APOLLO HOUSE 7, Institutional Area Sector 32 Gurgaon - 122001 (Haryana) www.apollotyres.

com

DIRECTORS REPORT
Dear Member, Your directors have pleasure in presenting the Annual Report alongwith the audited statement of accounts of your Company for the financial year ended March 31, 2006.

FINANCIAL PERFORMANCE
Year Ended 31.03.2006 31.03.2005 (Rs./Crore) Sales & other Income Profit before Depreciation, Tax & Exceptional items Less: Depreciation Provision for Tax Current Deferred Fringe Benefit Tax Profit after Tax before Exceptional items Add: Exceptional items Net Profit Add: Transfer from Debenture Redemption Reserve Surplus brought forward from previous year Profit available for Appropriations Appropriations General Reserve Debenture Redemption Reserve Proposed Dividend Dividend Tax Balance carried forward 3,003.30 173.36 72.79 21.79 1.86 4.55 72.37 5.80 78.17 6.11 111.32 195.60 2,676.62 141.70 56.79 3.65 13.63 67.63 67.63 10.91 104.18 182.72

50.00 17.25 2.42 125.93 195.60

50.00 1.73 17.25 2.42 111.32 182.72

OPERATIONS
Sales from operations during the financial year ended March 31, 2006 amounted to an all time high of Rs. 3,002.12 crore as against Rs. 2,656.81 crore during the previous year, recording a growth of approx.13%. Operating profit, before interest and depreciation, amounted to Rs. 223.92 crore as against Rs. 184.64 crore during the previous year, registering an increase of approx. 21.27%. Net profit, after providing for interest, depreciation, tax and exceptional items amounted to Rs. 78.17 crore, as against Rs. 67.63 crore during the previous year. The strong performance of Apollo is a combination of high growth in sales alongwith enhanced operations management, better working capital management, aggressive marketing and overall cost reduction measures adopted by the Company. During the year, your Company realigned its relationship with Michelin and exited from the Joint Venture Company Michelin Apollo Tyres (P) Ltd., as radialisation in commercial vehicle tyres segment in Indian markets had not reached anticipated levels. The Company recovered almost its entire investment in the JV through sale of its 49% stake back to Michelin. This re-alignment would enable the Company to utilise the available resources better towards other growth opportunities in short to medium term.

23

PRODUCTION
During the year 2005-06, your Company has achieved 12.2% growth in production tonnage by recording production of 2.52 lac MT as against 2.24 lac MT in the previous year. As a result of successful implementation of expansion programme, the total capacity across the plants has increased to 704 MT/day from 628 MT/day.

DIVIDEND
Your directors recommend for your approval a dividend of Rs. 4.50 per equity share for the financial year 2005-06. There will be no tax deduction at source on dividend payments, but your Company will have to pay tax on dividend @ 14.025%, inclusive of surcharge. The dividend, if approved, shall be payable to the shareholders registered in the books of the Company and the beneficial owners as per details furnished by the depositories, determined with reference to the book closure from 23-8-2006 to 25-8-2006 (both days inclusive).

RAW MATERIALS
In the year under review, the raw material prices continued their upward march with record highs being recorded for our major raw materials viz. Natural rubber, Nylon tyre cord fabric, Carbon Black, Synthetic Rubber and Rubber Chemicals. The unabated increase in prices continued throughout the year with assured supplies being an important factor for the coming year. The year under review saw Natural Rubber prices scaling new peaks in the international markets with weather playing a major role in disrupting supplies. There were drought conditions in early part of the year in Thailand, China lost rubber plantations in the Hainan province due to typhoon in September, 2005 followed by floods in Thailand and Malaysia in December, 2005. With international natural rubber prices ruling high and India being a part of the global market, exports of rubber from India adversely affected the demand and supply position. The inverted customs duty structure on natural rubber continues wherein the customs duty on imported natural rubber is 20% as against 12.5% customs duty on import of tyres. Petro based raw materials namely Nylon Tyre Cord Fabric, Carbon Black, Synthetic Rubber and Rubber Chemicals went up due to crude prices breaching the barrier of USD 70/barrel and settling at higher levels over the previous year. The adverse demand and supply position for Synthetic Rubber and Rubber Chemicals led to phenomenal increase in prices for these raw materials. The antidumping duty on import of Nylon Tyre Cord Fabric and Rubber Chemicals further contributed to the increased costs. The Company continued its thrust on strategic partnership with vendors and expanding the sourcing network across the world to get competitive prices.

DOMESTIC MARKETING
The top line growth was registered on a foundation of taking the corporate journey of Passion In Motion into every aspect of our activities and operations to build greater customer satisfaction. This is based on the principle that one delighted customer will be a customer for life and will also bring in ten more into the Apollo Tyres customer base. The robust distribution network was further strengthened over the year by servicing our dealers through our 118 district offices and 12 distribution centres; our end consumers through our 4,250 dealers thus ensuring availability of the product through industry-leading spread and depth across the country. While we continue to lead in the replacement market, our relationships with key automakers have become more collaborative and vibrant allowing us to conduct more profitable business with them and generate more replacement sales. On the product front, we launched the premium Gold range in the truck & bus segment that gave a clear product benefit proposition of greater mileage. The Acelere range of high performance passenger car tyres was expanded to cater to the latest cars being introduced in the country while the entire Hawkz range was also rolled out to cater to the growing popularity of sport utility vehicles (SUVs). In our constant quest to innovate for greater customer delight, your Company launched the Apollo Acelere Tubeless Service Point whereunder till March 31, 2006, 162 tyre dealers across the country have been appointed to service tubeless passenger car tyres. The Acelere Wheelz range of high performance alloy wheels for passenger cars was expanded to offer the tyre dealer with an additional business stream while the car owner got a world-class product right here. These initiatives are in our quest to make your Company evolve into more than just a tyre maker and marketer by offering products and services that embellish the core tyre business through a one-stop-shop solution. This quest of your Company becoming a tyres plus marketer will continue through the years. On the service front, our 3-day claim settlement regimen gained unprecedented appreciation from the end consumer. Apollo Mobile, a phone based facility to let our dealers have updates about critical aspects of their business is another industry first. Our expanding specialist network of Apollo Pragati Kendras and Apollo Tyre Worlds has been strengthened with the partnerships forged with Reliance Petroleum, ONGC Oval and Tata Motors to market the range of Apollo Tyres through their networks, further improving our reach and availability.

24

ANNEXURE TO DIRECTORS REPORT

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

Annexure-A

Information under Section 217 (1) (e) of the Companies Act,1956 read with Companies (Disclosure of Particulars in the report of Board of Directors) Rules, 1988 and forming part of the Directors' Report for the year ended March 31, 2006. A) CONSERVATION OF ENERGY (a) Measures taken for conservation of energy To overcome the impact of rising energy costs, the company has undertaken many energy efficient measures like commissioning AC drives for boiler feed water pumps, energy efficient blowers, energy efficient motors for mixing mills, vapour compression chiller, conversion of most of furnace oil fired boilers into gas fired, commissioning of highly efficient rubber mixer, screw compressors for plant air, process applications and installation of HT/LT capacitors for power factor improvements. During the year, Limda Plant was awarded one of the Excellent Energy Efficient Unit by Confederation of Indian Industry (CII). (b) Additional investment and proposal for reduction of energy usage: The proposed energy conservation measures include Clean Development Mechanism (CDM) Project, Wind Turbine Generator (WTG), high efficient burners for boilers, optimise compressed air system, energy efficient pumps and motors for various applications and water harvesting project. (c) Impact of the measures at (a) and ( b) above for reduction of energy consumption and consequent impact on the cost of production of goods: (d) Power consumption/MT was reduced by 30.96 KWH, a reduction of 3.93 % over previous year. Fuel consumption / MT was reduced by 13.35 ltr., a reduction of 7.04 % over previous year. FORM A PARTICULARS A POWER/FUEL CONSUMPTION 1) Electricity a. Purchased Units Total Amount Rate per Unit b. Own Generation i) Total Captive Generation - Units - Units / Ltr. Of Diesel / Furnace oil - Cost / Unit ii) through steam turbine/generator - Units - Units / Ltr. Of Diesel / Furnace oil - Cost / Unit Coal Furnace oil / LSHS Quantity Total Amount Average rate Other / internal generation (KWH/MT) (ltrs/MT) (K.ltrs) (Rs./lac) (Rs.) (in lac) (Rs./lac) (Rs.) 1248.73 4988.08 3.99 1127.77 4631.75 4.11 Unit Measure 2005-06 Total 2004-05

Total energy consumption and energy consumption per unit of production

(in lac) (Rs.) (in lac) (Rs.)

266.24 3.94 4.83 319.12 6.33 1.50 42673.18 5285.20 12.39 0.00 757.48 176.24

459.09 4.10 3.88 97.65 5.26 1.59 40507.23 4799.34 11.85 0.00 788.44 189.59

2) 3)

4) B

CONSUMPTION PER UNIT OF PRODUCTION Electricity Furnace Oil / LSHS Coal & Others

27

PRODUCTION
During the year 2005-06, your Company has achieved 12.2% growth in production tonnage by recording production of 2.52 lac MT as against 2.24 lac MT in the previous year. As a result of successful implementation of expansion programme, the total capacity across the plants has increased to 704 MT/day from 628 MT/day.

DIVIDEND
Your directors recommend for your approval a dividend of Rs. 4.50 per equity share for the financial year 2005-06. There will be no tax deduction at source on dividend payments, but your Company will have to pay tax on dividend @ 14.025%, inclusive of surcharge. The dividend, if approved, shall be payable to the shareholders registered in the books of the Company and the beneficial owners as per details furnished by the depositories, determined with reference to the book closure from 23-8-2006 to 25-8-2006 (both days inclusive).

RAW MATERIALS
In the year under review, the raw material prices continued their upward march with record highs being recorded for our major raw materials viz. Natural rubber, Nylon tyre cord fabric, Carbon Black, Synthetic Rubber and Rubber Chemicals. The unabated increase in prices continued throughout the year with assured supplies being an important factor for the coming year. The year under review saw Natural Rubber prices scaling new peaks in the international markets with weather playing a major role in disrupting supplies. There were drought conditions in early part of the year in Thailand, China lost rubber plantations in the Hainan province due to typhoon in September, 2005 followed by floods in Thailand and Malaysia in December, 2005. With international natural rubber prices ruling high and India being a part of the global market, exports of rubber from India adversely affected the demand and supply position. The inverted customs duty structure on natural rubber continues wherein the customs duty on imported natural rubber is 20% as against 12.5% customs duty on import of tyres. Petro based raw materials namely Nylon Tyre Cord Fabric, Carbon Black, Synthetic Rubber and Rubber Chemicals went up due to crude prices breaching the barrier of USD 70/barrel and settling at higher levels over the previous year. The adverse demand and supply position for Synthetic Rubber and Rubber Chemicals led to phenomenal increase in prices for these raw materials. The antidumping duty on import of Nylon Tyre Cord Fabric and Rubber Chemicals further contributed to the increased costs. The Company continued its thrust on strategic partnership with vendors and expanding the sourcing network across the world to get competitive prices.

DOMESTIC MARKETING
The top line growth was registered on a foundation of taking the corporate journey of Passion In Motion into every aspect of our activities and operations to build greater customer satisfaction. This is based on the principle that one delighted customer will be a customer for life and will also bring in ten more into the Apollo Tyres customer base. The robust distribution network was further strengthened over the year by servicing our dealers through our 118 district offices and 12 distribution centres; our end consumers through our 4,250 dealers thus ensuring availability of the product through industry-leading spread and depth across the country. While we continue to lead in the replacement market, our relationships with key automakers have become more collaborative and vibrant allowing us to conduct more profitable business with them and generate more replacement sales. On the product front, we launched the premium Gold range in the truck & bus segment that gave a clear product benefit proposition of greater mileage. The Acelere range of high performance passenger car tyres was expanded to cater to the latest cars being introduced in the country while the entire Hawkz range was also rolled out to cater to the growing popularity of sport utility vehicles (SUVs). In our constant quest to innovate for greater customer delight, your Company launched the Apollo Acelere Tubeless Service Point whereunder till March 31, 2006, 162 tyre dealers across the country have been appointed to service tubeless passenger car tyres. The Acelere Wheelz range of high performance alloy wheels for passenger cars was expanded to offer the tyre dealer with an additional business stream while the car owner got a world-class product right here. These initiatives are in our quest to make your Company evolve into more than just a tyre maker and marketer by offering products and services that embellish the core tyre business through a one-stop-shop solution. This quest of your Company becoming a tyres plus marketer will continue through the years. On the service front, our 3-day claim settlement regimen gained unprecedented appreciation from the end consumer. Apollo Mobile, a phone based facility to let our dealers have updates about critical aspects of their business is another industry first. Our expanding specialist network of Apollo Pragati Kendras and Apollo Tyre Worlds has been strengthened with the partnerships forged with Reliance Petroleum, ONGC Oval and Tata Motors to market the range of Apollo Tyres through their networks, further improving our reach and availability.

24

ANNEXURE TO DIRECTORS REPORT

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

Annexure-A

Information under Section 217 (1) (e) of the Companies Act,1956 read with Companies (Disclosure of Particulars in the report of Board of Directors) Rules, 1988 and forming part of the Directors' Report for the year ended March 31, 2006. A) CONSERVATION OF ENERGY (a) Measures taken for conservation of energy To overcome the impact of rising energy costs, the company has undertaken many energy efficient measures like commissioning AC drives for boiler feed water pumps, energy efficient blowers, energy efficient motors for mixing mills, vapour compression chiller, conversion of most of furnace oil fired boilers into gas fired, commissioning of highly efficient rubber mixer, screw compressors for plant air, process applications and installation of HT/LT capacitors for power factor improvements. During the year, Limda Plant was awarded one of the Excellent Energy Efficient Unit by Confederation of Indian Industry (CII). (b) Additional investment and proposal for reduction of energy usage: The proposed energy conservation measures include Clean Development Mechanism (CDM) Project, Wind Turbine Generator (WTG), high efficient burners for boilers, optimise compressed air system, energy efficient pumps and motors for various applications and water harvesting project. (c) Impact of the measures at (a) and ( b) above for reduction of energy consumption and consequent impact on the cost of production of goods: (d) Power consumption/MT was reduced by 30.96 KWH, a reduction of 3.93 % over previous year. Fuel consumption / MT was reduced by 13.35 ltr., a reduction of 7.04 % over previous year. FORM A PARTICULARS A POWER/FUEL CONSUMPTION 1) Electricity a. Purchased Units Total Amount Rate per Unit b. Own Generation i) Total Captive Generation - Units - Units / Ltr. Of Diesel / Furnace oil - Cost / Unit ii) through steam turbine/generator - Units - Units / Ltr. Of Diesel / Furnace oil - Cost / Unit Coal Furnace oil / LSHS Quantity Total Amount Average rate Other / internal generation (KWH/MT) (ltrs/MT) (K.ltrs) (Rs./lac) (Rs.) (in lac) (Rs./lac) (Rs.) 1248.73 4988.08 3.99 1127.77 4631.75 4.11 Unit Measure 2005-06 Total 2004-05

Total energy consumption and energy consumption per unit of production

(in lac) (Rs.) (in lac) (Rs.)

266.24 3.94 4.83 319.12 6.33 1.50 42673.18 5285.20 12.39 0.00 757.48 176.24

459.09 4.10 3.88 97.65 5.26 1.59 40507.23 4799.34 11.85 0.00 788.44 189.59

2) 3)

4) B

CONSUMPTION PER UNIT OF PRODUCTION Electricity Furnace Oil / LSHS Coal & Others

27

B)

TECHNOLOGY ABSORPTION Efforts made in technology absorption as per form B 1. Research & Development (1) Specific areas in which R&D is carried out by the company: As a part of continuous improvements, the organisation has taken several initiatives to support the Companys vision to be self sufficient in Technology. A modern laboratory and number of tyre testing equipments were added for material characterization, reverse engineering, failure analysis and advanced tyre research. Advanced tyre design cell developed sophisticated FEM simulation techniques to design tyres with built in durability and performance characteristics. A software with numerous options for optimization of tyre patterns noise to design tyres with minimal noise level is developed. A few novel raw materials with very high performance characteristics to enhance tyre performance and durability is developed. A second stage Tyre building machine for LCV tyres and fabric let off for steel cord calender is developed. (2) Benefits derived as a result of R&D: The major benefits derived as a result of R&D work is the development of asymmetric and directional patterns for ultra high performance passenger cars, addition of rough terrain, highway and luxury type of tyres in SUV segments. Optimised the usage of material in Bias tyres. Designed tyres with very high mileage and development cycle time is reduced by usage of house developed software and simulation techniques. The development of dual bead tyres for LCV segment for increased load carrying capacity by developing such a machine with a major equipment manufacturer. (3) Future Plan of Action : The objective is to develop products to compete with world class manufacturer and make presence in the highly demanding quality markets and to develop products of different season, application and energy saving tyres. (4) Expenditure on R&D: (a) Capital (b) Deferred revenue expenditure (c) Revenue (d) Total (e) Total R&D expenditure as a % of turnover 2. Technology Absorption, Adaptation and Innovation (1) Efforts Towards Technology Absorption, Adaptation and Innovation: The Company has taken several steps towards technology absorption, adaptation and innovation. The Company uses the expertise of people with proven tyre technology background and training people abroad to improve the knowledge and skill of the people working in R&D. The Company works closely with reputed academic institutions and suppliers for the development of novel material and compositions and understand the influence of material and design parameters on tyre performance. (2) Benefits derived as a result of the above efforts: The Company is able to create several specialists in the field of tyre technology capable of designing tyres and equipments in house. Major innovations are the development of softwares for the tyre performance optimisations, compound mixing technology and tyre cure estimations. (3) Technology imported: a) b) c) d) No technology was imported during the year. Year of import Not Applicable. Has the technology been fully absorbed: So far no technology has been imported. At present all technology advancements in Baroda Plant have been predominantly due to internal R&D efforts. (Rs./crore) Nil Nil 8.33 8.33 0.28

28

C)

FOREIGN EXCHANGE EARNINGS AND OUTGO The Companys exports are mainly routed though Apollo International Ltd. Rs/crore i) Foreign Exchange Earnings: ii) On account of direct export sales from Apollo Tyres Ltd.(FOB value) Others 0.88 21.05

Foreign Exchange outgo (other than CIF value of imports)

29

Annexure-B CORPORATE GOVERNANCE REPORT (Pursuant to clause 49 of the Listing Agreement)

Your Company has complied in all material respects, with the requirements of the Corporate Governance Code as per clause 49 of the listing agreement with the stock exchanges. A report on the implementation of the Corporate Governance Code of the listing agreement by your Company is furnished below: 1. Company's philosophy on Corporate Governance At Apollo Tyres Ltd., corporate governance is all about the processes which involve direction and control of affairs of the Company in a fashion that ensures optimum returns for the stakeholders. Corporate governance is a broad framework, which defines the way a corporate body functions and interacts with its environment. It is a combination of voluntary practices and compliance with laws and regulations leading to effective control and management of the organisation. Your Company is sincerely following the philosophy of good corporate governance by creating and holding strong business fundamentals and delivering high performance through relentless focus on the following: (a) (b) (c) Transparency by classifying and explaining the Companys policies and actions to those towards whom it has responsibilities, i.e. maximum possible disclosures without hampering the Companys and shareholders interests. Accountability whereby even though the management has the executive freedom to drive the enterprise towards growth, it chooses to use this freedom within the framework of effective accountability and full responsibility. Professionalisation ensures that the management teams at all levels are qualified for their positions, have a clear understanding of their roles and are capable of exercising their own judgement, keeping in view the Companys interest, without being subject to undue influence from outsiders. Trusteeship brings into focus the fiduciary role of the management to align and direct the actions of the organisation towards creating wealth and shareholder value. Corporate Social Responsibility ensures the promotion of ethical values and setting up exemplary standards of ethical behaviour in our conduct towards our business partners, colleagues, shareholders and general public, i.e. abiding by the laws, showing mutual respect and acting with honesty and responsibility. Corporate social responsibility ensures that the Company contributes to societys overall welfare by undertaking not-for-profit activities which could benefit all or any of its stakeholders in society. Safeguarding Integrity ensures independent verification and truthful presentation of the Companys financial position. For this purpose, the Company has also constituted Audit Committee which pays particular attention to the financial management process. Continuous focus on training & development of employees and workers to achieve the overall corporate objectives.

