Vbc Ferro Alloys Limited

Draft Letter of Offer (For Private Circulation to Equity Shareholders /Beneficial Owners of the Company Only)

VBC FERRO ALLOYS LIMITED Fired to Excel (Incorporated as VBC Ferro Alloys Limited, under the Companies Act, 1956 on 3rd October, 1981 and obtained the Certificate for Commencement of Business under section 149(3) of Companies Act, 1956 from Registrar of Companies, Andhra Pradesh, Hyderabad on 31st October, 1981)

Registered #6-2-913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderabad - 500 004, Andhra Pradesh. Office : Phones: (040) 23301166/99; Fax: (040) 23390721; Email: [email protected]; Website: www.vbcindia.com; Contact Person: Shri. Adalat Srikanth – Company Secretary & Compliance Officer; For details on changes in Registered Office, Please refer to the chapter titled “History and Other Corporate Matters” on page no. 68 of the Draft Letter of Offer. Works-Unit : Rudraram, Patancheru Mandal, Medak District, Andhra Pradesh; Phones: (08455) 220084/130 Fax: (08455) 220142.

ISSUE OF 83,88,700 EQUITY SHARES OF RS.10/- EACH FOR CASH AT A PREMIUM OF RS. (*) PER EQUITY SHARE [ISSUE PRICE OF RS. (*)] AGGREGATING TO RS. (*) LACS ON RIGHTS BASIS TO THE EXISTING EQUITY SHAREHOLDERS OF VBC FERRO ALLOYS LIMITED (THE “COMPANY” /”VBC”) IN THE RATIO OF TWO FULLY PAID UP EQUITY SHARES FOR EVERY ONE EQUITY SHARE (i.e. 2:1) HELD ON THE RECORD DATE i.e. [·] FOR MORE DETAILS, SEE “TERMS OF THE ISSUE” ON PAGE 157 OF THIS DRAFT LETTER OF OFFER. THE ISSUE PRICE IS (*) TIMES THE FACE VALUE OF THE SHARES OF THE COMPANY. GENERAL RISKS Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in this issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely on their own examination of the Issuer and the Issue including the risks involved. The securities have not been recommended or approved by the Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or the adequacy of this document. The Attention of investors is drawn to the statement of Risk Factors appearing on page nos. 8 to 19 of this Draft Letter of Offer. ISSUER’S ABSOLUTE RESPONSIBILITY The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Draft Letter of Offer contains all information with regard to the Issuer and the Issue, which is material in context of the Issue, that the information contained in this Draft Letter of Offer is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions, expressed herein are honestly held and that there are no other facts, the omission of which makes this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The existing Equity shares of the company are listed on Bombay Stock Exchange Limited (BSE), the Designated Stock Exchange and the Calcutta Stock Exchange Association Limited (CSE). The Company has filed an application dated March 15, 2004 with the CSE for delisting of Equity shares. The Company has received in- principle approval from BSE vide their letter no. (*) dated (*) 2007 for listing of the Equity Shares being issued in terms of this Draft Letter of Offer.

LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE SBI Capital Markets Limited Venture Capital & Corporate Investments Ltd. 20th Floor, 202, #6-2-913/914, 3rd Floor, Maker Tower ‘E’ Progressive Towers, Cuffe Parade, Mumbai-400 005 Khairatabad, Hyderabad - 500 004; Tel No: (022) 2218-9166-69 Tel No: (040) 2332-2262/64; Fax No: (022) 2218-6367 Fax No: (040) 2332-4803 Website: www.sbicaps.com Website: www.vccilindia.com E-mail: [email protected] E-mail: [email protected] SEBI Reg. No: INM000003531 SEBI Registration No: INR000001203 MAPIN No.: 100003475 MAPIN No.: 100012773

ISSUE OPENS ON LAST DATE FOR RECEIVING REQUESTS ISSUE CLOSES ON FOR SPLIT FORMS (*) 2007 (*) 2007 (*) 2007

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TABLE OF CONTENTS

Section Description Page Nos. I DEFINITION & ABBREVIATIONS 3 Conventional /General Terms 3 Issuer/Company/ Industry Related Terms 3 Abbreviations 5 Forward Looking Statements 7 II RISK FACTORS 8 III INTRODUCTION 19 Industry 19 Business Of the Company 20 Brief particulars of the Issue 20 Selected Financial Information 21 IV General Information 24 Board of Directors of the Company 25 Issue Management Team 27 V Capital Structure 29 VI Particulars of the Issue 37 Objects of the Issue 37 Schedule of Implementation 41 Interim use of Funds 43 Basic Terms of Issue 44 Basis of Issue Price 45 Tax Benefits to the Company and Its Shareholders 47 VII ABOUT THE ISSUER COMPANY 50 Industry Overview 50 Business Overview 53 Key Industry Regulations 66 VIII HISTORY & CORPORATE STRUCTURE OF THE COMPANY 67 IX MANAGEMENT 71 Board of Directors details 71 Corporate Governance 73 Management Organisation Structure 76 Key Management Personnel 77 X PROMOTERS 79 Financial Information of Promoter Group Companies 90 Details of non-operational Promoter Group Companies 100 Particulars of the Firms/ Ventures/ Trusts Promoted by the Promoters 102 XI FINANCIAL STATEMENT 105 Auditors’ Report 105 Management Discussion & Analysis of Financial Condition and Results of 131 Operations as Reflected in Financial Statement XII LEGAL & OTHER INFORMATION 136 Outstanding Litigations & Material Developments 136 Government Approvals/ Licensing Arrangements 148 XIII OTHER REGULATORY & STATUTORY DISCLOSURES 150 XIV OFFERING INFORMATION 157 Terms of Issue 157 Basis of the Offer 159 General Instructions 166 XV OTHER INFORMATION 173 Main Provisions of Articles of Association of the Company 173 Material Contracts and Documents for inspection 193 Declaration 195

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I. DEFINITIONS & ABBREVIATIONS

CONVENTIONAL/ GENERAL TERMS

Offer related Terms Description A. P. Andhra Pradesh Articles of Association The Articles of Association of the Company Auditors The Statutory Auditors of the Company under Indian GAAP, in this case being M/s. Brahmayya & Co., Chartered Accountants, Visakhapatnam Beneficiary / Beneficiaries Those persons whose names are recorded as such with the Depositories (NSDL and/or CDSL) as on the Record Date. Board / Board of Directors The Board of Directors of the Company or a Committee thereof. BSE/ Designated Stock Exchange The Bombay Stock Exchange Limited Companies Act / the Act The Companies Act, 1956, or any statutory modification or re- enactment thereof from time to time. CSE The Calcutta Stock Exchange Association Limited (CSE) CIN Company Identification Number Depositories National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). DIN Director Identification Number Fiscal or FY or Financial Year 12 months ending March 31st of a particular year HSE The Hyderabad Stock Exchange Association Limited Indian GAAP Generally Accepted Accounting Principles in India Lead Manager to the Issue/SBI Caps SBI Capital Markets Limited Memorandum Memorandum of Association of the Company MSE Madras Stock Exchange Limited Registrar of Companies or ROC The Registrar of Companies, Hyderabad, situated at 2nd floor, CPWD Building. Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195; Phone 040-24657937, 24652807; Fax: 040-4652807. Registrar or Registrar to the Issue or Venture Capital & Corporate Investments Ltd. RTI Shareholders Equity shareholders of the Issuer Company VBCFAL /The Company/The Issuer/ VBC Ferro Alloys Limited. Issuer Company Issue Issue of 83,88,700 Equity Shares of Rs.10/- each for cash at a premium of (*) per Equity Share [issue price of (*)] aggregating to (*) on Rights basis to the existing Equity Shareholders of the Company, in the ratio of Two Fully Paid Equity Shares for every One Equity Share (i.e. 2:1) held as on the Record Date i.e. [·] 2007. QR Quantitative Restrictions

ISSUE / COMPANY/INDUSTRY RELATED TERMS

Bankers to the Issue (*) CAF Composite Application Form Draft Letter of Offer Draft Letter of Offer dated [●], 2007 filed with SEBI for its comments / observations Investor(s) Shall mean the holder(s) of Equity Shares of the Company as on the Record Date, i.e. [●], 2007 and Renouncees Issue Closing Date [●], 2007 Issue Opening Date [●], 2007 Letter of Offer/LoF Letter of Offer dated [h] as filed with the Stock Exchanges after incorporating SEBI comments on the Draft Letter of Offer Promoters Dr. M V V S Murthi, Shri M S P Rama Rao, Shri M S Lakshman Rao,

Fired to Excel Smt Surya Mathukumilli, Mst. M.Bhardwaj, Mst. M Sri Bharath, Mst. M. Siddartha, Ms. M. Aishwarya, Smt M. Srimani, VBC Industrial Holdings Pvt. Ltd. Konasema Infrastructure Pvt. Ltd. Yasaswini Investments Pvt. Ltd. Bharat Alloys & Energy Ltd. Padmakshi Investments Pvt. Ltd. and Techno Pack Pvt. Ltd. Promoter Group Companies VBC Industries Ltd. VBC Finance & Leasing Ltd. Karthik Rukmini Alloys & Energy Ltd. Konaseema Gas Power Ltd. Konaseema Power Corporation Ltd. VBC Wood Distillation Private Ltd. Indo-US Coal Washeries Ltd. Bharat Jala Vidyut Nigam Ltd. Bhadrachalam Power Company Ltd. Orissa Hydel Power Balimela Ltd. Orissa Hydel Power Jalaput Ltd. Orissa Power Consortium Ltd. Frontline Insurance Advisors (P) Ltd. Available Resources (P) Ltd. Threshold Investments (P) Ltd. Konaseema Resources (P) Ltd. Konaseema Energy (P) Ltd. Konaseema Enterprises (P) Ltd. Konaseema Thermal Power (P) Ltd. International Medical Institute Ltd. Jayam Human Resource Services (P) Ltd. Front Line Corporate Finance Ltd. Frontline Enterprises Ltd. Oakwell Investments (P) Ltd. VBC Exports Ltd. Golden Jubilee Estates Ltd. Promoters Associate Concerns M/s Vijaya Enterprises Record Date [●], 2007 Renouncees Shall mean the persons who have acquired Rights entitlements from any Shareholder Stock Exchange(s) Shall refer to the BSE where the Shares of the Company are presently listed Trusts/Ventures promoted by the Gandhi Institute of Technology & Management (GITAM), promoters Visakhapatnam Articles or AOA Articles of Association of the Company AIA Authorized Inspection Agency ASME The American Society of Mechanical Engineers BF Blast Furnace BIFR Board for Industrial and Financial Reconstruction Board The Board of Directors of the Company BRM Bar and Rod Mill BPVC Boiler and Pressure Vessel Code CC Cash Credit Central Power Distribution of Company of Andhra Pradesh CPDC of AP Ltd. Limited EOF Energy Optimizing Furnace EOT Electric Overhead Traction EOT Crane Electric Overhead Traveling Crane EAF Electric Arc Furnace

Fired to Excel ERP Enterprise Resource Planning KRAEL Karthik Rukmini Alloys & Energy Limited MRP Material Resource Planning Memorandum Or MOA Memorandum Of Association MSME Master of Science in Mechanical Engineering MT Metric Tonnes MTPA Metric Tones Per Annum Project 65 MW pit head, coal based Captive Power Plant project to be set up by KRAEL at Jagannathpur Village, Sirpur Kaghaznagar Mandal. Adilabad District, Andhra Pradesh with a capital cost of Rs. 26,267.00 lacs VBCIL VBC Industries Limited VBC F&LL VBC Finance & Leasing Limited VBC WDPL VBC Wood Distillation (P) Limited VFBD Vibro Fluid Bed Dryer

ABBREVIATIONS

AGM Annual General Meeting Accounting Standard as Issued By The Institute Of Chartered AS Accountants Of India BIFR Board for Industrial and Financial Reconstruction BOI Bank of India CAF Composite Application Form CDSL Central Depository Services (India) Limited CII Confederation of Indian Industry DEMAT Dematerialized (Electronic/Depository as the context may be) DBM Diploma in Business Management DGFT Directorate General of Foreign Trade DP Depository Participant DME Diploma in Mechanical Engineering EBIDTA Earnings Before Interest Depreciation and Tax EGM Extra-Ordinary General Meeting EPS Earnings Per Share FCNR Foreign Currency Non Resident FDI Foreign Direct Investment Foreign Exchange Management Act, 1999 and the subsequent FEMA amendments thereto FERA Foreign Exchange Regulation Act, 1973 FICCI Federation of Indian Chambers of Commerce & Industry Foreign Institutional Investor as defined under SEBI (Foreign Institutional Investors) Regulations, 1995 registered with SEBI FII and as defined under Fem (Transfer Or Issue Of Security By A Person Resident Outside India) Regulations, 2000 and under other applicable laws in India FIPB Foreign Investment Promotion Board FY Financial Year GOI / Government Government Of India GoAP Government of Andhra Pradesh HUF Hindu Undivided Family ICC Indian Chamber of Commerce Calcutta IDBI Industrial Development Bank of India IFCI Industrial Finance Corporation of India IT Income-Tax Act 1961 MIS Management Information System MOE Memorandum of Entry (MOE) MOEF Ministry Of Environment & Forests NR Non Resident NRE ACCOUNT Non Resident External Account

Fired to Excel NRI Non Resident Indian NRO ACCOUNT Non Resident Ordinary Account NSDL National Securities Depository Limited OA Operating Agency OCB Overseas Corporate Bodies Income Tax Permanent Account Number/General Index PAN/GIR No. Reference Number PAT Profit After Tax PBDI Profit before Depreciation on Income QAC Quality Assurance & Control RBI Reserve Bank Of India SBI State Bank Of India SEBI Securities And Exchange Board Of India SEBI (SAST) Regulations, 1997 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 And subsequent amendments thereto UTI Unit Trust Of India

In this Draft Letter of Offer, all references to “Rs.” or “INR” refer to Rupees, the lawful currency of India. References to the singular also refer to the plural and one gender also refers to any other gender wherever applicable.

Fired to Excel FORWARD-LOOKING STATEMENTS

Statements included in this Draft Letter of Offer which contain words or phrases such as “will”, “aim”, “will likely result”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should”, “will pursue” and similar expressions or variations of such expressions, are “forward-looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with the Company’s expectations with respect to, but not limited to, the Company’s ability to successfully implement its strategy, its growth and expansion, technological changes, its exposure to market risks, general economic and political conditions in India which have an impact on its business activities or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the industry.

For further discussion of factors that could because the Company’s actual results to differ see the section entitled “Risk Factors” beginning on page no. 8 to 19 of this Draft Letter of Offer. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. In accordance with SEBI requirements, the Company will ensure that investors are informed of material developments until such time as the grant of listing and trading permission by the Stock Exchanges for the equity shares being issued.

Use of Market Data

Unless stated otherwise, macroeconomic and industry data used throughout this Draft Letter of Offer has been obtained from publications prepared by Government sources, industry sources and data generally available in the public domain. Such publications generally state that the information contained therein has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although the company believes that industry data used in this Draft Letter of Offer is reliable, it has not been independently verified.

Fired to Excel II. RISK FACTORS

(The Draft Letter of Offer also includes data regarding the Ferro Alloys Industry. This data has been obtained from industry publications / websites like Indian Ferro Alloys Producers’ Association, Mumbai, (www.ifapaindia.org) and other sources that the Company and the Lead Manager believe to be reliable. Neither the Company nor the Lead Manager has independently verified such data)

RISK ENVISAGED BY THE MANAGEMENT

The following are the Risks envisaged by the management, and the Investors should consider the following risk factors carefully for evaluating the Company and its business before making any investment decision. Risks have been quantified, wherever possible. If any of the following risks actually occur, the Company’s business, financial condition and results of operations could suffer. Unless the context requires otherwise, the risk factors described below apply to the Company only.

Note: Unless specified or quantified in the relevant risk factors the Company is not in a position to quantify the financial or other implications of any risks mentioned herein below.

I. INTERNAL RISK FACTORS:

1. Summary of Litigations, Disputes/ Defaults pending against the Company/Group Companies:

Cases/Notices Particulars of the cases No. of cases Amount involved where quantifiable (Rs. Lacs) Cases filed against NIL NIL NIL the Company Cases filed by the Civil/BIFR 2 48.05 Company Criminal 1 6.85 Cases against Group Consumer Protection Act 1 0.40 Companies Income Tax Act 1 33.49 Andhra Pradesh General 1 2393 Cases filed by Group Sales Tax Act Companies Commercial Tax 1 85.79 Customs & Central Excise 8 275.58 Civil 1 Not Quantifiable Notices against the Commercial Taxes 1 36.47 Company Department Notices against Income Tax Department 1 33.49 Group Company Disputed payment by Central Power Distribution 1 2250.00 the Company Company of AP Ltd.

For further information, please refer “Outstanding Litigations and Material Developments” on page no. 137 of this Draft Letter of Offer.

2. Karthik Rukmini Alloys & Energy Limited (KRAEL), one of the Promoter Group Companies is setting up a 65MW coal based captive power Project. Total cost of the Project is estimated by the management of KRAEL to be Rs. 26267.00 lacs, of which, the total equity component is Rs. 8000.00 lacs and the debt component is Rs. 18267.00 lacs. The proceeds of the Rights Issue to the extent of Rs. 4000.00 lacs would be deployed for subscribing to the equity share capital of KRAEL. The Project has been short listed for detailed appraisal by the Power Finance Corporation (PFC), New Delhi. The details and proposed funding pattern of the Project are given on the page 40 of this Draft Letter of Offer. The risks envisaged by the Company related to the Project are as follows:

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(i) The Project is yet to be appraised by the PFC. Total cost of the Project, which is estimated to be of Rs. 26267.00 lacs by the management of KRAEL, may change depending upon the outcome of the detailed appraisal.

The Project has been short listed for detailed appraisal by the PFC. The final sanction of financial assistance for the Project would be dependent on the outcome of the detailed appraisal and approval by the competent authority of PFC.

(ii) The shareholders agreement for the equity investment in KRAEL for the purpose of Project has not been entered into. The equity component for the Project amounting to Rs. 8000.00 lacs will be tied up only after the appraisal of the Project and sanction of loan by PFC. The prospective investors include the Issuer Company, Bharat Alloys and Energy Limited (one of the Promoter Companies), Elgitread (India) Limited and Vijai Electricals Limited.

The draft of shareholders agreement to be entered into amongst the proposed investors, viz., Issuer Company, Bharat Alloys and Energy Limited (one of the Promoter Companies), Elgitread (India) Limited and Vijai Electricals Limited has been submitted to PFC for its approval. The Shareholders of the Issuer Company have approved the proposed investment in the Project vide the resolution passed at the AGM held on July 24, 2006. Bharat Alloys & Energy Limited, Vijai Electricals Limited and Elgitread (India) Ltd. are yet to pass the necessary resolutions for the proposed investment in KRAEL. The shareholders agreement for the equity component is proposed to be executed once the Project is appraised by the PFC and final sanction letter towards debt component to be financed by PFC is issued.

(iii) The debt component of the cost of the Project amounting to Rs. 18267.00 lacs has not been tied up.

PFC has not yet sanctioned the debt component of the Project. The final sanction of financial assistance by PFC for the Project would be dependent on the outcome of the detailed appraisal and approval by the competent authority of the PFC. After the sanction of the debt by PFC, KRAEL will approach other Banks/ FIs for the balance portion of the debt component, if any.

(iv) tThe implementation of the Project may get delayed or the Project may not take off at all, if the outcome of the appraisal of the Project by PFC is negative.

As the equity and debt components of the cost of the Project will be tied up only on the successful appraisal of the Project and final sanction of the debt by PFC, in the case, outcome of the appraisal is negative, the implementation of the Project may get delayed or the Project may not take off at all.

(v) The ownership and the management of KRAEL is undergoing change.

A Memorandum of Understanding has been entered into between Bharat Alloys & Energy Limited (BAEL) (through its promoters Shri. M.S. Rama Rao & Shri. M.S.Lakshman Rao) and KRAEL (through its promoters Shri. B.Gopala & Associates) on December 6, 2005 for transferring the entire ownership and management of KRAEL for an amount of Rs. 75.00 lakhs. The purpose of this transfer is to acquire the ownership interest presently held by Shri. B.Gopala and his Associates. In the first instance, BAEL is required to pay Rs. 75.00 lakhs in three (3) instalments. After the payment of entire consideration, the equity shares of KRAEL held by Shri. B.Gopala and Associates will be transferred either to BAEL or the promoters of BAEL (‘transferees’). BAEL has already paid an amount of Rs. 60.00 lakhs (the first two (2) instalments). The balance consideration of Rs. 15.00 lacs (last instalment) was required to be paid by December 31, 2006, which has not yet been paid. On payment of the balance consideration, the shares will be transferred in favour the transferees. For further details of the terms and conditions of the Memorandum of Understanding, please refer to page no. 93 of the Draft Letter of Offer.

Fired to Excel (vi) Under the Memorandum of Understanding dated December 6, 2005 referred to in (v) above, the parties have agreed that BEAL shall discharge the entire liability of KRAEL due to the Issuer Company. The MoU is silent on the nature and quantum of this liability.

(vii) KRAEL is yet to receive approvals from the following authorities for the Project: • Permission for drawl of water from Peddavagu, a tributary of river Godavari. (Government of Andhra Pradesh, Irrigation and CAD Department) to draw additional quantity of 9000 Cubic meters of water. • Clearance from Andhra Pradesh Pollution Control Board, Hyderabad, as required under sec. 25/26 of water (P&C of P)Act, 1974, and under sec. 21/22 of Air (P&C of P)Act, 1981, before commencement of activity. • Environmental Clearance from MOE&F, Government of India as per MOE&F, GOI notification no: S.O.60 (E) dated 27.01.94.

Non-receipt or delay in getting the above approvals may affect the Project adversely.

3. The Issuer Company does not have any alternate plan for investment, in case the Project does not take off due to the factors mentioned in the Risk Factor no. 2.

4. The total investments of the Issuer Company as on September 30, 2006 are more than its net worth. Out of the total investments of the Issuer Company, the investments in the Promoter Group Companies amount to 115.09% of the net worth of the Issuer Company.

Out of the total investment of Rs. 14352.73 lakhs of the Company as on September 30, 2006; an amount aggregating Rs. 14348.74 lakhs constituting 115.09% of the total net worth, has been invested in the Promoter Group Companies as detailed below.

Investments of the Issuer Company as on 30.09.2006:

Sr Particulars Amount % of Total % of Net worth No. (Rs. in lakhs) Investments of of VBCFAL VBCFAL A Government Securities 0.37 0.003 0.003 B Quoted Investments 1 VBC Finance & Leasing Ltd* 0.00 0.000 0.000 Bank of India 1.35 0.009 0.011 State Bank of Travancore 2.28 0.016 0.018 Total Quoted(B) 3.63 0.025 0.029 C Unquoted Investments: 1 Konaseema Gas Power Ltd 13556.00 94.449 108.728 2 Konaseema Power Corp Ltd* 2.00 0.014 0.016 3 Orissa Power Consortium Ltd 541.27 3.771 4.341 4 Indo US Coal Washeries Ltd 108.57 0.756 0.871 5 Orissa Power Consortium Ltd- 140.90 0.982 1.130 Balimela Total Unquoted(C) 14348.74 99.972 115.086 Total Investments (A+B+C) 14352.74 100.00 115.119 * Net of diminution in the value of investments

While the operations of Konaseema Gas Power Limited have not yet started, companies at sr no. C (3) (4) and (5) are not in operation. Moreover, the equity shares of Konaseema Gas Power Ltd. and Orissa Power Consortium Ltd. allotted to the Issuer Company have been pledged with the various financial institutions as a collateral security against the term loans sanctioned to the said companies.

5. The Company has incurred losses in FY 2005-06.

Due to high power costs and lower market realizations, the Company had to curtail production, which resulted in reduced sales and loss for the Company during FY 2005–06. The loss before tax and extraordinary items was Rs. 1534.15 lacs in FY 2005-06. In the first half year period of

Fired to Excel the current Financial Year ended September 30, 2006, the net profit earned by the Company before tax and extraordinary items was, however, Rs. 40.35 lacs.

6. The Company was declared a sick industrial undertaking under the provisions of section 3(1) (o) of the Sick Industrial Companies (Special Provisions) Act, 1985 in the year 1994.

The Company was declared as a sick industrial undertaking by the Board for Industrial and Financial Reconstruction (BIFR) vide its order dated 10th January 1995 and Industrial Development Bank of India was appointed as the Operating Agency. The rehabilitation scheme, prepared by the Operating Agency and approved by BIFR, was successfully implemented. The Company witnessed a turnaround in sales and profits and came out of the purview of BIFR in the year 2001.

7. Contingent Liabilities not provided for as of 30th September, 2006 are as follows:

Particulars Amount (Rs. In lakhs) Un expired Bank Guarantees and Letters of Credit 581.48 Un expired Guaranty given to Financial Institutions and strategic 39.35 Investors on behalf of one Body Corporate Disputed Sales Tax Demands for non submission of C & F Forms 94.84 Claims against Company not acknowledged as Debts 172.22 Disputed amount to be paid to CPDC of A P Limited 2250.00

8. Securities & Exchange Board of India (SEBI) has passed an order dated February 10, 2006, under sections 11B, 11 (4) (b) and 11 D of the Securities & Exchange Board of India (SEBI) Act, 1992 against BLB Limited, a member of BSE & NSE in the matter of dealing in the shares of VBC Ferro Alloys limited restraining it to deal in the shares of the Issuer Company.

SEBI has passed an order no. WTM/GA/53/ISD/2/02 dated February 10, 2006 against BLB Limited and Shri. Vikram Rathi, Executive Director of BLB Ltd., for the share price manipulation of the scrip of the Issuer Company. The research wing of BLB Ltd. had given a “strong buy” recommendation on the shares of the Issuer Company in one of the leading financial newspaper and also bought large quantities of the shares of the Issuer Company prior to its recommendation. The article in the news paper predicted that the stock price of the Issuer Company will move up due to the investment of the Issuer Company in the power project of one of its group companies, Konaseema Gas Power Limited. This resulted in high increase in the share price of the Company. SEBI has restrained BLB Ltd. and Shri. Vikram Rathi, to buy, sell or deal in securities of the Issuer Company directly or indirectly, till further directions in this regard. SEBI has further directed that the Depositories shall not give effect to any transfer of shares of the Issuer Company lying in the beneficial owner accounts of BLB Limited and Shri. Vikram Rathi.

In light of the aforesaid order, the Company, vide their letter dated July 3, 2006, had requested SEBI to advise whether the Company can allot shares to BLB Limited under the Rights Issue, BLB Ltd. being the existing shareholder of the Company. SEBI vide their letter no. IVD/ID 4/PKN/MAS/75396/2006, dated August 29, 2006 clarified that the Company cannot allot shares to BLB Limited on Rights Basis.

The Company has, vide letter dated January 5, 2007, sought further clarification from SEBI as to whether it can issue the shares to BLB Ltd. under the present Rights Issue. The Company is following up the matter with SEBI in this regard.

9. The Issuer Company had related party transactions to the extent of Rs. 962.19 lacs for the period ended September 30, 2006. For further details, please refer section on “Financial Statement” on page no. 106 of the Draft Letter of Offer.

10. Some of the Promoter Group Companies/ Concerns/ Trusts are loss making.

Details of some of the Promoter Group Companies /Concerns/ Trusts which have incurred losses during the last three financial years are as follows:

Fired to Excel (Amount in lakhs) Sr.No Name of the Group Company 31.03.2006 31.03.2005 31.03.2004 1 VBC Industries Limited (20.81) 195.03 124.23 2 VBC Wood Distillation (P) Ltd (2.70) 0.19 0.66 3 Konaseema Power Corporation Limited (7.32) (3.86) (6.32) 4 Bharat Alloys & Energy Limited (441.86) 172.67 90.62 (Promoter of VBC Ferro Alloys Limited) 5 Gandhi Institute of Technology & (27.4) (63.26) (259.27) Management (GITAM) [Trust]

11. Any delay in the commencement of operations of the Project as scheduled may affect the Company’s profitability.

At present, the Company is purchasing power from the Central Power Distribution Company of Andhra Pradesh Limited (CPDC of AP Ltd.) at varying power tariffs ranging between Rs. 2.50/- to Rs. 2.55/- per unit (approx.). The execution of the proposed Project and timely commencement of commercial operations will enable the Company to draw power at a cheaper rate than the rate being paid to CPDC of AP Ltd. Any delay in the commencement of operations of the power plant as scheduled may affect the Company’s profitability.

12. The Company has not entered into any definitive agreement or placed orders for purchase of some of the equipments/machineries for the proposed repairs and maintenance of the present factory premises located at Rudraram Village, Medak District, Andhra Pradesh.

The Company is yet to place orders for some of the equipment / machineries required for the proposed repairs and maintenance of the present factory premises located at Rudraram Village, Medak District, Andhra Pradesh. Any delay in placing the orders or procurement of equipments may also lead to increase in price of these equipments, further affecting the cost, revenue and profitability. For more details, please refer to Draft Letter of Offer on page no 43.

13. The Company has extended two Corporate Guarantees aggregating to Rs. 15,235.00 lakhs for the loans taken by group companies from the financial institutions. The details are as follows:

S.No Amount of On Behalf of To whom Date of Date of Guarantee Resolution Guarantee (Rs. in Lakhs) under section 372A 1 11600.00 Konaseema Gas Industrial 30.11.2000 04.08.2004 Power Limited Development Bank of India 2 3635.00 Orissa Power Power Finance 30.11.2000 19.11.2004 Consortium Limited Corporation Limited Total 15,235.00

Out of the above, the corporate guarantee given for Konaseema Gas Power Limited was towards shortfall (if any), in the envisaged equity of Rs. 35,200.00 lakhs for setting up Gas based Power project by the said company. As the entire equity of Konaseema Gas Power Limited has now been subscribed, the Company has requested the Industrial Development Bank of India, vide letter dated 24.11.2006, to cancel the corporate guarantee provided by the Company. A confirmation regarding this is awaited from Industrial Development Bank of India.

The corporate guarantee of Rs. 3635.00 lacs was given by the Company to PFC on behalf of Orissa Power Consortium Limited. PFC, Rural Electrification Corporation Limited and UCO Bank agreed to lend an amount of Rs. 7270.00 lacs, at the request of Orissa Power Consortium Limited for development and construction of the 20 MW hydel power plant in the State of Orissa. To secure the said loan, the Issuer Company has issued the corporate guarantee.

Fired to Excel 14. The Company and some of the Promoter Group Companies are in the same line of business and a conflict of interest between them may not be avoidable.

Bharat Alloys & Energy Limited (Promoter Company) and Karthik Rukmini Alloys & Energy Limited (Promoter Group Company) are engaged in the production of Ferro Alloys, Ferro Manganese and Silicon Manganese products which are in the same line of business of the Issuer Company. This may create the conflict of interest between the companies. Moreover there is no non-compete agreement amongst these companies.

15. The Issuer Company’s Logo has not been registered

The Company’s logo has not been registered with Trade Mark registry and therefore there may be a potential misuse of the logo. In such case, the Company may have to incur additional cost in taking the necessary legal actions to protect their logo from misuse, which will affect the profits of the Company.

16. No Monitoring agency has been appointed

The deployment of proceeds of the Issue has been decided on the basis of internal estimates of the management/ Promoters and no monitoring agency has been appointed for the purpose.

17. The Company had faced temporary closure of the plant at Rudraram in the year 2002

The Company’s factory at Rudraram village was temporarily closed for the period 01.04.2002 to 23.07.2002 (approximately 4 months) due to increased power cost and uneconomical and unviable operations..

The workers of the Company have formed a trade union at the plant at Rudraram by name "VBC Ferro Alloys Employees’ Union". The union is registered with Dy. Commissioner of Labour, Hyderabad under the registration no. B-2103. This union is affiliated to CITU (Centre for Industrial Trade Union).

Although as on date there is no dispute pending with the union, any labour unrest in future may adversely affect functioning of the Company. While the Company considers the current labour relations to be good, there can be no assurance that it will not experience future disruptions to the operations due to labour disputes.

18. The Registered Office of the Company is situated in leased premises. The lease agreement is operative for a period of five years w.e.f. April 1, 2003.

The Company has entered into a lease agreement for the premises for its registered office for a monthly rent of Rs. 2,01,300/- (Rupees Two lacs one thousand three hundred only) w.e.f April 1, 2003 for a period of five years. The lease period will expire on March 31, 2008.

The Company does not foresee any problem in its renewal before expiry of the lease period.

19. The trading of equity shares of one the listed Promoter Group Companies, VBC Finance and Leasing Limited, has been suspended by the Bombay Stock Exchange Limited (BSE)

The shares of VBC Finance and Leasing Limited are listed on BSE, MSE and HSE. The scrip of company was suspended from trading on the BSE w.e.f. September 10, 2001 due to non- compliance of the provision of the listing agreement. BSE vide letter no. CRD/ OT/ 2006 dated July 3, 2006, has informed the company that BSE has approved revocation of suspension in the trading of the shares of the company, subject to the compliance of the following conditions:

1) The entire promoter shareholding (45%) of the company shall be under a lock-in for a period of 1 year from the date of revocation; and 2) Payment of re-instatement fees of Rs. 2.00 lacs.

The company has, vide letter dated November 4, 2006 to BSE, furnished an undertaking confirming to lock-in the entire promoter shareholding (45%) of the company for a period of 1

Fired to Excel year from the date of revocation and has also paid the requisite re-instatement fees. Further communication from BSE in this regard is awaited.

20. The Issuer Company has filed an application with the Calcutta Stock Exchange Association Limited (CSE) for de-listing of Equity shares.

Apart from BSE, the shares of the Company were initially listed on the Madras Stock Exchange Ltd. (MSE), Hyderabad Stock Exchange (HSE) and Calcutta Stock Exchange Association Limited (CSE). Since the trading volumes in Company’s equity shares on MSE, HSE and CSE were either nil or insignificant, the Shareholders approved the proposal for delisting the shares of the Company from MSE, HSE and CSE at the AGM held on September 30, 2003. As the Company’s shares continued to be listed on the BSE, investors at any of the said places are not in any way adversely affected by the delisting. Pursuant to an application made for voluntary delisting to MSE, HSE and CSE, approvals were granted from the MSE and HSE on December 2, 2004 and April 4, 2005, respectively. Approval of CSE in this regard is awaited.

21. Some of the Promoter/ Promoter Group Companies have not complied with the provision of section 383 (A) of the Act relating to the appointment of Whole-time Company Secretary / obtaining the compliance certificate from a Practicing Company Secretary.

As per the provisions of section 383(A) of the Act, a company having a paid up capital of rupees two crores and above is required to appoint a whole-time company secretary. The Company having a paid up share capital which is less than rupees two crores but rupees ten lacs or more, is required to file with the ROC a certificate from a company secretary in whole-time practice, as to whether the company has complied with all the provisions of the Act. A copy of such certificate is required to be attached to the Directors’ Report as well.

Failure to comply with the aforesaid provisions subjects the company and every officer in default of such company to a fine which may extend to five hundred rupees for every day during which the default continues.

Some of the Promoter/ Promoter Group Companies have not complied with Section 383 A of the Act; the details of the said companies are as follows:

Sl.No. Name Paid Up Nature of Non- Share Capital Compliance (Rs. In Lakhs) 1 Bharat Alloys & Energy Ltd 1392.10 Company Secretary has not been appointed 2 Techno Pack Pvt Ltd. 480.00 Company Secretary has not been appointed 3 Konaseema Gas Power Ltd. 39534.73 Company Secretary has not been appointed 4 Konaseema Power Corporation Ltd. 102.59 Compliance certificate has not been obtained

22. Paid up equity capital of one of the Promoter Group Companies is less than that prescribed under the provisions of the Companies Act.

The paid up equity capital of Jayam Human Resource Services (P) Ltd, one of the Promoter Group Companies, is only Rs. 0.10 lacs. As per the provisions of the section 3(3) of the Act, minimum paid up capital of a private limited company is required to be Rs. 1.00 lac. A company failing to comply with the said provision shall be deemed to be a defunct company within the meaning of section 560 of the Act. Jayam Human Resource Services (P) Ltd. is currently not carrying on any business activity.

23. Other defaults by the Promoter Group Companies which are not in operation.

The Promoter Group Companies, the details of which are furnished on page nos. 101 to 103 of the Draft Letter of Offer, are not in operation and no business activities are carried on by these companies. The Annual Reports of these companies are not available as the Balance Sheets and

Fired to Excel Profit and Loss accounts are not being maintained and audited. As such, these companies are not in compliance with the provisions relating to maintenance of accounts of the Companies Act. There may be incidences of non compliance with the other provisions of the Companies Act. Such non-compliances may subject these companies and their directors to penalties. The Promoters do not have any plans to restart their operations or wind up these companies at present.

24. The following are the risks and concerns that may adversely affect the results of the operations of the Company:

(i) The commercial operation of Konaseema Gas Power Limited was hitherto delayed because of non availability of sufficient gas from Gas Authority of India Limited..

(ii) The other project where the Company has invested is Orissa Power Consortium Limited, which is implementing a 20 MW Hydro Electric Power Project at Samal Barrage, Angul District in the State of Orissa. The project is expected to be commissioned by the end of the current Financial Year. If the project does not commence as expected, it may have an adverse impact on the operations of the Company.

(iii) Government regulations like reduction in import duties and anti dumping duty may increase the competition for the Company. Increase in power tariffs by APTRANSCO may also affect the profitability of the Company in case the proposed Project is delayed or does not materialize.

25. The continuous and efficient running of the Company depends on its ability to attract and retain key management personnel.

The future success depends upon the contributions of its key technical and managerial personnel. The loss of one or more members of the Company’s senior management could have material adverse effect on the business, financial condition and results of operations.

26. The operations of the Issuer Company also depend upon the timely supply of raw materials and products to plants and transportation of the finished products from plants to customers which are subject to uncertainties and risks.

The Company depends on various forms of transports such as seaborne freight, rail and truckling to receive raw materials used in production and to deliver the products from the manufacturing facilities to the customers. These transportation facilities may not adequately support the operation due to traffic congestion and unavailability of railway wagons or trucks. Further, disruption of transportation services because of weather-related problems, strikes, lock- outs, inadequacies in the road infrastructure and port facilities or other events could impair the ability to source raw materials and components and the ability to supply finished products to the customers. In addition, significant increase in transportation costs may adversely impact Company’s financial results.

27. The growth and sustainability of the Company depends on its response to technological advancements taking place in the Ferro Alloys industry.

Although the technology used by the Ferrous metal industry is not subject to rapid changes, the Company will have to keep itself abreast of the changes and improvements taking place in the industry.

II. EXTERNAL RISK FACTOTRS

1. Cyclical nature of the Industry

The Ferro Alloys Industry is cyclical in nature leading to imbalance in the demand supply situation. When the supply exceeds the demand, the prices of the finished products would get affected. This would adversely affect the margins and impact the financial performance significantly.

Fired to Excel 2. Price volatility in Raw Material

The prices of basic raw materials, i.e., Iron Ore (basic) and Coal have shown an upward trend in the recent past. This increase in prices of the raw materials leads to increase in cost of production. In case the Company is unable to increase the prices of the finished products, the margins would get affected. This would impact the financial performance of the Company significantly.

3. Changes in the Government Policies

Any adverse change in the Government policies relating to Ferro alloys may have an impact on the profitability of the industry, and in turn on the Company. Such changes, without limitation, may be in respect of:

a) Excise Duty b) Sales Tax c) Customs Duty d) Import/Export restriction

4. Risk arising from violence and acts of terror

Terrorist attacks and other acts of violence or war involving India and other countries where the Company exports the finished product, would have an adverse impact on the turnover and profitability of the Company.

5. Any change in policies relating to tariff and non-tariff barriers by various countries, where the Company exports the finished product, would have an adverse impact on the turnover and profitability.

6. Failure to comply with the environmental laws, rules and regulations may adversely affect the business or operations of the Company.

Environmental laws and regulations in India are becoming stringent and it is possible that they will become significantly more stringent in the future. As a result, the Company may be required to incur additional cost to ensure their compliance. Failure to comply with the environmental laws may result into shutting down. The Company will, however, continue to incur fixed cost and also additional costs towards filing of appeals against any decision to close the facilities. As a result, the overall operating expenses will increase and profits will decrease.

7. Exchange rate fluctuations

The exchange rate between the rupee and other currencies is variable and may continue to fluctuate in the future. Fluctuations in the exchange rates may affect the Company to the extent of Company’s export content.

Fired to Excel NOTES TO RISK FACTORS 1. Adjusted Pre-issue Net worth (as on 30/09/2006) Rs. 12467.79 lacs Adjusted Pre-issue Net Asset Value (as on Rs. 297.25 30/09/2006) Issue Size Rights Issue of 83,88,700 Equity Shares of Rs. 10/- each for cash at a Premium of Rs. (*) per Equity Share aggregating Rs. (*) lacs. Cost per share to the Promoters Name of the Promoter (s) Amount in Rs. Dr. MVVS Murthi 56.68 MSP Rama Rao 10.57 MS Lakshman Rao 11.47 M Srimani 10.00 M Surya 10.00 MSP Rama Rao, Guardian of M.Sri Bharath 10.00 MSP Rama Rao, Guardian of M Siddartha 10.00 MS Lakshman Rao, Guardian of M.Bharadwaj 10.00 MS Lakshman Rao, Guardian of M Aisharwya 10.00 Techno Pack Pvt Ltd. 10.00 Padmakshi Investments Pvt. Ltd. 10.00 Yasaswini Investments Pvt Ltd 10.00 Bharat Alloys & Energy Ltd 125.00 Konasema Infrastructure Pvt Ltd 125.00 VBC Industrial Holdings Pvt Ltd 125.00

2. There is no interest of Promoters/directors/key management personnel other than reimbursement of expenses incurred or normal remuneration or benefits.

3. Other than as stated in this Draft Letter of Offer, no developments have taken place in the last twelve months, which materially and adversely affect or is likely to affect the trading or profitability of the Company, or the value of its assets, or its ability to pay its liabilities.

4. The transactions since past 6 months on the stock exchange in the shares of the Company by the Promoters/Directors of the Company are as follows: Name Status Date of Mode of No. of Price (Rs.) Acquisition / acquisition Shares Allotment Dr. N Tata Rao Director 08.08.06 Preferential 1,000 125/- Allotment Dr. MVVS Murthi Promoter & 06.06.2006 Open Market 500 97/- Director Dr. MVVS Murthi Promoter & 07.06.2006 Open Market 400 92/- Director Dr. MVVS Murthi Promoter & 08.06.2006 Open Market 500 84/- Director Dr. MVVS Murthi Promoter & 13.06.2006 Open Market 500 78/- Director Dr. MVVS Murthi Promoter & 08.08.2006 Preferential 60000 125/- Director Allotment MS Lakshman Rao Promoter & 08.08.2006 Preferential 1000 125/- Director Allotment MSP Rama Rao Promoter & 08.08.2006 Preferential 1000 125/- Director Allotment Bharat Alloys & Promoter 08.08.2006 Preferential 25000 125/- Energy Ltd. Allotment VBC Industrial Promoter 08.08.2006 Preferential 36000 125/- Holdings (P) Ltd. Allotment Konaseema Promoter 08.08.2006 Preferential 25000 125/- Infrastructure (P) Allotment Ltd.

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5. One of the Promoter Group Companies, viz, VBC Exports Limited has been disclosed as defaulter on the website of Credit Information Bureau (India) Limited (CIBIL) as of the quarter ended June 30, 2006, the date upto which the data was available on the website. The default was committed by this company towards repayment of loan of Rs. 294 lacs taken from the State Bank of India, Overseas Branch, Vishakhapatnam. The default has been cured by the company by repaying the amount due to the bank in April, 2005. The bank has issued a no due ceretificate dated April 28, 2005 to the company. Shri. M.S. Lakshman Rao, Promoter and Director of VBCFAL, who is also one of the directors of VBC Exports Limited, has vide letter dated January 18, 2007 requested the bank to take necessary steps to forward the updated details to the CIBIL to enable them to delete the name of VBC Exports Limited from the list of defaulters.

6. Transactions carried out with related parties, in terms of AS 18 issued by the Institute of Chartered Accountants of India, for the period ended September 30, 2006 and during the years 2005-06, 2004-05 and 2003-04 are as under:

Transactions Particulars 30.09.06 2005-06 2004-05 2003-04 carried out with related parties during the years : 1 Interest Received a GITAM 0 1935273 1654643 d VBC Finance & Leasing Ltd 0 779901 2437459 578959 2 Interest Paid d VBC Industries Ltd 2922747 584626 3 Rent Paid d) 1 Techno pack P Ltd 1650000 3300000 3320000 0 2 VBC Finance & Leasing Ltd 120000 240000 240000 240000 4 Rent Received a Konaseema Gas Power Limited 1200000 2400000 2400000 2400000 5 Job work expenses paid d Bharat Alloys & Energy Ltd 2947188 14205040 65445012 9026240 6 Amount receivable a ) 1 Konaseema Gas Power Limited 422899 425731 2034260 Konaseema Power Corporation 273301 2 Limited 273301 64301 Gandhi Institute of Technology 0 3 and Management 0 18092579 699032 18092579 2098561 d ) 1 Bharat Alloys & Energy Ltd 3572746 3572746 14194932 16193397 2 Techno Pack Pvt Ltd 18746720 19540435 12846981 14528894 3 VBC Exports Ltd 104282 504531 853191

Fired to Excel d) 1 Eq. Shares in Konaseema Gas Power Limited 125850000 Share Application Money in 2 Orissa Power Consortium Ltd 1583400 Share Application Money in 3 Indo-Us Coal Washeries (P) Ltd 1525364 Share Application Money in 4 Orissa hydel Power- 145479000 195615700 274437764 9 Balance of Deposits a) 1 Konaseema Gas Power Limited 87649500 87649500 87649500 d) 1 VBC Finance & Leasing Ltd. 24600000 17500000

For further details, please refer to the section ‘Auditors’ Report’ on page no. 106 of the Draft Letter of Offer.

7. All information shall be made available by the Lead Manager and the Company to the public and investors at large and no selective or additional information would be available only to a section of the investors in any manner whatsoever.

Fired to Excel III. INTRODUCTION SUMMARY

The Investor should read the following summary with the Risk Factors included from page numbers 8 to 19 and the more detailed information about the Company and the financial statements included in the Draft Letter of Offer (DLOO).

The Industry

The products manufactured by the Company belong to the Ferro alloy industry. Ferro-alloys are used in the manufacture of all grades of steel including stainless steel, alloy steel, castings and other engineering products. Ferro alloys are alloys of iron with a high proportion of elements such as manganese, silicon, chromium, and molybdenum. Each alloy is generally named after the added metal – for example, Ferro Chrome, Ferro Manganese, and Ferro Silicon etc. Ferro alloys can be further classified as bulk and noble Ferro alloys. India has one of the largest deposits of manganese ore and chrome ore in the world. Growth of Ferro alloy industry is directly linked to growth of stainless steel industry, which plays a very significant role in the development of both the industrial and construction sector of the country.

Ferro alloys are vital to the steel industry as they provide certain special properties to steel like strength, luster & finish, ductility etc. Hence, fortunes of the Ferro alloy industry are closely linked to the steel industry.

Global steel industry is witnessing buoyancy driven by strong Asian demand, particularly from China & India. Crude steel production is expected to grow from 1270 mn TPA in 2004 to 1524 mn TPA by 2010. While in India, the crude steel output is expected to grow from around 34 mn TPA in FY04 to around 48.4 mn TPA by FY10. The Indian demand is expected to be driven by thrust on infrastructure sector. This will result into the growth for the Ferro alloy industry in the country.

The country has abundant natural resources like Manganese, Chrome and Quartz ores which ensures continuous supply of high quality raw material at reasonable prices to the Indian Ferro alloy industry with tremendous growth opportunities to help India in emerging as the leading exporter of Ferro alloys for the world.

India is established as a regular exporter of Silicon Manganese and High Carbon Ferro Chrome, with major exports to countries like Bangladesh, Europe, Germany, Indonesia, Japan, Korea, Pakistan, Srilanka, UAE and USA. Moreover, the industry exports almost 25 % to 30 % of the production every year, worth about Rs 5000 million.

Steel Production in India (in Million Tonnes):

Year Main Producers Secondary Producers Grand Total 1991-92 7.96 6.37 14.33 1992-93 8.41 6.79 15.20 1993-94 8.77 6.43 15.20 1994-95 9.57 8.25 17.82 1995-96 10.59 10.81 21.40 1996-97 10.54 12.18 22.72 1997-98 10.44 12.93 23.37 1998-99 9.91 13.91 23.82 1999-00 9.37 16.29 25.66 2000-01 9.70 17.26 26.96 2001-02 11.46 18.98 30.44 2002-03 14.39 19.29 33.68 2003-04 15.12 21.00 36.12

(Source: Industrial Development Services Pvt. Limited – New Delhi)

For further details, please refer the section “Industry Overview” on page no. 51 of the Draft Letter of Offer.

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BUSINESS OF THE COMPANY

• The Company is presently manufacturing Ferro Silicon, Ferro Manganese and Ferro Chrome/ Silicon Manganese. It has an installed capacity of 10,000 MTPA, 31,500 MTPA and 27,000 MTPA, respectively, for each of the above referred products. These products are mainly consumed by the stainless steel industry.

• Ferro Manganese accounts for 70% of the total production of Ferro alloys. With the demand for carbon steel rising, the demand for Ferro Manganese is also rising as it is directly related with Carbon Steel Industry.

• The Company is an ISO 9001:2000 certified company, which ensures that its products are consistently within the prescribed specification parameters to provide the high quality standards and confidence to the customers.

For further details on the Business of the Company, please refer to page 54 of this Draft Letter of Offer.

BRIEF PARTICULARS OF THE ISSUE

Equity Shares Issued by the Company under the 83,88,700 Equity Shares of the face value of Rs.10/- each. present Issue Rights Entitlement Two Equity Shares for every one Equity Share held on as on the Record Date (*)

Record Date (*)

Issue Price per Equity Share (*) per Equity Share (including a premium of (*) per Share).

Equity Shares outstanding prior to the Issue 41,94,350 Equity Shares of the face value of Rs.10/- each.

Equity Shares outstanding after the Issue 1,25,83,050 Equity Shares of the face value of Rs.10/- each.

Terms of the Issue For more information, see “Terms of Issue” on page 157 of this Draft Letter of Offer.

Fired to Excel SELECTED FINANCIAL INFORMATION

Following selected financial data have been prepared in accordance with Indian Accounting Standards, in conjunction with the financial statements and related notes and "Management's Discussions and Analysis". The audited financial statements have been prepared in Indian rupees and have been prepared in accordance with Indian Accounting Standards for the fiscal years ended 2002, 2003, 2004, 2005 and 31st March, 2006 and for the period ended 30th September 2006.

STATEMENT OF PROFIT AND LOSS AS RESTATED (Rs.in lacs) Period ended on Period As at 31st March ended 31.03.06 31.03.05 31.03.04 31.03.03 31.03.02 30.09.06 Income Sales: Of products manufactured by the 3127.66 7348.37 12542.45 8959.92 3030.14 3888.44 Company Of products traded by the 0 0 0 0 0 0 Company Other income 75.07 235.10 404.57 903.95 295.01 846.96 Increase (decrease) in inventory 302.64 13.00 (121.30) 17.01 353.71 (124.69) Total Income 3505.37 7596.47 12825.72 9880.88 3678.86 4610.71 Expenditure Raw materials & goods consumed 1071.69 2939.58 4297.61 2349.47 612.38 845.59 Staff costs 168.65 350.78 374.35 299.35 267.74 288.02 Other Manufacturing expenses 1765.06 4647.52 5426.66 5088.23 2039.85 2477.93 Administrative, Selling & 150.06 493.28 790.14 426.30 205.73 221.01 distribution expenses Interest 214.75 500.18 580.98 588.22 359.13 610.65 Depreciation 94.81 176.44 179.00 183.26 179.88 195.30 Miscellaneous expenditure written 0 22.84 22.84 22.84 135.75 22.84 off Total Expenditure 3465.02 9130.62 11671.58 8957.67 3800.46 4661.34 Net Profit before tax and 40.35 (1534.15) 1154.14 923.21 (121.60) (50.63) extraordinary items Extraordinary items Provision no longer reqd w/back 0 592.94 13.78 501.67 1793.44 13.30 Profit on sale of Assets 0 0 212.57 2.88 1.95 5.20 Profit on sale of Investments 0 0 0.00 2292.08 0.00 3220.10 Surrender value received on K M I 0 0 0.00 134.30 0 0 policy Bad Debts/Advances Written Off 0 0 (0.35) (0.37) (2.20) -19.22 Diminution in value of 0 0 0 0 (1.88) -19.62 Investments Provision for Doubtful Debts 0 0 0 (127.68) (142.88) 0.00 Provision For Impairment (393.34) 0 0 0 0 0 Total Extraordinary items (393.34) 592.94 226 2802.88 1648.43 3199.76 Net profit after extraordinary (352.99) (941.21) 1380.14 3726.09 1526.83 3149.13 items and before tax Provision for taxation(including 6.50 (314.97) 519.09 404.31 (342.21) 254.41 tax paid for earlier years) Net profit after tax (359.49) (626.24) 861.05 3321.78 1869.04 2894.72 Earlier year adjustments(net of tax) (10.70) (868.58) 2.12 (322.48) (2201.69) 237.96 Net Profit after adjustments (370.19) (1494.82) 863.17 2999.30 (332.65) 3132.68 Profit brought forward from earlier 3311.70 4852.63 4161.69 8608.12 9648.99 6516.31 year

Fired to Excel Profit available for 2941.51 3357.81 5024.86 11607.42 9316.34 9648.99 Appropriation Appropriations: Transfer to general reserve 0 0 80 7400 662.6 0 Proposed dividend 0 40.44 80.89 40.44 40.44 0 Tax on proposed dividend 0 5.67 11.34 5.29 5.18 0 Balance carried to Balance sheet 2941.51 3311.70 4852.63 4161.69 8608.12 9648.99 Note: Provision towards present value of future liability in respect of leave encashment has not been provided.

STATEMENT OF ASSETS AND LIABILITIES AS RESTATED (Rs.in lacs) Period As at 31st March Particulars ended 2006 2005 2004 2003 2002 30.09.06 A FIXED ASSETS Gross Block 7592.08 7591.58 7110.63 7388.25 7379.75 7678.32 Less: Depreciation 5907.47 5812.66 5636.95 5025.88 4211.93 3559.56 Net Block 1684.61 1778.92 1473.68 2362.37 3167.82 4118.76 Less: Provion For Impairment 170.94 Less: Revaluation Reserve 532.03 532.03 532.03 1186.25 1840.46 2494.68 Net Block after Revaluation 981.64 1246.89 941.65 1176.12 1327.36 1624.08 Reserve Capital Work in Progress 85.12 75.00 420.46 227.39 262.13 225.58 Total 1066.76 1321.89 1362.11 1403.51 1589.49 1849.66 B Investments 14352.73 13475.79 13825.79 13435.56 10910.42 10051.21 Current Assets, Loans and C Advances Inventories (Net of 1896.34 1395.31 1749.28 1175.20 736.60 256.11 impairment for Rs 111.27 lakhs) Sundry Debtors 610.85 283.93 1151.48 1253.25 1100.22 965.40 Cash & Bank Balances 185.75 227.55 381.16 182.61 224.77 115.00 Other Current Assets(Net of 246.20 158.69 75.61 92.39 28.82 134.62 impairment for Rs 2.46 lakhs) Loans & Advances (Net of 865.75 1765.84 2684.84 1863.60 1104.67 1737.34 impairment for Rs 108.67 lakhs) Total 3804.89 3831.32 6042.37 4567.05 3195.08 3208.47 D Preference Share Capital E Liabilities and Provisions Loan Funds Secured 1062.81 726.58 1761.17 1649.81 1028.09 477.66 Unsecured 1480.6 1180.70 776.41 690.00 400.00 482.18 Total 2543.41 1907.28 2537.58 2339.81 1428.09 959.84 F Deferred Tax (Net) 6.75 6.75 66.97 107.02 0.00 0.00 Current Liabilities & G Provisions Current Liabilities 4114.67 3932.85 3768.79 3294.05 3760.06 3098.15 Provisions 91.76 131.63 688.35 290.44 108.47 297.53 Total 4206.43 4064.48 4457.14 3584.49 3868.53 3395.68 H Net Worth 12467.79 12650.49 14168.58 13374.80 10398.37 10753.82 Represented by: I Share Holder's Funds Share Application Money from Promoters Share Capital 419.5 404.50 404.50 404.50 404.50 404.50

Fired to Excel Reserves & Surplus 12580.32 12778.02 14318.95 14202.23 11902.86 12935.36 Less: Revaluation Reserves 532.03 532.03 532.03 1186.25 1840.46 2494.68 12467.79 12650.49 14191.42 13420.48 10466.90 10845.18 J Miscellaneous Expenditure 22.84 45.68 68.53 91.36 (to the extent not written off or Adjusted) Net Worth 12467.79 12650.49 14168.58 13374.80 10398.37 10753.82

Note: I. The above details should be read in conjunction with the ‘statement on changes due to adjustments’ and ‘significant accounting policies and notes on accounts’. For detailed financial statements, prepared in accordance with Indian Accounting Standards, as required by the Guidelines, please refer, “Auditor's Report” on page no. 106 of this Draft Letter of Offer.

