NIIT UNIVERSITY

CONFIDENTIAL Date: 04.01.2013

CREDIT NOTE

BALKRISHNA INDUSTRIES LIMITED

04/01/2013 GROUP NO 9

P301411CMG155 P301411CMG156

Yogesh Nivangune Sudhir Prajapati

BALKRISHNA INDUSTRIES LIMITED

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Rating Rationale Company details Exposure details Assistance details Share market data Background and business description Physical performance Financial Performance Comments on financials (Historical) Contingent liabilities Projections Key assumptions about the projected numbers Cash flow analysis (Historical and projected) and comments Proposal a. Assistance details b. Assessment of limits (Fund and Non-fund based) c. Salient terms and conditions

15.

CMA form V

Balkrishna Industries Ltd Page 2

 RATING RATIONALE:
RATING RATIONALE Borrower: Balkrishna Industries Ltd Internal Rating : NA Migration history : NA External rating / (Agency): AA- (STABLE) Transaction classification : Reaffirmed on March 14, 2012 Industry : Tyres Borrower Group : Dharaprasad Poddar Group Rating date : 29-Dec-2012 Risk weight : NA Country of Risk: INDIA

RATING STATEMENT:
Rating for the company Balkrishna Industries Ltd (BIL) is reaffirmed as AA-(stable). The rating is based on audited financials of the company for the year ended March 31, 2012 and unaudited financials as at September 30, 2012. The Rating draws comfort from following factors: a) Favorable operating efficiency b) Adequate financial risk profile c) Healthy cash flows, moderate gearing, and comfortable gearing position. The Rating is constrained by following factors: a) Exposure to risks related to volatility in raw material prices b) Marginal improvement in global market share c) Implementation of the on-going 120,000 tonne per annum-(tpa) off-highway tyres (OHT) project in Bhuj (Gujarat). Outlook: Stable According to CRISIL report BIL will continue to benefit over the medium term from its good brand image and favorable operating efficiencies. Rating can be revised to Positive if company increases its global market share in the OHT segment on completion of its ongoing project and reports steady and strong growth in turnover, while maintaining a healthy operating margin. Conversely, the outlook may be revised to Negative if company generates small cash accruals, or reports time and cost overruns during project implementation, or lower-than-expected utilization levels in the plant thereafter, which would adversely impacting its gearing and debt protection metrics.

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COMPANY DETAILS:
Group / Sponsor Risk Counter-party Industry Credit Rating Rating Migration External Rating : : : : : : : Dharaprasad Poddar Group Counter-party 1 Counter-party 2 Tyres NA NA Domestic: A1+ (Short term) and AA-/Stable (Long term) (CRISIL) International: NA Balkrishna Industries Ltd -

PROPOSAL: Exposure at (04/01/2013) (including the proposed limits):

Counterparty 1 ( in millions) Amount As a % of capital funds at April 01, 2011 Long tenor exposure (Project loan) Long tenor (nonproject) ICICI Group Limit 3247.3 Outstanding Counterparty 2 Limit Outstanding Borrower Group Limit Outstanding

Arrears/ irregularities in existing facilities (at December 04, 2012)

The current proposal is for sanction of: 1. Letters of Credit facility of 2352.1 million with Bank Guarantee as sub limit 290 million 2. Derivatives limits of 895.2 million.

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RISK ANALYSIS:
Industry risk: Medium Tractor industry registered a growth of 18.3% in FY2011, which has resulted in robust demand for tractor tyres. Domestic sales volumes growth of tractors has been declining for the past three years from 32% y-o-y in FY2010 to 11% y-o-y in FY2012. However, as the base has increased the replacement demand has also increased simultaneously. The three major segments of the tyre industry are original equipment (OE, 46%), replacement (48%) and exports (6%). However, performance of the industry is influenced by the replacement segment due to a larger share of truck tyres (67%) in the product mix. Raw materials price volatility remains key concern for the industry as variation in prices directly impact EBITDA margins. Rubber accounts for around 30% of the tyre cost. Although rubber prices have soften in first half of FY2013, cost of other raw materials like steel tyre cord, carbon black, rubber chemicals have increased.

Business risk: Low BIL operate in the segment of off highway tires. Around 94% of revenues are derived from Agriculture (65%) and Earthmoving OTR (29%) space. It has market presence in more than 120 countries and earns 90% of its revenues through exports. BIL has state of the art three manufacturing units and one mould shop located in North and Western Province of India. To provide tyre as per customer's requirements BIL has strategically located warehouses at each plants. All the warehouses are equipped with modern storage facilities for better tyre storage and handling. During FY2012, the company has incurred capital expenditure of 150 crores (approx.) on account of increase in small production capacity at all the three plants through debottlenecking and regular maintenance capex at all three plants. The company also incurred capital expenditure of 531 crores (approx.) in connection with its upcoming green field tyre project at Bhuj in the State of Gujarat which is progressing as per schedule (1,20,000 MTPA) Total estimated capital outlay for the expansion is 12,000 million which is likely to be funded through debt and internal accruals in the ratio of 65:35. BIL has incremental opportunity to develop the Earth Moving Tyres (OTR) markets and take advantage of the shift from bias to radial tyres, which is picking up rapidly. In this pursuit, the company has already set up an all-steel OTR Radial tyre plant at its Chopanki Page 5

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location and thereby become the first company in India to set up such plant. At the global level, the market share of the company in OHT arena has increased marginally from 1.5% in FY2007 to more than 3% in FY2012. Company has been able to achieve this by de-bottlenecking and increasing production capacities.

