MANAGEMENT DISCUSSION & ANALYSIS

Your Directors are pleased to present the Management Discussion

and Analysis Report for the year ended December 31, 2006. Your Company's global revenues increased by 23 per cent to Rs. 10,286 million, Operating Revenues (EBIDTA) by 14 per cent to Rs. 2,401 million and Profit After Tax by 9 per cent to Rs. 985 million. Besides expanding and enriching its market shares in existing geographies, your Company ventured into new geographies, new markets and most importantly towards new horizons. Today your Company, which had been predominantly in laminated tubes manufacturing, has three revenue streams namely Laminated Tubes / Extruded Plastic Tubes, Specialty Packaging Materials and Medical Devices. All the businesses have a common thread, which leverages on the Companys core competence in polymers and polymer processing. industries such as oral care, toiletries, pharma, food, industrial products etc. In 2004, the Company began concerted efforts to broaden its product offerings with an aim to grow beyond laminated tubes. During the same year, Essel Propack acquired Arista Tubes, the largest manufacturer of extruded plastic tubes in UK. With this step began Essel Propacks third phase of calculated growth, to grow globally in extruded plastic tubes under the brand name Arista Tubes. In December 2006, Arista Tubes plant was set up in Danville, Virginia, USA, to meet the needs of the market in USA. Another Plastic Tubes plant is being set up at Poland to cater to the needs of the European market. The Polish plant is expected to begin commercial production during the third quarter of 2007. Once the growth plans for Plastic Tubes were set rolling, Essel Propack began scouting for other avenues for broadening its business base and move up the value chain. On introspection, the Company identified that its core competence lies in its knowledge of polymers & polymer processing and conducting business in an OEM environment. Medical Devices was the area first targeted. This led to the acquisition in 2006 of Tacpro Inc., USA, and Avalon Medical Services, Singapore, manufacturing Cardio-vascular Medical Devices such as Catheters, balloons etc. In 2006, the Company further broadened its business base by acquiring Packaging India Private Limited, a leading Specialty Packaging Material Company of South India, catering to the packaging needs of the Personal Care and Food Industries. Today the Company has three revenue streams across the globe based on 23 plants spanning 12 countries across five continents.

Essel Propack an Overview

The growth story of Essel Propack is one of organized, planned and calculated growth. The Company grew in a phased manner, with each phase moving the Company from strength to strength. Essel Propack began manufacturing laminated tubes in India during the year 1984, to cater to the packaging needs of oral care industry. Initially, the efforts were focused on converting all the aluminium tube users into laminated tubes. Once the conversion efforts began to succeed, with each oral care company converting from aluminium to laminated tubes, the Company began to focus on other industries such as cosmetics, toiletries, industrial products etc. Here again the Company succeeded by providing the right laminated tube packaging solutions to these industries. While the Company continued to expand its products and services portfolio in diverse industries, the Company launched the next phase of its growth plan Going Global. Starting with Egypt in 1992, the Company has established itself in 5 continents, in all the key markets, in about two decades. Multiple approaches were adopted such as Greenfield, JVs and Acquisitions, to drive growth. Today the Company has an estimated 32% global market share in laminated tubes, manufacturing one out of three tubes, catering to diverse

Industry Structure and Developments

Packaging With increasing competition between products and brands worldover, the differentiation between products and brands in the same market segment has become minimal. In such a scenario, packaging has become a significant differentiator for the consumers worldover. All the product manufacturers and

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MANAGEMENT DISCUSSION & ANALYSIS

