mix has been promising

Marketing and Distribution Network

During the last year the distribution was sustained through existing distribution channels with only corrective actions being initiated to enhance the quality of distribution. No major expansion in terms of opening of new depots has taken place. Significant expansion in retail distribution has been initiated in North India, specially JandK, UP and Delhi NCR. Pilot on rural distribution expansion initiated in Maharashtra. Our current coverage is close to Rs. 1.45 lakhs retail outlets through 1700 distributors and approx. 75 super stockiest.

In brand building, major initiatives were taken with localized initiatives with focus on outdoor like hoardings, bus shelters, point of sales (POS) in retail trade. Mass media use was selective with festival season initiatives in our major category of ghee.

Future Prospects

The prospects during the next year seems bright with the procurement prices being stable. This has led to major corrective actions in the procurement process showing early signs of revival. The distribution expansion plans have been prepared with focus on quality of distribution. The route to market ( RTM ) strategy focuses on building capability of the sales team. Expansion with depth of distribution in rural in mature markets of West and urban markets expansion upto 1 lac+ towns planned in North and South. This is being led with CFA operations planned in Mumbai ( Bhiwandi ), Indore, Bangalore and Hyderabad. Quality of distribution correction planned in top 8 metros. Major thrust is being given to information collection and analytics, with IT initiatives to link our distributors on the IT platform to collection tertiary sales in retail distribution. A pilot for the same will be initiated in Mumbai .Capacity expansion in Paneer in Manchar and UHT in Palamner are the main thrust along with commissioning of the whey plant in Manchar.Horeca segment expansion with new products planned in cheese category to strengthen leadership position. In terms of brand building, major initiatives have been planned in trade and customer marketing with a separate team being planned. This would help in building our brands at the POS, with specific focus on modern trade and key accounts

In brand marketing, ghee and cheese will see new films being produced with more thandoubling of the TV media spends and focus on print and social media. Specific initiatives are being planned with theme based 360 degree marketing thrust.

The above initiatives being dovetailed with focus on operational efficiencies being built at plant level, marketing initiatives to build brands and focus on quality distribution expansion and capability building of the sales team would help build the consumer business to INR 1020 crores and overall company t/o to INR 1650 crores.

Fixed Assets and Capital Expenditures

The Company's gross block of Fixed Assets has increased by 12.03%  by  additions made during the  year amounting to  Rs.  17.60 crores  as on 31st March 2014 as against additions of  Rs. 15.71 crores as on 31st March, 2013. Capital Expenditure was made on the following accounts.

Export Market

During the year the Company has accounted for export sale of  Rs. 149.69 crores vis-�-vis Rs. 49.49Crore in the last year.

Your Company has continued its efforts in developing more and more products for the Indian ethnic community abroad. New products were also launched in International Market during the year . Export of Flavoured Milk  �Topp � Upp �  started to Mauritius. New variants of products like cheese have also  been  developed for export which will add variety and volume to the company's portfolio. During the year company participated in GULFOOD 2014 , the most prestigious Food exhibition in UAE.

During the year  your company not only continued to export to UAE, Singapore, Mauritius, Oman, Kuwait, Nepal etc. but also appointed distributors in  New Zealand and  Australia and have  also started exporting to  South Africa, Republic- De-Congo etc. Philippines  continued being the largest importer in Cheese this year as well. The Company is planning to start exports to Russia, USA, Bahrain, Qatar , Saudi Arabia during the coming year.

DIRECTORS

During the year under review, there was no change in the composition of Board of Directors of the Company

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SUBSIDIARY COMPANY and CONSOLIDATED FINANCIAL STATEMENTS

In the light of MCA Circular No. 2/2011 issued by the Central Government dated 8th February, 2011 the Company is exempted from attaching the Annual Accounts of each of its subsidiary companies with the Balance Sheet of the Company

Your Company has prepared Consolidated Financial Statements in accordance with Accounting Standard 21 (AS 21)  issued by the Institute of Chartered Accountants of India. The Consolidated Statements reflects the results of the Company and those of its Subsidiary Company. The Audited Consolidated Financial Statements are provided in the Annual Report.