(d) (e)

(f)

(g)

Your Company is open, accessible and consistent with communication and shares long term perspective and firmly believes that good Corporate Governance practices underscore its drive towards competitive strength and sustained performance. Thus, basic Corporate Governance norms have been institutionalized as an enabling and facilitating business process at the Board, Management and operational levels. 2. Board of Directors a) Composition of Board: The Company has a broad-based board and meets the Composition criteria. As on March 31, 2006 the Companys board of directors consist of 13 Executive and Non-Executive Directors, including leading professionals in their respective fields. The following is the percentage of executive and non-executive directors of the Company: Category of Directors Executive Non Executive: - Independent Directors - Others Total No. of Directors 4 8 1 13 % of Total No. of Directors 31 61 8 100%

30

b)

The constitution of the board and attendance record of directors is given below: Name / Designation of Director Executive/NonExecutive/Independent No. of positions held in other companies Board# Committee## 5 1 3 3 1 No. of Board Meetings Attended 5 5 2 Attendance at last AGM

Mr. Onkar S. Kanwar Chairman & Managing Director Mr. K. Jacob Thomas Mr. K. Jose Cyriac Nominee Director Govt. of Kerala (Equity Investor) Mr. M.R.B. Punja Mr. Neeraj Kanwar Jt. Managing Director Mr. Nimesh N. Kampani@ Mr. Raaja Kanwar Mr. Robert Steinmetz Mr. Sunam Sarkar Chief (Strategy & Business Operations) & Whole Time Director Mr. Shardul S. Shroff @@ Dr. S. Narayan Mr. T. Balakrishnan* Nominee Director Govt. of Kerala (Equity Investor) Mr. U.S.Oberoi Chief ( Projects & Corporate Affairs) & Whole Time Director Mr. Herve Frederic Richert** Mr. Jean Marc Francois** Mr. John Mathai* Nominee Director Govt. of Kerala (Equity Investor)
# ## * **

Promoter Executive Non-Executive Independent Non-Executive Independent

Yes Yes No

Non-Executive Independent Executive Non-Executive Independent Non-Executive Non-Executive Independent Executive Non-Executive Independent Non-Executive Independent Non-Executive Independent

8 3 8 2 -

5 5 -

4 5 2 3 4

Yes Yes No Yes Yes

4 12

3 -

5 2 4 3

Yes No No N.A.

Executive Ceased to be Director Non-Executive Independent Non-Executive Independent Non-Executive Independent

Yes

3 4 -

Yes Yes N.A.

This includes directorships held in public limited companies and subsidiaries of public limited companies and excludes directorships held in private limited companies and overseas companies. For the purpose of committees of the board of directors only Audit and Shareholders Grievance committees in other public Ltd. companies and subsidiaries of public Ltd. companies are considered. The Govt. of Kerala nominated Mr. T. Balakrishnan as its nominee director on the board in place of Mr. John Mathai w.e.f 22nd July, 2005. Compagnie Financiere Michelin has withdrawn the nomination of Mr. Herve Frederic Richert and Mr. Jean Marc Francois w.e.f. September 30, 2005. However, Mr. Jean Marc Francois continued on the board of the Company as a non nominee director till 8th March, 2006, when he resigned as a director. Mr. Nimesh N. Kampani is the Chairman of M/s. JM Morgan Stanley Pvt. Ltd., providing corporate financial advisory services to the Company. The Company has paid fee of Rs. 26.74 lac for the year 2005-2006 for financial advice rendered by JM Morgan Stanley Pvt. Ltd. in which he is a director. The board has determined that such payments in the context of overall expenditure by the Company, is not significant and does not affect his independence.

31

@@

Mr.Shardul S. Shroff is a partner of M/s Amarchand & Mangaldas & Suresh A. Shroff & Co., carrying out the practice of solicitors and advocates on record.The Company has paid fee of Rs. 12.84 lac for the year 2005-2006 for professional advice rendered by the firm in which he is interested. The board has determined that such payments in the context of overall expenditure by the Company, is not significant and does not affect his independence.

None of the directors of your Company is a member of more than 10 committees or is the chairman of more than five committees across all the companies in which they are directors. (c) Profile of the Chairman and Managing Director and Jt. Managing Director Mr. Onkar S. Kanwar is the Chairman & Managing Director of Apollo Tyres Ltd. Mr. Kanwar has graduated in science and administration from University of California. Innovation, quality and exclusivity are Mr. Kanwars guiding principles, which have helped the Company achieve a great turnaround. He is the past President of Federation of Indian Chamber of Commerce and Industry (FICCI). Mr. Kanwar has also held the office of Chairman of Automotive Tyres Manufacturing Association (ATMA), the apex body of the Indian tyre industry, and is a past President of the Indian Arm of the International Chamber of Commerce. Mr. Neeraj Kanwar is the Jt. Managing Director of Apollo Tyres Ltd. and is responsible for all operations of the Company. He graduated from Lehigh University, Bethlehem PA, USA as a Bachelor of Science in Industrial Engineering with specialisation in Management Systems. (d) During the year, five board meetings were held on the following dates: 7th June, 2005 22nd July, 2005 30th September, 2005 31st October, 2005 30th January, 2006 The gap between any two meetings never exceeded four months as per clause 49 of the listing agreement. The required information was suitably placed before the board to the extent possible at the board meetings. 3. Audit Committee a) Constitution and Composition of Committee: The board of directors constituted an audit committee in the year 1992. The present audit committee comprises of following three non-executive and independent directors who have financial/accounting acumen to specifically look into the internal controls and audit procedures: Name of Director Mr. M.R.B. Punja Mr. K. Jacob Thomas Dr. S. Narayan Designation Chairman Member Member Category of Director Non-Executive Independent Non-Executive Independent Non-Executive Independent No. of meetings attended 3 4 3

In addition to the members of the audit committee, these meetings are attended by the Heads of accounts & finance and other respective functional heads, internal auditors, cost auditors and statutory auditors of the Company, wherever necessary, and those executives of the Company who are considered necessary for providing inputs to the committee. Members have discussions with the statutory auditors during the meetings of the committee and the quarterly/half-yearly and annual audited financials of the Company are reviewed by the audit committee before consideration and approval by the board of directors. The committee also reviews the internal control systems, IT systems and conduct of the internal audit. b) Meetings: During the financial year, the audit committee met four times on the following dates: 6th June, 2005 21st July, 2005 31st October, 2005 30th January, 2006

32

c) d)

Mr. P.N. Wahal, Company Secretary, acts as secretary of the committee. Role of Internal Auditors The organisation considers the Internal Audit Department as a powerful tool with clear focus on risk control and governance. Internal Auditing assesses and promotes strong ethics and values within the organisation and serves as an educational resource regarding changes and trends in the business and regulatory environment. At Apollo, the Internal Audit Team aims at audit of the organisation which is reflected by quality review of all major functional areas- Production, Marketing, Sales, Technical, Commercial and Finance. Besides legal and compliance issues, Internal Audit function supports in evaluation of Internal Control Systems and locating all other important issues, which contribute to organisational objectives of customer delight, employee satisfaction, operating profit margin increase and revenue growth. Internal Auditing also provides objective assurance to the board on all the major findings during their audit.

e)

Terms of reference: The audit committee has been entrusted with the following responsibilities: Overview of the Companys financial reporting process and disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible Recommend the appointment/removal of external auditors, nature and scope of audit, fixation of audit fee and payment for any other services to external auditors. Review with the management, the quarterly/half yearly and annual financial statements before submission to the board focusing primarily on:-

Management letters/letters of internal control weaknesses issued by the statutory auditors. The appointment, removal and terms of remuneration of the Chief Internal Auditor shall be subject to review by the Audit Committee. Any related party transactions i.e. transactions of the Company of material nature, with promoters or the management, their subsidiaries or relatives etc. that may have potential conflict with the interests of the Company at large. Discussion and review of the internal audit reports and the reports of the external auditors with the management. Review of the adequacy and effectiveness of internal audit function, the internal control system of the Company, compliance with the Companys policies and applicable laws and regulations. Discussions with external auditors about the scope of audit including the observations of the auditors. Discussion with internal auditors about significant findings and follow up thereon. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control system of a material nature and reporting the matter to the Board. Reviewing the Companys financial and risk management policies. Looking into the reasons for substantial defaults, if any, in payments to the depositors, debentureholders, shareholders (in case of non payment of declared dividends and creditors). Reviewing on going relationship of business partners.

Matters required to be included in the Directors Responsibility Statements forming part of Directors Report. Any changes in accounting policies and practices. Major accounting entries based on exercise of judgement by management. Qualifications in draft audit report. Significant adjustments arising out of audit. The going concern assumption. Compliance with accounting standards. Compliance with stock exchange and legal requirements concerning financial statements. Management discussion and analysis of financial condition and results of operations.

The audit committee may also review such matters as are considered appropriate by it or referred to it by the board.

33

4.

Remuneration Committee a) Constitution and Composition of the Committee: The board of directors had constituted a Remuneration Committee in the year 2003. The present composition of the Remuneration Committee is as follows: Name of Director Dr. S. Narayan Mr. M.R.B. Punja Mr. K. Jacob Thomas b) c) d) Designation Chairman Member Member Category Non-Executive, Independent Non-Executive, Independent Non-Executive, Independent

Meetings of the Committee: During the financial year, no meeting of the Remuneration Committee was held. Mr. P.N. Wahal, Company Secretary, acts as the secretary of the committee. Terms of Reference The Remuneration committee has been entrusted with the following responsibilities: - To review and grant annual increments to Managing Director. - To vary and/or modify the terms and conditions of appointment/re-appointment including remuneration and perquisites, commission etc. payable to Managing Director within the overall ceiling of remuneration as approved by the members. - To suitably suggest changes based on changes in Schedule XIII of the Companies Act, 1956 and/or any amendments and/or modifications that may be made by the Central Govt. from time to time. - To do all such acts, deeds, things and execute all such documents, instruments and writings as may be considered necessary, expedient or desirable on this subject. The board of directors at the Board Meetings notes the minutes of the Remuneration Committee meetings.

e)

Payment of remuneration/sitting fee to the directors Remuneration/sitting fee paid/payable to directors during the financial year 2005-2006 is given below: i) Executives Salary Contribution to PF/Superannuation 48.60 7.29 5.67 2.75 Commission/ Performance Bonus 117.00 27.00 20.16 15.59 Perquisites (Rs./Lac) Total Remuneration 508.28 97.09 73.50 38.43

Name of Director

Mr. Onkar S.Kanwar Mr. Neeraj Kanwar Mr. U.S.Oberoi Mr. Sunam Sarkar

180.00 27.00 21.00 10.20

162.68 35.80 26.67 9.89

The remuneration policy of the Company is to remain competitive in the industry to attract and retain talent and appropriately reward them on their contribution. The criteria for payment of remuneration to the executive directors takes into account the business plans and market conditions. f) Non-Executives: The remuneration of non-executive directors is decided by the board of directors as per the terms approved by the shareholders within the limits approved by the Central Govt. The criteria for payment of commission to non-executive directors takes into account their contribution and current corporate practices. During the year, the following fee/commission was paid to the non-executive directors:-

34

(Rs./Lac) Name of Director Sitting fee Commission provided for the year 2005-2006 3.60 1.92 # 7.67 3.83 3.83 3.83 3.83 3.83 3.83 3.83 No. of Shares held as on 31.03.06 N.A. N.A. N.A. Nil Nil 44205 Nil Nil 16388 Nil Nil Nil Stock Option, if any N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

*Mr. Jean Marc Francois *Mr. Herve Frederic Richert **Mr. John Mathai Mr. K. Jose Cyriac **Mr. T. Balakrishnan Mr. K. Jacob Thomas Mr. M.R.B. Punja Mr. Nimesh N. Kampani Mr. Raaja Kanwar Mr. Robert Steinmetz Mr. Shardul S. Shroff Dr. S. Narayan

0.80 0.60 0.00 0.40 0.60 2.05 1.25 0.40 0.60 0.80 1.00 1.45

* Compagnie Financiere Michelin has withdrawn the nomination of Mr. Jean Marc Francois and Mr. Herve Frederic Richert w.e.f. September 30, 2005. However, Mr. Jean Marc Francois continued on the board of the Company as a non nominee director till 8th March, 2006, when he resigned as a director. ** The Govt. of Kerala nominated Mr. T. Balakrishnan as its nominee director on the board in place of Mr. John Mathai w.e.f 22nd July, 2005. # Commission payable to Govt. of Kerala.

5.

Shareholders / Investors Transfer / Grievance Committee (a) Constitution and Composition of the Committee The Company has constituted a Shareholders / Investors Transfer / Grievance Committee comprising of the following members:Name of Director Mr. K. Jacob Thomas Mr. Neeraj Kanwar Mr. Shardul S. Shroff Dr. S. Narayan (ceased to be member) Mr. Sunam Sarkar Mr. U.S. Oberoi (b) Designation Chairman Member Member Member Member Member No. of meetings attended 2 5 3 1 4 5

Mr. P.N. Wahal, Company Secretary, acts as secretary of the committee. Terms of reference This committee has been formed with a view to undertake the following: Approval of transfer/transmission of shares/debentures issued by the Company, issue of duplicate certificates and certificates after split/consolidation/ replacement. Looking into the redressal of shareholders and investors complaints like transfer of shares/debentures, demat of shares, non-receipt of balance sheet, dividend and interest etc.

(c) (d) (e)

Meetings During the year, seven meetings were held for the Shareholders /Investors Transfer/ Grievance Committee. Compliance Officer Mr. P.N. Wahal, Company secretary, has been designated as the compliance officer. No. of shareholders complaints received During the year 2005-2006, the Company received 28 complaints. As on date, no complaints are pending settlement other than those, which are under litigation, disputes or court orders. All other complaints were attended and resolved to the satisfaction of the shareholders.

35

6.

General Body Meetings and Dividend declared a) The last three AGMs were held as under: Year 2004-2005 Venue Kerala Fine Arts Theatre, Fine Arts Avenue, Foreshore Road, Ernakulam, Kochi (Kerala) - do - do Date 22.07.2005 Time 10.00 A.M.

2003-2004 2002-2003 b)

19.07.2004 28.07.2003

10.00 A.M. 10.00 A.M.

Special Resolutions passed in the previous three AGMs : Year 2004-2005 2003-2004 Special Resolution passed No Special resolution was passed - Amendment in Articles of Association - Dislisting of securities from Ahmedabad, Calcutta, Delhi & Ludhiana Stock Exchanges 2002-2003 - Amendment in Articles of Association

c)

Resolutions passed last year through postal ballot During the year, the following resolutions were passed through postal ballot :Amendment in Articles of Association of the Company Sale, Lease or otherwise disposal of Tubes Division

Details of voting pattern of the resolutions passed through Postal Ballot are as under :Amendment in Articles of Association of the Company as a Special Resolution. Number of Postal Ballots received Total number of valid votes cast Votes cast in favour of the Special Resolution Votes cast against the Special Resolution Requisite majority of votes for carrying the resolution as a Special Resolution Majority of votes received in favour of the Special Resolution Number of invalid Postal Ballots Number of invalid votes 2,145 2,26,96,477 2,26,88,658 7,819 23,457 2,26,80,839 57 6,970

Result:- The Resolution for amendment in Articles of Association of the Company is passed as a Special Resolution as the votes cast in favour of the resolution are more than three times the number of votes cast against the resolution. Sale, lease or otherwise disposal of tubes division as an Ordinary Resolution Number of Postal Ballots received Total number of valid votes cast Votes cast in favour of the Resolution Votes cast against the Resolution Requisite majority of votes for carrying the resolution as an Ordinary Resolution Majority of votes received in favour of the Resolution Number of invalid Postal Ballots Number of invalid votes 2,145 2,26,96,320 2,26,86,164 10,156 10,157 2,26,76,008 57 6,205

Result:- The Resolution for sale, lease or otherwise disposal of tubes division is passed as an Ordinary Resolution as the votes cast in favour of the resolution are more than the number of votes cast against the resolution.

36

d)

Person who conducted the postal ballot exercise Mr. P.P. Zibi Jose, Practising Company Secretary was appointed as Scrutinizer for conducting the postal ballot process in a fair and transparent manner.

e)

Whether any resolution is proposed to be conducted through postal ballot :The Company has proposed to pass the following resolutions through postal ballot vide its Notice dated 11th April, 2006:1. Increase in Authorised Capital. (Ordinary Resolution) 2. Amendment in the Memorandum of Association. (Ordinary Resolution) 3. Amendment in the Articles of Association.(Special Resolution) 4. Issue of Securities under Section 81 and 81(1A) of the Companies Act, 1956.(Special Resolution)

f)

Procedure for postal ballot : The Company conduct Postal Ballot procedure pursuant to Section 192A of the Companies Act, 1956, read with The Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001.

g)

Dividend declared in last three annual general meetings. Financial Year Ended 31.03.2005 31.03.2004 31.03.2003 Dividend 45% 45% 45%

7.

Disclosures a) Related Party Transactions Related Parties and transactions with them as required under Accounting Standard (AS- 18) are furnished under paragraph number 17 of the Notes to the Accounts attached with the financial statements for the year ended March 31, 2006. No transaction of material nature has been entered into by the Company with its promoters, the directors or the management, their subsidiary or relatives etc. that may have a potential conflict with the interests of the Company. The Register of contracts containing transactions, in which directors are interested, is placed before the board regularly. b) Risk Management Procedure In terms of sub-clause IV.C of the Clause 49 of the Listing Agreement, a comprehensive study is being undertaken by Deloitte Haskins & Sells to frame a risk management policy/internal control frame work. The Board shall periodically review the risk and plan to mitigate the same. c) Compliance by the Company There has been no instance of non-compliance by the Company on any matter related to capital markets during the last three years.

8.

Means of communication The quarterly/half yearly and annual financial results of the Company are normally published in Business Standard and The Times of India (national dailies) and Malyalam Manorma/Matrubhumi (Malayalam). In addition to the above, quarterly and annual results are displayed at our Website at www.apollotyres.com for the information of all the shareholders. All material information about the Company is promptly sent to the stock exchanges and the Company regularly updates the media and investor community about its financial as well as other organizational developments. Pursuant to Clause 51 of the Listing Agreement, financial information like annual and quarterly financial statements, shareholding pattern, etc. are available on SEBI website www.sebiedifar.nic.in

9.

Management Discussion & Analysis Report Management Discussion & Analysis Report is annexed hereto and forms part of the annual report (Annexure-B-1).

37

10.

General Shareholder Information a) Registered office : 6th Floor, Cherupushpam Building Shanmugham Road, Kochi - 682 031. Kerala. 25th August, 2006 Friday 10.00 a.m. Kerala Fine Arts Theatre, Fine Arts Avenue, Foreshore Road, Ernakulam, Kochi (Kerala). Month of July, 2006 Month of October, 2006 Month of January, 2007 April June, 2007 From 23rd August to 25th August (both days inclusive) On or after 25th August, 2006 but within the statutory time limit

b) Annual General Meeting: Date Day Time Venue : : : :

c) Financial calendar for Financial Year 2006-2007: Financial Reporting for the quarter ending June 30, 2006 Financial Reporting for the half year ending September 30, 2006 Financial Reporting for the quarter ending December 31, 2006 Financial Reporting for the quarter ending March 31, 2007 d) Date of Book-Closure : : : : :

e) Dividend payment date f) Listing at stock exchanges: 1. Cochin Stock Exchange Ltd., MES, Dr. P. K. Abdul Gafoor Memorial Cultural Complex, 36/1565, 4th Floor, Judges Avenue, Kaloor, Kochi 682017. Ph.0484-2400044,2401898 Fax:0484-2400330 E-mail: csel@vsnl.com The Stock Exchange, Mumbai Phiroze Jeejeebhoy Towers, 1st Floor, Dalal Street, Mumbai 400 001. Ph.: 022-22721233/34 Fax: 022-22721919/3027

2.

*The Calcutta Stock Exchange Assn. Ltd. 7, Lyons Range, Kolkata 700 001. Ph.:033-22104470-77 Fax: 033-22104500

3.

4.

