Raising the bar

Annual Report 2006-07KEI INDUSTRIES LIMITED

www.kei-ind.com

1

Corporate Information

KEI Industries Limited is an established player in the powercables segment and the second largest power cable company inIndia. KEI Industries Limited (hereafter referred to as KEI)manufactures high and low tension cables (HT and LT), controland instrumentation cables, house wires and stainless steelwires. KEI is one of the few companies in the country tomanufacture specialty cables including braided cables, firesurvival and zero halogen cables.

The company’s facilities are located at New Delhi, Bhiwadi(Rajasthan) and Silvassa (D&N H). KEI enjoys the distinction offlexibly switching production between HT and LT cablesdepending upon prevailing market conditions and demand.

An ISO 9001: 2000 certified company, KEI follows the stringentquality standards laid out by BRE (UK), DIN, ASTM, IEEE, IEC,BS, VDE, SABs, NZ, AS, NEMA, NFC, BVQL, DNV, CPRI,ERDA, IDEMI, EIL, PDIL and SYT.

The company’s shares are listed on the Bombay Stock Exchange,National Stock Exchange, stock exchanges in Delhi and Kolkattaand through its GDR & FCCB issue on the Luxembourg StockExchange.

BOARD OF D IRECTORS

Mr. Anil GuptaChairman-cum-Managing Director

Mr. Sunil GuptaDirector

Mrs. Archana GuptaDirector

Mr. Pawan BholusariaDirector

Mr. K.G. SomaniDirector

Mr. Vijay BhushanDirector

Mr. Vikram BhartiaDirector

Mr. Rajeev GuptaExecutive Director (Finance)

COMPANY SECRETARY &COMPL IANCE OFF ICER

Mr. Kishore Kunal

AUD I TORS

M/s. Jagdish Chand & Co.Chartered AccountantsNew Delhi

BANKERSDENA BANKPUNJAB NATIONAL BANKING VYSYA BANK LTD.STATE BANK OF HYDERABADYES BANK LTD.ICICI BANK LTD.BANK OF INDIA HSBC BANK LTD.STANDARD CHARTERED BANK HDFC BANK LTD.

SHARE TRANSFER AGENTMAS SERVICES PVT. LTD.AB-4, Safdarjung EnclaveNew Delhi - 110 029.Tel.: 011-26104142, Fax: 011-26181081

REG ISTERED OFF ICED-90 Okhla Industrial Area,Phase-I, New Delhi - 110 020.

WORKS OFF ICE• D-90 Okhla Industrial Area, Phase-I,

New Delhi - 110 020.

• SP-919-920 RIICO Industrial Area, Phase-III,Bhiwadi Dist., Alwar (Raj.) - 301 019.

• 99/2/7 Madhuban Industrial Estate,Village Rakholi, Silvassa (D&H) - 396 230.

Profile

KE I MANAGEMENT PERSONNELMr. S L KakkarPresident

Mr. Pawan AggarwalVice President

Mr. Manoj KakkarVice President (Mktg)

Mr. K.C. SharmaVice President (Works-Cable)

Mr. Deepak KashyapVice President (Projects)

Mr. Alok MaityGeneral Manager (Works)

Mr. S C SharmaGeneral Manager (Business Development)

Mr. Dilip BarnwalDeputy General Manager (Works)

Mr. Alok ShahDeputy General Manager (Mktg-East-Cable)

Mr. Ajit Dinesh DurveDeputy General Manager (Mktg)

Mr. Ajay MehraDeputy General Manager (Works)

Mr. Vishvesh Bhatia Deputy General Manager (Mktg)

Mr. N S YadavDeputy General Manager (Q C)

Mr. K Sunderajan Deputy General Manager (Mktg)

Contents Financial Summary | 4, Chairman’s Letter | 6, Director’s Report | , ManagementDiscussion and Analysis | , Report on Corporate Governance | , Auditor’sCertificate | , Auditor’s Report | , Financials | ,

32

Raising the bar

With nearly four decades of solid experience, KEI is at the forefront of the

industry manufacturing the widest and most comprehensive productbasket. KEI is now raising the bar from manufacturing LT to HT by now

embarking on plans to manufacture Extra High Tension cables which will

serve the modern power transmission segment. Very few companies in

the country possess the capabilities to manufacture this.

