Parry, the year under review has been a landmark in the history of the Company. Your Company completed a major restructuring exercise.  The Farm Inputs Division {comprising 3 production locations at Ennore, Ranipet (both in Tamil Nadu) and Thane (Maharashtra)} has been demerged into its subsidiary i.e., Coromandel Fertilisers Limited (CFL). In this process, the shareholders of the company received 59,49,901 equity shares of CFL, and subsequently the company acquired 22,36,171 equity shares, taking the E.I.D. group's holding in CFL to 68.69%.  Further, the wholly-owned subsidiaries, Parry & Company Limited and The Mofussil Warehouse and Trading Company Limited were amalgamated with it. Your Company along with its subsidiary entered into a Share Purchase Agreement with the Lotte Group (Lotte) of Korea, under which your Company along with its subsidiary agreed to sell its entire holdings in Parrys Confectionery Limited (PCL), to Lotte. The consideration for this sale has since been received in full, during May 2004.

The restructuring exercise has enabled the Company to have greater focus on its Sugar, Parryware and Bio-Product businesses and will facilitate growth in future. It will continue to benefit from the investment in the fertiliser business (CFL having acquired 45% net in Godavari Fertiliser & Chemicals Ltd.) without having to invest new capital. It has reduced debt and has simplified the corporate financial structure.  Your Company has also totally renovated its office complex consisting of three adjacent buildings in the' eponymous Parrys Corner, a landmark in Chennai. This modern facility now houses all the major companies of the Murugappa Group and provides a steady cash flow to the Company by way of rent. Sale of surplus assets has also released cash.  The turnover of the Company for the year ended 31st March 2004 was Rs. 641 crore. The current year's results are therefore not comparable with the previous year's.

• Demerger of Fertiliser & Pesticides Division into Coromandel Fertilisers
• Consolidation ofE.1.D.'s holding in CFL to 68.69%
• Stronghold in the fertiliser fortune

Consequently, the scope of business growth is significant from the current consumption level of 185 lakh tonnes.

The sugar industry is cyclical in nature. It is dependent upon monsoons for both production and price realisation. Of the country's 450 sugar factories, the majority is located at Maharashtra, Uttar Pradesh, Andhra Pradesh, Karnataka and Tamil Nadu. The sugar industry with an annual turnover in excess of Rs.30,000 cr, contributes almost 10% of it to the exchequer.  There are substantial government interventions in sugar because it is a part of the common consumption basket and is important to the sugarcane growers. Sugarcane not only yields sugar but also provides valuable by products like bagasse, molasses and press mud. The availability of these by-products has led to the setting up of integrated sugar complexes producing not only sugar, but also alcohol/ethanol/extra neutral alcohol/co-generation of power and organic manure.  Tamil Nadu, accounting for about 10% of the country's
production, offers natural advantages like longer harvesting season (over 240 days) and proximity to ports for import of raw sugar and export of white sugar. Tamil Nadu is one of the state(s) approved for ethanol production.

India's sugar production is likely to fall from 201 lakh tonnes (2002-03) to 150 lakh tonnes (2003-04), due to inadequate rains and pest attacks in some major cane growing areas in South and West. In Tamil Nadu, the sugar production is likely to drop from 16.7 lakh tonnes to 10 lakh tonnes and is expected to be low in 2004-05 also.

With rising consumption levels and stagnant/falling production, the excess inventory is getting depleted, resulting in recovery of sugar price. It is likely that, from being an exporter a year back, the country can now become a net importer. 