National Stock Exchange of India Ltd. Exchange Plaza, Bandra Kurla Complex, Bandra (E), Mumbai 400 051. Ph.: 022-26598100-14 Fax: 022-26598237-38 E-mail: cmlist@nse.co.in

* g)

Application has been filed for delisting. The annual listing fee for the year 2006-2007 has been paid to all the aforesaid stock exchanges. Stock Code: Stock Exchange, Mumbai National Stock Exchange : : 500877 APOLLOTYRE

38

h)

Stock Market Price Data for the year 2005-2006 ATL share price on NSE & Nifty Index Month High (Rs.) April, 05 May, 05 June, 05 July, 05 August, 05 September, 05 October, 05 November, 05 December, 05 January, 06 February, 06 March, 06 297.90 289.00 288.00 259.10 302.45 310.00 305.00 284.00 314.95 329.85 316.95 310.00 NSE Low (Rs.) 258.05 265.00 229.00 225.30 235.00 271.00 242.00 235.55 270.10 279.70 284.00 284.00 Volume (in lac) 9.50 4.34 8.66 9.98 22.15 19.50 17.64 5.84 15.51 9.17 12.04 8.45 High 2084.90 2099.35 2226.15 2332.55 2426.65 2633.90 2669.20 2727.05 2857.00 3005.10 3090.30 3433.85 Nifty Index Low 1896.30 1898.15 2061.35 2171.25 2294.25 2382.90 2307.45 2366.80 2641.95 2783.85 2928.10 3064.00

ATL share price on BSE & Sensex Month High (Rs.) April, 05 May, 05 June, 05 July, 05 August, 05 September, 05 October, 05 November, 05 December, 05 January, 06 February, 06 March, 06 299.00 295.00 286.90 253.20 303.90 307.00 305.00 295.00 314.40 326.00 324.00 312.00 BSE Low (Rs.) 262.50 266.10 235.00 220.00 237.25 271.00 243.90 257.00 270.00 278.05 285.10 287.00 Volume (in lac) 2.99 2.31 3.98 5.61 9.51 7.41 7.62 2.63 6.05 5.88 1.98 3.30 High 6,649.42 6,772.74 7,228.21 7,708.59 7,921.39 8,722.17 8,821.84 9,033.99 9,442.98 9,945.19 10,422.65 11,356.95
Sensex

Low 6,118.42 6,140.97 6,647.36 7,123.11 7,537.50 7,818.90 7,656.15 7,891.23 8,769.56 9,158.44 9,713.51 10,344.26

i)

Shares Traded during 1st April, 2005 to 31st March, 2006 BSE No. of shares traded (in lacs) Highest Share Price (in Rs. ) Lowest Share Price (in Rs. ) Closing Share Price (as on March 31, 2006) Market Capitalization (as on March 31, 2006) (Rs. in Crore) 59.27 326.00 220.00 288.85 1107.39 NSE 142.78 329.85 225.30 290.95 1115.44

39

j)

Distribution of Shareholding The following is the distribution of shareholding of equity shares of the Company as on 31st March, 2006: Category 1-250 251-500 500-1000 1001-2000 2001-3000 3001-4000 4001-5000 5001-10000 10001 & above Total No. of Shareholders 44039 1165 475 213 65 20 13 22 66 46078 % of Shareholders No. of Shares Held % of Shareholding 95.57 2.53 1.03 0.46 0.14 0.04 0.03 0.05 0.14 100.00 2735980 440839 365995 315611 167788 73989 61018 163474 34013283 38337977 7.14 1.15 0.95 0.82 0.44 0.19 0.16 0.43 88.72 100.00

There are no outstanding warrants or convertible instruments, which may have impact on equity. "Group" for inter-se transfer of shares As required under Clause 3(e) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, the following entities constitute "Group" (within the meaning as defined in the Monopolies and Restrictive Trade Practices Act, 1969) for the purpose of Regulation 10 to 12 of the aforesaid SEBI Regulations:- Apollo Finance Limited, Sunrays Prop. & Inv. Co. Private Limited, Ganga Kaveri Credit & Holding Co. Private Limited, Sacred Heart Inv. Co. Private Limited, Kenstar Invest & Finance Co. Private Limited, Neeraj Consultants Limited, Constructive Finance Private Limited, Motlay Finance Private Limited, Indus Valley Inv. & Finance Pvt. Limited, Sargam Consultants Private Limited, Global Capital Limited, Apollo International Limited, PTL Enterprises Ltd., OSK Holdings/Trust (being formed) and OSK Family. The above entities, alongwith the family members hold 150.54 lac shares constituting 39.72% of share capital of the Company as on 31st March, 2006. Share Transfer System To expedite the share transfer in physical segment, Shareholders/Investors Transfer/ Grievances Committee has authorised whole-time director and Company Secretary to approve transfer of securities upto 1000 received from individuals and transfers pertaining to shares of notified parties lodged by the Office of Custodian on weekly basis. In case of approval of transfer of securities over 1000, the Shareholders/Investors Transfer /Grievances Committee meets at periodical intervals. In any case, all share transfers are completed within the prescribed time limit from the date of receipt, if document meets the stipulated requirement of statutory provisions in all respects. In reference to SEBI directives, the Company is providing the facility for transfer and dematerialization of securities simultaneously. The total no. of shares transferred during the year were 107601. All the transfers were completed within stipulated time. Dematerialisation of Shares and Liquidity The equity shares of the Company are being traded under compulsorily demat form as per SEBI notification. The Companys shares are tradeable compulsorily in electronic form and are available for trading in the depository systems of both National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Ltd. (CDSL). The International Securities Identification Number (ISIN) of the Company, as allotted by NSDL and CDSL, is INE438A01014. As on 31st March, 2006, 93.80 % of the share capital stands dematerialized, excluding 14.9% shares allotted to Michelin in physical form, on their request.

k)

l)

m) Share Transfer/Demat Registry Work All share transfers/demat are being processed in house. The Company has completed all the formalities for demat connectivity with NSDL/CDSL for carrying out demat completely in house. NSDL / CDSL have installed all the equipment including software as per their requirements. n) Share Transfer Department All Communications regarding change of address for shares held in physical form, dividend etc. should be sent at the Companys corporate office at:Apollo Tyres Ltd. Apollo House, 7, Institutional Area, Sector-32, Gurgaon 122 001(Haryana) Tel Nos : (0124) 238 3002-10 Fax : (0124) 2383351, 2383021 E-Mail : pn.wahal@apollotyres.com

40

o) p)

Outstanding GDRs/ADRs/Warrants The Company has not issued any GDRs/ADRs/Warrants and there is no instrument pending for conversion into equity. ECS Mandate All shareholders are requested to update their bank account details with their respective depositories urgently. This would enable the Company to service its investors better.

q)

Plant Location 1. 2. 3. Perambra, P.O. Chalakudy, Trichur 680 689 (Kerala) Limda, Taluka Waghodia, Dist.Vadodara 391 760 (Gujarat) Ranjangaon, Nagar Road, Tal.Shirur, Dist. Pune 419 209 (Maharashtra) : Secretarial Department, Apollo Tyres Ltd., Apollo House, 7, Institutional Area, Sector-32, Gurgaon. Tel No 0124-238 3002 (17 Lines)

r)

Address for correspondence For share transfer/demat of shares, payment of dividend and any other query relating to shares

The non-mandatory requirements, wherever necessary have been complied with. 11. ADDITIONAL INFORMATION a) Investors Relation Section The Investors Relation Section is located at the corporate office of the company. Contact person Time Phone No. Fax No. E-mail b) Bankers State Bank of India Bank of India State Bank of Mysore State Bank of Patiala ICICI Bank Ltd. Union Bank of India c) d) e) Auditors Fraser & Ross, Chartered Accountants Cost Auditors N. P. Gopalakrishnan & Co., Cost Accountants Code of Conduct of Insider Trading Apollo Tyres Ltd. has a Code of Conduct for Prevention of Insider Trading in the shares of the Company. The Code of Conduct prohibits the purchase/ sale of shares of the Company by employees in possession of unpublished price sensitive information pertaining to the Company. Mr. P.N. Wahal, Company Secretary, has been appointed the Compliance Officer. This Code of Conduct is applicable to all the Directors, Departmental Chiefs and Heads and such other employees of the Company who are expected to have access to unpublished price sensitive information. f) Code of Conduct for Directors and Senior Management Apollo Tyres has a code of business conduct called The Code of Conduct for Directors and Senior Management. The Code envisages that Board of Directors and Senior Management must act within the bounds of the authority conferred upon them The Federal Bank Ltd. Canara Bank IDBI Bank Ltd. Standard Chartered Bank Citi Bank : : : : : Mr. P. N. Wahal, Compliance Officer 10.00 A.M. to 6.00 P.M. on all working days of the Company. (Saturdays & Sundays closed) (0124) 2383002 10 (Extn. 602) (0124) 2383351/2383021 pn.wahal@apollotyres.com

41

and with a duty to make and keep themselves informed about the development in the industry in which the Company is involved and the legal requirements to be fulfilled. The Code is applicable to all the Directors and senior management of the Company. The Company Secretary is the compliance officer. g) Secretarial Audit As stipulated by SEBI, a qualified Company Secretary in practice conducts the Secretarial Audit of the Company for the purpose of reconciliation of total admitted capital with the Depositories, i.e. NSDL and CDSL, and the total issued and listed capital of the Company. The Company Secretary in practice conducts such Secretarial Audit in every quarter and issues a Secretarial Audit Certificate to this effect to the Company. Declaration Affirming Compliance of provisions of the Code of Conduct To the best of my knowledge and belief and on the basis of declarations given to me, I hereby affirm that all the Board members and the senior management personnel have fully complied with the provisions of the Code of Conduct for Directors and Senior Management Personnel during the financial year ending March 31, 2006. For Apollo Tyres Ltd. (Onkar S. Kanwar) Chairman & Managing Director Date: 5th May, 2006

COMPLIANCE:
The certificate dated 5th May, 2006 obtained from statutory auditors, M/s. Fraser & Ross, forms part of this annual report and the same is given herein: AUDITORS CERTIFICATE AS PER CLAUSE 49 OF THE LISTING AGREEMENT To the Members of Apollo Tyres Ltd. We have examined the compliance of conditions of corporate governance by Apollo Tyres Limited for the year ended on 31st March, 2006, as stipulated in Clause 49 of the Listing Agreement of the said Company with the stock exchanges. The compliance of conditions of corporate governance is the responsibility of the management. Our examination was limited to the procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement. We state that such compliance is neither an assurance as to the future viability of the company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company.

For FRASER & ROSS Chartered Accountants

Place : Gurgaon Dated : 5th May, 2006.

Sd/(M.K. Ananthanarayan) Partner Membership Number 19521

42

MANAGEMENT DISCUSSION AND A N A LY S I S R E P O R T

1. Industry Structure and Developments

Annexure-B-1

Indian tyre industry is two tier. The Tier-I players (top six tyre companies) account for over 85% of industry turnover containing a welldiversified product-mix and presence in all three major segments i.e. replacement market, original equipment manufacturers (OEMs) and exports. Tier-II companies are small in size, mainly concentrating on production of small tyres (for two/three-wheelers etc.), tubes and flaps and the replacement market. The demand and growth for the industry depends on primary factors like the overall GDP growth, agricultural & industrial production, growth in vehicle demand and secondary factors like the infrastructure development, prevailing interest rates and financing options etc. The truck and bus market is the largest segment of the industry accounting for approx. 70% of industry turnover in terms of value and tonnage - a segment in which Apollo Tyres has maintained the leadership position amongst the industry players for quite a few years. In the year 2005-06, the truck and bus tyres segment volumes witnessed a healthy growth of approx. 8%. Passenger car segment tyres volumes grew by approx. 13% in the year under review. Steep rise in raw material prices with limited pricing flexibility impacted the profit margins of all the players. This was the third consecutive year of raw material cost- push both for natural rubber and crude oil linked raw material basket .Consistent rise in major raw materials costs (natural rubber, nylon tyre cord, carbon black, synthetic rubber) have resulted in pressure on the margins of the tyre companies despite good topline growth. In fact some of the major tyre companies are operating at break even situation. Tyre exports are increasing consistently and the industry saw a growth of approx. 9 % in this area in the year under review. The radialisation in the important commercial vehicle segment is still at a mere 2%. This has not really picked up pace. Going forward, we expect it to gather some momentum but still levels of radialisation in this segment are predicted to be around 10% in five years time. The year ahead still looks tough with no respite in the raw material prices. The cost- push continues unabated and with the industry players reluctant to take large price increases, the challenge on profit margins will stay. The story on the demand front though looks good in medium term with the economy continuing to do well. 2. Opportunities and Threats SWOT Analysis of Apollo Tyres Ltd. Strengths

Continued Market Leadership in the dominant industry segment i.e. Truck / Bus tyres. Global presence with acquisition of Dunlop Tyres International (Pty) Ltd in South Africa. Robust Operation Center for managing IT operations across 140 Locations supported by ERP / Dealer Portal / Information Systems Security Control etc. Presence in technology products in car radial segment. Dynamic & Progressive Leadership. Responsive to changes in market conditions and product profiles. Product innovation and technical superiority. Strong Brand recall in a price sensitive market. Economies of transportation cost on account of closeness to natural rubber growing belt.

Weaknesses No presence in two/three wheeler segment. Declining profit margins due to raw material cost push. Opportunities Continuous thrust in road infrastructure and construction of expressways & national highways. Creation of road infrastructure has given, and will increasingly give a tremendous fillip to road transportation in the coming years. Tyre industry will play an important role in this changing product mix of transport. Leadership position in the commercial vehicle segment will enable the Company to leverage new and related business opportunities.

43

Access to global sources for raw materials at competitive prices due to economies of scale. Steady growth in vehicle production in the immediate future leading to growing demand. Threats

3.

An increase in the flow of tyres from competitive sources like China. Cheaper imports on account of import from countries which are signatories to Regional Trading Agreements (RTAs). With crude prices scaling upwards, pressure on raw material prices can be expected. Continuous increase in the prices of natural rubber, which accounts for nearly one third of total raw material cost.

Segment Wise Performance The Company consolidated its leadership position in the categories of truck-bus and light-truck by registering growths that were in excess of the industrys growth. We continue to be the dominant player in these categories. While maintaining our position in the farm segment, we continued to lead the growth of the passenger car segment with an 18% increase over the previous year in our journey to establish ourselves as leaders in the segment. The Company maintains its premium price position in every segment of operation.

4.

Outlook The Company continues its rapid strides in developing and producing the countrys finest and most relevant tyres in each segment leading to class-leading customer delight and loyalty. The Gold Series in truck-bus bias tyres, the expanded Acelere range for passenger cars and the dual-bead tyres for light trucks stand testimony to the Companys commitment to always offer the consumer with the most appropriate technology for Indian operating conditions. Our pioneering position in the field of radials for farm tyres was further enhanced by a broadening of our range during the course of the year. The Company has also initiated work on the introduction of a range of world-class truck and bus radial tyres that will see introduction in the Indian market in 2006-07.

5.

Risks and Concerns The growth of tyre industry is dependent on the growth in automobile industry which is cyclical in nature. Most of the raw materials are petroleum based and their prices are linked to the movement in crude oil prices.

6.

Information Technology/ Internal Control Systems and their adequacies The Company has proper and adequate systems for internal controls including Information Systems Security Controls to ensure and safeguard information assets from unauthorised use. These controls help in ensuring information confidentiality, availability and integrity. The Company has adopted an information security framework and has deployed policies and procedures to ensure that data is protected and is always in right hands. The Company has been certified for BS7799, which is a globally acclaimed standard for information security practices, developed by British Standards Institution. The Company has further strengthened its ERP deployment and is deploying decision support systems and management dashboards across various functions. Your Company has come closer to its customers by using innovative solutions like SMS which automatically takes relevant information and send SMS to dealers. A very robust and feature rich Intranet Portal has been deployed enabling efficiencies, electronic workflows and replacement of paper in the system. Alongwith this employee self service has also been deployed. The Company has taken major initiatives to ensure knowledge management and better decision making tools across the organisation.

7.

Discussion on Financial Performance with Respect to Operational Performance The financial statements have been prepared in accordance with the requirements of the Companies Act, 1956 and applicable accounting standards issued by the Institute of Chartered Accountants of India. The management of Apollo Tyres Ltd. accepts the integrity and objectivity of these financial statements as well as the various estimates and judgements used therein. The estimates and judgements relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form of transactions and reasonably present the Companys state of affairs and profit for the year.

44

Rs./Crore SL. NO. PARTICULARS Year Ended 31.03.2006 3002.12 1.18 2779.38 (76.80) 1844.16 163.50 376.60 471.92 223.92 50.56 72.79 100.57 21.79 1.86 4.55 72.37 5.80 78.17 Year Ended 31.03.2005 2656.81 19.81 2491.98 14.41 1425.37 143.40 431.32 477.48 184.64 42.94 56.79 84.91 3.65 13.63 0.00 67.63 67.63

1 2 3

Net Sales/Income from operations Other Income Total Expenditure a) (Increase) / Decrease in Work in Process and Finished Goods b) Consumption of Raw Materials c) Staff Cost d) Excise Duty e) Other Expenses

4 5 6 7 8

Operating Profit Interest Depreciation Profit before Tax & exceptional items Provision for Tax - Current - Deferred - Fringe Benefit Tax

9 10 11 8.

Profit after tax before exceptional items Exceptional items Net Profit

Material Developments in Human Resource / Industrial Relations During the year 2005-06, the Company focused on aligning employee aspirations to that of business objectives through its HR policies, process and other development initiatives to achieve its business goals. The Company realised that robust HR process and systems were the key drivers to translate its people vision to a reality. The Company institutionalised dynamic process for job evaluation, job grading, compensation benchmarking, well-defined behavioural competencies and new performance management system as a step towards a global organisation. To reinforce performance driven organisation culture in Apollo in a system-based mode, the Company launched its new Performance Management System PACE on line. Since leadership development and capability enhancement of employees, were considered most critical for a Companys success in the existing cut-throat competitive scenario, the Company rolled out a series of Development Initiatives in 2005-06 in collaboration with prestigious Management Institutes like IIM Ahmedabad, MDI Gurgaon etc. Programmes like Apollo Laureates Development Programme (ALDP) for middle level Managers, Enhanced Leadership Development Programme (ELDP) for senior Management staff, Supervisory Development programmes, train the trainer programme, Manufacturing Excellence and sales effectiveness were a major step towards capability building initiatives. In line with the Companys commitment to create a dynamic and effective sales force, series of development initiatives like State Managers Programme at IIM Ahmedabad, and Enhancing Marketing competencies for District Managers at MDI Gurgaon were organised to cater to the needs of the field staff. All these innovative initiatives helped the Company adhere to higher growth trajectory and accelerate performance across all fronts. In line with its commitment of creating a learning organisation, the Company launched several new initiatives like Manage Mentor module, HR bulletin etc in its Intranet called Apollo connect to ensure and facilitate continuous learning. As a step towards building a culture of teamwork and trust, the Company ensured maximum involvement and engagement of employees in the inhouse magazine Verve and Apollo connect. Due to its strong commitment on blue-collar worker integration to Companys objectives, the Company lays focus on worker development, community developments, quality circles, family oriented training programs, skill & attitudinal programs helped the Company to build a congenial working culture where productivity and cost cutting norms are talked out side the purview of Long Term Settlement.

45

The number of employees directly employed by the Company stood at 7,294 on March 31, 2006. NOTE: This report contains forward-looking statements that describe our objectives, plans or goals. All statements that address expectations or projections about the future, including, but not limited to statements about the Companys strategy for growth, product development, market position, expenditure and financial results, are forward looking statements. These are subject to certain risks and uncertainties, including but not limited to, government action, local, political or economic development, technological risks, risks inherent in the Companys growth strategy, dependence on certain customers, technical personnel and other factors that could cause actual results to differ materially from those contemplated by the relevant forward looking statements. Investors should bear this in mind as they consider forward-looking statements.

46

AUDITORS REPORT
TO THE MEMBERS OF APOLLO TYRES LTD.
1. We have audited the attached Balance Sheet of Apollo Tyres Ltd. as at 31st March, 2006, the Profit and Loss Account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure referred to in Paragraph 3 above, we report that : i) ii) iii) iv) v) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956; On the basis of written representations received from the directors and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2006 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956; In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

2.

3.

4.

vi)

(a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2006; (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 the Cash Flow Statement, of the cash flows for the year ended on that date.