The company is now raising the bar by completing the entire valuechain from manufacturing and supplying cables to executing EPCcontracts and manufacturing and supplying transformers.

KEI enjoys wide acceptability across diverse sectors such

as oil refineries, railways, power, cement, steel and various other industrial

sectors due to its ability to custom manufacture highly specialised cables

to the exacting product and application needs of its prestigious clientele.

Industry stalwarts such as Suzlon Energy, Gail (India), Larsen &

Tourbo, Power Grid Corporation, Essar, Tata Steel, BPCL, HPCL, BHEL,

NTPC, SAIL, Indian Railways, to name just a few; rely on KEI fortheir cabling requirements. KEI is also the registered vendor with

over 100 Indian companies.

KEI by carefully nurturing relationships, ensuring timely order execution

and being a reliable partner is raising the bar of project execution

and client servicing vindicated by the record repeat orders received year-

after-year.

By leveraging its technical, designing and customisation prowess to suit

different temperatures, KEI services clients across 24 countries and

the company continued its successful march of raising the bar by winningprestigious orders overseas qualifying through rounds of tough

tendering process and outbidding global leaders.

KEI is also aggressively expanding its presence in the domestic retail

segment with an aim to power homes, true to its credo, is raising the

industry bar by offering for the first time in this industry in India: Aproduct liability insurance for house wires – atestament made possible as quality is the hallmark ofall KEI products. A promise made after fully appreciating that safety

of lives and valuable properties is sacrosanct and can never be

compromised.

This is just the beginning. As KEI steadfastly chalks out and implements

powerful strategies that hold the potential to take us closer to our vision

to be the number one player in the industry, naturally and rightfully.

54

2004 2005 2006 2007

GROSS BLOCK (Rs mn)

2004 2005 2006 2007

PBDIT (Rs mn)

2004 2005 2006 2007

EPS (Rs.)*

* Shares of Rs. 10 /- each.

RS. IN MN

Raising the bar Emerg ing even stronger

w ith each pass ing yearFor the past four years, we have been raising the bar and continuously strengthening our results year-after-year demonstrating thesuccessful delivery of our strategies and the quality of our overall operational performance.

2004 2005 2006 2007

PAT (Rs mn)

2004 2005 2006 2007

NET SALES (Rs mn)

PARTICULARS 2004 2005 2006 2007

PAID UP CAPITAL 79.20 79.20 100.93 117.94CAPITAL EMPLOYED 338.46 526.53 1379.90 3688.50 SALES 1086.38 2302.29 3413.50 6815.14 LESS: EXCISE DUTY 107.05 267.76 411.84 776.04NET SALES 979.33 2034.53 3001.65 6039.10

PBDIT 89.18 212.31 457.97 873.79PBIT 71.63 192.46 431.07 817.25PBT 15.59 123.93 336.48 579.89PAT 8.93 83.90 260.07 401.68

PROFITABILITY RATIOS

PBDIT 9.11 10.44 15.26 14.47PBIT 7.31 9.46 14.36 13.53PBT 1.59 6.09 11.21 9.60PAT 0.91 4.12 8.66 6.65ROCE (PAT/CAPITAL EMPLOYED) 2.64 15.93 18.85 10.89

GROWTH RATIOS (PER CENT)NET SALES 24.94 107.75 47.54 101.19PBDIT 16.74 138.07 115.71 90.80PBIT 21.02 168.69 123.98 89.59PAT 19.71 839.53 209.98 54.45

CAPITAL EMPLOYED

FIXED ASSETS 274.24 288.81 804.66 1409.65CURRENT ASSETS 619.29 1108.61 2003.60 5269.90LESS: CURRENT LIABILITIES 346.73 629.77 991.43 1994.33LESS: BANK BORROWING 173.85 203.10 377.02 922.04LESS: DEFERRED TAX LIABILITY 34.49 38.02 59.86 74.68CAPITAL EMPLOYED 338.46 526.53 1379.90 3688.50

Operat iona l h igh l i ghts

2007 was the first year of operations at full capacityfor the HT cables segment.