II. Figures appearing as at 30.09.06 in respect of Inventories, other current assets, loans and advances are net of provision for impermanent provided during the half year ended 30.09.06 of Rs.111.27 lakhs, Rs. 4.26 lakhs and Rs.108.67 lakhs respectively.

KEY ACCOUNTING RATIOS FOR LAST FIVE YEARS AND 30TH SEPTEMBER 2006

Particulars 30.09.06 31.03.06 31.03.05 31.03.04 31.03.03 31.03.02 Net worth (Rs.) (A) 12467.79 12650.49 14168.58 13374.80 10398.37 10753.82 Adjusted Profit after Tax (Rs.) (B) (370.19) (1494.82) 863.17 2999.3 (332.65) 3132.68 No. of Shares outstanding at the 4194350 end (C) 4044350 4044350 4044350 4044350 4044350 Weighted average number of 4090712 shares outstanding (D) 4044350 4044350 4044350 4044350 4044350 Earnings per Share (EPS) (Rs.) (B/D) -9.05 -36.96 21.34 74.16 -8.23 77.46 Return on Net worth (%) (B/A) -2.97 -11.82 6.09 22.43 -3.20 29.13 Net Asset Value per Share (Rs.) (A/C) 297.25 312.79 350.33 330.70 257.11 265.90

Fired to Excel IV. GENERAL INFORMATION

Registered : #6-2-913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderabad - 500 004; Office Phones: (040) 23301166/99; Fax: (040) 23390721; Web site: www.vbindia.com; Email: [email protected]; Contact Person: Shri. Adalat Srikanth – Company Secretary & Compliance Officer; For details on changes in Registered Office, please refer to the chapter titled “History and Other Corporate Matters” on page no. 68 of the Draft Letter of Offer. Works-Unit : Rudraram Village, Patancheru Mandal, Medak District, Andhra Pradesh; Phones: (08455) 220084/130; Fax: (08455) 220142

Registration Number: 003223; Registration Date: 03.10.1981 Company Identification Number: L27101AP1981PLC003223 The Company is registered with the Registrar of Companies, Hyderabad, situated at 2nd floor, CPWD Building. Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195; Phone: 040-24657937, 24652807; Fax: 040-24652807.

Dear Shareholder(s), Pursuant to the resolutions passed by the Board of Directors of the Company at its meetings held on 24th June, 2006 and resolution passed by the shareholders in the Annual General Meeting held on 24th July, 2006, it has been decided to make the following offer to the Equity Shareholders of the Company:

ISSUE OF 83,88,700 EQUITY SHARES OF RS.10/- EACH FOR CASH AT A PREMIUM OF RS. (*) PER EQUITY SHARE [ISSUE PRICE OF RS. (*)] AGGREGATING TO RS. (*) LACS ON RIGHTS BASIS TO THE EXISTING EQUITY SHAREHOLDERS OF THE COMPANY IN THE RATIO OF TWO EQUITY SHARES FOR EVERY ONE EQUITY SHARE (I.E. 2:1) HELD AS ON THE RECORD DATE, I.E., [·] 2007. THE ISSUE PRICE IS (*) TIMES THE FACE VALUE OF THE SHARES OF THE COMPANY.

Statutory Declaration In the reasonable opinion of the Board, there are no circumstances that have arisen since the date of the last financial statement disclosed in the Draft Letter of Offer, that materially or adversely affect or are likely to affect the performance or profitability of the Company or value of its assets or its ability to pay its liabilities within the next twelve months.

Important 1. This Issue is applicable only to those Shareholders whose names appear as beneficial owners as per the list to be furnished by the Depositories in respect of the Equity Shares held in the electronic form and on the register of members of the Company in respect of the Equity Shares held in physical form at close of business hours on _____, 2007, i.e., the Record Date.

2. Shareholders' attention is drawn to Risk Factors appearing on Page 8 to 19 of this Draft Letter of Offer. 3. Please ensure that the Composite Application Form (CAF) is received with this Draft Letter of Offer. 4. Please read this Draft Letter of Offer and the instructions contained therein and in the CAF carefully, before filling in the CAF. The instructions contained in the CAF are an integral part of this Draft Letter of Offer and must be carefully followed. Application is liable to be rejected if it is not in conformity with the terms of the Draft Letter of Offer and/or the CA. 5. All enquiries in connection with this Draft Letter of Offer or CAF should be addressed to the Registrars to the Issue, viz., Venture Capital & Corporate Investments Limited, quoting the registered folio number / DP ID/client ID number and the serial number of the CAF and his/her full name and address. 6. In case the original CAF is not received, lost or misplaced by the Shareholder, the Registrars/ Company will issue a duplicate CAF on the request of the shareholder who should furnish the registered folio number/DP ID/client ID number and his/her full name and address to the Registrars/Company. Please note that those applicants who are making the application in the duplicate CAF should not utilize the original CAF for any purpose including renunciation, even if it is received/found subsequently. In case the original and the duplicate CAFs are lodged for subscription, allotment will be made on the basis of the duplicate CAF and the original CAF will be ignored.

Fired to Excel 7. The Rights Issue will be kept open for a minimum period of 30 days. If extended, it will be kept open for a maximum period of 60 days. 8. The Lead Managers and the Company shall make all information available to the Equity Shareholders and no selective or additional information would be available for a section of the Equity shareholders in any manner whatsoever including at presentations, in research or sales reports etc. after filing of the Draft Letter of Offer with SEBI/Stock Exchange. The Lead Managers and the Company shall update the Draft Letter of Offer and keep the public informed of any material changes till the listing and trading commences. 9. All the legal requirements as applicable till the filing of the Draft Letter of Offer with the Designated Stock Exchange have been complied with. Board of Directors of Company

The present Board of Directors consists of the following persons:

S.No Name Designation Director Status Identification No 1 Dr. N.Tata Rao Chairman 00009833 Independent (Non Executive) S/o:N.Lakshmana Rao 2 Dr. M.V.V.S.Murthi Vice - Chairman 00054099 Non Independent (Non S/o: M. Pattabhi Ramaiah Executive) (Promoter- Director) 3 Shri. M.S.Lakshman Rao Managing Director 00086976 Non Independent (Executive) S/o: Dr. MVVS Murthi (Promoter-Director) 4 Shri. V.P.Rama Rao Director 00035198 Independent (Non Executive) S/o:V.Narayana Rao 5 Shri. M.Nageswara Rao Director 00027131 Independent (Non Executive) S/o:M. Narasaiah 6 Dr. P.L.Sanjeev Reddy Director 00388140 Independent (Non Executive) S/o: P. Lakshmayya

Brief Profile of the Board of Directors

1. Dr. N. Tata Rao

Dr. N. Tata Rao is an Honorary, Life Fellow of the Institution of Engineers (India) and a recipient of many awards including Padmasri Award from the President of India. His qualifications include B.Sc. (Engg), M.S.(EE) (Illinois Institute of Technology, Chicago, U.S.A.). He was Advisor on Power to Chief Minister of Andhra Pradesh, Consultant for Asian Development Bank - Reorganisation of Bangladesh Power Development Board, Chairman of A. P. State Electricity Board etc.

2. Dr. M. V. V. S. Murthi

Dr. M. V. V. S. Murthi is the Promoter of the Company and VBC Industries Limited. He is basically a Post Graduate in Arts and did his Ph.D in Economics. Before transforming into an industrialist he was a practicing Advocate in the High Court of Andhra Pradesh. He is a distinguished personality in politics.

3. Shri V. P. Rama Rao

Joining the Indian Administrative Service (IAS) in 1955, Shri V. P. Rama Rao has the distinction of being in the first batch of officers of the Indian Administrative Service selected by the British Council for specialized training in the United Kingdom. Prior to his joining the service he has to his credit distinguished academic record. He is a Postgraduate in Arts (M.A.) from Andhra University, Bachelor of Civil Law (BCL) from Delhi University. He has acquired Post Graduate Diploma in Industrial Administration from Manchester University. As a member of the Indian Administrative Service, heheld a number of important assignments such as Chief Secretary to Govt. of Andhra Pradesh, Director General, Indian Institute of Foreign Trade (IIFT), Special Commissioner to the Government of Andhra Pradesh, Principal Secretary, Education Department, Andhra Pradesh, Principal Secretary, Energy, forests, Environment, Science & Technology etc. Originally Shri V. P. Rama Rao was nominated on the Board of the Company by Board for Industrial and Financial Reconstruction and subsequent to withdrawal of his nomination; he was co-opted as an independent Director on 31st January 2002.

Fired to Excel 4. Shri M. Nageswara. Rao

Shri M. Nageswara. Rao is basically a Science graduate (B.Sc) and did his Bachelors in Mechanical Engineering from REC, Warangal. He has experience in financial and accounting areas. He has served in the senior management cadre of IDBI for more than a decade and was associated with the processing of loan proposals of Mineral and Metal based Industries.

5. Dr. P. L. Sanjeev Reddy

Dr. P. L. Sanjeev Reddy during the period spanning over 35 years in the Indian Administrative Service, has specialized mainly in the fields of Industry, Finance, International Trade & Commerce and Development Administration including Social Development. He has to his honour several National Awards for managerial excellence, productivity enhancement, trade promotion and for outstanding contribution towards investment and cause of industrial promotion, technology transfer, sustainable development, social development and for all round achievement and outstanding services and excellence in the fields of public administration, industrial management and strategic policy formulation and implementation. In the year 2002, he was awarded Golden Peacock Award instituted by the Institute of Directors London for “Excellence in Public Service” by P.C.Alexander, Governor of Maharashtra at Mumbai. Presently, he is the Director, Indian Institute of Public Administration, New Delhi and as a member of the Indian Administrative Service, he was Secretary to Government of India, Department of Company Affairs, Department of Rural Development & Land Resources, Principal Secretary to Chief Minister, Government of Andhra Pradesh, Director General, Indian Institute of Foreign Trade, Director General of Foreign Trade, Secretary, MRTP Commission, Special Assistant to the President of India, National President, Council of State Industrial Development and Investment Corporation of India (COSIDICL), Vice Chairman and Managing Director of AP Industrial Development Corporation, Vice Chairman and Managing Director for AP State Agro Industries Development Corporation Limited, Director of Agriculture, Govt. of Andhra Pradesh, and held many other important assignments. Dr. P. L. Sanjeev Reddy has an excellent track record as an academician as well. He did his B.A. (Hons) in Economics, M. A. in Economics, Post Graduate Diploma in Development Studies from University of Cambridge (UK) and Ph.D. in Industrial Management. He is also a Recognised Examiner for Doctorate (Ph. D.) Degree of several Universities in the fields of Economics, Industry, Trade, Management and Corporate Affairs.

6. Shri M. S. Lakshman Rao

Shri M. S. Lakshman Rao is an Engineering graduate with over two decades of experience. He has been reappointed as Managing Director of the Company for a period of 5 years with effect from September 30, 2005. During his tenure as Managing Director, the Company has made a turn around, came out of its sickness and was released from the purview of Board for Industrial Finance and Reconstruction (BIFR).

Company Secretary and Compliance Officer Shri. Adalat Srikanth #6-2-913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderabad - 500 004; Phones: (040) 23301166/99 Fax: (040) 23390721 Email: [email protected] Investors may contact the Registrar to the Issue/Company Secretary and Compliance Officer in case of any pre-issue or post-issue related problems such as non-receipt of Abridged Letter of Offer/Composite Application Form/ Letter of Allotment/Share Certificate/credit of allotted shares in respective beneficiary account/refund order etc.

Bankers to the Company Bank of India Post Box No: 134, 5-8-659, Nampally Hyderabad -500001 Phone: 040-23202016/3478 Fax: 040-23203225 Email: [email protected] Contact Person: Shri. E. Narsingh – Asst. General Manager (AGM) Website: www.bankofindia.co.in

Fired to Excel ISSUE MANAGEMENT TEAM

LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE

SBI CAPITAL MARKETS LIMITED Venture Capital & Corporate Investments Ltd. 20th Floor, 202, Maker Tower ‘E’ #6-2-913/914, 3rd Floor, Cuffe Parade, Progressive Towers, Khairatabad, Mumbai 400 005 Hyderabad - 500 004; Tel: (022) 22189166-69 Phones: (040) 2332-2262/64; Fax: (040) 23324803 Fax: (022) 2218-6367 Website: www.vccilindia.com E-mail: vbcl.rights [email protected] E-mail: [email protected] Website: www.sbicaps.com MAAPIN No.: 100012773 Contact Person: Shri.D.Subrahmanyam Contact Person: Shri P.V.Srinivas

AUDITORS OF THE COMPANY LEGAL ADVISOR TO THE ISSUE

M/s. Brahmayya & Co., Challa Kodanda Ram & Associates Chartered Accountants Advocates and Corporate Consultants “Sukasini” 10-50-24, Siri Puram, 05, Subhodaya Apartment, Visakhapatnam –530-003 Boggulkunta, Tel: (0891) 2755848/2754071 Hyderabad - 500001 Fax (0891) 2535960 Tel : (040) 24754758 E-mail: [email protected] Fax : (040) 24757591 Membership No:018545 E mail: [email protected] Contact Person: Shri. C.V. Ramana Rao Contact Person: Shri. Vikram

BANKERS TO THE ISSUE

(*) To be appointed

CREDIT RATING

The present issue being a Rights issue of Equity shares, credit rating is not required.

TRUSTEES

This being an issue of Equity Shares, appointment of Trustees is not required.

MONITORING AGENCY

No monitoring agency has been appointed.

INTER-SE ALLOCATION OF RESPONSIBILITIES

Not applicable.

MINIMUM SUBSCRIPTION

i. If the Company does not receive the minimum subscription of 90% of the Issue, the Company shall forthwith refund the entire subscription amount received within 42 days from the date of closure of the Issue.

ii. If there is a delay in the refund of subscription by more than 8 days after the Company becomes liable to pay the subscription amount (i.e. 42 days after closure of the Issue), the Company shall pay interest for the delayed period at rates prescribed under sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956.

iii. In case this Issue is undersubscribed after considering the number of Equity Shares applied as per entitlement/ renouncement and additional equity shares, the undersubscribed portion will be applied for by the persons in the Promoter Group only after the closure of the Issue.

Fired to Excel iv. All moneys received out of this Issue of equity shares through this Draft Letter of Offer shall be transferred to a separate bank account.

UNDERWRITING ARRANGEMENTS

The Rights Issue of equity shares is not underwritten.

ISSUE SCHEDULE

ISSUE OPENS ON LAST DATE FOR RECEIVING REQUESTS ISSUE CLOSES ON FOR SPLIT FORM

(●) 2007 (●) 2007 (●) 2007

Fired to Excel

V. CAPITAL STRUCTURE OF THE COMPANY (Rs. in Lacs) PATICULARS NOMINAL ISSUE VALUE AMOUNT Authorised Capital 2,00,00,000 Equity Shares of Rs.10/- each 2000.00 -- Issued Capital 42,01,190 Equity Shares of Rs.10/- each 420.11 -- Forfeited Capital 6,840 Equity Shares of Rs.10/- each 0.68 Subscribed and Paid-up Capital 41,94,350 Equity Shares of Rs.10/- each 419.43 Present Rights Issue 83,88,700 Equity Shares of Rs.10/- each at a premium of (*) per share (at a price of (*) per share) (*) (*) Post Issue Capital 1,25,83,050 Equity Shares of Rs.10/- each 1258.30 -- Share Premium Account Before the Offer 649.73 After the Offer (*) • The difference between the issued capital and the subscribed and paid up capital represents 6,840 Equity Shares that were forfeited in the year 1988 on account of non-payment of allotment money and / or first and final call money.

Changes in the Authorized capital of the company since incorporation are given below: Date of Change Amount (in Rs.) AGM/ EGM Authorised capital pursuant to change At the time of 1,50,00,000 --- 15, 00,000 equity shares of Rs. 10/- each. incorporation 29.09.1983 3,00,00,000 EGM 30, 00,000 equity shares of Rs. 10/- each. 25.08.1989 5,00,00,000 AGM 50, 00,000 equity shares of Rs. 10/- each. 30.09.1991 10,00,00,000 AGM 1,00,00,000 equity shares of Rs. 10/- each. 10.02.1993 12,50,00,000 EGM 1,25,00,000 equity shares of Rs. 10/- each. 03.12.1993 20,00,00,000 EGM 2,00,00,000 equity shares of Rs. 10/- each.

NOTES TO CAPITAL STRUCTURE: 1. Details of the present Equity Share Capital are as follows: Date of allotment/ No. Of Face Issue price Value (in Rs.) Considera Remarks/ % to Paid splitting Shares Value (in Rs) tion Allotment up Capital

At Incorporation 700 10 10 7,000 Cash Shares taken up by 0.02 subscribers of MoA 26.06.1982 133,725 10 10 13,37,250 Cash Allotted to Promoter/ 3.19 directors and their friends & relatives 03.10.1983 3,95,575 10 10 39,55,750 Cash Allotted to Promoter/ 9.43 directors 26.03.1984 3,70,000 10 20 37,00,000 Cash Allotted to Promoter/ 8.82 directors 30.06.1984 1,50,000 10 10 15,00,000 Cash Allotted to Promoter/ 3.58 directors and their friends & relatives 02.01.1985 8,00,000 10 10 80,00,000 Cash Through Public Issue 19.07 01.10.1990 22,01,190 10 30 6,60,35,700 Cash Conversion of 52.48 Debentures 08.08.2006 1,50,000 10 125 1,87,50,000 Cash Preferential Allotment 3.58 Total 42,01,190 10 100.16 9.09.1988 6840 10 Shares Forfeited 0.16 41,94,350 10 100.00

Fired to Excel 2. Promoters’ Contribution and Lock-in

The present issue being a Rights Issue, provisions of Promoters’ Contribution and Lock-in are not applicable.

3. Present Rights Issue

Type of Instrument Ratio Face Value No. of shares Issue Price Considerati (Rs.) (Rs.) on Equity Shares 2:1 10/- 83,88,700 (*) Cash

4. Pre & post Issue shareholding pattern of the Company is given below (as of December 31, 2006) (assuming all participate in the Rights Issue) : - S. Category Pre issue shareholding Post issue shareholding No No. of % No. of shares % shares A. Promoter's Holding Indian Promoters 7,76,779 18.52 23,30,337 18.52 Persons acting in Concert 8,32,175 19.84 24,96,525 19.84 Sub Total 16,08,954 38.36 48,26,862 38.36 B. Non-Promoters Holding 1 Institutional Investors a. Mutual Funds and UTI NIL 00.00 NIL 00.00 b. Banking, Financial 2,050 0.05 6,150 0.05 Institution/Insurance Companies (Central/State Government Institutions/Non- Govt. Institutions) c. FIIs 2,500 0.06 7,500 00.06 Sub Total 4,550 0.11 13,650 00.11 2 Others a. Private Corporate Bodies 6,77,307 16.15 20,31,921 16.15 b. Indian Public 18,44,698 43.98 55,34,094 43.98 c. NRIs / OCBs 55,291 1.32 1,65,873 1.32 d. Directors and Relatives 3,550 0.08 10,650 00.08 e. Clearing Members and Office NIL 00.00 NIL 00.00 Bearers Sub Total 25,80,846 61.53 77,42,538 61.53 Grand Total 41,94,350 100.00 125,83,050 100.00

• Directors/Relatives mentioned in 2 (d) above are not in control of the Company. • The total number of shareholders in the Company as on December 31, 2006 is 10,675.

5. Pre & Post shareholding of the Promoter and Promoter Group as on December 31, 2006 is as follows: Particulars Pre issue Post-Issue No. of Equity % of No. of Equity % of Shares of Present Shares of Present Rs.10/- each Capital Rs.10/- each Capital

a) Promoters 16,08,954 38.36 48,26,862 38.36 b) Immediate relative of Promoters NIL NIL NIL NIL (Spouse, parent, child, brother, sister)

Fired to Excel c) Company in which 10% or more of NIL NIL NIL NIL the share capital is held by the Promoter his immediate relative firm or HUF in which the promoter or his immediate relative is a member d) Company in which the Company NIL NIL NIL NIL mentioned in (c) above holds 10% or more of the share capital e) HUF in which aggregate share of the NIL NIL NIL NIL promoter and his immediate relatives is equal or more than 10% of the total capital. Total 16,08,954 38.36 48,26,862 38.36

6. Detailed Shareholding of the Promoter and Promoter Group as on December 31, 2006 is as follows: Sr. No. Name of the Shareholder Number of Shares Percentage of Total Capital 1 Dr. M V V S Murthi 1,57,769 3.76

2 Mathukumilli Sri Pattabhi Rama Rao 2,02,900 4.84

3 Mathukumilli Sri Lakshman Rao 78,300 1.87

4 Surya Mathukumilli 2,850 0.06

5 Mst. M Bharadwaj (Minor) 60,000 1.43

6 Mst. M Sri Bharath (Minor) 70,000 1.66

7 Mst. M Siddartha (Minor) 73,500 1.75

8 Ms. M Aishwarya (Minor) 11,450 0.27

9 Mathukumilli Sri Mani 1,20,010 2.86

10 Techno Pack Pvt. Ltd. 3,48,365 8.30

11 Yasaswini Investments Pvt. Ltd. 2,02,315 4.82

12 Padmakhsi Investments Pvt. Ltd. 1,95,495 4.66

13 VBC Industrial Holdings Pvt. Ltd. 36,000 0.86

14 Konaseema Infrastructure Pvt.Ltd. 25,000 0.59

15 Bharat Alloys & Energy Ltd. 25,000 0.59

TOTAL 16,08,954 38.36

Fired to Excel 7. Share holding of the Directors of the Promoter Companies The list of Promoter companies of the Issuer Company and their Directors’ holding in the Issuer Company as on December 31, 2006 is as under: -

(i) VBC Industrial Holdings Pvt. Ltd.

Name Designation No. of Shares in the Issuer Co.

Shri P. Chinnam Naidu Director NIL Shri B. Satyanarayana Director NIL Shri T. Venkata Satyanarayana Director NIL

(ii) Konaseema Infrastructure Pvt. Ltd.

Name Designation No. of Shares in the Issuer Co.

M.S.P. Rama Rao Director 2,02,900 M.S. Lakshman Rao Director 78,300

(iii) Yasaswini Investments Pvt. Ltd.

Name Designation No. of Shares in the Issuer Co.

Dr. B. Ramesh Babu Director NIL Shri. C. Madhusudan Director NIL Shri. N. Babu Rao Director 1,700 Shri. Krishna Raghavan Director NIL Smt. M. Srimani Director 1,20,010

(iv) Bharat Alloys & Energy Ltd.

Name Designation No. of Shares in the Issuer Co.

M. S. P. Rama Rao Chairman 2,02,900 K.S. Rao Director NIL Shri B.Gopala Director NIL Shri V.S. Rao Director NIL Shri N. Babu Rao Director 1,700 Shri M. S. Lakshman Director 78,300 Rao

(v) Padmakshi Investments Pvt. Ltd.

Name Designation No. of Shares in the Issuer Co.

Dr. B.Sri Nagi Director NIL Smt.M.Sri Mani Director 1,20,010 Shri. C.Madhusudan Director NIL Shri. N.Babu Rao Director 1,700

(vi) Techno Pack Pvt. Ltd.

Name Designation No. of Shares in the Issuer Co.

Dr. M.V.V.S Murthi Chairman 1,57,769 C. Venkatramaiah Director NIL G. Suryanayana Murthi Director NIL E. Rama Rao Director NIL Ch. Suryanarayana Murthi Director NIL

Fired to Excel The Promoters/ Promoter Group intend to subscribe to their own entitlement in this Rights Issue in full. The Promoters/ Promoter Group have undertaken to subscribe to the undersubscribed portion in the event of shortfall in the issue subscription by the non-promoter Shareholders, if any.

Presuming no subscription is received from the non-promoter Shareholders, the Promoters’ shareholding shall increase to 79.45% of the post Rights Issue equity capital of the Company as follows:

Particulars Pre Issue Post Issue No. of shares % of Issued No. of shares % of Issued Capital Capital

Promoters 16,08,954 38.36% 99,97,654 79.45% Non Promoters 25,85,396 61.64% 25,85,396 20.55% Total 41,94,350 100.00% 125,83,050 100.00%

As a result of this subscription and consequent allotment, the Promoters/ Promoter Group may acquire shares over and above their entitlement in the Issue which may result in their shareholding in the Company going above their current holding. The subscription and acquisition of additional equity shares by the Promoter/Promoter Group to the extent of undersubscription, if any, will not result in change of control of the management of the Company and shall be exempt in terms of proviso to Regulation 3(1)(b)(ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.

The Promoter/Promoter Group have confirmed that in case the Rights Issue of the Company is completed with their subscribing to equity shares over and above their entitlement and as a result, if the public shareholding in the Company after the Issue falls below the permissible minimum level as specified in the listing condition or listing agreement, they will make an offer for sale of their holdings so that the public shareholding is raised to the minimum level specified in the listing agreement or in the listing conditions within a period of 3 months, as per the requirements of sub-clause 17.2 of SEBI (Delisting of Securities) Guidelines, 2003 and any amendment thereto.

8. The Company has not issued any warrant, option, convertible loan, debenture or any other securities convertible at a later date into equity, which would entitle the holders to acquire further equity shares of the Company.

9. There are no transactions (except those mentioned below) in the securities of the Company during the preceding 6 months, which were financed /undertaken directly or indirectly by the Promoters, Directors, their relatives, Promoter Group Companies or Associate Concerns directly or indirectly through other persons. Name Status Date of Mode of No. of Price Acquisition acquisition Shares per / Allotment Share (in Rs.) Dr. N Tata Rao Director 08.08.06 Preferential 1,000 125/- Allotment Dr. MVVS Murthi Promoter & 06.06.2006 Open 500 97/- Director Market Dr. MVVS Murthi Promoter & 07.06.2006 Open 400 92/- Director Market Dr. MVVS Murthi Promoter & 08.06.2006 Open 500 84/- Director Market Dr. MVVS Murthi Promoter & 13.06.2006 Open 500 78/- Director Market Dr. MVVS Murthi Promoter & 08.08.2006 Preferential 60000 125/- Director Allotment MS Lakshman Rao Promoter & 08.08.2006 Preferential 1000 125/- Director Allotment MSP Rama Rao Promoter & 08.08.2006 Preferential 1000 125/- Director Allotment Bharat Alloys & Promoter 08.08.2006 Preferential 25000 125/- Energy Ltd. Allotment

Fired to Excel VBC Industrial Promoter 08.08.2006 Preferential 36000 125/- Holdings Pvt. Ltd. Allotment Konaseema Promoter 08.08.2006 Preferential 25000 125/- Infrastructure Pvt. Allotment Ltd.

10. The following are the transactions of the below named directors of the Promoter Companies in the shares of the Issuer Company during the last six months. Except as mentioned below, there were no other transactions by any other directors of the Promoter Companies in the shares of the Issuer Company during the last six months.

Name of the Name of the No. of Mode of Date of Price Director Promoter Shares Acquisition Acquisition per Company held in Share Issuer (in Rs.)

Dr. M.V.V.S Techno Pack 500 Open Market 06.06.2006 97/- Murthi Pvt. Ltd. 400 Open Market 07.06.2006 92/- 500 Open Market 08.06.2006 84/- 500 Open Market 13.06.2006 78/- 60,000 Preferential 08.08.2006 125/- Allotment M. S. P. Rama Konaseema 1,000 Preferential 08.08.2006 125/- Rao Infrastructure Allotment Pvt. Ltd.

Bharat Alloys and Energy Ltd. M. S. Lakshman Konaseema 1,000 Preferential 08.08.2006 125/- Rao Infrastructure Allotment Pvt. Ltd. Bharat Alloys and Energy Ltd. N. Babu Rao Bharat Alloys 1,000 Preferential 08.08.2006 125/- and Energy Ltd. Allotment

Padmakshi Investments Pvt. Ltd.

11. Equity shares of the Company are being traded in compulsory dematerialized mode. The market lot of the Equity Shares is 1 (one).

12. The ten largest shareholders two years prior to the date of filing of this Draft Letter of Offer with Stock Exchanges are as follows: (as on January 7, 2005) Sr. Name of the Shareholders Number of Percentage of No. Equity Shares shareholding (%) 1. Techno Pack (P) Ltd. 348365 8.31 2. PS Reddy 238320 5.68 3. Yasaswini Investments (P) Ltd. 202315 4.82 4. Padmakshi Investments (P) Ltd. 195495 4.66 5. MS Rama Rao 184600 4.40 6. Mathukumilli Sri Mani 120010 2.86 7. Peninsular Sea Foods (P) Ltd 98650 2.35 8. MVVS Murthi 92745 2.21 9. MS Lakshman Rao 77300 1.84 10. M Siddartha 73500 1.75 Total 16,31,300 38.89

Fired to Excel 13. The ten largest shareholders as on 10 days prior to the date of filing of the Draft Letter of Offer with Stock Exchanges are as follows: (as on December 30, 2006)

Sr. Name of the Shareholders Number of Percentage of No. Equity Shares shareholding (%) 1. Techno Pack (P) Ltd. 348365 8.31 2. BLB Limited 250611 5.97 3. Yasaswini Investments (P) Ltd. 202315 4.82 4. MS Rama Rao 202900 4.84 5. Padmakshi Investments (P) Ltd. 195495 4.66 6. Mathukumilli Sri Mani 120010 2.86 7. Peninsular Sea Foods (P) Ltd 98650 2.35 8. MVVS Murthi 152745 3.64 9. MS Lakshman Rao 78300 1.86 10. M Siddartha 73500 1.75 Total 17,22,891 41.06

14. The ten largest shareholders as on the date of filing of the Draft Letter of Offer with Stock Exchanges are as follows: (as on January 5, 2007)

15. The Company/Promoters/Directors/Lead Merchant Bankers have not entered into buyback or similar arrangements for purchase of securities issued by the Company.

16. The entire price of Rs. (*) per share is payable on application. Since the shares allotted will be fully paid –up at the time of allotment, the forfeiture clause will not be applicable to the Equity Shares being allotted in terms of this Draft Letter of Offer.

17. The present Rights Issue is being made in the ratio of two equity share for every one equity share held as on Record Date [•] and will not lead to any fractional entitlements.

18. The total number of shareholders as on the date of filing the Draft Letter of Offer with the stock exchange is 10,675.

19. The Equity Shares of the Company are of face value of Rs.10/- and marketable lot is 1 (one). At any given time there shall be only one denomination for the shares of the Company and the disclosures and accounting norms specified by SEBI from time to time will be complied with.

20. The Company has not raised any bridge loan against the proceeds of this Issue.

21. The Company has not issued equity shares for consideration other than cash or out of revaluation reserves at any point of time.

Fired to Excel 22. The Company shall not make any further issue of capital whether by way of issue of bonus shares, preferential allotment, rights issue or in any other manner during the period commencing from submission of the Draft Letter Of Offer with SEBI until the Equity Shares offered through this Draft Letter Of Offer have been listed.

23. As on date, there is no proposal, intention, negotiations, consideration of the Issuer to alter the capital structure by way of split/ consolidation of the denomination of the shares, or issue of shares on a preferential basis or issue of bonus or rights or further rights issue of shares or any other securities, within a period of 6 months from the date of opening the present Issue.

24 The entire Issue price for equity shares is to be paid on application hence there will be no partly paid up shares arising out of this Issue.

Fired to Excel VI. PARTICULARS OF THE ISSUE

OBJECTS OF THE ISSUE:

The present Rights Issue of 83,88,700 shares at Rs. (*) [aggregating Rs. (*) lacs] is being made to meet the following objectives:

1. The Company intends to utilize the proceeds of this Issue to the extent of Rs. 4000.00 lacs towards the subscription to the equity share capital of one of the Promoter Group Companies, Karthik Rukmini Alloys & Energy Limited (KRAEL) for part financing the 65 MW pit head, coal based Captive Power Project proposed to be set up by KRAEL. This Project would be set up at Jagannathpur Village, Sirpur Kaghaznagar Mandal, Adilabad District, Andhra Pradesh. The capital cost of this Project is estimated to be of Rs.26,267.00 Lacs.

2. Repairs and maintenance of the existing plant of the Company at Rudraram Village, Medak District, Andhra Pradesh.

3. General corporate purposes.

4. Meeting the Issue expenses.

The main Object Clause of the MoA and objects incidental or ancillary to the Main Objects as specified in the MoA of the Company, enable the Company to undertake the activities for which the funds are being raised in the present Issue.

The Break up of the above mentioned Objects of the issue are as under: - (Rs. In lacs) S.No Particulars Amount 1 Subscription tothe equity share capital of KRAEL for part 4000.00 financing its captive power Project 2 Repairs and maintenance of the existing plant of the 405.00 Company at Rudraram Village, Medak District, Andhra Pradesh 3 General Corporate Purposes (*) 4 Meeting the Issue Expenses 100.00 TOTAL (**)

Means of Finance: (Rs. In lacs) S. No. Particulars Amount 1 Rights Issue of 83, 88,700 equity shares of Rs.10/- each (*) for cash at a premium of Rs. (*) per equity share (Issue Price of Rs. (*) aggregating to Rs. (*) lakhs 2 Internal Accruals (*) TOTAL (**)

The above fund requirement is based upon the current business plans of the Company. The Company may have to revise its business plans from time to time and consequently its requirement for funds may also change. The captive power Project of KRAEL in which the Company proposes to invest major portion of the Issue proceeds has been short listed for the detailed appraisal by the Power Finance Corporation Limited, New Delhi (PFC).

The detailed Break up of the above mentioned objects of the Issue is as under: -

1. Subscription to the equity share capital of KRAEL for part financing its Captive Power Project In order to improve the prospects of the Issuer Company, to get relief from fluctuations of Power tariffs and to obtain un-interrupted power at a cheaper price, the promoters of KRAEL have decided to set up a 65 MW pit head, coal based Captive Power Plant Project with a capital cost of Rs.26267.00 Lacs under KRAEL. As per the provisions of the Electricity Act, 2003, for a power project to qualify as a “captive power plant,” at least 26% of the equity capital of the project company shall be held by the promoters of the

Fired to Excel project company who intend to consume the power from captive power plant and at least 51% of the power generated from the project is required to be consumed by them for captive purpose. The balance 49% of the power can be sold to third parties without any surcharge being levied on the same. Issuer Company, Bharat Alloys & Energy Ltd, Elgi Tread (India) Ltd. and Vijai Electricals Ltd. intend to subscribe to the share capital of KRAEL. The Project will supplement the power requirements of another Promoter Group Company, Bharat Alloys & Energy Limited also.

The Project will be set up at a site located about 7 km from Sirpur in Adilabad district of Andhra Pradesh. The site is located adjacent to the State highway passing through Sirpur to Dehagaon Mandal and is about 250 km. from Hyderabad.

The site location is appropriate considering the proximity to perennial water source from Pedda Vaagu tributary, accessible by main State roads and railway station just about 7 km away, Singareni collieries only about 20 km for supply of coal and power evacuation facility at APTRANSCO 132 KV substation located at 5 km. The site is located near the town of Sirpur (7 kms) which has the Sirpur Paper Mills, Kagajnagar which is a long standing paper industry in Andhra Pradesh.

The Project is proposed to operate on Indian coal on an average 340 days of the year. At design levels, it will sell 445.54 million kwh to the manufacturing units of the Issuer Company and BAEL, located in Medak and Karnool districts, respectively, by entering into wheeling arrangements with APTRANSCO.

KRAEL has already obtained coal linkage of 1,80,000 tons per annum from Ministry of Coal & Mines and has entered into a fuel supply agreement with Singareni Collieries for 1,80,000 tons per annum, available at a distance of about 20 km from the proposed site location. Balance requirement of fuel will be met by coal rejects to the tune of about 2.2 lakh tons per annum. For this purpose also, KRAEL proposes to enter into a long term agreement with suppliers of coal rejects, which have set up coal washery units in the nearby areas.

The Captive Power Plant Project will generate about 65 MW of power and provide economical, reliable and sustainable power to the existing Ferro alloys manufacturing units of VBCFAL in Medak and Bharat Alloys & Energy Limited in Kurnool District of Andhra Pradesh, through APTRANSCO distribution network. VBCFAL has 2 nos., coal based,16.5 MVA capacity submerged arc furnaces and Bharat Alloys & Energy Limited has 1 no., coal based, 16.5 MVA capacity furnace (additional one no. 16.5 MVA similar furnace being installed) for the manufacture of Ferro manganese, Silicon manganese and Ferro silicon. The entitlement to the power produced from the Project after deducting auxiliary consumption and wheeling charges levied by APTRANSCO will be in proportion to the shareholding in the project company. Any party entitled to the power in terms of the shareholding may sell part of his excess power entitlement to the other party subject to the fulfillment of guidelines for captive consumption of power.

The Project will employ high pressure and temperature configuration (105 kg/cm2a and 525° C) boiler & steam turbine, as well as ESP for emission control and DCS - SCADA control system for efficient operation. The proposal for financing of the Project has been submitted to the PFC, which has short listed the Project for detailed appraisal. The cost estimates made by the promoters of KRAEL for the Project as submitted to the PFC are given below.

Project Cost: % of the Total Particulars Total Project (Rs. In Lakh) Cost Land 75.00 0.29 Site development 205.00 0.78 Building 3125.00 11.89 Plant and Machinery 19356.00 73.69 Miscellaneous Fixed Assets 1060.00 4.03 Preliminary Expenses 165.00 0.63 Pre operative Expenses 1534.00 5.84 Contingencies 507.00 1.93 Working Capital Margin 240.00 0.91 Total Cost of the Project 26267.00 100.00

Fired to Excel Means of Finance:

Particulars Total % of the (Rs. In Total Lakh) Cost of Project Investment from the Issuer Company through the present 4000.00 15.23 Rights issue * Investment from Bharat Alloys & Energy Limited* 2000.00 7.61 Investment from the other Investors: Vijai Electricals Ltd * 1000.00 3.81 Elgitread (India) Ltd * 1000.00 3.81 Debt (from Power Finance Corporation Limited & Other 18267.00 69.54 Banks) $ Total 26267.00 100.00

* The shareholders of the Issuer Company have approved the proposed investment in the Project vide the resolution passed at the AGM held on July 24, 2006. Bharat Alloys & Energy Limited, Vijai Electricals Limited and Elgitread (India) Ltd. are yet to pass the necessary resolutions for the proposed investment in KRAEL. The shareholders agreement amongst the Issuer Company, Bharat Alloys & Energy Limited, Vijai Electricals Limited and Elgitread (India) Ltd. for the equity investment is proposed to be executed once the Project is appraised by the PFC and final sanction letter towards debt component forming part of the cost of the Project to be financed by PFC is issued.

$ PFC has not yet sanctioned the debt component of the Project. The final sanction of financial assistance for the Project would be dependent on the outcome of the detailed appraisal and approval by the competent authority of the PFC. After the sanction of the debt by PFC, KRAEL will approach other Banks/FIs for the balance portion of the debt component, if any.

Detailed Break up of the Cost of Project is as under:-

• Land

Particulars Total (Rs. In Lakh) Acquisition Cost 75.00 Stamp duty (included above) 0.00 Total Cost 75.00

• Site Development

Particulars Total (Rs. In Lakh) Levelling 100.00 Fencing 50.00 Gates 5.00 Internal Roads, Storm Drains, Cable Trenches, effluent pit 50.00 Total Cost 205.00

• Buildings

Particulars Amount

(Rs. In Lacs) Administrative Office and Stores 150.00 Civil works for power plant building, foundations for all 1700.00 equipment Water Supply system 250.00 RCC Chimney (about 115 m. height) 800.00 Water Storage and clarifier 225.00 Total Cost 3125.00

Fired to Excel • Plant and Machinery

Particulars Amount (Rs. In Lacs) HP Boiler (130 TPH x 2, 105 kg/cm2, 525 Deg.C) & auxiliaries, 6000.00 HP Heater & Piping, ESP, ID/FD fans etc., incl. Erection and Commissioning Steam Turbine generator including dearator & auxiliaries (1 x 4500.00 65 MW) Electrical Package 1980.00 Evacuation facility, Transmission Line (6 Km) & incoming bays 900.00 DCS & control cabling & UPS 630.00 Cooling Tower, circulation pumps & Raw water pumps 1080.00 Fuel & Ash handling system 1920.00 Compressors, drier, air receiver 264.00 WTP plant & Storage tank 498.00 NPDC of AP supervision charges 84.00 Railways Siding & Railway Track 10km (outside plant 1500.00 boundary) Total Cost 19356.00

• Miscellaneous Fixed Assets

Particulars Amount (Rs. in lacs) Spares & Miscellaneous Tools & Tackles 400.00 Fire Fighting Equipments 150.00 Air Conditioning & Ventilation system 125.00 EOT Crane 150.00 Miscellaneous jobs including final painting, landscaping green 125.00 belt development, sign boards, lube & oil Furniture, Cupboards, PC, etc. 50.00 Vehicles including coal dumper 60.00 Total Cost 1060.00 • Preliminary Expenses

Particulars Amount (Rs. in lacs) Preparation of Detailed Project Report & loan syndication 40.00 Legal fees and front end fees 125.00 Total Cost 165.00

• Pre-operative Expenses

Particulars Amount (Rs. in lacs) Establishment charges 50.00 Traveling Expenses 50.00 Start up expenses including wages & salaries 200.00 Project Insurance during construction 194.00 Mortgage expenses, bankers charges, stamp duty, etc. 40.00 Detailed Engineering & Pre contract services 50.00 Post contract project supervision (Procurement, Erection & 50.00 Commissioning) Interest during construction 900.00 Total Cost 1534.00

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• Contingencies

Particulars Amount (Rs. in lacs) Land 1.50 Site Development 4.00 Buildings 62.50 Indigenous Plant & Machinery 387.10 Other Interface Equipment and Assets 21.20 Preoperative Expenses 30.70 Total Cost 507.00

• Working Capital Margin

Particulars Amount (Rs. in lacs) Coal 49.40 O&M charges 4.72 Salaries, Wages and Overheads 4.44 Debtors 181.44 Total Working Capital Margin 240.00

APPRAISAL

The Project has been short-listed for detailed appraisal by PFC. PFC is in the process of conducting the detailed appraisal of the Project.

SCHEDULE OF IMPLEMENTATION

S No Activity Commencement Completion 1 Acquisition of Land 01/01/2006 (*) 2 Development of site 01/01/2007* 31/03/2007 3 Main Equipment Layout drawing and 01/01/2007 31/03/2007 Engineering details 4 Main Equipment Foundation Drawings 01/03/2007 30/06/2007 5 Foundation Drawings for Auxiliaries 01/03/2007 30/05/2007 6 Steam Generator & Turbine Structure 01/01/2007 30/09/2007 7 Steam Generator Pressure parts 01/01/2007 30/11/2007 8 Steam Turbine supply & delivery 01/03/2007 31/12/2007 9 Economiser & Air preheater 01/03/2007 30/09/2007 10 Fixtures & holders, soot blowers grate 01/05/2007 31/12/2007 11 Fans and pumps with drives, ESP & 01/03/2007 31/01/2008 Deaerator 12 Fuel Handling system 01/08/2007 31/01/2008 13 Feed water storage tank, fuel feeders, 01/08/2007 31/12/2007 ductings, fuel silo, fuel feeding system 14 Refractory & Insulation 01/03/2008 30/03/2008 15 Steam and balance Piping with valves & 01/10/2007 30/03/2008 fittings 16 Electrical, M.C.C., Instruments & Control 01/10/2007 28/02/2008 17 Trials & Commissioning 01/04/2008 30/06/2008

* The acquisition of land is in progress. The development of site will start after the acquisition is complete.

Fired to Excel YEAR WISE BREAK UP OF EXPENDITURE PROPOSED TO BE INCURRED ON THE PROJECT (Amount Rs. in Lakhs) Particulars Ist 2nd 3rd 4th 5th 6th 7th Total Quarter Quarter Quarter Quarter Quarter Quarter Quarter

Amount 8930.00 3414.00 3677.00 3677.00 3677.00 1576.00 1316.00 26267.00 Rs. in Lakhs

% 34% 13% 14% 14% 14% 6% 5% 100.00% (Percentage)

2. Repairs and maintenance of the existing plant of the Company at Rudraram Village, Medak District, Andhra Pradesh

The expenditure for the Repairs and maintenance of the Company’s existing plant at Rudraram Village, Medak District, Andhra Pradesh, is estimated to be Rs. 405.00 Lakhs. The detailed breakup of the capital expenditure is as follows: - (Rs. In lakhs) Sr. No. Particulars Quantity Price Amount Name & Address of the supplier per unit 1 25/10 MT Capacity EOT 1 50.00 50.00 Eddy Cranes & Engineers (P) Ltd, Crane Mumbai 2 Tonne Diesel Fork Lifts 3 7.50 25.00* Godrej & Boyce Mfg. (I) Ltd Truck 3 Pollution Control Plant 3000 0.00299 100.00* Industrial Filters & Fabrics (P) (500 FG+1064 Polyester Bags # Ltd. Hyderabad Bags) 4 Furnace lining estimates 150.00 Department Estimates 5 Pipe Line estimates 10.00 10.00 Department Estimates (Procurement and lining) 6 Rotary Screw Air 1 4.65 6.00* Mayotec Industrial Sales & Compressors – GA 30 Service, Secunderabad Model 7 Cooling Tower 1 8.23 9.00* Southern Cooling Towers (P) Ltd. 8 Copper Contact Clamps & 6 22.00* Morakhia Metals & Alloys (P) Ltd 9 flexible Copper cable/Rope 8.00 Metal crafts (I) Pvt. Ltd 10 Overhauling of 16/20 1 22.00 25.00 Nani Electro Technics (P) Ltd. MVA, 132/11 KV power transformers and replacement of Oil Total 405.00

* Includes Excise duty and CST # To be negotiated with supplier

The Company is yet to place orders for some of the equipment / machineries required for the proposed repairs and maintenance.

3. General Corporate Purposes:

The Company proposes to invest for expansion/mordernisation, diversification programmes for exploring new growth opportunities within the Company and in the Promoter Group Companies.

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4. Issue Expenses:

The expenses of Rights issue to be incurred by the Company are estimated to be around Rs. 100.00 lacs as detailed below:

Particulars Amount in % of total Issue % of total Rs. In Lacs Expenses Issue Size Fee to Intermediaries: Lead Manager 50.00 Legal Advisors to the Issue 1.50 Registrars to the Issue 2.50 Service Tax on the fees paid to 6.00 60.00 (*) Intermediaries Advertising 5.00 5.00 (*) Printing, Stationery and Despatch 30.00 30.00 (*) Travel & Other Misc. 5.00 5.00 (*) Total 100.00 100.00 (*)

YEAR WISE BREAK UP OF EXPENDITURE:

The entire issue proceeds are to be utilized within the FY 2007-2008. Hence the year wise break up of expenditure is not given.

INTERIM USE OF FUNDS

Pending utilisation for the purposes as stated in the Draft Letter of Offer, the Issue proceeds would be temporarily invested in high quality, interest/dividend bearing liquid instruments including deposits with banks, money market mutual funds for the necessary duration. Such investments would be made in accordance with investment policies approved by the Board or a duly authorised committee thereof.

Fired to Excel BASIC TERMS OF ISSUE

The Equity Shares now being offered are subject to the terms of this Draft Letter of Offer, the CAF, the MoA and AoA of the Company, approvals under the Foreign Direct Investment Scheme of Government of India, FEMA, if applicable, Guidelines issued by SEBI, the Act, the guidelines, notifications and regulations for the issue of capital and for the listing of securities issued by the Government and/or other statutory authorities and bodies from time to time and such terms and conditions as may be incorporated in the Letter of Allotment/Share Certificate or any deed or document executed by the Company regarding the Rights Issue. The principal terms and conditions of the Offer are as follows:

EQUITY SHARES

Face Value Each Equity Share has the face value of Rs. 10/- Issue Price Each Equity Share is being offered at a price of Rs. (*) per share (Including a Premium of (*) per share, face value of Rs. 10/- each) No. of Equity Shares offered 83,88,700 Equity shares of Rs. 10/- each Entitlement Ratio The Equity Shares are being offered on rights basis to the existing Equity Shareholders of the Company in the ratio of 2 (Two) Equity Shares for every 1 (One) Equity Share (i.e. 2:1) held as on the Record Date [•]. Market Lot The market lot for the Equity Shares in dematerialised mode is one. In case of physical certificates, the Company would issue one certificate for the Equity Shares allotted to one folio (“Consolidated Certificate”). Terms of Payment 100% of the issue price i.e. (*) shall be payable on Application

For more details please refer to section “Terms of the Issue” given on page 157 of this Draft Letter of Offer.

Fired to Excel BASIS OF THE ISSUE PRICE

QUANTITATIVE FACTORS

1. Earning per Share (EPS)

Financial Year EPS (Rs.) Weight used 2003-04 74.16 1 2004-05 21.34 2 2005-06 (36.96) 3 Weighted Average 0.99 Half Year ended (9.05) September 30, 2006

2. Price Earnings Ratio (P/E Ratio)

Issue Price * P/E (based on Weighted average EPS) *

3. Industry P/E

Highest 43.4 Lowest 4.1 Industry composite 15.1 (Source: Capital Market Vol. XXI/22; Jan-01-14, 2007, Segment: Mining/Minerals/ Metals)

4. Return on Net worth

Financial Year Return on net Weight used worth (%) 2003-04 22.43 1 2004-05 6.09 2 2005-06 (11.82) 3 Weighted Average (0.14) Half Year ended (2.97) September 30, 2006

5. Net Asset Value (NAV) per share

As on 31/03/2006 (Rs.) 312.79 As on 30/09/2006 (Rs.) 297.25 After the issue (*)

6. Minimum Return on Net worth required to maintain Pre-Issue EPS Since, the EPS of the Company for FY 2005-2006 is negative, the minimum Return on net worth required for maintaining the pre-issue EPS has not been calculated.

7. Peer set Analysis Comparison of the accounting ratios of the Issuer Company as mentioned above with the industry average, with the accounting ratios of the peer group (i.e. companies of comparable size in the same industry for the period ended ending 31st March 2006 is as follows.

Name of the Company EPS RONW Book Value P/E (Rs.) (%) Per Share (Times) (Rs.) Facor Alloys Ltd 0.2 - -1.5 - Ferro Alloys 0.6 20.4 3.7 - Impex Ferro Tech 1.9 12.1 17.0 6.5 Rohit Ferro 3.5 30.8 30.4 9.5 VBC Ferro Alloys Ltd --311.0 - (Source: Capital Market Vol. XXI/22; Jan-01-14, 2007, Segment: Mining/Minerals/ Metals)

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The face value of the Share is Rs.10/- and the Issue price is (*) times of the face value. The Lead Manager believes that the Issue Price of (*) is justified in view of the above quantitative parameters. See the section titled “Risk Factors” on page nos 8 to 19 of this Draft Letter of Offer and the financials of the Company including important profitability and return ratios, as set out in the Auditors’ report in the Draft Letter of Offer to have a more informed view of the investment proposition.

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TAX BENEFITS TO THE COMPANY AND ITS SHAREHOLDERS

M/s. Brahmayya & Co., Chartered Accountants, vide their letter dated December 28, 2006 have advised that under the provisions of the Income-tax Act, 1961, Gift Tax Act, 1957, Wealth Tax Act, 1957, for the time being in force, the following benefits, inter alia, will be available to the Company and its members. The said letter is reproduced below:

The Board of Directors VBC Ferro Alloys Ltd. #6-2-913/914, 3rd Floor Progressive Towers, Khairatabad Hyderabad - 500 004

SUB: TAX BENEFITS AVAILABLE UNDER THE RIGHTS ISSUE OF THE COMPANY

We have been asked by the Company vide their letter dated December 26, 2006 to advise the tax benefits which would be available to the Company and the shareholders of the Company under the current direct tax laws.

The tax benefits listed below are the possible benefits available under the current tax laws in India. Several of these benefits are dependent on the Company or its Shareholders fulfilling the conditions prescribed under the relevant tax laws. Hence the ability of the Company or its Shareholders to derive the tax benefits is dependent upon fulfilling such conditions, which based on business imperatives they face in the future, they may not choose to fulfill.

The following tax benefits shall be available to the Company and the Shareholders under Direct Tax.

A. To the Company

1) The company is eligible under section 35D of the Income Tax Act, 1961 to a deduction equal to one-fifth of certain specified expenditure, incurred in connection with the expansion of its industrial undertaking including expenditure incurred for the issue for public subscription of shares, for a period of five successive years subject to the limits and conditions specified under the said section.

2) The company will be eligible for depreciation @ 15% on the cost of Plant & Machinery as per the provisions of Income Tax Act, 1961. Further the company would be entitled to depreciation @ 80% on the cost of Plant & Machinery of the nature of energy saving devices and such other assets as specified in the Income Tax Rules, 1962.

3) As per provisions of section 32(1)(iia) of the Income Tax Act, 1961, in respect of Plant, Machinery (other than Ships or Aircraft) acquired and installed after 31st day of 31.03.2005, additional depreciation at 20% shall be allowed in substitution of the existing rate of 15%.

4) The company will be eligible for tax holiday as per the provisions of section 80 IA of the Income Tax Act, 1961, in respect of its income from new power generating units generating power in the form of steam and electricity for a period of ten years. The company will also be eligible to claim deduction under section 80JJA of the Income Tax Act, 1961 in respect of its income from new chemical recovery boilers which are used for treating of bio-degradable waste for generating power for a period of 5 years.

B. Resident Indians

1) Any income by way of dividends received on the shares of the company is eligible for exemption from tax under section 10(34) of the Income Tax Act, 1961.

2) Under section 10(38) of the Income Tax Act, 1961, if the shares of the company are sold by its members, after being held for more than 12 months, in a transaction entered into in a recognized Stock Exchange in India, the gain, if any, there from will be exempt from tax.

Fired to Excel 3) Under section 111A of the Income Tax Act, 1961, Capital gain, if any, arising from the transfer of shares of the company which are held for a period of less than 12 months in a transaction entered into in a recognized Stock Exchange in India shall be taxable at a concessional rate of 10% (plus applicable sur-charge and educational cess).

4) Under section 112 of the Income Tax Act, 1961, the long term capital gains arising to the members of the company from the transfer of shares of the company, other than as mentioned in item 2 above, shall be chargeable to tax after deducting the indexed cost of acquisition as provided in second proviso to section 48, @ 20% or without indexation @ 10% (plus applicable surcharge and education cess).

5) Long Term Capital Gains (i.e., if the shares are sold for more than 12 months) on sale of shares of the company by the members (not covered under section 38 of the Act) shall be exempt from income tax if such gains are invested in bonds/equity shares specified in section 54EC or section 54ED subject to the fulfillment of the conditions specified in the said sections. In the case of Individual or HUF members, the said capital gains shall be exempt from tax under section 54F subject to the fulfillment of the conditions specified therein.

6) In case of sale of right entitlements by Individual members, short term capital gains shall be charged to tax as per the applicable slab rates. However, in case the total income including the said short term capital gains is less than one lac of rupees, the same shall be exempt from tax under section 88D.

7) Under section 88E credit shall be allowed for the amount of securities transaction tax paid where the income from the transaction is chargeable under the head profit and gains of business or profession subject to the fulfillment of other conditions specified under the said section.8. Shares of the company held by the shareholder will not be treated as an asset within the meaning of Section 2 (ea) of Wealth Tax Act, 1957 hence the value thereof is not includible in the net wealth chargeable to Wealth Tax.