brand promoters are focusing on packaging for recognition and recall for realising higher sales apart from offering convenience and safety of the product. Every Company is focusing on enhancing their packaging in terms of aesthetics, designs, shape, ideas, logistics in terms of manufacturing to consumer and user-friendly dispensation. Packaging has become a significant strategic tool for creating perceived brand value that would lead to value-selling. Today, the global packaging industry is estimated to be US$ 580 billion, growing at around 5 per cent per annum. Polymers play a significant role in modern packaging. This is primarily because polymers offer a wide array of values such as cost effectiveness including logistic cost, lower weight, superior convenience, low wastage, greater compatibility with emerging designs and aesthetic solutions, recyclability and manufacturing hygiene. Polymers are increasingly replacing all other packaging options such as glass, jute, paper, metals and wood. This trend which evolved in developed countries, has now begun to sweep the developing and emerging economies. At present, packaging accounts for about 25% of total international polymer demand. Tubes as a form of packaging Tubes are a specialised form of packaging. Three types of tubes are used for packaging namely aluminium, laminate and plastic. Worldover the tube sector services the packaging needs of Oral care, Healthcare, Cosmetics & Toiletries, Haircare, Pharmaceutical, Food and Industrial products. It is estimated that 36 billion* tubes per annum are manufactured globally. The industry breakup is as follows : tubes, Cosmetics & Toiletries were the first industry in every market to convert. Subsequently, Oral care products i.e. toothpaste, began conversion to laminated tubes. Today, in most of the world markets, oral care products are packed in laminated tubes. With technological advancement, more and more Toiletries, Haircare, Pharmaceuticals, Food and Industrial products have converted to laminated tubes while extruded plastic tubes remain the preferred form for cosmetic products. Aluminium tubes continue to dominate certain markets such as Pharmaceutical products and Industrial products as the packaging form. This offers a large conversion potential for laminated tubes and extruded plastic tubes. Extruded plastic tubes are the preferred form of packaging for the Cosmetics industry. Use of extruded plastic tubes is mainly concentrated in the Americas and Western Europe. With globalization resulting in seamless flow of products and brands, including cosmetic products, across geographies, the use of extruded plastic tubes is steadily penetrating the developing countries and emerging economies. This has greatly increased the market potential for extruded plastic tubes in developing and emerging economies. Specialty Packaging Materials Specialty Packaging Materials find application in varied industries such as Pharmaceuticals, Food, Beverages, Confectionery, Cosmetics, Soaps & Detergents and Pest Control / Insecticides. At the lower end and middle end of the value chain, one finds increased applications of flexible packaging in snack food, confectionery, personal products and a host of sundry packaging usage. At the higher end of the value chain, superior barrier properties are needed for applications in processed food, Pharma and electronic industries. The packaging market in India is at about Rs. 110 billion. Of this domestic Specialty Packaging market is estimated to be Rs. 25 billion, growing at over 15% per annum. The Specialty Pharma Packaging market size is Rs. 4.6 billion (2005) and is estimated to touch Rs. 8.1 billion in 2009. Packaging India Private Limited (PIPL), Pondicherry, is the third largest producer of Specialty Packaging Material in India, offering

Aluminium tubes 15 Billion* Laminated tubes 14 Billion* Extruded plastic tubes 7 Billion*

* - Company estimates Tubes as a form of packaging began with aluminium tubes all over the world. Since the advent of laminated and extruded plastic tubes in the packaging arena as new packaging form two decades ago, these tubes systematically began replacing aluminium tubes worldover. By adopting extruded plastic

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MANAGEMENT DISCUSSION & ANALYSIS

innovative packaging solutions to companies in the FMCG sector. PIPL enjoys a leading market position in southern India with substantial product breadth, state-of-the art technology, unmatched product development expertise, and strong relationships with a highly diversified, blue chip customer base. PIPLs manufacturing facilities at Pondicherry are state-of-theart with latest equipment from leading international machinery manufacturers and comparable with any reputed Specialty Packaging facility across the world. The Company also has a strong R&D division which constantly creates and innovates new laminate structures, in addition to EPs own advanced C&I facilities. PIPL, being strategically located, enjoys significant logistic advantage with just-in-time supply of packaging materials. PIPL counts among its customers most MNC and Indian brand leaders. The Company offers packaging solutions to a variety of product categories in food, pharma and personal care segments. PIPL has also forayed into the export market and is well equipped to meet customer requirements across the sub-continent with state-ofthe-art infrastructure. The core synergies between PIPL and Essel Propack are : boom which is generating demand for convenience packaging. These developments have opened the doors to a demanding and growing Pharma and Food Packaging segment. The size of Indian Pharma industry is US$ 6 billion while the global market size is of US$ 552 billion. The Indian market is presently growing at the rate of 8-10%. The exports from India stands at US$ 2 billion. This is a fragmented industry with over 20,000 units with imminent industry consolidation. The environment is rapidly changing with increased thrust on acquisitions, increased R&D and international tie-ups. The Indian Pharma market is fast becoming a global pharma outsourcing hub. At the same time the domestic market is also undergoing sea change. The per capita expenditure on health care in India and the penetration of modern medicine is poised to increase. A growing affluent class has opened up the market for lifestyle drugs. The opening up of health insurance sector has made healthcare more affordable. Food industry will be another major contributor to the growth of Specialty Packaging Materials. Although India is the second largest producer of fruits and vegetables, today only 2% of the produce is processed. India also has the largest livestock population but only 1% of meat production is converted to value added products. This situation is rapidly changing with semi-processed and ready-to-eat packaged food industry reflecting a growth of over 33% per annum. This change is primarily because of the fast growing consumerism and retail boom. The expectations of Pharma and Food industry from the Indian Specialty Packaging industry has risen as a result of the changing market dynamics. Clean Room Production Centres, guaranteed quality, on-demand supply, Drug Master File (DMF) / Food grade approved materials and conformity of the product to various climatic conditions are the need of the time. Product features such as anti-counterfeit, child resistant, tamper evident, senior citizen friendly and convenience are the need of the day. On process front, the market demands state-of-the-art extrusion laminated structures and solvent-less processes with multilayered heat & pressure lamination. Essel Propack and PIPL possess the knowledge, infrastructure and process capabilities to meet the demanding needs of the market.