Commenced EPC operations and secured prestigious orders across the country.

Export revenues grew by an impressive 270 per cent; an increase from Rs 226 mn in 2006 to Rs 835 mn in

the current fiscal.

Procured a brand enhancing export order to supply power cables in the Gulf region; its single largest order in history valued at Rs 250 mn.

Raised USD 36 mn (Rs 1640 mn) through a Foreign Currency Convertible Bond (FCCB) issue in November 2006. The bonds have been issued at 1% coupon rate and are convertible within 5 years at the price of Rs 86.

F inanc ia l h igh l i ghts

Net sales increased 101 per cent to Rs 6039.10 mn (2006: Rs 3001.65 mn).

PBIDTA up from Rs 458 mn in 2005-06 to Rs 874 mn in

2006-07, an increase of 91 per cent.

PAT up 54 per cent to Rs 402 mn (2006: Rs 260.07 mn).

EPS increased by Rs 1.95 from Rs 5.72 in 2005-06 to Rs 7.67 in 2006-07.

979.33

2034.533001.65

6039.10

89.18212.31

457.97

873.95

8.93

83.90

260.07

401.68

381.18 397.30

886.40

1401.99

0.22

2.11

5.72

7.67

Dear Shareho lders , 2006-07 has been yet another year of so l id performance for KEI . Weachieved important f inancia l and operat ing goals and cont inued to bui ldthe base for our future success. Our resu l ts ref lect an act ive andproductive f iscal year at KEI. Revenues increased by nearly 100 per centover the prev ious f isca l and prof i ts grew by 54 per cent . Dur ing thecurrent year, exports have grown over 270 per cent to touch Rs 835 mn from Rs 226 mn in the previous year.

KEI is ra is ing the bar of performance by gain ing momentum, emergingstronger, ef f ic ient ly and cons istent ly record ing h igh growth rates andprof i ts result ing in h igh returns. A feat faci l i tated by steadi ly invest ingin our gross block, expanding our product offer ing, focusing on marketsegments that offer the greatest potent ia l for growth and prof i tabi l i ty,branch ing out into new geographies, implement ing operat iona lexcel lence processes, strengthening our presence in the EPC segment,foray ing into the manufacture of t ransformers, bu i ld ing a v is ib lepresence in the retai l segment and at same t ime embarking on dr iv inggrowth through volumes to be even more cost-effect ive.

Bus iness overv iew

POS I T I V E DEMAN D T R E N D S

Measures to reduce the demand-supply gap in the power sector wi l lcont inue to dr ive the demand for the cabl ing industr y for year ’stogether. The Ind ian government ’s thrust to improve inter- reg iona lpower t ransmiss ion and embark on underground cabl ing to reducedistr ibut ion losses wi l l a lso prov ide a pos i t ive demand impetus. Theongoing infrastructure and realty boom and the huge capex planned invar ious heavy industr ies cont inue to create unprecedented demand forpower cab les . Opportun i t ies for the cabl ing sector are a lso r ipe inAfr ica , West As ia and the Gul f reg ion which are po ised to makes ign i f icant investments in the power sector. In a nutshe l l , there is arobust demand potent ia l v is ib le on the hor izon.

BR I E F PE R F O RMAN C E REV I EW

All the strategies that the company had embarked upon in the previousyear have showed results. One of our key accompl ishments included thet imely complet ion and on t rack capac i ty expans ion of the HT p lant .Contr ibut ion of HT cables to the overal l revenues has doubled. We havealso successful ly acquired orders in the EPC space for cable supply andlay ing of cab les . Revenue f rom sa les to inst i tut iona l customerscont inued to be robust whi le revenues from the export sector where wefocused our energy dur ing the year ; have grown over three t imes ascompared to the last year.