C. Non-Resident Indians

1) Any Income by way of dividends received on the shares of the company is eligible for exemption under section 10(34) of the Income Tax Act, 1961.

2) Under section 111A, Short Term Capital Gains arising on transfer of shares in the company shall be charged to tax at 10% and long term capital gains shall be exempt as per section 10(38) if the conditions specified in items 2 and 3 under the paragraph B-Resident Indians herein above are satisfied.

3) Under section 115E of the Act, income by way of Long Term Capital Gain arising form the transfer of shares (otherwise than as mentioned in 2 above) held in the company will be taxable @ 10% (plus applicable surcharge and education cess). However, the benefit of indexation is not available to Non Residents.

4) Where any Double Taxation Avoidance Agreement (DTA) entered into between India and any other country provides for a concessional tax rate or exemption of Income from Investment in the shares of the company, those beneficial provisions shall prevail over the provisions of the Income Tax Act, 1961 with respect to the same.

5) Under provisions of Section 115G of the Income Tax Act, 1961, it shall not be necessary for a Non Resident Indian to furnish his return of income if his only source of income is investment or long term capital gains or both, arising out of assets acquired, purchased or subscribed in convertible foreign exchange and tax deductible at source has been deducted there from.

D. Foreign Institutional Investors

1) Any Income by way of dividends received on the shares of the company is eligible for exemption under section 10(34) of the Income Tax Act, 1961.

2) Short Term Capital Gains on transfer of shares in the company shall be charged to tax at 10% under clause (ii) to section 115AD read with section 111A and long term capital gains shall be

Fired to Excel exempt from tax under clause (iii) to section 115AD read with section 10(38) if the conditions specified in items 2 and 3 under the heading Resident Indians are satisfied.

3) Under Section 115AD (1)(ii) of the Act, income by way of Short Term Capital Gain arising from the transfer of shares (otherwise than as mentioned in 2 above) held in the company for a period of less than 12 months will be taxable @ 30% (plus applicable surcharge and education cess).

4) Under section 115AD (1)(iii) of the Income Tax Act, 1961, income by way of Long Term Capital Gain arising from the transfer of shares (otherwise than as mentioned in 2 above) held in the company will be taxable @ 10% (plus applicable surcharge and education cess). However, the benefits of Indexation are not available to FIIs.

E. Foreign Company

1) Any income by way of dividends received on the shares of the company is eligible for exemption under section 10(34) of the Income Tax Act, 1961.

2) Under section 111A of the Act, Short Term Capital Gains on transfer of shares in the company shall be charged @ 10% and long term capital gains shall be exempt from tax under section 10(38) if the conditions specified in item 2 and 3 under the heading Resident Indians are satisfied.

3) Under Section 112(1) (c) of the Act, income by way of Long Term Capital Gain arising from the transfer of shares (otherwise than as mentioned in 2 above) held in the company will be taxable @ 20% (plus applicable surcharge and education cess).

F. Mutual Funds

Under section 10(23D) of the Act, any income of Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or regulations made hereunder, Mutual Funds set up by public sector banks of public financial institutions and Mutual Funds authorised by the Reserve Bank of India will be exempt from income tax.

Notes: • All the above benefits are as per the current tax law and will be available only to the sole/ first named holder in case the shares are held by joint holders.

• In respect of Non-Residents, tax liability of capital gains mentioned above shall be further subject to any benefits available under the Double Taxation Avoidance Agreement, if any, between India and the country in which the Non-Resident has fiscal domicile.

• In view of the individual nature of tax consequences, each investor is advised to consult his/ her own tax adviser with respect to the specific tax consequence of his/ her participation in the Rights Issue.

Thanking You,

Yours faithfully, M/s. Brahmayya & Co., Chartered Accountants,

C.V. Ramana Rao Partner Membership No: 018545

Place: Hyderabad Date: December 28, 2006

Fired to Excel VII. ABOUT THE ISSUER COMPANY

INDUSTRY OVERVIEW:

INTRODUCTION

FERRO ALLOYS Ferro Alloys, as the name indicates are the alloys of Chromium, Manganese, and Silicon etc. Ferro Alloys are used in steel making as an additive for imparting strength and quality required in a particular grade of Steel. Ferro Manganese, Silicon Manganese & Ferro Silicon are used in the Steel making in different proportion depending upon the grade of the Steel. Ferro Chrome is used for manufacture of various grades of Stainless Steel and other chromium bearing Alloy Steel.

Ferro Alloys can be classified as bulk Ferro alloys and noble Ferro alloys. The latter are used in a small quantity. Noble Ferro alloys are produced in India by Alumna Thermit process. Ferro Titanium, Molybdenum, Vanadium falls under the category of Noble Ferro Alloys. Growth of Ferro Alloys Industry is directly linked to growth of Steel Industry. Consumption of Ferro Chrome is linked with growth of Stainless Steel and other Alloy Steel.

Capacity and Performance of the Industry Ferro alloys industry is a power intensive industry. The total load of the Industry has grown almost 8 to 9 times from 130 MVA in the mid sixties to over 1000 MVA. The installed capacity of the Industry is now 1.9 million tonnes of bulk and noble Ferro alloys.

The capacity of manganese alloys is around 11,89,000 tonnes and Ferro chrome/charge chrome about 7,02,000 tonnes The production has gone up from 1.02 million tonnes in 2002-03 to 1.24 million tones in 2003-04, an increase of 21.93%. The Ferro alloys units have incorporated the latest technology in order to use low grade ores both lumps as well as fines, after necessary beneficiation and agglomeration by installing in-house Beneficiation Plant and Briquetting Plant. The Units have also incorporated effective pollution control measures, in the form of gas cleaning, deoxidizing and waste heat recovery.

Ferro alloys Production during the last five years is given hereunder: (In lakh tonnes) Year Quantity 1999-00 7.39 2000-01 8.96 2001-02 8.21 2002-03 10.03 2003-04 12.17 (Source: Indian Ferro Alloys Producers’ Association, Mumbai, www.ifapaindia.org)

Export of Ferro Alloys Exports, which were around 15% of the production when the liberalized policy was introduced in 1991- 92, are now around 35% of the total production. In terms of value, exports, which were about Rs.25000 Lacs, had crossed Rs.50000 Lacs in 1997- 98. However, there was a slow down in the exports during 1999- 2000; dropping to Rs.39250 Lacs due to global recession in the steel industry. The export of Ferro- alloys touched an all time high of Rs.55460 Lacs during 2000-2001. However, it dropped to Rs. 27310 Lacs in 2001-2002 as it was unable to compete in the international market due to high power tariff. The Industry has already established itself as a regular exporter of high carbon Ferro chrome/charge chrome and silicon manganese. It has potential to export manganese alloys, Ferro silicon, Ferro vanadium, silicon magnesium, etc.

Details of export of Ferro alloys for last five years are given hereunder: (In lakh tonnes) Year Quantity 1999-00 2.06 2000-01 2.65 2001-02 1.52 2002-03 1.82 2003-04 2.52 (Source: Indian Ferro Alloys Producers’ Association, Mumbai, www.ifapaindia.org)

Fired to Excel FERRO CHROMIUM

Ferrochromium, also called ferrochrome, is an alloy of iron-chromium. It is used for production of Stainless Steel and other chrome bearing alloy steel. Chromium chemicals are also used in the leather industries. Chromium ore basically comprises of chrome in the oxide form and iron having chemical notation Fe2O3, Cr2O3. The oxides are reduced with the help of reduction agent like coke & coal in the Submerged Electric Arc Furnace. The carbon content in the reluctant reacts with the ore whereby the oxides are reduced to Ferro Chrome. Carbon Monoxide (CO), Carbon Dioxide (CO2) and liberated Carbon Monoxide being combustible burns to Carbon dioxide, which is allowed to escape through chimney after passing through the gas cleaning plant.

The Changing Global Scenario of Ferro Chrome:

• The Ferro-chrome prices to peak in Q2 2005. • The prices of Ferro chrome are to remain above historical averages throughout the year. • The outlook for the chromium metal market is for increasing growth over the next five years, due to the upturn in the international aerospace and industrial gas turbine markets. • Consumption is estimated to have risen by 15% in 2004, and could increase by a further 25% to 25,000 TPA in the coming years.

DISTRIBUTION OF CHROME ORE RESERVES

others 11% Zimbabwe 12% South Africa India Kazakastan 1% India Kazakastan Zimbabwe 4% others South Africa 72%

GLOBAL FERRO CHROME PRODUCTION Steel consumption has been rising globally at a CAGR of 5% over CY00-05, the strongest in any five year period, underpinned by strong growth across all emerging economies led by China. Over this period, the steel industry has witnessed a complete turnaround. In the late 1990’s and early 2000, most of the steel producers were suffering from massive supply surplus, which caused intense price competition and declining profitability. To overcome this crisis, comprehensive restructuring efforts were undertaken globally, including large-scale consolidations (leading to the birth of Arcelor, Corus and JFE Steel). Simultaneously, a sharp upturn in demand in major emerging economies, led by China, aided the revival of the industry’s fortunes. Between 1997 and 2003, there was almost no significant capacity increase except in China, and as demand revived, overall supply-demand situation became tight leading to a dramatic upturn in steel prices. Global crude steel production jumped from around 800 mn MT in 1999 to more than 1.1 bn MT in 2005. Furthermore, as major emerging economies continue to concentrate on building infrastructure and aiding urbanisation, steel demand is expected to grow strongly in the foreseeable future.

The prospects of continued real growth in the global steel demand are encouraging as per the latest projections by the International Iron and Steel Institute (IISI). It forecasts that the total demand for finished steel products will grow strongly in all regions of the world, led by China. IISI expects world steel demand to grow 7.3% in calendar year 06 to 1.08 bn MT and then to continue growing by 5.8% to 1.15 bn MT in calendar year 07. In this, Chinese demand is expected to grow 13% in calendar year 06 to 356 mn MT and by 12% in calendar year 07 touching 400 mn MT.

Fired to Excel China’s emergence as the largest player:

China has undertaken fixed asset investment of gargantuan proportions over the past five years to fuel its robust economic growth and support the pace of rapid urbanization. This has resulted in a massive infrastructure build up and mega construction spree, in turn leading to China’s emergence as the largest producer and consumer of steel.

In the past five years, China has almost doubled its steel consumption and for CY05 accounted for about 30% and 31% of global steel production and consumption, respectively. It also accounted for about 70% of incremental production growth and 67% of incremental demand growth for steel over the past five years.

Between 1995 and 2005, China’s economy grew at an annual rate of 8.6%, while steel consumption grew at 14.5% p.a. This compares with growth in steel consumption in the rest of the world, which was 1.4% p.a. over the same period. China has emerged as both the largest producer and consumer of steel. Its share in global production rose from 13% in 1994 to 30% in 2005. Chinese steel demand witnessed a CAGR of 9.9% during CY95-CY05, whereas the global steel demand (including China’s) grew at 4.4%. There was a demand-supply gap in China until 2003, followed by a surplus in 2004. The growth in world steel demand, excluding China, was a meager 2.9% during CY95-05. Except for CY01-03, there was no demand-supply gap in the Chinese steel market. This increased demand during these two years led to an increase in imports by China.

Steel demand in India looks set for a take off:

India’s steel story looks enticing, as the country is close to a demand inflexion point that promises to convert it into a key player on the world stage, both as a producer and a consumer. Infrastructure, construction, urbanization, the automobile industry and corporate capex programme are likely to be some of the key growth areas for the sector. As a norm, for developing economies like India, demand for steel consumption grows at about 1.3 times of GDP growth rate. This means that if the economy is to grow over 7% p.a. for the next few years, steel consumption has to grow over 9% p.a.

THE DEMAND SUPPLY FACTOR:

The combination of strong demand, tight supply and sharp rises in the costs of freight, energy and chromite raw materials and meant Ferro-chrome prices reached their highest levels for ten years in early 2005, at US72-74/lb. This represents a significant recovery from early 2002 when prices of US27-29lb were at their lowest level for 30 years and some 1.3 MT per Year Ferro-chrome capacities were idled. The bullish recovery in the Ferro-chrome market was primarily due to growth in stainless steel production, which is forecast to maintain strong growth through the mid-2000s, led by Asian demand.

The Ferro Alloys industry is highly fragmented with large number of smaller players spread across the length and breadth of the country. It has an annual capacity of around 2 mn tons, of which the working capacity is around 1.4 mn tons and an annual production of almost 1 mn tons. There are around 130 units (including 100% EOUs) within the industry.

Ferro Alloys are vital to the steel industry as they provide certain special properties to steel like strength, luster & finish, ductility etc. Hence, fortunes of the Ferro alloy industries are closely linked to the steel industry.

Global Steel Industry is witnessing buoyancy driven by strong Asian demand, particularly from China & India. Crude steel production is expected to grow from 1270 mn tpa in 2004 to 1524 mn tpa by 2010. While in India the crude steel output is expected to grow from around 34 mn tpa in FY04 to around 48.4 mn tpa by FY10. The Indian demand is expected to be driven by thrust on infrastructure sector. This we believe will fuel the growth for the Ferro Alloy industry in the country.

The country has abundance natural resources like Manganese, Chrome and Quartz ores which offers continuous supply of high quality raw materials and reasonable prices offers the Indian Ferro Alloy industry with tremendous growth opportunities to help India in emerging as the leading exporter of Ferro alloys for the world.

Fired to Excel Ferro Alloy producers in India:

S.No. Company Location Capacity Production Products (TPA) (Tonnes) 1 Nava Bharat Ferro Alloys Andhra Pradesh 125,000 70,140 Si-Mn/Fe-mn 2 Ispat Alloys Balasore (Orissa) 75,000 35,335 HC Ferro Chrome 3 Maharashtra Electro smelt Chandrapur (MH) 1,00,000 35,245 HC Fe-Mn 4 Jindal Stainless Vizag (AP) 40,000 35,698 HC Ferro Chrome 5 Tata Steel Jamshedpur 50,000 41,405 Charge Chrome Jamshedpur 30,500 44,201 Fe-Mn 6 Indian Charge Chrome Orissa 62,500 67,723 Charge Chrome 7 FACOR Shreeramnagar 72,500 67,362 HC Ferro Chrome (AP) 8 Ferro Alloy Corp Orissa 85,500 45,659 Charge Chrome 9 Impex Ferro Tech Burdwan (WB) 43,200 33,565 Si-Mn 10 Monnet Ispat Raipur 58,400 37,813 HC Ferro Chrome (Chaattisgarh) 11 Jindal Steel & Power Raigarh 36,000 35,656 HC Ferro Chrome (Chaattisgarh) 12 Maithan Alloys Burdwan (WB) 38,200 31,477 Ferro Alloys 13 VBC FERRO ALLOYS Medak (AP) 31,600 33,922 Ferro Alloys 14 GMR Industries Srikakulam (AP) 25,000 27,854 HC Ferro Chrome 15 Indsil Electro Kerala 12,000 2,926 Si-Mn 16 Hira Ferro Alloy Raipur 18,000 9,316 Fe-Mn (Chaattisgarh) Raipur 27,000 488 Fe-Mn (Chaattisgarh) (Source: B&K Research)

BUSINESS OVERVIEW:

VBCFAL is currently operating a Ferro Alloy Plant comprising 2 Nos. Sub-merged Arc Furnaces of 16.5 MVA capacity each to produce 10,000 TPA of Ferro Silicon, 31,500 TPA of Ferro Chrome and 27,000 TPA of Silicon Manganese /Ferro Manganese at Rudraram Village, Medak District, Andhra Pradesh.

The details of Company’s registered office and factory are provided below:

S.No Location Purpose Nature of Possession 1. #6-2-913/914, 3rd Floor, Progressive Towers, Registered Office Leased premises for a Khairatabad, Hyderabad - 500 004 period of 5 years w.e.f. Phone: (040) 23301166/99 1st April. 2003 Fax: (040) 23390721 2. Rudraram Village, Patancheru Mandal, Medak Factory Own District, Andhra Pradesh Phone: (08455) 220084/130 Fax: (08455) 220142

Location of the Plant:

The factory premises are situated at land measuring 80 acres (approx.) at Rudraram. The factory premises has all the facilities like raw material handling system, pollution control system, Pump House, Laboratories, fully automated control system for furnaces & weighing-batching, EOT Cranes, and In- house Power Sub-station with 25 MVA Power Transformer etc. It is situated close to 132 KVA power line of AP Transco; the raw materials required are available within radius of 200/250 KM. Water requirement at the Rudraram plant is 50,000 liters/day and is met through 6 bore wells located in the Rudraram plant.

Details of Furnaces: The Company is having two coal based furnaces of 16.5 MVA each at Rudraram, Patancheru Mandal, Medak District, Andhra Pradesh.

Fired to Excel Capacity Utilization (Present plant at Rudraram) The Capacity Utilization by the Company for its 16.5 MVA two furnaces during the preceding three financial years as certified by the Auditors of the Company is as under:

2003-2004 2004-05 2005-2006

Description Licensed Installed Production Licensed Installed Production Licensed Installed Producti Capacity Capacity Capacity Capacity Capacity Capacity on (per (per (per (per (per (per furnace) furnace) furnace) furnace) furnace) furnace)

Ferro Silicon 15,000 10,000 21,885 15,000 10,000 15015 15,000 10,000 6948 (MT) Ferro 36,000 21,600 6,709 36,000 21,600 18,774 45,500 27,000 18,265 /Silicon Manganese (MT) Ferro 15,000 22,000 - 15,000 22,000 - 20,400 31,500 565 Chrome (MT)

Infrastructure facilities for raw materials and utilities like water, electricity, etc:

i) Availability of Raw Material

Raw material plays a major part in the successful execution of a Ferro alloy plant. The Company ensures the procurement of raw materials at competitive rates from neighboring areas. The major raw materials required for Ferro Alloys are Chrome Ore, Quartz, Electrode Paste, Coke Breeze, Dolomite, Charcoal, Electrode casting, Manganese Ore, H.R. Sheet, M.S. Rounds, Lancing Pipe etc.

Coal is sourced from The Singareni Collieries Company Ltd. and other suppliers from states like Andhra Pradesh & Tamilnadu. The Issuer Company is having a long term coal linkage of 1000 tones per month with The Singareni Collieries Company Ltd.

Manganese and Chrome ores are sourced from Manganese Ore India Limited and other Manganese ore suppliers. The other raw materials, mainly fluxes, are easily available in the country. ii) Power and fuel

The Company gets power supply from Central Power Distribution Company of Andhra Pradesh Limited (CPDC) for its plant at Rudraram. The Company is procuring at an effective Power rate of Rs.2.55/- per unit from Central Power Distribution Company of Andhra Pradesh Limited (CPDC) for its’ contracted load of 30 MVA, which completely fulfills the requirement at Rudraram plant. iii) Water

Water requirement at the Rudraram plant is 50,000 liters/day and is met through 6 bore wells situated within the Rudraram Plant. iv) Manpower

The Company has a total of 254 employees as on 25.12.2006. The detailed break up is as given below: Division Executives Managerial Non- Workers Trainees / Total Managerial Consultants Registered Office 8 11 9 - 14 42 Plant at Rudraram 2 23 42 116 13 196 Calcutta Office 1 1 3 - - 5 Delhi Office 1 2 2 - - 5 Vizag Office - 1 3 - - 4 Chennai Office - 1 1 - - 2 Total 12 39 60 116 27 254

Fired to Excel v) Compressed Air

The existing plant at Rudraram has 3 Nos. of small air compressors for cleaning the dusty smoke from furnaces through gas cleaning plants.

vi) Environmental Clearance

In the manufacturing process of Ferro alloys, slag is generated as a waste by-product or an effluent. The slag is not a harmful substance and hence no effluent treatment plant is required. Slag is used in cement clinkers and used by cement industries and also used for road-filling purpose. The Company has also received approvals from Andhra Pradesh Pollution Control Board for its plant at Rudraram Village, Patancheru Mandal, Medak District.

Products of the Company

The Company is engaged in the manufacture of Ferro alloy products for the use of steel plants and foundries. The Company is manufacturing Ferro Chrome, Ferro Manganese and Silicon Manganese. The Company is selling its products both to the integrated steel plant players and to the International Steel Plant players. The Ferro alloy market largely depends on the demand of steel in the country and abroad as Ferro alloys are consumed mainly by steel plants.

As per the infrastructure available, the Company can produce the following products:

Ferro Silicon Ferro Manganese Silicon Manganese and Ferro Chrome

However, depending on the market conditions, the Company produces the products which give maximum contribution to the Company.

MANUFACTURING PROCESS OF THE PRODUCTS OF THE COMPANY

Ferro Chrome

Ferro Chrome is an alloy of Iron, Chromium and Carbon. Ferro Chrome is used in various types of steels to increase hardness, resistance to corrosion, wear resistance, friction, impact, stability at high temperatures, etc. The following are the Ferro chrome specifications:

Chromium : 64% minimum Silicon : 3% Carbon : 6 to 8% Phosphorous : 0.025% max Sulphur : 0.035% max

The following raw materials are required to manufacture one ton of Ferro chrome.

Chromium ore : 2.3 to 2.5 MT Coke : 0.600 MT (Coke Fixed Carbon: 80%) Quartz : 0.160 – 0.200 MT Electrode carbon paste: 0.020 MT Steel Sheet : 0.002 MT Lancing Pipes : 6 mtr M.S.Rounds : 0.002 MT Oxygen Gas : 1 – 2 Cu.mtr Specific power : 3700 – 3900 Kwh/MT

The consumption of Chrome ore and fluxes depends upon the quality of ores.

Fired to Excel The typical flow chart for manufacturing of Ferro Chrome is as under:

Advice from Marketing Department

Raw Material Procurement

Raw Material Storage Lot Wise

R/M Analyses Non-Conforming Report Rece iving Material Control of Inspection Non-conforming material

R/M Feeding Advice Raw Materials Register Screening R-PR-18

Feeding to day Bunkers

WI-PR-03 Burden Preparation

F-PR-12 Batch Weighing F-PR-13 System

Charge lifting to 15mts floor

Feeding to furnace

WI-PR-13 Sm elting of Charge

Tapping at regular intervals

Tapping/Slag reports F- WI-PR-06 In process QC-02 AND inspection F-QC-03

Fired to Excel

Alloy

Casting

F.P Yard

Sizing

Non conformed Product Corrective/ Preventive Final Action Inspection

PACKING

DESPATCHES

The production of Ferro Chrome is a slag process and is carried in sub merged arc furnace. The electric energy required for the process is supplied through soderberg electrodes to the furnace. The electrode consumes and is periodically compensated by electrode slippings.

After physical and chemical inspection, the raw materials are sent for screening. After screening, the materials are conveyed to raw material bunkers by means of shuttle conveyor. With the help of electronic batch weighing system, the raw materials are fed to the furnace through an inclined skip hoist.

The charge for smelting consists of Chromium ore/Chromium briquettes, quartz and coke and if necessary flux will be added. During the smelting, Chromium, iron and silicon are reduced from Chromium concentrates and Quartz.

The reduced iron dissolves Chromium carbide (Cr7C3) with the formation of complex carbide (FeCr)7C3. At a sufficient high temperature the melt being formed can be decarburised and required alloy is formed.

Tapping:

After a specified time schedule, the metal and slag are tapped into a ladle. The slag over flows from the ladle to the slag pot provided and will be granulated. The alloy collected in the ladle will be cast in the beds made of Ferro Chrome powder generated in finished product processing.

Fired to Excel Ferro Silicon

Ferro Silicon is an alloy of Iron with Silicon.

SPECIFICATIONS: Si%: 70-75 C%: 0.15 S%: 0.05 Al%: 1.25 P%: 0.05 Fe%: Balance USES: a. Deoxidation of steel. b. as an alloying element. c. for production of special steels. d. For production of Master alloys. e. As an Innoculant.

The following Raw Materials are required to manufacture one ton of Ferro Silicon.

Quartz : 1900 Kg. Iron Ore : 330 Kg. Charcoal : 1285 Kg. Electrode Paste : 60 Kg. Sheet Steel : 2 Kg. M.S.Rounds : 0.015 MT Power Consumption: 8200 – 8400 Kwh/MT.

The typical flow chart for manufacturing of Ferro Silicon is as under:

Advice from Marketing Department

Raw Material Procurement

Raw Material Storage Lot Wise

R/M Analyses Non-Conforming Control of Report Rece iving Material Nonconform Inspection ing material

R/M Feeding Advice Raw Materials R-PR-18 Screening

Feeding to day Bunkers

WI-PR-02 Burden Preparation

Batch Weighing F-PR-12 and F- System PR-13

Charge lifting to 15mts floor

Feeding to furnace

Fired to Excel

WI-PR-13

Tapping at regular intervals

Tapping In process WI-PR-06 F-QC-02 inspection

Alloy

Casting

F.P Yard

Sizing

Non conformed Corrective/ Product Final Preventive Inspection action

DESPATCHES

Weight proportionate quantity of Quartz, Charcoal and Iron Ore are charged into the submerged arc furnace. The supply is given. As the current passes from the electrodes to the charge, because of resistance offered by the charge, heat is produced thereby noistey the temperature of the charge material. When the temperature attains 16000C, the summary reaction of the reduction process takes place as follows:

SiO2 + 2C => Si + 2CO

The iron melts and joins with silicon forming Ferro silicon, which is collected, at the bottom of the furnace. The alloy is tapped periodically into the ladles. The alloy is cast in beds made up of Ferro silicon

Fired to Excel powder. After cooling, the cakes are broken manually to the different sizes and delivered as per customer requirement.

Silicon Manganese Production

Silicon Manganese is an alloy of Manganese with Silicon and iron. Silicon Manganese is used as complex deoxidiser in steel and also in the production of low and medium carbon Ferro Manganese.

Specifications:

Manganese : 60-65 / 65-70 Iron : 16 – 20 Silicon : 14 to 20% Carbon : 2% Phosphorous : 0.03 max

The following are the raw materials required to manufacture one ton of Silicon Manganese.

Manganese Ore : 2.0 to 2.2 MT Ferro Manganese Slag : 0.400 MT Coke/Coal/Charcoal : 0.600 MT Quartz : 0.350 – 0.450 MT Dolomite / Limestone : 0.150 – 0.250 MT Electrode Carbon Paste : 0.025 – 0.030 MT Lancing Pipes : 2 mtr Oxygen Gas : 1 – 2 Cu.mtr M.S.Rounds : 0.002 MT Specific power : 3800 to 4000 Kwh/MT

Consumption of Manganese ores and fluxes depends upon quality of Manganese Ores.

The typical flow chart for manufacturing of Silicon Manganese is as under:

Advice from Marketing Department

Raw Material Procurement

Raw Material Storage Lot Wise

R/M Analyses Non-Conforming Reports Receiv ing Material Control of Inspection Nonconform ing material

R/M Feeding Raw Materials Advice Screening Register R-PR-18 Feeding to day Bunkers

WI-PR-04 Burden Preparation

F-PR-12 F-PR-13

61 Batch Weighing System

Fired to Excel

Charge lifting to 15 mts floor

Feeding to furnace

WI-PR-13

Tapping at regular intervals

Tapping/Slag reports In process F-QC-02 and WI-PR-06 inspection F-QC-03

Alloy

Casting

F.P Yard

Sizing

Non conformity Product Corrective/ Final

Preventive Inspection action

PACKING

DESPATCHES

The production of Silicon Manganese is a slag process and is carried in submerged arc furnace. The energy required for the process is supplied by electrical energy and is high power intensive process. The electrical energy is supplied through soderberg electrodes to the furnace. After Physical and Chemical inspection, the raw materials are sent to the screening. After screening, the materials are conveyed to raw material bunkers by means of a shuttle conveyor. The raw materials are fed to the furnace with the help of Electronic batch weighing system through an inclined skip hoist.

Fired to Excel The charge for smelting consists of Manganese ore, Coke/charcoal/coal, quartz and Dolomite. During Smelting, Manganese and Silicon are reduced simultaneously. Mn2O3 => Mn3O4 => MnO

The process requires high temperature of all the Manganese oxides, MnO plays the most important role in the process of reduction. MnO2 is stable up to 425 0 C and above, it is transformed into Manganese sesquoxide (Mn2O3) dissociates at 950 0 C to Manganese Oxide (Mn3O4). As it’s melting temperature is practically transformed to Manganese Monoxide (MnO). This reduction of MnO by carbon proceeds according to the following reactions.

2MnO + 2C => 2Mn + 2CO 2MnO + 8/3C => 2/3 Mn3C+ 2CO

The theoretical initial temperatures of the above mentioned reactions are 1420 0 C and 1220 0 C respectively. When MnO is reduced by carbon the predominant reaction is that of reduction to carbide. Under the conditions prevailing in the electric arc furnace, the reduction of Silica proceeds according to the following reaction. SiO2 + 2C => Si + 2CO

The above process is carried out continuously under the slag having the ratio of 0.6 to 0.7. The temperature of the Silicon Manganese at the time of tapping is around 1500 0 C. For successful reduction of Silicon, the process requires a high concentration Silica in the slag.

TAPPING:

After a specified time schedule the metal and slag are tapped in a ladle. The slag over flows from the ladle to slag pot provided. And metal will be cast in the beds / Continuous casting machine.

FERRO MANGANESE PRODUCTION

Ferro Manganese is an alloy of Manganese and iron. It is used as deoxidiser in steel making and also as an alloying element for the manufacture of special steels and alloys.

SPECIFICATIONS:(%)

Manganese : 70-75 / 75-80 Silicon : 1.5 Carbon : 6 - 8 Phosphorous : 0.25 – 0.4 Iron : Balance

The following are the raw materials are required to manufacture one ton of Silicon Manganese.

Manganese Ore : 2.4 MT Coke/Coal/Charcoal : 0.600 MT Dolomite / Limestone : 0.200 – 0.250 MT Electrode Carbon Paste : 0.015 – 0.020 MT Lancing Pipes : 2 mtr Oxygen Gas : 1 – 2 Cu.mtr M.S.Rounds : 0.002 MT Specific power : 2700 to 2900 Kwh/MT

Consumption of Manganese ores and fluxes depends upon quality of Manganese Ores.

The typical flow chart for manufacturing of Ferro Manganese is as under:

Advice from Marketing Department

Raw Material Procurement

Raw Material Storage Lot Wise 63

Fired to Excel

R/M Analyses Non-Conforming Rep ort Receiv ing Material Control of Inspection Nonconform ing material

R/M Feeding Advice Raw Materials R-PR-18 Screening

Feeding to day Bunkers

WI-PR-05 Burden Preparation

Batch Weighing System

Charge lifting to 15mts floor

Feeding to furnace

WI-PR-1 3

Tapping at regular intervals

Tapping/Slag reports F-QC-02 and In process WI-PR-06 F-QC-03 inspection

Alloy

Casting

F.P Yard

Sizing

Fired to Excel

Non conformed Product Corrective/ Final Preventive Inspection action

PACKING

DESPATCHES

Ferro Manganese is a continuous slag rich process. It is produced in the submerged arc furnace with soderberg electrodes made up of Carbon Paste. The raw materials are fed into the furnace continuously in required proportion.

The Manganese Ore is an oxide of Manganese and is reduced with carbon to manganese. It combines with Iron available in the ore itself and forms Ferro manganese.

Dolomite or limestone acts as fluxes to form slag with gangue materials and to maintain the required basicity of the slag. The slag and metal is drained in periodic intervals.

The slag and metal is separated in the ladle, the slag over flows into the slag pots from the ladle and the metal is cast in the beds/ Continuous casting machine. After solidification the alloy is broken into required sizes and dispatched to the customers.

Approach to Marketing and Proposed Marketing Set-up

The domestic marketing operations are managed by Shri. B.M. Venkateswarlu, Dy. General Manager (Marketing). The Company is currently selling its products directly through its own sales depot located at Kolkata, New Delhi and Chennai and through its agents. At present the Company has appointed 4 agents in India. The other areas are covered directly by the Kolkata Sales Office. The Company sells its products through direct tendering process where it has been enlisted as registered vendors. The Company does not deal through any sole selling agents, dealers or resellers. The Company intends to have a warehouse at Rotterdam to cater to the demand for European & Middle-East countries. The Company is presently exporting to countries like China, Japan, Korea, Singapore, Canada, Itly, Taiwan, Turkey, Abu Dhabi, Germany, Mexico, Greece etc.

Export Obligation

The Company has started supply of its products to the overseas customers. In the Financial Year 2005- 2006, the Company achieved an export turnover of Rs.1708.59 lacs.

Business Strategy

Considering the existing competition in the industry and future entrants, the Company has focused on the following business strategies:

With the intention to tap better margin yielding products and large domestic as well as export opportunities for these products, the Company has laid down strategies to manufacture High Carbon Ferro Chrome, Ferro Manganese and Silicon Manganese through Submerged Arc Furnace route. The two furnaces shall be used interchangeably for producing any of these products due to the versatile nature of the plant to produce other kinds of Ferro alloys. In order to reduce power cost, the Company proposes to have its own thermal based Power Plant in future, which will reduce the manufacturing cost significantly. The Company also proposes to enter into quantity based firm tie-up for sale of its products to global clients which will help the Company in poor market conditions.

Fired to Excel The Company intends to manufacture products with specific composition (like low-silica or low-phos) as per the clients’ requirement, which will fetch premium in the domestic as well as international market. The Company intends to tap global end-users directly by attending international conferences and fairs.

Future Prospects

Considering the prospects for development of infrastructure, construction and industrial activity in India in the years to come, large scope exists for consumption of long steel products. Mainly the steel plant and foundries consume the Ferro alloys. The demand for Ferro alloys is therefore dependent on demand for steel in the country. The Ferro alloys’ demand is also expected to grow at a compounded rate in the medium and long term.

List of clientele

Some of the major Indian clients of VBCFAL are given below:

S.NO NAME OF THE CLIENT EQUIPMENT/ ITEM 1 Pancha Mahal Steel Limited, Baroda Ferro Silicon 2 Sunflag Iron & Steel Limited, Nagpur Ferro Silicon 3 Mahindra & Mahindra Limited, Mumbai Ferro Silicon 4 Shah Alloys Limited, Ahmedabad Ferro Silicon 5 Jindal Steel & Power Limited, Raigarh Ferro Silicon 6 Jaiswals Nico Limited, Nagpur Ferro Silicon 7 Bharat Heavy Electrical Ltd., Hyderabad Ferro Silicon 8 Mishra Dhatu Nigam Ltd., Hyderabad Ferro Silicon 9 Visakhapatnam Steel Plant, Visakhapatnam Ferro Silicon/Silico Manganese 10 Indo German International Pvt. Ltd., New Delhi Ferro Silicon/Silico Manganese 11 Nilion Exports Limited, Mumbai Ferro Silicon/Silico Manganese

Competitive Advantage

The Company has also applied for mining lease from Government of India for grant of Mining Lease for extraction of Manganese Ore in 34.33 acres of land in Survey No: 70 of Gollaghat Village, Tamsi Mandal, Adilabad District, State of Andhra Pradesh.

Power consists of about 40% of the manufacturing cost in the Ferro Alloy Industry. At present, the plant at Rudraram is paying power tariff of Rs.2.55/- per unit to Andhra Pradesh Central Power Distribution Company Limited (APCPDCL). After setting up of the proposed Project, the Company will be in a position to get power at a lower cost than the existing cost per unit.

Collaboration

The Company has not entered into any collaboration agreement/ arrangement.

Technical/Financial Arrangements

The Company has not entered into any Technical/Financial Arrangements.

Quality Control

VBCFAL follows strict quality norms when it comes to resource management, production services, commitment and working environment. The Company’s quality management program of ISO Accreditation ensures that the product is consistently within the specification parameters providing the customers with reassurance and confidence. The Company adheres to strict quality standards in respect of the process of production and end products. The Company has obtained ISO 9001-2000 certificate from TUV Management Service, GmbH for Manufacture of Ferro Alloys. The ISO 9001-2000 certificate is valid till 28.07.2009.

Fired to Excel Research & Development (R & D)

The Company carries out intensive research & development activities on a continuous basis. The key areas of Research & Development resources and initiatives are focused on improving and optimizing furnace efficiency, developing process for pre-heating and pre-reduction of mineral inputs, constant process of improvement for increasing output quality to customers’ specification, and finally for upgrading and developing new products.

KEY INDUSTRY REGULATION

There are no major Key Industrial Regulations for the Ferro Alloys Industry.

However, being a manufacturing company, the Company is governed by the provisions of the Factories Act, 1948. The Factories Act, 1948 is the principal legislation for regulating various aspects relating to safety, health and welfare of workers employed in factories. This act is enacted primarily with object to protect workers employed in factories against industrial and occupational hazards. This act requires that workers should work in healthy and sanitary conditions and for that purpose it provides that precautions should be taken for safety of workers and prevention of accidents. Besides above, the Company is governed by various other statutes like the Companies Act, 1956, Industrial Disputes Act, 1947, The Minimum wages Act, 1948, The Payment of Wages Act, 1936, The Contract Labour (Regulation and Abolition) Act, 1970, Workmen's Compensation Act, 1923, The Payment of Gratuity Act, 1972, Employee's States Insurance Act, 1948, Employee's Provident Fund and Miscellaneous Provisions Act, 1952, Payment of Bonus Act, 1965, etc.

Fired to Excel VIII. HISTORY AND CORPORATE STRUCTURE OF THE COMPANY

HISTORY AND MAJOR EVENTS

The word “VBC” stands for Vizag Bottling Company. The VBC Group is a reputed industrial house in Andhra Pradesh.

Incorporated as VBC Ferro Alloys Limited, under the provisions of the Act on 3rd October, 1981, the Company obtained the Certificate for Commencement of Business from Registrar of Companies, Andhra Pradesh, Hyderabad on 31st October, 1981.

VBCFAL was promoted by a group of technocrat entrepreneurs led by Shri J.S. Krishnamurthy in association with Andhra Pradesh Industrial Development Corporation (APIDC). VBCFAL set up a plant for production of 10,000 TPA of Ferro Silicon at Rudraram Village, Medak District, Andhra Pradesh in the year 1984. The plant went into commercial production in April 1985. VBCFAL is currently operating the plant comprising of 2 nos. sub-merged arc furnaces of 16.5 MVA capacities each having a licensed capacity of 15,000 MTPA Ferro Silicon, 45,500 MTPA Pig Iron/Silicon Manganese/Ferro Manganese and 20,400 MTPA Ferro Chrome/Charge Chrome. The plant has an installed capacity to produce 10,000 MTPA of Ferro Silicon, 31,500 MTPA of Ferro Chrome and 27,000 MTPA of Silicon Manganese /Ferro Manganese.

The Company had also taken on lease a Ferro alloys plant of 12.5 MVA capacity at Rayagada, Orrisa from Jeypore Sugar Company Limited (JESCO). The lease period was for three years w.e.f. January 26, 2004 with a monthly rent of Rs.18.00 lacs. Though the plant was handed over to the Company on January 28, 2004, there was no power supply to the factory and many statutory approvals were not obtained by JESCO. The plant was made operative on June 27, 2005 after carrying out the necessary repairs, with a power tariff of Rs.2.55 paise per unit. On October 31, 2005, the Company requested JESCO for reduction of monthly rent from Rs.18.00 lakhs to Rs. 500 per MT of production or treat the lease agreement as cancelled with effect from October 31, 2005. The Company suspended the operations of the plant w.e.f. November 1, 2005 due to uneconomical and unviable operations. Currently, the Company has no plans for revival of this plant.

REFERENCE TO BIFR FOR RESTRUCTURING & REHABILITATION

The Company had performed well in the initial years and paid dividend in the range of 20%-30% consistently from 1985-86 up to 1990-1991. However, the Company incurred a cash loss of Rs. 491 lacs during 1991-1992 and defaulted in payment of institutional dues. The adverse working was mainly due to recession in the steel industry, hike in power tariff, un-remunerative prices and availability of imported Ferro Silicon at prices lower than the domestic prices. The Company reported erosion in net worth during the FY 1994-1995. The accumulated losses as on March 31, 1994 stood at Rs. 2120 lakhs against the paid up capital and reserve of Rs 1309 lakhs. Subsequently, the Company made a reference to the Board for Industrial and Financial Reconstruction (BIFR) vide its application dated October 6, 1994. At the BIFR hearing held on 10.01.1995, the Bench appointed Industrial Development Bank of India (IDBI) as Operating Agency (OA) to examine the viability of the operation of the Company and submit the report for Rehabilitation of the Company. The Bench on December 2, 1996 sanctioned the Rehabilitation Scheme. The provisions of the sanctioned Rehabilitation Scheme were as follows:

COST OF SCHEME AND MEANS OF FINANCE

A. Cost of Scheme Rs. in Lacs

Particulars 1995-96 1996-97 1997-98 TOTAL Capital Expenditure 100 - - 100 Increase in margin 100 - - 100 money for working capital One time 350 707 345 1402 Settlement of Institutional Dues TOTAL 550 707 345 1602

Fired to Excel

B. Means of Finance Rs. in Lacs

Particulars 1995-96 1996-97 1997-98 TOTAL Soft un secured loan 350 707 345 1402 from Promoters Internal Accruals 200 - - 200 TOTAL 550 707 345 1602

Promoters’ contribution of Rs.1402 lacs amounted to 88% of cost of the Scheme. The Promoters entered into a memorandum of understanding (MOU) on 10.02.1996 with Dr. Raj Bodhpati of Svrag International Inc. an NRI who agreed to bring US$ 3 Million in 6 quarterly installments during the period from 15.06.1996 to 15.09.1997 to enable the Promoters to pay dues of the institutions under the One Time Settlement (OTS) arrangement. The MOU provided that the amount of US$ 3 Million shall be subordinated to the Company’s payment of its dues to financial institutions and shall be repayable thereafter in US$ in 8 quarterly installments with interest at 12% p.a. The Promoters had deposited Rs. 350.00 lacs in the ‘No-Lien’ account with IDBI.

TURN AROUND

• All dues to the Financial Institutions were paid fully as on 31.03.2000 • The Company was discharged from the purview of BIFR w.e.f 17.09.2001 • As on 31.03.2001, the reserves & surplus of the Company were Rs.7526.10 lakhs as against the paid up capital of Rs.404.49 lakhs • As on 31.03.2002, the reserves & surplus of the Company were Rs.9766.61 lakhs as against the paid up capital of Rs.404.49 lakhs

Major events in the history of the Company are listed below:

Year Event 1981 Incorporation of the Company in the state of Andhra Pradesh. 1981 receipt of certificate for commencement of business from ROC, Andhra Pradesh. 1984 Initial Public Offering of Rs 80 lakh 1984 Set up plant at Rudraram 1985 Plant at Redraram started commercial production 1989 Issue of 2,29,000 Secured Partly Convertible Debentures of Rs 350/- each. 1994 Referred to BIFR 2001 Came out of BIFR 2001 Received ISO 9001:2000 certificate 2002 Temporary closure of Rudraram factory from 01.04.2002 to 23.07.2002 (Due to increased power cost and uneconomical and unviable operations) 2004 Taking on lease of Rayagada Unit. 2005 Suspension of operations at Rayagada Unit (Due to uneconomical and unviable operations)

CHANGES IN REGISTERED OFFICE OF THE COMPANY

The table below shows the changes in the Registered Office since incorporation:

Previous Address New Address Reasons for Change in Date of Change Office 6-3-609/145, 8 – 3 – 1047, Administrative 29.03.1982 Anandnagar, Srinagar Colony, Convenience Hyderabad - 500004 Hyderabad – 500 873 8 – 3 – 1047, 6 – 2 – 913/914, New Office was in the 01.04.1994 Srinagar Colony, Progressive Towers, Heart of the city Hyderabad – 500 873 3rd Floor, Khairatabad, Hyderabad – 500 004

Fired to Excel CHANGES IN MEMORANDUM OF ASSOCIATION

Date of Shareholders Changes in the Memorandum of Association Approval 03.12.1993 Increase in Authorised capital from Rs. 12.5 crores to Rs. 20 crores 10.02.1993 Increase in Authorised capital from Rs. 10 crores to Rs. 12.5 crores 30.09.1991 Increase in Authorised Capital from Rs. 5 crores to Rs. 10 crores 25.08.1989 Increase in Authorised Capital from Rs. 3 crores to Rs. 5 crores 25.08.1989 Amendment of Clause III of Memorandum of Association 25.08.1989 Commencement of Objects Clause III 29.03.1985 Deletion of Clause III(A)(5) of MoA - as per RBI guidelines 30.03.1984 Amendment of M & A of A - Capital Clause 29.09.1983 Increase in Authorised Share Capital from Rs. 1.5 crores to Rs. 3 crores

MAIN OBJECTS OF THE COMPANY The Main Objects of the Company are:

• To carry on the business of manufacturing of ferrous and non-ferrous metals, alloy steels, Ferro alloys, manganese alloys and other metal alloys and other metal alloys, pig iron, wrought iron, steel converters, rolled steel makers, miners, smelters, engineers, iron, steel founders of all or any of their respective branches, Metallurgists, prospectors, explorers, contractors, agents and to establish work shops for the manufacture of any equipment required for any of the industries which the Company can undertake and to deal in such equipment. converters, buying, selling, exchanging, altering, importing, exporting, improving, assembling.

• To establish, provide, maintain and conduct factories for the manufacture of electro-chemical and electro-metallurgical products, such as calcium carbide, silicon carbide, silicon manganese, caustic soda, calcium silicide and to carry on business of manufacturers, explorers, importers, exporters, dealers and stockists, in ferrous and non-ferrous metals, Ferro alloy, alloy steel and all other electro-metallurgical and electro-chemical products.

• To buy, sell, manufacture and deal in minerals, charcoal, coal, woods, plants, machinery, implements, appliances, conveniences, and to take on lease or license, concessions or otherwise in India, or Mines, mining rights and land and to explore, work, export, develop turn to account the same and to crush, win, get carry, smelt, calcine, refine, dress, amalgamate, manipulate, or prepare for market ore, metal and minerals substances of all kinds and to carry on any other metallurgical operations which may seem conductive to any of the objects of the Company.

Corporate Guarantees: The Company has given the following Corporate Guarantees: S.No Amount of On Behalf of To whom Date of Date Guarantee Rs. Resolution issuance of Lakhs) under section Guarantee 372A 1 11600.00 Konaseema Gas Industrial 30.11.2000 04.08.2004 Power Limited Development Bank of India 2 3635.00 Orissa Power Power Finance 30.11.2000 19.11.2004 Consortium Corporation Limited Limited

Out of the above, the corporate guarantee given for Konaseema Gas Power Limited was towards shortfall (if any), in the envisaged equity of Rs. 35200.00 lakhs required for setting up Gas based Power project. As the entire equity of Konaseema Gas Power Limited has been subscribed, the Company has requested the Industrial Development Bank of India, vide letter dated 24.11.2006, to cancel the corporate guarantee provided by the company. A confirmation regarding this is awaited from Industrial Development Bank of India.

Fired to Excel The corporate guarantee of Rs.3635.00 lacs was given by the Company to PFC on behalf of Orissa Power Consortium Limited, which was in the process of develping and constructing the 20 MW hydel power plant in the State of Orissa. At the request of Orissa Power Consortium Limited, PFC, Rural Electrification Corporation Limited and UCO Bank has agreed to lend an amount of Rs. 7270.00 lacs. To secure the said loan, the Issuer Company has issued the said corporate guarantee.

SUBSIDIARIES OF THE COMPANY:

The Company has no subsidiaries within the meaning of Section 4 of the Act.

AGREEMENTS

Except the contracts/agreements entered in the ordinary course of the business carried on or intended to be carried on by the Company, the Company has not entered into any other agreement/contract.

FINANCIAL PARTNERS

The Company does not have any financial partner.

Fired to Excel IX. MANAGEMENT

BOARD OF DIRECTORS

S.No Name, Age, Address, Qualification Designation Other Directorships/Partnerships/ No. of equity Trusteeships shares held in the VBCFAL 1 Dr. Narla Tata Rao Chairman • Amar Raja Power Systems Ltd. 1,000 S/o:N.Lakshmana Rao Independent • Konaseema Gas Power Ltd. Age: 89 years (Non • A P Paper Mills Ltd. Address: Road No.7, H.No.8-2- Executive) • I.M.P. Power Ltd. 541/A/1, Banjara Hills, • Lakshmi Finance & Industrial Hyderabad - 500 034, AP Corporation Ltd. Qualifications: • Konaseema Power Corporation Ltd. 1) M.S (Power Systems • Orissa Hydel Power Balimela Ltd. Engineering), Illinoise Institute of • Orissa Hydel Power Jalaput Ltd. Technology, Chicago, USA: Bhadrachalam Power Company Ltd. 2) Doctor of Science (honorary) • conferred by Jawaharlal Nehru • Bharat Jala Vidyut Nigam Ltd. Technological University, Hyderabad 3) Fellow of Institute of Engineers (India) 2 Dr. MVV Satyanarayana Murthi Vice • VBC Industries Ltd. 1,57,769 S/o: M. Pattabhi Ramaiah Chairman • Orissa Power Consortium Ltd. Age: 68 Years Non • Techno Pack Pvt. Ltd. Address: 10-27-13, ‘Kanchana’ Independent • Gandhi Institute of Technology and Waltair Uplands, Visakhapatnam – (Non Management Trust – President 530 007 Executive) • Kuchipudi Kalakshetra Trust – President Qualifications: • MPM Trust – Partner Post Graduation in Economics, Ph.D • VBC Charitable Trust – Trustee in Economics & Graduation in Law • Pragati Charitable Trust- Trustee • World Telugu Federation – Vice President

3 M S Lakshman Rao Managing • VBC Exports Ltd. 78,300 S/o: Dr. MVVS Murthi Director • Bharat Alloys & Energy Ltd. Age: 44 Years Non • Orissa Power Consortium Ltd. Address: Flat No.3A, Subhodaya Independent • Orissa Hydel Power Balimela Ltd. Apartments, Boggulakunta, Abids, (Executive) • Orissa Hydel Power Jalaput Ltd. Hyderabad – 500 001 • Hindustan Sea Foods Ltd. Qualifications: • Frontline Insurance Advisors Private Ltd. Graduation in Engineering • Available Resources Private Ltd. • Threshold Investments Pvt. Ltd. • Konaseema Resources Pvt. Ltd. • Konaseema Energy Pvt. Ltd. • Konaseema Enterprises Pvt. Ltd. • Konaseema Infrastructure Pvt. Ltd. • Konaseema Thermal Pvt. Ltd. • Frontline Corporate Finance Pvt.Ltd. • Frontline Enterprises Ltd. • Vijaya Enterprises - Partner 4 V P Rama Rao Director • NCC Finance Ltd. NIL S/o:V.Narayana Rao Independent • Satyam Computer Services Ltd. Age: 73 years (Non • Konaseema Gas Power Ltd. Address: H.No. 6-3-347/22/5, Executive) Dwarakapuri Colony, Punjagutta, Hyderabad – 500082 Qualifications: Post Graduation in Humanities & Graduation in Civil Law

Fired to Excel 5 M Nageswara Rao Director • Jaya Diagnostic & Research Center Ltd. NIL S/o:M. Narasaiah Independent • Progressive Constructions Ltd. Age: 69 Years (Non • Saurashtra Cement Ltd. Address: Prashanti Nilayam, 6-3- Executive) • Spartek Ceramics India Ltd. 248/A/1, Road No.1, Banjara Hills, • Sai Shakti Projects Pvt. Ltd. Hyderabad – 500034 • Sai Shakti Infrastructure Pvt.Ltd. Qualifications: Graduation in Mechanical Engineering 6 Dr. P L Sanjeev Reddy Director NIL NIL S/o: P. Lakshmayya Independent Age: 65 Years (Non Address: Director, Indian Institute Executive) of Public Administration, Indra prastha Estate, Ring Road, New Delhi – 110 002 Qualifications: Post Graduation in Economics & Ph.D in Industrial Engineering

For the profile of the Directors, please refer to page no 26 of the Draft Letter of Offer.

TERMS OF APPOINTMENT & COMPENSATION OF MANAGING DIRECTOR

Shri M. S. Lakshman Rao was appointed as Managing Director of the Company for a period of 5 years effective from October 30, 2005, in the Annual General Meeting held on September 30, 2005, with following terms and conditions:

Designation : Managing Director Term : 5 years Salary : Rs.75,000/- per month

Commission: 3% of Net profits of the Company computed in accordance with the provisions of Sections 349 and 350 of the Companies Act, 1956.

Medical Reimbursement: Expenses incurred for self and family subject to a ceiling of one-month basic salary in a year or three months basic salary over a period of 3 years.

Leave Travel Allowance: Managing Director can avail Leave Travel Allowance for self and his family once in a year, subject to a maximum of one month’s basic salary.

Club Fees: Annual Fees of two clubs but shall not include admission and life member ship fees.

Contribution to Provident Fund Company’s contribution to Provident Fund shall be subject to a ceiling of 12% of the salary

Superannuation Fund Company’s contribution to Superannuation Fund shall be subject to a ceiling of 15% of the salary.

Gratuity Gratuity payable shall not exceed 15 days salary for each completed year of service.

Telephone and Car Provision of Telephone at residence and Company’s car with driver is for use on Company’s business. Expenditure for personal long distance calls on telephone and use of car for private purpose shall be borne by the Managing Director himself.

Fired to Excel Leave Provision of Leave and encashment thereof at the end of the tenure shall be in accordance with the rules of the Company.

Minimum Salary Where in any financial year during the currency of tenure, if the company has no profits or its profits are inadequate, remuneration may be paid in accordance with Part II of Schedule XIII of the Companies Act, 1956.

REMUNERATION TO OTHER DIRECTORS

The other Directors are not paid any remuneration other than sitting fees. For details, please refer to section on “Corporate Governance” on page no.74 of this Draft Letter of Offer.

BORROWING POWERS OF DIRECTORS

Article 67(a) provides that of the AoA of the Company authorises the Board to borrow, the extract of which is as follows: The Board may, from time to time, at its discretion, subject to the provisions of Sections 293 (1) (d) of the Act, raise or borrow, either from the Directors or from elsewhere and secure the payment of any sum or money for the purposes of the Company. The present borrowing power of the Board is up to Rs. 10,000.00 lacs pursuant to the resolution passed by the Company at its AGM held on September 30, 2002.

CORPORATE GOVERNANCE

The provisions of “Corporate Governance” as introduced vide Clause 49 (as amended till date) of the Listing Agreement are applicable to the Company. The Company has complied with all the requirements of the said Corporate Governance clause.

Board of Directors of Company

The Board of Directors of the Company comprises:

S.No Name Designation Director Status Identification No. 1 Dr. N.Tata Rao Chairman 00009833 Independent (Non Executive) S/o:N.Lakshmana Rao 2 Dr. M.V.V.S.Murthi Vice - Chairman 00054099 Non Independent (Non S/o: M. Pattabhi Ramaiah Executive) 3 Shri. M.S.Lakshman Rao Managing Director 00086976 Non Independent (Executive) S/o: Dr. MVVS Murthi 4 Shri. V.P.Rama Rao Director 00035198 Independent (Non Executive) S/o:V.Narayana Rao 5 Shri. M.Nageswara Rao Director 00027131 Independent (Non Executive) S/o:M. Narasaiah 6 Dr. P.L.Sanjeev Reddy Director 00388140 Independent (Non Executive) S/o: P. Lakshmayya

Vice President (Finance)

Shri K. Kailashnath Reddy, Vice President (Finance) is acting as the Chief Financial Officer of the Company.

Fired to Excel Details of committees formed under the provisions of Corporate Governance are as given under:

Audit Committee

Brief description of Terms of Reference

The Audit Committee of the Board is responsible for oversight of the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, adequate and credible; and reviewing with management the annual financial statements before submission to the Board. The Committee periodically reviews with the management, external and internal auditors about the adequacy of internal control systems.

The Committee periodically interacts with the internal auditors to review the manner in which they are performing their responsibilities. The Committee holds discussion with external auditors before the commencement of statutory audit on the nature and scope of audit and ascertains any areas of concern and review of their written comments. The Committee reviews the financial and risk management policies of the Company. The Committee has full access to financial data and to the Company's staff. The Committee also reviews the quarterly (un-audited) and annual financial statements before they are submitted to the Board.