For FRASER & ROSS CHARTERED ACCOUNTANTS M.K. ANANTHANARAYANAN PARTNER MEMBERSHIP NO. : 19521

Place : Gurgaon Date : 5th May, 2006

47

ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE

(i) a. The Company has maintained proper records showing particulars, including quantitative details and situation of fixed assets. Physical verification of fixed assets is carried out in a phased manner as determined by management, whereby assets held at the Companys factories have been verified during the year. The programme of verification is reasonable considering the nature of assets and size of the Company and no material discrepancies were noticed on such verification. The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company. The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable. The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. The Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material. The Company has not granted any loans, secured or unsecured to Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. The Company has not taken any loans, secured or unsecured from Companies, firms or other parties as listed in the register maintained under Section 301 of the Companies Act, 1956.

b.

c.

(ii)

a.

b.

c.

(iii)

a.

b.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business for the purchases of inventory, fixed assets and for the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in such internal control systems. (v) a. According to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that section; and In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

b.

(vi) The Company has not accepted any deposits from the public during the year. (vii) In our opinion, the Company has an internal audit system commensurate with the size and the nature of its business. (viii) We have broadly reviewed the books of account maintained by the Company relating to the manufacture of tyres and tubes, pursuant to the order made by the Central Government for the maintenance of cost records under Section 209(1) (d) of the Companies Act, 1956 and are of the opinion that prima facie the prescribed accounts and records have been made and maintained. We have, however, not made a detailed examination of the records with a view to determining whether they are accurate or complete. (ix) a. The Company is regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income-tax, Sales-tax, Wealth Tax, Service tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to it. According to the information and explanations given to us, no undisputed amounts in respect of Income-tax, Sales-tax, Wealth Tax, Service tax, Customs Duty, Excise Duty and Cess were in arrears as at 31st March, 2006 for a period more than six months from the date they became payable. According to the information and explanations given to us, there are no dues of Income tax, Sales tax, Wealth Tax, Service

b.

c.

48

tax, Customs Duty, Excise Duty and Cess which have not been deposited on account of any dispute except the following:

NAME OF THE STATUTE Custom Act, 1962

NATURE OF DUES Custom Duty

AMOUNT INVOLVED (Rs. in Crores) 0.13

PERIOD TO WHICH IT RELATES Assessment Years 1989-90 & 1994-95 Year 2004-05 & 2005-06 Assessment Years 1990-91 to 2002-03 1995-96 to 2005-06

PENDING BEFORE Assistant Commissioner of Customs/Supreme Court Commissioner (Appeals) Various Appellate Authorities/ Revenue Board/ High Court Various Appellate Authorities/High Court

Customs Act, 1962 Sales Tax Act applicable to various States Central Excise Act, 1944

Anti Dumping Duty Sales Tax

8.19* 11.42**

Excise Duty and Additional Excise Duty Total

11.58 31.32

* Net of Deposit of Rs. 2 crores ** Net of Deposit of Rs. 1.79 crores

(x)

In our opinion, the Company does not have accumulated losses and has not incurred cash losses during the financial year covered by our audit or in the immediately preceding financial year.

(xi) In our opinion and according to the information and explanations given to us, Company has not defaulted in repayment of dues to financial institutions, banks and debenture holders. (xii) The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (xiii) In our opinion, the Company is not a chit fund or nidhi/mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditors Report) Order, 2003 are not applicable to the Company. (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 (Auditors Report) Order, 2003 are not applicable to the Company. (xv) In our opinion and according to the information and explanations given to us, the Company has not during the year given any guarantee for loan taken by others from banks or financial institutions. (xvi) To the best of our knowledge and belief and according to the information and explanations given to us, term loans availed by the Company was applied for the purpose for which these loans were raised. (xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis have been used for long term investment. (xviii) According to the information and explanations given to us, the Company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956 during the year. (xix) The Company has created security in respect of debentures issued in earlier years and has not issued any debentures during the year. (xx) The Company has not raised money by way of public issues during the year. (xxi) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company was noticed or reported during the course of our audit. For FRASER & ROSS CHARTERED ACCOUNTANTS

Place : Gurgaon Date : 5th May, 2006

M.K. ANANTHANARAYANAN PARTNER MEMBERSHIP NO. : 19521

49

BALANCE SHEET
As at 31st March, 2006
Schedule As at 31st March, 2006 Rs./Crs. As at 31st March, 2005 Rs./Crs.

SOURCES OF FUNDS : Shareholders Funds : Share Capital Reserves and Surplus

1 2

38.34 595.68 634.02

38.34 538.40 576.74 348.75 195.06 543.81 103.35 1223.90

Loans : Secured Unsecured

3 381.00 369.00 750.00

Deferred Tax Liability (Net) (Note - B9) TOTAL APPLICATION OF FUNDS : Fixed Assets Gross Block Less : Depreciation Net Block Capital Work in Progress 4

105.21 1489.23

1310.61 469.94 840.67 77.93 918.60

1148.43 398.30 750.13 84.33 834.46 54.48 330.12 156.52 110.43 0.02 146.46 743.55 380.14 28.83 408.97 334.58 0.38 1223.90

Investments Current Assets, Loans and Advances : Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances Less: Current Liabilities and Provisions : Current Liabilities Provisions Net Current Assets Deferred Revenue Expenditure (Note - B 10) TOTAL SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS As per our Report attached For FRASER & ROSS Chartered Accountants ONKAR S. KANWAR Chairman & Managing Director

5 6

0.53 419.41 175.14 231.36 0.21 184.39 1010.51

7 415.72 24.95 440.67 569.84 0.26 1489.23 13 NEERAJ KANWAR Jt. Managing Director K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

M.K. ANANTHANARAYANAN Partner Gurgaon 5th May, 2006

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

50

PROFIT & LOSS ACCOUNT

For the year ended 31st March, 2006
Schedule Year Ended 31st March, 2006 Rs./Crs. 3002.12 376.60 8 2656.81 431.32 Year Ended 31st March, 2005 Rs./Crs.

INCOME Gross Sales Less: Excise Duty Other Income EXPENDITURE Manufacturing and Other Expenses (Increase)/Decrease in Work in Process and Finished Goods Interest Profit Before Depreciation, Tax & Exceptional Items Depreciation Transfer from Revaluation Reserve Profit Before Tax & Exceptional Items Provision for Tax - Current - Deferred - Fringe Benefit Tax Profit After Tax Before Exceptional Items Add: Exceptional Items: Net Profit Add: Profit brought forward from previous year Transfer from Debenture Redemption Reserve Deduct: Appropriations : General Reserve Debenture Redemption Reserve Proposed Dividend Dividend Tax Surplus Carried to Schedule 2 Basic & Diluted Earnings Per Share (Face Value of Rs. 10/- each) (Rs.) Before Exceptional Items After Exceptional Items SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS As per our Report attached For FRASER & ROSS Chartered Accountants ONKAR S. KANWAR Chairman & Managing Director 13

2625.52 1.18 2626.70

2225.49 19.81 2245.30 2046.25 14.41 42.94 2103.60 141.70

9 10 11

2479.58 (76.80) 50.56 2453.34 173.36 72.94 (0.15) 21.79 1.86 4.55 72.79 100.57 3.65 13.63 56.94 (0.15)

56.79 84.91

28.20 72.37 5.80 78.17 111.32 6.11 195.60 50.00 17.25 2.42 69.67 125.93

17.28 67.63 67.63 104.18 10.91 182.72 50.00 1.73 17.25 2.42 71.40 111.32

12

18.88 20.39

17.64 17.64

NEERAJ KANWAR Jt. Managing Director

M.K. ANANTHANARAYANAN Partner Gurgaon 5th May, 2006

K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

51

SCHEDULES
ANNEXED TO THE ACCOUNTS SCHEDULE 1 - SHARE CAPITAL
As at 31st March, 2006 Rs./Crs. AUTHORISED 4,80,00,000 2,00,000 Equity Shares of Rs. 10/- each Preference Shares of Rs. 100/- each 48.00 2.00 50.00 48.00 2.00 50.00 As at 31st March, 2005 Rs./Crs.

ISSUED, SUBSCRIBED AND PAID UP 3,83,37,977 Equity Shares of Rs. 10/- each Add: Forfeited Shares 38.33 0.01 38.34 38.33 0.01 38.34

52

SCHEDULE 2 - RESERVES & SURPLUS

As at 31st March, 2006 Rs./Crs. CAPITAL RESERVES Fixed Assets Revaluation Reserve As per last Balance Sheet Less: Transfer to Profit & Loss Account Add: Excess Transfer to Depreciation Reserve made in earlier years adjusted Share Forfeiture (Rs. 1375/-) Capital Redemption As per last Balance Sheet Debenture Redemption As per last Balance Sheet Add: Transfer from Profit & Loss Account Less: Transfer to Profit & Loss Account Securities Premium As per last Balance Sheet Less: Premium on Redemption of Debentures OTHER RESERVES Investment Fluctuation Reserve As per last Balance Sheet Less: Transfer to Schedule 12 3.46 0.15 3.31 4.44 2.89 0.15 0.72 3.46 4.44 As at 31st March, 2005 Rs./Crs.

9.95 6.11 3.84 217.43 0.23 217.20

19.13 1.73 10.91 9.95 218.10 0.67 217.43

0.84 0.84 -

0.84 0.84

Capital Subsidy As per last Balance Sheet General As per last Balance Sheet Less: Transfer to Profit & Loss Account Less: Impairment in value of Assets adjusted Add: Transfer from Profit & Loss Account Surplus as shown in the Profit & Loss Account

0.30

0.30

190.66 190.66 50.00 240.66 125.93 595.68

183.71 32.85 10.20 140.66 50.00 190.66 111.32 538.40

53

SCHEDULE 3 - LOANS
As at 31st March, 2006 Rs./Crs. As at 31st March, 2005 Rs./Crs.

SECURED Debentures 30,10,000 - 14.5% Partly Convertible Debentures of Rs. 222/- each Less: Converted into Equity Shares to date Less : Redeemed to date

66.82 27.69 39.13 39.13 10.00 3.33 6.67 6.67

66.82 27.69 39.13 33.15 5.98 10.00 10.00 15.98 84.82

10,00,000 - 11.25% Non Convertible Debentures of Rs. 100/- each Less: Redeemed to date

Term Loans From International Finance Corporation - Foreign Currency - Rupee Loan From Banks : ICICI - Foreign Currency State Bank of India From Institutions : G E Capital Services India Other Loans : Banks - Cash Credit Sales Tax Loan 71.77 11.26 374.33 381.00 UNSECURED Commercial Paper Short Term Loans - From Banks - From Others 97.64 11.26 332.77 348.75 22.50 28.48 47.35 100.00 46.27 67.87 53.58 121.45 64.30 149.12

70.00 224.00 75.00 369.00

150.00 45.06 195.06

54

NOTES: SECURED LOANS

1. 10,00,000 -11.25% Non Convertible Debentures of Rs. 100 each issued at par and allotted on 26th June, 2002 are redeemable in three equal annual instalments at the end of 3rd, 4th and 5th year from the date of allotment of debentures. The first instalment of Rs. 3.33 Crores was paid during the current year. The above debentures and interest payable thereon are secured by a pari passu first charge on the Companys land and premises at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. Loan from International Finance Corporation is secured by :

2.

3.

A pari passu first charge along with other lenders on the Companys land at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. A first and fixed charge on the Companys land and premises situated at Gurgaon, Haryana State together with all existing and future buildings, erections and structures. A pari passu first charge on all the moveable assets except current assets of the Company. A second charge on all the current assets of the Company.

External Commercial Borrowing from ICICI Bank Limited, Singapore is secured by:

4.

A pari passu first charge along with other lenders on the Companys land at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments both present and future. A pari passu first charge on all the moveble assets except current assets at Chalakudy, Kerala State and at village Limda, Gujarat State.

Loan from State Bank of India is secured by :

5.

A pari passu first charge along with other lenders on the Companys land at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. A second charge on all the current assets of the Company.

Loan from GE Capital Services India is secured by :

6.

A pari passu first charge along with other lenders on the Companys land at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. A pari passu first charge on all the moveable assets except current assets at Chalakudy, Kerala State and at village Limda, Gujarat State.

Cash Credits and Guarantees from Banks are secured by Hypothecation of Raw materials, Work-in-Process, Stocks, Stores and Book Debts ranking in priority to the charge created in respect of the IFC Loan and also by second charge on the Companys land at Chalakudy, Kerala State, at village Limda, Gujarat State and on part of the Land at Ranjangaon in the State of Maharashtra together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. The Company had availed interest free Sales Tax Loan from Gujarat State Government amounting to Rs. 11.26 Crores as on 31st March, 2006. These loans are secured by a pari passu charge on the entire fixed assets of the Company, both present and future situated at village Limda in Gujarat State. The said loan is repayable in six equal annual installments on the expiry of 14 years from the commencement of commercial production i.e. 31st May, 2006. Loans, other than debentures, include Rs. 84.60 Crores (Rs.33.39 Crores) repayable within one year.

7.

8.

55

SCHEDULE 4 - FIXED ASSETS

GROSS BLOCK Description of Assets

As at 31st March, 2005 Rs./Crs. 7.42 (c) Leasehold Land 2.05 0.02 (a) Buildings 150.75 (c) Plant & Machinery 859.92 (c) Electrical Installation Furniture, Fixtures & Office Equipments Vehicles 32.43 44.94 2.45 6.63 0.15 135.15 0.16 13.56 0.16 164.15 (c) 994.91 (c) 34.88 51.42 Additions Deductions Rs./Crs. Rs./Crs. As at 31st March, 2006 Rs./Crs. 7.39 (c) 2.03

DEPRECIATION
For the year Rs./Crs. To date Rs./Crs.

NET BLOCK
As at 31st March, 2006 Rs./Crs. 7.39 As at 31st March, 2005 Rs./Crs. 7.42

Land

0.03

2.03

2.05

4.51

34.91

129.24

120.34

53.23

366.73

628.18

546.30

1.64 3.89

16.25 23.59

18.63 27.83

17.82 25.14

29.64 (b)

5.83

3.07

32.40 (b)

3.95

13.53

18.87

19.00

Intangible Assets Assets under Hire Purchase acquired after 01.04.2001 : -Vehicles

9.13

2.17

11.30

2.08

4.27

7.03

6.95

12.15 1,148.43

165.79

0.02 3.61

12.13 1,310.61

3.64 72.94

10.66 469.94

1.47 840.67

5.11 750.13

Previous Year

975.87

179.70

7.14

1,148.43

56.94

398.30

750.13

648.08

(a) (b) (c)

Represents proportionate lease premium Rs. 0.02 Crores (Rs.0.04 Crores) written off. Includes Rs. 1.31 Crores (Rs.1.31 Crores) value of assets purchased under Hire Purchase Scheme acquired before 01.04.2001. Includes amount added on revaluation in 1985-86 and 1986-87 - Rs. 22.78 Crores.

56

SCHEDULE 5 - INVESTMENTS
As at 31st March, 2006 Rs./Crs. LONG TERM : TRADE (FULLY PAID) QUOTED Equity Shares of Rs. 10/- each in Companies : 9,99,515 Shares in Raunaq Finance Ltd. 1,67,150 Shares in Apollo Tubes Ltd. 16,394 Shares In Bharat Gears Ltd. 51,80,000 Equity Shares in Gujarat Perstorp Electronics Ltd. of Re. 1/- each 97,41,015 Shares in PTL Enterprises Ltd., Subsidiary Company. (97,41,015 Shares sold during the year - Cost Rs. 9.74 Crores) As at 31st March, 2005 Rs./Crs.

1.00 0.02 0.04 0.52 1.58

1.00 0.02 0.04 0.52 9.74 11.32

UNQUOTED 50,000 (Nil) Shares in Apollo Radial Tyres Ltd. - wholly owned subsidiary 50,000 (Nil) Shares in Apollo Automotive Tyres Ltd. - wholly owned subsidiary 1 (Nil) Share in Apollo (Mauritius) Holdings Pvt Ltd. - wholly owned subsidiary 73,50,000 Equity Shares of Michelin Apollo Tyres Pvt Ltd of Rs 10/- each (73,50,000 Shares sold during the year - Cost Rs. 44.05 Crores) 5,000 Shares in Apollo Tyres Employees Multipurpose Co-operative Society Limited of Rs. 100/- each NON TRADE (FULLY PAID) CURRENT: 1,71,529 Units of Unit Scheme 2002 (Income) of Unit Trust of India # Less : Provision for Diminution / Reduction in the Value of Investments Cost / Book value of Quoted Investments (Net of Provision for Diminution / Reduction in the Value of Investments ) Market Price of Quoted Investments # Repurchase Price of Units

0.05 0.05 0.05

44.05 0.05

0.10 1.83 1.30 0.53 0.28 1.07 0.23

0.10 55.52 1.04 54.48 10.28 19.97 0.16

57

SCHEDULE 6 - CURRENT ASSETS, LOANS AND ADVANCES

As at 31st March, 2006 Rs./Crs. CURRENT ASSETS Inventories : @ Raw Materials Stores and Spares Work-in-Process Finished Goods Sundry Debtors - Unsecured Over Six Months Considered Good Considered Doubtful Others - Considered Good Less: Provision for Doubtful Debts Cash and Bank Balances Cash and Cheques on hand Remittances in Transit With Scheduled Banks : Current Accounts Dividend Accounts Deposit Accounts* Other Current Assets Income Accrued on Investments * @ 0.21 0.21 0.02 0.02 3.05 3.61 172.09 178.75 3.61 175.14 43.46 25.25 25.55 1.65 135.45 231.36 5.43 3.61 151.09 160.13 3.61 156.52 34.48 28.92 29.18 1.91 15.94 110.43 192.12 27.22 29.41 170.66 419.41 196.38 22.41 23.35 87.98 330.12 As at 31st March, 2005 Rs./Crs.

Includes Rs. 13.90 Crores (Rs. 13.25 Crores) pledged with a bank against which working capital loan has been availed by Apollo Finance Ltd. Includes stock in transit

LOANS AND ADVANCES - UNSECURED Advances recoverable in cash or in kind or for value to be received Considered Good* Considered Doubtful Less: Provision for Doubtful Advances 151.82 151.82 151.82 Advance Tax Less: Provision for Taxation Balance with Customs, Port Trust etc. 218.14 185.58 194.64 159.24 110.97 1.42 112.39 1.42 110.97

32.56 0.01 184.39 1,010.51

35.40 0.09 146.46 743.55 3.12

* Includes due from Subsidiary Company.

3.18

58

SCHEDULE 7 - CURRENT LIABILITIES AND PROVISIONS

As at 31st March, 2006 Rs./Crs. CURRENT LIABILITIES Sundry Creditors: Due to Small Scale and Ancillary Industrial Undertakings Others* Acceptances Interest accrued but not due **Investor Education and Protection Fund shall be credited by the following amounts namely:Unpaid Debenture Redemption Amount Unpaid Interest on Debentures Unpaid Matured Deposits and Interest Thereon Unpaid Dividend 0.64 339.41 66.49 6.92 0.64 325.90 44.72 5.84 As at 31st March, 2005 Rs./Crs.

0.34 0.13 0.13 1.66 415.72

0.70 0.24 0.18 1.92 380.14

PROVISIONS Dividend Tax Proposed Dividend on Equity Shares Gratuity, Leave Encashment & Superannuation

2.42 17.25 5.28 24.95 440.67

2.42 17.25 9.16 28.83 408.97

* **1. 2.

Includes Liability towards Hire Purchase / Financial Lease Rs. 0.50 Crores (Rs. 4.62 Crores)- repayable within one year Rs. 0.50 Crores (Rs. 4.12 Crores) There are no amounts due and outstanding as at Balance Sheet Date to be credited to the Investor Education & Protection Fund. Other unpaid amounts represent warrants / cheques issued to the Debentureholders / Depositors / Shareholders, as the case may be, which remain unpresented to the Bankers as on 31st March, 2006.

SCHEDULE 8 - OTHER INCOME

Year Ended 31st March, 2006 Rs./Crs. Income from Investments* - Trade Investments - Others : From Mutual Funds Profit on Sale of Assets (Net) Profit / (Loss) on Sale of Investments Add: Transfer From Provision for Diminution in value of Investments Year Ended 31st March, 2005 Rs./Crs.