High-end lamination technology Knowledge of Barrier Properties OEM business model Highest standards of quality and manufacturing systems Expanded product portfolio to a common customer profile Leveraging relationships to service customers Tapping the global customer base of Essel Propack to expand PIPLs customer base

The growth in this packaging form is being fuelled by the FMCG sector and Pharma sector. There is a growing demand for innovative packaging and the export potential is immense. Packaging attractiveness will be a key driver of the branding strategy in these sectors. At present Indian Pharma industry is moving up the value chain bulk to generic to formulations. Also there is a renewed focus on Food Processing Industry in India coupled with retail

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MANAGEMENT DISCUSSION & ANALYSIS

Medical Devices Medical Devices are used in almost all specialized branches of medicine either during surgery or to internally administer medicine. A few examples of Medical Devices are cardio-vascular catheters, angioplasty balloons, urinary catheters etc. This is a growing opportunity with a very high market potential. With advancement in medical field, surgical techniques are moving to less invasive techniques. This trend has thrown open vast growth opportunities for Medical Devices globally. Before long, the less invasive approach will become the norm for surgeries and for administering internal medicines. The global market for Medical Devices is estimated to be US$ 172.6 billion (2003). Of this the OEM market size is US$ 16.7 billion. The Catheter market globally is $ 5.7 billion of which USA alone contributes US $ 2.3 billion. The growth rate for Medical Devices, by different estimates, range between 7% - 10%. Tacpro Inc., USA, is a provider of innovative medical device designs, converting ideas into medical device solutions. They are pioneers as the first full-service provider of high quality medical devices, specializing in catheters and delivery systems on the West Coast of USA. Serving a worldwide marketplace, the Company is located in the heart of Silicon Valley, the center of engineering ideas. The Company is the world leader in OEM balloon catheters. Tacpro is an ISO certified Company equipped with a vertically integrated quality system. The Companys USA operations are focused on design, engineering services and rapid prototyping. They have also established a superior manufacturing base, Avalon Medical Services, in Singapore. The range of capabilities includes engineering services, product development, stent delivery systems and manufacturing solutions. To put it in a nut shell, Tacpro is a single source solution Company. Some of the offerings are: Coronary, peripheral, aortic and intracranial angioplasty catheters and guidewires; valvuloplasty; metallic and non-metallic stent delivery system; drug and radioisotope delivery; laser energy delivery; electrophysiology, thrombectomy, fertility/infertility devices and intravascular sheaths. The synergies between Essel Propack and Tacpro are :

Global delivery / Presence Embedded quality processes

The Medical Devices industry offers tremendous growth opportunities. This is a recession-proof industry. Moreover, this industry is not yet developed in Asia, which is a highly populated geography. Globally, it is a fragmented industry with fragmented buyers. Also there are high entry barriers such as capabilities for Design & Prototyping and FDA approvals which makes it difficult for companies to enter with ease. Contracts and contacts with customer, which takes considerable time to develop, play a significant role in growth in this industry. By the very nature of the products and the industry, there is a need for high level of innovation. Essel Propack and Tacpro have the requisite knowledge and competence to drive the Medical Devices business on a higher trajectory of growth. The management of Tacpro at the time of acquisition continues to lead the business.

Strengths
Strengths of Essel Propack

Knowledge Over the years Essel Propack has acquired a huge knowledge base in diverse aspects such as polymers, polymer processing, manufacturing systems, markets and logistics and sourcing. This knowledge will be the backbone for driving its growth engines along the three revenue streams namely Laminated Tubes/Extruded Plastic Tubes, Specialty Packaging Materials and Medical Devices. All the knowledge is documented and there is an efficient system for transfer of knowledge between the units across the world.