Composition, name of members, Chairman and Secretary

Shri V. P. Rama Rao Chairman Independent non-executive Director Shri M. N. Rao Member Independent non-executive Director Shri N. Tata Rao Member Independent non-executive Director Dr. P L Sanjeev Reddy Member Independent non-executive Director Shri Adalat Srikanth Secretary Company Secretary

Investors’ Grievance & Share Transfer Committee:

The composition of the Committee is as follows:

Shri M. N. Rao Chairman Independent non-executive Director Shri V. P. Rama Rao Member Independent non-executive Director Shri M. S. Lakshman Rao Member Managing Director Shri Adalat Srikanth Secretary Company Secretary

Name and Designation of Compliance officer: Shri Adalat Srikanth, Company Secretary

Investor grievances received, attended and pending for the year ended March 31, 2006 and for the period ended September 30, 2006

Nature of grievances Received Attended Pending Non-receipt of dividend warrants 21 21 NIL Non-receipt of share certificates after transfer/ 4 4 NIL duplicate Non-receipt of Annual Report 14 14 NIL Other Miscellaneous 5 5 NIL

The Company generally attends to all queries of investors within a fortnight from the date of receipt.

Remuneration Committee

Shri M. N. Rao Member Independent non-executive Director Shri V. P. Rama Rao Member Independent non-executive Director Shri Adalat Srikanth Secretary Company Secretary

Remuneration policy The remuneration policy is to pay compensation and benefits adequately so as to attract, motivate and retain talent.

Fired to Excel Remuneration of Directors

Details of remuneration paid to Directors during the financial year 2005-06. (Amt. In Rupees) Sitting Name Designation Fee Salary Benefits Total

Dr. N. Tata Rao Independent Non- 10,000 Nil Nil 10,000 executive Chairman Dr. M. V. V. S. Murthi Non-Executive Vice 40,000 Nil Nil 40,000 Chairman Shri V. P. Rama Rao Independent Non- 1,40,000 Nil Nil 1,40,000 Executive Director Shri M. N. Rao Independent Non- 1,10,000 Nil Nil 1,10,000 Executive Director Dr. P. L. Sanjeev Reddy Independent Non- 60,000 Nil Nil 60,000 Executive Director Shri M S Rama Krishna * Independent Non- 3,00,00 Nil Nil 30,000 Executive Director Shri M. S. Lakshman Rao Managing Director Nil 6,55,000 1,83,570 8,38,570 Shri N. Babu Rao # Executive Director Nil 4,50,000 3,78,600 8,28,600 * Ceased as Director w.e.f. 08.12.2006 # Ceased as Director w.e.f. 31.10.2006

Benefits include contribution to Provident Fund, Gratuity Fund, payment of perquisites and commission. There was no Employee Stock Option Scheme during the financial year ended 31st March 2006.

Other Committees:

Sub-committee on Preferential Allotment & Rights issue:

This sub-committee has been constituted in the Board meeting held on 24th July 2006 to consider and decide various issues including but not restricted to allotment of shares on preferential basis, approval of draft & final letter of offer of Rights issue, fixing the price and record date for rights issue and any other matter as may be delegated by the Board.

Following is the constitution of this sub-committee: -

Shri V. P. Rama Rao Chairman Independent non-executive Director

Shri M. N. Rao Member Independent non-executive Director

Shri M. S. Lakshman Rao Member Managing Director Shri Adalat Srikanth Secretary Company Secretary

SHAREHOLDING OF THE DIRECTORS

As per the AoA, the Directors are not required to hold any Equity Shares in Issuer Company. Save and except as stated below, the Directors do not hold any Equity Shares in the Company as on the date of filing of this Draft Letter of Offer.

Name Designation No. of equity shares held Dr. Narla Tata Rao Chairman 1,000 Dr. MVV Satyanarayana Murthi Vice Chairman 1,57,769 Varhakavi Pattabhi Rama Rao Director NIL Muttavarapur Nageswara Rao Director NIL Dr. P L Sanjeev Reddy Director NIL M S Lakshman Rao Managing Director 78,300

Fired to Excel INTEREST OF DIRECTORS/PROMOTERS

All the Directors/Promoters may be deemed to be interested to the extent of reimbursement of expenses, if any, payable to them under the AoA. The Directors/Promoters may also be deemed to be interested to the extent of the shares, if any, held by them or by the relatives or by firms or companies of which any of them is a partner and a Director/ Member respectively and the shares if any, out of the present Offer that may be subscribed for and allotted to them or their relatives or any company in which they are Directors / members of firms in which they are partners.

CHANGE IN BOARD OF DIRECTORS

The changes in the Board of Directors in the past three years are as follows:

Name of the Director Date of Appointment Date of Resignation Reason Shri B Kameswara Rao 30-09-1994 28.01.2005 Resigned Dr. P L Sanjeev Reddy 28-01-2005 - Appointed Shri M S Rama Krishna 30-07-2005 8.12.2006 Resigned Nadella Babu Rao 28.01.2005 31.10.2006 Resigned

MANAGEMENT ORGANISATION STRUCTURE

Board of Directors

Managing Director

Vice President General Manager Vice President Dy. GM Company (T&C) (Works) (Finance) (Marketing) Secretary & Legal

Assistants Dy.G M Dy.G M Dy. G M (Technical) (Commercial) (Finance)

Manager Dy. G M Manager (Marketing) (Production) (Maintenance)

Fired to Excel KEY MANAGERIAL PERSONNEL

The Company is managed by its Board of Directors, assisted by qualified professionals, with experience in the field of production/finance/distribution/marketing and corporate laws.

Name & Date of Educational Experience Present Previous Designation Joining Qualification (in years) Responsibilities Organisation V Ravi 16.11.1994 M.Tech Twenty Nine Head – Technical Indsil Electro Vice President and Commercial Smelt Ltd. (Technical & Commercial)

V Suresh 19.01.2003 M.Tech Thirty Head – Plant HiTech General Manager Operations ElectroThermi (Works) c Hydro Power Ltd. B M Venkateshwarlu 18.05.1984 M.Sc Twenty Four Head – Nava Bharat Dy. Manager Marketing Dept. Ferro Alloys (Marketing) Ltd.

Adalat Srikanth 02.01.2006 M.Com, LLB, Seven Head – Krebs Company Secretary ACS Secretarial & Biochemical’s Legal Dept. & Industries Limited K.Kailashnath Reddy 31.10.2006 B.Com, FCA Twenty Four Head – Finance Konaseema Vice President & Accounts Dept Gas Power (Finance) Limited

All the above-mentioned key managerial personnel are the permanent employees of the Company. The remuneration of each of key managerial personnel includes salary, bonus, Company’s contribution to Provident Fund, Leave Travel Allowance/ Concession, medical expenses and value of other facilities inclusive of accommodation, as may be applicable in each case. The Company has not offered any profit sharing plan to its key managerial personnel.

Changes in Key Managerial Personnel

Name Designation Date of Joining Date of Leaving Reason Abdul Saleem Company 01.10.2000 17.08.2005 Resigned Secretary M Prasada Reddy General Manager 21.04.2003 28.02.2006 Resigned (Finance) A J Rao Vice President 15.03.2004 29.07.2006 Resigned (Technical) Adalat Srikanth Company 02.01.2006 NA Appointed Secretary K.Kailashnath Reddy Vice President 31.10.2006 NA Appointed (Finance)

Employees: Summary of manpower strength as on 25th December, 2006 is as under:

Division Executives Managerial Non- Workers Trainees / Total Managerial Consultants Registered Office 8 11 9 - 14 42 Plant at Rudraram 2 23 42 116 13 196 Calcutta Office 1 1 3 - - 5 Delhi Office 1 2 2 - - 5 Vizag Office - 1 3 - - 4 Chennai Office - 1 1 - - 2 Total 12 39 60 116 27 254

Fired to Excel Shareholding of the Key Managerial Personnel

The key managerial personnel of the Company do not hold any shares in the Company.

Employee Stock Option Schemes

Till date, the Company has not introduced any Employees Stock Option Scheme/Employee Stock Purchase Scheme.

Payment or Benefit (Non-Salary Related) To Officers Of The Company

Except as stated in this Draft Letter of Offer, no amount or benefit has been paid or given during the preceding two years or is intended to be paid or given to any of its officers except for the normal remuneration paid to Directors, officers or employees since the incorporation of the Company. None of the beneficiaries of loans, advances and sundry debtors are related to the Company’s Directors.

Interest of Key Managerial Personnel

No amount or benefit has been paid or given within the two preceding years or are intended to be given to any of the Directors or key managerial personnel except the normal remuneration for services rendered as directors, officers or employees.

Fired to Excel X. PROMOTERS

1. Dr M V V Satyanarayana Murthi (Vice Chairman), aged 68 years, is one of the Promoter- Directors of the Company. For more details, see the section “General Information” on page no. 26 of this Draft Letter of Offer.

Passport No A2152789 PAN ACEPM0252G Driving License Number 5651969 Bank Account Number 061 – 003703, HSBC, Visakhapatnam – 3 Photo

2. Shri M S Lakshman Rao (Managing Director), aged 44 years, is one of the Promoter Directors of the Company. For more details see the section “General Information” on page no. 26 of this Draft Letter of Offer.

Passport No F2481213 PAN ACUPM0126H Driving License Number NIL Bank Account Number 00801025150, ICICI Bank Ltd., Hyderabad Photo

3. Smt M Surya, aged 38 years, is wife of Shri M S Lakshman Rao. She is a homemaker.

Passport No F1202012 PAN AGWPM9491M Driving License Number NIL Bank Account Number 00801025150, ICICI Bank Ltd., Hyderabad Photo

4. Master M. Bhardwaj, aged 14 years, is son of Shri M.S.Lakshman Rao.

Passport No F1202014 PAN NIL Driving License Number NIL Bank Account Number NIL Photo

Fired to Excel

5. Ms. M. Aishwarya, aged 12 years, is daughter of Shri Lakshman Rao.

Passport No F1202013 PAN NIL Driving License Number NIL Bank Account Number NIL Photo

6. Shri M S P Rama Rao, aged 45 years, is an M.B.A (Master in Business Administration) from Madras University has over two decades of experience in the Ferro alloys and Power Industry. He was instrumental in the turnaround of the Company in a short span of 3 years.

Passport No Z1314726 PAN AAWPM3590P Driving License Number NIL Bank Account Number 000801000994, ICICI Bank Ltd., Hyderabad Photo

7. Smt M.Srimani, aged 37 years, is wife of Shri M S P Rama Rao.

Passport No Z1314383 PAN ADDPL2236N Driving License Number NIL Bank Account Number 860010100017699, Bank of India, Hyderabad Photo

8. Master M Sri Bharath, aged 17 years, is son of Shri M.S.P Rama Rao.

Passport No F8874861 PAN NIL Driving License Number NIL Bank Account Number NIL Photo

Fired to Excel

9. Master M.Siddartha, aged 12 years, is son of Shri M.S.P Rama Rao.

Passport No 710400491 PAN NIL Driving License Number NIL Bank Account Number NIL Photo

10. Yasaswini Investments Pvt. Ltd.

Yasaswini Investments Pvt. Ltd. was incorporated on 24th July 1996 under the provisions of the Act. Its registered office is located at 6-2-913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderabad –500 004.

Brief Particulars of the company:

Date of Incorporation 24th July 1996 Registration No 01-24754 of 1996-97 CIN U67120AP1996PTC024754 Address of ROC Office where Registrar of Companies, 2nd floor, CPWD Building. Kendriya the Company is registered Sadan, Sultan Bazar, Koti, Hyderabad – 500195; Phone 040- 24657937, 24652807; Fax: 040-24652807 Nature of Business The company is carrying the business of an Investment Company and its main objects are to invest in and to acquire for consideration by way of gift, exchange or otherwise and to hold, sell or otherwise deal in shares, stock, units, debenture stocks, bonds, obligation and securities issued or guaranteed by the company. PAN AAACY0804B Bank Account No. 10111115694 Name of the Bank State Bank of India, Khairatabad, Hyderabad Current Status In operation

The present Board of Directors of the company comprises:

Name Designation Dr.B.Ramesh Babu Director Shri. C.Madhusudan Director Shri. N.Babu Rao Director Shri. Krishna Raghavan Director Smt. M.Srimani Director

The shareholding pattern of the company as on 30.09.2006 is as follows:

Name No of Shares % of shareholding (Face Value of Rs. 10/- each) Dr.B.Ramesh Babu 1,100 1.10 Shri.MSP Rama Rao 100 0.10 Smt.M. Sri Mani 98,700 98.70 Shri. Krishna Raghavan 100 0.10 Total 1,00,000 100.00

The authorized share capital of the company is Rs. 10.00 lakhs (Rupees Ten lakhs only) divided into 1,00,000 (One lakh) Equity shares of Rs. 10/- each and the issued, subscribed and paid up capital of the company is 1,00,000 fully paid up equity shares of Rs 10/- each aggregating to Rs. 10,00,000/- (Rupees Ten lakhs only) .

Fired to Excel Brief financial results of the company are as under: (Rs. In Lacs) As on March 31 2004 2005 2006 Share Capital 10.00 10.00 10.00 Reserves and surplus - 0.95 2.8 (excluding revaluation reserve) Total Income 26.18 30.17 29.13 Profit after Tax 2.60 2.71 1.87 Earning Per share (Rs.) 2.60 2.71 1.87 Net Asset Value 9.98 10.94 12.80

Details of Contingent Liabilities not provided for: NIL

Details of Related Party Transactions: The company had no related party transactions with the Issuer Company in the preceding three Financial Years.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Litigation/ Defaults: There are no defaults in meeting any statutory/bank/institutional dues. No proceedings/outstanding litigation has been initiated for economic offences against the company.

11. Bharat Alloys & Energy Ltd.

Bharat Alloys & Energy Ltd. was originally incorporated as Bharat Wind Energy Limited on 20th June, 1997 under the provisions of the Act and received the certificate of commencement of business on 19th November, 1998. Subsequently the company changed its name to Bharat Alloys & Energy Limited with effect from 18th July 2000.

The Registered office of the company is located at Dinnedevarapadu, NH-7, Kurnool, Andhra Pradesh, India. The Corporate office of the Company is Located at 6-2-913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderabad –500 004.

The equity shares of the company are not listed on any of the Stock Exchanges in India.

Brief Particulars of the Company:

Date of Incorporation 20th June, 1997 Registration No 01-27396 of 1997-98 CIN U40109AP1997PLC027936 Address of the ROC office Registrar of Companies, 2nd floor, CPWD Building. where the company is registered Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195; Phone 040-24657937, 24652807; Fax: 040- 24652807 Nature of Business To generate, harness, distribute and supply electricity by setting up Thermal, Hydro or other type of power plants by use of solid, liquid or gaseous or other fuels for the purpose of light, heat, motive power and for all other purposes for which electric energy can be employed and to transmit, distribute, supply and sell such power either directly or through transmission lines and facilities of the State Electricity Boards or to Central/State Government or private companies or to industries and/or to central/State Government and/or other consumers of electricity including for captive consumption for any industrial projects and generally to develop, generate, accumulate power at any other place/s and to transmit,

Fired to Excel distribute, sell and supply such power. The object of the company also enables it to carry on the business of manufacture of ferrous and non-ferrous metals, alloy steels, Ferro alloys, manganese alloys and other metal alloys, pig iron, wrought iron, steel founders of all/any of their respective branches, metallurgists, prospectors, explorers, contractors, agents and to establish workshops for the manufacture of any equipment required for any of the industries which the company can undertake and to deal in such equipment. PAN AABCB7333F Bank Account No. 1105 Name of the Bank UCO Bank, Banjara Hills, Hyderabad Current Status In operation

The present Board of Directors of the company is as follows:

Name Designation M.S.P.Rama Rao Chairman K.S.Rao Director Shri B.Gopala Director Shri V.S. Rao Director Shri N.Babu Rao Director Shri M.S.Lakshman Rao Director

The shareholding pattern of the company as on 30.09.2006 is as follows:

Name No of Shares % of (Face Value of Rs. 10/- each) shareholding Dr. MVVS Murthi 3,00,000 2.15 MSP Rama Rao 3,00,000 2.15 M Srimani 3,79,200 2.72 VBC Finance & Leasing Ltd. 20,80,800 15.00 VBC Exports Ltd. 20,00,000 14.35 Frontline Insurance Advisors (P) 3,00,000 2.15 Ltd. Padmakshi Investments (P) Ltd. 10,000 0.07 Yasaswini Investments Pvt.Ltd. 66,000 0.47 Bharat Jala Vidyut Nigam Ltd. 2,00,000 1.43 Bhadrachalam Power Company Ltd. 2,00,000 1.43 Peninsular Sea Foods (P) Ltd. 22,000 0.15 Frontline Corporation Finance Ltd. 60,000 0.43 Techno Pack Pvt. Ltd. 3,00,000 2.15 Konaseema Power Corporation Ltd. 13,70,000 9.85 Indian International Constructions 12,62,000 9.00 Pvt. Ltd. 21 Capital PCC, Mauritius 30,50,000 22.00 Progressive Constructions Ltd. 20,21,000 14.50 Total 1,39,21,000 100.00

The authorized capital of the company is Rs. 20.00 crores (Rs. Twenty crores only) divided into 2,00,00,000 equity shares of Rs 10/- each and the issued, subscribed and paid up capital of the company is 139,21,000 fully paid up equity shares of Rs 10/- each aggregating to Rs. 13,92,10,000 (Rupees Thirteen crores Ninety Two lacs Ten thousand only).

Fired to Excel Brief financial results of the company are as under: (Rs. in lacs) As on March 31 2006 2005 2004 Share Capital 1392.10 887.25 602.25 Reserves and surplus 2282.73 166.82 61.99 Sales 1562.11 3837.04 726.08 Other Income 182.85 683.38 224.28 Profit After Tax (441.86) 172.67 90.62 Earning Per share (Rs.) (5.70) 2.88 3.92 Net Asset Value 25.87 13.92 7.65

The details of contingent liabilities not provided for as of 30.09.06: A) Unexpired Bank Guarantees: Rs. 50.00 lacs B) Claims against the company not acknowledged as debts: Rs. 55.46 lacs

Details of Related Party Transactions: The company had related party transactions with the Issuer Company to the extent of Rs. 1226.82 lacs during the preceeding three financial years.

Amalgamation with VBC Industries Limited:

Bharat Alloys & Energy Limited and VBC Industries Limited have filed a scheme of amalgamation with the High Court of Andhra Pradesh (Original Jurisdiction), vide company Application No: 1516 of 2006 under sections 391 and 394 of the Act for the amalgamation of Bharat Alloys & Energy Limited into VBC Industries Limited. The object of the amalgamation is to avail the synergies of operations as Bharat Alloys & Energy Limited is engaged in the business of manufacture of Ferro alloys, VBC Industries Limited has promoted power projects in Andhra Pradesh and Orrisa. The power generated by these companies is proposed to be used as captive consumption in the manufacture of Ferro alloys.

The court conveyed meeting of members of Bharat Alloys & Energy Limited and VBC Industries Limited was held on December 14, 2006 and December 16, 2006, respectively, for taking the members consent for the proposed scheme of amalgamation of the company with VBC Industries Limited. The final order of Honorable High Court of Andhra Pradesh in this matter is awaited.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Litigation/ Defaults: There are no defaults in meeting any statutory/bank/institutional dues. No proceedings/outstanding litigation has been initiated for economic offences against the company. For details of other litigation in which the company is involved, please refer to section “Litigation” on page no. 137 of the Draft Letter of Offer.

12. Padmakshi Investments (P) Ltd.

Padmakshi Investments (P.) Ltd. was incorporated on 24th July, 1996 under the provisions of the Act. Its Registered office is located at 6-2-913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderabad –500 004.

Brief particulars of the Company:

Date of Incorporation 24th July 1996 Registration No. 01-24753 of 1996-97 CIN U67120AP1996PTC024753 Address of ROC Office where Registrar of Companies, 2nd floor, CPWD Building. Kendriya the Company is registered Sadan, Sultan Bazar, Koti, Hyderabad – 500195; Phone 040- 24657937, 24652807; Fax: 040-24652807

Fired to Excel Nature of Business The Company is carrying on the business of an Investment Company and its object is to invest in and to acquire for consideration by way of gift, exchange or otherwise and to hold, sell or otherwise deal in shares, stock, units, debenture stocks, bonds, obligation and securities issued or guaranteed by the company. PAN AABCP2136Q Bank Account No 10111115399 Name of the Bank State Bank of India, Khairatabad, Hyderabad Current Status In operation

The present Board of Directors of the company is as follows:

Name Designation Dr.B.Sri Nagi Director Smt.M.Sri Mani Director Shri. C.Madhusudan Director Shri. N.Babu Rao Director

The shareholding pattern of the company as on 30.09.2006 is as follows:

Name No of Shares % of shareholding (Face Value of Rs. 10/- each) M.S.P. Rama Rao 100 0.10 Dr.B.Sri Nagi 1,100 1.10 Smt.M.Sri Mani 98,700 98.70 Shri. R.Anil Kumar 100 0.10 Total 1,00,000 100.00

The authorized share capital of the company is Rs. 10.00 lakhs (Rupees Ten lakhs only) divided into 1,00,000 (One lakh) equity shares of Rs. 10/- each and the issued, subscribed and paid up capital of the company is 1,00,000 fully paid up equity shares of Rs. 10/- each aggregating to Rs. 10,00,000/- (Rupees Ten lacs only).

Brief financial results of the company are as under: (Rs. In Lacs) As on March 31 2004 2005 2006 Share Capital 10.00 10.00 10.00 Reserves and surplus - 2.03 4.70 (excluding revaluation reserve) Total Income 28.91 31.95 31.29 Profit after Tax 2.56 2.82 2.67 Earning Per share (Rs.) 2.56 2.83 2.67 Net Asset Value 9.98 12.02 14.71

Details of Contingent Liabilities not provided for: NIL

Details of Related Party Transactions: The company did not have any related party transactions within the group during the preceding three Financial Years.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Litigation/ Defaults: There are no defaults in meeting any statutory/bank/institutional dues. No proceedings/outstanding litigation has been initiated for economic offences against the company.

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13. Techno Pack Pvt. Ltd.

The company was originally incorporated as a private limited company on September 3, 1971 under the provisions of the Act and subsequently was converted into a public limited company by a special resolution passed by the members in their meeting held on March 31, 1986. The status of the company was again changed to private limited company vide special resolution passed on December 15, 1998. The Registered office of the company is located at A-4 unit, Industrial Estate, Post Box No 700, Visakhapatnam, Andhra Pradesh – 530007. The Corporate office of the Company is Located at 6-2- 913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderanad –500004.

Brief particulars of the company:

Date of Incorporation September 3, 1971 Registration No 01-1436 of 1971-72 CIN U21014AP1971PTC00 1436 Address of ROC Office Registrar of Companies, 2nd floor, CPWD Building. Kendriya where the Company is Sadan, Sultan Bazar, Koti, Hyderabad – 500195; Phone 040- registered 24657937, 24652807; Fax: 040-24652807 Nature of Business The company is in the business of manufacturing, production, importing, exporting, buying, selling, fabricating and generally to carry on the business in expanded plastics such as high density polyethylene, polyvinyl chloride, poly-propylene, rubber and other kinds of natural and synthetic plastics. PAN AAACT8022A Bank Account No. 10111115774 Name of the Bank State Bank of India, Khairatabad, Hyderabad Current Status In operation

The present Board of Directors of the company is as follows:

Name Designation Dr M.V.V.S Murthi Chairman C.Venkatramaiah Director G.Suryanayana Murthi Director E.Rama Rao Director Ch. Suryanarayana Murthi Director

The shareholding pattern of the company as on 30.09.2006 is as follows:

Name No of Shares % of shareholding Dr M.V.V.S Murthi 3,50,910 73.10 C.Venkatramaiah 7,500 1.56 Smt Bharati Vardaraj 16,000 3.33 M.S.Lakshman Rao 31,220 6.50 M.Surya 41,700 8.69 S Venkateswar Rao 7,050 1.47 D. Suryarajym 3,000 0.62 M Sri Mani 22,620 4.72 Total 4,80,000 100

The authorized share capital of the company is Rs. 5.00 crores (Rupees Five crores only) divided into 49,00,000 equity shares of Rs. 10/- each shares and 1,00,000, 12% cumulative redeemable preference shares of Rs. 10/- each and the issued, subscribed and paid up capital of 4,80,000 fully paid up equity shares of Rs. 10/- each aggregating to Rs. 48,00,000/- (Rupees Forty eight lacs only).

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Brief financial results of the company are as under: (Rs. In Lacs) As on March 31 2004 2005 2006 Share Capital 48.00 48.00 48.00 Reserves and surplus 106.32 112.01 143.36 Total Income 109.10 40.77 52.50 Sales 107.20 36.31 12.27 Profit after Tax 28.36 10.42 31.35 Earning Per share (Rs.) 5.91 2.17 6.53 Net Asset Value 31.38 32.61 39.17

Details of Contingent liabilities not provided for as on 30.09.06: NIL

Details of Related Party Transactions: The company had related party transactions with the Issuer Company to the extent of Rs. 535.36 lacs during the preceeding three financial years.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

14. VBC Industrial Holdings Pvt. Ltd.

VBC Industrial Holdings Pvt. Ltd. was incorporated on 20th May, 1988 under the provisions of the Act. Registered office of the company is located at A-4 unit, Industrial Estate, Box No 700, Viskakhapatnam – 530 007, Andhra Pradesh.

Brief particulars of the company:

Date of Incorporation 20th May, 1988 Registration No. 01 – 08658 of 1988 – 89 CIN U67120AP1988PTC008658 Address of the ROC office Registrar of Companies, 2nd floor, CPWD Building. Kendriya where the company is registered Sadan, Sultan Bazar, Koti, Hyderabad – 500195; Phone 040- 24657937, 24652807; Fax: 040-24652807 Nature of Business The main objects of the company are to purchase, acquire, hold and dispose of or otherwise deal and invest in any shares, debentures and other securities. PAN AABCV3809Q Bank Account No. NIL Name of the Bank NA Current Status Not in operation

The Present Board of Directors of the company is as follows:

Name Designation Shri P.Chinnam Naidu Director Shri B.Satyanarayana Director Shri T.Venkata Satyanarayana Director

Fired to Excel The shareholding pattern of the company as on 30.09.2006 is as follows:

Name Equity 0f Preference % Shareholding % Shareholding face value s of face (Equity) (Preference) 10/- each value Rs 100/ - each Bharat Alloys and 3735 250 49.80 100 Energy Ltd Shri P.Chinnam Naidu 10 NIL 0.13 NIL Shri B.Satyanarayana 10 NIL 0.13 NIL Shri T.Venkata 10 NIL 0.13 NIL Satyanarayana Konaseema Power 3735 NIL 49.80 NIL Corporation Ltd. Total 7,500 250 99.99 100

The authorized share capital of the company is Rs. 1,00,000/- (Rupees One Lakh only) divided into 7,500 equity shares of Rs 10/- each and 250 preference shares of Rs. 100/- each.

Brief financial results of the company are as follows: (Rs. in lacs) As on March 31 2004 2005 2006 Share Capital 1.00 1.00 1.00 Reserves & Surplus NIL NIL NIL Sales NIL NIL NIL Other Income NIL NIL NIL PAT NIL NIL NIL EPS (Rs.) NIL NIL NIL Net Asset Value 10.00 10.00 10.00

Details of Contingent Liabilities not provided for: NIL

Details of Related Party Transactions: The company had no related party transactions within the group during the preceding three Financial Years..

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Litigation/ Defaults:

There are no defaults in meeting any statutory/bank/institutional dues. No proceedings/outstanding litigation have been initiated for economic offences against the company.

15. Konaseema Infrastructure Pvt. Ltd.

The company was incorporated on March 18, 2004 under the provisions of the Act. The registered office of the company is situated at Devarapalli Village, near Ravulapalam, East Godavari District, and Andhra Pradesh – 533238.

Brief particulars of the company:

Date of Incorporation March 18, 2004 Registration No 01-42898 of 2003-04 CIN U45200AP2004PTC042898 Address of the ROC office Registrar of Companies, 2nd floor, CPWD Building. Kendriya where the company is registered Sadan, Sultan Bazar, Koti, Hyderabad – 500195; Phone 040- 24657937, 24652807; Fax: 040-24652807.

Fired to Excel Nature of Business The company is in the business of development of infrastructure work on build, operate, maintain and transfer basis. PAN AACCK8329F Bank Account No. 1521 Name of the Bank UCO Bank, Banjara Hills, Hyderabad Current Status Not in operation

The present Board of Directors of the company comprises of:

Name Designation M.S.P. Rama Rao Director M.S.Lakshman Rao Director

The shareholding pattern of the company as on 30.09.2006 is as follows:

Name No of Shares % of shareholding (Face Value of Rs. 10/- each) M.S.P. Rama Rao 5,000 50.00 M.S.Lakshman Rao 5,000 50.00 Total 10,000 100.00

The authorized capital of the company is Rs. 50 lakhs (Rs Fifty lakhs only) divided into 5,00,000 (Five lakhs) equity shares of Rs 10/- each.

Details of Contingent Liabilities not provided for: NIL

Details of Related Party Transactions: The company did not have any related party transactions with the Issuer Company during the preceding three Financial Years.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Litigation/ Defaults: There are no defaults in meeting any statutory/bank/institutional dues. No proceedings/Outstanding Litigation has been initiated for economic offences against the company.

Confirmation:

The details of: (i) Permanent Account Number, Bank account number, passport number and driving licence no., as may be available, (for the individual Promoters); and (ii) Permanent Account Number, Bank account number, company registration no., Company Identification Number (CIN), Address of the Registered Office of the company and the Registrar of Companies where the Promoter Company is Registered (for the corporate Promoters) have been submitted to the BSE at the time of filing of this document with them.

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Further, the Promoters have not been declared as willful defaulters by RBI or any other government authority* and there are no violations of securities laws committed by the Promoters in the past nor any such proceedings are pending against the Promoters.

* One of the Promoter Group Companies, viz, VBC Exports Limited has been disclosed as defaulter on the website of Credit Information Bureau (India) Limited (CIBIL) as of the quarter ended June 30, 2006, the date upto which the data was available on the website. The default was committed by this company towards rapyament of loan of Rs. 294 lacs taken from the State Bank of India, Overseas Branch, Vishakhapatnam. The default has been cured by the company by repaying the amount due to the bank in April, 2005. The bank has issued a no due ceretificate dated April 28, 2005 to the company. Shri. M.S. Lakshman Rao, Promoter and Director of VBCFAL, who is also one of the directors of VBC Exports Limited, has vide letter dated January 18, 2007 requested the bank to take necessary steps to forward the updated details to the CIBIL to enable them to delete the name of VBC Exports Limited from the list of defaulters.

FINANCIAL INFORMATION OF THE PROMOTER GROUP COMPANIES [IN OPERATION]

1. Karthik Rukmini Alloys & Energy Ltd.

Karthik Rukmini Alloys & Energy Ltd. was incorporated on 3rd November 2004 under the provisions of the Act. Its registered office is situated at “Sri Teja”, 1st Floor, Plot No.232 Kavuri Hills, Phase-II, Madhapur, Hyderabad-500 033, Andhra Pradesh. The manufacturing plant/unit is located at: Jagannathpur Village, Sirpur Kaghaz Nagar Madal, Adilabad District, Andhra Pradesh.

Karthik Rukmini Alloys & Energy Limited proposes to set up an integrated 65 MW Captive Power Project for decentralized generation of power, mainly from coal, procured from Singareni Collieries Company Ltd. and balance from coal rejects. The proposed Project will be set up at a site located about 7 km from Sirpur in Adilabad district of Andhra Pradesh. The site is located adjacent to the State highway passing through Sirpur to Dehagaon Mandal and is about 250 km. from Hyderabad. For further details of the Project, please refer to section “Objects of the Issue” of the Draft Letter of Offer.

For details of approvals obtained by the company for the Project, please refer to section “Government Approvals and Licenses” on page no. 148 of the Draft Letter of Offer.

Brief particulars of the company:

Date of Incorporation 3rd November 2004 Registration No 01-44533 of 2004-2005 CIN CIN-U27101AP2004PLC44533 Address of ROC Office 2nd floor, CPWD Building. Kendriya Sadan, Sultan Bazar, Koti, where the Company is Hyderabad – 500195; Phone 040-24657937, 24652807; Fax: registered 040-24652807 Nature of Business To manufacture, engineer, fabrication, process, buy, import, sell, export, and generally carry on the business in all grades and specification of Ferro alloys including Ferro manganese, Ferro silicon, Ferro chrome, Ferro titianium, Ferro niobium, other noble Ferro alloys including Ferro vanadium, Ferro boran, Ferro aluminum and non-Ferro metals and silicon metals including mining of minerals such as manganese or, iron ore, coal, bauxite ore by obtaining mining lease and mining of any other raw material as required for production of Ferro alloys. Current Status In Operation

The shares of the company are not listed on any of the Stock Exchanges in India.

Fired to Excel The present Board of Directors of the company is as follows:

Name Designation B. Gopala Director B. Raghavendra Director U. Satyanarayana Director M S P Rama Rao Director M S Lakshman Rao Director B. G. Lakshmi Director

The Shareholding pattern of the company as on 30/09/2006 is as follows:

Name No. of Shares % of shareholding B Gopala 9900 19.80 B G Karthik 9900 19.80 B G Lakshmi 9900 19.80 B Raghvendra 9900 19.80 B R Lalitha 9900 19.80 J V Ratnam 300 0.60 A Seetharamaiah 200 0.40 Total 50000 100.00

The authorized share capital of the company is Rs. 20,00,000 (Rupees Twenty lacs only) divided into 2,00,000 (Two lakh) equity shares of Rs 10/- each. Paid up share capital consists of 50,000 equity shares of Rs. 10/- each aggregating to Rs. 5,00,000/- (Rupees five lacs only).

The present shareholding of the promoters of the company, viz., Shri. B.Gopala & his associates is proposed to be transferred in favour of Bharat Alloys & Energy Limited (BAEL) or the promoters of BAEL, viz., Shri. M.S. Rama Rao & Shri. M.S.Lakshman Rao on payment of last tranche of the cash consideration of Rs. 15.00 lacs (Total consideration Rs. 75.00 lacs) as per the terms of the Memorandum of Understanding (MoU) dated December 6, 2005 entered into between the said parties. For details of the MoU, please refer to page 93 of the Draft Letter of Offer.

Brief financial results of the company is as under: (Rs. In Lacs) As on March 31 2005 2006 Share Capital (Paid Up) 5,00,000 5,00,000 Reserves and surplus NIL NIL (Excluding revaluation reserve) Total Income NIL NIL Profit after Tax NIL NIL Earning Per share (Rs.) NIL NIL Net Asset Value 10.00 10.00

Details of Contingent Liabilities Not Provided for: NIL

Details of Related Party Transactions: The company did not have any related party transactions within the group during the preceding three Financial Years.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Litigation/ Defaults: There are no pending litigations, disputes or suits against the company and there is no default in meeting any of the Statutory/ bank/institutional dues. No proceedings have been initiated for economic offences against it.

Fired to Excel Memorandum of Understanding/ Agreements:

A. Memorandum of Understanding dated December 6, 2005:

A Memorandum of Understanding has been entered into between Bharat Alloys & Energy Limited (BAEL) [through its promoters Shri. M.S. Rama Rao & Shri. M.S.Lakshman Rao] and KRAEL [through its promoters Shri. B.Gopala (Chief Promoter and Director of KRAEL] & Associates on December 6, 2005 for transferring the entire ownership and management of KRAEL for an amount of Rs. 75.00 lakhs by acquiring the ownership interest presently held by Shri. B.Gopala and Associates. In the first instance, BAEL is required to pay Rs. 75.00 lakhs in three (3) instalments. After the payment of entire consideration, the equity shares of KRAEL held by Shri. B.Gopala and Associates will be transferred either to BAEL or the promoters of BAEL. BAEL has already paid an amount of Rs. 60.00 lakhs (the first two (2) installments). The balance consideration of Rs. 15.00 lacs (last instalment) was required to be paid by December 31, 2006, which is not yet been paid.

The salient features of the said MoU are as under: - • BEAL to discharge the entire liability of Karthik Rukmini Alloys & Energy Limited to VBC Ferro Alloys Limited. • Shri. B.Gopala will continue to be associated in the Project and offer his services and full cooperation for smooth implementation of the project up to 31.12.2006. • KRAEL is free to utilize the land admeasuring 41.20 acres situated at Jagannathpur village, sirpur kagaznagar mandal, Andhra Pradesh for its own business purpose including setting up of the proposed Ferro alloys plant and captive power Project. • Bharat Alloys & Energy Limited through its promoters Shri. M.S. Rama Rao and Shri. M.S.Lakshman Rao are free to act at their will in establishing proposed Project and to do all such actions as may be deemed necessary for availing the Coal linkage from Ministry of coal, Government of India and Fuel Supply agreement entered with M/s. Singareni Colleries Limited.

B. Fuel Supply Agreement dated February 17, 2005 with Singareni Collieries Company Limited

The company has entered into Fuel supply agreement dated February 17, 2005 for supply of coal to the extent of 1,80,000 tons per annum with Singareni Collieries Company Limited for the Captive Power Project in Adilabad District.

2. VBC Industries Ltd

VBC Industries Ltd. was originally incorporated as a private limited company named as Vizag Bottling Company (P.) Limited on 3rd September 1971 under the provisions of the Act and subsequently converted its status to a public limited company. The name of the company was changed to VBC Industries Limited with effect from May 19, 1987. The registered office of the company is situated at A- Unit, Industrial Estate, Visakhapatnam -530007, Andhra Pradesh.

The equity shares of the VBC Industries Ltd. have been listed on the Bombay Stock Exchange Limited (BSE). Stock Code: VBCIND; Scrip Code: 524310.

Brief particulars of the company:

Date of Incorporation September 3, 1971 Registration Number 01-001437 CIN L28113AP1971PLC001437 The Registrar of Companies, 2nd floor, CPWD Building. Kendriya Sadan, Sultan Address of ROC Office where the Bazar, Koti, Hyderabad – 500195; Phone company is registered 040-24657937, 24652807; Fax: 040- 24652807 To carry on the business of importers, manufacturers and dealers, fruit juices, Main objects of the company syrups, aerated, mineral and artificial waters and other drinks of all kinds. Nature of Business Investments and services Current Status Operative

Fired to Excel The present Board of Directors of the company is as follows:

Name Designation DR. MVVS Murthi Chairman G.L.Tandon, Padma Bhushan Director O.Swaminatha Reddy Director M.K.Raju Director K.S.Purohit Director RKR Gonela IAS (Rtd.) Director VS Rao Managing Director

The shareholding pattern of the company as on 30.09.2006 is as follows:

Category Shareholders Shareholding Nos. % Nos. % Promoters 5664 14.84 5873446 34.14 Persons Acting in Concert 1 0.00 820000 4.77 Public 32251 84.52 9357639 54.40 Bodies Corporate 226 0.59 1114460 6.48 Banks & Financial Institutions - - - - NRIs 18 0.05 36264 0.21 Mutual Funds - - - - Total 38,160 100.00 17201809 100.00

The authorized capital of the company is Rs. 25,00,00,000 (Rupees Twenty Five crores only) divided into 2,50,00,000 (Two Crore Fifty lakhs) equity shares of Rs 10/- each.

Brief financial results of the company are as under: (Rs. In Lacs) As on March 31 2004 2005 2006 Share Capital (Paid Up) 1734.14 1734.14 1734.14 Reserves and surplus 1367.79 1557.31 1536.57 (Excluding revaluation reserve) Total Income 188.50 293.92 23.27 Profit after Tax 124.24 195.04 (20.82) Earning Per share (Rs.) 0.72 1.13 NIL Net Asset Value 16.81 18.42 18.54

Details of Contingent liabilities not provided for as on September 30, 2006:

Particulars Amount (Rs. in lacs) Guarantee given to financial institutions on behalf 110.00 of a body corporate Disputed Sales tax demand 18.94 Disputed Excise demands 56.84

Details of Related Party Transactions: The company had related party transactions within the group to the extent of Rs. 5397.30 lacs during the preceeding three financial years.

Stock Market Data Month High (Rs.) Low (Rs.) July, 06 8.57 7.14 August, 06 8.90 7.50 September, 06 8.65 7.11 October, 06 10.90 6.80 November, 06 10.36 7.00 December, 06 11.41 8.92

Market price as at January 19, 2007, was Rs. 12.97/-

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Mechanism for redressal of investor grievances:

VBC Industries Ltd. has constituted an Investor Grievance Committee in terms of the mandatory requirement of Clause 49 of the Listing Agreement to look into the redressal of grievance of investors like non receipt of share certificates, non-receipt of balance sheet, non-receipt of dividend warrants etc.

Amalgamation with Bharat Alloys and Energy Limited: For details, please refer to section “Promoters” on page no.85 of the Draft Letter of Offer.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Defaults/ Litigation: There are no defaults in meeting any statutory/bank/institutional dues. No proceedings/outstanding Litigation have been initiated for economic offences against the company. For details of other litigation in which the company is involved, please refer to section “Litigation” on page no. 137 of the Draft Letter of Offer.

3. VBC Finance & Leasing Ltd.

VBC Finance & Leasing Limited was incorporated on 29th August, 1985 under the provisions of the Act. The company received the certificate of Commencement of Business on 9th October, 1985. The registered office of the company is situated at 6-2-913/914, Ground Floor, Progressive Towers, Khairatabad, Hyderabad – 500 004, Andhra Pradesh.

The company is listed on Bombay Stock Exchange Limited (BSE), the Madras Stock Exchange Limited (MSE) and the Hyderabad Stock Exchange Limited (HSE). The scrip of company was suspended from trading on the BSE w.e.f. September 10, 2001 due to non-compliance of the provision of the listing agreement. BSE, vide letter no. CRD/ OT/ 2006 dated July 3, 2006, has informed the company that BSE has approved revocation of suspension in the trading of the shares of the company, subject to the compliance of the following conditions:

(i) The entire promoter shareholding (45%) of the company shall be under a lock-in for a period of 1 year from the date of revocation; and (ii) Payment of re-instatement fees of Rs. 2,00,000/-.

The company has, vide letter dated November 4, 2006 to BSE, furnished an undertaking confirming to lock-in the entire promoter shareholding (45%) of the company for a period of 1 year from the date of revocation and has also paid the requisite re-instatement fees. Further communication from BSE in this regard is awaited.

Brief Particulars of the company:

Date of Incorporation September 3, 1971 Registration Number 01-001437 CIN L28113AP1971PLC001437 The Registrar of Companies, 2nd floor, Address of ROC Office where the CPWD Building. Kendriya Sadan, Sultan company is registered Bazar, Koti, Hyderabad – 500195; Phone 040- 24657937, 24652807; Fax: 040-24652807 To carry on the business of importers, manufacturers and dealers, fruit juices, syrups, Main Objects of the Company aerated, mineral and artificial waters and other drinks of all kinds. Nature of Business Investments and services Current Status In Operation

Fired to Excel The present Board of Directors of the company is as follows:

Name Designation M.Srimani Managing Director MS Ramam Rao Director C Madhusudan Director Ch. Sri Hari Director LN Sharma Director B. Gopala Director

The shareholding pattern of the company as on 30.09.2006 is as follows:

Category Shareholders Shareholding No. % No. % Promoters 254 9.69 973171 34.10 Persons Acting in Concert 6 0.23 326400 11.44 Institutions 5 0.19 61659 2.16 Public & Others 2355 89.89 1492911 52.31 Total 2620 100.00 2854141 100.00

The authorized share capital of the company is Rs. 10,00,00,000 (Rupees Ten crores only) divided into 1,00,00,000 (One crore) equity shares of Rs. 10/- each. The issued capital of the company is 30,00,000 (Thirty lakh) equity shares of face value of Rs.10/- each. The subscribed and paid up capital of the company is 28,54,141 fully paid up equity shares of Rs.10/- each aggregating to Rs. 2,85,41,410/- (Rupees Two crores Eighty five lacs Forty one thousand Four hundred Ten only).

Brief financial results of the company are as under: (Rs. In Lacs) As on March 31 2004 2005 2006 Share Capital (Paid Up) 285.41 285.41 285.41 Reserves and surplus 81.79 97.09 232.82 (Excluding revaluation reserve) Total Income 174.05 85.42 226.30 Profit after Tax 117.82 15.70 148.84 Earning Per share (Rs.) 4.11 0.54 4.76 Net Asset Value 12.83 13.38 18.15

Contingent liabilities not provided for as of 30.09.06 : NIL

Details of Related Party Transactions: The company had related party transactions within the group to the extent of Rs. 533.66 lacs during the preceeding three Financial Years.

Stock Market Data: The scrip was suspended from trading by the Bombay Stock Exchange Limited and hence there are no market quotations.

Mechanism for redressal of investor grievances:

The company has constituted an Investor Grievance Committee in terms of the mandatory requirement of Clause 49 of the listing agreement to look into the redressal of grievance of investors like non receipt of share certificates, balance sheet, dividend warrants etc.

Sick Company/ under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Fired to Excel Details of defaults in meeting statutory/bank/institutional dues as of 30.09.06:

Particulars upto Amount (Rs. in lacs) Tax Deducted at Source 30.09.06 0.96 Professional Tax 30.09.06 0.01

Litigation: No proceedings/outstanding litigation have been initiated for economic offences against the Company.

4. Konaseema Gas Power Limited

The company was originally incorporated as EPS Oakwell Power Limited on 10th July 1997. It received the certificate for commencement of business on 20th August 1997. The name of the company was changed to Konaseema Oakwell Power Limited on 2nd November, 1999 and again to Konaseema Gas Power Limited (KGPL) on 10th October, 2005. The Registered Office of the company is situated at 6 – 2 – 913/914, 2nd Floor, Progressive Towers, Khairatabad, Hyderabad.

The company is set up for carrying on the business of Power generation. Due to non availability of the gas from Gas Authority of India Ltd, the commercial production has not yet started. Although, the promoters are not hopeful of the company getting gas before June, 2008, they propose to go ahead with their plans of further expansion.

The equity shares of the Company are not listed on any Stock Exchange in India.

Brief particulars of the company:

Date of Incorporation 10th July, 1997 Registration Number 01 – 37013 CIN U40101AP1997PLC037013 The Registrar of Companies, 2nd floor, CPWD Building. Kendriya Sadan, Sultan Address of ROC Office where the Bazar, Koti, Hyderabad – 500195; Phone company is registered 040-24657937, 24652807; Fax: 040- 24652807 To generate, harness, develop, accumulate, distribute and supply Main Objects of the Company electricity by setting up Thermal, Hydro or other type of power projects. Nature of Business Power generation Current Status In Operation

The present Board of Directors of the company is as under:

Name Designation Dr. Narla Tata Rao Chairman Dr. C R Prasad Vice – Chairman B P Mandal Director V K Shah Director R C Sodhi Director V P Rama Rao Director J K Sharma Director Dr. Archana Hingorani Director AK Chhatwani Director T R C Bose Director A S Raju Director M S P Rama Rao Managing Director

Fired to Excel Shareholding Pattern as on 30.09.2006:

Name No. of Shares % Age of Shareholding Promoters 20,83,64,500 52.71 Persons acting in concert 2,87,97,050 7.28 Foreign Institutional Investors 3,69,04,000 9.33 Foreign Companies 1,46,51,800 3.71 Private Corporate Bodies 2,10,00,000 5.31 Financial Institutions 8,56,30,000 21.66 TOTAL 39,53,47,350 100.00

Brief Financial Results of the Company are as under: (Rs. In Lacs) As on March 31 2004 2005 2006 Share Capital (Paid Up) 20602.00 24675.00 32506.78 Share Application Money received - 230.07 230.07 Reserves and surplus NIL NIL NIL (excluding revaluation reserve) Total Income NIL NIL NIL Profit after Tax NIL NIL NIL Earning Per share (Rs.) NIL NIL NIL Net Asset Value 10.00 10.00 10.00

Details of contingent liabilities not provided for as on 30.09.06:

Sr. Particulars Amt. (in Rs. crores) no. 1 Unexpired Bank Guarantees 44.18 2 Unexpired Letters of Credit Opened 71.91 on capital account

Details of Related Party Transactions: The company had related party transactions within the Issuer Company to the extent of Rs. 903.5 lacs during the Financial Year 2005-06.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Details of defaults in meeting statutory dues as of 30.09.06::

Sr. no. Particulars Amount (Rs. in lacs) 1 Works Contract Tax 26.77 2 Tax Deducted at Source 4.10

Over due interest as on date:

Name of the Lender Amt. of Default Date since default Reasons for Default (Rs. in lacs) committed GIC 39.71 September, 2006 end To be met out of quarter disbursement of Term Loan from financial institutions/ banks and induction of the additional equity by the company HUDCO 228.54 -do- -do- UBI 134.95 -do- -do- LIC 140.97 -do- -do-

Fired to Excel UCO Bank 64.79 -do- -do- PNB 141.73 -do- -do- REC 328.63 -do- -do- IDBI-RTL 135.63 -do- -do- IDBI-RTL 16.52 -do- -do- IDBI-FCL 326.93 -do- -do- PFC-FCL 457.65 -do- -do- PFC-RTL 185.05 -do- -do- CBI-RTL 124.48 -do- -do- TOTAL 2285.97

Litigation: No proceedings/outstanding litigation have been initiated for economic offences against the Company.

5. Konaseema Power Corporation Limited

Konaseema Power Corporation Limited was incorporated on 5th August, 1998 under the provisions of the Act. The company received the certificate of commencement of business on 5th August, 1998. The registered office of the company is situated at A-Unit, Industrial Estate, Visakhapatnam -530007, Andhra Pradesh.

The equity shares of the company are not listed on any Stock Exchange in India.

Brief particulars of the company:

Date of Incorporation 5th August, 1998 Registration Number 01 – 29888 CIN U40109AP1998PLC029888 The Registrar of Companies, 2nd floor, CPWD Address of ROC Office where the Building. Kendriya Sadan, Sultan Bazar, Koti, company is registered Hyderabad – 500195; Phone 040-24657937, 24652807; Fax: 040-24652807 To generate, harness, develop, accumulate, distribute Main Objects of the Company and supply electricity by setting up Thermal, Hydro or other type of power Nature of Business Power generation Current Status In operation

The present Board of Directors of the company is as follows:

Name Designation Dr. N Tata Rao Director J K Sarma Director M S P Rama Rao Director N Babu Rao Director

The shareholding pattern of the company as on 30.09.2006 is as follows:

Name No. of Shares % Age of Shareholding Dr. N Tata Rao 100 J K Sarma 100 Raghavan Krishna 100 Ch. Srihari 100 L S Reddy 100 V Vasudevan 100 V S Rao 100 V M Rao 100

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M S P Rama Rao 25,100 2.44 VBC Ferro Alloys Limited 1,00,000 9.74 Konaseema Gas Power Limited 1,00,000 9.74 T Vijaya Kumar 2,50,000 24.36 VBC Finance & Leasing Limited 2,50,000 24.36 Frontline Insurance Corporation (P) Ltd. 3,00,000 29.24 TOTAL 10,25,900 100.00

Brief financial results of the company are as under: (Rs. In Lacs) As on March 31 2004 2005 2006 Share Capital (Paid – Up) 22.59 102.59 102.59 Reserves and surplus --- (Excluding revaluation reserve) Total Income - 3.70 1.10 Profit after Tax (6.32) (3.86) (7.57) Earning Per share (Rs.) (2.80) (0.38) (0.75) Net Asset Value 9.29 9.84 9.84

Details of Contingent Liabilities not provided for as on 30.09.06: NIL

Details of Related Party Transactions: The company had related party transactions within the Issuer Company to the extent of Rs. 3.72 lacs during the preceding three Financial Years.

Sick Company/ Under Winding Up: The company is neither a sick company with in the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Litigation/ Defaults: There are no defaults in meeting any statutory/bank/institutional dues. No proceedings/outstanding Litigation have been initiated for economic offences against the Company. For details of other litigation in which the company is involved, please refer to section “Litigation” on page no. 137 of the Draft Letter of Offer.

6. VBC Wood Distillation (P.) Limited

The company was incorporated on 17th May, 1982 under the provisions of the Act. The Registered office of the company is situated at 6-2-913/914, Third Floor, Progressive Towers, Khairatabad, Hyderabad – 500 004, Andhra Pradesh.

Brief Particulars of the Company:

Date of Incorporation 17th May, 1982 Registration Number 01 – 3493 CIN U20100AP1982PTC003493 The Registrar of Companies, 2nd floor, CPWD Building. Address of ROC Office where the Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195; company is registered Phone 040-24657937, 24652807; Fax: 040-24652807 To carry on the business as manufacturers, producers, stockists, dealers, traders, modifiers, maintainers, buyers, Main Objects of the Company sellers, importers, operations, distributors, agents of all kinds of Charcoal, quartz, Condensable vapours, wood – tar, non – condensable vapours/gases. Nature of Business Dealing in the business of quartz Current Status In Operation

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Fired to Excel The shareholding pattern of the company as on 30.09.2006 is as follows:

Name No. of Shares % Age of Shareholding Shri. E.Rama Rao 250 25.00 Shri. Ch. Srihari 250 25.00 Smt. M.Srimani 20 2.00 Smt. M.Surya 20 2.00 J.Triveni 230 23.00 A.Lalita Kumari 230 23.00 Total 1000 100.00

Brief Financial Results of the Company are as under: (Rs. In Lacs) As on March 31 2004 2005 2006 Share Capital 1.00 1.00 1.00 Reserves & Surplus NIL NIL NIL Sales 11.30 33.009 33.78 Other Income 0.002 0.020 0 PAT (2.79) 0.19 0.66 EPS (Rs.) NIL 19.38 66.58 Net Asset Value 100.00 149.16 164.83

Contingent liabilities not provided for as of 30.09.06: NIL

Details of Related Party Transactions: The company did not have any related party transactions within the group during the preceeding three Financial Years.

Sick Company/ Under Winding Up: The company is neither a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 nor is under winding up.

Defaults/ Litigation: There are no defaults in meeting any statutory/bank/institutional dues. No proceedings/outstanding litigation have been initiated for economic offences against the company.