BUYBACK OF SHARES

During the year the company has not bought back any of its shares from the shareholders.

INFORMATION TECHNOLOGY

Information Technology adaption and alignment continues to be a key strategic factor for Parag Milk Foods Pvt. Ltd.  The organization adapted an highly features rich and user friendly enterprise mailing platform Zimbra resulting in better operational costs due to hosted environment. A end user data backup solution has enabled the company to secure the endpoints data in an effective manner.

The Company witnessed implementation of an in house milk procurement application across its chilling center along with real time integration with weighing scales and milk analyzers. The application has eliminated a  lot of duplicity of efforts along with requisite security measures in place. The tanker procurement part has also been automated in a real time manner  with SAP based developments resulting in accurate information on inventories and production. The IT function has successfully integrated SAP with the mailing system enabling key MIS collaboration on a daily basis. A SAP web portal was provided to POC team for the interns project data collection for samples management.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

 Your Company's undertakes CSR activities to make sustainable impact on the human development of under�served communities through initiatives in Education, Health and Livelihoods  and has  constituted of a dedicated Corporate Social Responsibility Committee of the Board on 23rd June, 2014  by the Board of Directors of the Company with the imminent notification of section 135 of the Companies Act, 2013 and Rules framed there under.

Your Company always believed in and worked towards �inclusive growth'- improving the quality of life of the people we touch and in the communities where we operate.  The following CSR Activities have been conducted during: 2013-14.

�          Company  provided  10 days food and Water for 3000 people daily during Malin Disaster [ Relatives of affected, Rescue team of NDRF, Police force , Medical teams , Govt. and other social help machinery was  involved in the operation ]

�          Company provides food, medicine, fodder,  and other amenities as required for 125 animals maintained by  Panjarpol Trust at Manchar.  Company even pays salary to the staff employed to take care of the animals. [ 125 animals ]

�         Daily 20 liters of milk is provided to the Mentally weak children of the school Ghodaygaon � Palustika .

�          Company facilitates local school children visit to the Company factory and arranges for Pizza and food Treat in the Factory.

�          Company on a large scale conducted Eye check camp for drivers in coordination with RTO Pune in Manchar.

�          Company  assisted in providing  Farmers fodder and  crop loan facility.

�          Company  has  facilitated   Bank account opening for more than 250 contract employees.

AWARDS AND RECOGNITIONS

During the year the company has received the following award and recognition:

1.      Mr. Devendra Shah   was conferred with the prestigious award 2014 Franchise India   � ï¿½Entrepreneur Of The Year� .

2.      Mr.Devendra Shah -    is Nominated -  ï¿½NextGen Entrepreneur for the Year�  �  by  India Forbes Leadership Awards 2014   .

3.      Mr Devendra Shah-  has been   nominated by Government of India  as a member of the Board of Management  of National Dairy Research Institute (NDRI) , Karnal

4.       Mr B.M.Vyas � has been appointed as Director of National Dairy Development Board (NDDB).

FIXED DEPOSITS

The Company has not accepted any deposits from the public during the year pursuant to the provisions of Section 58A of the Companies Act, 1956.

ENERGY, TECHNOLOGY AND FOREIGN EXCHANGE

The details of energy conservation and research and development activities undertaken by the Company along with the information in accordance with the provisions of Section 217 (1) (e) of the Companies Act, 1956 read with the Companies (Disclosure of particulars in the report of the Board of Directors) Rules 1988, are furnished in Annexure "A" and forms part of this report.

PARTICULARS OF EMPLOYEES UNDER SECTION 217 (2A)

The information pursuant to the provisions of section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules. 1975 as, amended, is not required to be given as there were no employees coming within the purview of this section.

STATUTORY AUDITORS

The Statutory Auditor, M/s Haribhakti and Co,LLP, Chartered Accountants, Pune hold office till the conclusion of the ensuing Annual General Meeting and are recommended for re�appointment. The certificate from the Auditors have been received to the effect that their re�appointment, if made, would be within the prescribed limit under section 141(3)(g) of the Companies Act, 2013.