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KE I i s ra i s i ng the bar of performance byga i n i ng momentum , emerg i ng stronger ,eff i c i ent l y and cons i stent l y record i ng h i ghgrowth rates and prof i ts resu l t i ng i n h i ghreturns .‘ ’

From the Chairman’s desk

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Cables

Our tota l revenues f rom the cables segmentincreased by 100 per cent and was Rs 5967 mn. Ournew faci l i ty for producing HT cables at Bhiwadi wascommissioned in March 2006 and product ion was onstream by June 2006 and we are happy to reportrevenues of Rs 445 mn f rom th is . The companycont inues to aggress ive ly expand i ts capac i t ies atBhiwadi and has acquired land for the same.

Expansion plans

The foray in the HT segment also augurs wel l for theover a l l growth of the company and we p lan toventure even deeper into EPC contracts segment. HTcables normal ly form the core element of large EPCcontract . Keeping th is in mind, we are aggress ive lyexpanding our manufactur ing fac i l i t ies . To ensuremaximum operat ional ef f ic iency, we have chosen tokeep a major ity of expansion plan in and around theex ist ing Bhiwadi p lant . The company has acqui red32.5 acres of land to upgrade the HT and LTproduct ion fac i l i t ies at Bhiwadi and a lso developanother green f ie ld EHV/ HT / LT product ion faci l i ty

in c lose proximity.

In fact, keeping EPC contracts in mind, KEI a ims toforay into the manufactur ing of EHV cables.Current ly, the company is test ing and conduct ing afeas ib i l i ty study on incrementa l manufactur ingcapabi l i t ies and investments required to manufacturecables of 132 KV and 220 KV ( f rom the ex ist ingcapabi l ity to manufacture upto 66 KV). Also, whi le wehave acquired the land to bui ld the new fac i l i ty, wewi l l s imultaneously be using the ex ist ing HT fac i l i tyat Bhiwadi to conduct the test ing and bas icproduct ion runs to develop a feasib i l i ty report . Thisexerc ise wi l l g ive us a lead t ime and enable us tojumpstart the product ion and met icu lous qua l i tyapprova l process which takes a long per iod. Weexpect th is landmark project to take off in the nextone to one and half years.

Look ing at the demand opportun i t ies in the exportmarket and our success overseas; the development ofour exc lus ive Export Or iented Unit at Chopanki ( inc lose prox imity to Bhiwadi) at Rajasthan is fastprogress ing and we are conf ident of commencingcommercia l product ion by October 2007.

Last year through my communication to shareholders,I had touched on p lans to acqui re a cab lemanufacturing plant overseas, we continue to look forappropr iate opportunit ies in th is regard. To completethe ent i re va lue cha in for the manufacture oft ransformers, we may take the inorganic expans ion

route and supplement i t with green f ie ld expansion.A major ity of the future expansion plans are l ikely tobe funded through funds ra ised in the FCCB issuedur ing the year.

House wires & retail focus

To cater to the fast growing retai l segment, we havesuccessful ly expanded our house wir ing capacity. Wehave further st rengthened our d ist r ibut ion networkand have launched an aggressive brand bui ld ing andvis ib i l i ty campaign.

As a future strategy, we are now contemplat ing aforay into the synergist ic e lectr ical product businesswhich would essent ia l ly encompass the manufactureand supply of various power anci l lar ies and householde lectr ica l products . We bel ieve that th is vert ica ld ivers i f icat ion would enable us to of fer integratedproduct offer ing to our exist ing customers.

Future prospects

As we move ahead, in the coming years we areconf ident that a l l the strateg ies that we haveembarked upon would y ie ld fru it fu l results for us l ikethey have in the past and enable us to set even moreambit ious targets. And with our continued discipl inedgrowth approach, we wi l l be ra is ing the bar ofperformance; as we str ive to accelerate revenues bymore than three t imes in a span of three years.