DETAILS OF NON-OPERATIONAL PROMOTER GROUP COMPANIES ARE AS UNDER: -

S.No Name of the Company and CIN Date of Registered Directors Authorised Paid-up Incorporation Office Capital Capital (Rs. In (Rs. In Lakhs) Lakhs) 1) Indo-US Coal Washeries Ltd 08-05-96 Third Floor, MSP.Rama Rao 1000.00 5.17 [U10100AP1996PLC024035] Progressive David. L.Carter Towers, B.Rajendra Khairatabad, Prasad Hyderabad N. Babu Rao J. K. Sarma 2) Bharat Jala Vidyut Nigam Ltd 20-06-97 Third Floor, DR.N.Tata Rao 500.00 5.57 [U40109AP1997PLC027395] Progressive MSP.Rama Rao Towers, K. C. Khairatabad, Mohapatra Hyderabad N. Babu Rao J. K. Sarma 3) Bhadrachalam Power 18-12-96 Third Floor DR.N.Tata Rao 100.00 5.57 Company Ltd Progressive MSP.Rama Rao [L40100AP1996PLC025993] Towers, J. K. Sarma Khairatabad, N. Babu Rao

101

Fired to Excel Hyderabad 4) Orissa Hydel Power Balimela 22-06-99 Third Floor DR.N.Tata Rao 500.00 5.07 Ltd. Progressive MSP.Rama Rao [U40109AP1999PLC031839] Towers, M.S.L.Rao Khairatabad, V.S.Rao Hyderabad P.S.Rao 5) Orissa Hydel Power Jalaput 22-06-99 Third Floor DR.N.Tata Rao 500.00 5.07 Ltd Progressive MSP.Rama Rao [U40109AP1999PLC031840] Towers, M.S.L.Rao Khairatabad, V.S.Rao Hyderabad P.S.Rao

6) Orissa Power Consortium 29.06.1995 Mouyza, Dr.MVVS Murthi 5000.00 3317.00 Limited Sahar, Plot No: J.JK Sharma [U40101OR1995PLC004059] 76, Surya RKR Gonela Nagar, MSP Rama Rao MS Lakshman Bhubaneswar Rao KC Mohapatra VS Rao VS Bisht KS Rao 7) Frontline Insurance Advisors 25-02-2003 Second Floor, MSP.Rama Rao 100.00 2.00 (P) Ltd. Progressive M.S. L. Rao [U66010AP2003PTC040567] Towers, Khairatabad, Hyderabad 8) Available Resources (P) Ltd. 10-02-2004 Second Floor, MSP.Rama Rao 200.00 200.00 [U65910AP2004PTC042618] Progressive M.S. L. Rao Towers, Anil Kumar Khairatabad, Hyderabad 9) Threshold Investments (P) Ltd 10-02-2004 Second Floor, MSP.Rama Rao 200.00 200.00 [U65910AP2004PTC042617] Progressive M.S. L Rao Towers, Anil Kumar Khairatabad, Hyderabad 10) Konaseema Resources (P) Ltd 12-07-2004 Second Floor, MSP.Rama Rao 5.00 1.00 [U74140AP2004PTC043624] Progressive M.S.L. Rao Towers, Khairatabad, Hyderabad 11) Konaseema Energy (P) Ltd 02-07-2004 Second Floor MSP.Rama Rao 5.00 1.00 [U40109AP2004PTC043576] Progressive M.S.L.Rao Towers, Khairatabad, Hyderabad 12) Konaseema Enterprises (P) 18-03-04 Ravulapalem, MSP.Rama Rao 50.00 1.00 Ltd East Godhavari M.S.L.Rao [U52520AP2004PTC042899] District, Andhra Pradesh 13) Konaseema Thermal Power 18-03-04 Ravulapalem, MSP.Rama Rao 50.00 1.00 (P) Ltd Godhavari M.S.L.Rao [U40109AP2004PTC042900] District, AP 14) International Medical Institute 24-3-084 7th Floor, C.Madhusudan 50.00 5.20 Ltd R.R.Towers M.Ranga Rao [U85110AP1984PTC004580] Abids, B.Krishnaiah Hyderabad R.Bhaskar Rao M. Jitendra Das

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15) Jayam Human Resource 05-7-04 Gayatri Sadan, K.K Reddy 1.00 0.10 Services (P) Ltd Chintal Basti, CHVSS.Murthi [U74995AP2004PTC043581] Khairatabad, Hyderabad 16) Front Line Corporate Finance 12-11-86 A-203 M.S.L.Rao 50.00 31.20 Ltd Southend E.Rama Rao [U74995AP2004PTC043581] Apartments VVSN.Murthi Ameerpet, Hyderabad 17) Frontline Enterprises Ltd 12.11.86 A-203 M.S.L.Rao 100.00 30.87 [U74300AP1986PLC006935] Southend E.Rama Rao Apartments, VVSN.Murthi Ameerpet, Hyderabad 18) Oakwell Investments (P) Ltd 08.03.2002 Czech Colony M.Srimani 200.00 2.00 [U67120AP2002PTC038632] Sanathnagar, C.Madhusudan Hyderabad 19) VBC Exports Limited 31.08.1981 A-4,Unit, Dr. SS Reddy 500.00 100.00 [U51909AP1981PLC003162] Industrial MSP Rama Rao Estate, MS Lakshman Visakhapatnam Rao C. Madhusudan BV Mohan Rao 20) Golden Jubilee Estates Ltd. 18.12.1996 505, Ameer K. Vikas 2000.00 5.07 [L45100AP1996PLC025994] Estates, K.Rajit Srinivasa Ch. Srihari Nagar East, LN Sharma Ameer Pet, MSP Rama Rao Hyderabad

PARTNERSHIP FIRMS/VENTURES/TRUSTS PROMOTED BY THE PROMOTERS WHICH ARE NOT IN OPERATION: o Vijaya Enterprises (Partnership Firm)

PARTNERSHIP FIRMS/VENTURES/TRUSTS PROMOTED BY THE PROMOTERS WHICH ARE IN OPERATION

Gandhi Institute of Technology & Management (GITAM)

Gandhi Institute of Technology & Management (GITAM) was incorporated on 15th November 1980 under the Registration of Societies Act, XXI of 1860, with society registration no: 277 of 1980. GITAM is situated at Gandhinagar Campus, Visakhapatnam – 530045.

The main object of GITAM is to promote, establish, maintain and assist and aid in maintaining Medical, Dental and Health Sciences Educational institutions including institutions to cater to the needs of various minority communities.

The Present Governing Body is as follows:

S.No Name Designation 1 Dr. MVVS Murthi President 2 V.Seetaramaiah Vice-President 3 K.Satyanarayana Member 4 JS Krishna Murthy Member 5 A Atchuta Rama Rao Member 6 Dr. K.Koteswara Rao Member 7 Dr. B.Swami Member 8 MK Raju Member 9 MSP Rama Rao Member

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Fired to Excel 10 Dr.SA Rehaman Member 11 V.Basavapunnayya Member

Brief financials of GITAM are as under: - (Rs. Lakhs) As on March 31 2004 2005 2006 Income 1266.13 42.35 45.01 Expenditure 1525.40 105.61 72.41 Excess of income over expenditure / (259.27) (63.26) (27.4) (excess of expenditure over income)

Details of Related Party Transactions:

GITAM had related party transactions with the Issuer Company to the extent of Rs. 216.82 lacs during the preceeding three Financial Years.

Contingent Liabilities Not Provided for as of 30.09.06:

Contingent liabilities not provided for by GITAM as on September 30, 2006 are to the extent of Rs. 255 lacs.

Litigation:

No proceeding/outstanding litigation has been initiated for economic offences against GITAM.

Neither the Promoters nor any of the Promoter Group Companies have been detained as willful defaulters by RBI /Government authorities* and they have not violated; there are no matters pending against them regarding any securities laws.

* For details, please refer the point no. 5 of Notes to Risk Factors on page no. 18 of Draft Letter of Offer. For details of shareholding of the Promoters/ Promoter Group Companies in the Issuer Company, refer to the section “Capital Structure” on page 30 of this Draft Letter of Offer.

Company/Firm from Which the Promoters Have Disassociated Themselves during Preceding Three Years

Promoters have not disassociated themselves from any company during the preceding three years.

Companies for Which Applications Have Been Made to the Registrar of Companies for Striking Off Their Names

There are no Companies for which applications have been made to the Registrar of Companies for striking off their names.

Common Pursuits

Bharat Alloys & Energy Limited and Karthik Rukmini Alloys & Energy Limited are the Companies which are engaged in the production of Ferro Alloys, Ferro Manganese and Silicon Manganese, products which are in the same line of business of the Issuer Company. This may create the conflict of interest between the companies. Moreover there is no non-compete agreement between these companies.

Apart from the above, there are no common pursuits between the Promoter, Promoter Group Companies and VBCFAL.

Interest of Promoter Please refer to para under “Interest of Promoters/ Directors” on page no. 77 of this Draft Letter of Offer.

Related Party Transactions Please refer to para under “Related Party Transactions” on page no. 113 of this Draft Letter of Offer.

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Fired to Excel Currency of Presentation

In this Draft Letter of offer, all references to “Rupees” and “Rs.” are to the legal currency of India.

Dividend Policy

Particulars FY 2005 – FY 2004 – FY 2003 – FY 2002 – FY 2001 - 2006 2005 2004 2003 2002 No of Equity Shares 40,44,350 40,44,350 40,44,350 40,44,350 40,44,350 Face value per share 10 10 10 10 10 (Rs.) Rate of Dividend 10% 20% 10% 10% NIL Total Dividend Paid 40,44,350 80,88,700 40,44,350 40,44,350 NIL (Rs.)

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Fired to Excel XI. FINANCIAL STATEMENT

AUDITOR’S REPORT

The Board of Directors VBC Ferro Alloys Ltd. #6-2-913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderabad - 500 004

Dear Sir,

We have examined the books of account and found correct the audited accounts of VBC Ferro Alloys Ltd. for the years ended 31st March 2002, 2003, 2004, 2005, 2006 and half year ended upto 30.09.2006 being the last date up to which the accounts have been made up and audited by us. At the date of signing this report, we are not aware of any material adjustment, which would affect the result shown by these accounts drawn in accordance with the requirements of Part II of Schedule II to the Companies Act, 1956.

We state that the above financial statements have been drawn up by the Company are in compliance with Securities Exchange Board of India (SEBI), DIP Guidelines, 2000 as amended from time to time and in accordance with the requirements of Clause 24 of Part II of schedule II of Companies Act, 1956 as amended from time to time, we report that the profits, assets and liabilities and dividends of the Company subject to our reports thereon are as set out below. a. The restated profits of the Company for the financial years ended 31st March 2002, 2003, 2004, 2005, 2006 and half year ended on 30.09.2006 are as set out in Annexure I to this report. These profits have been arrived at after charging all expenses including depreciation and after making such adjustment and regroupings as in our opinion are appropriate and more fully described in the Significant Accounting Policies and Notes on Account appearing in Annexure IV and V respectively to this report.

b. The restated Assets and liabilities of the Company as at 31st March 2002, 2003, 2004, 2005, 2006 and 30.09.2006 are as set out in Annexure II to this report after making such adjustments and regroupings as in our opinion are appropriate and more fully described in the Notes on Accounts appearing in Annexure V to this report.

c. We have examined the cash flow statement relating to the Company for the financial years ended 31st March 2005, 2006 and 30.09.2006 appearing in Annexure XX to this report.

d. The rates of dividends paid by the Company in respect of the financial years ended 31st March 2002, 2003, 2004, 2005 and 2006 are as shown in Annexure XVI to this report.

e. We have examined the following financial information relating to the Company and as approved by the Board of Directors for the purpose of inclusion in the Offer document:

1. Accounting Ratios as appearing in Annexure VI to this report. 2. Capitalization Statement as at 30th September 2006 as appearing in Annexure VII to this report. 3. Statement of tax shelters as appearing in Annexure VIII to this report. 4. Details of other income as appearing in Annexure III to this report. 5. Details of sundry debtors as appearing in Annexure IX to this report. 6. Details of loans and advances made to persons or companies in whom/in which directors are interested as appearing in Annexure X to this report. 7. Details of unsecured loans as appearing in Annexure XI to this report. 8. Details of secured loans as appearing in Annexure XII to this report. 9. Details of transactions with related parties as appearing in Annexure XIII to this report. 10. Details of aggregate value and market value of quoted investments as appearing in Annexure XIV to this report. 11. Details of qualifications appearing in the financial statements as given in Annexure XV to this report.

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Fired to Excel 12. Details of changes in Significant Accounting Policies as given in Annexure XVII to this report. 13. Details of Working Capital Facilities as given in Annexure XVIII to this report. 14. Details of Contingent Liabilities as given in Annexure XIX to this report.

In our opinion the above financial information of the Company read with Significant Accounting Policies and Notes on Account attached in Annexure IV & V respectively to this report, after making adjustments and re-grouping as considered appropriate has been prepared in accordance with Part II of Schedule II of the Act and the SEBI Guidelines.

This report is intended solely for your information and for inclusion in the Offer document in connection with the specific Public Offer of equity shares of the Company and is not to be used, referred to or distributed for any other purpose without our written consent.

Thanking You,

Yours faithfully, M/s. Brahmayya & Co., Chartered Accountants,

C.V. Ramana Rao Partner Membership No: 018545

Place: Hyderabad Date: December 28, 2006

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Fired to Excel ANNEXURE -I DETAILED BREAKUP OF PROFIT & LOSS OF M/s VBC FERRO ALLOYS LTD FOR THE LAST FIVE YEARS AND FOR THE PERIOD ENDED 30TH SEPTEMBER 2006

(Rs. in lacs) Period ended on 30.09.06 31.03.06 31.03.05 31.03.04 31.03.03 31.03.02 Income - Sales: - Of products manufactured by the 3127.66 7348.37 12542.45 8959.92 3030.14 3888.44 Company Of products traded by the Company 0 0 0 0 0 0 Other income 75.07 235.10 404.57 903.95 295.01 846.96 Increase (decrease) in inventory 302.64 13 (121.30) 17.01 353.71 (124.69) Total Income 3505.37 7596.47 12825.72 9880.88 3678.86 4610.71

Expenditure Raw materials & goods consumed 1071.69 2939.58 4297.61 2349.47 612.38 845.59 Staff costs 168.65 350.78 374.35 299.35 267.74 288.02 Other Manufacturing expenses 1765.06 4647.52 5426.66 5088.23 2039.85 2477.93 Administrative, Selling & 150.06 493.28 790.14 426.30 205.73 distribution expenses 221.01 Interest 214.75 500.18 580.98 588.22 359.13 610.65 Depreciation 94.81 176.44 179.00 183.26 179.88 195.30 Miscellaneous expenditure written 0 22.84 22.84 22.84 135.75 off 22.84 Total Expenditure 3465.02 9130.62 11671.58 8957.67 3800.46 4661.34 Net Profit before tax and 40.35 (1534.15) 1154.14 923.21 (121.60) (50.63) extraordinary items Extraordinary items Provision no longer reqd w/back 0 592.94 13.78 501.67 1793.44 13.30 Profit on sale of Assets 0 0 212.57 2.88 1.95 5.20 Profit on sale of Investments 0 0 0.00 2292.08 0.00 3220.10 Surrender value received on K M I 0 0 0.00 134.30 0 policy 0 Bad Debts/Advances Written Off 0 0 (0.35) (0.37) (2.20) -19.22 Diminution in value of Investments 0 0 0 0 (1.88) -19.62 Provision for Doubtful Debts 0 0 0 (127.68) (142.88) 0.00 Provision For Impairment (393.34) 0 0 0 0 0 Total Extraordinary items (393.34) 592.94 226 2802.88 1648.43 3199.76 Net profit after extraordinary (352.99) (941.21) 1380.14 3726.09 1526.83 3149.13 items and before tax Provision for taxation(including tax paid for earlier years) 6.50 (314.97) 519.09 404.31 (342.21) 254.41 Net profit after tax 861.05 3321.78 1869.04 2894.72 (359.49) (626.24) Earlier year adjustments(net of tax) (10.70) (868.58) 2.12 (322.48) (2201.69) 237.96 Net Profit after adjustments (370.19) (1494.82) 863.17 2999.30 (332.65) 3132.68 Profit brought forward from earlier 3311.70 4852.63 4161.69 8608.12 9648.99 year 6516.31 Profit available for Appropriation 2941.51 3357.81 5024.86 11607.42 9316.34 9648.99 Appropriations:

Transfer to general reserve 0 0 80 7400 662.6 0 Proposed dividend 0 40.44 80.89 40.44 40.44 0 Tax on proposed dividend 0 5.67 11.34 5.29 5.18 0 Balance carried to Balance sheet 2941.51 3311.70 4852.63 4161.69 8608.12 9648.99

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Fired to Excel Note: Provision towards present value of future liability in respect of leave encashment has not been provided. ANNEXURE – II DETAILED BREAKUP OF BALANCE SHEET OF THE COMPANY FOR THE LAST FIVE YEARS AND FOR THE PERIOD ENDED 30TH SEPTEMBER 2006 (Rs.in lacs) As at 31st March 30.09.06 2006 2005 2004 2003 2002 A FIXED ASSETS Gross Block 7592.08 7591.58 7110.63 7388.25 7379.75 7678.32 Less: Depreciation 5907.47 5812.66 5636.95 5025.88 4211.93 3559.56 Net Block 1684.61 1778.92 1473.68 2362.37 3167.82 4118.76 Less: Provion For Impairment 170.94 Less: Revaluation Reserve 532.03 532.03 532.03 1186.25 1840.46 2494.68 Net Block after Revaluation Reserve 981.64 1246.89 941.65 1176.12 1327.36 1624.08 Capital Work in Progress 85.12 75.00 420.46 227.39 262.13 225.58 Total 1066.76 1321.89 1362.11 1403.51 1589.49 1849.66 B Investments 14352.73 13475.79 13825.79 13435.56 10910.42 10051.21 Current Assets, Loans and C Advances Inventories (Net of impairment for Rs 111.27 lakhs) 1896.34 1395.31 1749.28 1175.20 736.60 256.11 Sundry Debtors 610.85 283.93 1151.48 1253.25 1100.22 965.40 Cash & Bank Balances 185.75 227.55 381.16 182.61 224.77 115.00 Other Current Assets(Net of impairment for Rs 2.46 lakhs) 246.20 158.69 75.61 92.39 28.82 134.62 Loans & Advances (Net of impairment for Rs 108.67 lakhs) 865.75 1765.84 2684.84 1863.60 1104.67 1737.34 Total 3804.89 3831.32 6042.37 4567.05 3195.08 3208.47 D Preference Share Capital E Liabilities and Provisions Loan Funds Secured 1062.81 726.58 1761.17 1649.81 1028.09 477.66 Unsecured 1480.6 1180.70 776.41 690.00 400.00 482.18 Total 2543.41 1907.28 2537.58 2339.81 1428.09 959.84 F Deferred Tax (Net) 6.75 6.75 66.97 107.02 0.00 0.00 Current Liabilities & G Provisions Current Liabilities 4114.67 3932.85 3768.79 3294.05 3760.06 3098.15 Provisions 91.76 131.63 688.35 290.44 108.47 297.53 Total 4206.43 4064.48 4457.14 3584.49 3868.53 3395.68 H Net Worth 12467.79 12650.49 14168.58 13374.80 10398.37 10753.82 Represented by: I Share Holder's Funds Share Application Money from Promoters Share Capital 419.5 404.50 404.50 404.50 404.50 404.50 Reserves & Surplus 12580.32 12778.02 14318.95 14202.23 11902.86 12935.36 Less: Revaluation Reserves 532.03 532.03 532.03 1186.25 1840.46 2494.68 12467.79 12650.49 14191.42 13420.48 10466.90 10845.18 J Miscellaneous Expenditure 22.84 45.68 68.53 91.36 (to the extent not written off or Adjusted) Net Worth 12467.79 12650.49 14168.58 13374.80 10398.37 10753.82

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Notes: 1. The accompanying statement on changes due to adjustments (Annexure III) and significant accounting policies and notes on accounts (Annexure IV) are an integral part of this statement.

2. Figures appearing as at 30.09.06 in respect of inventories, other current assets, loans and advances are net of provision for impermanent provided during the half year ended 30.09.06 of Rs.111.27 lakhs, Rs.4.26 lakhs and Rs.108.67 lakhs respectively.

ANNEXURE – III DETAILED BREAKUP OF OTHER INCOME OF THE COMPANY FOR LAST 5 YEARS AND FOR THE PERIOD ENDED 30th SEPTEMBER 2006

BREAK-UP OF OTHER INCOME (IF MORE THAN 20% OF PROFIT BEFORE TAX) (Rs.in lacs) Description As at March 31 30.09.06 2006 2005 2004 2003 2002 Profit Before Tax as per published accounts (352.99) (941.22) 1380.14 3726.11 1526.82 2494.92 20% of Net Profit Before Tax NA NA 276.03 745.22 305.36 498.98 Other Income for the year 87.55 828.04 630.92 3834.88 2100.22 4085.57 Other Income Details a. Recurring, From Business Activities Income from Job Works 40.95 43.80 276.71 824.41 216.98 627.41 Rent 12.00 24.00 24.00 24.00 24.00 24.00 Sub - Total (a) 52.95 67.80 300.71 848.41 240.98 651.41 Non-recurring, From Business b. Activities Profit on Sale of Fixed Assets 212.57 2.88 1.95 5.20 Provisions no longer required 592.95 13.78 501.67 1793.44 13.30 Sundry Credit Balances written back 0.19 26.76 Scrap Sales 16.25 44.32 18.09 16.70 18.42 38.86 Others 134.30 Sub - Total (b) 16.44 664.03 244.44 655.55 1813.81 57.36 c. Income from Financial Activities Profit on sale of Investments 1.56 2292.08 3220.11 Interest received 17.69 95.89 83.89 37.34 44.50 156.20 Exchange fluctuation 0.03 Sub - Total (c) 17.69 95.89 85.45 2329.42 44.50 3376.34 d. Income from Investment Activities Dividend Received 0.47 0.32 0.32 1.50 0.93 0.46 Income on Current Investment Sub - Total (d) 0.47 0.32 0.32 1.50 0.93 0.46 Total (a+b+c+d) 87.55 828.04 630.92 3834.88 2100.22 4085.57

Note: The Classification of Other Income by management into recurring and non-recurring is based on the current operations and business activities of the Company. ANNEXURE - IV SIGNIFICANT ACCOUNTING POLICIES: (1) GENERAL: Financial statements are prepared on accrual basis under the historical cost convention and in accordance with the accounting standards specified in sub-section 3(c) of section 211 of the Companies Act, 1956.

(2) FIXED ASSETS: (a) Fixed Assets, other than Land, Building and Plant & Machinery are stated at cost less accumulated depreciation. Cost of acquisition of Fixed Assets is net of CENVAT and inclusive of freight, duties, taxes, incidental expenses including interest on specific borrowing and pre-operative expenses as allocated.

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(b) Land, Buildings and Plant & Machinery were revalued during the year ended 31st March, 2000 which now appear at carrying values based on such valuation.

(3) INVESTMENTS: Investments are stated at cost, inclusive of all expenses relating to acquisition. Provision for diminution in the market value of long term investments is not made, if in the opinion of the Management such diminution is temporary in nature.

(4) INVENTORIES: (a) Finished goods are valued at cost, inclusive of excise duty, or market value whichever is lower. (b) Stocks of raw materials, stores, spare parts, materials-in-transit etc are valued at cost after providing for cost of obsolescence. Cost includes expenses for procurement, excise and customs duty and is net of credits under CENVAT scheme. (c) Scrap, including by products, is valued at estimated realisable value.

(5) REVENUE RECOGNITION: (a) Sales are inclusive of excise duty, export incentives and net of trade and quantity discounts and rebates. (b) Interest and Dividend income from investments is accounted on accrual basis. (c) Insurance and other claims/refunds and export incentives and accounted for as and when admitted by appropriate authorities.

(6) RETIREMENT BENEFITS: (a) The company has various schemes of retirement benefits such as Provident Funds, Superannuation Fund and Gratuity Fund which are administered by the trustees of independently constituted Trusts recognised by the Income Tax Authorities.

The periodical contributions to Provident and Superannuation funds and the contributions to the gratuity fund based on the premia calculated as a percentage on salaries payable on the policy taken with Life Insurance Corporation of India to cover the liability under the said scheme are charged to revenue. Besides the short fall of the fund as intimated by LIC of India from time to time is provided in the books of account. (b) There is no special scheme for encashment of leave on retirement.

(7) DEPRECIATION: (a) Depreciation is charged under Straight Line Method applying the rates worked out in accordance with the provisions of Section 205(2)(b) of the Companies Act, 1956 prevalent in respective years of acquisition in respect of items acquired prior to 1.7.1986 and in accordance with Schedule XIV of the Companies Act, 1956 in respect of items acquired after 1.7.1986. (b) Value of appreciation on account of revaluation of fixed assets is charged as depreciation over a period of five years commencing from the financial year 2000-2001. (8) DEFFERED REVENUE EXPENDITURE: Expenditure (including expenditure on Furnace Relining) incurred upto 31.03.2001, in respect of which benefit is expected to flow into future periods, is written off over a period of five years commencing from the year of incurrence.

(9) FOREIGN CURRENCY TRANSACTIONS: Foreign currency assets and liabilities covered by forward contracts are stated at the forward contract rates while those not covered by forward contracts are restated at rates ruling at the year end.

Exchange differences are credited/charged to Profit and Loss Account.

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Fired to Excel ANNEXURE – V

NOTES ON ACCOUNTS PUBLISHED FOR THE FINANCIAL YEAR ENDED MARCH 31, 2006 AND FOR THE HALF YEAR ENDED SEPTEMBER 30, 2006

Particulars Unit 30/09/06 31/03/06 31/03/05 1. Estimated amount of contracts remaining to be executed on Capital Account and not provided for - Letters of Credit opened Rs. 2219000 0 3,557,272 2. Contingent liabilities a) Unexpired Bank Guarantees and letters of Credit. Rs. 58148000 93,677,644 105,389,312 b) The company together with two other promoter companies has furnished an undertaking on behalf of Konaseema EPS Oakwell Power Limited jointly promoted by them to the financial institutions to finance the cost over-run, if any, in respect of the power project being executed by the said company. c) The company together with another promoter company has furnished an undertaking on behalf of Orissa Power Consortium Limited jointly promoted by them to the financial institutions to finance the cost over-run, if any, in respect of the power project being executed by the said company. d) Unexpired Guarantees given to Financial Institutions and strategic Investors on behalf of two Body Corporates Rs. 1,553,500,000 1,553,500,000 1,523,500,000 e) Disputed Customs Demands on Imported Coke Rs. 0 5,184,068 5,184,068 f) Disputed Sales Tax Demands for non-submission of "C" & "F" Forms Rs. 9,484,000 14,597,649 19,577,974 g) Disputed Income Tax demands for the Assessment years 2000-01 & 2001-02 Rs. 0 0 101,983,296 h) Claims against company not acknowledged as debts. Rs. 17,222,800 17,222,860 16,294,266 An amount of Rs.8.50 lacs(Previous year Rs.208.50 lacs) paid under protest against items (e), (f) and (g) is shown under the head of "Loans and Advances". i) The Company made a representation to CPCDC of A P Ltd., seeking reduction in the surcharge and penal interest charged on delayed payment of certain power bills and deletion of certain wrong bills made to the company in earlier years. There is a difference of Rs 22.50 crores between the amount demanded by CPCDC and the liability provided by the company in the accounts, of which Rs 19.65 crores is on account of excess interest and surcharge demanded @ 25% as against 9% to be charged in accordance with the decision of BIFR Committee. As the settlement is in final stage and as the management is confident of a favourable decision, no provision is made in the accounts for the above amount which is not accepted by the Company.

3. In the opinion of Board of Directors of the company, the Current Assets and Loans and Advances have been stated at the values at which they are realisable in the ordinary course of the business and adequate provisions towards all known liabilities as on date have been made in the books of account.

4. Advances recoverable includes the following amounts due from companies, firms or other parties, which are under the same management or in which some of the Directors are interested as Directors or in any other capacity:

a) Technopack Pvt. Ltd. Rs. 18,746,720 19,540,435 12,846,980 b) Bharat Alloys & Energy Ltd. Rs. 3,572,746 3,572,746 14,194,932 c) VBC Exports Ltd. Rs. 104,282 504,531 853,191 5.The Company has not provided liability as on 30.09.2006 in respect of present liability of future payment towards leave encashment at the time of retirement in accordance with revised Accounting Standard – 15 “Accounting for Retirement Benefits in the Financial Statements of Employers”

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Unit 30.09.2006 31.03.2006 31.03.2005 6. (I) Managing Director’s remuneration: Minimum remuneration paid in lieu of inadequacy of profits of the year

Salary Rs. 450000 655,000 480,000

Managerial Commission Rs. 0 - 2,228,309

Contribution to Provident and other funds Rs. 54000 176,850 63,600

Other Perquisites: Rs. 3360 6,720 0

Total (I) Rs. 507360 838,570 2,771,909 (II) Executive Director’s remuneration:

Salary Rs. 180000 450,000 66,060

Contribution to Provident and other funds Rs. 40500 108,000 13,224

Other Perquisites: Rs. 36300 270,600 32,683

Total (II) Rs. 256800 828,600 111,967

Total( I+ II) Rs. 764160 1,667,170 2,883,876 7. The company operates in only one business segment of manufacture of Ferro Alloys and there are no geographical segments to be reported.

8. Related Party Transactions:

Related parties in terms of AS 18 issued by the Institute of Chartered Accountants of India. a) Associates: Konaseema EPS Oakwell Power Ltd. Konaseema Power Corporation Ltd. Orissa power Consortium Limited. Gandhi Institute of Technology & Management Orissa Hydel Power Balimela Ltd Indo-Us Coal Washeries Ltd b) Key Managerial Personnel: Shri. M S Lakshman Rao, Managing Director Shri. N.Babu Rao, Executive Director c) Relatives of key Managerial Personnel: Dr. M V V S Murthi, Shi M S Rama Rao d) Others: Enterprises in which Key Managerial Personnel or their relatives have substantial interest: Bharat Alloys & Energy Ltd. VBC Industries Ltd. VBC Exports Ltd. Technopack Pvt. Ltd. VBC Finance & Leasing Ltd Unit 30.09.2006 31.03.2006 31.03.2005 9. Earning Per Share (EPS): a) Net Profit/(Loss) available for Equity Share Holders Rs. (35949000) (62,624,101) 86,104,956

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Fired to Excel b) Weighted Average Number of Equity Shares used as denominator for calculating EPS Nos. 4087793 4,044,350 4,044,350 c) Basic and Diluted Earnings per Share of Rs.10 each Rs. (8.79) (15.48) 21.29 10. Major Components of Deferred Tax Liability as on 31-03-2006 a) Deferred Tax Liability :

Timing Difference between book and tax Depreciation Rs 14205133 12,450,313 10,482,814 b) Deferred Tax Asset: i. Sums Covered under section 43B of the Income Tax Act 1961 Rs 1187121 1,187,121 2,675,710 ii. Provision for Doubtful Debts Rs 2675710 2,675,710 1,109,875 iii. Un-absorbed depreciation available under the Income Tax Act, 1961 Rs 9667507 7,912,687 0

Rs 13530338 11,775,518 3,785,585 c) Net Deferred Tax Liability Rs 674795 674,795 6,697,229

11. According to an independent expert technical assessment, there is impairment of Rs.393.34 lacs in the carrying cost of cash generating unit, Rayagada of the Company in terms of Accounting Standard 28 (AS 28) issued by the Institute of Chartered Accountants of India and same as been provided for during the half year ended 30th September, 2006.

12. Additional information as required under part-II of Schedule VI to the Companies Act, 195 i) Licensed Capacity: per annum a) Ferro Silicon MT 15000 15,000 15,000 b) Pig Iron /Silico Manganese/Ferro Manganese MT 45500 45,500 36,000 c) Ferro Chrome/Charge Chrome MT 20400 20,400 15,000 ii) Installed Capacity: per annum

Ferro Silicon MT 10000 10,000 10,000

Ferro Chrome MT 31500 31,500 22,000

Silico Manganese / Ferro Manganese MT 27000 27,000 21,600 (As certified by the Managing Director) iii) Production:

Ferro Silicon @ MT 5569 7,376 15,148 Silico Manganese# MT 5347 18,255 16763

Ferro Manganese MT 10 2,011

Ferro Chrome * MT 565 0

@ includes production on job work basis MT 102 428 133

# includes production on job work basis MT 0 1,182

* includes production of job work basis MT 200 0 iv) Opening Stock:

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Ferro Silicon MT 378 334 504

Silico Manganese MT 470 493 792

Charcoal Fines MT 0 4,510 8,717

Ferro Manganese MT 1 32 0 Value:

Ferro Silicon Rs 15103221 12,425,768 15,883,842

Silico Manganese Rs 13995622 14,451,132 19,707,494 Ferro Chrome 4396896

Charcoal Fines Rs 0 3,463,680 6,694,656

Ferro Manganese 29778 938,004 0

33525517 31,278,584 42,285,992 V. Closing Stocks: Quantity:

Ferro Silicon MT 870 378 334

Silico Manganese MT 809 470 493

Ferro Manganese MT 1 1 32

Charcoal Fines MT 6851 0 4,510

Ferro Chrome MT 126 126 0 Value:

Ferro Silicon Rs 33515767 15,103,221 12,425,768

Silico Manganese Rs 21648548 13,995,622 14,451,132

Ferro Manganese Rs 29778 29,778 938,004

Charcoal Fines Rs 5823138 0 3,463,680

Ferro Chrome Rs 6838685 4,396,896 0

67855916 33,525,517 31,278,584 vi) Turnover a) Quantity

Ferro Silicon MT 5077 7,332 15,185

Ferro Chrome MT 239 127

Silico Manganese MT 5008 18,278 15,880

Ferro Manganese MT 41 1,979

Charcoal Fines MT 7,112 11,124 b) Value:

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Ferro Silicon Rs 209184490 307,210,131 683,983,893

Ferro Chrome Rs 0 8,796,099 720,687

Silico Manganese Rs 139917876 493,139,710 595,332,624

Ferro Manganese Rs 0 1,050,928 90,511,416

Charcoal Fines Rs 1362299 5,327,539 7,691,027

Others Rs 3741250 8,253,033 6,655,794

Total Rs 354205915 823,777,440 1,384,895,441 vii) Consumption of Raw Materials a) Quantity

Quartz MT 8080 12,024 23,625

Charcoal MT 5081 12,178 26,920

Carbon Paste MT 362 815 966 b) Value

Quartz Rs 3966578 3,387,793 9,073,725

Charcoal Rs 27495155 56,706,002 119,883,727

Carbon Paste Rs 7996707 13,533,534 15,872,127

Others Rs 67711125 220,331,100 284,931,539

Total Rs 107169565 293,958,429 429,761,118 viii) Analysis of materials & stores consumed Indigenous Rs. 109714305 300598518 439526104

Imported Rs. 0 0 0

Total Rs 109714305 300,598,518 439526104 Percentage: Indigenous % 100 100 100

Imported % 0 0 0 ix) Expenditure in foreign currency during the financial Year on account of traveling Rs. 0 0 230,181 x) Earnings in foreign exchange on account of Exports of goods calculated on FOB basis. Rs. 38171258 170,859,583 346,006,006 14. Previous Year's figures have been regrouped and rearranged wherever necessary 15. Paise have been rounded off to the nearest rupee.

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Fired to Excel IV. NOTES ON ACCOUNTS FOR THE YEAR 2004-05: Unit 2004-05 2003-04 Rs.

1. The Company made a representation to CPDC of AP Ltd seeking reduction of Surcharge and Penal interest on delayed payment of Power Bills. Pending disposal of the same as the management is assured of a favourable decision, no provision is made in the accounts towards the differential interest demand by the said Company. Rs. 13,88,15,202 11,87,64,426 2. I) Managing Director's remuneration: Salary Rs 4,80,000 4,80,000 Managerial Commission Rs 22,28,309 Contribution to Provident and other funds Rs 63,600 63,600 Other Perquisites: Rs 13,352

Total(I) Rs 27,71,909 5,56,952

3. The Company operates in only one business segment of manufacture of Ferro Alloys and there are no geographical segments to be reported. 4. Major Components of Deferred Tax Liability as on 31.03.2005 a) Deferred Tax Liability: Timing Difference between book and tax Depreciation Rs 1,04,82,814 1,76,71,445 b) Deferred Tax Asset: I) Sums Covered under section 43B of the Income Tax Act 1961 Rs 26,75,710 4,23,300 ii) Provision for Doubtful Debts Rs 11,09,875 65,46,415 Rs 37,85,585 69,69,715 c) Net Deferred Tax Liability Rs 66,97,229 1,07,01,730

5. According to an independent expert technical assessment, there is no impairment in the carrying cost of cash generating units of the Company in terms of Accounting Standard 28 (AS28) issued by the Institute of Chartered Accountants of India.

III. NOTES ON ACCOUNTS FOR THE YEAR 2003-04: Unit 2003-04 2004-05

1. Demands raised by Central Power Distribution company of A P Ltd towards surcharge for delayed payments of arrears and penal interest, not provided in the accounts as the company sought waived of the same. Rs. 11,87,64,426 9,57,88,096 2. Provision for Income Tax for current year is made considering that profit on sale of investments earned during the year is exempt from tax under section 10 (23G) of the Income Tax Act, based on the opinion of the legal counsel obtained by the Management. 3. Managing Directors remuneration: Salary Rs 4,80,000 4,80,000 Contribution to Provident and other funds Rs 63,600 63,600 Other Perquisites: Rs 13,352 13,352 4 Advances recoverable included the following amounts due from companies, firms or other parties, which are under the same management or in which some of the Directors are interested as Directors or in any other capacity (with maximum balances due at any time during the year given in brackets) a) Indo US Coal Washeries Ltd Rs 762 Rs (1,08,57,364) (90,60,983)

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Fired to Excel b) Technopack Pvt Ltd Rs 1,45,28,894 1,87,33,188 Rs (1,45,28,894) (1,99,90,714) c) Bharat Alloys & Energy Ltd Rs 1,61,93,397 2,69,04,290 (2,69,04,290) (2,69,04,290) d) VBC Exports Ltd Rs 8,53,191 67,46,604 (2,08,53,191) (67,46,604)

5. The company operates in only one business segment of manufacture of Ferro Alloys and there are no geographical segments to be reported. 6. Major Components of Deferred Tax Liability as on 31.03.2004 a) Deferred Tax Liability: Timing Difference between book and tax Depreciation Rs 1,76,71,445 b) Deferred Tax Asset: I. Sums Covered under section 43B of the Income Tax Act 1961 Rs 4,23,300 ii. Provision for Doubtful Debts Rs 65,46,415 Rs 69,69,715 c) Net Deferred Tax Liability Rs 1,07,01,730

II. NOTES ON ACCOUNTS FOR THE YEAR 2002-03: Unit 2002-03 2001-02 1. Demands raised by APTRANSCO towards surcharge for delayed payments of arrears, not provided in the books of account as the company sought waiver of the same. Rs. 95,788,096 95,788,096 2. The changes made in the method of Accounting during the year have the following effects on the items in the financial statements. a) Consequent to change in the method of accounting for excise duty on closing stock of finished goods, the stock of finished goods is increased by Rs.42,40,000 and current liabilities by the same amount. However, the said change has no effect on the profit for the Year.

b) In earlier years, the company followed the method of accounting for accretion of charcoal fines, a by-product, on realisation basis. The company has changed this method during the year by valuing the charcoal fines in stock at the end of the year. This change has resulted in the increase in Profit for the year by Rs.1,08,97,530 and inventories by the same amount.

3. Provision made in the earlier years towards interest on delayed payments of energy charges including additional charges like surcharge, etc., payable to various power producing and distributing companies, have been reworked out by the Management based on the rehabilitation package approved by BIFR in its order dated 02/12/1996. This has resulted in excess provision towards the same amounting to Rs.15,92,39,352, which has been credited to Profit & Loss Account for the year as “Provisions no longer required”. The reworked liability is subject to confirmation from the respective companies.

4. Managing Director’s remuneration:

Salary Rs. 480,000 480,000 Contribution to Provident and other funds Rs. 63,600 63,600 Other Perquisites: Rs. 15,727 5,310

Total Rs. 559,327 548,910

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Fired to Excel 5. Advances recoverable includes the following amounts due from companies, firms or other parties, which are under the same management or in which some of the Directors are interested as Directors or in any other capacity: (with maximum balances due at any time during the year given in brackets) a) Vijaya Enterprises Rs. 8,836,861 8,836,861

Rs. (8,836,861) (8,836,861) b) Indo US Coal Washeries Ltd. Rs. 762 9,060,983

Rs. (9,060,983) (9,060,983) c) Gandhi Institute of Technology and Management. Rs. 8,056,636 7,731,065

Rs. (8,056,636) (7,731,065) d) Technopack Pvt. Ltd. Rs. 18,733,188 19,990,714

Rs. (19,990,714) (20,080,361) e) Bharat Alloys & Energy Ltd. Rs. 26,904,290 25,043,036

Rs. (26,904,290) (25,043,036) f) VBC Exports Ltd. Rs. 6,746,604 2,976,522

Rs. (6,746,604) (2,976,522) 6. The company operates in only one business segment of manufacture of Ferro Alloys and there are no geographical segments to be reported. 7. In accordance with the Accounting Standard (AS 22) issued by the Institute of Chartered Accountants of India, the company has deferred tax asset as at 31.03.2003 in respect of carried forward unabsorbed loss and depreciation of Rs.313Lacs. However, in view of the uncertainty of the future taxable income, the said deferred tax asset has not been recognised in the books of account.

I. NOTES ON ACCOUNTS FOR THE YEAR 2001-02: Unit 2001-02 2000-01 1. The Company has got its major assets revalued on 31st March, 2000. The difference between the book value and replacement value as per the valuation report amounting to Rs 38,03,11,455/- has been added to the cost of the respective assets by creating a "Revaluation Reserve". 2. A Sum of Rs 9,57,88,096/- (previous year Rs 9,57,88,096/-) payable to AP Transco towards surcharge for belated payment of arrears (under payment in installments) has not been provided as the Company's request for waiver of the same is under consideration by AP Transco.

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3. Additional charges and surcharge for belated payments and interest charges for affording installment facility payable to A P Gas Power Corporation Limited in respect of Energy charges, are accounted for only to the extent of demands raised by them as the said amounts are not ascertainable as at a particular date.

4. During the year the Company has incurred an amount of Rs 1,14,20,748/- on Relining of one of the Furnaces and pursuant to the accounting policy, the amount has been treated as deferred revenue expenditure and is being written off over a period of five years commencing from 2001-2002

5. Provisions for Income Tax for the financial year 2001-2002 has been made based on a legal advice given by an Income Tax consultant for Minimum Alternate Tax as per Sec.115JB of Income Tax Act, 1961 in the absence of taxable income under normal provisions of the said Act.

6. Remuneration paid/payable to the Managing Director (minimum remuneration as per Schedule XIII to the Companies Act, 1956) Salary Contribution to : Provident Fund 4,80,000 4,80,000 : Gratuity Fund 57,600 57,600 Perquisites 6,000 6,000 Leave Travel Concession 5,310 12,909 Earned Leave - 2,92,765 80,000 TOTAL : Rs 5,48,910 9,23,274

7. Current Assets, Loans & advances include the following amounts due from companies/firms/concerns which are under the same management or in which some of the Directors of the Company are interested as Directors or in other capacities: Due as at Maximum amount due 31.03.2002 at any time during the year Rs. Rs. Manmohan Sales & Services Pvt Ltd NIL 5,91,534 (16,99,034) (16,99,034) Vijaya Enterprises 88,36,861 88,36,861 (88,36,861) (88,36,861) VBC Investments Pvt Ltd 53,750 53,750 (53,750) (53,750) Gandhi Institute of Tech. And Management 77,31,065 77,31,065 (3,48,145) (12,05,486)

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9. Segment reporting : The Company has considered business segment as primary segment for disclosure. The Company is engaged in the manufacture of Ferro alloys, which is considered as the only business segment in the context of Accounting Standard - 17 issued by The Institute of Chartered Accountants of India.

ANNEXURE – VI

DETAILED BREAKUP OF ACCOUNTING RATIOS OF M/s VBC FERRO ALLOYS LTD FOR LAST FIVE YEARS AND FOR THE PERIOD ENDED 30TH SEPTEMBER 2006 Accounting Ratios Particulars 30.09.06 31.03.06 31.03.05 31.03.04 31.03.03 31.03.02 Net worth (Rs.) (A) 12467.79 12650.49 14168.58 13374.80 10398.37 10753.82 Adjusted Profit after Tax (Rs.) -370.19 -1494.82 863.17 2999.3 -332.65 (B) 3132.68 No. of Shares outstanding at 4194350 the end (C) 4044350 4044350 4044350 4044350 4044350 Weighted average number of 4090712 shares outstanding (D) 4044350 4044350 4044350 4044350 4044350 Earnings per Share (EPS) (Rs.) (B/D) -9.05 -36.96 21.34 74.16 -8.23 77.46 Return on Net worth (%) (B/A) -2.97 -11.82 6.09 22.43 -3.20 29.13 Net Asset Value per Share (Rs.) (A/C) 297.25 312.79 350.33 330.70 257.11 265.90

ANNEXURE – VII CAPTALIZATION STATEMENT OF M/s VBC FERRO ALLOYS LTD

(Rs.in Lacs) Capitalisation Statement Pre-issue as at (30.09.2006) Borrowing: Short-Term debt 2543.41 Long term debt 0 Total Debt: 2543.41 Shareholders' funds: Share Capital - Equity 419.43 Amount received on forfeited shares 0.07 Less: Calls -in-arrears 0 - Preference 0 Share Premium 611.79 Reserves & Surplus(excluding revaluation Reserves) 11669.08 Less: Miscellaneous Expenditure not written off 0 Total Shareholders Funds 12700.37 Long-term Debt/Equity ratio 0.20

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Fired to Excel ANNEXURE - VIII STATEMENT SHOWING TAX SHELTER OF M/s VBC FERRO ALLOYS LTD FOR THE LAST FIVE FINANCIAL YEARS (Rs. in lacs) STATEMENT OF TAX SHELTER FOR THE FINANCIAL YEARS

Particulars 2005-06 2004-05 2003-04 2002-03 2001-02 Profit / (Loss) as per books of account (941.22) 1380.14 3726.11 1526.82 2494.92 Tax rates: Normal (including surcharge) 33.66% 36.59% 35.88% 36.75% 35.70% Tax Rates: MAT (including surcharge) 8.42% 7.84% 7.69% 7.88% 7.65% A. Notional Tax Payable (A) 0.00 505.03 1336.93 561.11 890.69 B. Permanent Differences Exempted Income (0.32) (0.32) (2276.12) (3172.05) Profit taxable under other heads Other Adjustments 17.40 (2.88) 31.73 Deductions Under Chapter VI (0.93) Total of B (0.32) 17.08 (2279.00) 30.80 (3172.05) C. Timing Difference between IT and Book Depreciation (58.64) 144.99 140.86 (33.80) 748.86 Other Adjustments 62.26 (93.26) (74.71) 160.73 8.98 Total of C 3.62 51.73 66.15 126.93 757.84 D. Net Adjustment (B+C) 3.30 68.81 (2212.85) 157.73 (2414.21) E. Tax {(Saving)/Increase} there on 1.11 25.18 (793.97) 57.97 (861.87) F. Tax on Business Profits (A+E) 1.11 530.21 542.96 619.07 28.81 G. Tax on Other Heads of Income 0.00 0 0 0 0 Brought forward Losses/Unabsorbed depn. 0.00 0.00 1369.31 3053.86 3053.86 H. Tax effect due to brought forward losses 0.00 0.00 491.31 619.07 0.00 Net Tax for the year/period 0.00 530.21 51.65 0.00 28.81 Tax payable as per MAT 0.00 0.00 58.24 52.07 0.00 Provision Created for Income Tax 0.00 552.00 240.00 75.00 200.00

Notes: I. The Statement of tax shelter has been prepared based on Income tax returns filed by the Company II. The permanent/timing differences have been computed considering the income tax returns filed by the Company. ANNEXURE – IX

DETAILED BREAKUP OF SUNDRY DEBTORS OF M/s VBC FERRO ALLOYS LTD FOR 30TH SEP 06 AND 31ST MAR 06 (Rs. In lacs) Age-wise analysis of Sundry Debtors As At As At 30.09.2006 31.03.2006

Less than Six months(considered good) Amount Amount Amount Amount Group Companies 5.07 0 Others 588.45 593.52 188.87 188.87 593.52 188.87 More than Six months: Considered doubtful : Group companies 0 0 Others 79.49 79.49 79.49 79.49 Less: Provision for doubtful debts 79.49 79.49 0 0

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ANNEXURE – X

DETAILED BREAKUP OF LOANS & ADVANCES AS AT SEPTEMBER 30, 2006 & MARCH 31, 2006 As At As At Particulars 30.09.2006 31.03.2006 1 Advance for Investment in shares: Amount Amount Amount Amount Group companies 0 876.5 Others 0 0 0 876.5 2 Advances recoverable Group companies 10.00 6.99 Others 244.76 254.76 130.28 137.27 3 Deposits Recoverable Group companies 230.69 238.63 Others 488.97 719.66 513.44 752.07 Total: 974.42 1765.84

ANNEXURE – XI

DETAILED BREAKUP OF UNSECURED LOANS OF M/s VBC FERRO ALLOYS LTD FOR THE YEAR ENDED MARCH 31, 2006 AND FOR THE PERIOD ENDED SEPTEMBER 30, 2006

The following table represents the break-up of outstanding unsecured loan in respect of the VBC FERRO ALLOYS LIMITED as on March 31, 2006 & September 30, 2006.

Sr. Name of the Lender Amount Amount Repayment Schedule No. 30.09.2006 31.03.2006

1 Shri MVVS Murthi, Vice 593.71 551.41 Repayable on demand. Carry interest @ Chairman 15% p.a 2 Shri M S Lakshman Rao, 0 4.75 Repayable on demand. Interest free. Managing Director 3 Demand loan from UCO Bank, 197.90 190.54 Repayable on demand. Carry interest @ Patancheru, Medak Dist. 15% p.a 4 Corporate deposit from India 628.00 374.00 Repayable on demand. Carry interest @ International Construction Ltd 6% p.a

5 Corporate deposit from BDR 60.98 60.00 Repayable on demand. Carry interest @ Projects 6% p.a 1480.59 1180.70

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ANNEXURE – XII DETAILED BREAKUP OF SECURED LOANS OF M/s VBC FERRO ALLOYS LTD AS AT MARCH 31, 2006 AND FOR THE PERIOD ENDED SEPTEMBER 30, 2006

(Rs. In Lacs) As At As At 30.09.2006 31.03.2006 S.No Name of the Lender Description of security Rupees Rupees

1 Bank of India Hypothecation of Stock of Finished goods, Main Branch, Nampally Raw Materials, Stores 7 Spares and Hyderabad. book debts and a first charge on all the fixed assets 1061.53 599.38 of the Company and guaranteed by Managing Director and a shareholder of the Company in their personal capacity

2 ICICI Bank Ltd Hypothecation of Motor vehicles 0.53 2.20 Hyderabad

Associated India 3 Finance Hypothecation of Motor vehicles 0 1.64 Services Ltd

Seri International 4 Financial Hypothecation of Motor vehicles 0.75 1.97 Services Ltd Indo German 5 International Pledge of Raw materials 0 121.38 (P) Ltd New Delhi Total: 1062.81 726.57

ANNEXURE - XIII DETAILS OF RELATED PARTY TRANSACTIONS OF M/s VBC FERRO ALLOYS LTD AS AT SEPTEMBER 30, 2006 AND MARCH 31, 2006 Related Party Transactions: (Related parties in terms of AS 18 issued by the Institute of Chartered Accountants of India.) a) Associates: Konaseema EPS Oakwell Power Ltd. Konaseema Power Corporation Ltd. Orissa power Consortium Limited. Gandhi Institute of Technology & Management Orissa Hydel Power Balimela Ltd Indo-Us Coal Washeries Ltd b) Key Managerial Personnel: Shi. M S Lakshman Rao, Managing Director Shi. N.Babu Rao, Executive Director c) Relatives of key Managerial Personnel: Dr. M V V S Murthi, Shi M S Rama Rao d) Others: Enterprises in which Key Managerial Personnel or their relatives have substantial interest: Bharat Alloys & Energy Ltd. VBC Industries Ltd. VBC Exports Ltd. Technopack Pvt. Ltd. VBC Finance & Leasing Ltd

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Transactions carried out with Related Parties: S.No. Nature of 30.09.06 and 2005-2006 IN RS/- Transactions Referred Referred in in Referred in Referred in TOTAL (a) Above (b) Above (c) Above (d) Above 1 Remuneration 764160 764160 1667170 1667170 (2883876) (2883876) 2 Interest Received 0 0 0 779901 779901 (1935273) (2437459) (4372732) 3 Interest Paid 4225255 4225255 7851635 0 7851635 (7607866) (2922747) (10530613) 4 Rent Paid 1770000 1770000 3540000 3540000 (3560000) (3560000) 5 Rent Received 1200000 1200000 2400000 2400000 (2400000) (2400000) 6 Job Work Expenses paid 2947188 2947188

14205040 14205040 (65445012) (65445012)

7 Amounts Receivable as at the end of the year 696200 23173748 23869948

699032 23617712 24316744 (18092579) (27041913) (45134492) 8 Amounts Payable as at the end of the year 2143153 0 59371282 518073 61443409

2140957 475000 55141227 1296947 59054131 (240957) 0 (52401149) (99782) (52741888) Amount received on 9 sale of investments during the year 0 0

35000000 35000000 0 0 Balance of deposits 10 outstanding at the end of the year 0 0 0

87649500 0 87649500 (87649500) (24600000) (112249500) Note: Figures in first row for each item of description relate to the half year ended 30.09.2006. Figures in second row for each item of description relate to the year ended 31.03.2006. Figures in third row for each item of description relate to the year ended 31.03.2005.

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Transactions carried out with related parties for the period ended September 30, 2006 and during the years2005-06, 2004-05 and 2003-04 Related parties in terms of AS 18 issued by the Institute of Chartered Accountants of India. Transactions Particulars 30.09.06 2005-06 2004-05 2003-04 carried out with related parties during the years : 1 Interest Received a GITAM 0 1935273 1654643 d VBC Finance & Leasing Ltd 0 779901 2437459 578959 2 Interest Paid d VBC Industries Ltd 2922747 584626 3 Rent Paid d) 1 Techno pack P Ltd 1650000 3300000 3320000 0 2 VBC Finance & Leasing Ltd 120000 240000 240000 240000 4 Rent Received a Konaseema Gas Power Limited 1200000 2400000 2400000 2400000 5 Job work expenses paid d Bharat Alloys & Energy Ltd 2947188 14205040 65445012 9026240 6 Amount receivable a ) 1 Konaseema Gas Power Limited 422899 425731 2034260 Konaseema Power Corporation 273301 2 Limited 273301 64301 Gandhi Institute of Technology 0 3 and Management 0 18092579 699032 18092579 2098561 d ) 1 Bharat Alloys & Energy Ltd 3572746 3572746 14194932 16193397 2 Techno Pack Pvt Ltd 18746720 19540435 12846981 14528894 3 VBC Exports Ltd 104282 504531 853191

22423748 23617712 27041913 31575482 7 Amount Payable a) 1 Orissa Power Consortium Ltd 1902196 1900000 2 Indo-Us Coal Washeries (P) Ltd 240957 240957 240957 Konaseema Power Corporation 3 Limited 35699 d) 1 VBC Industries Ltd 169931 1068627 2 VBC Finance 348142 228320 3 VBC Exports Ltd 99782 8 Amount invested Eq. Shares in Konaseema Gas a) 1 Power Limited 148889000 Eq. Shares in Orissa Power 2 Consortium Ltd 46726700 Eq. Shares in Konaseema Gas d) 1 Power Limited 125850000 Share Application Money in 2 Orissa Power Consortium Ltd 1583400 Share Application Money in 3 Indo-Us Coal Washeries (P) Ltd 1525364 Share Application Money in 4 Orissa hydel Power- 145479000 195615700 274437764 9 Balance of Deposits a) 1 Konaseema Gas Power Limited 87649500 87649500 87649500 d) 1 VBC Finance & Leasing Ltd. 24600000 17500000

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Fired to Excel ANNEXURE - XIV DETAILED BREAKUP OF INVESTMENTS OF M/s VBC FERRO ALLOYS LTD AS AT SEPTEMBER 30, 2006 & MARCH 31, 2006 As At As At 30.09.2006 31.03.2006 . INVESTMENTS - (AT COST) NON-TRADE, LONG-TERM Rupees Rupees

a) Government Securities 6 years National Saving Certificates 15,000 15,000 2000 units of Rs.10/- each in Unit Trust of India Unit Growth Scheme 2000 21,500 21,500 Total (a) 36,500 36,500 b) Other Investments I QUOTED 135000 Equity Shares of Rs.10/-each fully paid-up in VBC Finance and Leasing Ltd. 1,350,000 1,350,000 3000 Equity Shares of Rs.10/- each fully paid-up in Bank of India 135,000 135,000

380 Equity Shares of Rs.10/- each fully paid-up in State Bank of Tranvencore 228,000 228,000 Total (b) (I) 1,713,000 1,713,000 II UNQUOTED # 135555000 Equity Shares of Rs.10/- each fully paid-up in Konaseema EPS Oakwell Ltd. 1,355,600,000 1,249,600,000 (Previous year 128455000 Equity Shares) (3500000 Nos of shares sold during the year) 100000 Equity Shares of Rs. 10/- each fully paid up Konaseema Power Corporation Ltd. 1,000,000 1,000,000 * 5412670 Equity Shares of Rs.10/- each fully paid-up in Orissa Power Consortium Ltd. 54,126,700 54,126,700 (Previous year 5412670 Equity Shares) Share Application Money with : i) Konaseema Eps Oakwell Power Ltd 0 18,305,000 ii) Indo-Us Coal Washeries Ltd 10,857,364 10,857,364 iii) Orissa Power Consortium Ltd - Balimela 14,090,000 14,090,000 Total (b) (II) 1,435,674,064 1,347,979,064

Total (b) 1,437,387,064 1,349,692,064 Total (a+b) 1,437,423,564 1,349,728,564 Less Diminution in the value of Investments 2,150,000 2,150,000 1,435,273,564 1,347,578,564

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Market Book Value Market Value Book Value Value Aggregate Value of : Quoted Investments (Net of diminution in value) 363,000 1,889,619 363,000 1,973,741 Unquoted Investments (Net of diminution in value) 1,434,910,564 1,347,215,564 1,435,273,564 1,889,619 1,347,578,564 1,973,741 # includes 184.589 lacs (P.Y.184.589 lacs) shares acquired, the title in respect of which is in the process of transfer.

10 crore equity shares of Konaseema EPS Oakwell Power Ltd have been pledged with various financial institutions as a collateral security against the term loans sanctioned to the said company.