AUDITORS' REPORT

The observations of Auditors in their reports on standalone and consolidated financials are self�explanatory and therefore do not call for any further comments.

COST AUDITORS

In terms of letter No. 52/26/CAB�2010 dated 24th January 2012 received from the Cost Audit Branch of the Ministry of Corporate Affairs and pursuant to the provisions of section 224(1B) read with section 233B of the Companies Act, 1956, M/s Harshad Deshpande  Cost  Accountants were appointed as the cost auditors of the Company for the year ending 31st March, 2013.

Further, the Cost Audit  Report in respect of the FY 2012�13 was filed by the Cost Auditor in the XBRL mode .The Board of Directors at its meeting held on 23rd June  2014, have approved the appointment of M/s.  Harshad Deshpande as the Cost Auditors of the Company for the Financial Year 2014-15.

ACKNOWELDGEMENTS

Your Directors wish to place on record their sincere appreciation of the efforts and dedicated service of all employees, who contributed to the continuous growth and consequent performance of the Company. Your Directors wish to place on record their gratitude for the valuable assistance and co-operation extended to the Company by the Central Government, State Government ,  Banks , Institutions , Investors and Customers.

FOR AND ON BEHALF OF THE BOARD

DEVENDRA P. SHAH

CHAIRMAN

Date: 10thSeptember, 2014

Place:    Mumbai

ANNEXURE A

Companies (Disclosure of Particulars in the Report of Board of Directors), Rules, 1988

A.   CONSERVATION OF ENERGY

Since the company is engaged in processing of milk the consumption of energy per unit is not significant, hence total energy consumption during the year is given in the Form A as below :-

B.    RESEARCH AND DEVELOPMENT

Directors have nothing significant to report as required under Section 217(1) (e) of the Companies Act, 1956 on research and development.

C.   TECHNOLOGY  ABSORPTION, ADAPTATION AND INNOVATION

Since the company is engaged in milk activity, which will not require any tie-up for any technology or absorption thereof. However the company is actively involved in modern technology in processing of milk.

D.   FOREIGN EXCHANGE EARNINGS  AND OUTGO

Particulars regarding Foreign Exchange Earnings and Outgo are as follows:-

( INR Crores)

A. CONSERVATION OF ENERGY Since the company is engaged in processing of milk the consumption of energy per unit is not significant, hence total energy consumption during the year is given in the Form A as below :- Sr.No. Power and Fuel Consumption Units (2013-14) 1 Electricity Consumption (Total No. of Units) 20614770 units from MSEB 2 Own Generator through T.G. Set (Units) 2100000 Unit from turbine 3 Diesel / SKO consumed (LTR) 401756 Lit 4 Furnace Oil Consumed (LTR) 16140 Lit 5. Coal (Kg) 33779126 KG

D. FOREIGN EXCHANGE EARNINGS AND OUTGO Particulars regarding Foreign Exchange Earnings and Outgo are as follows:- ( INR Crores) Particulars 2013-14 2012-13 CIF Value of Imports 1. Capital Goods Raw Materials and Consumables .71 3.86 2.25 2.66 Foreign Exchange Outgo (Traveling) .14 .01 Foreign Exchange Earnings (Export Sales) 149.69 49.49

PARTICULARS OF EMPLOYEES UNDER SECTION 217 (2A) The information pursuant to the provisions of section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules. 1975 as, amended, is not required to be given as there were no employees coming within the purview of this section.

RESPONSIBILITY STATEMENT In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, in relation to the Annual Financial Statements for the financial year 2013-14, your Directors confirm that: i. The Financial Statements have been prepared in the revised format of Schedule VI of the Companies Act, 1956 on a going concern and on the accrual basis and in the preparation of these Financial Statements, applicable accounting standards have been followed and there are no material departures; ii. Accounting policies selected were applied consistently and the judgments and estimates related to the financial statements have been made on a prudent and reasonable basis, so as to give a true and fair view of the state of affairs of the company as at 31st March, 2014 and of the profit of the company for the year ended on that date; and iii. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.