Creativity & Innovation Creativity & Innovation play a critical role in keeping the Company ahead of competition and to drive continuous growth. All the three revenue streams, although with different business environments, have a strong base in Creativity & Innovation. This aspect has not only led to creating new products, but also in identifying new product applications or discovering new business categories. This has also led to identifying new raw material mix, improvising on existing

Knowledge of Polymers and Polymer processing OEM model

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MANAGEMENT DISCUSSION & ANALYSIS

products, bettering existing technology, discovering new technology and enhancing processes. This approach has made your Company the recognized industry benchmark. philosophy Go and Grow with the Customer. This resulted in mutual trust and respect with all its customers globally. By sharing its vision, the Company has developed close long-term partnership with the customers and vendors. This has helped your Company leverage its relationships to the optimum, leading to growth in diverse geographies.

Leadership Being a global Company present in all major geographies, the Company understands cultural sensitivities of any geography. Leadership is well versed in leading a culturally and ethnically diverse workforce comprising over 20 nationalities, towards the organisational goal.

Dedicated and Passionate People The Company has a strong team of knowledgeable, dedicated, focused and object driven workforce. This Human Capital is the foundation on which the Company has been built. The workforce is continually nurtured, motivated, trained and developed.

Three revenue streams - Laminated Tubes / Extruded Plastic Tubes, Medical Devices and Specialty Packaging Materials The Company today has three revenue streams namely Laminated Tubes / Extruded Plastic Tubes, Medical Devices and Specialty Packaging Materials. Earlier the Company had only tubes business. To dilute the market risk, the Company forayed into Medical Devices and Specialty Packaging Materials which have perfect synergy with the Companys tube business and also has great growth potential.

Product specific strengths Laminated Tubes

Largest manufacturer of Laminated Tubes globally Global market share 32% Manufacturing facilities in 12 countries through 19 plants Integrated Process Technology Customer profile include all reputed brands in every market multi-national, national, regional and local brands New Application opportunities in Hair Care, Food and Pharma Minitubes a proprietary technology for making small size laminated tubes Inviseam technology, a breakthrough in laminated tubes

Shared Vision across the Value Chain Your Company always firmly believed in a shared vision, be it with the customers, employees, vendors, shareholders or society at large. This has resulted in a close and intense partnership between the Company and all its stakeholders.

Strength in Process Technology & Efficient Manufacturing Systems One of the key strengths of the Company is in the use of state-of-the-art process technology. The technology is continually evaluated and upgraded to keep the Company ahead of the competition. The Company deploys time tested and efficient manufacturing systems and processes such as Six Sigma, HMP (Harmonised Manufacturing Policy) and GMP (Good Manufacturing Practices).

Extruded Plastic Tubes

Currently manufacturing in 3 countries UK, India and USA with a unit in Poland to be commissioned in Q3 / 2007 Expanding into new geographies such as the USA and Poland Strong customer base in the UK and Europe through Arista Tubes, UK

Global Footprint and Relationships The Company is present in all the major geographies of the world. This was the outcome of the Companys

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MANAGEMENT DISCUSSION & ANALYSIS

Deploying state-of-the-art technologies Vision to establish itself as a leading player in extruded plastic tubes across all geographies by 2010 of the UK plant was expanded. A new green field plant in USA went on stream in December 2006. The expansion and the green field are based on new state-of-the-art technologies, which give better operational flexibilities and competitive operating costs. The Laminated Tube business has been Oral Care centric. The year 2006 saw additions of new customers from the skin and hair care segments in USA. These segments offer an increased value proposition and are complementary to our thrust in extruded plastic tubes.

Strengths - Specialty Packaging Materials

State-of-the-art technology, unmatched product development expertise Strong relationships with a highly diversified, blue chip customer base Currently focused on Food and Personal Care Specific plans to move up the value chain - Pharma and convenience packaging Leverage on Essel Propacks knowledge of polymers and polymer processing including co-extrusion and blown film knowledge

Setting the stage for broad-basing the business with addition of new product lines, for sustainable & improving revenue and profit growth in the coming years The new initiatives such as Medical Devices and Specialty Packaging Material business in 2006 were a step in this direction. The Medical Device business opens up a new frontier, leveraging on Essel Propack's core competencies of polymer processing and complementing with the design & prototyping capabilities. We see robust growth opportunities here, which will take the present product line (catheters) beyond cardiac applications to other areas. Specialty Packaging Materials is an India-centric business. The business is well positioned to ride on the increasing need for packaging solutions, fuelled by factors such as India becoming the world manufacturing hub for prescription drugs and the retail boom. There are further value propositions to up the value chain in Pharma and exports, which can be easily tapped into leveraging on Essel Propacks capabilities of extrusion lamination.