*5412670 Equity shares of Orissa Power Consortium Ltd have been pledged with various financial institutions as a collateral security against the term loans sanctioned to the said company.

ANNEXURE – XV QUALIFICATIONS TO ACCOUNTS

A. For the Financial Year 2001-2002

1. In our opinion, the Balance Sheet and the Profit and Loss Account comply with the Accounting Standards referred to in sub section (3c) of Section 211 of the Companies Act, 1956, subject to paragraph 2 of the Note No. 1 (h) of Schedule “20” regarding non-provision for leave encashment liability on accrual basis.

2. No provision has been made by the Company against bad and doubtful debts of Rs 1,34,16,339/- and we are informed that in the absence of confirmation letters from such debtors, the Company is unable to ascertain the provision to be made against such doubtful debts.

3. In our opinion and to the best of our information and according to the explanations given to us, the said accounts read in conjunction with the Schedules annexed therewith and subject to our remarks in paragraph 6 above and paragraph 2 of Note No 1(h) – regarding non provision of the liability for leave encashment payable to employees, 8 – non provision of liability for surcharge payable to AP Transco for belated payments 9 – regarding non provision of liability for surcharge payable to AP Gas Power Corporation Limited and 10 – regarding confirmation of balances, of Schedule 20, 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:

B. For the Financial Year 2002-2003

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 subject to:

1. Note no (4b) of Schedule 21(ii) regarding the Valuation of Charcoal fines in stock as at the end of the year of Rs. 108.98 lakhs and

2. Note no 5 of Schedule 21 (ii) regarding the write back of provision made in earlier years towards interest on delayed payments of energy charges together with additional charges like surcharges etc., amounting to Rs 1592.39 lakhs, which is subject to confirmation from the respective power producing and distributing companies, give a true and fair view, in conformity with the accounting principles generally accepted in India:

i) In the case of Balance Sheet of the state of affairs of the company as at 31st March 2003. ii) In the case of the Profit and Loss Account, of the profit for the year ended on that date. iii) In case of the cash flow statement, of the cash flows for the year ended on that date.

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C. For the Financial Year 2005-2006

1. In our opinion and to the best of our information and according to the explanations given to us, and subject to note No 2(i) of Notes on Accounts -Schedule 21(ii) regarding non-provision towards demands of CPDC of AP Ltd for supply of power, surcharge and interest of earlier years not accepted by the company amounting to Rs 21.26 crores, 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 with the accounting principles generally accepted in India. i) In the case of the Balance Sheet, of the state of affairs of the company as at 31st March 2006. ii) In the case of the Profit and Loss account, of the Profit/Loss for the year ended on that date. iii) In case of the cash flow statement, of the cash flows for the year ended on the date.

Note: There are no Audit Qualifications for the Financial Years ended 31.03.2004 and 31.03.2005 respectively. ANNEXURE – XVI Statement Showing rates and amount of dividend:

Particulars 31.03.06 31.03.05 31.03.04 31.03.03 31.03.02 Number of Equity Shares 4044350 4044350 4044350 4044350 4044350 Face value (Rs.) 10 10 10 10 10 Paid up value (Rs) 10 10 10 10 10 Rate of Dividend ( % ) 10 20 10 10 0 Dividend amount (Rs. In Lacs) 40.44 80.89 40.44 40.44 0 Tax on dividend (Rs. In lacs) 5.67 11.34 5.29 5.18 0

ANNEXURE – XVII CHANGES IN ACCOUNTING POLICIES IN THE LAST FIVE YEARS: There have been no changes in the Accounting policies of the company in the past five years, except during the financial year ended 31st March, 2003, details of which are given here under: - A) Changes made during the year 31st March 2003 The changes made in the method of Accounting during the year have the following effects on the items in the financial statements. a) Consequent to change in the method of accounting for excise duty on closing stock of finished goods, the stock of finished goods is increased by Rs.42,40,000 and current liabilities by the same amount. However, the said change has no effect on the profit for the year. b) In earlier years, the company followed the method of accounting for accretion of charcoal fines, a by- product, on realization basis. The company has changed this method during the year by valuing the charcoal fines in stock at the end of the year. This change has resulted in the increase in Profit for the year by Rs. 1,08,97,530 and inventories by the same amount.

ANNEXURE –XVIII DETAILS OF WORKING CAPITAL FACILITIES Working Capital facilities (Rs. In lacs) Sr. No. Particulars 31st March,2006 30th Sep,2006 Increase (+)/ Decrease (-) 1 Current Assets 2954.82 4027.29 -1072.47 2 Less: Current Liabilities* 2242.63 2413.75 -171.12 Other than Bank finance 3 Working Capital Gap 712.19 1613.54 -901.35 4 Less: Bank Finance 599.38 1061.53 -462.15 5 Net Working Capital 112.81 552.01 -439.2 * Excludes Unsecured demand Loans

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STATEMENT SHOWING THE DETAILS OF EXISTING WORKING CAPITAL LIMITS

Particulars Existing Limits (Rs. In Lakhs) A. Fund based limits Cash Credit Stocks 450.00 Cash Credit Book debts 300.00 EPC 300.00 Maximum Limit 450.00 Cash credit on Adhoc basis 100.00 IBN/FBN/(DP/DA90 days) 1,050.00 Total (A) 1600.00 B. Non-Fund based limits L/C(DP/DA 180 days) 400.00 L/C On adhoc basis 100.00 Bank guarantees 500.00 Total (B) 1000.00 Grand Total (A+=B) 2600.00

The adhoc limits of Rs. 100.00 Lakhs each in Cash Credit (CC) and letters of Credit (LC) earlier availed during November, 2005 have been repaid and fresh adhoc aggregate limits of Rs. 100.00 Lakhs each in Cash Credit (CC) and letters of Credit (LC) have been availed by the company on 1st February, 2006.

ANNEXURE – XIX DETAILS OF CONTINGENT LIABILITIES AS AT SEPTEMBER 30, 2006 AND MARCH 31, 2006

Contingent Liabilities (Rs. In lacs) Sno. Particulars 30.09.06 31.03.06 1 Estimated amount of contracts remaining to be executed on capital account and not 22.19 0 provided for 2 Unexpired Bank Guarantees and Letters of credits 581.48 936.78 3 Unexpired Guarantees given to FIs and strategic investors on behalf of two Body corporates 15535.00 15535.00 4 Disputed customs demands on imported Coke 0 51.84 5 Disputed Sales Tax demands for non submission of C & F forms 94.84 145.98 6 Disputed Income Tax demands 0 0 7 Claims against the company not acknowledged as debts 172.23 172.23 8 Excess interest and surcharge demanded by CPDC of AP Ltd on delayed payment of certain power 2250.00 2126.00 bills and deletion of certain wrong bills

9. The Company together with two other promoter companies has furnished an undertaking on behalf of Konaseema Gas Power Limited jointly Promoted by them to the financial institutions to finance the cost over-run, if any, in respect of the power project being executed by the said company.

10. The Company together two other promoter companies has furnished an undertaking on behalf of Orissa Power Consortium Limited jointly Promoted by them to the financial institutions to finance the cost over-run, if any, in respect of the power project being executed by the said company.

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ANNEXURE - XX (Rs.in lacs) STATEMENT OF CASH FLOWS AS RESTATED For the Year ended 30.09.06 31.03.06 31.03.05 31.03.04 31.03.03 31.03.02 A CASH FLOW FROM OPERATING ACTIVITIES: Net Profit before Tax and 0.00 (941.21) 1380.14 3726.09 1526.82 5746.71 Extraordinary items Adjustments for: Depreciation 94.81 176.44 179.01 183.27 179.87 849.51 Claims, Bad Debts, 0.35 0.37 2.20 19.22 Irrecoverable Advs W.off Misc. Expenditure written off 112.91 22.84 Loss on Sale of Assets 0.18 Provision for Impairment 0 Provision for Diminution of 1.87 19.62 Investments Provision for Doubtful Debts 127.68 142.89 Provision for gratuity 2.29 4.64 (36.31) Profit on sale of Investments (1.56) (2292.08) (3220.11) Profit on Sale of Assets (212.57) (2.88) (1.95) (5.20) Excess dep. in earlier w.back (171.67) Interest Paid 214.75 500.19 580.98 588.22 359.13 610.65 Dividend received (0.47) (0.31) (0.31) (1.50) (0.93) (0.45) Excess provision written back (13.30) Interest Received (17.69) (95.89) (83.89) (37.34) (44.49) (149.57) Operating Profit before 291.40 (358.31) 1846.79 2291.83 2070.34 3879.92 Working Capital Changes Working Capital Changes: Trade and other Receivables 374.54 1457.46 (486.76) (306.04) 312.34 43.13 Inventories (612.31) 353.97 (574.08) (438.60) (480.48) 273.81 Trade Payables 181.82 (708.87) 475.79 (792.55) (1130.20) (3809.92) Deferred Revenue Expenditure 22.84 22.84 22.84 22.84 (114.20) Cash Generated from 235.45 767.09 1284.58 777.48 794.84 272.74 Operations Interest Paid (214.75) (500.19) (580.98) (588.22) (359.13) (610.65) Income Tax Paid (5.92) (269.49) (217.66) (69.46) 79.18 (124.19) Net Cash from Operating 14.78 (2.59) 485.94 119.80 514.89 (462.10) Activities (A) B CASH FLOW FROM INVESTING ACTIVITIES: Purchase of Fixed Assets (0.50) (482.34) (20.96) (55.44) (62.25) (94.19) Loans/advances to Bodies 246.00 (71.00) (843.49) (143.30) Corporate Capital Work-in-Progress (10.12) 345.46 (338.36) 34.74 37.87 Purchase of Investments (876.95) (392.22) (3244.38) (432.86) (3020.60) Advance for Investments 229.38 Sale of Fixed Assets 0.48 289.00 26.30 7.78 11.14 Sale of Investments 350.00 3.55 3011.32 3445.00 Interest Received 17.69 95.89 83.89 37.34 44.49 149.57 Dividend received 0.47 0.31 0.31 1.50 0.93 0.45

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Fired to Excel Net Cash used in Investing (869.41) 555.80 (445.79) (1032.11) (404.04) 577.45 Activities (B) C CASH FLOW FROM FINANCING ACTIVITIES: Money received towards 15.00 Equity Share Capital Share Premium Received 172.50 Proceeds from Borrowings 636.13 197.78 911.71 Repayment of Borrowings (630.30) (1.08) (164.78) Dividends paid including tax (40.44) (76.53) (39.38) (41.56) on dividend Net Cash used in Financing 783.19 (706.83) 158.40 870.15 (1.08) (164.78) Activities © Net Increase / Decrease in Cash (71.44) (153.62) 198.55 (42.16) 109.77 (49.43) & Cash Equivalents Cash and Cash Equivalents as 227.54 381.16 182.61 224.77 115.00 164.43 at the Beginning of the Year Cash and Cash Equivalents 185.75 227.54 381.16 182.61 224.77 115.00 as at the End of the Year

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS REFLECTED IN THE FINANCIAL STATEMENTS:

Management’s Discussion and Analysis of financial condition and results of operations as reflected in the financial statements are based on the Financial Statements prepared on the basis of Indian Accounting Standards.

Overview of Business of the Issuer Company

Please refer to page no.54 of the Draft Letter of Offer relating to Business overview.

Declaration by Directors In the opinion and to the best of knowledge and belief, there have arisen no circumstances or material developments since the date of the last financial statements (30/09/2006) other than as disclosed in the Letter of Offer which materially and adversely affect or are likely to affect the performance or prospects or profitability of the Company, or the value of its assets, or its ability to pay its liabilities.

Operational Review

During the Financial Year 2005-06, the Company produced 7,376 MTs of Ferro Silicon, 18,255 MTs of Silicon Manganese and 10 MTs of Ferro Manganese against the production of 15,148 MTs of Ferro Silicon and 16,763 MTs of Silicon Manganese and 2,011 MTs of Ferro Manganese during the previous year. Further, the Company has produced 565 MTs of Ferro Chrome during the year. The Company exported 7,242 MTs of Silicon Manganese to various destinations against 7,556 MTs of Silicon Manganese and 1,550 MTs of Ferro Manganese during the previous year.

In view of higher power costs and lower market realizations of the finished products, the company had to curtail production to avoid further losses. In the Ferro Alloys unit of M/s. Jeypore Sugar Company Limited taken on lease earlier, operations were suspended to avoid further losses.

Factors that may affect results of the operations: The following are the risks and concerns that the Company may face in future:

I. Setting up of captive power plant depends upon various approvals/sanctions from different Authorities. II. The commercial operation of Konaseema Gas Power Limited was hitherto delayed because of non availability of sufficient gas from Gas Authority of India Limited but it is expected to be in commercial operation from October, 2008 with new gas availability from ONGC in the Krishna Godavari Basin.

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Fired to Excel III. The other project where the Company has invested is Orissa Power Consortium Limited which is implementing 20 MW Hydro Electric Power Project at Samal Barrage, Angul District in the State of Orissa. The project is expected to be commissioned by the end of the current financial year. If the project does not commence as expected, it may have adverse impact on the operations of the Company. IV. Government regulations like reduction in import duties and anti dumping duty may increase the competition for the Company. Increase in power tariffs by APTRANSCO may also affect the profitability of the Company, if the proposed Project is delayed or the same does not materialize

Apart from the above, the power tariff is not uniform throughout the country and some State Governments are providing excise duty and sales tax concessions and many other incentives/subsidies resulting in over capacity and distortion in the actual cost of production. Due to these reasons, most efficiently run plants situated in other parts of India are not able to compete in the market and utilize the full capacities.

Discussion on Results of operations: (Rs. in lacs)

Period ended on 30.09.06 31.03.06 31.03.05 31.03.04 Income Sales: Of products manufactured by the Company 3127.66 7348.37 12542.45 8959.92 Of products traded by the Company 0 0 0 0 Other income 75.07 235.10 404.57 903.95 Increase (decrease) in inventory 302.64 13 (121.30) 17.01 Total Income 3505.37 7596.47 12825.72 9880.88 Expenditure Raw materials & goods consumed 1071.69 2939.58 4297.61 2349.47 Staff costs 168.65 350.78 374.35 299.35 Other Manufacturing expenses 1765.06 4647.52 5426.66 5088.23 Administrative, Selling & distribution 150.06 493.28 790.14 426.30 expenses Interest 214.75 500.18 580.98 588.22 Depreciation 94.81 176.44 179.00 183.26 Miscellaneous expenditure written off 0 22.84 22.84 22.84 Total Expenditure 3465.02 9130.62 11671.58 8957.67 Net Profit before tax and extraordinary 40.35 (1534.15) 1154.14 923.21 items Extraordinary items Provn no longer reqd w/back 0 592.94 13.78 501.67 Profit on sale of Assets 0 0 212.57 2.88 Profit on sale of Investments 0 0 0.00 2292.08 Surrender value received on K M I policy 0 0 0.00 134.30 Bad Debts/Advances Written Off 0 0 (0.35) (0.37) Diminution in value of Investments 0 0 0 0 Provision for Doubtful Debts 0 0 0 (127.68) Provision For Impairairment (393.34) 0 0 0 Total Extraordinary items (393.34) 592.94 226 2802.88 Net profit after extraordinary items and (352.99) (941.21) 1380.14 3726.09 before tax Provision for taxation(including tax paid for 6.50 (314.97) 519.09 404.31 earlier years) Net profit after tax (359.49) (626.24) 861.05 3321.78 Earlier year adjustments(net of tax) (10.70) (868.58) 2.12 (322.48) Net Profit after adjustments (370.19) (1494.82) 863.17 2999.30

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Fired to Excel Profit brought forward from earlier year 3311.70 4852.63 4161.69 8608.12 Profit available for Appropriation 2941.51 3357.81 5024.86 11607.42 Appropriations: Transfer to general reserve 0 0 80 7400 Proposed dividend 0 40.44 80.89 40.44 Tax on proposed dividend 0 5.67 11.34 5.29 Balance carried to Balance sheet 2941.51 3311.70 4852.63 4161.69

Comparison of Results of Operation for the past three years is as follows: Financial year 2005-06:

Net Sales: The net sales of the Company during the year 2005-06 have reduced to Rs.7348.37 lakhs from Rs.12542.45 from the previous year. Increased power costs and low market realizations were the main reasons for this shortfall.

Total Income: Due to the reasons stated above, the total income also fallen down to Rs.8189.42 lakhs from Rs.13052.07 lakhs during the previous year.

Total Expenditure:

Even though the total expenditure has fallen down from Rs.11671.94 lakhs during the previous year to Rs.9130.63 lakhs, the net profit was at a reduced level because of lower turnover.

Net Profit after Tax: The Net profit after tax also fell drastically from Rs.868.18 lakhs to a negative amount of Rs.626.24 lakhs.

Financial year 2004-05:

Net Sales:

The net sales for the year ended 31.03.2005 has gone up by 40 % from Rs 8951.46 lacs to Rs 12542.45 lacs. The year registered the steady growth in the sales mainly on account of increase in the demand.

Total Income:

The total revenue grew marginally by 1.80% from Rs 12821.33 lacs to Rs 13052.07 lacs during the year 2004-05.

Total Expenditure:

The total expenditure for the year 2004-05 has gone up by 28.33 % from Rs 9095.22 lacs to Rs 11671.94 lacs. The increase in total expenditure was mainly on account of increase in power costs.

Net Profit after Tax: The Net profit after tax fell from Rs.3379.09 lakhs to Rs.868.18 lacs.

Financial year 2003-04:

Net Sales: The net sales of the Company during the year 2003-04 have jumped by 183.91% over the previous year. The performance was possible due to very good market conditions coupled with higher realizations.

Total Income: The increase in the sales has been reflected in the increase in the Total Income. The total income has gone up by over 133.69 % over previous year.

Total Expenditure:

The total expenditure has gone up by 130.27% over the previous year. This is mainly on account of increase in production as well as increase in power and raw material costs.

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Fired to Excel Net Profit after Tax: The Net profit after tax was Rs. 3379.09 lacs as against Rs.1869.04 lacs for the previous year.

REASONS FOR THE CHANGES IN SIGNIFICANT ITEMS OF INCOME AND EXPENDITURE:

¾ Unusual or infrequent events or transactions

There are no unusual or infrequent of events or transactions.

¾ Significant economic changes

There are no significant economic changes that are likely to affect income from continuing operations.

¾ Known trends or uncertainties that have had or are expected to have a material adverse impact on income from operations

The income of the Company is directly related to the MRP of the Ferro Silicon/Silicon Manganese/Ferro Manganese which it produces.

¾ Changes in relationship between cost and revenues

There were no significant changes in the relationship between cost and revenue.

¾ Extent to which material increases in revenues are due to increased volumes, introduction of new projects.

There is no unusual increase in revenues.

¾ Seasonality of business

Ferro Alloys Industry is not seasonal.

¾ Dependence on single or few suppliers/customers

The Company is not dependent on single/very few customers.

¾ Total turnover of each major industry segment in which the Issuer Company operated.

The Company is in the manufacturing of Ferro alloys. The growth in the turnover is directly related to Government policies with regard to pricing of power. If the Government policies with respect to the fixation of price for Ferro alloys industry are conservative, the Ferro alloys industry may find it difficult to sustain, if their operations are dependant on State power completely.

¾ Status of any publicly announced new products or business segment.

Not Applicable.

¾ Competitive Conditions

The Ferro alloys market is very competitive. There is severe competition in the procurement of critical raw materials. Moreover there is tough competition in marketing of the Ferro alloys produced by the Company. This may affect the operations of the Company.

MATERIAL DEVELOPMENTS AFTER THE DATE OF THE LAST BALANCE SHEET

In the opinion of the Board of Directors of the Company, there have not arisen, since the date of the last financial statements disclosed in this Draft Letter of Offer, any circumstances that materially or adversely affect or are likely to affect the profitability of the Company or the value of its assets or its ability to pay its liabilities within the next twelve months.

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Fired to Excel ADVERSE EVENTS

There are no adverse events affecting the operations of the Company occurring within one year prior to the date of filing of the Letter of Offer with the Stock Exchanges.

Working Results:

Information relating to the Company’s sales, gross profit etc, as required by the Ministry of Finance Circular, No.F2/5/SE/76 dated February 05, 1977 read with the amendments of even No. dated March 08, 1977 is as under: The un-audited working results of the Company for the period from 1st October 2006 to 30th November 2006 are given hereunder:

Particulars Rs. In Lacs Net Sales 1245.54 Other Income 3.20 Total Income 1248.74 Total Expenditure 1108.95 Operating Profit 139.75 Interest 62.52 Gross Profit after interest but 77.27 before depreciation & amortization Depreciation & amortization 33.75 Profit/(Loss) before Taxation 43.52 Provision for Taxation 4.88 Net Profit/(Loss) after Taxation 38.64 Paid up Equity Share Capital 419.50 EPS (Rs.) 0.92

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Fired to Excel XII. LEGAL AND OTHER INFORMATION

As of December 28, 2006, except as described below,

1. There are no litigations, overdue, defaults to the Financial Institutions/Banks by the Promoters of the Company and by the Companies/Firms promoted by the Promoters. There are also no pending offences of non – payment of statutory dues and dues towards instrument holders like debenture holders, fixed deposit holders and arrears of cumulative preference shares by the Promoters of the Company and by the Companies/Firms promoted by the Promoters.

2. There are no cases of litigations pending against the Company or against any other group company whose outcome could have a materially adverse effect on the position/operations of the Company.

3. There are no pending proceedings initiated for economic offences against the Directors, Promoters, Companies and Firms promoted by the Promoters.

4. There are no pending litigations against the Promoters/Directors in their personal capacities and also involving violation of statutory regulations or criminal offences.

5. There are no outstanding litigations, disputes pertaining to the matters likely to affect the operations and financials of the Company including disputed tax liability, prosecution under any enactment in respect of Schedule XIII of the Companies Act, 1956.

6. The Company, its Promoters and other Companies with which Promoters are associated have neither suspended by SEBI nor has any disciplinary action been taken by SEBI. There are no prosecutions launched by Income Tax Authorities and no liability compounded by the Promoters/Company/Companies/Ventures with which the Promoters are associated is subsisting.

OUTSTANDING LITIGATIONS INVOLVING THE COMPANY:

(A) AGAINST THE COMPANY

1. CRIMINAL CASES

There are no criminal cases filed against the Company.

2. LITIGATION INVOLVING SECURITIES AND ECONOMIC LAWS

There are no cases filed against the Company involving securities or economic offences.

3. LITIGATION INVOLVING STATUTORY LAWS

There are no litigations against the Company involving Statutory Laws.

4. LITIGATION INVOLVING CIVIL LAWS

There are no civil cases filed against the Company.

5. LITIGATION PERTAINING TO COMPANY LAW

There are no cases filed against the Company in relation to violation of Companies act.

6. LITIGATION INVOLVING LABOUR LAWS

There are no cases filed against the Company in relation to violation of Labour Laws.

7. NOTICES AGAINST THE COMPANY:

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Fired to Excel Commercial Taxes Department, Government of Andhra Pradesh, vide their letter dated 21.08.2006 has issued a Notice to the Company in respect of the arrears of taxes due by the Company, details of which are as follows:

Year APGST CST TOTAL (Rs. In lakhs) (Rs. In lakhs) (Rs. In lakhs) 1993 – 94 -- 0.49 0.49 1994 – 95 -- 1.15 1.15 1996 – 97 -- 25.69 25.69 1997 – 98 -- 0.014 0.014 2001 – 02 -- 6.67 6.67 2002 – 03 1.01 3.10 4.11 TOTAL 1.01 37.11 38.13

Out of the above amount, the Company has paid an amount of Rs.1.66 lakhs.

(B) FILED BY THE COMPANY

1. CRIMINAL CASES (Rs. Lakhs) S.No Case No. Court Particulars Remarks Amount 1 CC No. II Addl. The Company had entered into an Proceedings 6.85 1140 of Metropolitan Agreement with M/s. Sabah Stones, pending for 2005 – Magistrate, Bangalore, on 09.09.2004. As per the service of Sabah Hyderabad terms of the Agreement, the Company summons Stones has to provide financial assistance to before the IInd the extent of Rs.10.00 lakhs and Addl. Machinery worth Rs.15.00 lakhs to Metropolitan M/s. Sabah Stones. In return, Sabah Magistrate, Stones has to supply manganese ore Hyderabad exclusively to the Company for one year and repay the financial assistance of Rs.10.00 lakhs in 10 equal monthly installments.

Sabah Stones had issued ten post dated cheques. However, when these cheques were presented to Banker for payment, these cheques were dishonoured for the reason “Insufficient Funds”. When the same was informed to Sabah Stones, they have requested the company to present these cheques after two months. Again, when these cheques were presented for payment after two months, again the cheques were dishonoured for “Insufficient Funds.”

As a result and after giving due opportunity by way of Legal Notice to Sabah Stones, the Company has filed this criminal case under section 138 of Negotiable Instruments Act against Shri. Syed Abdul Gaffer, Proprietor of Sabah Stones, Bangalore for an amount of Rs.6.85 as the cheque issued by him in favour of the

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Fired to Excel Company had bounced and he failed to make the payment. Now, the matter is posted to 26.04.2007 for reporting the service of summons.

2. LITIGATION INVOLVING SECURITIES AND ECONOMIC LAWS

There is no litigation filed by the Company involving securities or economic offences.

3. LITIGATION INVOLVING STATUTORY LAWS

There are no litigations involving Statutory Laws filed by the Company save as mentioned herein below:

Arrears of Disputed Payment by the Company:

The Company made a representation to Central Power Distribution Company of Andhra Pradesh (“CPDC”) of AP Limited seeking reduction in the surcharge and penal interest charged on delayed payment of certain power bills and deletion of certain wrong bills made to the Company in earlier years. There is a difference of Rs.2250 lakhs between the amount demanded by CPDC of AP Limited and the liability provided by the Company in the accounts, of which Rs.1965 lakhs is on account of excess interest and surcharge demanded @25% as against 9% to be charged in accordance with the decision of Honourable BIFR Committee. As the settlement is in final stage and as the management is confident of a favourable decision, no provision is made in the accounts for the above amount which is not accepted by the Company.

4. LITIGATION INVOLVING CIVIL/BIFR LAWS

There are no Civil/BIFR cases filed by the Company save as mentioned herein below: (Rs. Lakhs) S.No Case No. Court Particulars Remarks Amount 1 BIFR Bench – I, An amount of Rs.46.25 lakhs was payable Proceedings 46.25 Ref.No.29 Board for by HSAL towards supply of 125 MT of still pending 9/04 – Industrial and Ferro Silicon. In spite of repeated requests before the Haryana Financial by VBC Ferro Alloys Ltd., the party failed BIFR Steel & Reconstruction to make the payment. Meanwhile, the party Alloys approached BIFR with a request to declare Ltd. it as a sick company. However, BIFR has (HSAL) rejected their petition. Subsequently, the party has filed an appeal before the Hon’ble AAIFR with a request to direct BIFR to reconsider the case. Now, the Hon’bel AAIFR has allowed the petition of the party and directed BIFR to reconsider the case.

The Company has also made a representation to the Hon’ble BIFR with a request to include the dues of VBC Ferro Alloys Ltd. in the Rehabilitation Scheme.

BIFR vide its Order dated 03.07.2006 has directed the Company (HSAL) to submit its written representations within 30 days from the order and the Company is yet to submit its Written Representations to BIFR. 2 BIFR Case An amount of Rs.1.80 lakhs is recoverable Proceedings 1.80 No.177/94 from SIL towards supply of Ferro Silicon still pending – Steel during the year 1992 – 92. However, the before the Ingots unit was closed down and was referred to BIFR

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Fired to Excel Limited Hon’ble BIFR. Therefore, a representation (SIL) was filed at Hon’ble BIFR for recovery of Rs.1.80 lakh.

5. LITIGATIONS PERTAINING TO COMPANY LAW:

There are no cases filed by the Company pertaining to Company Law.

6. LITIGATION INVOLVING LABOUR LAWS

There are no cases filed by the Company involving labour offences.

(C.) OUTSTANDING LITIGATION INVOLVING DIRECTORS:

A. AGAINST THE DIRECTORS:

1. CRIMINAL CASES

There are no Criminal cases filed against the Directors.

2. SECURITIES AND ECONOMIC LAWS

There are no cases filed against the Directors in relation to violation of Securities and Economic Laws.

3. STATUTORY OFFENCES

There are no cases filed against the Directors in relation to violation of Statutory Laws.

4. CIVIL CASES

There are no Civil Cases filed against the Directors.

5. LITIGATIONS PERTAINING TO COMPANY LAW:

There are no cases filed against the Directors pertaining to Company Law.

6. LABOUR LAWS

There are no cases filed against the Directors in relation to Labour Laws

B. FILED BY THE DIRECTORS:

1. CRIMINAL CASES

There are no criminal cases filed by the Directors.

2. SECURITIES AND ECONOMIC LAWS

There are no cases filed by the Directors in relation to violation of Securities and Economic Laws.

3. STATUTORY OFFENCES

There are no cases filed by the Directors in relation to violation of any Statutory Laws.

4. CIVIL CASES

There are no civil cases filed by the Directors.

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Fired to Excel 5. LITIGATIONS PERTAINING TO COMPANY LAW:

There are cases filed by the Directors pertaining to Company Law.

6. LABOUR LAWS

There are no cases filed by the Directors in relation to Labour Laws.

(D.) OUTSTANDING LITIGATION INVOLVING PROMOTERS:

A. AGAINST THE PROMOTERS:

1. CRIMINAL CASES

There are no Criminal cases filed against the Promoters.

2. SECURITIES AND ECONOMIC LAWS

There are no cases filed against the Promoters in relation to violation of Securities and Economic Laws.

3. STATUTORY OFFENCES

There are no cases filed against the Promoters in relation to violation of Statutory Laws.

4. CIVIL CASES

There are no civil cases filed against the Promoters.

5. LITIGATIONS PERTAINING TO COMPANY LAW:

There are no cases filed against the Promoters pertaining to Company Law.

6. LABOUR LAWS

There are no cases filed against the promoters in relation to Labour Laws.

B. FILED BY THE PROMOTERS:

1. CRIMINAL CASES

There are no Criminal cases filed by the Promoters.

2. SECURITIES AND ECONOMIC LAWS

There are no cases filed by the Promoters in relation to violation of Securities and Economic Laws.

3. STATUTORY OFFENCES

There are no cases filed by the Promoters in relation to violation of any Statutory Laws.

4. CIVIL CASES

There are no civil cases filed by the Promoters.

5. LITIGATIONS PERTAINING TO COMPANY LAW:

There are no cases filed by the Promoters pertaining to Company Law.

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Fired to Excel 6. LABOUR LAWS

There are no cases filed by the Promoters in relation to Labour Laws.

(E) OUTSTANDING LITIGATIONS INVOLVING PROMOTER GROUP COMPANIES:

A. FILED AGAINST THE PROMOTER GROUP COMPANIES:

1. CRIMINAL CASES

There are no criminal cases filed against the Promoter Group Companies.

2. SECURITIES AND ECONOMIC LAWS

There are no cases filed against the Promoters Group Companies in relation to violation of Securities and Economic Laws.

3. STATUTORY OFFENCES

There are no cases filed against the Promoters Group Companies in relation to violation of Statutory Laws, save as mentioned below:

VBC Industries Limited (Rs. In lakhs) S. Case No. Court Particulars Remarks Amount No 1 Case No. Shri .S K Metal, Received order dt.28.4.2006 (received by Yet to come 0.40 348/05, Shareholder of the company on 6.5.2006), from Dist. up for hearing District the Company Consumer Forum, Dhanbad in complaint Consumer filed in Case No.348/05, by one Shri. Forum, Suresh Kumar Mittal, advocate of Jharia, Dhanbad for non-receipt of 200 shares duly transferred in his name. The Dist. Consumer Forum disposed the above case ex-parte, with a direction to send the original share certificates to the complainant within 40 days of receipt of order and also ordered to pay for the delay in consonance of the provision contained in Sec.113 of Companies Act for deficiency in not transferring the shares into his name. On verification of the records of the Company, it was found that the shares were transferred in his name within the stipulated time and sent by Regd. Post on 30.9.2004 and the shares were not returned back to the Company undelivered. The share transfer agents of the Company also wrote to the party to pursue at his end. Shri. Mittal might have filed this complaint before Consumer Forum for monetary benefit and got the orders passed ex-parte.

The Company engaged Shri S.R.Mazumdar, Sr. Advocate at Ranchi and filed appeal before the State Consumer Disputes Redressal Commission at Ranch for stay of orders passed by the Consumer Forum, Dhanbad and also filed application for condonation of delay, if any, on 2.6.2006 and the

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Fired to Excel Commission has ordered notice to other party and the matter was originally posted to 15.7.2006, subsequently adjourned to 5.9.2006. As no Chairman for the Commission is in place, it is likely that the matter may come up before the Commission only after the Chairman is posted which is likely during January 2007.

4. CIVIL CASES

There are no civil cases filed against the Promoters Group Companies.

5. LITIGATIONS PERTAINING TO COMPANY LAW:

There are no cases filed against the Promoter Group Companies pertaining to Company Law.

6. LABOUR LAWS

There are no cases filed against the Promoter Group Companies in relation to Labour Laws.

B. FILED BY THE PROMOTER GROUP COMPANIES:

1. CRIMINAL CASES

There are no criminal cases filed by the Promoter Group Companies.

2. SECURITIES AND ECONOMIC LAWS

There are no cases filed by the Promoter Group Companies in relation to violation of Securities and Economic Laws.

3. STATUTORY OFFENCES

There are no cases filed by the Promoters Group Companies in relation to violation of any Statutory Laws, save as mentioned below:

1. Techno Pack Private Limited

(Rs. In lakhs) S.No Case No. Court Particulars Remarks Amount 1 W P No. In the High Techno Pack Private Limited was Affidavit in 17.16 2469 of Court of incorporated in the year 1971 and having its Opposition 2003 Calcutta business operations at Calcutta and their has to be Registered Office at Visakhapatnam filed by the Union of The Company operated successfully till 1992 India and the operations came to standstill and the factory closure has been declared in the year 1991 suspending factory operations in view of Government changed policies opting packing of fertilizers and chemicals in HDPE bags.

On 21.05.1979, a Show Cause Notice was served by Asst. Collector of Central Excise, Calcutta Division XII calling upon the company to explain why laminated jute bags manufactured by the Company from February 1977 should not be liable to Excise Duty under Entry 68 of the existing schedule

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Fired to Excel of the Central Excise & Salt Act, 1944

The Company replied to the Asst. Collector of Central Excise, Calcutta Division XII that by virtue of Notification No.53/65, dated 20.03.1965 issued by the Central Government, laminated jute bags falls under Entry 22A and therefore exempt from Central Excise Duty.

By order dated 03.07.1980, the Collector of Central Excise, Calcutta Division XII held that the company is liable to pay Rs.17,15,831.70 as duty from 16.02.1977 to 05.06.1979 on the laminated jute bags manufactured by the company.

After Company’s making appeals before the Collector of Central Excise, Calcutta, CEGAT, New Delhi, Writ Petition before the High Court of Andhra Pradesh, now the matter is sub judice before the Hon’ble High Court of Kolkata as Writ Petition bearing No. 2469 of 2003.

The Hon’ble High Court of Kolkata, vide its order dated 22.01.2004 has allowed the Writ Petition filed by the Company and directed the opposite party to file Affidavit – in – opposition within two weeks from the date of the order.

Now, the matter is still pending before The Hon’ble High Court of Kolkata.

2. Konaseema Power Corporation Limited:

Sr. Case No. Court Particulars Remarks Amount No. 1 Appeal Income Tax The above named company has received two Yet to come 33.49 against the Tribunal, Notices of Demand under Section 156 of the up for Orders of Hyderabad Income Tax Act, 1961 demanding to pay a hearing Commissi sum of Rs.22.87 lakhs pertaining to the oner of Assessment Year 2002 – 03 and Rs.10.62 Income lakhs for the Assessment Year 2003 – 04 Tax from the Income Tax Officer, Ward – 2 (1), (Appeals) Hyderabad on 31.03.2006. – III, dated Against the Notice of Demand issued by the 20.09.200 Income Tax Officer, Ward – 2 (1), 6 Hyderabad, the Company has filed an Appeal with the Commissioner of Income Tax (Appeals) – III, Hyderabad. The Commissioner of Income Tax (Appeals) – III, Hyderabad, vide their Order dated 20.09.2006 has dismissed both the Appeals in favour of the Income Tax Department. Against the Orders of the Commissioner of Income Tax (Appeals) – III, Hyderabad, the Company has filed an Appeal with the Income Tax Tribunal, Hyderabad, which is yet to come for hearing.

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Fired to Excel 3. VBC Industries Limited:

S. Case No. Court Particulars Remarks Amount No 1 The Company filed Stay Petition and appeal Pending with 12.19 Appeal Sales Tax before the Sales tax Tribunal at Hyd, against STAT, (96-97) against the Appellate the revision orders of D.C.(CT), Vizag who Hyderabad Revision Tribunal, demanded Rs.23.93 lakhs towards 11.74 Orders of Hyderabad differential sales tax amount on lease rental (97-98) Dy.Commis of Bottles/Crates, vide his revised assessment sioner order for 96-97 and 97-98. The Company (Commercia paid a deposit of Rs.5.00 lakhs as directed by l Tax), High Court of Andhra Pradesh to the Vizag Department. The main appeal is yet to be disposed-off by STAT, Hyderabad.

2 Reply to the CTO, Dwarakanagar has demanded Rs.85.79 Objections are 85.79 Show Cause lakhs towards difference tax on the sale of yet to be filed Notice dated fixed assets etc., while transferring Bottling by the 19.08.2006 Division to Coca Cola during the year 1998- company issued by 99. On appeal, the Appellate Dy. Commercial Commissioner (CT), Vizag remanded the Tax Officer, case to CTO with a direction to verify the Vizag record of the company with regard to collection/payment of tax amount etc., taking into consideration the decision of A.P.High Court in the case of Coromandel Fertilisers Ltd.

The company has now received Show Cause Notice dt. 19.8.2006, from CTO, Vizag proposing to finalise the assessment for 98-99 by demanding balance tax of Rs.85,79,007/-. The company is in the process of filing our objections for the said proposed finalisation of assessment, in consultation with the Sales tax Consultant of the company.

3 Appeal CESTAT, Appeal No.74/2003(V-I)CE, which was filed Pending with 1.16 against the Bangalore bench before Commissioner of Central Excise CESTAT, Order (Appeals) Vizag, has been rejected by the Bangalore No.151-155, Commissioner, vide Order-in-Appeal No.151- dated 155 dt.8.12.2005 (Received by us on 08.12.2005, 27.6.2006)and the duty, penalty, interest etc., issued by as demanded by the Jt. Commissioner, has Commission been confirmed. Being aggrieved by the er of Central orders of the Commissioner, we filed our Excise appeal before CESTAT, Bangalore Bench on (Appeals), 21.9.2006, and the same is pending with the Vizag Tribunal. 4 Appeal Asst. The company has filed an appeal Pending with 55.68 No.75/2003 Commissioner of No.75/2003(V-I)CE, against the order of Asst. Commissioner (V – I) CE Central Excise, Commissioner raising demand of Rs.55.68 (Appeals), Dn. II lakhs towards difference of Excise duty on Vizag Visakhapatnam finalization of provisional assessments basing on the cost audit report of AD (Cost) in Sept.03. The same is pending disposal with the Commissioner (A), Vizag.

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Fired to Excel 5 Appeal Dy.Commissione As per CESTAT Final Order No. 202/05 Yet to be listed 97.34 against The r of dt.14.2.2005, we filed our refund claim for before the Order No. Customs (Ref) Rs.97.34 lakhs towards interest on delayed High Court, 202/05, Chennai payment of refund with Dy. Commissioner of Karnataka dated Customs (Refunds), Chennai, and on our 14.02.2005 frequent reminders, the Jt. Commissioner of by CESTAT Customs, Chennai informed that the Department filed an appeal and obtained stay from High Court of Madras against CESTAT order and hence they could not process our claim. Shri.Natarajan, Sr. Advocate at Madras had filed counter affidavit in July, 2006 before the Madras High Court, for getting the stay vacated. As per the advocate, our matter may come up before the Court during 1st/2nd week of January 2007. Customs Department also filed an appeal No. CSTA 6/2005 in the High Court of Karnataka, challenging the order dt. 11.7.2003 of CESTAT, Bangalore along with condonation petition in filing the appeal. We filed our counters with relevant case law, through our advocate at Bangalore. High Court has admitted the Dept.’s appeal and the matter is going to list in regular course for considering condonation and also on merits. 6 Appeal Commissioner of Received Order-in-Appeal No.24.2005 from Pending with 68.95 against customs(appeals) Commissioner (Appeals), Vizag (received by the Tribunal Order No.24 Visakhapatnam us on 8.5.2006), rejecting our claim for – 2005, interest on delayed payment of refund. We dated filed our appeal with CESTAT, Bangalore on 08.05.2006 10.6.2006, and the same is pending with the by Tribunal. Commission er (Appeals) Vizag 7 Appeal Commissioner of Against Order No.25/2005 passed by Pending with 21.12 against the Customs Commissioner (Appeals), Vizag, allowing our Commissioner Order (Appeals),Visak appeal for refund of basic custom duty, we (Appeals) No.18/2006, hapatnam filed our refund application with Asst. dated Commissioner (Refunds), Vizag. Received 29.09.2006 Order-in-Original No.18/2006 dt. 29.9.2006 by Asst. by which the Asst. Commissioner has rejected Commission our refund claim, and we filed our appeal er (Customs) before The Commissioner (Appeals), Vizag, vide appeal dt. 14.10.2006. 8 Appeal Commissioner of Received Order-in-Original No. 23/2005 Pending with 2.36 against the Customs (A), dt.14.12.2005 (received by us on 8.5.2006), the Tribunal Order Vizag. passed by the Commissioner (Appeals), No.23/2005, Vizag, rejecting our claim for interest on dated delayed refund of CVD. Aggrieved by the 14.12.2005 said order, we filed our appeal with CESTAT, by Bangalore on 20.6.2006, which is pending Commission with the Tribunal. er (Appeals), Vizag

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Fired to Excel 4. Bharat Alloys & Energy Limited: (Rs. Lakhs) S.No Case No. Court Particulars Remarks Amount 1 Appeal Commission The Joint Commissioner of Customs & Yet to come 11.81 against the er of Central Excise, Tirupati issued a Show Cause up for Order Customs & Notice dated 14.05.2006 demanding the hearing No.13/200 Central Company to pay differential Central Excise 6, dated Excise, Duty of Rs.11.81 lakhs on the clearance of 28.09.200 Guntur Ferro Silicon manufactured by the Company 6 by Jt. on Job Work Basis and cleared to the Commissi customers of the Company from whom the oner of Job Work Contract was taken. Customs & Central The company vide its reply dated 03.07.2006 Excise, to the show cause notice and during the Tirupati personal hearing on 06.09.2006 had submitted that the goods manufactured on Job Work basis out of the raw material supplied by the Company which has given Job Work Contract were neither transferred to the company from whom the contract was taken for their consumption not to the depot of the said company for subsequent sale from there. Hence, the company submitted that the Company is not liable to pay the duty as demanded by the Department.

The Joint Commissioner of Customs & Central Excise has not accepted the arguments of the company and finally passed an Order No.13/2006, dated 28.09.2006 against the company.

Aggrieved by the said order, the company made an Appeal to the Commissioner of Customs & central Excise (Appeals), Guntur, which is yet to come up for hearing.

4. CIVIL CASES

There are no civil cases filed by the Promoter Group Companies, save as mentioned below:

Bharat Alloys & Energy Limited: (Rs. Lakhs) S. Case No. Court Particulars Remarks Amount No 1 Company High Court The company has purchased Acre 34.56 cents Pending Amount not Petition No. of Andhra of land belonging to M/s. AP Carbide Limited before the quantifiable 35 of 1985 Pradesh in an auction conducted by the Official High Court Liquidator, High Court of Andhra Pradesh, of Andhra Hyderabad on 28.06.2000. Pradesh

Out of the said land of Acre 34.56 cents, acre 7.16 cents of land was in possession of AP Transco. After the auction of the total land, AP Transco had sold the land which was in their possession to a third party.

Hence, the company filed a petition before the Hon’ble High Court of Andhra Pradesh praying for setting aside the sale made by the AP Transco.

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5. LITIGATIONS PERTAINING TO COMPANY LAW:

There are no cases filed by the Promoter Group Companies pertaining to Company Law.

6. LABOUR LAWS

There are no cases filed by the Promoter Group Companies in relation to Labour Laws.

GOVERNMENT APPROVALS AND LICENSING

The Company has received necessary licenses, permissions and approvals from the Central and State Governments and other government agencies/certification bodies required for its business and no further material approvals are required by the Company for carrying on its present business activities. It must, however, be distinctly understood that in granting the above approvals, the Government and other authorities do not take any responsibility for the financial soundness of the Company or for the correctness of any of the statements or any commitments made or opinions expressed.

In view of the approvals listed below, the Company can undertake its current business activities and no further material approvals are required from any statutory authority to continue such activities. The following statement sets out the details of licenses, permissions and approvals taken by the Company under various Central and State Laws for carrying out its business.

Existing Unit (Ferro Alloys Unit at Rudraram)

Sr. Issuing Authority Registration/License No. Validity Date No. 1. Permanent Account Number (PAN) AAACV7258A Not Applicable 2. Tax Deduction Account Number HYDV0005F Not Applicable (TAN) 3. Customs & Central Excise Sales Tax AAACV7258AST003 Not Applicable Department 4. Central Sales Tax Department PJT/07/1/1599/94-95 Not Applicable 5. Commercial Tax Department 28940179904 Not Applicable 6. Sales Tax Registration Certificate No:4551A(LR) – Central Not Applicable 7. Central Excise Registration Certificate AAACV7258AXD003 Not Applicable 8. Value Added Tax Registration 29150490798 Not Applicable Certificate 9. Central Excise Registration Certificate AAACV7258AXD005 Not Applicable 10. Central Excise Registration Certificate AAACV7258AXD004 Not Applicable 11. Andhra Pradesh Pollution Control APPCB/PTN/PTN/278/RO/ 30th September, 2007 Board 2003/A/711-1077 13. Government of India (GoI) Ministry of No:IL:50(83)-LA-III Not Applicable India, Dept. of Industrial Development Secretariat for Industrial Approvals (LA-III Section) 14. Factory License No:41557 31.12.2007 15. Customs & Central Excise Department AAACV7258AXM001 Not Applicable

Captive Power Project (65 MW Pit Head Coal Based) (Approvals Obtained by KRAEL)

Sr. Status Issuing Authority No. 1. Drawal of water from Peddavagu, a Sanctioned for drawal of 905 cm/day has been tributary of River Godavari. (Government obtained (GOMs No;221 I&CAD of Andhra Pradesh, Irrigation and CAD (PW:REFORMS) DEPARTMENT dated Department) 5.12.2005) 2. Government of India, Ministry of Coal No: 23014/9/2004-CPD, Government of India, Ministry of Coal dated December 20, 2004, Capacity: 25MW

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Fired to Excel 3. Coal linkage from the Ministry of coal, An agreement for supply of 1.8 lakhs Government of India and Fuel Supply tons/annum has already been concluded with agreement entered with M/s. Singareni M/s. Singareni Colleries Limited (No:23014/9/ Colleries Company Limited 2004-CPD dated December 20, 2004) 4 Andhra Pradesh Pollution Control Board, Public Hearing conducted on 29.10.2006. Letter Hyderabad No: 2111/PCB/RO-NZB/2006-1623 dated 01- 11-2006 issued to KRAEL requesting to approach Ministry of Environment & Forest for Environment clearacnce as required under revised EIA notification. 5 Gram Panchayat Permission Obtained from Panchayat Secretary, G.P. Bodepally, Kaghaznagar Mandal, Adialabad District, dated 10.06.2006

Pending Approvals: (For the Proposed Project)

Sr. Issuing Authority No. 1. Permission for drawal of water from Peddavagu, a tributary of river Godavari. (Government of Andhra Pradesh, Irrigation and CAD Department) to draw additional quantity of 9000 Cubic meters of water 2. Clearance from Andhra Pradesh Pollution Control Board, Hyderabad, as required under sec. 25/26 of water (P&C of P)Act, 1974, and under sec. 21/22 of Air (P&C of P)Act, 1981, before commencement of activity 3. Environmental Clearance from Ministry Of Environment & Forests (MOEF), Government of India as per MOE&F, GOI notification no: S.O.60 (E) dated 27.01.94

Investment Approvals (FIPB/ RBI, etc.)

As per Notification No. FEMA 20 / 2000 - RB dated 3rd May 2000, as amended from time to time, under automatic route of Reserve Bank, the Company is not required to make an application for Issue of Equity Shares to NRIs/FIIs with repatriation benefits. However, the allotment / transfer of the Equity Shares to NRIs/ FIIs shall be subject to prevailing RBI Guidelines. Sale proceeds of such investments in Equity Shares will be allowed to be repatriated along with the income thereon subject to the permission of the RBI and subject to the Indian tax laws and regulations and any other applicable laws.

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Fired to Excel XIII. OTHER REGULATORY AND STATUTORY DISCLOSURES

IMPORTANT INFORMATION

Under no circumstances should any request be sent to the Lead Manager to the Offer. The Company undertakes to provide adequate Funds to the Registrars to the Offer for posting of the Refund Orders/ Letters of Allotment/ Share Certificates by registered post wherever applicable.

AUTHORITY FOR THE PRESENT ISSUE

The Issue is being made pursuant to the provisions of section 81 (1) of the Act. Pursuant to a Special Resolution passed at the AGM held on 24th July, 2006 and the resolution passed by the Board on June 24, 2006, the Company has decided to offer 83,88,700 Equity shares of Rs. 10/- each at premium of (*) per share aggregating (*) to the existing Equity shareholders of the Company on rights basis in the ratio of 2 (Two) equity shares for the every 1 (one) equity share (i.e.2: 1) held as on the Record Date (*).

PROHIBITION BY SEBI

The Company, its Promoters, Directors or any of the Company’s associates or group companies with which the Directors of the Company are associated as Directors or Promoters have not been prohibited from accessing the capital market under any order or direction passed by SEBI.

ELIGIBILITY

The Company is an existing listed Company. It is eligible to offer this Rights Issue in terms of Clause 2.4 (iv) of the SEBI (DIP) Guidelines, 2000.

The Promoters, their relatives, the Company, Group Companies are not detained as willful defaulters by RBI/ Government authorities* and there are no violations of securities laws committed by them in the past or pending against them.

* For details, please refer the point no. 5 of Notes to Risk Factors on page no. 18 of Draft Letter of Offer.

DISCLAIMER CLAUSE

AS REQUIRED A COPY OF THIS DRAFT LETTER OF OFFER HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THIS DRAFT LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY, BE DEEMED OR CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE OFFER DOCUMENT. LEAD MERCHANT BANKER, SBI CAPITAL MARKET LIMITED, HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE DRAFT LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI GUIDELINES FOR DISCLOSURES AND INVESTOR PROTECTION IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE.

IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE DRAFT LETTER OF OFFER, THE LEAD MANAGER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE, THE LEAD MANAGER, SBI CAPITAL MARKET LIMITED HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED 22.01.2007 IN ACCORDANCE WITH SEBI (MERCHANT BANKERS) REGULATION 1992 WHICH READS AS FOLLOWS:

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(I) WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, AND DISPUTES WITH COLLABORATORS ETC. AND OTHER MATERIALS IN CONNECTION WITH THE FINALISATION OF THE DRAFT LETTER OF OFFER PERTAINING TO THE SAID ISSUE.

(II) ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY, ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PROJECTED PROFITABILITY, PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE COMPANY.

WE CONFIRM THAT:

(A) THE DRAFT LETTER OF OFFER FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE; (B) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE, AS ALSO THE GUIDELINES, INSTRUCTIONS, ETC. ISSUED BY SEBI, THE GOVERNMENT AND ANOTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH; (C) THE DISCLOSURES MADE IN THE DRAFT LETTER OF OFFER ARE TRUE, FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE; AND (D) WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE DRAFT LETTER OF OFFER ARE REGISTERED WITH SEBI AND THAT TILL DATE SUCH REGISTRATION IS VALID*.

* Bankers To The Issue Is Yet To Be Appointed.

AS PER CLAUSE 5.1.1 OF THE SEBI (DIP) GUIDELINES, 2000 THE LIABILITY OF THE LEAD MANAGER SHALL CONTINUE EVEN AFTER COMPLETION OF THE ISSUE PROCESS.

THE FILING OF THE DRAFT LETTER OF OFFER DOES NOT, HOWEVER ABSOLVE THE COMPANY FROM ANY LIABILITIES UNDER SECTION 63 OR SECTION 68 OF THE COMPANIES ACT, 1956, OR FROM THE REQUIREMENT OF OBTAINING SUCH STATUTORY OR OTHER CLEARANCES AS MAY BE REQUIRED FOR THE PURPOSE OF THE PROPOSED ISSUE. SEBI FURTHER RESERVES THE RIGHT TO TAKE UP AT ANY POINT OF TIME, WITH THE LEAD MANAGER FOR ANY IRREGULARITIES OR LAPSES IN THE DRAFT LETTER OF OFFER.

CAUTION / DISCLAIMER CLAUSE OF THE ISSUER AND THE LEAD MANAGER The Company and the Lead Manager accept no responsibility for the statements made otherwise than in the Draft Letter of Offer or in the advertisement or any other material issued by or at the instance of the issuer and that anyone placing reliance on any other source of information would be doing so at their own risk.

DISCLAIMER IN RESPECT OF JURISDICTION

This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and regulations there under. Any disputes arising out of this issue will be subject to the jurisdiction of the appropriate courts in Hyderabad, India only.

This offer of Equity shares is made in India to persons resident in India and NRIs and FIIs subject to requisite approvals. This Letter of Offer does not, however, constitute an offer to sell or an invitation to subscribe to equity shares offered hereby in any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. Any person into whose possession this Letter of Offer comes is required to inform himself /herself about and to observe such restrictions.

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The existing equity shares of the Company are listed on BSE (Designated Stock Exchange). Application will be made to BSE, for listing and trading permission for the equity shares being issued pursuant to this Draft Letter of Offer. The Company has received in-principle approval from BSE vide its letter no. (*) dated (*), 2007. If the permissions to deal in and for an official quotation of the equity shares are not granted by BSE, the Company shall forthwith repay, without interest, all monies received from the applicants. In case of delay interest shall be paid in accordance with the provisions of Section 73 of the Act.

Apart from BSE, the Company’s Shares were initially listed on the Madras Stock Exchange Ltd. (MSE), Hyderabad Stock Exchange (HSE) and Calcutta Stock Exchange (CSE). Since the trading volumes in Company’s equity shares on MSE, HSE and CSE were either nil or insignificant, the Shareholders approved the proposal for delisting the shares of the Company from MSE, HSE and CES at the AGM held on September 30, 2003. As the Company’s shares continued to be listed on the BSE, investors at any of the said places are not in any way adversely affected by the delisting. Pursuant to an application made for voluntary delisting to MSE, HSE and CSE, approvals were granted from the MSE and HSE on December 2, 2004 and April 4, 2005, respectively. Approval of CSE in this regard is awaited. Considering the above, the Company has made an application to list the Equity shares arising out of the Rights Issue only to BSE, the Designated Stock Exchange.

If the permission to deal in and for an official quotation of the securities is not granted by the Designated Stock Exchange mentioned above, within 42 days from the Issue Closing Date, the Company shall forthwith repay, without interest, all monies received from applicants in pursuance of this Letter of Offer. If such money is not paid within eight days after the Company becomes liable to repay it, then the Company and every Director of the Company who is an officer in default shall, on and from expiry of eight days, be jointly and severally liable to repay the money with interest as prescribed under the Section 73 of the Act.

DISCLAIMER CLAUSE OF THE BOMBAY STOCK EXCHANGE LIMITED (BSE)

As required a copy of this Draft Letter of Offer has been submitted to BSE. The BSE has given the Bombay Stock Exchange Limited, (BSE) has given vide its letter no. (*) dated (*), 2007 permission to the Company to use the Exchange’s name in this Draft Letter of Offer as one of the stock exchanges on which this Company’s securities are proposed to be listed. The Exchange has scrutinized this Draft Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Company. The Exchange does not in any manner:

(i) Warrant, certify or endorse the correctness or completeness of any of the contents of this Draft Letter of Offer; or

(ii) Warrant that this Company’s securities will be listed or will continue to be listed on the Exchange; or

(iii)Take any responsibility for the financial or other soundness of this Company, its promoters, its management or any scheme or project of this Company;

And it should not for any reason be deemed or construed that this Draft Letter of Offer has been cleared or approved by the Exchange. Every person who desires to apply for or otherwise acquires any securities of this Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/ acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever.