(16.22)

0.07 0.07 11.76

1.18 1.18

23.39

7.17 0.81 19.81 0.02

Miscellaneous Receipts *

* Tax Deducted at Source.

59

SCHEDULE 9 - MANUFACTURING & OTHER EXPENSES

Year Ended 31st March, 2006 Rs./Crs. MATERIALS Raw Materials Consumed* Less: Scrap Recoveries EMPLOYEES Salaries, Wages and Bonus** Contribution to Provident and Other Funds Welfare Expenses MANUFACTURING, ADMINISTRATIVE AND SELLING Purchase of Finished Goods Stores and Spares Consumed Power and Fuel Conversion Charges Repairs and Maintenance - Machinery - Buildings - Others Rent*** Insurance Rates and Taxes Directors Sitting Fees Loss on Sale of Assets (Net) Travelling, Conveyance and Vehicle Expenses Postage, Telex, Telephone and Stationery Freight & Forwarding Commission to Selling Agents Sales Promotion Expenses Advertisement & Publicity Research and Development Bank Charges Provision for Doubtful Debts / Advances Bad Debts/Advances Written off Less: Transferred from Provision Lease/Service charges to PTL Enterprises Ltd. Provision for Diminution in the Value of Investments Legal & Professional Expenses Miscellaneous Expenses**** Year Ended 31st March, 2005 Rs./Crs.

1,850.34 6.18 1,844.16 129.99 9.64 23.87

1,431.09 5.72 1,425.37 113.60 8.95 20.85

78.77 24.75 121.82 2.39 4.95 0.97 8.77 7.67 7.50 9.79 0.10 0.53 26.21 6.59 62.15 3.46 43.89 10.08 8.33 3.88 1.42 1.42 10.00 0.26 4.44 24.62 2,479.58 2.73 -

87.19 21.77 114.57 4.10 3.99 0.72 7.58 5.90 5.66 7.71 0.03 24.56 6.45 48.73 2.88 66.66 18.13 6.84 3.83 5.03 2.73 7.50 0.26 3.76 20.90 2,046.25

* ** ***

Net of Foreign Exchange Fluctuation Gain of Rs. 0.81 Crores (Rs. 2.45 Crores).

Includes VRS payments amortised during the year of Rs. 0.25 Crores (Rs. 1.66 Crores). Net of Rent Receipts of Rs. 1.43 Crores (TDS Rs. 0.32 Crores) (Rs. 1.12 Crores, TDS - Rs. 0.23 Crores). **** Net of Foreign Exchange Fluctuation Gain of Rs. 0.18 Crores (Rs.0.24 Crores).

60

SCHEDULE 10 - (INCREASE) / DECREASE IN WORK IN PROCESS AND FINISHED GOODS

Year Ended 31st March, 2006 Rs./Crs. OPENING STOCK Work in Process Finished Goods 23.35 87.98 111.33 Less: CLOSING STOCK Work in Process Finished Goods 29.41 170.66 200.07 (88.74) Excise Duty on Increase / (Decrease) of Finished Goods 11.94 (76.80) 23.35 87.98 111.33 24.72 (10.31) 14.41 Year Ended 31st March, 2005 Rs./Crs. 18.28 117.77 136.05

SCHEDULE 11 - INTEREST
Year Ended 31st March, 2006 Rs./Crs. Fixed Loans * Debentures Others # * 18.02 1.24 31.30 50.56 Year Ended 31st March, 2005 Rs./Crs. 12.71 3.49 26.74 42.94

# Net of Interest Earned Rs. 3.29 crores (Rs. 1.49 crores). Tax Deducted at source Rs. 0.46 crores (Rs. 0.19 crores). * Including Foreign Exchange Fluctuation Loss of Rs. 1.16 Crores (Rs. 4.92 Crores).

61

SCHEDULE 12 - EXCEPTIONAL ITEMS

Year Ended 31st March, 2006 Rs./Crs. Year Ended 31st March, 2005 Rs./Crs.

Additional Excise Duty pertaining to earlier years - Refundable Tax Provision on above no longer required written back Transfer from General Reserve

(5.09)

47.66 (14.81) (32.85) -

Foreign Exchange Fluctuation loss attributable to investment in a foreign subsidiary company (Note - B 3) Profit on Sale of Investments in Shares of Subsidiary Company PTL Enterprises Ltd Loss on Sale of Investment in Shares of Joint Venture Company Michelin Apollo Tyres (P) Ltd (Net of transfer from Investment Fluctuation Reserve - Rs. 0.84 Crores)

14.30

(3.41)

5.80

62

SCHEDULE 13 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

A. 1. SIGNIFICANT ACCOUNTING POLICIES : BASIS OF ACCOUNTING The accounts are prepared on Historical Cost Convention with the exception of certain Plant and Machinery (which were revalued) based on Accrual method of Accounting and applicable Accounting Standards. 2. FIXED ASSETS (a) Fixed Assets are stated at cost as adjusted by revaluation of certain Land, Buildings and Plant and Machineries based on the then replacement cost as determined by approved independent valuer in 1986 and 1987 less depreciation. All costs relating to the acquisition and installation of fixed assets are capitalised and include finance cost on borrowed funds attributable to acquisition of fixed assets for the period upto the date of commencement of production, rollover charges on forward exchange contracts, and adjustments arising from exchange rate variations and receipts on cancellation of foreign exchange contracts relating to specific borrowing attributable to fixed assets acquired from outside India. (b) (c) (d) Fixed Assets taken on lease before 1st April, 2001, other than land, are not treated as Assets of the Company and the lease rentals are charged off to revenue over the period of lease. Fixed Assets taken on Hire Purchase are capitalised and depreciation has been provided on such assets, while the hire charges have been charged to revenue. The expenditure incurred by the Company on acquisition and implementation of Software System / Development cost of new product is recognised as an Intangible asset.

3.

BORROWING COSTS Borrowing Costs are capitalised as part of qualifying asset when it is possible that they will result in future economic benefits. Other borrowing costs are expensed.

4.

INVESTMENTS Long Term investments are stated at cost and provision for diminution is made if the decline in value is other than temporary in nature. Current investments are stated at lower of cost and fair value determined on the basis of each category of investments.

5.

INVENTORIES Inventories are valued at the lower of cost and net realisable value. The cost comprises of Cost of Purchase, Cost of Conversion and other costs including appropriate production overheads in the case of finished goods and work in process, incurred in bringing such inventories to their present location. In case of Raw materials and Stores and Spares, the cost (Net of Cenvat Credits where applicable) is determined on a moving weighted average basis.

6.

FOREIGN CURRENCY TRANSACTIONS Foreign Currency Transactions are recorded at rates of exchange prevailing on the date of transaction. The transaction outstanding at the year-end are translated at the rate of exchange prevailing at the year-end and profit or loss other than that relating to fixed assets acquired from outside India is recognised in Profit & Loss Account. The premium or discount arising at the inception of the foreign exchange contract, other than that relating to fixed assets acquired from outside India are amortised as expense or income over the life of the contract. Exchange difference on such contracts are recognised in the Profit & Loss Account except in respect of those relating to fixed assets acquired from outside India.

7.

SALES Gross Sales are inclusive of excise duty and are net of trade discounts/sales returns.

63

8.

EXPORT INCENTIVE Export Incentive in the form of Advance Licences / credit earned under Duty Entitlement Pass Book Scheme are treated as income in the year of export at the estimated realisable value / actual credit earned on exports made during the year and are credited to the Raw Material Consumption Account.

9.

DEPRECIATION Depreciation on fixed assets is provided on the straight line basis at the rates specified in Schedule XIV of the Companies Act, 1956, classifying certain Plant and Machinery as Continuous Process Plant on technical evaluation except that on certain vehicles depreciation is provided at 30%. Additional depreciation consequent on the enhancement in the value of fixed assets on the revaluation is adjusted in the fixed assets revaluation reserve account. Leasehold land is amortised over the period of lease. In respect of assets impaired, the revised carrying value is depreciated over its remaining useful life. Intangible Assets are amortised over the estimated useful life of the asset.

10. RESEARCH AND DEVELOPMENT EXPENSES Revenue expenditure on Research & Development is charged to Profit & Loss Account and Capital expenditure on Research & Development is included in fixed assets under the appropriate heads. 11. RETIREMENT BENEFITS

Liability for gratuity to employees determined on the basis of actuarial valuation as on Balance Sheet date is funded with the Life Insurance Corporation of India, and the contribution thereof paid / payable is absorbed in the Accounts. Liability for leave encashment benefit determined on the basis of actuarial valuation as on the balance sheet date is provided for in the Accounts. Fixed contributions to Provident Fund, Employees Pension Fund, Superannuation Fund and Cost of other benefits are recognised in the Accounts on actual cost to the Company.

12. VOLUNTARY RETIREMENT PAYMENTS Payments under Voluntary Retirement Scheme are being charged to Profit & Loss Account over a period of three years. 13. TAXES ON INCOME Current years tax is determined on the income for the year chargeable to tax in accordance with the Income Tax Act, 1961. Deferred Tax is recognised, subject to the consideration of prudence, on timing differences.

64

B. 1.

NOTES ON ACCOUNTS : CONTINGENT LIABILITIES PARTICULARS Sales Tax Income Tax-Disputed Demands under Appeal Claims not acknowledged as debts Employee Related Property Disputes Others Corporate Guarantees/Provision of Security Guarantees given by bankers on behalf of the Company Custom Duty Land Acquisition Cases Excise Duty* 2005-06 Rs./Crs. 13.21 21.10 0.21 0.06 13.90 19.86 0.69 0.70 2004-05 Rs./Crs. 15.08 22.48 0.43 0.21 0.07 13.25 19.44 0.13 0.07 3.13

* Excludes demands of Rs. 10.88 Crores (Rs. 10.55 Crores) raised on one of the Companys units relating to the issues which have been decided by the Appellate Authority in Companys favour in appeals pertaining to another unit of the Company. 2. 3. Capital Expenditure Commitments not provided for 56.76 58.29 During the year Company had entered into an agreement to acquire 100% share holding in Dunlop Tyres International (Pty) Ltd. in South Africa alongwith some of its subsidiaries / associates for a consideration of Rand 398 Million (approximately Rs. 290 Crores), including deferred consideration of Rand 60 Million (approximately Rs. 43 Crores) payable after one year. The Company has since concluded the acquisition process. During the year Company has divested its share holding in PTL Enterprises Ltd, a subsidiary company and in Michelin Apollo Tyres (Pvt) Ltd, a joint venture with Michelin Group. Borrowing Costs capitalised during the year 0.47 1.24 The names of Small Scale and ancillary Industrial undertakings (as identified by the management) to whom the Company owes a sum which is outstanding for more than 30 days as on 31st March, 2006 are given below : Name of Undertaking Bharati Enterprise Desai Engineering Industries Excell Engineering Industries Equipment Enterprises Udaipur Mineral Development Rashmi Engineering Works Ferro Tube & Forge Industries 7. Name of Undertaking Fluid Logic Systems Pvt Ltd. Foremost Industries Hayagreeva Engineers Heliflex Hydroaulics & Engg. Manson Industries Chadayamury Engg. Works Lakhotia Enterprise Name of Undertaking Omex Enterprises Perfect Charts Company Shri Mahakali Machinery Pvt Ltd Speedy Services Accurate Components & Tools Sirji Machine Crafts Star Knives & Saws

4. 5. 6.

The Company has taken, on operating lease, the plant of PTL Enterprises Ltd. for a period of one year, which is renewable. The lease rent of Rs. 10.00 Crores (Rs. 7.50 Crores) paid as per the lease agreement has been charged to Profit and Loss account. Research and Development Expenses comprise of the following : PARTICULARS Salary, Wages & Other Benefits Travelling & Conveyance Others TOTAL 2005-06 Rs./Crs. 3.20 0.91 4.22 8.33 2004-05 Rs./Crs. 3.71 0.84 2.29 6.84

8.

65

9.

The components of Deferred Tax Liability (Net) are as follows : PARTICULARS Deferred Tax Liability on timing differences arising on : Depreciation Premium on Redemption of Debentures Sub Total (A) Deferred Tax Assets on timing differences arising on : Payment under Voluntary Retirement Scheme Others Sub Total (B) Net Deferred Tax Liability (A-B) 0.14 8.35 8.49 105.21 0.79 1.47 2.26 103.35 113.70 113.70 105.58 0.03 105.61 2005-06 Rs./Crs. 2004-05 Rs./Crs.

10. Deferred Revenue Expenditure : Payment Under VRS Opening Balance Add: Payment During the year TOTAL Less: Amortised during the year Closing Balance 11. (A) Computation of Profit for Managerial Remuneration PARTICULARS Net Profit as per Profit & Loss Account Add: Provision for Tax Remuneration to Managing / Wholetime Directors Commission to Non-Whole Time Directors Sitting Fees to Directors Provision for Doubtful debts/advances Provision for diminution in value of investment Profit on sale of assets U/S 349(1)(d) of Companies Act, 1956 Loss on sale of Investments Less: Profit on sale of investments Transfer from Investment Fluctuation Reserve Reversal from Provision for Doubtful Debts/Advances Profit / (Loss) on sale of assets as per books Net Profit 1% Commission to Non-Wholetime Directors restricted to (Included under Miscellaneous Expenses) 2005-06 Rs./Crs. 78.17 28.20 7.17 0.40 0.10 0.26 4.25 14.30 0.84 1.42 (0.53) 102.52 0.40 2004-05 Rs./Crs. 67.63 17.28 5.71 0.30 0.03 5.03 0.26 0.31 7.17 11.76 77.62 0.30 2005-06 Rs./Crs. 0.38 0.13 0.51 0.25 0.26 2004-05 Rs./Crs. 1.65 0.39 2.04 1.66 0.38

66

(B) Remuneration to Managing / Wholetime Directors included under Employee Expenses: i) Remuneration to Managing Director & Joint Managing Director : PARTICULARS Salary Commission Contribution to Provident / Superannuation Funds Money Value of Perquisites TOTAL
* Includes salary paid to Joint Managing Director/Whole-time Director.

2005-06* Rs./Crs. 2.07 1.44 0.56 1.99 6.06

2004-05 Rs./Crs. 2.07 0.49 0.56 1.51 4.63

ii) Remuneration to Whole-time Directors : PARTICULARS Salary Commission/Performance Bonus Contribution to Provident / Superannuation Funds Money Value of Perquisites TOTAL T O T A L (i + ii) 12. Statutory Auditors' Remuneration included under Miscellaneous Expenses: PARTICULARS For Audit For Certification & Other Service Reimbursement of expenses TOTAL 13. (A) Capacities and Production UNIT PARTICULARS Automobile Tyres Automobile Tubes Automobile Flaps Alloy Wheels Camel Back/Retreading Materials No. No. No. No. MT INSTALLED CAPACITY* PER ANNUM 2005-2006 79,34,272 65,22,560 3,000 2004-2005 68,88,640 51,43,200 3,000 PRODUCTION @ 2005-2006 70,29,973 61,77,585 31,88,527 3,528 2004-2005 59,71,492 54,10,606 28,48,843 2005-06 Rs./Crs. 0.15 0.02 0.06 0.23 2004-05 Rs./Crs. 0.13 0.04 0.02 0.19 2005-06 Rs./Crs. 0.31 0.36 0.08 0.36 1.11 7.17 2004-05 Rs./Crs. 0.29 0.33 0.08 0.38 1.08 5.71

*As certified by the Management (includes capacity under Lease agreement) @ Includes Production under Lease Arrangement and purchases/conversion of Finished Goods by Conversion Agents :Tyres 9,14,083 Tubes 7,55,288 Flaps 31,88,527 Alloy Wheels 3,528 Nos. Nos. Nos. Nos. (7,60,938) (13,73,830) (28,48,843) (Nil)

67

(B) Turnover and stock PARTICULARS Automobile Tyres Automobile Tubes Automobile Flaps Alloy Wheels TOTAL Unit No. Rs./Crs No. Rs./Crs No. Rs./Crs No. Rs./Crs Rs./Crs Opening Stock Turnover* Closing Stock 2005-2006 2004-2005 2005-2006 2004-2005 2005-2006 2004-2005 2,77,736 68.43 6,92,832 17.02 1,97,694 2.53 87.98 3,19,690 96.02 6,63,515 18.15 2,67,654 3.60 117.77 68,42,897 60,13,446 2,710.27 2,403.74 61,67,656 53,81,289 237.30 206.61 31,16,023 29,18,803 54.17 46.46 1,824 0.38 3,002.12 2,656.81 4,64,812 146.00 7,02,761 20.59 2,70,198 3.80 1,704 0.27 170.66 2,77,736 68.43 6,92,832 17.02 1,97,694 2.53 87.98

* Includes quantity relating to claims & own consumption. (C) Raw Materials Consumed PARTICULARS Fabric Rubber Chemicals Carbon Black Others 2005-2006 Tonnes 22,045.61 1,22,351.53 18,561.15 59,384.96 Rs./Crs 451.21 926.99 155.25 204.42 112.47 1,850.34 2004-2005 Tonnes 21,691 1,15,273 16,858 55,522 Rs./Crs 349.67 726.44 104.72 159.14 91.12 1,431.09

(D) Break-up of Consumption PARTICULARS Raw Materials - Imported - Indigenous 2005-2006 Rs./Crs 620.38 1,229.96 1,850.34 1.47 23.28 24.75 2004-2005 % 25.32 74.68 100.00 5.56 94.44 100.00 Rs./Crs 362.42 1,068.67 1,431.09 1.21 20.56 21.77

% 33.53 66.47 100.00

Stores & Spares

- Imported - Indigenous

5.94 94.06 100.00

(E) C.I.F. Value of Imports : PARTICULARS Raw Materials Stores & Spares Finished Goods Capital Goods 2005-2006 Rs./Crs. 453.08 2.47 0.56 42.23 2004-2005 Rs./Crs. 424.08 1.95 38.72

68

(F) Expenditure in Foreign Currency (Remitted) : (Excluding value of imports) PARTICULARS Interest Dividend* Royalty Others 2005-2006 Rs./Crs. 9.03 2.67 9.35 2004-2005 Rs./Crs. 4.23 2.67 3.54 15.73

* Number of non-resident Shareholders 42 (45), Number of Shares held by non-resident Shareholders 59,28,350 (59,28,350) 14. Earnings in Foreign Exchange : PARTICULARS FOB value of Exports 2005-2006 Rs./Crs. 0.88 2004-2005 Rs./Crs. 2.20

15. A) The following Forward Exchange Contracts entererd into by the Company are outstanding as on 31st March, 2006: Currency US Dollar Amount US$ 8,000,000/Buy/Sell Buy Cross Currency Rupees

B) Premium on Forward Exchange Contracts deferred to be recognised in subsequent accounting periods Rs. 0.76 Crores (Rs. 0.90 Crores). 16. Earnings Per Share (EPS) The numerator and denominator used to calculate Basic and Diluted Earnings Per Share : A) Before Exceptional Items: PARTICULARS Profit attributable to the equity shareholders used as numerator (Rs. Crores) - (A) The weighted average number of equity shares outstanding during the year used as denominator - (B) Basic / Diluted earnings per share (Rs.) - (A) / (B) (Face value of Rs. 10 each) B) After Exceptional Items: PARTICULARS Profit attributable to the equity shareholders used as numerator (Rs. Crores) - (A) The weighted average number of equity shares outstanding during the year used as denominator - (B) Basic / Diluted earnings per share (Rs.) - (A) / (B) (Face value of Rs. 10 each) 2005-2006 2004-2005 2005-2006 2004-2005

72.37 3,83,37,977 18.88

67.63 3,83,37,977 17.64

78.17 3,83,37,977 20.39

67.63 3,83,37,977 17.64

17. The Companys operations comprise of only one segment Tyres, Tubes & Flaps and therefore, there are no other business / geographical segments to be reported as required under Accounting Standard (AS-17) Segment Reporting issued by The Institute of Chartered Accountants of India.