• India's per capita consumption of sugar is set to grow
• Around 20% of the sugar production in Tamil Nadu is from E.I.D.'s stable

SMP for the year 2002-03 was notified on 12th December 2002, at Rs. 645/ Mt and increased to Rs.695/ Mt again on 9th January 2003. The South India Sugar Mills Association (SISMA) (of which the company is a member) has legally challenged this price as being arbitrary and the matter is pending before the Hon'ble Supreme Court of India. The Central Government has notified a SMP of
Rs.730/Mt of sugar cane for the sugar year 2003-04. This was also legally challenged in the Hon'ble High Court of Madras. The Hon'ble High Court vide its order dt.16th February 2004 had granted an interim stay and directed the sugar mills to pay Rs.655/Mt of sugarcane until further orders.  SISMA has also advocated for a zonal pricing for Southern Region instead of one uniform SMP for the country as a whole, to take care of the conditions specific to the regions, which is under active consideration of the Central Government. State governments have been announcing even higher State Advisory Prices (SAP) without taking into account the economic condition of the industry. Until the sugar season 1997-98, the Tamil Nadu sugar mills were able to comply with the SAP notification. SISMA had challenged the fixation of SAP in the year 1998. The Supreme Court has, in May 2004, held that the Tamil Nadu Government does not have statutory powers to fix SAP.

In March 2004, Govt. of India constituted a committee for revitalisation of the sugar industry. The committee is headed by the Secretary, Food Department, Govt. of India with 13 members from government, banking, and industry. This committee was asked to submit its report to the Govt. in six months. The new government's proposed balanced thrust on agricultural and industrial growth is heartening.  The industry, which has been predominantly a controlled one, is
moving towards decontrol regime. The industry through Indian Sugar Mills Association (ISMA) has been advocating for decontrol of both input and output price and distribution by implementing the Mahajan Committee Report in totality rather than piecemeal.  Govt. of India constituted a committee for the revitalisation of the sugar industry. Indian Sugar Mills Association (ISMA) advocating decontrol of input-output price and distribution International Scenario.  The global sugar production for 2003-04 is estimated at 146 million
tonnes (138 million tonnes in the previous year) and consumption of 140 million tonnes (134 million tonnes in the previous year).  Over the past decade, the consumption level has been on the rising trend, indicating a healthy outlook for the industry, particularly in Asia including India. Artificial and restrictive trade policies distort world traded sugar prices. India and your Company reduced sugar export in view of the depressed world prices and weaker USD.

•  Global sugar production for 2003-04 estimated at 146 million tonnes
• Consumption levels rising
• Reduced sugar export in view of depressed world prices and weaker USD

At Pugalur, the Company is setting up a 22 MW co-generation power plant, which will be partly funded by Tamil Nadu Newsprint Limited (TNPL). The power plant is expected to be commissioned in the third quarter of next year.
The company has R & D facility in all its units with a central facility at Bangalore engaged in breeding, entomology, soil testing, tricho production etc. The company's tissue culture lab, with a capacity to produce 3 million plantlets, provides disease-free seedlings to cane growers. The R& D wing also develops and propagates the best agricultural practices to cane growers to
maximise the per acre yield.

• All 4 sugar factories are strategically located in Tamil Nadu
• Cane crushing capacity of almost 14000 TCD, one of the largest capacities in the industry
• Nellikuppam integrated sugar complex; first of its kind in this part of the country
• A dedicated R&D centre for the sugar division
•  New varieties for improving cane yield

The Co-generation Power Plant at Nellikuppam sold 884 lac units to Tamil Nadu Electricity Board. In spite of constraints on availability of biomass fuel, improved operational efficiencies helped to maintain the targeted power output and sale.  The Nellikuppam distillery produced 19.90 lac litres of alcohol.
The operation of the distillery was suspended (shut down) for most of the year due to non-renewal of distillery license by the Tamil Nadu Government.
Acetic Acid plant produced 3429 MT. The lower production was due to non-availability of captive alcohol and higher prices in the open market.  The company continues to focus on improving the operational efficiency viz., steam & power consumption, of the units and also resorting to various cost reduction measures to become the least cost producer of sugar.

The Nellikuppam and Pettavaithalai factories have been accredited with ISO 9001:2000 certification. The Pudukottai factory has been accorded ISO 14001:1996 certification.