FILING

A Copy of this Draft Letter of Offer has been filed with SEBI, Corporate Finance Department (DIL), SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai– 400 051 and also with BSE, Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai (BSE) (Designated Stock Exchange). The Company has received ‘in-principle’ approval for issue of the new shares from the BSE vides its letter no. no. (*) dated (*), 2007.

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Attention of the applicants is specifically drawn to the provisions of Sub-Section (1) of section 68A of the Companies Act, 1956 which is reproduced below:

“Any person who – (a) makes in a fictitious name an application to a Company for acquiring, or subscribing for, any shares therein, or (b) otherwise induces a Company to allot or register any transfer of shares therein to him, or any other person in a fictitious name, Shall be punishable with imprisonment for a term which may extend to five years.”

CONSENTS

Consents in writing of: (a) the Directors, Company Secretary & Compliance Officer, Auditors, Lead Manager to the Issue, Legal Advisors to the Issue, [Bankers to the Issue], Bankers to the Company, Registrars to the Issue and to act in their respective capacities, have been obtained and shall be filed along with a copy of the Draft Letter of Offer with SEBI and such consents have not been withdrawn up to the time of delivery of this draft Letter of Offer for registration with SEBI.

The Auditors have given their written consent to the inclusion of their report in the form and context in which it appears in this draft Letter of Offer and such consent and report has not been withdrawn up to the time of delivery of this Draft Letter of Offer for filing with the SEBI.

The Auditors of the Company have also given their written consent for inclusion of income tax benefits in the form and content appearing in this Draft Letter of Offer, available to the Company and its Shareholders.

EXPERT OPINION

Save and except as indicated in this Draft Letter of Offer, no other expert opinion has been obtained by the Company in respect of the present Rights Issue.

EXPENSES OF THE ISSUE The expenses of this Issue include, among others, fees payable to the Lead Manager, Auditors, legal counsel, printing and distribution expenses, statutory advertisement expenses and miscellaneous expenses. The total expenses of the Issue are estimated to be approximately Rs. 100 lakhs, which constitutes (*) of the Issue size. All expenses with respect to the Issue would be met out of the proceeds of the Issue. For detailed break up of the expenses, please refer to para under ‘Issue Expenses’ on page no. 44 of this Draft Letter of Offer.

PREVIOUS PUBLIC ISSUES OR RIGHTS ISSUES The Company has not made a public or rights issue during the past five years.

PREVIOUS ISSUE OF SHARES OTHERWISE THAN FOR CASH NIL

COMMISSION OR BROKERAGE ON PREVIOUS ISSUES The Company has not paid any commission or brokerage on previous issue.

PARTICULARS IN REGARD TO CAPITAL ISSUE DURING THE LAST THREE YEARS

By The Company The Company has not made any capital issue during the last three years.

Listed companies under the same management within the meaning section 370 (1)(B) of the Companies Act, 1956

None of the listed Group Companies of VBCFAL have made preferential allotment of shares or issued debentures or made any public or rights issue in the past three years.

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For The Company

Public Issue The Company came out with Public Issue of 8,00,000 Equity shares of Rs. 10/- each for cash at par aggregating to Rs. 80.00 lacs through its Prospectus dated 5th October 1984. There was no promise/forecast made in the Prospectus.

Debenture Issue

The Company came out with an issue of 2,29,000, 14% Secured Partly Convertible Debentures (PCDs) of Rs. 350/- each in the year 1989. The main object of the said issue was to enhance Ferro Silicon production from existing 10,000 TPA to 15,000 TPA (proposed). The principal terms of Debentures were as follows: -

1. Face Value: - Face value of Rs. 350/- each consisting of: Part-A- Conversion of Rs. 150/- and Part-B –Non-convertible part of Rs.200

2. Rate of Interest: - The Debentures carried interest of at the rate of 14% per annum payable half yearly (subject to deduction of income tax at source at the rates for the time being prescribed under the Income Tax act, 1961).

3. Terms of Payment The amount payable per debenture was as under: (a) For Non- Resident Indians/Persons of Indian Origin residing abroad and Financial Institutions/Mutual Funds. (b) For Indian Public/Employees and others: On Application On Allotment Towards Part “A” Rs 75/- Rs 75/- Towards Part “B” Rs 100/- Rs 100/-

4. Conversion The convertible part was deemed to be redeemed and automatically and compulsorily applied by the Company towards the price of 5 fully paid equity shares of Rs 10/- each at a premium of Rs. 20/- per share, as on October 1, 1990. In case the allottee did not pay the amount of Rs. 175/- due on allotment even upto the date of conversion, the conversion portion (s) was to be retained by the Company till such time the full allotment money payable on the debentures together was paid.

5. Redemption: The non convertible Part B (of Rs 200/- each) of the Debentures remaining after conversion was to be redeemed at par at the end of the 6th, 7th and 8th years from the date of allotment of Debentures in 3 installments of Rs. 60/-, Rs. 70/- and Rs. 70/- respectively.

Reasons for Variation in Promises V/s. Performance

Not applicable.

For Listed Companies in the Group

There are two listed group companies in the group. None of them has issued any equity shares pursuant to a public/ rights issue during the past five years.

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The Equity shares of the Company are listed and traded on BSE. The high and low closing prices recorded on the BSE for the preceding three years and the number of shares traded on the days high and low prices recorded is given below.

High Low Average High Date Volume on Low Date Volume Price (Rs) date of high (Rs) on date of (Rs.) Particulars (no. of Low shares) (no of shares) 2003 94.85 31/12/03 8590 6.10 19/03/05 2500 50.47 2004 137.65 01/12/04 132325 42.10 25/03/04 3171 89.88 2005 283.75 15/09/05 915689 90.35 01/07/05 15242 187.05 June 2006 109.50 1/06/06 8173 70.50 15/06/06 58863 90.00 July 2006 91.00 03/07/06 1773 71.75 24/07/06 1695 81.37 August 2006 103.40 30/08/06 6770 76.05 02/08/06 1281 89.72 September 109.90 26/09/06 30643 88.50 19/09/06 5916 99.20 2006 October 2006 110.90 27/10/06 7853 97.25 04/10/06 2346 104.07 November 110.00 08/11/06 4511 97.25 27/11/06 3953 103.62 2006 December 117.00 04/12/06 15188 94.60 29/12/06 29070 105.80 2006 Source: bseindia.com

Week end price of equity Shares of VBCFAL on the BSE:

Week ended Closing Highest During the Lowest during the Price (Rs) week (Rs.) week (Rs.) 29/12/2006 95.85 107.40 94.60 05/01/2007 100.80 107.00 98.00 12/01/2007 98.40 103.95 97.50 19/01/2007 103.95 108.90 99.00 Source: bseindia.com

Investors may please note that the rise in prices of VBCFAL may not be attributed to any factor other than the Company’s characteristics as has been disclosed in the document and/or market forces.

[The share price data of the Company as mentioned above is cum rights save and except the data post (*)]

The market price of VBCFAL as on 26/06/2006 (next working day) immediately after the date on which the resolution of the Board of Directors approving the issue was passed 24th June, 2006 was Rs. 97.75/-. The market price of VBCFAL as on 25th July, 2006 immediately after the date of the Annual General body Meeting (AGM) (24th July 2006) was Rs. 77.00/-.

• The equity shares of the Company were in no delivery period from (*) to (*)

• The Cum-Rights Closing price of the shares of the Company as on (*) was (*)

• The Ex-Rights closing price of the shares of the Company as on (*) was (*)

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MECHANISM FOR REDRESSAL OF INVESTOR GRIEVANCES

DISPOSAL OF INVESTOR GRIEVANCE The Company has constituted a Committee of Board of Directors specifically to look into redressal of shareholders and investors complaints like transfer of shares, non-receipt of declared dividends, non- receipt of Share Certificates etc.

The investor grievances against the Company will be handled by the Registrars and Transfer Agent, i.e., Venture Capital & Corporate Investments Limited in consultation with the secretarial department of the Company. To handle the grievances received, the Company has appointed Shri. Adalat Srikanth, Company Secretary cum Compliance Officer. He will supervise redressal of complaints received from the investors at the office of the Company as well as the Registrars to the Issue and ensure timely settlement. The Company normally resolves various kinds of investor grievances within a period of 15 days. Investors may contact the Compliance Officer or the Registrars to the Issue in case of any pre- issue / post-issue related matters such as non-receipt of Letter of Offer, Letter of Allotment, CAF, share certificate(s), refund orders, demat credit, etc.

Complaint letters should be either type written or legibly hand written quoting Folio number/beneficiary account number, application number, number of shares applied for, name and address of the first applicant, name and address of the Company, Collection Centre where application was submitted with date thereof, and the date of receipt by the Registrars to the Issue in case application was sent by Post. Envelopes containing the complaints should be addressed to:

Company Secretary & Compliance Officer

Shri Adalath Srikanth #6-2-913/914, 3rd Floor Progressive Towers Khairatabad Hyderabad - 500 004 Andhra Pradesh Phones: (040) 23301166/99 Fax: (040) 23390721 Email: rights [email protected]

Registrar to the Issue: Venture Capital & Corporate Investments Ltd. #6-2-913/914, 3rd Floor, Progressive Towers, Khairatabad, Hyderabad - 500 004; Tel No: (040) 2332-2262/64; Fax No: (040) 2332-4803 E-mail: [email protected] Contact Person: Shri P.V.Srinivas

CHANGE IN AUDITORS IN LAST THREE YEARS There is no change in the auditors in last three years.

CAPITALISATION OF RESERVE OR PROFIT DURING LAST FIVE YEARS There was no capitalisation of reserve or profit during last five years.

REVALUATION OF ASSETS DURING LAST FIVE YEARS There was no revaluation of Assets of the Company during the last five years.

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Fired to Excel XIV. OFFERING INFORMATION

TERMS OF THE ISSUE

The Equity Shares now being offered are subject to the provisions of the Act and the terms and conditions of this Draft Letter of Offer, the CAF, the Memorandum and Articles of Association of the Company, the approvals from the Government of India, FIPB and RBI, if applicable, the provisions of the Act, guidelines issued by SEBI, guidelines, notifications and regulations for issue of capital and for listing of securities issued by Government of India and/or other statutory authorities and bodies from time to time, Listing Agreements entered into by the Company with Stock Exchanges, terms and conditions as stipulated in the allotment advise or letter of allotment or Security Certificate and rules as may be applicable and introduced from time to time.

RANKING OF EQUITY SHARES

The Equity Shares allotted pursuant to this Draft Letter of Offer shall rank pari-passu in all respects with the existing Equity Shares of the Company including in respect of dividend, if any, declared by the Company, for the financial year, in which these Equity Shares are allotted.

PAYMENT OF DIVIDEND The dividend is paid to all the eligible shareholders in terms of the provisions of the Companies Act, 1956 with regard to payment of dividend. The unclaimed dividend if any are transferred to Investor Protection Fund as prescribed under the Act.

FACE VALUE The Face Value of equity shares of the Company is Rs.10/-.

ISSUE PRICE The equity shares of Rs. 10/- each are being issued at a price of (*) per share in the present Rights Issue.

RIGHTS OF EQUITY SHAREHOLDERS

Subject to applicable laws, the equity shareholders shall have the following rights: • Right to receive dividend, if declared; • Right to attend general meetings and exercise voting powers, unless prohibited by law; • Right to vote on a poll either in person or by proxy; • Right to receive offers for rights shares and be allotted bonus shares, if announced; • Right to receive surplus on liquidation; • Right to free transferability; and • Such other rights, as may be available to a shareholder of a listed public company under the Act and MoA and AoA.

MARKET LOT

Since trading of the equity shares is in dematerialized form, the tradable lot is one equity share.

In case of physical certificates the Company would issue one certificate for the Equity shares allotted to one person (“Consolidated Certificate”). In respect of the Consolidated Certificate, the Company will only upon receipt of a request from the Equity shareholders, split such consolidated certificate into smaller denomination with in week’s time from the date of the request from the Equity shareholders. The Company for splitting the consolidated certificate would charge no fee.

NOMINATION FACILITY TO THE INVESTOR

In accordance with Section 109A of the Act, the sole or first bidder, along with other joint bidder, may nominate any one person in whom, in the event of the death of sole bidder or in case of joint bidders, death of all the bidders, as the case may be, the Equity Shares allotted, if any, shall vest. A person, being a nominee, entitled to the Equity Shares by reason of the death of the original holder(s), shall in accordance with Section 109A of the Act, be entitled to the same advantages to which he or she would be entitled if he or she were the registered holder of the equity share(s). Where the nominee is a minor, the holder(s) may make a nomination to appoint, in the prescribed manner, any person to become entitled to

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In case the allotment of Equity Shares is in dematerialised form, there is no need to make a separate nomination for the Equity Shares to be allotted in this Issue. Nominations registered with respective Depository Participant of the applicant would prevail. If the applicant requires changing the nomination, they are requested to inform their respective Depository Participant.

MINIMUM SUBSCRIPTION i) If the Company does not receive the minimum subscription of 90% of the issue, the entire subscription shall be refunded to the applicants within forty two days from the date of closure of the Issue. ii) If there is a delay in the refund of subscription by more than 8 days after the Company becomes liable to pay the subscription amount (i.e. forty two days after closure of the issue), the Company shall pay interest for the delayed period at rates prescribed under sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956. iii) In case this Rights Issue is undersubscribed after considering the number of Equity Shares applied as per entitlement/ renouncement and additional Equity Shares, the undersubscribed portion shall be applied for by the persons in the Promoter Group only after the close of the Issue. For details, please refer page no. 34 of the Draft Letter of Offer.

DISPOSAL OF ODD LOTS

The equity shares are being issued in the ratio of two equity shares for every equity share held as on record date. As such the rights issue will not lead to any odd lots.

RIGHTS ENTITLEMENT

As your name appears as beneficial owner in respect of the shares held in the electronic form or appears in the register of members as an equity shareholder of the Company on the Record Date, you are entitled to this Rights Offer. The number of Equity Shares to which you are entitled is shown in Block I of Part A of the enclosed CAF and as shown in part A of the enclosed CAF.

FRACTIONAL ENTITLEMENT

The present rights issue being in the ratio of 2:1 will not lead to any fractional entitlement.

ENTITLEMENT RATIO The Equity Shares are being offered on rights basis to the existing Equity Shareholders of the Company in the ratio of 2 (Two) Equity Shares for every 1 (one) equity shares held as on (*), 2007 (Record Date).

RESTRICTIONS ON TRANSFER AND TRANSMISSION OF SHARES AND ON THEIR CONSOLIDATION/SPLITTING

There are no restrictions on transfer and transmission and on their consolidation/splitting of shares issued pursuant to this Issue.

BASIS OF THE OFFER

The Equity Shares are being offered for subscription for cash to those existing Equity Shareholders whose names appear as beneficial owners as per the list furnished by the Depositories in respect of the Equity Shares held in the electronic form and on the Register of Members of the Company in respect of Equity Shares held in the physical form at the close of business hours on the Record Date. The Company has in consultation with the Designated Stock Exchange fixed the Record Date for determining the shareholders who are entitled to receive this offer for Equity shares on a rights basis. The Equity Shares are being offered for subscription in the ratio of two Equity Share for every one Equity Shares held by the Equity Shareholders. The Shareholders whose names appear as beneficial owners as per the list furnished by the Depositories in respect of the Equity Shares held in electronic form and on the register

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OPTION TO SUBSCRIBE

Applicants to the Equity Shares of the Company issued through this Issue shall be allotted the securities in dematerialized (electronic) form at the option of the applicant. The Company signed a tripartite agreement with National Securities Depository Limited (NSDL) and Venture Capital & Corporate Investments Limited (Registrar and Transfer Agent) on 30th October, 2001 and with Central Depository Services (India) Limited (CDSL) and Venture Capital & Corporate Investments Limited on 7th September 2001 which enables the Investors to hold and trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates.

JOINT-HOLDERS

Where two or more persons are registered as the holders of any Equity Shares, they shall be deemed (so far as the Company is concerned) to hold the same as joint-tenants with benefits of survivorship subject to provisions contained in the AoA.

OFFER TO NON-RESIDENT EQUITY SHAREHOLDERS/ APPLICANTS

As on December 31, 2006, 60,233 Equity shares aggregating to 1.49 % of the issued capital are held by NRIs/FIIs/OCBs on repatriation basis. Applications received from NRIs and other NR shareholders for allotment of Equity Shares shall be, inter alia, subject to the conditions imposed from time to time by the RBI under the FEMA in the matter of refund of application moneys, allotment of Equity Shares, issue of Letter of Allotment / share certificates, payment of interest, dividends, etc. General permission has been granted to any person resident outside India to apply shares offered on rights basis by an Indian company in terms of FEMA and the rules and regulations there under. Vide notification dated June 18, 2003, bearing number FEMA 94/2003, RBI has granted general permission to Indian companies to issue rights/bonus shares to existing non-resident shareholders. The existing non-resident shareholders may apply for issue of additional shares and the Company may allot the same subject to the condition that the overall issue of shares to non-residents in the total paid up capital does not exceed the sectoral cap. In other words, non-residents may subscribe for additional shares over and above shares offered on Rights basis by the Company and renounce the shares offered in full or part thereof in favour of a person named by them. Residents may subscribe for additional shares over and above the shares offered on rights basis by the Company and also renounce the shares offered either in full or part thereof in favour of a person named by them. The Equity Shares issued under the Rights Issue and purchased by NR shall be subject to the same conditions including restrictions in regard to the reparability as are applicable to the previously held Equity Shares against which Equity Shares under the Rights Issue are issued.

However, as per the provisions of AP (DIR) circular No. 14 dated September 16, 2003 (issued by the RBI), such shareholders who have been allotted the Equity Shares as OCBs would not be permitted to participate in the Rights Issue. Accordingly, shareholders/ applicants who are OCBs and wishing to participate in the Rights Issue would be required to submit approvals in relation thereto from the FIPB and the RBI. The Board of Directors may at its absolute discretion, agree to such terms and conditions as may be stipulated by RBI while approving the allotment of Equity Shares, payment of dividend etc. to the Equity Shareholders who are NR.

NOTICES

All notices to the Equity shareholder(s) required to be given by the Company in connection with the Issue shall be published in one English national daily with wide circulation, one Hindi national daily with wide circulation, one regional language daily in Telugu being the place where the registered of the Company is situated and/or will be sent by ordinary post to the registered holders of the Equity Share(s) from time to time.

ISSUE OF DUPLICATE EQUITY SHARE CERTIFICATE

If any Equity Share certificate(s) is/are mutilated or defaced or the cages for recording transfers of Equity Shares are fully utilized, the Company against the surrender of such certificate(s) may replace the same,

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If any Equity Share certificate(s) is/are destroyed, stolen, lost or misplaced, then upon production of proof thereof to the satisfaction of the Company and upon furnishing such indemnity/surety and/or such other documents as the Company may deem adequate, duplicate Equity Share certificate(s) shall be issued.

PRINTING OF BANK PARTICULARS ON REFUND ORDERS

As a matter of precaution against possible fraudulent encashment of refund orders due to loss or misplacement, the particulars of the applicant’s bank account are mandatory required to be given for printing on refund orders. Bank account particulars will be printed on the refund orders / refund warrants, which can then be deposited only in the account specified. The Company will in no way be responsible if any loss occurs through these instruments falling into improper hands either through forgery or fraud.

OPTIONS AVAILABLE TO THE EQUITY SHAREHOLDER

The CAF clearly indicates the number of Equity Shares, which the Equity shareholder is entitled to. If the Equity shareholder applies for an investment in Equity Shares, then he/she can:

• Apply for his/her entitlement in full • Apply for his/her entitlement in full and apply for additional Equity Shares • Apply for his/her entitlement in part • Apply for his/her entitlement in part and renounce the other part • Renounce the entire entitlement (or part of entitlement). • Renouncee for the Equity Share can apply for the Equity Shares renounced to them and also apply for additional Equity Shares.

GROUNDS FOR TECHNICAL REJECTIONS

Applicants are advised to note that applications are liable to be rejected on technical grounds, including the following: • Amount paid does not tally with the amount payable for; • Bank account details (for refund) are not given; • Age of First Applicant not given; • PAN photocopy/ PAN Communication/ Form 60 / Form 61 declaration not given if Application is for Rs.50,000 or more; • Applications where in payment is made in cash for an amount exceeding Rs. 20,000. • In case of Application under power of attorney or by limited companies, corporate, trust, etc., relevant documents are not submitted; • If the signature of the existing shareholder does not match with the one given on the Application Form and for renouncees if the signature does not match with the records available with their depositories; • If the Applicant desires to have shares in electronic form, but the Application Form does not have the Applicant’s depository account details; • Application Forms are not submitted by the Applicants within the time prescribed as per the Application Form and the Draft Letter of Offer; • Applications not duly signed by the sole/joint Applicants; • Applications by OCBs unless accompanied by specific approval from the RBI permitting the OCBs to invest in the Issue; • Applications accompanied by Stock invest; • In case no corresponding record is available with the Depositories that matches three parameters, namely, names of the Applicants (including the order of names of joint holders), the Depositary Participant’s identity (DP ID) and the beneficiary’s identity; • Applications by ineligible Non-residents (including on account of restriction or prohibition under applicable local laws) and where last available address in India has not been provided. • Multiple applications

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For Resident Indian Shareholders

Application should be made only on the enclosed CAF provided by the Company. The enclosed CAF should be completed in all respects, as explained in the instructions indicated in the CAF. Applications will not be accepted by the Lead Managers or by the Registrar to the Issue or by the Company at any offices except in the case of postal applications as per instructions given in the Draft Letter of Offer. Payment should be made in cash (not more than Rs.20,000) or by cheque/bank draft/ drawn on any bank (including a co-operative bank) which is situated at and is a member or a sub-member of the bankers clearing house located at the centre where the CAF is submitted and which is participating in the clearing at the time of submission of the application. Outstation cheques/money orders/postal orders will not be accepted and CAFs accompanied by such cheques/money orders/postal orders are liable to be rejected.

For Non-Resident Shareholders on Non-Repatriation basis

Applications received from the Non-Resident Equity Shareholders for the allotment of Equity Shares shall, inter alia, be subject to the conditions as may be imposed from time to time by the Reserve Bank of India, in the matter of refund of application moneys, allotment of Equity Shares, issue of Letters of Allotment/ certificates/ payment of dividends etc. For NRIs holding shares on non-repatriation basis, payment may also be made by way of cheque drawn on Non-Resident Ordinary (NRO) Account maintained in Hyderabad or Rupee Draft purchased out of NRO Account maintained elsewhere in India but payable at Hyderabad. In such cases, the allotment of shares will be on non-repatriation basis. If the payment is made by a draft purchased from an NRO account, an Account Debit Certificate from the bank issuing the draft, confirming that the draft has been issued by debiting the NRO account, should be enclosed with the CAF. In the absence of the above, the application shall be considered incomplete and is liable to be rejected. All cheques/bank drafts accompanying the CAFs should be crossed. A/c Payee Only. And made payable to “(Name of The Bank) A/c –VBC Ferro Alloys Ltd. - Rights Issue - NR” The CAF duly completed together with the amount payable on application must be deposited with the collecting bank/collection centres indicated on the reverse of the CAF, on or before the close of banking hours on or before the Issue closing date. A separate cheque or bank draft must accompany each CAF. Reference number of CAF should be mentioned on the reverse of the Cheque/Draft. New Demat account shall be opened for holders who have had a change of status from Resident Indian to NRI.

The CAF consists of four parts:

Part A: Form for accepting the Equity Shares offered and for applying for additional Equity Shares Part B: Form for renunciation Part C: Form for application for renouncees Part D: Form for request for split application forms

ACCEPTANCE OF OFFER

The Equity shareholder may accept and apply for the Equity Share(s) offered in whole or in part, by filling in Part "A" of the enclosed CAF and submitting the same along with payment of the application money to the Bankers to the Issue and its collection centers specified on the reverse of the CAF on or before the close of banking hours on______, 2007. Applicants at centers not covered by the branches of collecting banks can send their CAF together with the demand draft, net of demand draft and postal charges, payable at Hyderabad to the Registrar to the Issue by registered post. Such applications sent to anyone other than the Registrar to the Issue are liable to be rejected.

You may apply for the equity shares offered wholly or in part by filling in the enclosed CAF and submitting the same along with the application money to the Bankers to the Issue or its designated branches on or before the closure of the subscription list. The CAF should be complete in all respects, as explained in the INSTRUCTIONS indicated in the CAF. The CAF should not be detached under any circumstances, otherwise the application(s) will be rejected forthwith.

ADDITIONAL EQUITY SHARES

The Equity shareholder is eligible to apply for additional Equity Shares over and above the number of Equity Shares entitled to, provided he/she applies for all the Equity Shares, to which he/she is entitled to, without renouncing them, in whole or in part, in favor of any other person(s).

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If you desire to apply for additional Equity Shares, you may fill in the number of additional equity shares in Part A of the CAF. The allotment of additional Equity Shares will be at the sole discretion of the Board on an equitable Designated Stock Exchange. In the case of request for additional equity shares by non-residents, the allotment will be subject to the provisions of FEMA. The Board may reject any application for additional Equity shares without assigning any reasons thereof.

RENUNCIATION

A shareholder to whom the equity shares are offered as rights entitlement may renounce the equity shares offered to him, either in full or in part, in favour of any other person or persons. Such renounces can only be Indian Nationals, limited companies incorporated in India and governed by the Act, statutory corporations/ institutions, societies (registered under the Societies Registration Act, 1860 or any other applicable laws) provided that such corporation/ institutions/ society is authorized under its constitution/ bye laws to hold equity shares in a company. The rights renunciation cannot be renounced jointly in favour of more than three persons, minors (unless acting through natural or legal guardians), a partnership firm, trust (unless the same is registered under the applicable Trusts laws and is authorized under its constitution to hold equity shares of a company), HUF, foreign national or his nominee (unless approved by RBI or other relevant authorities) or to any person situated within the jurisdiction where the offering in terms of this Draft Letter of Offer could be illegal or require compliance with securities laws of such jurisdiction or to any other persons not approved by the Board.

Any renunciation from Resident Indian Shareholder(s) to Non-Resident Indian(s) or from Non-Resident Indian Shareholder(s) to other Non-Resident Indian(s) or from Non-Resident Indian Shareholder(s) to Resident Indian(s) is subject to the renouncer(s)/ renouncee(s) obtaining the approval of the FIPB/ SIA and /or necessary permission of the RBI under the FEMA and other applicable laws and such permissions should be attached to the CAF. Applications not accompanied by the aforesaid approval are liable to be rejected.

The Board reserves the right to reject the request for allotment to renounces in its sole and absolute discretion without assigning any reason thereof.

Any person(s) other than those in whose favor this offer has been made must not use part A of the CAF. Submission of the enclosed CAF to the Banker to the Issue at its collecting centers specified on the reverse of the CAF with the Form of Renunciation (Part B of the CAF) duly filled in shall be conclusive evidence in favor of the Company of the person(s) applying for Equity Shares in Part C to receive allotment of such Equity Shares. Part ‘A’ must not be used by the renouncee(s) as this will render the application invalid.

By virtue of the Circular No. 14 dated September 16, 2003 issued by the RBI, Overseas Corporate Bodies (“OCB”) have been derecognized as an eligible class of investors and the RBI has subsequently issued the Foreign exchange Management (withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Accordingly, the existing equity shareholders of the Company who do not wish to subscribe to the equity shares being offered but wish to renounce the same in favour of renounces shall not renounce the same (whether for consideration or otherwise) in favour of OCB(s).

Renouncee(s) will have no further right to renounce any Equity Shares in favor of any other person. Further Renouncee(s) cannot apply for additional Equity Shares.

PROCEDURE FOR RENUNCIATION

(a) To renounces the offer in whole in favor of one renouncee: If the Equity shareholder wishes to renounce this offer in whole, then he/she has to complete Part B of the CAF. In case of joint holders, all joint holders must sign this part of the CAF. The person in whose favour renunciation has been made should complete and sign Part C of the CAF. In case of joint renouncees, all joint renouncees must sign this part of the CAF.

(b) To renounces the offer in part: If the Equity shareholder wishes to either accept this offer in part and renounce the balance or renounce the entire offer in favour of two or more renouncees, separately, the CAF must be first split by applying to the Registrars to the Issue. The Equity shareholder should indicate his/her requirement for split forms in the space provided for this purpose in Part D of the CAF and return the entire CAF to the Registrars to

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(c) Change and/or introduction of additional holders: If the Equity shareholder wishes to apply for Equity Shares jointly with any other person, or persons, not more than three, who is/are not already joint holders, it shall amount to renunciation and the procedure as stated above shall have to be followed. Even a change in the sequence of the joint holders shall amount to renunciation and the procedure for renunciation, as stated above shall have to be followed.

However, any right of renunciation is subject to the express condition that the Board of the Company shall be entitled in its absolute discretion to reject the request for allotment from the renouncees without assigning any reasons there for.

SPLITTING OF COMPOSITE APPLICATION FORMS

Requests for split CAF should be sent to the Registrars to the Issue, namely Venture Capital & Corporate Investments Limited before the closure of business hours on or before (*) by filling in Part D of the CAF along with entire CAF. Split CAF cannot be re-split. The renouncee(s) shall be entitled to obtain split CAF.

HOW TO APPLY FOR SHARES

The Equity shareholder may exercise any of the following options with regard to the Equity Shares offered to him/her, using the enclosed CAF:

S. NO. OPTIONS AVAILABLE ACTION REQUIRED A. Accept your entitlement to all the equity Fill in and sign ‘Part A’ of the CAF. shares offered to you B. Accept your entitlement to all the equity Fill in and sign ‘Part A’ of the CAF after shares offered to you and apply fro indicating in Block IV the number of additional shares additional Equity Shares applied for. C. Accept only a part of your entitlement of the Fill and sign Part A of the CAF equity shares offered to you (without renouncing the balance) D. Renounce your full entitlement of the equity Fill and sign Part B of the CAF indicating the shares offered to you to one person number of equity shares renounced and hand (Renouncee)(Joint Renouncees not over the entire CAF to the renouncee. The exceeding three are considered as one renouncee must fill and sign Part C of the CAF Renouncee) E. Accept a part of your entitlement of the Fill and sign Part D of the CAF for Split Forms equity shares offered to you and then after indicating the required number of Spilt renounce the balance to one renouncee or Application Forms and send the entire CAF to more renounces the registrars to the Issue so as to reach them on or before the last date for receiving request for Split Forms indicated in the CAF i.e., ______, 2007. On receipt of the Split Forms take action as indicated below : (i) For the equity shares, if any, which you want to accept, fill in and sign Part A of one Split Composite Application Form. (ii) For the equity shares you want to renounce, fill in and sign Part B in the required number of Split Composite Application Forms indicating the number of Equity Shares renounced to each renounceee. (iii) each of the renouncee should then fill in and sign Part C of the respective split composite application form for the equity shares accepted by the renouncee. F. Renounce your entitlement of the equity Follow the procedures stated in (E) above for

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Application for Equity Shares should be made only on the CAFs, which are provided by the Company. The CAF should be completed in all respects as explained under the head “INSTRUCTIONS” indicated on the reverse of the CAF before submission to the Bankers to the Issue at its collecting centres on the reverse of the CAF on or before the last day of the closure of the Issue. Non resident shareholders/renouncee(s) should forward their applications to the Bankers to the Issue at the specified collection centers indicated on the reverse of the CAF for non-resident applicants. No part of the CAF should be detached under any circumstances.

Availability of duplicate CAF

In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will issue a duplicate CAF on the request of the applicant who should furnish the registered folio number/ DP and Client ID number and his/ her full name and address to the Registrar to the Issue. Any request for duplicate CAF should be addressed to the Registrar to the Issue. Please note that those who are making the application in the duplicate form should not utilize the original CAF for any purpose including renunciation, even if it is received/ found subsequently. If the applicant violates any of these requirements, he / she shall face the risk of rejection of both the applications.

Application on Plain Paper

An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the duplicate CAF may make an application to subscribe to the Rights Issue on plain paper, along with a Demand Draft payable at Mumbai which should be drawn in favour of the Company and send the same by registered post directly to the Registrar to the Issue.

The application on plain paper, duly signed by the applicants including joint holders, in the same order as per specimen recorded with the Company, must reach the office of the Registrar to the Issue before the Issue Closing Date (i.e ______, 2007) and should contain the following particulars: • Name of Issuer, • Name and address of the Equity Shareholder including joint holders • Registered Folio Number/ DP and Client ID no. • Number of shares held as on Record Date i.e (•). • Certificate numbers and distinctive numbers, if held in physical form • Number of Rights Equity Shares entitled • Number of Rights Equity Shares applied for out of entitlement • Number of additional Equity Shares applied for, if any • Total number of Equity Shares applied for • Total amount paid at the rate of Rs. (*) per Equity Share • Particulars of cheque/draft • Savings/Current Account Number and name and address of the Bank where the Equity Shareholder will be depositing the refund order • Applications for a total value of Rs, 50,000 or more, i.e. where the total number of securities applied for multiplied by the Issue price, is Rs. 50,000 or more the applicant or in the case of application in joint names, each of the applicants, should mention his/her PAN number allotted under the Income- Tax Act, 1961 and also submit a photocopy of the PAN card(s) or a communication from the Income Tax authority indicating allotment of PAN (“PAN Communication”) along with the application for the purpose of verification of the number. Applicants who do not have PAN are required to provide a declaration in Form 60/ Form 61 prescribed under the I.T.Act along with the application. Applications without this photocopy/ PAN Communication/declaration will be considered incomplete and are liable to be rejected. • In case of Non-Resident shareholders, NRE/FCNR/NRO Account No., name and address of the bank and branch.

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Fired to Excel • Signature of Equity Shareholders to appear in the same sequence and order as they appear in the records of the Company Payment in such cases, should be through a demand draft, net of demand draft and postal charges, payable at Hyderabad be drawn in favour of “VBC Ferro Alloys Limited. - Rights Issue” crossed “A/c Payee only”. Please note that those who are making the application on plain paper shall not be entitled to renounce their rights and should not utilize the original CAF for any purpose including renunciation even if it is received subsequently. If the applicant violates any of these requirements, he/she shall face the risk of rejection of both the applications as well as forfeiture of amounts remitted along with the applications. The Company shall refund such application amount to the applicant without any interest thereon.

QUOTING OF UNIQUE IDENTIFICATION NUMBER (UIN) ISSUED UNDER SEBI (CENTRAL DATABASE OF MARKET PARTICIPANTS) REGULATION, 2003

In terms of SEBI (Central Database of Market Participants) Regulation, 2003 as amended from time to time and SEBI Notification dated November 25, 2003 and July 30, 2004, circular dated August 16, 2004 and press release dated December 31, 2004, no specified investor being a body corporate shall subscribe to securities which are proposed to be listed in any recognized stock exchange unless such specified investor, its promoters and directors have been allotted unique identification number (UIN). However SEBI vide its circular no. MAPIN/Cir- 13 /2005 dated July 01, 2005 has suspended all fresh registrations for obtaining UIN and the requirement to obtain/quote UIN under the MAPIN Regulations/Circulars with effect from July 01, 2005.

QUOTING OF PAN/GIR NO. IN THE APPLICATION FORMS

Where an application is for allotment of securities in response to a rights issue, for a total value of Rs. 50,000/- or more i.e. the total number of securities applied for multiplied by the issue price, is Rs. 50,000/- or more the applicant or in the case of applications in joint names, each of the applicants, should mention his/her permanent account number (PAN) allotted under the Income-Tax Act, 1961 or where the same has not been allotted, the GIR number and the Income-Tax Circle/Ward/District. In case neither the PAN nor the GIR number has been allotted, the fact of non-allotment should be mentioned in the application forms. Application forms without this information will be considered incomplete and are liable to be rejected.

NOTE ON CASH PAYMENT (SECTION 269 SS)

Having regard to the provisions of Section 269 (SS) of the Income Tax Act, 1961, subscriptions against applications for securities should not be effected in cash and must be effected only by ‘Account Payee’ cheques or ‘Account Payee’ bank drafts, if the amount payable is Rs. 20,000/- or more. In case payment is effected in contravention of this provision, the application is liable to be rejected.

APPLICATION NUMBER ON THE CHEQUE/DEMAND DRAFT

To avoid any misuse of instruments, the applicants are advised to write the application number and name of the first applicant on the reverse of the cheque / demand draft.

GENERAL INSTRUCTIONS

(a) All applications should be made on the printed CAF provided by the Company and should be complete in all respects. Applications, which are not complete in all respects or are made, otherwise than as herein provided or not accompanied by proper application money in respect thereof will be refunded without interest.

(b) Please read the instructions in the enclosed CAF carefully.

(c) ALL COMMUNICATIONS IN CONNECTION WITH YOUR APPLICATION FOR THE EQUITY SHARES INCLUDING ANY CHANGE IN YOUR REGISTERED ADDRESS SHOULD BE ADDRESSED TO THE REGISTRAR TO THE ISSUE.

(d) Application Forms must be filled in ENGLISH in BLOCK LETTERS.

(e) Signatures should be either in English or Hindi or the languages specified in the Eighth Schedule to the constitution of India. Signatures other than in the aforementioned languages or thumb

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(f)In case of Joint Holders, all joint holders must sign the relevant parts of the Application Form in the same order and as per the specimen signatures recorded with the Company. (g) In case of joint applicants, refunds and all payments will be made to the person whose name appears first on the application form and all communications will be addressed to him/her. To prevent any fraudulent encashment of refund orders by third parties, the Sole/First Applicant must indicate Saving / Current Account number and the name of the bank and its branch with whom such account is held in the space provided in the CAF for the purpose so that Refund Orders are printed with these details after the name. Applications without this information are liable to be rejected.

(h) The Application Form should be presented to the Bank in its entirety. If any of the Part(s) A, B, C and D of the Application Form(s) is /are detached or separated, such application will forthwith be rejected.

(i) All shareholders must submit the CAF along with remittance only to the Bankers to the Issue mentioned elsewhere in this Draft Letter of Offer and not to the Company, the Registrar or the Lead Manager.

(j) Any dispute or suit action or proceedings arising out of or in relation to this Draft Letter of Offer or in respect of any matter or thing herein contained and claimed by either party against the other shall be instituted or adjudicated upon or decided solely by the appropriate Court where Registered Office of the Company is situated.

(k) The last date for receipt of CAF along with the amount payable is ______. However, the Board will have the right to extend the same for such period as it may determine from time to time, but not exceeding 60 days from the date of opening of the subscription list. If the CAF together with the amount payable there under is not received by the bankers to the issue on or before the closure of the banking hours on the aforesaid date, or such date as may be extended by the Board, the offer contained in this Draft Letter of Offer shall be deemed to have been declined and the Board shall be at liberty to dispose the Rights hereby offered. For further instructions please read CAF carefully.

DEMATERIALISATION

As per the provisions of the Depositories Act, 1996, the shares of a body corporate may be held in dematerialized form i.e. not in the form of physical certificates but be fungible and be represented by the statement issued through electronic mode. The equity shares of VBC Ferro Alloys Limited are traded in the demat segment. The Company has also entered into a tripartite agreement dated 30th October, 2001 with the National Securities Depository Limited (NSDL) and Venture Capital & Corporate Investments Limited for dematerialization of the equity shares of the Company. The Company has also entered into a tri partite agreement dated 7th September 2001 with Central Depository (India) Limited and Venture Capital & Corporate Investments Limited for dematerialisation of equity shares of the Company. The ISIN No. granted to the equity shares of the Company is INE 114E01013.

An applicant has the option to seek allotment in physical or demat mode. An applicant who seeks allotment in demat mode must have atleast one Beneficiary Account with any of the Depository Participants (DP) of NSDL registered with SEBI, prior to the application. Such applicants must necessarily fill in the details (including the Beneficiary Account Number and Depository Participant’s ID Number) appearing under the head “Request for shares in electronic form” in the CAF. Applicant must indicate in the CAF, the number of shares they wish to receive in electronic form out of the total number of equity shares applied for. In case of partial allotment, shares will first be allotted in electronic form and the balance, if any, will be allotted in physical form.

Names in the CAF should be identical to those appearing in the account details in the Depository. In case of joint holders, the name should necessarily be in the same sequence as they appear in the account details in the Depository.

No separate application for demats and a physical share is to be made. If such applications are made the application for physical shares will be treated as multiple applications and rejected accordingly. It may be noted that electronic shares can be traded only on the stock exchanges having electronic connectivity with NSDL.

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Non transferable allotment letters/ refund orders will be directly sent to the applicant by the Registrar to the Issue.

The applicant is responsible for the correctness of the applicant’s demographic details given in the share application form vis-à-vis those with his/her DP. Equity shares allotted in demat mode will be credited directly to the respective Beneficiary Account.

MODE OF PAYMENT For Resident Applicants Payment(s) must be made by cash or by cheque/demand draft and drawn on any bank (including a co- operative bank) which is situated at and is a member or a sub-member of the Bankers' Clearing House located at the centre where the CAF is submitted. A separate cheque/draft must accompany each CAF. Only one mode of payment should be used. Money orders, postal orders and outstation cheques will not be accepted and applications accompanied by any such instruments will be rejected.

Shareholders/Applicants residing at places other than those mentioned in the CAF and applicants who wish to send their applications but not having collection centres should send their application by Registered Post, only to the Registrar to the Issue, Venture Capital & Corporate Investments Limited, enclosing a demand draft drawn on a clearing Bank and payable at Hyderabad ONLY net of bank charges and postal charges, before the closure of the Issue. The applications received through the registered post shall be dealt with by the Registrars to the Issue in the normal course.

Such cheque/drafts should be payable to "(Name of The Bank)-A/c – VBC FERRO ALLOYS Ltd. - Rights Issue". All cheques/ drafts must be crossed 'A/c Payee only’. No receipt will be issued for the application money received. However, the Collection Centre receiving the application will acknowledge receipt of the application by stamping and returning the acknowledgement slip at the bottom of each CAF. The Company is not responsible for any postal delay/ loss in transit on this account.

Application will not be accepted by the Lead Manager or by the Company

For Non-Resident Applicants/ FIIs Payments by Non-Resident Shareholders will be accepted by Indian Rupee Drafts purchased abroad or cheques/drafts drawn on Non-Resident External Account (NRE Account) or Foreign Currency Non- Resident Account (FCNR Account) maintained anywhere in India but payable at Hyderabad or by Telegraphic Transfer in favour of the collecting Bankers by the concerned shareholders.

However, in case shares are held on a non-repatriable basis, payment may also be made by cheque /draft drawn on Non-Resident Ordinary Account (NRO A/c.) maintained anywhere in India but payable at Hyderabad. Such cheques/drafts should be drawn in favour of " VBC Ferro Alloys Ltd. - Rights Issue - NR” payable at Hyderabad, India and shall be crossed A/c. Payee Only, Banker’s Certificate regarding source of payment must be submitted with the CAFs wherever necessary.

The CAF along with cheques/drafts should be deposited with any of the branches of the Bankers to the Issue nominated for this purpose. The certificate of inward remittance, if any, must be sent only to the Registrar to the Issue, Venture Capital & Corporate Investments Limited, quoting the details of folio no. and the name and address of the branch of the Bankers to the Issue where CAF has been deposited before the closure of the issue.

DISPOSAL OF APPLICATIONS AND APPLICATION MONIES

The Board, reserves its full, unqualified and absolute right to accept or reject any application in whole or in part in consultation with the Designated Stock Exchange without assigning any reason thereof, in case the application is not made in terms of this Draft Letter of Offer. In case an application is rejected in full, the application money received will be refunded to the first named applicant within six week from the date of closure of the Issue in accordance with Section 73 of the Act. If there is delay of refund of application money by more than 8 days after the Company becomes liable to pay (i.e. forty two days after the closure of Issue), the Company will pay interest for the delayed period at the rate prescribed under sub-section (2) and (2A) of Section 73 of the Act.

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A) For applications made by Cheques/Drafts

The Company will issue and dispatch letter of allotment/securities certificate and/or letter of regret along with the refund orders or credit the allotted securities to the respective beneficiary’s account, if any, within a period of six weeks from the date of closure of issue. If such money is not repaid with 8 days from the day the Company becomes liable to pay it, the Company shall pay that money with interest as stipulated under Section 73 of the Act. Refunds, if any, will be made along with Allotment Letters and /or Regret Letters by refund order / pay order drawn on the Bankers to the Company and will be dispatched within 6 weeks from the date of closure of Issue, by Registered Post if the amount of such refund exceeds Rs.1500/-. Such cheque refund order / pay order will be payable at par during their validity period at all centres where the applications are received. In case of joint applications, Refund Orders, if any, will be made out in the First applicant's name and all communication will be addressed to the person whose name appears on the CAF.

B) For application by Non-Resident Indians / Foreign Institutional Investors (FIIs)

In case of Non-Resident Indians/FIIs who remit their application money from funds held in NRE/FCNR/NRO Accounts, refund/payment of interest and other disbursements, if any, shall be credited to such account, details of which should be furnished in the column provided for that purpose in the CAF. In case of non-residents who remit their application money through Indian Rupee drafts purchased from abroad, refunds/payments of interest and other disbursements, if any, will be made in US dollars at the exchange rate prevailing at such time, subject to the permission of the RBI. The Company will not be responsible for any loss on account of exchange fluctuations for converting the Indian Rupees amount into US Dollars.

LETTERS OF ALLOTMENT / SHARE CERTIFICATES

Share certificate, letter of allotment or letter of regret as the case may be will be dispatched to the registered address of the first named applicant and/or the respective beneficiary accounts will be credited within six weeks, from the date of closure of the Issue. In case the allotment is made in physical form, and if letter of allotment is issued, the relevant share certificate will be dispatched within three months from the date of allotment in exchange for the letter of allotment. Allottees are requested to preserve such letter of allotment (if any) to be exchanged later for share certificates.

DISPOSAL OF APPLICATIONS AND APPLICATION MONEY

(a) The Board of the Company or Committee of Directors authorised in this behalf by the Board of the Company reserves its full, unqualified and absolute right to accept or reject any application in whole or in part in consultation with BSE without assigning any reason thereof. If any application is rejected in full the entire application money will be refunded to the applicant in accordance with the provisions of Section 73 of the Act. Where the applicant is allotted in part, the balance of the application money will be refunded to the applicant in accordance with the provisions of Section 73 of the Act.

(b) Refund will be made by cheques/ pay orders drawn on refund bankers and bank charges, if any, for encashing such cheques or pay orders will be payable by the applicant. Such cheques or pay orders will however, be payable at par at the branches of the refund bankers located at all places where applications are accepted or such places as may be approved by BSE.

( c )Allotment of Equity Shares and export of Letters of Allotment/share certificate(s) to NRI/OCB/Non- Residents would be subject to the approval of the Reserve Bank of India under the FEMA, if required.

(d) The Company shall provide adequate funds to the Registrar to the Issue for complying with requirement of dispatch of refund cheques/Letter(s) of Allotment / share certificate(s) by registered post/under postal certificate.

BASIS OF ALLOTMENT

In the event of the issue being oversubscribed, the basis of allotment will be made only within the overall size of the Rights Issue, as stated in the Draft Letter of Offer and the Board will proceed to allot the equity shares in consultation with the designated stock exchange in the following order of priority:

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1. Full allotment to the Shareholders who have applied for their Rights entitlement, either in full or in part and also the renouncee(s) who have applied for equity shares renounced in their favour either in full or in part (subject to the other provisions contained under the paragraph titled “Renunciation”).

2. Allotment to the shareholders who have applied for additional equity shares provided that they have applied for all the equity shares offered to them, provided there is a surplus after making full allotment under (1) above. The allotment of such additional equity shares will be made as far as possible on the basis of the equity shares held as on the Record Date.

3. Allotment to the renouncees who have applied for all the equity shares renounced in their favour and have applied for additional equity shares, as the Board may in its absolute discretion deem fit, provided there is a surplus after making full allotment (1) and (2) above.

4. Allotment to any other person as the Board may in their absolute discretion deem fit, provided there is a surplus after making full allotment under (1), (2), (3) above.

The allotment to the renouncee(s) in whose favour the renunciation has been exercised shall be subject to the condition that the Board of the Company shall have the discretion to reject such request without assigning any reasons thereof.

After taking into account allotment to be made, if there is any unsubscribed portion, the same shall be deemed to be ‘undersubscribed’ for the purpose of regulation 3(1)(b) of the SEBI Takeover Regulations which would be available for allocation under (2), (3) and (4) above. The Promoters intend to subscribe to the unsubscribed portion of the Issue to ensure that the Issue is successful. This acquisition of additional Equity Shares, if allotted to the Promoters shall be in terms of proviso to regulation 3(1)(b)(ii) of the SEBI Takeover Regulations and will be exempt from the applicability of regulation 11 and 12 of Takeover Code. This disclosure is made in terms of the requirement of Regulation 3(1)(b) of the SEBI Takeover Regulations. Further, this acquisition of additional equity shares will not result in change of control of management of the Company.

Allocation of any additional equity shares shall be done by the Board of the Company, in such manner as they think most beneficial to the Company and the decision of the Board in this regard shall be final and binding. In the event of oversubscription, allotment will be made within the overall size of the issue.

Allotment to the Promoters of any unsubscribed portion of the Issue, over and above their entitlement shall be done in compliance with Clause 40A of the Listing Agreement and the other applicable laws prevailing at that time.

LETTERS OF ALLOTMENT OR REFUND ORDERS

Company shall ensure despatch of refund orders, if any, by under the Certificate of Posting or registered post or speed post or through modes as mentioned in section, Terms of the Issue clause “Mode of Payment” on page 167 of this Draft Letter of Offer, as applicable, only at the sole or First Applicant’s sole risk within 42 days of closure of the Rights Issue, and adequate funds for making refunds to unsuccessful applicants as per the mode(s) disclosed shall be made available to the Registrar to the Issue by the issuer.

In case of those shareholders who have opted to receive their Right Entitlement Shares in dematerialized form by electronic credit under the depository system, an advice regarding the credit of the Equity Shares shall be given separately.

Allotment of Equity Shares to non-residents and the issue of letters of allotment/share certificates to nonresidents shall be subject to the approval received from RBI.

For Non-Resident Applicants, refunds, if any, will be made as under:

) Where applications are accompanied by Indian Rupee Drafts purchased abroad and payable at Hyderabad, India, refunds will be made in convertible foreign exchange equivalent to Indian Rupees to be refunded. Indian Rupees will be converted into foreign exchange at the rate of exchange, which is prevailing on the date of refund. The exchange rate risk on such refunds shall be borne by the concerned applicant and the Company shall not bear any part of the risk.

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) Where the applications made are accompanied by NRE/FCNR/NRO cheques, refunds will be credited to NRE/FCNR/NRO accounts respectively, on which such cheques are drawn and details of which are provided in the CAF.

MODE OF PAYMENT OF REFUND

Applicants should note that on the basis of name of the applicants, Depository Participant’s name, Depository Participant-Identification number and Beneficiary Account Number provided by them in the Composite Application Form, the Registrar to the Issue will obtain from the Depositories, the applicant’s bank account details including nine digit MICR code. Hence, applicants are advised to immediately update their bank account details as appearing on the records of the depository participant. Please note that failure to do so could result in delays in credit of refunds to applicants at the applicant’s sole risk and neither the Lead Manager nor the Company shall have any responsibility and undertake any liability for the same.

The payment of refund, if any, would be done through various modes in the following order of preference:

I. Direct Credit – For investors having their Bank Account with the Collecting Bankers, the refund amount would be credited directly to their Bank Account with the Collecting Bankers. II. RTGS – Investors desirous of taking direct credit of refund through RTGS, will have to provide the IFSC code in the Composite Application Form III. ECS - Payment of refund would be done through ECS for applicants residing at one the 15 centres, namely Ahmedabad, Bangalore, Bhuvaneshwar, Kolkata, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram, where clearing houses for ECS are managed by Reserve Bank of India. This would be subject to availability of complete Bank Account details including MICR code from the depositories.

For all the other applicants except for whom payment of refund is possible through I, II and III, the refund orders would be despatched under the Certificate of Posting for refund orders less than Rs. 1,500/- and through Registered Post or Speed Post for refund orders exceeding Rs. 1,500/-. These refund orders will be drawn on the Collection Bank(s) and payable at par at the places where applications are accepted. Bank charges, if any, for encashing such cheques or pay orders will be borne by the Applicants.

INTEREST IN CASE OF DELAY ON ALLOTMENT/DESPATCH

The Company agrees that as far as possible allotment of securities offered to the existing shareholders on Rights basis shall be made within 30 days of the closure of the issue. Share certificate, letter of allotment or letter of regret as the case may be will be despatched to the registered address of the first named applicant and/or the respective beneficiary accounts will be credited within six weeks, from the date of closure of the Issue. In case of delay beyond eight days, the Company agrees that it shall pay interest at the rate of 15% per annum.

LAST DATE FOR SUBMISSION OF CAF

The last date for receipt of CAF by the Bankers to the Issue together with the amount payable on application is ______, 2007 . If the relevant CAF together with amount payable there under is not received by the Bankers/Registrar to the Issue on or before the close of banking hours on the aforesaid last date the offer contained in this Draft Letter of Offer shall be deemed to have been declined and the Board shall be at liberty to dispose of the equity shares hereby offered as provided under "Basis of Allotment".

UNDERTAKING BY THE COMPANY

The Company undertakes that:

• The complaints received in respect of the Issue shall be attended to by the Company expeditiously and satisfactorily;

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• Funds required for dispatch of refund to unsuccessful applicants as per the mode(s) disclosed shall be made available to the Registrar to the Issue;

• Where refunds are made through electronic transfer of funds, suitable communication shall be sent to the applicants within 30 days of closure of the Issue giving details of the bank where refunds shall be credited along with the amount and expected date of electronic credit of refund;

• Certificates of securities/refund orders of the Non-Resident/Non Resident Indians shall be dispatched within the specified time subject to receipt of approval from RBI/FIPB, if required;

• No further issue of shares shall be made till the shares offered through this Letter of Offer are listed or till the application moneys are refunded on account of non-listing, under-subscription, etc.;

• The Company accepts full responsibility for the accuracy of information given in this Letter of Offer and confirms that to best of its knowledge and belief, there are no other facts the omission of which makes any statement made in this Letter of Offer misleading and further confirms that it has made all reasonable inquiries to ascertain such facts;

• All information shall be made available by the Lead Manager and the Issuer to the Investors at large and no selective or additional information would be available for a section of the Investors in any manner whatsoever including at road shows, presentations, in research reports, etc.

The Company further confirms that other than the disclosures made in the instant Draft Letter of Offer, nothing material has changed in respect of disclosures made by us at the time of our previous issue made vide prospectus dated September 29, 1989.

UTILISATION OF ISSUE PROCEEDS

The Board of Directors declares that:

i. all monies received out of the issue of shares or debentures to public shall be transferred to separate bank account other than the bank account referred to in sub-section (3) of Section 73 of the Companies Act, 1956; ii. Details of all monies utilised out of the Issue referred to in sub-item 1 above shall be disclosed under an appropriate separate head in the balance sheet of the Company indicating the purpose for which such monies had been utilised; and iii. Details of all unutilised monies out of the issue of shares or debentures, if any, referred to in sub-item 1 above shall be disclosed under an appropriate separate head in the balance sheet of the Company indicating the form in which such untilised monies have been invested.

The funds received against this Issue will be kept in a separate Bank Account and the Company will not have any access to such funds unless it satisfies the Designated Stock Exchange with suitable documentary evidence that the minimum subscription of 90% of the Issue has been received by the Company. The funds raised through this Rights Issue of Equity Shares would be utilized only towards satisfactory fulfillment of the "Objects of the Issue" as mentioned in the Letter of Offer.

IMPORTANT

Please read this Draft Letter of Offer carefully before taking any action. The instructions contained in the accompanying Composite Application Form (CAF) are an integral part of the conditions of this Draft Letter of Offer and must be carefully followed; otherwise the application is liable to be rejected. All enquiries in connection with this Draft Letter of Offer or accompanying CAF and requests for Split Application Forms must be addressed (quoting the Registered Folio Number/ DP and Client ID number, the CAF number and the name of the first Equity Shareholder as mentioned on the CAF and super scribed ‘VBC Ferro Alloys Limited– Rights Issue’ on the envelope) to the Registrar to the Issue at the following address:

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It is to be specifically noted that this Issue of Equity Shares is subject to the section entitled ‘Risk Factors’ on page 8 to 19 of this Draft Letter of Offer.