69

18. Disclosure of Related Party Transaction in accordance with Accounting Standard (AS-18) Related Party Disclosures issued by The Institute of Chartered Accountants of India. a) Name of the Related Parties : PARTICULARS Subsidiaries 2005-2006 PTL Enterprises Ltd. (ceased to be a subsidiary during the year) Apollo Automotive Tyres Ltd. Apollo Radial Tyres Ltd. Apollo (Mauritius) Holding Pvt. Ltd. Apollo (South Africa) Holding Pty. Ltd. (through Apollo (Mauritius) Holdings Pvt. Ltd.) Apollo International Ltd. Encorp E Services Ltd. Gujarat Perstorp Electronics Ltd. (Under Liquidation) Landmark Farms & Housing (P) Ltd. Sunlife Tradelinks (P) Ltd. Travel Tracks (P) Ltd. Michelin Apollo Tyres Pvt. Ltd. (ceased to be a JV during the year) Mr. O. S. Kanwar Mr. Neeraj Kanwar Mr. U. S. Oberoi Mr. Sunam Sarkar Mr. Raaja Kanwar 2004-2005 PTL Enterprises Ltd.

Associates

Apollo International Ltd. Encorp E Services Ltd. Gujarat Perstorp Electronics Ltd. Landmark Farms & Housing (P) Ltd. Sunlife Tradelinks (P) Ltd. Travel Tracks (P) Ltd. Michelin Apollo Tyres Pvt. Ltd. Mr. O. S. Kanwar Mr. Neeraj Kanwar Mr. U. S. Oberoi Mr. Sunam Sarkar Mr. Raaja Kanwar

Joint Venture Company Key Management Personnel

Relative of Key Managerial Personnel

70

b) Transactions with Related Parties during the financial year 2005-06 : 2005-2006 Relatives of Key Joint Key Subsidiaries Associates Venture Management Management Personnel Personnel Rs./Crs. Volume of Transactions: Sales Investments made Loans given Reimbursement of Expenses Lease / Service Charges Managerial Remuneration Rent Paid Purchases Travelling Expenses Rent Received Conference Expenses Provision for Diminution in value of Investment Interest Received Interest paid Security Deposit Paid Consultancy fees paid Dividend Paid Claims Accepted Total Amount Outstanding Dr./(Cr.) 44.54 3.18 0.79 0.46 283.92 37.60 1.92 7.17 (0.05) 0.07 1.80 1.10 2.57 2.24 0.01 4.69 (0.08) 5.20 0.26 (0.25) 0.10 3.18 31.24 10.00 7.17 (0.03) (1.50) 268.58 268.58 0.10 3.18 29.71 10.00 7.17 2.24 0.01 4.69 (0.33) 5.20 0.26 (0.05) 0.07 1.80 1.10 3.36 0.46 337.55 40.78 Rs./Crs. Rs./Crs. Rs./Crs. Rs./Crs. Total Rs./Crs.

Particulars

71

2004-2005
Subsidiaries Associates Relatives of Key Key Joint Management Management Total Venture Personnel Personnel Rs./Crs. Rs./Crs. Rs./Crs. Rs./Crs.

Particulars

Rs./Crs.

Rs./Crs.

Volume of Transactions :

Sales DEPB Licenses Purchased Reimbursement of Expenses Lease / Service Charges Managerial Remuneration Sale of land in Pune Travelling Expenses Rent Received Conference Expenses Payment towards Current Liability Provision for Diminution in value of Investment Interest Received Security Deposit Paid Dividend Paid Claims Accepted Total Amount Outstanding Dr./(Cr.) (0.49) 37.34 3.12 0.06 30.27 7.50

210.20 0.19 (0.06) (1.40) 5.71 16.76 4.29 (0.28) 3.18 7.26 0.26 0.26

210.20 0.19 28.81 7.50 5.71 16.76 4.29 (0.02) 3.18 7.26 0.26 0.06

3.47 0.79 0.67 229.97 29.14 15.62 0.35 5.71

3.47 0.79 0.18 288.64 32.61

19. Disclosures relating to assets taken on Hire purchase / Financial Lease after 1-4-2001 : a) The Company has acquired vehicles under Hire Purchase with respective underlying assets as security. b) Reconciliation between total minimum lease payments and their present value: 2005-2006 Rs./Crs. 0.51 0.01 0.50 2004-2005 Rs./Crs. 5.01 0.39 4.62

PARTICULARS Total minimum lease payments Less: future liability on interest account Present value of lease payments c) Year-wise future minimum lease rental payments :

PARTICULARS

2005-2006 Rs./Crs. Total Present Minimum Value of HP Payment HP Payment 0.51 Nil Nil 0.50 Nil Nil

2004-2005 Rs./Crs. Total Present Minimum Value of HP Payment HP Payment 4.50 0.51 Nil 4.12 0.50 Nil

Not later than one year Later than one year and not later than five years Later than five years

72

20. Information on Joint Ventures as per Accounting Standard 27 a) Name of the Joint Venture Country of Incorporation Share in ownership and voting power b) i) ii) iii) iv) c) i) ii) iii) Contingent Liabilities in respect of Joint Venture: Directly incurred by the Company Share of the Company in Contingent Liabilities which have been incurred jointly with other venture companies Share of the Company in Contingent Liabilities incurred by jointly controlled entity Share of other joint venture companies in Contingent Liabilities incurred by jointly controlled entity Capital Commitments in respect of Joint Ventures: Direct Capital Commitments by the Company Share of the Company in Capital Commitments which have been incurred jointly with other joint venture companies Share of the Company in Capital Commitments of the jointly controlled entity 2005-06 Michelin Apollo Tyres Pvt. Ltd.* India 49% Nil Nil Nil Nil Nil Nil Nil 2004-05 Michelin Apollo Tyres Pvt. Ltd. India 49% Nil Nil 0.01 Nil Nil Nil 9.96

* Ceased to be a JV during the year. d) e) Disclosure of Financial Data as per Accounting Standard -27 - 'Financial Reporting of Interests in Joint Venture' is done based on the unaudited financial statements of the jointly controlled entity. Proportionate share of the Company in the Assets, Liabilities, Incomes and expenses of the Joint Venture : PARTICULARS Proportionate Proportionate Proportionate Proportionate Proportionate Proportionate Share Share Share Share Share Share of of of of of of Current Assets Fixed Assets ( Including CWIP ) Current Liabilities Deferred Tax Liability Income Expenses (including Provision for Tax) 2005-06 Rs./Crs. 4.58 5.12 2004-05 Rs./Crs. 23.43 18.66 1.71 0.04 10.88 14.63

21. Previous Year's figures have been regrouped wherever necessary to conform to the classifications for the current year. Previous Year's figures are given in brackets.

As per our Report attached For FRASER & ROSS Chartered Accountants

ONKAR S. KANWAR Chairman & Managing Director

NEERAJ KANWAR Jt. Managing Director

M.K. ANANTHANARAYANAN Partner Gurgaon 5th May, 2006

K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

73

BALANCE SHEET ABSTRACT AND COMPANYS GENERAL BUSINESS PROFILE (AS PER SCHEDULE VI, PART (IV) OF THE COMPANIES ACT, 1956) I REGISTRATION DETAILS Registration No. State Code Balance Sheet Date CAPITAL RAISED DURING THE YEAR (Amount in Rs. Thousands) Public Issue Rights Issue Private Placement Bonus POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs. Thousands) Total Liabilities Total Assets Paid-up Capital Reserves & Surplus Secured Loans Unsecured Loans *Including Deferred Tax Liability (Net) APPLICATION OF FUNDS Net Fixed Assets Investments Net Current Assets Misc. Expenditure Accumulated Losses IV PERFORMANCE OF THE COMPANY (Amount in Rs. Thousands) Turnover including Other Incomes Total Expenditure Profit Before Tax Profit After Tax Earnings Per Share (Rs.) Dividend Rate (%) GENERIC NAMES OF THREE PRINCIPAL PRODUCTS/SERVICES OF THE COMPANY ITEM CODE NO. (ITC CODE) Passenger/Jeep Bus/Lorries Off the Road Tractor TYRES 4 0 1 1 1 0 0 0 4 0 1 1 2 0 0 0 4 0 1 1 9 9 0 1 4 0 1 1 9 9 0 2 4 0 1 2 9 0 0 4 FLAPS TUBES 4 0 13 1 0 0 1 4 0 13 1 0 0 2 4 0 13 9 0 0 3 4 0 13 9 0 0 4

3 1 0 3

2 4 4 9 9 2 0 0 6

II

N N N N

I I I I

L L L L

III

1 4 8 9 1 4 8 9 3 8 5 9 5 3 8 1 3 6 9 1 0 5

2 2 3 6 0 0 2

3 3 4 6 0 0 2

4 2* 4 2 4 7 1 8 2 3 0 0 5 4

9 1 8 5 5 5 6 9 8 2

9 3 5 5 N

1 0 5 5 I

8 6 9 9 L

3 0 0 2 8 9 1 0 7

3 6 6 8 2

3 9 3 1 0

0 3 6 6 .

0 0 9 6 3 4

8 9 9 6 9 5

Signatures to Schedules 1 to 13 which form integral part of Accounts. ONKAR S. KANWAR Chairman & Managing Director NEERAJ KANWAR Jt. Managing Director K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

Gurgaon 5th May, 2006

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

74

C A S H - F L O W S TAT E M E N T
Rs./Crs.

CASH FLOW FROM OPERATING ACTIVITIES PROFIT AFTER TAX & EXCEPTIONAL ITEMS ADD: - PROVISION FOR TAX NET PROFIT BEFORE TAX BUT AFTER EXCEPTIONAL ITEMS ADD: - DEPRECIATION - LEASE RENT ON LEASEHOLD LAND - TRANSFER FROM GENERAL RESERVE - TRANSFER FROM INVESTMENT FLUCTUATION RESERVE - (PROFIT) / LOSS ON SALE OF ASSETS - (PROFIT) / LOSS ON SALE OF INVESTMENTS (NET) - INCOME FROM INVESTMENTS - PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS - REVERSAL OF PROVISION FOR DOUBTFUL DEBTS/ADVANCES - DEFERRED REVENUE EXPENDITURE AMORTISED NET OF PAYMENT - INTEREST (ii) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES ADJUSTMENT FOR - TRADE & OTHER RECEIVABLE - INVENTORIES - TRADE PAYABLES (iii) CASH GENERATED FROM OPERATIONS - DIRECT TAXES PAID (iv) NET CASH FLOW FROM OPERATING ACTIVITIES B. CASH FLOW FROM INVESTING ACTIVITIES - PURCHASE OF FIXED ASSETS - SALE OF FIXED ASSETS - PURCHASE OF INVESTMENTS - SALE OF INVESTMENTS - INTEREST RECEIVED - DIVIDEND RECEIVED NET CASH USED IN INVESTING ACTIVITIES C. CASH FLOW FROM FINANCING ACTIVITY - LONG TERM BORROWING RECEIVED - REPAYMENTS OF LONG TERM BORROWING - PAYMENTS OF PREMIUM ON REDEMPTION OF DEBENTURES - BANK OVERDRAFT/SHORT TERM FUNDS - DIVIDENDS PAID - INTEREST PAID NET CASH FLOW FROM (USED IN) FINANCING ACTIVITIES NET INCREASE IN CASH & CASH EQUIVALENTS CASH & CASH EQUIVALENT AS ON 01.04.2005 (01.04.2004) CASH & CASH EQUIVALENT AS ON 31.03.2006 (31.03.2005)

A (i)

2005-06

2004-05

78.17 28.20 106.37 72.79 0.02 (0.84) 0.53 (10.05) 0.26 (1.42) 0.12 50.56 56.79 0.04 (32.85) (11.76) (7.17) (0.07) 0.26 5.03 1.27 42.94

67.63 2.47 70.10

111.97 218.34

54.48 124.58

(57.97) (89.29) 31.35 (23.50)

(115.91) 102.43 (23.50) 78.93

(17.98) (67.46) 70.01 (0.57)

(15.43) 109.15 (0.57) 108.58

(159.39) 1.76 (0.10) 63.84 3.10 (90.79) 100.00 (42.24) (0.23) 148.07 (19.93) (52.88) 132.79 120.93 110.43 231.36

(198.19) 17.78 16.64 1.49 0.10 (162.18) 54.40 (36.46) (0.67) 104.46 (19.94) (44.11) 57.68 4.08 106.35 110.43

As per our Report attached For FRASER & ROSS Chartered Accountants

ONKAR S. KANWAR Chairman & Managing Director

NEERAJ KANWAR Jt. Managing Director

M.K. ANANTHANARAYANAN Partner Gurgaon 5th May, 2006

K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

75

STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIES

1 NAME OF THE SUBSIDIARY 2 NUMBER OF SHARES HELD IN THE SUBSIDIARY COMPANY 3 PERCENTAGE OF HOLDING IN THE SUBSIDIARY COMPANY 4 FINANCIAL YEAR ENDED 5 PROFITS/(LOSSES) OF THE SUBSIDIARY COMPANY FOR ITS FINANCIAL YEAR SO FAR AS IT CONCERNS THE MEMBERS OF APOLLO TYRES LTD. WHICH HAVE NOT BEEN DEALT WITH IN THE ACCOUNTS OF APOLLO TYRES LTD. FOR THE YEAR ENDED 31ST MARCH, 2006 FOR THE YEAR FOR THE PREVIOUS FINANCIAL YEARS TOTAL ACCUMULATED UPTO THE YEAR 6 THE NET AGGREGATE OF PROFITS / (LOSSES) OF THE SUBSIDIARY CO. WHICH HAVE BEEN DEALT WITHIN THE ACCOUNTS OF APOLLO TYRES LTD. FOR THE YEAR ENDED 31ST MARCH, 2006 FOR THE YEAR FOR THE PREVIOUS FINANCIAL YEARS TOTAL ACCUMULATED UPTO THE YEAR

APOLLO RADIAL TYRES LTD

APOLLO AUTOMOTIVE TYRES LTD

APOLLO APOLLO (MAURITIUS) (SOUTH AFRICA) HOLDINGS PVT LTD HOLDINGS (PTY) LTD 1 EQUITY SHARE OF US$ 1/FULLY PAID 100.00% SUBSIDIARY THROUGH APOLLO (MAURITIUS) HOLDINGS PVT LTD

50,000 EQUITY 50,000 EQUITY SHARES OF Rs.10/- SHARES OF Rs.10/EACH FULLY PAID EACH FULLY PAID 100.00% 100.00%

31st March, 2006

31st March, 2006

31st March, 2006

31st March, 2006

(Rs. 40,977/-) -

(Rs. 40,977/-) -

Rs. 0.03 CRORES

ONKAR S. KANWAR Chairman & Managing Director

NEERAJ KANWAR Jt. Managing Director

K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

Gurgaon 5th May, 2006

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

76

AUDITORS REPORT TO THE BOARD OF DIRECTORS OF APOLLO TYRES LTD. ON THE CONSOLIDATED FINANCIAL STATEMENTS OF APOLLO TYRES LTD. AND ITS SUBSIDIARIES AND ASSOCIATE
1. We have audited the attached Consolidated Balance Sheet of Apollo Tyres Ltd. and its subsidiaries Apollo (Mauritius) Holdings Pvt Ltd., Apollo (South Africa) Holdings Pty Ltd., Apollo Automotive Tyres Ltd., Apollo Radial Tyres Ltd. and its Associate Gujarat Perstorp Electronics Ltd as at 31st March 2006 and the Consolidated Profit and Loss Account for the year then ended and the Consolidated Cash Flow statement for the year ended on that date annexed thereto. The results of PTL Enterprises Ltd., an erstwhile subsidiary and Michelin Apollo Tyres Private Ltd., an erstwhile Joint Venture have been consolidated up to the date of disinvestment of shareholdings by the company in these companies. These financial statements are the responsibility of Apollo Tyres Ltd.s management and have been prepared by the management on the basis of separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We did not audit the financial statements of the above mentioned Subsidiaries and associate whose financial statements reflect total assets of Rs. 3.25 Crores as at 31st March, 2006 and total revenues of Rs. 15.42 Crores and cash flows amounting to Rs. 4.61 Crores for the year then ended. The financial statements of Apollo Automotive Tyres Ltd., Apollo Radial Tyres Ltd., consolidated financial statements of PTL Enterprises Ltd. have been audited by other auditors whose reports have been furnished to us, and our opinion, in so far as it relates to the amounts included in respect of the subsidiaries, is based solely on the report of the other auditor. The consolidated financial statements of Apollo (Mauritius) Holdings Pvt Ltd., erstwhile joint Venture Michelin Apollo Tyres Private Ltd. and Associate Gujarat Perstorp Electronics Ltd and other financial information have not been audited and in so far as it relates to the amounts included in respect of the above Subsidiaries and Associate, is based solely on the financial statements prepared and submitted by the management. We report that the consolidated financial statements have been prepared by Apollo Tyres Ltd.s management in accordance with the requirements of Accounting Standard (AS-21), Consolidated Financial Statements, Accounting Standard (AS-23), Accounting for Investments in Associates, Accounting Standard (AS-27), Financial Reporting of Interest in Joint Ventures, issued by the Institute of Chartered Accountants of India. Based on our audit and on consideration of reports of other auditors on separate financial statements and on the other financial information of the components, and to the best of our information and according to the explanations given to us, we are of the opinion that the attached consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: (a) (b) (c) In the case of the Consolidated Balance Sheet, of the state of affairs of Apollo Tyres Ltd and its Subsidiaries and Associate as at 31st March, 2006; In the case of the Consolidated Profit and Loss Account, of the profit for the year ended on that date; and In the case of the Consolidated Cash Flow statement, of the cash flow for the year ended on that date.

2.

3.

4.

5.

FOR FRASER & ROSS CHARTERED ACCOUNTANTS

Place Date

: Gurgaon : 5th May, 2006.

M.K. ANANTHANARAYANAN PARTNER MEMBERSHIP NO. : 19521

77

C O N S O L I D AT E D B A L A N C E S H E E T
As at 31st March, 2006
Schedule As at 31st March, 2006 Rs./Crs. As at 31st March, 2005 Rs./Crs.

SOURCES OF FUNDS: Shareholders Funds: Share Capital Reserves and Surplus Minority Interest Loans: Secured Unsecured Deferred Tax Liability (Net) (Note - B 7) T O T A L APPLICATION OF FUNDS: Fixed Assets Gross Block Less: Depreciation Net Block Capital Work in Progress Add: Share in Joint Venture Goodwill on Consolidation Investments Current Assets, Loans and Advances: Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances Less: Current Liabilities and Provisions : Current Liabilities Provisions Net Current Assets Deferred Revenue Expenditure (Note B 8) T O T A L SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS As per our Report attached For FRASER & ROSS Chartered Accountants ONKAR S. KANWAR Chairman & Managing Director

1 2

38.34 595.65 633.99 -

38.34 562.76 601.10 3.28 348.75 195.12 543.87 103.75 1252.00

3 381.00 369.00 750.00 105.21 1489.20

4 1310.61 469.94 840.67 77.93 918.60 5 6 419.41 175.14 231.47 0.21 184.37 1010.60 7 415.74 24.95 440.69 569.91 0.26 1489.20 13 NEERAJ KANWAR Jt. Managing Director K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors 383.81 33.53 417.34 365.42 0.38 1252.00 341.53 156.52 131.98 0.07 152.66 782.76 0.43 1166.22 413.61 752.61 84.33 12.24 849.18 34.29 2.73

M.K. ANANTHANARAYANAN Partner Gurgaon 5th May, 2006

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

78

C O N S O L I D AT E D P R O F I T & L O S S A C C O U N T
For the year ended 31st March, 2006
Schedule Year Ended 31st March, 2006 Rs./Crs. 2656.81 431.32 Year Ended 31st March, 2005 Rs. /Crs.