• Nellikuppam & Pettavaithalai factories accredited with ISO 9001:2000
• Pudukottai factory accorded ISO 14001 : 1996
• Operating Profit at Rs. 34.5 crore

1. The sugar business is cyclical in nature, being monsoon dependent, possibility of farmers shifting to alternative crops due to water shortage or better profitability of other crops.
2. Govt. policies especially with regard to fixation of Statutory Minimum Price (SMP) for sugarcane without reference to price of sugar realised.
3. Low sugar price in the international market. The Company will manage these risks with the following approach: 
   
   1. The company makes considerable efforts to make cane growing viable for the farmers. This includes developing high yielding, pest-resistant and water-efficient varieties, extension service in the form of best agro practices, arranging inputs like fertiliser and banking facility. The Company's record of fair and transparent dealing, prompt cane payment and regular communication are key to retain supply continuity. The Company can also make good the cane deficit to the extent possible, by procuring cane from adjacent areas and raw sugar import for processing to white sugar.
   2. Jointly with SISMA / ISMA and State/Central Govt., agencies, the Company pursues the comprehensive implementation of the Mahajan Committee report, so that the legitimate concerns of all stakeholders are addressed.
   3. The Company has diversified its product portfolio (like low ICUMSA sugar, refined and medium grain sugar) and extended its marketing reach. These activities have supported cost effective expansion of crushing capacity and improved realisation. The coming into effect of a proper commodity exchange will help manage price volatility better.

Develop high yielding, pest-resistant and water-efficient varieties 

• Arranging inputs like fertiliser and banking facilities
• Make good cane deficit by procuring cane from adjacent areas
• Pursue implementation of the Mahajan Committee report
• Diversified product portfolio and extended marketing reach

• Gearing up for high value Ethanol in the year ahead
• Sugar Refinery Project underway
• Automation of the Nellikuppam Factory to improve efficiency
• Branding of Sugar

• Division turns in an operating profit of Rs.1.58 crore
• Exports to USA up by 100% and to Europe over 50% . Wider acceptance of NEEMAZAL^® product range
• Our products remain the preferred neem formulations in the domestic market

The SBU is well positioned to take advantage of these changes in the marketplace by providing easy to use formulations for both organic and conventional growers. 

Awareness for safe and non-toxic inputs for agriculture on the rise . Rising public concern and tougher regulations on chemical usage  SBU well positioned as it provides easy to use formulations for organic and conventional growers Performance.   Exports to USA saw a significant growth and the acceptance of our products in Mexico, has been very good, resulting in significant sales. The subsidiary company in USA, Parry America Inc., continues to provide technical support to our partners in North America. Sales to North and Central America grew by over 100% over the last year.  Sales in the European market were also better, 50% over the previous year. Post product registration in the Netherlands, the NEEMAZAL^® launch was successful.

In the domestic market, we have seen over 90% growth in volumes. Our products remain the preferred neem formulations for use in major crops like tea, coconut, grapes, gherkins and mango. Exports to USA saw significant growth

• Acceptance of products in Mexico
• Sales in European market up 50% over the previous year
• Successful launch of NEEMAZAL^® in Netherlands

Sales	2003 - 04	2002 - 03	2001 - 02
100% Technical (kgs)
- Domestic	742	386	581
- Exports	1953	742	2087
Total	2695	1128	2668
Value (Rs. crore)	15.98	8.77	16.51
Operating Profit / (Loss) (Rs. crore)	1.32	(1.41)	2.52

1. Climatic conditions: Like any other agro-input industry, the performance of this division can also be significantly affected by the vagaries of nature especially the monsoons.
2. Volatility in agricultural commodity prices: Unexpected drop in prices of farm produce can impact the purchase of agro-inputs by farmers.

1. Selectively expand the geographical and crop portfolio so as to diversify exposure to particular agro-climatic zones and crops.
2. Intensify market development activity in high potential areas and crops. The current penetration and usage rates are low and offer tremendous opportunity.