Strengths - Medical Devices

Two state-of-the-art facilities USA and Singapore Provider of innovative medical device designs, converting ideas into medical device solutions First full-service provider of high quality medical devices specializing in catheters and delivery systems on the West Coast of USA World leader in OEM balloon catheters Focused on design, engineering services and rapid prototyping Customer lock-in State-of-the-art manufacturing base in Singapore A single source solution Company

Opportunities

Expansion of the tube capabilities into higher value segments The thrust was on rapidly expanding our capabilities and footprint with co-extruded plastic tubes. The existing capacity

Turnaround of the acquired businesses in UK and the start-ups in Mexico and Russia The organisation continued to focus on turn around of loss making businesses. By the end of 2006, we were successful in turning around the laminated tube business in UK and Mexico. The extruded plastic tube business in UK has reached breakeven levels by the end of 2006. We aim to sustain these

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for a take-off by Q2/2007. Russia continues to make small losses. The Russian market is still evolving and has a good potential. We will continue to pursue our turnaround plan in the year 2007. objective is to make the organisation more agile and responsive to the market needs.

Threats

Raw material prices continued to be volatile and unpredictable. While we could get price increase to neutralise the same, we were frequently in a catch-up mode. This, to some extent, did impact the margins during the year 2006. The raw material supply situation is expected to improve with an increase in ethylene capacities projected for mid-2008. Right through 2006, the interest cost, both for US$ and Rupee borrowings, continued to harden.

Opening up new segments in Pharma and Sample segment with Minitube Technology Our success with the new technology continues. Minitube technology has found wide acceptance in Pharma and Oral Care. In Oral Care, it has opened up new price points for customers.

Shuffling the Product and Customer base This was a part of our strategy to improve our margins. Our new thrusts into higher value segments such as skin and hair care had been mentioned earlier. In certain markets, we made similar adjustments by exiting low margin businesses. The churning of product and customer portfolios to some extent did yield results, especially in the laminated tube segment.

Risk Management Report

This report sets out the risk management activities of the Company. The risks outlined below are not exhaustive and are for information only. Some statements given here are forward looking, and are therefore subject to uncertainties. The Board of Directors and the Audit Committee of the Board regularly review the risk-returnresponse scenario. The Leadership Team led by the Managing Director is responsible for implementing risk mitigation measures and for driving implementation of such measures to line managers and their teams. Business Risks :

Reorganisation of Manufacturing Facilities Essel Propacks efforts are aimed at giving the best value proposition to all its stakeholders. Whether it is setting up a new unit, expanding a unit, downsizing a unit or relocating a unit, the approach had been to rationalize and optimize our resources. In line with the above approach, during 2006, the Nepal plant was closed down. The one-time exit cost was Rs.12 million which has been written off in our books for the year ending December 2006. Similarly, the Company has decided to close down its operations in Venezuela. The demand of the Venezuelan customers will be met by our other units in the region, which have been geared up to meet this additional demand. The entire process and system is in place to meet the demand of Venezuelan market.

Risk : Investment in New Projects The Companys business is capital intensive and involves investments in diverse geographies and markets. This in itself poses risk while investing. Response : A detailed Project Report with analysis of all the performance indicators and the potential risks is always tabled before the Board prior to seeking approval for any project.

Risk : Input Costs including Oil Prices The global price rise of oil was paralleled by polymer prices, which are the essential raw materials for laminated and extruded plastic tubes. Although the crude price has stabilized, the shortage of capacities of ethylene has resulted in continued higher prices of polymers. This situation will continue till mid-2008 when the increase in ethylene capacities are expected to come on stream.

New Organisation structure Taking into consideration the pressing need of the time, the organisation has been recast with changes in the Sales and Marketing organisational structure. The primary business

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Response : Your Company has restructured its buying patterns to counter the price fluctuations. But, uncertainty will prevail during the immediate future. The rise in tube cost could be passed on to customers, but in a few instances it has been a delayed pass-through. Company has renewed its focus on innovation and continuous improvement. As a parallel effort, with mini-tube technology, your Company has set its eyes on Pharma industry for growth. Simultaneously, the Company is pursuing growth opportunities in hair care and cream markets. These efforts have broadened the customer base of the Company. Competition Risks :

Risk : One Product Company The major portion of the revenue of your Company is derived from the manufacture and sale of laminated tubes. This has the potential risk of a substitute appearing on the horizon. Response : Your Company has taken a three-pronged approach to rise above this situation. With your Companys foray into extruded plastic tubes, Medical Devices and Specialty Packaging Materials, three new revenue streams have been created. Thus, the initial step has been taken to reduce dependence on Laminated Tubes business. At the same time, in extruded plastic tubes, your Company has invested in state-of-the-art decoration and printing technology to offer superior graphics for differentiation. Thirdly, to sustain the margins, efforts such as Creativity & Innovation initiatives to develop new laminate structures, enhancement of manufacturing efficiencies including optimal asset utilization and increased agility in our response to market needs have been taken.