INCOME Gross Sales Less: Excise Duty Add: Share in Joint Venture Other Income EXPENDITURE Manufacturing and Other Expenses (Increase) / Decrease in Work in Process and Finished Goods Interest 8

3002.12 376.60

2625.52 4.58 1.95 2632.05 2473.80 (74.89) 50.51 2449.42 182.63 72.99 109.64

2225.49 10.86 15.00 2251.35 2065.72 3.79 42.06 2111.57 139.78

9 10 11

Profit Before Depreciation, Tax & Exceptional Items Depreciation 73.14 Transfer from Revaluation Reserve (0.15) Profit Before Tax & Exceptional Items Provision for Tax - Current 25.24 - Deferred 1.83 - Fringe Benefit Tax 4.60 Add. Share in Joint Venture Profit After Tax Before Exceptional Items Add: Exceptional Items 12 Profit After Tax and Exceptional Items Less: Minority Interest Net Profit (Including Share in Joint Venture Rs. -0.54 Crores (Rs. 3.75 Crores)) Add: Profit brought forward from previous year Transfer from Debenture Redemption Reserve Deduct : Appropriations : General Reserve Debenture Redemption Reserve Proposed Dividend Dividend Tax Surplus Carried to Schedule 2 Basic & Diluted Earnings Per Share (Face Value of Rs. 10/- each) (Rs.) Before Exceptional Items After Exceptional Items SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS 13

56.76 (0.15) 6.34 13.72 0.03

56.61 83.17

31.67 77.97 12.53 90.50 1.56 88.94 135.50 6.11 230.55 50.00 17.25 2.42 69.67 160.88 19.93 23.20

20.09 63.08 63.08 1.30 61.78 134.21 10.91 206.90 50.00 1.73 17.25 2.42 71.40 135.50 16.11 16.11

As per our Report attached For FRASER & ROSS Chartered Accountants

ONKAR S. KANWAR Chairman & Managing Director

NEERAJ KANWAR Jt. Managing Director

M.K. ANANTHANARAYANAN Partner Gurgaon 5th May, 2006

K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

79

SCHEDULES
ANNEXED TO THE ACCOUNTS SCHEDULE 1 - SHARE CAPITAL
As at 31st March, 2006 Rs./Crs. AUTHORISED 4,80,00,000 2,00,000 Equity Shares of Rs. 10/- each Preference Shares of Rs. 100/- each 48.00 2.00 50.00 48.00 2.00 50.00 As at 31st March, 2005 Rs./Crs.

ISSUED, SUBSCRIBED AND PAID UP 3,83,37,977 (3,83,37,977) Equity Shares of Rs. 10/- each. Add: Forfeited Shares 38.33 0.01 38.34 38.33 0.01 38.34

80

SCHEDULE 2 - RESERVES & SURPLUS

As at 31st March, 2006 Rs./Crs. CAPITAL RESERVES Fixed Assets Revaluation Reserve As per last Balance Sheet Less: Transfer to Profit & Loss Account Add: Excess Transfer to Depreciation Reserve made in earlier years adjusted Share Forfeiture (Rs. 1375/-) Capital Redemption As per last Balance Sheet Debenture Redemption As per last Balance Sheet Add: Transfer from Profit & Loss Account Less: Transfer to Profit & Loss Account Securities Premium As per last Balance Sheet Less: Adjustment arising on desubsidisation of Joint Venture (Refer Note No. A-2 of Schedule 13) Less: Premium on Redemption of Debentures Add: Share in Joint Venture OTHER RESERVES Investment Fluctuation Reserve As per last Balance Sheet Less: Transfer to Profit & Loss Account Capital Subsidy As per last Balance Sheet General As per last Balance Sheet Less: Transfer to Profit & Loss Account Less: Impairment in value of Assets adjusted Less: Adjustment arising on desubsidisation of Subsidiary (Refer Note No. A-2 of Schedule 13) Add: Transfer from Profit & Loss Account Less: Reduction in Carrying Amount of Investment in Gujarat Perstorp Electronics Ltd (Under Liquidation) Surplus as shown in the Profit & Loss Account Less: Adjustment arising on desubsidisation of Subsidiary/Joint Venture (Refer Note No. A-2 of Schedule 13) Surplus carried to Balance Sheet 3.46 0.15 3.31 4.44 2.89 0.15 0.72 3.46 4.44 As at 31st March, 2005 Rs./Crs.

9.95 6.11 3.84 217.46 0.03 0.23 217.20

19.13 1.73 10.91 9.95 218.10 0.67 0.03 217.46

0.84 0.84 0.30

0.84 0.84 0.30

191.33 0.67 190.66 50.00 240.66 0.52 240.14 160.88

184.38 32.85 10.20 141.33 50.00 191.33 0.52 190.81 135.50

34.46 126.42 595.65

135.50 562.76

81

SCHEDULE 3 - LOANS
As at 31st March, 2006 Rs./Crs. As at 31st March, 2005 Rs./Crs.

SECURED Debentures 30,10,000 - 14.5% Partly Convertible Debentures of Rs. 222/- each Less: Converted into Equity Shares to date Less : Redeemed to date

66.82 27.69 39.13 39.13 10.00 3.33 6.67 6.67

66.82 27.69 39.13 33.15 5.98 10.00 10.00 15.98 84.82

10,00,000 - 11.25% Non Convertible Debentures of Rs. 100/- each Less: Redeemed to date

Term Loans From International Finance Corporation - Foreign Currency - Rupee Loan From Banks : ICICI - Foreign Currency State Bank of India From Institutions : G E Capital Services India Other Loans : Banks - Cash Credit Sales Tax Loan 71.77 11.26 374.33 381.00 UNSECURED Commercial Paper Dealers' Security Deposits Short Term Loans - From Banks - From Others 97.64 11.26 332.77 348.75 22.50 28.48 47.35 100.00 46.27 67.87 53.58 121.45 64.30 149.12

70.00 224.00 75.00 369.00

150.00 0.06 45.06 195.12

82

NOTES:
1.

SECURED LOANS

10,00,000 -11.25% Non Convertible Debentures of Rs.100 each issued at par and allotted on 26th June, 2002 are redeemable in three equal annual instalments at the end of 3rd, 4th and 5th year from the date of allotment of debentures. The above debentures and interest payable thereon are secured by a pari passu first charge on the Parent Companys land and premises at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. Loan from International Finance Corporation is secured by :

2.

3.

A pari passu first charge along with other lenders on the Parent Companys land at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. A first and fixed charge on the Parent Companys land and premises situated at Gurgaon, Haryana State together with all existing and future buildings, erections and structures. A pari passu first charge on all the moveable assets except current assets of the Parent Company. A second charge on all the current assets of the Parent Company.

External Commercial Borrowing from ICICI Bank Limited, Singapore is secured by :

4.

A pari passu first charge along with other lenders on the Parent Companys land at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments both present and future. A pari passu first charge on all the moveable assets except current assets at Chalakudy, Kerala State and at village Limda, Gujarat State.

Loan from State Bank of India is secured by :

5.

A pari passu first charge along with other lenders on the Parent Companys land at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. A second charge on all the current assets of the Parent Company.

Loan from GE Capital Services India is secured by :

6.

A pari passu first charge along with other lenders on the Parent Companys land at Chalakudy, Kerala State and at village Limda, Gujarat State together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. A pari passu first charge on all the moveable assets except current assets at Chalakudy, Kerala State and at village Limda, Gujarat State.

Cash Credits and Guarantees from Banks are secured by Hypothecation of Raw materials, Work-in-Process, Stocks, Stores and Book Debts ranking in priority to the charge created in respect of the IFC Loan and also by second charge on the Parent Companys land at Chalakudy, Kerala State, at Village Limda, Gujarat State and on part of the Land at Ranjangaon in the State of Maharashtra together with the Factory Buildings, Plant & Machinery and Equipments, both present and future. The Parent Company has availed interest free Sales Tax Loan from Gujarat State Government amounting to Rs.11.26 Crores as on 31st March, 2006. These loans are secured by a pari passu charge on the entire fixed assets of the Parent Company, both present and future situated at Village Limda in Gujarat State. The said loan is repayable in six equal annual instalments on the expiry of 14 years from the commencement of commercial production i.e. 31st May, 2006. Loans, other than debentures, include Rs. 84.60 Crores (Rs. 33.39 Crores) repayable within one year.

7.

8.

83

SCHEDULE 4 - FIXED ASSETS

GROSS BLOCK Description of Assets

As at 31st March, 2005 Rs./Crs. Additions Deductions Rs./Crs. Rs./Crs. As at 31st March, 2006 Rs./Crs.

DEPRECIATION
For the year Rs./Crs. To date Rs./Crs.

NET BLOCK
As at 31st March, 2006 Rs./Crs. As at 31st March, 2005 Rs./Crs.

Land

7.57 (c) 2.05 153.58 (c) 873.29 (c) 32.79 45.54

0.18

7.39 (c) 2.03 164.15 (c) 994.91 (c) 34.88 51.42

7.39

7.57

Leasehold Land Buildings

13.56

0.02 (a) 2.99

4.58

34.91

2.03 129.24

2.05 121.63

Plant & Machinery

135.15

13.53

53.33

366.73

628.18

546.88

Electrical Installation Furniture, Fixtures & Office Equipments Vehicles

2.45 6.63

0.36 0.75

1.64 3.91

16.25 23.59

18.63 27.83

17.82 25.18

29.66 (b) 9.13

5.83

3.09

32.40 (b) 11.30

3.95

13.53

18.87

19.00

Intangible Assets Assets under Hire Purchase acquired after 01.04.2001 : -Vehicles

2.17

2.08

4.27

7.03

6.95

12.15 1,165.76

165.79

0.02 20.94

12.13 1,310.61

3.64 73.13

10.66 469.94

1.47 840.67

5.11 752.19

Add: Share in Joint Venture

0.46 1,166.22

0.00 165.79 180.23

0.46 21.40 (d) 13.97

0.00 1,310.61 1,166.22

0.01 73.14 56.76

469.94 413.61

840.67 752.61

0.42 752.61 656.67

Previous Year

999.96

(a) (b) (c) (d)

Represents proportionate lease premium Rs. 0.02 Crores (Rs. 0.04 Crores) written off. Includes Rs. 1.31 Crores (Rs.1.31 Crores) value of assets purchased under Hire Purchase Scheme acquired before 01.04.2001. Includes amount added on revaluation in 1985-86 and 1986-87 - Rs. 22.78 Crores. Includes Amount removed towards cessation of Subsidiary Gross Block Rs. 17.33 Crores and towards cessation of Joint Venture Gross Block Rs. 0.46 Crores.

84

SCHEDULE 5 - INVESTMENTS
As at 31st March, 2006 Rs./Crs. LONG TERM : TRADE (FULLY PAID) QUOTED Equity Shares of Rs.10/- each in Companies : 9,99,515 Shares in Raunaq Finance Ltd. 1,67,150 Shares in Apollo Tubes Ltd. 16,394 Shares In Bharat Gears Ltd. 51,80,000 Equity Shares in Gujarat Perstorp Electronics Ltd. of Re. 1/- each As at 31st March, 2005 Rs./Crs.

1.00 0.02 0.04 - * 1.06

1.00 0.02 0.04 - * 1.06

UNQUOTED 5,000 Shares in Apollo Tyres Employees Multipurpose Co-operative Society Limited of Rs.100/- each 2,30,000 8% Optionally Convertible Debentures of Apollo International Ltd. of Rs. 100/- each NON TRADE (FULLY PAID) CURRENT: 1,71,529 Units of Unit Scheme 2002 (Income) of Unit Trust of India #

0.05 -

0.05 2.30

0.10 1.21 0.78 0.43

0.10 3.51 0.78 2.73

Less : Provision for Diminution / Reduction in the Value of Investments

Cost / Book value of Quoted Investments ( Net of Provision for Diminution / Reduction in the Value of Investments ) Market Price of Quoted Investments # Repurchase Price of Units

0.28 1.07 0.23

0.28 1.02 0.16

* Net of Company's share in negative profits of Gujarat Perstorp Electronics Ltd (under liquidation).

85

SCHEDULE 6 - CURRENT ASSETS, LOANS AND ADVANCES

As at 31st March, 2006 Rs./Crs. CURRENT ASSETS Inventories : @ Raw Materials Stores and Spares Work-in-Process Finished Goods Add: Share in Joint Venture* Sundry Debtors Over Six Months - Unsecured Considered Good Considered Doubtful Others - Unsecured & Good Less: Provision for Doubtful Debts Cash and Bank Balances Cash and Cheques on hand Remittances in Transit Add: Share in Joint Venture With Scheduled Banks : Current Accounts Dividend Accounts Deposit Accounts** Add: Share in Joint Venture Other Current Assets Income Accrued on Investments Add: Share in Joint Venture * ** @ 192.12 27.22 29.41 170.66 419.41 419.41 196.38 22.59 23.35 87.98 330.30 11.23 341.53 As at 31st March, 2005 Rs./Crs.

3.05 3.61 172.09 178.75 3.61 175.14 43.46 25.25 25.66 1.65 135.45 231.47 0.21 0.21

5.43 5.01 151.09 161.53 5.01 156.52 34.49 28.92 0.03 29.36 1.91 25.61 11.66 131.98 0.02 0.05 0.07

Includes stock in transit Nil (Rs. 0.61 Crores). Includes Rs.13.90 Crores (Rs.13.25 Crores) pledged with a bank against which working capital loan has been availed by Apollo Finance Ltd. Includes stock in transit.

LOANS AND ADVANCES - UNSECURED Advances recoverable in cash or in kind or for value to be received Considered Good* Considered Doubtful Less: Provision for Doubtful Advances Add: Share in Joint Venture Advance Tax Less: Provision for Taxation Add: Share in Joint Venture (Net of Provision) Balance with Customs, Port Trust etc. 218.14 185.58 32.56 0.01 184.37 1,010.60 151.80 151.80 151.80 151.80 204.27 163.48 0.25 41.04 0.33 152.66 782.76 111.08 1.65 112.73 1.65 111.08 0.21 111.29

* Includes Rs. 3.14 Crores Pre acquisition Expenditure against Investment in Dunlop Tyres International Pty. Ltd., South Africa.

86

SCHEDULE 7 - CURRENT LIABILITIES AND PROVISIONS

As at 31st March, 2006 Rs./Crs. CURRENT LIABILITIES Sundry Creditors: Due to Small Scale and Ancillary Undertakings Others* Acceptances Interest accrued but not due **Investor Education and Protection Fund shall be credited by the following amounts namely:Unpaid Debenture Redemption Amount Unpaid Interest on Debentures Unpaid Matured Deposits and Interest Thereon Unpaid Dividend Add: Share in Joint Venture 0.64 339.43 66.49 6.92 0.64 327.86 44.72 5.84 As at 31st March, 2005 Rs./Crs.

0.34 0.13 0.13 1.66 415.74

0.70 0.24 0.18 1.92 1.71 383.81

PROVISIONS **Dividend Tax Proposed Dividend on Equity Shares Gratuity, Leave Encashment & Superannuation

2.42 17.25 5.28 24.95 440.69

2.42 17.25 13.86 33.53 417.34

* **1. 2.

Includes Liability towards Hire Purchase / Financial Lease Rs. 0.50 Crores (Rs. 4.62 Crores)- repayable within one year Rs. 0.50 Crores (Rs. 4.12 Crores). There are no amounts due and outstanding as at Balance Sheet Date to be credited to the Investor Education & Protection Fund. Other unpaid amounts represent warrants / cheques issued to the Debentureholders / Depositors / Shareholders, as the case may be, which remain unpresented to the Bankers as on 31st March, 2006.

SCHEDULE 8 - OTHER INCOME

Year Ended 31st March, 2006 Rs./Crs. Income from Investments* - Trade Investments - Others : Income from Mutual Funds Profit on Sale of Assets (Net) Profit / (Loss) on Sale of Investments Add: Transfer From Provision for Diminution in value of Investments Interest Received* Miscellaneous Receipts* Year Ended 31st March, 2005 Rs./Crs.

0.75 1.20 1.95 (16.22) 23.39

0.07 0.07 6.24

7.17 0.67 0.83 14.98 0.02 15.00 0.14

Add: Share in Joint Venture

1.95

Tax Deducted at Source

0.17

87

SCHEDULE 9 - MANUFACTURING & OTHER EXPENSES

Year Ended 31st March, 2006 Rs./Crs. MATERIALS Raw Materials Consumed* Less: Scrap Recoveries EMPLOYEES Salaries, Wages and Bonus** Contribution to Provident and Other Funds Welfare Expenses Add: Share in Joint Venture MANUFACTURING, ADMINISTRATIVE AND SELLING Purchase of Finished Goods Add: Share in Joint Venture Stores and Spares Consumed Power and Fuel Conversion Charges Repairs and Maintenance - Machinery - Buildings - Others Rent*** Insurance Rates and Taxes Directors Sitting Fees Loss on Sale of Assets (Net) Travelling, Conveyance and Vehicle Expenses Postage, Telex, Telephone and Stationery Freight & Forwarding Commission to Selling Agents Sales Promotion Expenses Advertisement & Publicity Research and Development Bank Charges Provision for Doubtful Debts / Advances Bad Debts/Advances Written off Less: Transferred from Provision Legal & Professional Expenses Miscellaneous Expenses**** Add: Share of Other Expenses in Joint Venture***** Year Ended 31st March, 2005 Rs./Crs.

1,850.34 6.18 1,844.16 130.07 9.64 23.87 0.96

1,431.09 5.72 1,425.37 113.77 8.95 20.85 1.36

78.77 0.63

79.40 24.75 121.82 2.39 4.95 0.97 8.77 7.74 7.65 9.89 0.11 0.66 26.22 6.62 62.15 3.46 43.89 10.42 8.33 3.88 -

87.19 19.66 106.85 21.77 114.57 4.10 3.99 0.72 7.59 5.94 5.83 7.74 0.03 24.56 6.46 48.73 2.88 66.66 18.14 6.84 3.83 5.03 2.73 3.93 21.40 5.10 2,065.72

1.42 1.42

4.72 24.65 1.66 2,473.80

* ** *** **** *****

Net of Foreign Exchange Fluctuation Gain of Rs. 0.81 Crores (Rs. 2.45 Crores). Includes VRS payments amortised during the year of Rs. 0.25 Crores (Rs. 1.66 Crores). Net of Rent Receipts of Rs. 1.43 Crores (TDS on Rent Received Rs. 0.32 Crores) (Rs. 1.12 Crores, TDS - Rs. 0.23 Crores). Net of Foreign Exchange Fluctuation Gain of Rs. 0.18 Crores (Rs. 0.24 Crores). Net of Foreign Exchange Fluctuation Gain Nil (Rs. 0.27 Crores).

88

SCHEDULE 10 - (INCREASE) / DECREASE IN WORK IN PROCESS AND FINISHED GOODS

Year Ended 31st March, 2006 Rs./Crs. OPENING STOCK Work in Process Finished Goods Add: Share in Joint Venture 23.35 87.98 10.62 121.95 Less: CLOSING STOCK Work in Process Finished Goods Add: Share in Joint Venture (Increase)/Decrease in Finished Goods Excise Duty on Increase / (Decrease) of Finished Goods 29.41 170.66 8.71* 208.78 (86.83) 11.94 (74.89) * Represents closing stock as on the effective date of disinvestment. 23.35 87.98 10.62 121.95 14.10 (10.31) 3.79 Year Ended 31st March, 2005 Rs./Crs. 18.28 117.77 136.05

SCHEDULE 11 - INTEREST
Year Ended 31st March, 2006 Rs./Crs. Fixed Loans * Debentures Others # * 18.02 1.24 31.30 50.56 Add: Share in Joint Venture** (0.05) 50.51 Year Ended 31st March, 2005 Rs./Crs. 12.71 3.49 26.80 43.00 (0.94) 42.06

# Net of Interest Earned Rs. 3.29 Crores (Rs. 1.49 Crores). Tax Deducted at source Rs. 0.46 Crores (Rs. 0.19 Crores). * Including Foreign Exchange Fluctuation Loss of Rs. 1.16 Crores (Rs. 4.92 Crores). ** Share in Joint Venture includes Interest Earned of Rs. 0.05 Crores (Rs. 0.98 Crores). Tax Deducted at source Nil (Rs. 0.25 Crores).

89

SCHEDULE 12 - EXCEPTIONAL ITEMS

Year Ended 31st March, 2006 Rs./Crs. Year Ended 31st March, 2005 Rs./Crs.

Additional Excise Duty pertaining to earlier years - Refundable Tax Provision on above no longer required written back Transfer from General Reserve

(5.09)

47.66 (14.81) (32.85) -

Foreign Exchange Fluctuation loss attributable to investment in a foreign subsidiary company (Note - B 3) Profit on Sale of Investments in Shares of Subsidiary Company PTL Enterprises Ltd Profit on Sale of Investment in Shares of Joint Venture Company Michelin Apollo Tyres (P) Ltd (Net of transfer from Investment Fluctuation Reserve - Rs. 0.84 Crores)

10.75

6.87

12.53

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SCHEDULE 13 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

A. SIGNIFICANT ACCOUNTING POLICIES : The significant accounting policies adopted in preparation of these accounts are as follows: BASIS OF PREPARATION The consolidated financial statements have been prepared under historical cost convention (except revaluation of certain fixed assets) and applicable mandatory Accounting Standards. BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of Apollo Tyres Ltd. and the following Companies: Name of the Company Relationship Country of Incorporation Proportion of Ownership 31.03.2006 Proportion of Ownership 31.03.2005 73.59% 37.45% 37.45% 49.00% 100% 100% 100%

1.