On a concluding note, I would l ike to thank our Boardof Directors for their valuable advice and guidance,our employees for their unst int ing devot ion and ourstakeholders , bankers and inst i tut ions for the i rcont inued support.

Ani l GuptaChairman-cum-Managing Director

1110

Robustmanufacturing

facilities

KEI’s state-of-the-art manufactur ing fac i l i t ies are secondto none. The robust manufactur ing fac i l i t ies aresupplemented by the latest technology and innovat ivemanufactur ing processes to del iver super ior cost-effect iveand qual i ty cables and wires.

The company is on an aggressive expansion dr ive and hassuccessful ly completed of the expansion of the house wirefaci l i t ies at Si lvassa. With a capita l out lay of Rs 140 mn,the company is conf ident of generat ing near ly 100 per centrevenue from the same in the coming year.

Go i ng ahead , KE I has embarked upon major capex p lans

1. In February 2007, the company has acquired 5.5 acres ofland near i ts exist ing plant in Bhiwadi which wi l l be ut i l izedfor the expansion and upgradat ion HT / LT cables.

2. The company has also acquired another 27 acres of landnear Bhiwadi for sett ing up a green f ield EHT/HT/LT cablesplant.

3. The company has ut i l ized 8 acres of land (at Chopanki)near the ex ist ing Bhiwadi fac i l i ty present in i ts books todevelop a 100% Export Oriented Unit (E.O.U.) to cater tothe fast growing export market . An E.O.U. status wi l lenable KEI to en joy tax incent ives which in turn wouldimprove the net prof i t marg in of the company. Theinvestments envisaged for th is p lant are Rs 60 mn and i t isexpected to be completed by October 2007.

These aggressive expansion projects wi l l help the companyto report h igher ut i l i zat ion leve ls , fac i l i tate betteroperat ional contro ls , t ranslate into s igni f icant sav ings onmanufactur ing and admin istrat ive overheads. Mostimportant ly, th is wi l l lay the foundat ion for taking on andexecut ing h igh va lue EPC pro jects and enable KEI toexpand i ts footpr ints overseas.

Cost eff ic iency measures

On the operat iona l s ide , KE I has set up

a warehouse at the Bh iwad i p lant , as a

de-bott le neck ing in i t i at ive . And to

reduce costs by improv ing eff ic ienc ies ,

KE I has imp lemented an ERP-BAAN

system wh ich w i l l enab le faster

integrat ion of data and br ing about

transparency in operat ions .

1312

Domestic institutional sales KEI’s key intent is to remain the trusted partner of choice in the domestic industr y and emerge

as the leader by retain ing i ts competit iveness in qual i ty, cost and del iver y capabi l i t ies.

Qua l i ty is supreme ly important

Supported by a competent team of technocrats

and qua l i ty checkers , the company imp lements

str i ngent contro l measures a l l through the

product ion l i ne . Superv is ion by i ts we l l tra ined

and exper i enced personne l enab l es KE I to

de l i ver re l i ab l e products as per customers

needs . Purchase of raw mater i a l through

trusted vendors and test i ng of a l l raw

mater ia l used ensures cons istency and qua l i ty .

The company ’s customer or iented approach and

i ts focus on qua l i ty and customer contentment

has won it a d ist ingu ished l i st of c l i ents .

in per cernt Lead ing domest ic customers

CUS T OMER S SEGMEN T

Suzlon Energy Ltd Energy

Bharat Heavy Electr ic Ltd Engineer ing

Essar Construct ion Ltd Engineer ing

Hindustan Petroleum Corporat ion Ltd Ref iner ies

Jindal Power Ltd Power Transmission

Larsen & Tourbo Ltd Internat ional EPCs

Tata Steel Ltd Steel

Product break up 2006 2007

LT cables 72 76.7

HT cables - 6.70

House wires & others 28 16.59

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Domestic retail

segment Unpara l le led growth opportun i t ies beckon KEI toaggressively entrench into the retai l sector.