Risk : Competition The competition in some product sectors and application sectors have made supply unviable to those sectors. Response : This situation has been countered by constant upgradation of technology and by enhancing the efficiency of operations to effect cost competitiveness. Another major factor for your Companys success, as compared to its peers, is by nurturing the systems in such a way that the Company has a Lean Management structure. To retain the Lean Management, your Company continues to invest sufficient efforts, to retain this edge.

Risk : Commoditisation of Tube Business Customer consolidation and intense competition has led to a commoditisation of the market, leading to lower realisation in certain product and application sectors. Response : Being creative and innovative has given your Company the edge to be ahead of competition by introducing value addons and distinct differentiation in the products. The Company has succeeded in changing the requirement patterns of the market by its innovative products. These include development of innovative polymer structures to preserve content, creation of tubes with in-built security features and making tubes with superior look and feel. These steps have also helped the Company to diversify the customer profile with new product and application groups. The Company always strives to position Essel Propack as the best value supplier.

Risk : Oral care Industry, the prime buyer of laminated tubes Oral care industry has remained the major user of laminated tubes. Any fluctuation in the buying pattern of oral care industry can make an impact on the performance of the Company. The dominance of a few global players in the oral care industry has led to the buying power. Response : To counter the above, new cost-effective laminate structures are consistently evolved. Supplementing these efforts, manufacturing systems are also continuously upgraded enhancing the efficiencies and to raise the output levels. Your

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Operations Risk:

Risk: Multinational Company Being a multinational Company, your Company is exposed to dynamic economic and market conditions of its operating terrain. Aspects such as changes in consumption pattern, increase in production capacities and regulatory changes in policies relating to imports, tariffs and tax, are unpredictable and hence, are beyond control. Response : Your Company continuously monitors the external environment in all the operating locations and assesses the risk profiles. Effective remedial steps are taken to mitigate the same. Exiting Nepal is one such instance.

forward contracts, the Company hedges its exposure. Moreover, the Company continues to insure its assets through country specific policies. Also, Forex Risk Exposure Policy is in place which provides the guidelines for decision making.

Risk : Hardening interest rates globally The interest expenses during the year 2006 was higher due to the global hardening of interest rates and increased borrowings by your Company to finance expansions as well as the new business initiatives. Response : Your Company has taken steps to mitigate the effects by an optimum mix of fixed / floating rate borrowings and hedge instruments wherever possible.

Political Risks :

Risk: Instability and potential closure of business Due to the changing market dynamics, operating units sometimes become unviable. Response : Your Company closely and continuously monitors the situation in every location. Whenever a location become unviable, the assets at that location is recalled / relocated as the situation demands. e.g. Nepal and Venezuela.

Internal Control Systems and their Adequacy

The Company believes in formulating adequate and effective internal control systems and implementing the same to ensure that assets and interests of the Company are safeguarded and reliability of accounting data and its accuracy are ensured with proper checks and balances. The Company has a strong internal audit which covers its global operations to examine and evaluate the adequacy and effectiveness of Internal Control Systems. The internal audit ensures that the systems designed and implemented provides adequate internal control, commensurate with the size and operations of the Company. The Management Information System (MIS) forms an integral part of the Companys control mechanism. All operating parameters are monitored and controlled. An effective budgetary control on all capital expenditure ensures that actual spending is in line with Capital Budget. A world class ERP system has been implemented in some locations and is in the process of implementation across other locations of the Company, which will serve as its information backbone. The Audit Committee of the Board, Statutory Auditors and the top management are regularly apprised of internal audit finding. The Audit Committee of the Company consisting of non-

Financial Risks :

Risk: Foreign Exchange Fluctuation Due to the global scale of operations of Company, it is exposed to multiple currencies. The Companys performance and future could be affected by fluctuations in exchange rates. Since a major portion of our transactions are either Dollardenominated or based on Dollar prices, our exposure to a devaluation of the currencies of the countries in which we operate is limited to a significant extent. Response: Appropriate coverage clauses have been woven into the contracts with the buyers to offset the impact of currency fluctuations. Further, with the help of non-speculative

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executive independent directors periodically reviews and commends the quarterly, half yearly and annual financial statements of the Company. A detailed note on the functioning of the audit committee forms part of the section on Corporate Governance in this Annual Report. Consolidated global results (Rs. in million) Year ended 31.12.2006 Total Revenue Operating Profit (EBIDT) Profit Before Tax Profit After Tax & Minority Adjustment 10,286 2,401 1,300 985 Year ended 31.12.2005 8,332 2,103 1,217 902

Financial and Operational Performance

The Company operated in four geographical zones: Americas, Europe, AMESA (Africa, Middle East and South Asia including India) and East Asia Pacific. The contribution of the geographies to the revenues is highlighted as follows :

Your Companys Revenues have increased by 23.4%, and PAT has increased by 9.2% over the previous year. Operating profits (EBIDT) have increased by 14% during 2006. Regionwise Performance

Revenue 2005
AMESA 35%

The highlights of your Companys business in each of these regions are as under : Americas The Operating Units in this region include Tube business and Medical Devices business.