2.

PTL Enterprises Ltd. (ceased to be a subsidiary during the year) Gujarat Perstorp Electronics Ltd. (Under Liquidation) Michelin Apollo Tyres Pvt. Ltd. (ceased to be a joint venture during the year) Apollo (Mauritius) Holdings Pvt. Ltd. Apollo Automotive Tyres Ltd. Apollo Radial Tyres Ltd. Holdings through subsidiary Apollo (South Africa) Holdings Pty Ltd. (held 100% by Apollo (Mauritius) Holdings Pvt Ltd.)

Subsidiary Associate Joint Venture Subsidiary Subsidiary Subsidiary

India India India Mauritius India India

Sub-subsidiary

South Africa

100%

The consolidated financial statements have been prepared in accordance with the principles and procedures for the preparation and presentation of the consolidated financial statements as laid down in Accounting Standard (AS) 21 Consolidated Financial Statements. Investment in Associates is accounted for in the consolidated financial statements under the Equity Method as laid down in Accounting Standard (AS) 23. The carrying amount of investment in the Associate Company has been brought down to Nil since the Companys share in the post acquisition loss in the Associate exceeds the carrying amount of investment. The corresponding adjustment in this regard has been made in the General Reserve. Interest in a Joint Venture is accounted for in the consolidated financial statements under Proportionate Consolidation as laid down in Accounting standard (AS) 27. During the year Company has divested its share holding in PTL Enterprises Ltd, a subsidiary company and in Michelin Apollo Tyres (Pvt) Ltd, a joint venture with Michelin Group. The Results of these companies up to the effective date of disinvestment have been considered in the Consolidated Accounts of the Company . In respect of the foreign operations, the unaudited financial statements for the year ended March 31st, 2006 were converted into Indian currency as per AS- 11 The effect of changes in Foreign Exchange Rates. 3. FIXED ASSETS (a) Fixed Assets are stated at cost as adjusted by revaluation of certain Land, Buildings and Plant and Machineries based on the then replacement cost as determined by approved independent valuer in 1986 and 1987 less depreciation. All costs relating to the acquisition and installation of fixed assets are capitalised and include finance cost on borrowed funds attributable to acquisition of fixed assets for the period upto the date of commencement of production, rollover charges on forward exchange contracts, and adjustments arising from exchange rate variations and receipts on cancellation of foreign exchange contracts relating to specific borrowing attributable to fixed assets. Fixed Assets taken on lease before 1st April, 2001, other than land, are not treated as Assets of the Company and the lease rentals are charged off to revenue over the period of lease. Fixed Assets taken on Hire Purchase are capitalised and depreciation has been provided on such assets, while the hire charges have been charged to revenue.

(b) (c)

91

(d) 4.

The expenditure incurred by the Company on acquisition and implementation of Software System / Development cost of new product is recognised as an Intangible asset.

BORROWING COSTS Borrowing Costs are capitalised as part of qualifying asset when it is possible that they will result in future economic benefits. Other borrowing costs are expensed. INVESTMENTS Long Term investments are stated at cost and provision for diminution is made if the decline in value is other than temporary in nature. Current investments are stated at lower of cost and fair value determined on the basis of each category of investments. INVENTORIES Inventories are valued at the lower of cost and net realisable value. The cost comprises of cost of purchase, cost of conversion and other costs including appropriate production overheads incurred in bringing such inventories to their present location. In case of Raw materials and Stores and Spares the cost (Net of Cenvat Credits where applicable) is determined on a moving weighted average basis. FOREIGN CURRENCY TRANSACTIONS Foreign Currency Transactions are recorded at rates of exchange prevailing on the date of transaction. The transaction outstanding at the year-end are translated at the rate of exchange prevailing at the year-end and profit or loss other than that relating to fixed assets acquired from outside India is recognised in Profit & Loss Account. The premium or discount arising at the inception of the foreign exchange contract, other than that relating to fixed assets acquired from outside India are amortised as expense or income over the life of the contract. Exchange difference on such contracts are recognised in the Profit & Loss Account except in respect of those relating to fixed assets acquired from outside India. SALES Gross Sales are inclusive of excise duty and are net of trade discounts/sales returns. EXPORT INCENTIVE Export Incentive in the form of Advance Licences / credit earned under Duty Entitlement Pass Book Scheme are treated as income in the year of export at the estimated realisable value / actual credit earned on exports made during the year and are credited to the Raw Material Consumption Account.

5.

6.

7.

8. 9.

10. DEPRECIATION Depreciation on fixed assets is provided on the straight line basis at the rates specified in Schedule XIV of the Companies Act, 1956, classifying certain Plant and Machinery as Continuous Process Plant on technical evaluation except that on certain vehicles depreciation is provided at 30%. Additional depreciation consequent on the enhancement in the value of fixed assets on the revaluation is adjusted in the fixed assets revaluation reserve account. Leasehold land is amortised over the period of lease. In respect of assets impaired, the revised carrying value is depreciated over its remaining useful life. Intangible Assets are amortised over the estimated useful life of the asset. 11. RESEARCH AND DEVELOPMENT EXPENSES Revenue expenditure on Research and Development is charged to Profit and Loss Account and Capital expenditure on Research and Development is included in fixed assets under the appropriate heads. 12. RETIREMENT BENEFITS Liability of gratuity to employees determined on the basis of actuarial valuation. In case of parent company, Gratuity Liability as on Balance Sheet date is funded with the Life Insurance Corporation of India and the contribution thereof is absorbed or provided for in the Accounts. Liability for leave encashment benefit determined on the basis of actuarial valuation as on the balance sheet date is provided for in the accounts. Fixed contributions to Provident Fund, Employees Pension Fund, Superannuation Fund and Cost of other benefits are recognised in the Accounts on actual cost to the Company.

13. VOLUNTARY RETIREMENT PAYMENTS Payments under Voluntary Retirement Scheme are being charged to Profit and Loss Account over a period of three years. 14. TAXES ON INCOME Current years tax is determined in accordance with the Income Tax Act, 1961. Deferred Tax is recognised, subject to the consideration of prudence, on timing differences.

92

B. 1.

NOTES ON ACCOUNTS: CONTINGENT LIABILITIES P A R T I C U L A R S Sales Tax Income Tax-Disputed Demands under Appeal Claims not acknowledged as debts Employee Related Property Disputes Others Corporate Guarantees/Provision of Security Guarantees given by bankers on behalf of the Company* Custom Duty Land Acquisition Cases Excise Duty** 2005-06 Rs./Crs. 13.21 21.10 0.21 0.06 13.90 19.86 0.69 0.70 2004-05 Rs./Crs. 16.46 22.48 0.43 0.21 0.07 13.25 19.45 0.13 0.07 3.13

*Share in Joint Venture Nil (Rs. 0.01 Crores) **Excludes demands of Rs. 10.88 Crores (Rs. 10.55 Crores) raised on one of the units of the Company relating to the issues which have been decided by the appellate authority in Companys favour in appeals pertaining to another unit of the Company. 2. 3. Capital Expenditure Commitments not provided for (including share in joint venture Nil (Rs. 9.96 Crores)) 56.76 68.25

During the year Company had entered into an agreement to acquire 100% share holding in Dunlop Tyres International (Pty) Ltd. in South Africa alongwith some of its subsidiaries / associates for a consideration of Rand 398 Million (approximately Rs. 290 Crores), including deferred consideration of Rand 60 Million (approximately Rs. 43 Crores) payable after one year. The company has since concluded the acquisition process.

4. 5.

Borrowing Costs capitalised during the year

0.47

1.24

The Company has taken on operating lease the plant of PTL Enterprises Ltd. for a period of one year, which is renewable. The lease rent of Rs. 10.00 Crores (Rs. 7.50 Crores) paid as per the lease agreement has been charged to Profit and Loss account.

6.

Research and Development Expenses comprise of the following: P A R T I C U L A R S Salary, Wages & Other Benefits Travelling & Conveyance Others T O T A L 2005-06 Rs./Crs. 3.20 0.91 4.22 8.33 2004-05 Rs./Crs. 3.71 0.84 2.29 6.84

7.

The components of Deferred Tax Liability (Net) are as follows : P A R T I C U L A R S Deferred Tax Liability on timing differences arising on : Depreciation Premium on Redemption of Debentures Sub Total (A) Deferred Tax Assets on timing differences arising on : Payment under Voluntary Retirement Scheme Others Sub Total (B) Share in Joint Venture Deferred Tax LiabilityDepreciation (C) Net Deferred Tax Liability (A-B+C) 105.21 0.04 103.75 0.14 8.35 8.49 0.79 1.47 2.26 113.70 113.70 105.94 0.03 105.97 2005-06 Rs./Crs. 2004-05 Rs./Crs.

93

8.

Deferred Revenue Expenditure : Payment Under VRS Opening Balance Add: Payment During the year T O T A L Less: Amortised during the year Closing Balance 2005-06 Rs./Crs. 0.38 0.13 0.51 0.25 0.26 2004-05 Rs./Crs. 1.65 0.39 2.04 1.66 0.38

9.

Earning Per Share (EPS) The numerator and denominator used to calculate Basic and Diluted Earning Per Share : A) Before Exceptional Items: P A R T I C U L A R S Profit attributable to the equity shareholders used as numerator (Rs. Crs) - (A) The weighted average number of equity shares outstanding during the year used as denominator - (B) Basic / Diluted earning per share (Rs.) - (A) / (B) (Face Value of Rs. 10 each) B) After Exceptional Items: P A R T I C U L A R S Profit attributable to the equity shareholders used as numerator (Rs. Crs) - (A) The weighted average number of equity shares outstanding during the year used as denominator - (B) Basic / Diluted earning per share (Rs.) - (A) / (B) (Face Value of Rs. 10 each) 2005-06 88.94 3,83,37,977 23.20 2004-05 61.78 3,83,37,977 16.11 2005-06 76.41 3,83,37,977 19.93 2004-05 61.78 3,83,37,977 16.11

10. The Companys operations comprise of only one segment Tyres, Tubes and Flaps and therefore, there are no other business / geographical segments to be reported as required under Accounting Standard (AS-17) Segment Reporting issued by The Institute of Chartered Accountants of India. 11. Disclosures relating to assets taken on Hire purchase / Financial Lease after 1-4-2001: a) b) The Company has acquired vehicles under Hire Purchase with respective underlying assets as security. Reconciliation between total minimum lease payments and their present value: P A R T I C U L A R S Total minimum lease payments Less: Future liability on interest account Present value of lease payments c) Year wise future minimum lease rental payments : 2005-06 Rs./Crs. P A R T I C U L A R S Total Minimum HP Payment* 0.51 Nil Nil Present Value of HP Payment 0.50 Nil Nil 2004-05 Rs./Crs. Total Minimum HP Payment 4.50 5.01 Nil Present Value of HP Payment 4.12 0.50 Nil 2005-06 Rs./Crs. 0.51 0.01 0.50 2004-05 Rs./Crs. 5.01 0.39 4.62

Not later than one year Later than one year and not later than five years Later than five years
*Excluding Share in Joint Venture Nil (Rs. 0.26 Crores)

94

12. A)

The following Forward Exchange Contracts entered into by the Company are outstanding as on 31st March, 2006: Currency Amount Buy/Sell Cross Currency US Dollar US$ 8,000,000/Buy Rupees Premium on Forward Exchange Contracts deferred to be recognised in subsequent accounting periods Rs. 0.76 Crores (Rs. 0.90 Crores).

B)

13. Disclosure of Related Party Transaction in accordance with Accounting Standard (AS-18) Related Party Disclosures issued by The Institute of Chartered Accountants of India. a) Name of the Related Parties :

PARTICULARS Associates

2005-06 Apollo International Ltd. Encorp E Services Ltd. Landmark Farms & Housing (P) Ltd. Sunlife Tradelinks (P) Ltd. Travel Tracks (P) Ltd. Mr. Mr. Mr. Mr. O. S. Kanwar Neeraj Kanwar U. S. Oberoi Sunam Sarkar

2004-05 Apollo International Ltd. Encorp E Services Ltd. Landmark Farms & Housing (P) Ltd. Sunlife Tradelinks (P) Ltd. Travel Tracks (P) Ltd. Mr. Mr. Mr. Mr. O. S. Kanwar Neeraj Kanwar U. S. Oberoi Sunam Sarkar

Key Management Personnel

Relative of Key Managerial Personnel b) Transactions with Related Parties:

Mr. Raaja Kanwar

Mr. Raaja Kanwar

2005-06 Associates Rs./Crs. Volume of Transactions: Sales Reimbursement of Expenses Managerial Remuneration Rent Paid Purchases Travelling Expenses Rent Received Conference Expenses Provision for Diminution in value of Investment Security Deposit Paid Dividend Paid Claims Accepted Total Amount Outstanding Dr./(Cr) 268.58 (0.03) 7.17 2.24 0.01 4.69 (0.08) 5.20 0.26 1.80 0.79 0.46 283.92 37.60 7.17 268.58 (0.03) 7.17 2.24 0.01 4.69 (0.08) 5.20 0.26 1.80 0.79 0.46 291.09 37.60 Key Management Personnel Rs./Crs. Relatives of Key Management Personnel Rs./Crs. Total Rs./Crs.

Particulars

95

2004-05 Associates Rs./Crs. Volume of Transactions: Sales DEPB Licences Purchased Reimbursement of Expenses Managerial Remuneration Travelling Expenses Rent Received Conference Expenses Payment towards Current Liability Security Deposit paid Dividend Paid Claims Accepted Total Amount Outstanding Dr./(Cr) 210.20 0.19 (0.06) 5.71 4.29 (0.28) 3.18 7.26 3.47 0.79 0.67 229.71 29.14 5.71 210.20 0.19 (0.06) 5.71 4.29 (0.28) 3.18 7.26 3.47 0.79 0.67 235.42 29.14 Key Management Personnel Rs./Crs. Relatives of Key Management Personnel Rs./Crs. Total Rs./Crs.

Particulars

14. Previous Year's figures have been regrouped wherever necessary to conform to the classifications for the current year. Previous Year's figures are given in brackets.

Signatures to Schedules 1 to 13 which form integral part of Accounts. As per our Report attached For FRASER & ROSS Chartered Accountants ONKAR S. KANWAR Chairman & Managing Director NEERAJ KANWAR Jt. Managing Director K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

M.K. ANANTHANARAYANAN Partner Gurgaon 5th May, 2006

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

96

CONSOLIDATED CASH - FLOW STATEMENT

Rs./Crs. 2005-06 2004-05

A (i)

CASH FLOW FROM OPERATING ACTIVITIES PROFIT AFTER TAX ADD: - PROVISION FOR TAX - MINORITY INTEREST NET PROFIT BEFORE TAX & EXCEPTIONAL ITEMS ADD: - DEPRECIATION - LEASE RENT ON LEASEHOLD LAND - TRANSFER FROM GENERAL RESERVE/SHARE PREMIUM - (PROFIT) / LOSS ON SALE OF ASSETS - (PROFIT) / LOSS ON SALE OF INVESTMENTS - INTEREST RECEIVED - INCOME FROM INVESTMENTS - REVERSAL OF PROVISION FOR DOUBTFUL ADVANCES - DEFERRED REVENUE EXPENDITURE AMORTISED NET OF PAYMENT - INTEREST - REINSTATEMENT OF PROVISION WRITTEN BACK IN EARLIER YEAR - TRANSFER FROM INVESTMENT FLUCTUATION RESERVE 72.99 0.02 (0.70) 0.66 (16.78) (0.75) (1.42) 0.12 50.51 (0.84) 103.81 58.00 126.36 (21.53) (78.69) 73.56 (110.64) 115.34 (26.66) 99.70 (6.05) (6.05) 88.94 31.67 1.56 122.17 56.61 0.04 (32.85) (6.24) (7.17) (0.69) (0.07) 5.03 1.27 42.06 0.01 61.78 5.28 1.30 68.36

(ii)

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES ADJUSTMENT FOR - TRADE & OTHER RECEIVABLE - INVENTORIES - TRADE PAYABLES (55.76) (77.88) 23.00

225.98

(iii)

CASH GENERATED FROM OPERATIONS - DIRECT TAXES PAID - ADJUSTMENT ARISING ON DISINVESTMENT OF SUBSIDIARY & JOINT VENTURE (NOTE) (13.62) (13.62) (14.07)

(iv) B

NET CASH FLOW FROM OPERATING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES - PURCHASE OF FIXED ASSETS - SALE OF FIXED ASSETS - PURCHASE OF INVESTMENTS - SALE OF INVESTMENTS IN SUBSIDIARY & JOINT VENTURE - ADJUSTMENT ARISING ON DISINVESTMENT OF SUBSIDIARY & JOINT VENTURE (NOTE) - DIVIDEND RECEIVED - INTEREST RECEIVED NET CASH USED IN INVESTING ACTIVITY 3.95 (147.15) 3.91 63.84 (21.06)

87.65

93.65

(210.90) 19.08 (2.30) 21.13 0.07 3.16 (96.51) (169.76)

CASH FLOW FROM FINANCING ACTIVITY - LONG TERM BORROWING RECEIVED - REPAYMENTS OF LONG TERM BORROWING 100.00 (42.24) 54.40 (36.46)

97

- PAYMENTS OF PREMIUM ON REDEMPTION OF DEBENTURES - BANK OVERDRAFT/SHORT TERM FUNDS - DIVIDENDS PAID - INTEREST PAID - ADJUSTMENT ARISING ON DISINVESTMENT OF SUBSIDIARY & JOINT VENTURE (NOTE) NET CASH USED IN FINANCING ACTIVITIES - ADJUSTMENT ARISING ON DISINVESTMENT OF SUBSIDIARY & JOINT VENTURE IN CASH AND CASH EQUIVALENTS (NOTE) NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS CASH & CASH EQUIVALENT AS ON 01.04.2005 (01.04.2004) CASH & CASH EQUIVALENT AS ON 31.03.2006 (31.03.2005)

(0.23) 148.01 (19.93) (52.88) 0.06 132.79 (24.44) 99.49 131.98 231.47

(0.67) 104.46 (19.94) (44.21) 57.58

(18.53) 150.51 131.98

NOTE : The transactions relating to disinvested Subsidiary and Joint Venture (Note A 2) are reflected in the Profit & Loss Account for the year, till the effective date of divestment but the Balance Sheet as at 31.03.06 does not reflect the Assets & Liabilities in respect of such entities. To reflect cash flow under each activity correctly the impact of such exclusion on Cash Flow has been shown as Adjustment arising on Disinvestment of Subsidiary and Joint Venture.

As per our Report attached For FRASER & ROSS Chartered Accountants

ONKAR S. KANWAR Chairman & Managing Director

NEERAJ KANWAR Jt. Managing Director

M.K. ANANTHANARAYANAN Partner Gurgaon 5th May, 2006

K. JACOB THOMAS M.R.B. PUNJA ROBERT STEINMETZ RAAJA KANWAR DR. S. NARAYAN U.S. OBEROI Directors

HARISH BAHADUR Head-Accounts & Taxation

P.N. WAHAL Head-Secretarial & Company Secretary

98

Information pertaining to Subsidiary Companies u/s 212 (8) of the Companies Act, 1956 (Rs. Lacs) Contents Apollo Automotive Tyres Ltd. 5.00 0.00 5.00 5.00 0.00 0.00 (0.41) 0.00 (0.41) 0.00 Apollo Radial Tyres Ltd. 5.00 0.00 5.00 5.00 0.00 0.00 (0.41) 0.00 (0.41) 0.00 Apollo (South Africa) Holdings (Pty) Ltd. 0.00 0.00 314.13 * 314.13 0.00 0.00 0.00 0.00 0.00 0.00

Share Capital Reserves Total Assets Total Liabilities Details of Investments Turnover (including other income) Profit / (Loss) before Taxation Provision for Taxation Profit after Taxation Proposed Dividend

*Includes Pre-acquisition Expenditure against Investment in Dunlop Tyres International Pty. Ltd., South Africa

99