Brand bu i l d i ng

As the fundamenta l demand s i tuat ion remainsbuoyant , KEI wi l l dur ing FY 07-08 be unfur l ing amassive brand bui lding and visibi l i ty exercise to make“KEI” a household name. KEI a ims to bu i ld a brandequity by leveraging i ts safety and qual i ty offer ingsfor i ts house wires product . The company hasappointed the reputed internat iona l advert is ingagency Dentsu Communicat ions for the developmentof th is mass ive advert is ing campaign. Theaggress ive mass media campaign wi l l a lso be

supported by advert isements in t rade journa ls ,outdoor advert is ing and advert is ing at point of salesat dea ler out lets . Dur ing the forthcoming year, thecompany p lans to unfur l an e lectron ic mediacampaign encompassing TV and radio.

Product l i ab i l i ty

Going a step ahead as a brand bui ld ing exercise, KEIfor the f i rst t ime in India has introduced the conceptof product l iab i l i ty insurance for house wires. Th isin i t iat ive promises to enhance the company’sgoodwil l with its customers and also results in raisingthe bar of qua l i ty, safety and conf idence in theindustr y.

Expand ing capac i t ies

To fac i l i tate the growth, KEI has a l ready expandedthe capacity for house wires at Si lvassa to 2,50,000 kms. With an est imated capex of Rs 190 mnthis expansion is l ikely to generate revenues of atleast f ive to s ix fo lds.

Strengthen ing dea lersh ip network

To increase i ts reach, KEI has developed a strongnetwork of approved dealers in and around thecountr y and is cont inuous ly st rengthening i tsdistr ibut ion network. The company is a lso tr y ingto receive maximum approved vendor status direct ly

f rom contractors which wi l l ensure not on ly repeatorders in the future but a lso ensure favorablerecommendation to architects who wi l l determine thebuying preference of end users. KEI understands theimportance of dealers and the valuable relat ionshipsthey have with the i r customers. Current ly, thecompany has 25 dealers and is p lanning to ramp upits dealer network by adding 40 author ized dealers inthe next 12 months.

With al l essentials in place for i ts retai l strategy, KEIplans to add value by consistently meeting customerscabl ing needs with an assurance of safety and qual ityalways.

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2007 was a major t ipping point for KEI in the exportmarket and the company surpassed severa lmi lestones:

Reported export revenues worth Rs 835 mn ascompared to Rs 226 mn in the prev ious year, anincrease of 270 per cent.

Bagged i ts b iggest export order in h istor y - aprest ig ious order for the supply of HT and LT cablesfrom the state author it ies in the Gulf.

Forayed into new geographies such as Maurit ius andWest Indies.

Appointed addit ional marketing persons and dealerswhich would enable the company to penetrate intothe East Afr ican and South Afr ican marketpart icular ly in Niger ia and Ghana.

Strengthened i ts market ing off ice in Dubai to caterto the growing demand in the Gulf countr ies.

Appointed d ist r ibutors in England. The companyalready exports stainless steel wires to the Europeanmarket but to further entrench itself in the high valueEuropean market , KEI is look ing at unfur l ing anaggress ive market ing and re lat ionsh ip bu i ld ingexercise in th is region.

Continued to service prest igious industr y leaders inthe internat ional EPC segment.

Commenced the development work on theGreenf ie ld EOU plant near Bhiwadi .

With a wel l thought out market ing plan coupled withthe aggress ive expansion p lans, KEI is conf ident ofgrowing the export revenues by over two folds.

G loba l footpr ints

COUNTRY TYPE OF CABLES SUPPL IED

UAE Electr ical cables

France Electr ical cables & stain less steel wires

Ita ly Stain less steel wires

Singapore Electr ical cables

Scot land Electr ical cables

Stellar success in exports market