Europe

18%

Americas 22%

EAP

24%

USA 3 units Mexico - 1 unit Colombia 1 unit

Tube business :

Revenue 2006

AMESA 34% EAP 18%

Americas 29%

Europe

18%

The capacities in the USA plant have been enhanced to meet the requirements of the new customers who have been tapped. The volumes are expected to grow faster in the US market as the necessary capacities are in place. The US market holds great promise for the Company. During the year 2006 your Company has started manufacturing operations of extruded plastic tubes in USA. This is our third manufacturing unit for extruded plastic tubes apart from Arista, UK, and Wada, India. Mexican operations are on turnaround path, firmly supported by a contract from a MNC Company. The volumes from Colombian operations have increased substantially. The Venezuelan capacities are in the process of being relocated to other units in the Region.

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Medical Devices : Performance of the newly acquired Medical Devices business in 2006 has exceeded our expectations. The business is currently specializing in all areas of catheter based devices & components such as high quality customs extrusions, all types of balloons and catheters, initiating from concept stage to design to production. Avalon Medical Devices, Singapore, largely caters to the American market. Europe The Operating Units in this region consists of tube business. Tube business : Indian Operations are reflecting a growth of volumes. This is due to the special emphasis placed on pharmaceutical segment with mini-tubes and cosmetics segment with extruded plastic tubes. In India, there has been an increase in total revenue by 12%. The Nalagarh plant at Himachal Pradesh, which was commissioned in July 2005, has stabilized, and is currently in capacity expansion mode. Your Company has shut its operations in Nepal due to concerns for law and order. Your Companys Board, during the year under review, has approved a reduction in the equity share capital of its wholly owned subsidiary in Nepal from the current NPR 128 million to NPR 32 million. Operations in Egypt have reported improved business volumes. To capitalize the growth opportunities in this market, the Company has invested resources in capacity expansion. With Egypt becoming a hub for MNCs in this geography, the growth in that market is quite promising. Specialty Packaging Materials : The newly acquired Specialty Packaging Material business through Packaging India Pvt. Ltd. is performing better than our initial estimates. The business is currently focused on packaging for food, personal care and confectionary sectors. Our efforts are on to increase capacity utilisation, enhance capacities at the current site, set up a green-field plant in North India, and optimize product / customer portfolios and move up the value chain. East Asia Pacific (EAP) The Operating Units in this region include Tube business.

Germany 1 unit UK 2 units Russia 1 unit

Essel Propack UK Ltd. (erstwhile Telcon Packaging Ltd.) has improved its capacity utilization and manufacturing efficiencies during 2006. This unit is one of the focused manufacturers of laminated tubes in UK. To further consolidate our presence in Europe, Arista Tubes Ltd. is currently being restructured to align its vision with the Companys vision to consolidate and grow as a major global player in extruded plastic tubes. At the two UK subsidiaries, the emphasis is on improvement of efficiencies, cost reduction, expansion of customer base and targeting new major customer accounts. The Company expects a positive impact on its profitability during the current year. In Germany, the laminated tube volumes have improved substantially during the year. The new laminated tubes plant near Moscow, in Russia, is also going through a stabilisation phase. Plans are on to increase capacity utilization, since the market is very large and promising. Africa, Middle-East and South Asia (AMESA) The Operating Units in this region include Tube business and Specialty Packaging Materials.