• Climatic condition can be a risk, so expand geographical and crop portfolio
• Intensifying market development in high potential areas and crops 

• Pursue registrations in several Central, South American and European countries
• Increase sale of NEEMAZAL^® products significantly

• New concept Experiencenters opened in three cities Parryware accredited with ISO 9001:2000 Quality Management Systems for the entire business by BVQI
• All units have been accorded ISO 14001: 1996 Environmental Management System by BSI . Operating Profit at Rs.18 crore
• Expansion of capacity by 7500 MT

• Lower rates of interest on housing loans
• Rising demand for housing and commercial buildings in metro and suburban areas
• Infrastructure projects such as national highways
• Advent of shopping malls etc.

These trends are likely to continue during the coming 2-3 years and support a market growth of 8-10% p.a.

The industry's growth is impacted by demographics including urbanisation, nucleus families, rising income and aspiration levels, and of late, by attractive mortgage rates. From being a mere necessity and secreted away, the bathroom has become an important piece in life style, convenience and comfort.

There is also a clear consumer preference for branded products as they perceive better value and greater reliability. The demand for 'high end' products has been on the rise in the recent past, as consumers have higher disposable incomes and are willing to spend on aspiration needs such as superior bathrooms. Renovation business is showing signs of becoming a major trend. Consumers are also showing a clear preference for efficient installation and repair/renovation work. Needless to say, these changing attitudes have created new challenges and opportunities for the sanitaryware market today.

Recognising the strong consumer preference for and sustained performance of, Parryware, the Superbrands Council of India invited Parryware and conferred the award "Superbrand" for the year 03-04.

Three Experiencenters were opened at Chennai, Bangalore and Mumbai. First of its kind in this industry, the Experiencenter offers a unique Brand 'Experience' and effective communication in a comfortable ambience .to our key customers and specifiers, including architects, builders, design consultants and end customers. 

Parryware Customer Care Centers, an important part of the brand offering, started yielding results in the form of meeting customer requirements on installation, servicing and renovation of bathrooms. With 10 centers across key metros in India, Parryware is well positioned to drive the growth in 'renovation'/'replacement' market by offering integrated services. 

Parryware has been accredited with ISO 9001: 2000 Quality  Management Systems Certification for the entire business activities by BVQI. All three manufacturing facilities have been accorded IS014001: 1996 Environmental Management System Certifications by British Standards Institute (BSI) in the current year.

Operating Results

1. The unorganised sector, which forms a significant part of the total market, is growing at a good pace in the low end segment.
2. Pressure on the pricing front and competition from other players in the organised sector.

1. Parryware has a competitive edge in terms of an exhaustive product range, better quality and customer care facilities. As such, Parryware foresees no major threat from the unorganized sector. 
2.  With new product launches and continuous brand building programmes Parryware is confident of retaining its position as a leader in the market.

• Exhaustive product range
• New product launches and continuous brand building

• Continuous growth in the foreseeable future
• Production facilities being expanded and upgraded
• Continuous product quality improvement
• Focus on leadership in domestic market and selected export markets

• Other businesses contributed a turnover of Rs 13 crore
• General marketing division acts as consignment agents for selected customers
• The Netlon, General Marketing and Travels businesses to be sold for Rs.12.25 cr to Parry Engineering and Exports Ltd

• Established a system of internal control for all business operations
• The Board, Audit Committee and the Operational Management ensure that the internal control system works effectively
• Management Audit that uses effective diagnostic and transaction analysis software tools Information Technology (IT)

• IT initiatives are key drivers to attain high levels of productivity 
• Implemented the ERP - SAP to maximise business benefit
• More responsive to the changing needs of the business

• Company continues to enjoy the same rating at FAA- in spite of demerger
• Interest cost almost reduced by a fourth to 7.53 cr from 32.82 cr
• Debt Equity Ratio at 0.63

Chennai 31st May, 2004

on behalf of the Board S. M. DATTA Chairman