The Issue will not be kept open for more than 30 days unless extended, in which case it will be kept open for a maximum of 60 days.

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Fired to Excel XV. OTHER INFORMATION

MAIN PROVISIONS OF ARTICLES OF ASSOCIATION The main provisions of Articles of Association of the Company are as follows:

3. (i) The Authorised Share Capital of the Company is Rs. 20,00,00,000/- (Rupees : Twenty Crores) divided in to 2,00,00,000/- (Two : Crores) Equity Shares of Rs. 10/- Rupees : Ten) each wit the rights, privileges and conditions attached there to as are provided by the regulations of the Company for the time being with power to increase and reduce the capital of the Company and divide the shares in the capital for the time being into several classes and attach thereto, respectively subject to the laws for the time being in force, such rights, privileges and conditions as may be determined by or in accordance with regulations of the Company and to vary, modify, abrogate, any such rights, privileges and conditions in such manner as may for the time being be provided by the regulations of the Company.

(ii) The Preference shares, if any, shall confer on the holders thereof the right to receive fixed cumulative preference dividend at such rate per annum as shall be decided by the Company at the time of issue and the right in a winding up to payment of capital and arrears of dividend whether declared or not up to the commencement of winding up in priority to the equity shares, but shall not confer any further right to participate in profits or assets.

REDEEMABLE PREFERENCE SHARES

4. Subject to the provisions of Section 80 of the Act and these Articles, the Company shall have power to issue Preference Shares carrying a right to redemption out of profits or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or liable to be so redeemed at the option of the Company.

SHARES AT DISCOUNT

5. With the previous authority of the Company in General Meeting and the sanction of the Court and upon otherwise complying with Section 79 of the Act, it shall be lawful for the board of Directors to issue at a discount shares of a class already issued.

FURTHER ISSUE OF SAME CLASS OF SHARES

6. The rights conferred upon the holders of the Shares of any class with preferred upon the holders of the shares of any class with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

SHARES AT THE DISPOSAL OF THE DIRECTORS

7. Subject to the provisions of the Companies Act, 1956 and these Articles, the share shall be under the control of the Directors, who may allot or otherwise dispose of the same to such persons, on such terms and conditions and at such times as the Directors think fit, provided that option or right to call of shares shall not be given to any person or persons without the sanction of the Company in General Meeting and where at any time it is proposed to increase the subscribed capital of the Company by the issue of new shares then, subject to the provisions of Section 81 of the Act, the Board shall issue such shares in the manner provided therein.

LIABILITY OF JOINT HOLDER OF SHARE

8. The joint-holders of a share shall be severally as well as jointly liable for the payment of all installments and calls and interest on installments and calls due in respect of such shares.

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ADDRESS OF SHARE-HOLDERS

9. Every shareholder shall name to the Company a place in India to be registered as his address, and such address shall for all purposes be deemed his place of residence.

9A The Company shall cause to be kept at its Registered Office or at such other place as may be decided by the Board of Directors, the Register and Index of Members in accordance with Sections 150 and 151 and other applicable provisions if any, of the Companies Act, 1956 and the Depositories Act 1996 with the details of shares held in physical and dematerialised form in any media as may be permitted by law including in any form of electronic media.

The Register and Index of Beneficial Owners maintained by a Depository under Section 11 of the Depositories Act 1996 shall also be deemed to be the Register and Index of Members for the purpose of the Companies Act 1956 and any amendment or re-enactment thereof. The Company shall have power to keep in any State or Country outside India, a Register of Members for the residents in that State or Country.

IN WHOSE NAME SHARE MAY BE REGISTERED

10. Share may be registered in the name of any person, the joint holders or any limited Company, but not in the name of a minor, nor shall more than four persons be registered as joint holders of any share.

TRUST NOT RECOGNISED

11. Subject to the provisions of Sections 153A, 153B and 187B of the Act, and except as required by law, no person shall be recognised by Company as holding any shares upon any trust, and the Company shall not, save as ordered by some Court of competent jurisdiction, be bound by or be compelled in any way to recognise (even when having notice there of) any benami, equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share (Except only as by these regulations or by law otherwise provided or any other rights in respect of any share except an absolute right thereto in the person or persons from time to time registered as the holder or holders thereof.

DIRECTORS MAY ALLOT SHARES AS FULLY PAID UP

12. The Directors may allot and issue shares in the capital of the Company in payment or part payment for any property sold or transferred, goods or machinery supplied or for services rendered to the Company in or about the formation or promotion of the Company, or the conduct of its business and any shares, which may be so allotted, may be issued as fully paid up shares and if so issued shall be deemed to be fully paid up shares.

BROKERAGE & COMMISSION

13. The Company may on any issue of shares or debentures pay such brokerage as may be reasonable and lawful.

COMMISSION

14. In addition to the payment oaf any reasonable sums as brokerages, the Company may, at any time, pay a commission to any person for subscribing or agreeing to subscribe (whether absolutely or conditionally) for any sharing debenture or debenture stock in the Company or procuring or agreeing to procure subscriptions (whether absolutely or cordially) for any shares, debenture or debenture stock in the Company but so that (if the Commission shall be paid or payable out of the capital ) the commission shall not exceed 5 per cent of the price at which the shares are issued or 2 ½% of the price at which debentures are issued.

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15. The commission may be satisfied by the payment of cash or the allotment of fully or partly paid shares or partly in the one way and partly in the other.

CERTIFICATES

16. Every person whose name is entered as a member in the register of members shall be entitled to receive within two months after allotment or one month after the application for the registration of the transfer of any share (or within such other period as the conditions of issue shall provide) :-

(a) One certificate for all his shares of each class without payment, or

(b) Several certificates, each for one or more of such shares, upon payments of one rupee for every certificate after the first, or such less sum as the Directors may determine. The expression “transfer” for the purpose of this article means a transfer duly stamped and otherwise valid and does not include any transfer which the Company is for any reason entitled to refuse to register and does not register.

SIGNATURE ON CERTIFICATES

17. Every Share Certificate shall be issued under the Common Seal of the Company and shall be signed by (i) two Directors, (ii) a Secretary or any other person authorised for the purpose by the Board of Directors. Every certificate shall specify the shares to which it relates and the amount paid up thereon.

SHARE CERTIFICATE FOR JOINT SHARE HOLDERS

18. In respect of any share or shares held jointly by several persons, the Company shall not be bound to issue more than one certificate, and delivery of a certificate for share to one of several joint holders shall be sufficient delivery to all such holders.

DEMATERIALISATION OF SECURITIES

18A For the purpose of this Article, unless the context otherwise requires: A. Definitions:

Beneficial Owner: ‘Beneficial Owner means the beneficial owner as defined under Section 2(1)(a) of the Depositories Act 1996

Bye-laws: ‘Bye Laws’ means bye laws made by a Depository under Section 26 of the Depositories Act, 1996

Depositories Act: ‘Depositories Act’ means the Depositories Act, 1996, and any statutory modification or re-enactment thereof for the time being in force;

Depository: ‘Depository’ means a company formed and registered under the Companies Act, 1956 (1 of 1956) (‘the Act’) and which has been granted a certificate of registration under sub- section (1A) of Section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

Record: ‘Record’ includes the records maintained in the form of books or stored in a computer or in such other form as may be determined by the regulations made by SEBI;

Regulations: ‘Regulations’ means the regulations made by SEBI;

SEBI: ‘SEBI’ means the Securities and Exchange Board of India.

Security: ‘Security’ means such security as may be specified by SEBI from time to time.

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Fired to Excel Shareholder or Member: ‘Shareholder or Member’ means the duly registered holder, from time to time of the shares of the Company and includes the subscribers to the Memorandum of Association of the Company and also every person holding Equity Shares and/or Preference Shares of the Company as also one whose name is entered as a beneficial owner of the shares in the records of the Depository;

B. Dematerialisation of Securities Notwithstanding anything contained in these Articles, the Company shall be entitled to dematerialise or rematerialise its shares, debentures and other securities (both existing and future) held by it with the Depository and to offer its shares, debentures and other securities for subscription in a dematerialised form pursuant to the Depositories Act, 1996 and the Rules framed thereunder, if any;

C. Option for investors Every person subscribing to securities offered by the Company shall have the option to receive the security certificates or to hold the securities with a Depository. Such a person who is the beneficial owner of the securities can at any time opt out of a Depository, if permitted by law, in respect of any security in the manner provided by the Depositories Act, and the Company shall, in the manner and within the time prescribed, issue to the beneficial owner of the required certificates of securities. Where a person opts to hold his securities with a Depository, the Company shall intimate such Depository the details of allotment of the Security, and on receipt of such information, the Depository shall enter in its record the name of the allottee as the beneficial owner of the security;

D. Securities in Depositories to be in fungible form All securities held by a Depository shall be dematerialised and shall be in a fungible form. Nothing contained in Sections 153, 153A, 153B, 187A, 187B, 187C and 372 of the Act shall apply to a Depository in respect of securities held by it on behalf of the beneficial owners.

E. Rights of Depositories and Beneficial Owners: i) Notwithstanding anything to the contrary contained in the Act or these Articles, a Depository shall be deemed to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of the beneficial owner; ii) Save as otherwise provided in (i) above, the Depository as a registered owner of the securities shall not have any voting rights or any other right in respect of the securities held by it; iii) Every person holding securities of the Company and whose name is entered as a beneficial owner in the records of the Depository shall be deemed to be a member of the Company. The beneficial owner of the securities shall be entitled to all the rights and benefits and be subject to all the liabilities in respect of his securities held by a Depository.

F. Depository to furnish information Notwithstanding anything to the contrary contained in the Act or these Articles, where the securities are held in a Depository, the records of the beneficial ownership may be served by such Depository on the Company by means of electronic mode or by delivery of floppies and discs.

G. Option to opt out in respect of any security If a beneficial owner seeks to opt out of a Depository in respect of any security, the beneficial owner shall inform the Depository accordingly. The Depository shall, on receipt of the intimation as above, make appropriate entries in its record and shall inform the Company accordingly.

The Company shall within thirty (30) days of the receipt of intimation from the Depository and on fulfillment of such conditions and on payment of such fees as may be specified by the regulations, issue the certificate of securities to the beneficial owner of the transferee as the case may be.

H. Sections 83 and 108 of the Act not to apply: i) Section 83 of the Act shall not apply to the shares with a Depository

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Fired to Excel ii) Section 108 of the Act shall not apply to transferor and the transferee both of whom are entered as beneficial owners in the records of a Depository.

I. Register and Index of Beneficial Owners: The Register and Index of Beneficial Owners, maintained by a Depository under Section 11 of the Depositories Act shall be deemed to be the Register and Index of Members and Security holders as the case may be for the purpose of these Articles.

J. Intimation to Depository Notwithstanding anything contained in the Act or these Articles, where securities are dealt with in a Depository, the Company shall intimate the details of allotment of securities thereof to the Depository immediately on allotment of such securities.

K. Stamp duty on securities held in dematerialised form No stamp duty would be payable on shares and securities held in dematerialised form in any medium as may be permitted by law including any form of electronic medium.

L. Applicability of the Depositories Act In case of transfer of shares, debentures and other marketable securities where the Company has not issued any certificate and where such shares, debentures or securities are being held in an electronic and fungible form in a Depository, the provisions of the Depositories Act, 1996 shall apply.

M. Company to recognise the rights of Registered Holders as also the Beneficial Owners of the shares in records of the Depository Save as herein otherwise provided, the Company shall be entitled to treat the person whose name appears on the Register of Members as the holder of any share, as also the beneficial owner of the shares in records of the Depository as the absolute owner thereof as regards receipt of dividends or bonus or service of notices and all or any other matters connected with the Company, and accordingly, the Company shall not, except as per the order by a Court of competent jurisdiction or as required by law, be bound to recognise any benami trust or equity or equitable, contingent or other claim to or interest in such share on the part of any other person whether or not it shall have express or implied notice thereof.

RENEWAL OF CERTIFICATES

19. If any certificate be worn out or defaced, or if there is not further cases on the back thereof for the endorsements of transfer, then upon production thereof to the Directors, they may order the same to be cancelled and may issue a new certificate in lieu thereof and if any certificate is proved to have been list or destroyed, then upon proof thereof to the satisfaction of the Directors and on such indemnity as the Directors deem adequate being given, a new certificate in lieu thereof may be given to the Party entitled to such lost or destroyed certificate.

FEE FOR NEW CERTIFICATE

20. The sum of two rupees, the out of pocket expenses incurred by the Company in investigation for evidence and the advertisement cost or such less sum as the Directors may determine shall be paid to the Company for every such new certificate and the like fee shall be payable in respect of each sub-division of certificate.

Provided that no fee shall be charged for sub-division or consolidation of certificates into lots of the market unit or for issue of new certificates in replacement of those which are old, decrepit or worn out or where cages on the reverse for the endorsement for transfer have been fully utilised.

COMPANY’S SHARES NOT TO BE PURCHASED

21. None of the funds of the Company shall be employed in the purchase of, or lent on shares of the Company, and the Company shall not except as permitted by Section 77 of the Act give any financial assistance for the purpose of, or in connection with any purchase of shares in the Company.

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CALL ON SHARES

22. The Board of Directors may be a resolution passed at a meeting of the Board from time to time, subject to any terms on which any shares may have been issued, make such calls as they think fit upon the shareholders in respect of all moneys unpaid on the shares held by them respectively, and each member shall pay the amount of every call so made on him to the persons and at the time and place appointed by the Board. A call may be made payable by installments.

23. A call shall be deemed to have been made at the time when the resolution of the Board of Directors authorising such call was passed.

WHEN CALL DEEMED TO HAVE BEEN MADE

24. At least fourteen clear days’ notice of any call shall be given by the Company (either by letter to the members of by advertisement) specifying the time and place of payment, and to whom such shall be paid.

NOTICE OF CALL AMOUNT PAYABLE AT FIXED TIMES OF BY INSTALMENTS PAYABLE AS CALLS

25. (i) If by the terms of issue of any share or otherwise any amount is made payable on allotment or at any fixed time or by installments at fixed times, whether on account of the nominal amount of the shares or by way of premium, every such amount or installment shall be payable as if it were a call duty made by the Directors and of which due notice had been given, and all the provisions herein contained in respect of calls relate to such amount or installment, accordingly.

(ii) In the case of non-payment of such sum all the relevant provisions of these Articles to payment of interest and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.

WHEN INTEREST ON CALL OR INSTALMENT PAYABLE

26. If the sum payable in respect of and cal or installment be not paid on or before the day appointed for the payment thereof, the holder for the time being of the time being of the share in respect of which the call shall have been made or the installment shall be due shall pay interest for the same at the rate of 9 per cent per annum or at such rate as the Directors may determine from time to time, from the day appointed for the payment thereof to the time of actual payment. The Directors shall be at liberty to waive payment of and such interest, wholly or in part.

PAYMENT OF CALLS IN ADVANCE

27. The Directors may, subject to Section 92 of the Companies Act, 1956, receive from the member willing to advance the same all or any part of money unpaid upon the shares held by him beyond the sums actually called for and upon the money so paid in advance or so much there of as from time to time exceeds the amount of class then made upon the shares in respect of which such advance has been made, the Company may pay interest at such rate as the member paying such sum in advance and the Directors agree upon. Money so paid in excess of the amount of call shall not rank for dividend or participate in profits until it is appropriated towards satisfaction of any call. The Directors may at any time repay, the amount so advance.

AMOUNT AND TIME OF CALL

28. No call shall exceed one fourth of the nominal value of a share, or be payable at less than one month from the date fixed for the payment of the last preceding call. A call may be revoked or postponed at the discretion of the Board.

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29. On the trial or hearing of any action for the recovery of any money due for any call, it shall be sufficient to prove that the name of the member sued is entered in the register as the holder, or one of the holders, of the shares in respect of which such debt accrued; that the resolution making the call is duly recorded in the minute book; and that notice of such call was duly given to the member, in pursuance of these presents; and it shall not be necessary to prove the appointment of the Directors who made such call nor any other matter whatsoever, but the proof of the matter aforesaid shall be conclusive evidence of the debt.

FORFEITURE, SURRENDER & LIEN

If Call or Installment Not Paid, Notice To Be Given

30. If any Member fails to pay any call, or installment, on or before the day appointed for payment thereof, the Directors may at any time thereafter during such time as the call or installment remains unpaid, service notice on him to pay the same together with any interest that may have accrued, and any expenses that may have been incurred by the Company by reason of such non-payment, and stating that in the event of non-payment on or before some day to be named in the notice (such day not being less than fourteen days from the date of service of such notice) and at some place (either the office or a Bank) named in such notice, the shares in respect of which the call was made or installment is payable will be liable to be forfeited.

IF NOTICE NOT COMPILED WITH SHARES MAY BE FORFEITED

31. If the requisitions of such notice are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls,, installments, interest and expenses due in respect thereof, may be forfeited by resolution of the Board of Directors, and the forfeiture shall be recorded in the Directors Minute Book; and the holder of such share shall thereupon cease to have any interest, therein and his name shall be removed from the register as such holder, and thereupon notice shall be given to him of such removal, and an entry of the forfeiture with the date thereof shall forthwith be made in the register, but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice to or to make such entry as aforesaid.

EFFECT OF FORFEITURE

(1) The forfeiture of a share shall involve the extinction of all interest in and also of all claims and demands

ARREARS TO BE PAID NOT WITHSTANDING FORFEITURE

32. Any person whose shares shall be so forfeited shall cease to be a member in respect of the forfeited share, but shall, notwithstanding the forfeiture, be liable to pay and shall forthwith pay to the Company all calls or installment, interest, and expenses owing upon or in respect of such shares at the time of forfeiture until payment at the rate of 12 per cent per annum, or at such rate as the Directors may determine. The liability of such person shall cease if and when the Company shall have received payment in full of all such in respect of the shares.

FORFEITED SHARE TO BECOME PROPERTY OF THE COMPANY

33. Any share so forfeited shall be deemed to be the property of the Company and the Board of Directors may sell, re allot, or otherwise dispose of the same in such manner as they think fit.

POWER TO ANNUAL FORFEITURE

34. The Directors may at any time before any share so forfeited shall have been sold, re-allotted the forfeiture thereof upon such conditions as they think fit.

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Fired to Excel DECLARATION FOR FORFEITURE OF SHARES

35. A duly verified declaration in writing that the declaring is a Director or the Secretary of the Company, and that a share in the Company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share.

LIEN ON SHARE

36. The Company shall have a first and paramount lien upon all the share (other than fully paid up shares) registered in the name of each member (whether solely or jointly with others) and upon the proceeds of the sale thereof for all moneys (whether presently payable or not) called or payable at a fixed time in respect of such shares and no equitable interest in any shares shall be created except upon the footing and condition that this Article will have full effect and such lien shall extend to all dividends and bonuses from time to time declared in respect of such shares. Unless otherwise agreed, the registration of a transfer of hares shall operate as a waiver of the Company’s lien if any on such shares. The directors may at any time declare any shares wholly or in part to be exempt from the provisions of this clause.

AS TO ENFORCING A LIEN BY SALE

37. The Director shall be entitled to give effect to such lien by sale or forfeiture and re-issue of the shares subject thereto or by retaining all dividends and profits in respect thereof or by any combination of the said means but no sale or forfeiture shall be made, until such period as aforesaid shall have arrived, and unless a sum in respect of which the lien exists is presently payable and until notice in writing of the intention to sell or forfeit shall have been served on such member, his executors or administrators and default shall have been made by him or by; them in the payment, fulfillment, or discharge of such debts liabilities or engagements for seven days after such notice.

VALIDITY OF SALE

38. Upon any sale after forfeiture or for enforcing a line in purported exercise of the powers herein before given the Directors may cause the purchaser’s name to be entered in the register in respect of the share sold, and the purchaser shall not be bound to see the regularity of the proceedings, or to the application of the purchase money, and after his name has been entered in the register in respect of such shares, the validity of the sale shall not be impeached by any person.

APPLICATION OF PROCEEDS OF SALE

39. (i) The net proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable.

(ii) The residue, if any, subject to a like lien for sums and presently payable as existed upon the shares before the sale, be paid to the person entitled to the shares at the date of the sale, or to his executors, administrators, committee, curator or other representative.

DIRECTORS MAY ISSUE NEW CERTIFICATES

40. Where any shares under the powers in that behalf herein contained are sold by the Directors, and the certificate thereof has not been delivered to the Company by the former holder of the said shares, the Directors may issue a new certificate for such shares distinguishing it in such manner as they think fit from the certificate not so delivered up.

SURRENDER OF SHARES

41. Subject to the provisions of the Act, the Board may accept from any member the surrender on such terms and conditions as shall be agreed of all or any of his shares.

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Power to Issue Share Warrants

42. With previous approval of the Central Government the Company may issue share warrants subject to and in accordance with the provisions of Section 114 and 115 of the Act, and accordingly, the Board may in discretion, with respect to any share which is fully paid up, on application in writing signed by the person registered as holder of the share and authenticated by such evidence (if any), as the Board may, from time to time, require as to the identity of the person signing the application and on receiving the certificate (if any) of the share, and the amount of the stamp duty on the warrant and such fee as the Board may from time to time require, issue a share warrant.

RIGHTS OF DEPOSITORS OF SHARE WARRANT

43. (i) The bearer of as share warrant may at any time deposit the warrant at the office of the company, and so long as the warrant remains so deposited, the depositor shall have the same right of signing a requisition for calling a meeting of the Company and of attending and voting and exercising the other privileges of a member at any meeting held after the expiry of two clear days from the date of deposit, as if his name were inserted in the register of members as the holder of the shares included in the deposited warrant.

(ii) Not more than one person shall be recognised as depositor of the share warrant.

(iii) The Company shall on two day’s written notice, return the deposited share warrant to the depositor.

RIGHTS OF BEARER OF SHARE WARRANT

44. (i) Subject as herein otherwise expressly provided, no person shall, as bear of a share warrant, sign a requisition for calling a meeting of the Company or attend, or vote to exercise any other privilege of member at a meeting of the Company or be entitled to receive any notices from the Company, nor shall share warrants be taken into account for purposes of share qualification of a director.

(ii) The bearer of a share warrant shall be entitled in other respects to the same privileges and advantages as if he were named in the register of members as the holder of a share included in the warrant, and he shall be a member of the Company.

RENEWAL OF SHARE WARRANT

45. The Board may, from time to time, make rules as to the terms on which (if shall think fit) a new share warrant or coupon may be issued by way of renewal in case of defacement, loss or destruction.

TRANSFER & TRANSMISSION OF SHARES Transfer of Shares

46. (a) The transfer of shares and debentures shall be effected by an instrument in writing duly stamped, in the usual common form, modified so as to suit the circumstances of the parties, and shall be executed both by the transferor and the transferee, whose executions shall be attested by at least one witness, who shall add his address and occupation, and the transferor shall be deemed to remain the holder of such shares until the name of the transferee shall have been entered in the register in respect thereof. (b) The instrument of transfer shall be in form 7-B of Companies Act, 1956. The instrument of Transfer shall be in writing and all the provisions of Section 108 of the Companies Act, 1956 and of any statutory modifications thereof for the time being shall be duly complied with in respect of all transfers of shares and registration thereof.

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(i) for registration of transfers, sub-division and consolidation, Certificates and for letters of Allotment and for split, consolidation, re-newel and Pucca Transfer Receipts denominations corresponding to the market units of trading. (ii) For sub-division of renouncable letter of right : (iii) For registration of any Power of Attorney, Probate, Letters of Administration or death Certificates or for similar other documents.

(d) The Company shall issue Certificates within one month of the date of lodgment for transfer.

INSTRUMENT OF TRANSFER TO BE DEPOSITED

47. Every instrument of transfer shall be deposited with the Company, and no transfer shall be registered until such instrument shall be deposited together with the certificate of the shares or debentures to be transferred, and together with any other evidence the Director may require to prove the title of the transferor, or his right to transfer the shares or debentures. The instrument of transfer shall, after registration be kept by the Company, but all instruments of transfer, which the Directors may decline to register, shall be returned to the person depositing the same. One instrument of transfer should be in respect of only one class of shares. The Directors may waive the production of the instrument of transfer to any certificate upon evidence satisfactory to them of its loss or destruction, and on such terms as to indemnity as the Board of Directors may think fit.

POWER OF BOARD TO REFUSE REGISTRATION TO TRANSFERS

48. The Board may, without assigning any reasons but subject to the right of appeal conferred by section 111, decline to register any transfer of shares or debentures upon which the Company has a lien, and in the case of shares which are not fully paid up may refuse to register to a transferee of whom the Board does not approve. No transfer shall be made to an infant or person of unsound mind.

Provided that registration of transfer shall not be refused on the ground of the transferor being, either or jointly with any other person or persons, indebted to the Company on any account whatsoever accept a lien on shares.

NOTICE OF REFUSAL

49. If registration of the transfer of a share or debenture of the Company is refused, the Directors shall within one month from the date on which the instrument of transfer was lodged with the Company, send to the transferee and the transferor notice of the refusal.

CLOSING OF SHARE TRANSFER BOOKS & REGISTER

50. The Directors may, on giving seven days previous notice by advertisement in some newspaper circulating in the district in which the registered office of the Company is situate, close the register of members for any time or times not exceeding thirty days at a time, but not exceeding in the whole forty five days in each year.

TRANSMISSION OF REGISTERED SHARES

51. The executors or administrators or the holder of a succession certificate in respect of shares of a deceased member (not being one of several joint holders) shall be the only person, whom the Company shall recognise as having any title to the shares registered in the name of such member, and in case of the death of any one more of the join-holders of any registered shares, the survivors shall be the only persons recognised by the Company as having any title to or interest in such shares, but nothing herein contained shall be taken to release the estate of a deceased joint holder form any liability on shares held by him jointly with any other person. Before recognising any executor or administrator or legal heir, the Directors may require him to obtain a grant of probate or letters of administration or

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Fired to Excel succession certificate or other legal representation, as the case may be, from some competent Court provided nevertheless that in any case where the Directors in their absolute discretion think fit, it shall be lawful for the Directors to dispense with the production of probate or letters of administration upon such terms as to indemnity or otherwise as the Directors may consider desirable. Provided, also that if the member was a member of a joint Hindu Mitakshara family, the shares standing in his name in fact belonged to the joint family, may recognise the survivors thereof as having title to the shares registered in the name of such member but this provision shall in no way be deemed to modify or nullify the provisions contained in Articles 10 and 11 hereof.

NOMINATION OF SHARES

51A 1. Every holder of shares in or holder of debentures of the Company may, at any time, nominate, in prescribed manner, a person to whom his shares in or debentures of the Company shall vest in the event of his death. 2. Where the shares in or debentures of the Company are held by more than one person jointly, the joint holders may together nominate, in the prescribed manner, a person to whom all the rights in the shares or debentures of the Company shall vest in the event of death of all the joint holders. 3. Notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of such shares in or debentures of the Company, where a nomination made in prescribed manner purports to confer on any person the right to vest the shares in, or debentures of the Company, the nominee shall, on the death of the shareholder or holder of debentures of the Company or as the case may be on the death of the joint holders becomes entitled to all the rights in the shares or debentures of the Company to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner. 4. Where the nominee is a minor, it shall be lawful for the holder of the shares or holder of the debentures, to make the nomination to appoint, in the prescribed manner, any person to become entitled to shares in or debentures of the Company in the event of his death, during the minority.

AS TO TRANSFER OF SHARES OF DECEASED OR BANKRUPT MEMBER

52. Any committee or guardian of a lunatic or infant member, or any person becoming entitled to or to transfer shares or debentures in consequence of the death, bankruptcy or insolvency of any member, or other wise than by transfer may, with consent of the Directors (which they shall not be under any obligation to give), be registered as a member upon such evidence of his title being produced, as may, from time to time, be required by the Directors, or such person, instead of being registered himself, may, subject to the regulations as to transfer herein before contained, transfer such shares. The Board shall, in either case, have the same right to decline or suspend registrations as it would have had if the deceased or insolvent member had transferred the share before his death or insolvency.

AS TO NOTICE OF ELECTION ON TRANSMISSION

53. (i) If the person aforesaid shall elect to transfer the share he shall testify his election by executing a transfer of the share.

(ii) If the person so is becoming entitled shall elect to be registered as holder of the share himself he shall deliver or send to the Company a notice in writing signed by him stating that he so elects.

(iii) All the limitations, restrictions and provisions of these regulations relating to the right to transfer, and the registration of the transfers of share shall be applicable to any such notice or transfer as aforesaid, as if the death or insolvency of the member had not occurred, and the notice or transfer were a transfer signed by that member.

TRANSMISSION CLAUSE

54. A person becoming entitled to a share by reason of the death of insolvency of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share.

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ALTERATION OF CAPITAL Increase of Capital

55. The Company in General meeting may from time to time, increase the capital by creating and/or issuing new shares. The new capital may be divided into Preference shares of Equity Shares and may be issued upon such terms and conditions, and with such rights and privileges annexed thereto, as the General Meeting resolving upon the creation and/or issuing thereof shall direct, and if no direction be given, as the Board of Directors shall determine, and in particular such shares may be issue with a preferential or qualified right to dividends and in the distribution of assets of the Company.

SAME AS ORIGINAL CAPITAL

56. Any capital raised by the creation and/or issue of new shares shall be considered as part of the original capital in all respects, so far as may be, subject to the foregoing provisions, with reference to the payment of calls and installments, transfer and transmission, forfeiture, lien and surrender, unless it may be otherwise resolved by the General Meeting sanctioning the increase.

REDUCTION OF CAPITAL

57. The Company may, subject to confirmation by the Court from time to time, by Special Resolution, reduce its capital in any way and in particular and without prejudice to the generality of the foregoing powers by exercising the powers mentioned in Section 100 of the Companies Act, 1956.

58. The Company may, by Special Resolution, reduce in any manner and with and subject to, any incident authorised and consent required by law :-

(a) its share capital (b) any capital redemption reserve fund; or (c) any share premium account

CONSOLIDATION OF SHARES

59 The Company may consolidate and divide all or any of its share capital into shares or larger amount than its existing shares.

CONVERSION OF SHARES

60 The Company may convert all or any of it’s fully paid up shares into stock, and re-converts that stock into fully paid up shares of any denomination.

TRANSFER OF STOCK

61 The holders of stock may transfer the same or any part thereof in the same manner as, and subject to the same regulation under which, the shares from which the stock arose might before the conversion have been transferred or as near thereto as circumstances admit; Provided that the Board, may from time to time, fix the minimum amount of stock transferable, so however that such minimum shall not exceed the nominal amount of shares from which the stock arose.

RIGHT OF STOCKHOLDERS

62 The holders of stock shall, according to the amount of stock held by them, have the same rights, privileges and advantages as regards dividend, voting at meetings of the Company and other matters as if they held the shares from which the stock arose, but no such privilege or advantage (except participation in the dividends and profits of the Company and in the assets on winding up) shall be conferred by an amount of stock which would not, if existing in shares, have conferred that privilege or advantage.

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Fired to Excel Such of the regulations of the Company (other than those relating to share warrants) as area applicable to paid up shares shall apply to stock and the words “shares” and “Shareholders” in those regulations shall include “Stock” and “Stockholder” respectively.

SUB-DIVISION OF SHARES

63 The Company may sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, so however, that in the sub-division, the proportion between amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived.

CANCELLATION OF SHARES

64 The Company may cancel shares which, at the date of the passing of the resolution in that behalf, have not been or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.

SUB-DIVISION INTO PREFERRED & EQUITY

65 The resolution whereby any share is sub-divided may determine that as between the holders of the shares resulting from such division one or more of such class of shares shall have some preference or special advantage as regards dividend, capital, or otherwise over or as compared with the others or other.

MODIFICATION OF RIGHTS

66 Whenever the capital by reason of the issue of preference shares or otherwise is divided into different classes of shares, all or any of the rights & privileges attached to each class in the capital for the time being of the Company may be modified, commuted, affected or dealt with by agreement between the Company and any person purporting to contract on behalf of that class, provided that such agreement is ratified in writing by the holders of at least 75% in nominal value of the issued shares of the class, or is confirmed by a special resolution passed at a separate General Meeting of the holders of shares of that class. The Powers conferred upon the company by this Article are subject to Sections 106 and 107 of the Act.

BORROWING POWERS

67. (a) Subject to the provisions of the Act, and without prejudice to the powers conferred by any other article or articles, the Directors may, from time to time, at their discretion, borrow or secure the payment of any sum or sums of money for the purpose of the Company either from any Director or elsewhere on security or otherwise and may secure the repayment or payment of any sum or sums in such manner, and upon such terms & conditions in all respects as they think fit, and in particular by the creation of any mortgage or charge on the undertaking or the whole or any part of the property, present or future, or the uncalled capital of the Company, or by the issue of debentures or debenture stock of the Company, perpetual or redeemable, charged upon the undertaking or all or any part of the property of the Company, both present and future, including its uncalled capital for the time being and the Directors or any of them may guarantee the whole or any part of the loans or debts raised or incurred by or on behalf of the Company or any interest consideration for the giving of any such guarantee as may be determined by the Directors with power to them to indemnify the guarantors from or against liability under their guarantees by means of a mortgage or charge on the undertaking of the company or upon any of its property or assets or otherwise.

* Provided that the Debentures/Bonds, Debenture Stock Bonds or other securities conferring right to allotment or conversion into shares or the option to right to call or allotment of shares shall not be given except with sanction of the Company in general meeting.

(b) The Directors may at any time by a Resolution passed at a Board meeting delegate to any category of managerial personnel or any Committee of directors or any other principal officer of the Branch Office of the Company, the powers specified in sub- clause (a) above provided the Resolution delegating powers to such managerial

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REGISTRATION OF BORROWING POWERS

68 The Directors may, subject to the provisions of Section 293 of the Act, borrow any sum of money and where the moneys to be borrows together with the moneys already borrowed by the Company (apart from temporary loans obtained from the Company’s bankers in the ordinary course of business) exceeds the aggregate of the paid up capital of the Company and its free reserves, that is to say, reserves not set apart for any specific purpose, the sanction of the General Meeting should be obtained and every resolution passed by the Company in relation to the exercise of the power referred to in the Article shall specify the total amount up to which moneys may be borrowed by the Board of Directors.

DIRECTORS LOANS AND GUARANTEES

69. The Directors shall be entitled to receive interest on loans made by them to the Company as may be agreed between the Company and the Directors, The Directors including the Managing Director may guarantee any loan made to the Company and shall be entitled to receive such payment on account of his having given any such guarantee as may be determined by the Board and such payment shall not be remuneration in respect of his services as Director.

MORTGAGE OF UN-CALLED CAPITAL

70 If any uncalled capital of the Company be included in or charged by any mortgage or other security, the Directors may by instrument under the Company’s Seal, authorise the person in whose favour such mortgage or security is executed, or any other person in trust for him, to make calls on the members in respect of such uncalled capital, and the provisions herein before contained in regard to calls shall mutates mutandis apply to calls made under such authority and such authority may be made exercisable either conditionally or un-conditionally and either to the exclusion of the Directors power or otherwise and shall be assignable if expressed so to be.

GENERAL MEETINGS

Annual General Meeting

71 (a) The Board of Directors shall hold Annual General Meetings of the Company in accordance with the provisions of Section 166 of the Companies Act.

(b) The Board of Directors may, Suo moto, call any other General Meeting, besides the Annual General Meeting.

DISTINCTION BETWEEN ANNUAL & OTHER GENERAL MEETINGS

72. The meetings referred to in Article 71(a) shall be called Annual General Meetings and all other meeting of shareholders shall be called Extraordinary General Meetings.

EXTRA ORDINARY GENERAL MEETING

73 The Board of Directors of the Company, shall on the requisition of such number of members of the Company as is specified in sub-section (4) of Section 169 of the Act, forthwith proceed duly to call an Extra Ordinary General Meeting of the Company and the provisions of Sections 169 of the Act shall apply thereto.

QUORUM

74 Five members personally present shall be the quorum for a General Meeting. No business shall be transacted at any General Meeting unless the quorum requisite shall be present at the commencement of the meeting.

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Fired to Excel CHAIRMAN & GENERAL MEETING

75 “The Chairman of the Board of Directors shall be entitled to take the Chair at every General Meeting and in his absence the Vice-Chairman of the Board of Directors, if any, will take the chair at every General Meeting and if there be no such Chairman or Vice-Chairman or if at nay meeting they shall not be present within fifteen minutes after the time appointed for holding such emerging or is unwilling to act, the members present shall choose another Director as Chairman and if no Director be present or if all the Directors present decline to take the Chair, then members present shall choose one of their number being a member entitled to vote to be the Chairman”.

WHEN IF QUORUM NOT PRESENT, MEETING TO BE DISSOLVED & WHEN TO BE ADJOURNED

76 If within half an hour from the time appointed for the meeting a quorum be not present, the meeting, if convened upon such requisition as aforesaid, shall be dissolved; but in other case, it shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and such time and place, as the Board may be notice appoint and if at such adjourned meeting a quorum be not present, those members who are present shall be a quorum and may transact the business for which the meeting was called.

BUSINESS TO BE TRANSACTED AT ADJOURNED MEETING

77. The Chairman with the consent of the Meeting, may adjourn any General Meeting from time to time and place to place, but no business shall be transacted at any adjourned General meeting other than the business left unfinished at the General Meeting from with the adjournment took place, and which might have been transacted at that meeting. It shall not be necessary to give any notice of any adjournment or of the business to be transacted at an adjourned meeting.

HOW QUESTION TO BE DECIDED AT MEETINGS

78. Except where otherwise provided by the Companies Act, 1956 or by these presents every question to be decided by any General Meeting shall, in the first instance, be decided by a show of hands. In case of an equality of votes, the Chairman shall both on a show of hands and at a poll have a casting vote, in addition to the vote or votes to which he may be entitled as a Member.

WHEN POLL MAY BE DEMANDED

79. Poll may be demanded and taken in accordance with and subject to the provisions of Sections 179, 184 & 185 of the Companies Act, 1956.

WHAT IS TO BE EVIDENCE OF THE PASSING OF A RESOLUTION WHERE POLL NOT DEMANDED

80. Unless a poll is demanded in accordance with Section 179 of the Companies Act, 1956, before or on the declaration of the result by the show of hands, a declaration of the Chairman, that a resolution has been carried or carried by a particular majority or lost or not carried by a particular majority and an entry to that effect in the minutes of the proceedings of the meeting shall be sufficient evidence of the fact so declared, without proof of the number of proportion of the votes given for or against the resolution.

POLL

81 If a poll is demanded as aforesaid it shall be taken subject to Section 180 to 185 of the companies Act, 1956 in such manner and at such time and place, as the Chairman of the meeting directs and either at one or after an interval or adjournment or otherwise, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The demand for a poll may be withdrawn.

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82. The Company shall cause minutes of all proceedings of every General Meeting and of its Board of Directors or of every Committee of the Board, to be kept by making within thirty days of the conclusion of every such meeting concerned, entries thereof in books kept for that purpose with their pages consecutively numbered. Each page of every such book shall be initialed or signed and the last page of the record of proceedings of each meeting in such books be dated and signed :-

(a) In the case of minutes of proceedings of a Meeting of the Board or of a Committee thereof, by the Chairman of the said meeting or the Chairman of the next succeeding meeting.

(b) In the case of minutes of proceedings of a General Meeting by the Chairman of the same meeting within the aforesaid period of thirty days or in the event of the death or inability of that Chairman within that period, by a Director duly authorised by the Board for the purpose.

In no case the minutes of proceedings of a meeting shall be attached to any such book as aforesaid by pasting or otherwise.

VOTE OF MEMBERS

83. On a show of hands, every member present in person, or by proxy, or attorney, and being a holder of Equity (ordinary) shares, and entitled to vote shall have one vote. On a poll the voting rights of members shall be as laid down in the Act. Preference shareholders shall have right to vote in accordance with the provisions of Section 87 of the Act.

JOINT HOLDERS

84. If tow or more persons are jointly registered as holders of any one share, any of such persons may vote at any meeting, either personally, or by proxy or attorney, as if he were solely entitled thereto, and if more than one of such joint-holder be present at any meeting personally or by proxy or attorney, one of such persons so present whose name stands first in the register of such share, shall alone be entitled to vote in respect of the same. Several executors or administrators of a deceased member in whose names any share stands shall, for the purpose of this clause be deemed joint-holders.

RIGHT OF VOTE UNDER TRANSMISSION CLAUSE

85. Any guardian, or other person entitled under the transmission clause (Article 54 hereof) to transfer any shares may vote at any General Meeting in respect thereof, as if he was the registered holder of such shares provided that at least 24 hours before the holding of the meeting he shall satisfy the Directors of his right to act in that capacity, unless the Directors shall have previously admitted his right to vote at such meeting in respect thereof.

NO MEMBER ENTITLED TO VOTE ETC. WHILE CALL DUE TO COMPANY

86. No member shall be entitled to be present, or to vote at any General Meeting, either personally, or by proxy, or attorney whilst any call or other sum is due and presently payable to the Company, or in regard to which the Company has, and has exercised. any right of lien.

RIGHT TO VOTE TO A MEMBER OF UNSOUND MIND

87. A member of unsound mind or in respect of whom an order has been made by any Court having jurisdiction in lunacy may vote, whether on a show of hands or on a poll, by his committee or other legal guardian and any such committee or guardian may, on a poll vote by proxy.

AS TO OBJECTION TO A VOTE 88. (i) No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered and every vote not disallowed at such meeting shall be valid for all purposes.

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Fired to Excel ii) Any such objection made in due time shall be referred to the Chairman of the meeting, whose decision shall be final and conclusive.

PROXY

89. Subject to Section 176 of the Companies Act, 1956, votes may be given either personally or by proxy or by agent acting under a duly execute power of attorney.

TIME FOR DEPOSIT OF INSTRUMENT OF PROXY

90. The instrument appoint a proxy, and every power of attorney other authority, (if any) under which it is signed, or naturally certified copy of that power of authority, shall be deposited at the registered office of the Company, not less than 48 hours before the time of holding the meeting, at which the person named in such instrument proposes to vote, and in default the instrument of proxy shall be treated as valid.

FORM OF PROXY

91. An instrument appointing a proxy shall be in either of the forms in Schedule IX to the Act or a form as near thereto as circumstances admit.

PROXY NEED NOT BE A MEMBER

92. Any member of the Company entitled to attend and vote at the meeting of the Company shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of himself, but a proxy so appointed shall not have any right to speak at the meeting.

AS TO VALIDITY OF VOTE GIVEN BY PROXY

93. A vote given in accordance with the terms of an instrument of proxy or a power of attorney shall be valid notwithstanding the previous death of the principal, or revocation of the proxy or power of attorney, or transfer of share in respect of which the vote is given, unless an intimation in writing of the death, revocation, or transfer, shall have been received at the Office of the Company before the meeting.

ACCOUNTS, AUDITS & DIVIDENDS

126. (1) The Company in General meeting may, upon the recommendation of the Board of Directors resolve- (a) that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the Company’s reserve accounts or the credit of the profit and loss account or otherwise available for distribution and (b) that such sum is accordingly set free for distribution in the manner specified in clause (2) amongst the members who would have been entitled thereto, if distributed by way of dividend and in the same proportions.

2. The sum aforesaid shall not be paid in cash but shall be applied, subject to the provision contained in clause (3) either in or towards:-

(i) paying up any amounts for the time being unpaid or any shares held by such member respectively (ii) paying up in full, un issued shares or debentures of the Company to be allotted and distributed, credited as fully paid up to and amongst such members in the proportions aforesaid, or (iii) partly in the way specified in sub-clause (i) and partly in that specified in sub-clause (ii)

3. A share premium account and a capital redemption reserve fund may, for the purpose of this article, only be applied in the paying up of un issued shares to be issued to members of the Company as fully paid up bonus shares.

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Fired to Excel 4. The Board of Directors shall give effect to the resolution passed by the company in pursuance of this Article.

APPLICATION OF PROFITS

127. Whenever such a resolution as aforesaid shall have been passed the Board of Directors shall:

(1) (a) make all appropriations and applications of the undivided profits resolved to be capitalised thereby, and all allotments and issue of fully paid-up shares if any, and: (b) Generally do all acts and things required to give effect thereto.

(2) The Board of Directors shall have full powers:

(a) to make such provision by the issue of fractional certificates or by payment in cash or otherwise as it thinks fit, in the case of shares becoming distributable in fractions; and also (b) to authorise any person to enter on behalf of all the members entitled thereto, into an agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any further shares to which they may be entitled upon such capitalisation or (as the case may require) for the payment by the Company on their behalf, by the application thereto of their respective proportions of the profits resolved to be capitalised of the amounts or any part of the amounts remaining unpaid on their existing shares.

(3) Any agreement made under such authority shall be effective and binding on all such members.

RESERVE AND DEPRECIATION FUNDS

RESERVE FUND

128. The Directors may from time to time set apart any and such portion of the profits of the Company as they think fit, as reserve fund applicable, at their discretion for the liquidation of any debentures, debts or other liabilities of the Company, for equalization of dividends, or for any other purposes of the Company, with full power to employ the assets consisting the Reserve Fund in the business of the Company and without being bound to keep the same separate from the other assets.

CARRY FORWARD OF PROFITS

129. The Directors may also carry forward any profits which they may think prudent not to divide, without setting them aside as a reserve.

130. The Directors may form time to time set apart any and such portion of the profits of the Company as they think fit, as a Depreciation Fund applicable at the discretion of the Directors, for rebuilding, restoring, replacing or altering any part of the building, works, plant, machinery or other property of the Company destroyed or damaged by fire, flood, storms, tempest, accident, riot, wear and tear or other means, or for repairing, altering and keeping in good condition the property of the Company, or for extending and enlarging the buildings, machinery, and a property of the Company, with full power to employ the assets constituting such depreciation fund in the business of the Company, and that without being bound to keep the same separate from the other assets.

131. All moneys carried to the Reserve Fund and Depreciation Fund respectively shall nevertheless remain and be profits to the Company applicable, subject to due provision being made for actual loss or depreciation, for the payment of dividends, and such moneys and all the other conveys of the Company, not immediately required for the purpose of the Company, may be invested by the Board of Directors in or upon such investments or securities, as they may select or may be used as working capital or may be kept at any bank on deposit or otherwise as they may from time to time think proper.

DIVIDENDS

132. The Company in Annual General meeting may declare a dividend to be paid to the member according to their rights and interests in the profits, and for the purpose of the equalisation of dividends

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Fired to Excel any sums form time to time in accordance with these presents carried to the reserve, depreciation, or other special funds may be applied in payment thereof. The dividends so declared by the general body shall not exceed the amount so recommended by the Directors.

DIVIDEND IN PROPORTION TO AMOUNTS PAID UP ON SHARES

133. Subject to the rights of person, if any, entitled to shares with special rights as to dividends shall be declared and paid according to the shares in respect whereof the dividend is paid, but if and so long as nothing is paid upon any of the shares in the Company, dividends may be declared and paid according to the amount of the shares.

BONUS

134. If and whenever any bonus on shares is declared out of the profits, and whether alone or in addition to any dividend thereon, the bonus shall for all purposes whatsoever be deemed to be divided on the shares.

DEBTS MAY BE DEDUCTED

135. When any shareholder is indebted to the Company for calls or otherwise, all dividends payable to him, or a sufficient part thereof, may be retained and applied by the Directors in or towards satisfaction of the debt, liabilities or engagements.

DIVIDENDS OUT OF PROFITS ONLY

136. No dividend shall be payable except out of the profits of the year or any other undistributed profits, and no longer dividend shall be declared than is recommended by the Directors, but, the Company in General Meeting may declare a smaller dividend. Before declaring any dividend, the Company shall have regard to the provisions of Section 205 of the Act.

INTEREST OUT OF CAPITAL

137. Subject to the provisions of Section 208 of the Act, the Company may pay interest on so much of the share capital as is for the time being paid up, for the period and subject to the conditions and restriction mentioned in section 208 and charge the sum so paid by way of interest, to capital as part of the cost of construction of the work of building or the provision of the plant.

DIVIDEND IN SPECIE

138. No dividend shall be payable except in cash provided that nothing shall be deemed to prohibit the capitalisation of profits or reserves of the Company for the purpose of issuing fully paid up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the Company.

JOINT HOLDERS RECEIPT

139. In case of two or more persons are registered as the joint-holders of any share, any of such persons may give effectual receipts for all dividends and payments on accounts of dividends in respect of such shares.

DIVIDEND AND CALL TOGETHER

140. Any General Meeting declaring dividend, may make a call on the members of such amount as the meeting fixes but so that the call on each member shall not exceed the dividend payable to him and so that the call be made payable at the same time as the dividend and the dividend may, if so arranged between the company and the member, be set off against the call. The making of a call under this Article shall be deemed ordinary business of an ordinary meeting which declares a dividend.

RIGHT TO DIVIDEND ON TRANSFER OF SHARE

141. A transfer of shares shall not pass the rights to any dividend declared thereon before the registration of the transfer.

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HOW TO BE PAID

142. Unless otherwise directed by the Company in General Meeting, any dividend may be paid in cash or by cheque or warrant or Money Order sent through the Post within Forty two days of the date of such declaration to the registered address of the member entitled, or in the case of joint holders, to the registered address of that one whose name stands first on the register in respect of the joint holding and every cheque so sent shall be made payable to the order of the person to whom it is sent.

DIVIDEND NOT TO CARRY INTEREST

143. Unpaid dividends shall never bear interest as against the Company.

UNCLAIMED DIVIDEND

143 (A) No unclaimed or unpaid dividend shall be forfeited by the Board unless the claim thereto becomes barred by law and the Company shall comply with all the provisions of Section 205A of the Act in respect of unclaimed or unpaid dividend.

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Fired to Excel MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

The Contracts referred to in para (A) below (not being contracts entered into in the ordinary course of the business carried on by the Company or entered into more than two years before the date of this Draft Letter of Offer which are or may be deemed material, have been entered into by the Company. The contracts together with the documents referred to in paragraph (B) below, copies of all of which have been attached to the copy of this Draft Letter of Offer which has been delivered to the Bombay Stock Exchange Limited, (BSE) may be inspected at the Registered Office of the Company between 11.00 a.m. and 1.00 p.m. on any working day from the date of this Draft Letter of Offer until the closing of the subscription list.

A. MATERIAL CONTRACTS

1. Engagement letter dated 18th July 2006 appointing SBI Capital Markets Limited as the Lead Managers to the present Rights Issue. 2. Memorandum of Understanding dated 5th December 2006 between the Company and SBI Capital Markets Ltd. 3. Memorandum of Understanding dated 17th November 2006 between the Company and Venture Capital & Corporate investments Ltd. 4. Engagement letter dated 26th September, 2006 issued by the Company appointing M/s Challa Kodanda Ram & Associates as the Legal Advisors to the Issue. 5. Tripartite Agreement dated 7th September 2001 between the Company, Venture Capital & Corporate Investments Limited and CDSL to establish direct connectivity with CSDL. 6. Tripartite Agreement dated 30th October, 2001 between the Company, Venture Capital & Corporate Investments Limited and NSDL to establish direct connectivity with NSDL.

B. DOCUMENTS FOR INSPECTION

1. Copy of Memorandum and Articles of Association and Certificate of Incorporation of VBC Ferro Alloys Limited. 2. Copies of Annual Report for the year 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 and for the period ended 30th September, 2006. 3. Copy of the Board Resolution dated June, 24 2006 approving the Rights Issue. 4. Copy of the resolution passed by the members under Section 81(1A) of Companies Act, 1956 at the Annual General Meeting held on July 24, 2006 approving the present Rights Issue. 5. Copy of the resolution passed by the members in the Annual General Meeting held on September 30, 2005 for the appointment of Shri M. S. Lakshman Rao as Managing Director of the Company for a period of 5 years. 6. Copies of the Prospectus dated October 5, 1984 issued in respect of the Initial Public Offer by the Company. 7. Copies of the Prospectus dated September 29, 1989 issued in respect of 2,29,000, 14% Secured Partly Convertible Debentures (PCDs). 8. Copy of Letter dated December 28, 2006 received from M/s. Brahmayya & Co., Chartered Accountants and Statutory Auditors of the Company advising on the Tax Benefits available to the Company and its shareholders. 9. Copy of the Auditors’ Report dated December 28, 2006 received from M/s. Brahmayya & Co., Chartered Accountants and Statutory Auditors of the Company. 10. Copies of Audited financials for the financial year ended, 2004, 2005 and 2006 of the following Corporate Promoters Companies which are in operations: • Yasaswini Investments Pvt Ltd • Bharat Alloys & Energy Ltd • Padmakshi Investments Pvt. Ltd • Techno Pack Pvt Ltd.

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Fired to Excel 11. Copies of Audited financials for the financial year ended, 2004, 2005 and 2006 of the following Group Companies /Trusts which are operative: • VBC Industries Ltd • VBC Finance & Leasing Ltd • Karthik Rukmini Alloys & Energy Ltd • Konaseema Gas Power Ltd • Konaseema Power Corporation Ltd. • VBC Wood Distillation Private Ltd. • Gandhi Institute of Technology & Management (Trust) 12. Copies of various Undertakings received from the Company. 13. Consents of the Directors, Auditors, Company Secretary & Compliance Officer, Lead Manager to the Issue, Legal Advisors to the Issue, Bankers to the Company, Registrars to the Issue and to include their names in the Draft Letter of Offer and to act in their respective capacities. 14. Copy of letter dated December 5, 2006 appointing the Company Secretary as the Compliance Officer for the Rights Issue. 15. Copy of Memorandum of Understanding dated December 6, 2005 between Bharat Alloys & Energy Limited [through its promoters Shi. M.S. Rama Rao & Shi. M.S.Lakshman Rao] and Karthik Rukmini Alloys & Energy Limited [through its promoters Shri. B.Gopala (Chief Promoter and Director of KRAEL) & Associates] 16. Copy of the coal linkage allotment letter dated June 3, 1998 with the Singareni Collieries Company Ltd for the existing Ferro Alloys unit of the Company at Rudraram Village. 17. Copy of the fuel supply agreement dated February 17, 2005 between Singareni Colleries Company Limited and Karthik Rukmini Alloys & Energy Limited for the captive power plant Project. 18. Copies of Power of Attorney dated December 26, 2006 from Directors, Dr. M.V.V.S.Murthi and Shri. M.Nageswara Rao executed in favour of Shri M.S. Lakshaman Rao, Managing Director to approve and sign in the Draft Letter of Offer/ Letter of Offer on their behalf. 19. Copy of the resolution dated December 28, 2006 passed by the Board of the Company approving the Draft Letter of Offer; 20. Copy of the letter dated January 20, 2007 from the Company Secretary, Shri. Adalath Srikanth, approving the changes to the Draft Letter of Offer. 21. Copy of Due Diligence certificate dated January 22, 2007 issued by the Lead Manager to Issue and filed with SEBI.

Any of the contracts or documents mentioned in this Draft Letter of Offer may be amended or modified at any time if so required in the interest of the Company or if required by the other parties, without reference to the shareholders subject to compliance of the provisions contained in the Companies Act and other relevant statutes.

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Fired to Excel DECLARATION

No statement made in this Draft Letter of Offer shall contravene any of the provisions of the Companies Act, 1956 and the rules made there under. All the legal requirements connected with the said issue as also the guidelines; instructions etc. issued by SEBI, Government and any other competent authority in this behalf have been duly complied with.

FOR VBC FERRO ALLOYS LIMITED

Signed by Directors, Managing Director, Vice President – Finance and Company Secretary & Compliance Officer

Dr. N.Tata Rao Chairman

Dr. M.V.V.S.Murthi * Vice- Chairman

Shi. M.S.Lakshman Rao Managing Director

Shi. V.P.Rama Rao Director

Shi. M.Nageswara Rao * Director

Dr. P.L.Sanjeev Reddy Director

Shi. K.Kailashnath Reddy Vice President – Finance

Shri Adalat Srikanth- Company Secretary & Compliance Officer

* - Signed by constituted Power of Attorney Holder Shri. M.S.Lakshman Rao on behalf of Dr. M.V.V.S.Murthi & Shri. M.Nageswara Rao

Place: Hyderabad

Date: (*)

Encl.: Composite Application Form (‘CAF’).

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