China 3 units Philippines 1 unit Indonesia 1 unit

India 7 units Egypt 2 units

The capacities of Guangzhou Propack Limited, China, (GPC) have been relocated during the year to other EP sites, following the completion of a MNC customer contract. China has posted a consistent performance during the year. The key factor which has enhanced the performance is the continuation

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of the vertical integration process for blown film. This is an effective strategy that has contributed to the improved efficiencies. Decode exercise was conducted with the participation of the entire top management. The decode exercise resulted in the identification of Must Win Battles (MWBs) for the different revenue streams, critical success factors (CSF) for each MWB and top team accountabilities. Based on the findings of the study, Human Capital strategy was formulated. The strategy was subsequently rolled out systematically, step by step. It began with the announcement of new organisation structure with role clarity. Job Evaluation was conducted to bring about role and responsibility parity across the global organisation. Following Job Evaluation, Capability Development was undertaken which involved development of frameworks for critical activities such as developing competencies within the organisation, Career Development and Succession Planning, Performance Management System (PMS) etc. Finally, mapping of all Human Capital processes were conducted to develop frames of reference for future and for benchmarking. All these efforts had positive impact on the organisation, both at organisational level as well as at the individual level. At the organisational level, there was clarity and common understanding of organisation goals, Must Win Battles (MWB), key stakeholder expectations and cultural / climate related enablers and barriers. The key objective is to build the organisation and people capability with top team feedback and coaching, strengthening corporate image in external environment and creating a burning desire to be the market leader in revenue and management practices. At the employee level, the efforts provided clarity on what an individual is expected to do, the interdependencies and interfaces, responsibilities of an individual in the organisational structure, the requisite capabilities and the behaviour to be demonstrated. The entire exercise, right from Diagnostic study to Human Capital strategy formulation, was completed in 12 months. Then implementation began with different aspects of the strategy being rolled out in phases. During the last nine months, many of the activities, processes and systems have been streamlined. The implementation of many more aspects of the strategy are in progress. To name a few, Job Evaluation has been performed. The new Performance Management System (PMS) has been rolled out globally. PMS for the year 2007 will be conducted as per the

Human Capital
All through the years, your Company has remained a progressive organisation, continuously monitoring and anticipating the changing market trends and evolving market dynamics. This aspect has kept your Company at the forefront of competition, always leading the change in its industry, to be termed as industry benchmark. Human capital of the Company has always remained the constant appreciating asset, which has propelled the Company to its present global status. Today, your Company has three revenue streams namely Laminated Tubes / Extruded Plastic Tubes, Medical Devices and Specialty Packaging Materials. The Company aims to post a consistent and healthy growth in all the three revenue streams simultaneously. With such a vision, the need was felt to realign the organisational goals and aspirations, to instill multi-dimensional organisational growth. To realign and transform the organisation, it was felt imperative to align the aspirations, goals, structure, capabilities, processes and people with the organisation. It was decided to undertake an indepth Diagnostic and Climate study of the organisation, the results of which, in turn, would form the frame of reference for all the changes. The services of an international respected specialist was availed to facilitate these efforts. The entire exercise was to be followed by development of Human Capital strategy and various Human Capital initiatives for implementation across the organisation. The realignment efforts were rolled out with the diagnosis of internal organisational environment vis--vis external environment such as market realities and expectations. Various critical factors such as business challenges (current and future with implications), future focused business imperatives, assessment / implication of organisation structure, diagnostic of organisation culture & climate and their implications, cultural sensitivity, criticality of top teams and their impact on the Company, detailed roadmap on implementing the recommendations in a phased manner etc. were considered and studied. The findings of this exercise formed the base for identifying the path forward. To arrive at the path for achieving the organisational goals, a Strategy

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new process. Similarly, Career Development and Succession Planning has already been rolled out. All the systems, processes and activities specified in Human Capital strategy will be operational by the end of 2007. Talent Identification The Companys Talent Identification process is aimed at identifying the employees who have the aptitude, capabilities and qualities necessary to undertake the work involving greater responsibility and skill level. Another aspect of the Talent Identification is to create a Talent Pool by identifying individuals with leadership qualities and nurture them as future leaders. During the year 2006, this process was rolled out globally. A proactive and an effective succession management is in place to nurture the talent pool. Individual development plans have been drawn detailing the career steps of the individual. Training & Development Training & Development is another area that has been focused on at your Company for continually developing and honing the skill sets and competencies. The efforts are aimed at the development of an individual as well as the development of Team Skills and competencies. Your Company firmly believes that well trained people and teams at every level provide the true competitive edge in its business and hence, continues to invest resources in training. Your Company is a global organisation with 1971 employees of over 20 nationalities as at December 31, 2006. The cross-cultural factors turn out to be an important aspect in managing the business in a global environment. During the year 2006, your Company retained its focus and efforts in training its employees on cultural sensitivity. Your Company conducted many programmes to sensitize employees in different dimensions of culture, managing change, working with employees from different cultural background and cultural diversity. The total training man days for the year ending December 31, 2006, were 3390. The major focus in Training & Development was on cultural sensitivity.

Cautionary Statement
Statements in this Report describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable laws and regulations. The actual results may differ materially from those expressed in this statement.

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