Financial risk: Medium BIL achieved robust growth in revenues during FY2011 and FY2012 of 39.4% and 45.8%, respectively. Europe its one of the key geographical segment, which contributes around 46% of the companys total revenues, has performed considerably well as compared to other geographical segments. Its Indian segment has seen a moderate growth in revenues given the competition from the Chinese imports. During the same period company also pursued capacity additions which were in tandem with the aggressive growth achieved by the company. Profitability came under pressure due to increase in non-operating miscellaneous expense and rise in raw material prices. However, going forward with softening natural rubber prices, profitability is likely to come on track. Gearing ratio came under pressure in FY2012 on account of rise in term debt during FY2011 and FY2012, which was used for capacity expansion project. In future with healthy growth prospects and likely increase in cash accruals gearing ratio is expected to improve. The company generates 90% of its revenue from exports and has 3% global market share in the OTR segment. BIL has strong global network with over 200 distributors in more than 120 countries, which has enabled it to capture growing replacement market. BIL derives 80% of its revenues from replacement market which fetches higher margins which are in the range of 18-20%. BIL has healthy Return ratios as compared to industry with ROE & ROCE pegged at 25% and 22% respectively.

Management risk: Low BIL is a flagship company of Siyaram-Poddar group. The success story of BIL, begun in 1995 when it entered into production of cross ply offhighway tyres, with the help of persistent and intensive market research coupled with ever expanding production capabilities, BIL has made its mark in the niche segments like Agricultural, Construction, Industrial, Earthmover, ATV (All Terrain Vehicle) and Turf care applications. BIL is continuously developing its production base and has expanded its product range significantly. With three manufacturing plants and one in-house hi-tech mouldmanufacturing facility at different locations in India, BIL is very well equipped to feed the Page 6

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ever-growing demand of its worldwide customers. R&D is always at the forefronts of BKT and it spends about 5-6% of its revenue on research and development. BKT has a dedicated team of professionals, who carryout design and development of new products, as per specific customer needs. The Company is fully compliant with the Corporate Governance norms in terms of constitution of the Board. The Chairman of the Board was Non-Executive Chairman and is a Promoter of the Company. The number of the Independent Directors is 50% of the total number of Directors and the number of the Non-Executive Directors is more than 50% of the total number of Directors. The Chairman Shri Dharaprasad Poddar resigned w.e.f 29th May, 2012. Shri Arvind Poddar, Vice Chairman & Managing Director is re-designated as Chairman & Managing Director of the Company w.e.f. 30th May, 2012. Shri Anurag Poddar, the Executive Director resigned w.e.f. 29th May, 2012. Smt. Vijaylaxmi Poddar has been appointed as Executive Director w.e.f. 30th May, 2012

Project risk: Medium BIL currently has a production capacity of 144,000 tpa which has aided company to garner a market share of about 3 per cent globally. Company has embarked on a project at Bhuj in Gujarat to increase its capacity by 120,000 tpa. The total project cost is estimated to be Rs 18 billion (70 per cent through ECB). BIL received ECB of USD 175 million in June 2011. However given the big size of the project completion of project on time and cost overrun would be key areas of look out.

Structure risk: Medium Working Capital Loans from banks repayable on demand is secured by first pari-passu charge by way of hypothecation of inventories, receivables and other movables and further secured by second charge by way of hypothecation on all present and future movable and immovable fixed assets of company on pari-passu basis. Term Loam of company is secured by first pari-passu charge over all present and future movable fixed assets by way of hypothecation and in case of 2nd Term loan is further secured by second charge by hypothecation of inventories, receivables and other movables on pari-passu basis. The company has given Bank Guarantee to statutory authorities like custom and excise authorities.

Critical compliance matters (Internal/ RBI related): Nil

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ASSISTANCE DETAILS: ( in millions)

Current Proposal Facility Renewal Rupee Term Loan ECB Rupee Term Loan One Time Short Term Loan* Cash Credit WCDL EPC / EBD PCFC FUB / FBD / FBP Buyers Credit As a sub limit of secured LC Buyers Credit As a sub limit of unsecured LC CMS Sub Total - A LC secured LC - unsecured Bank Guarantee sub limit of secured LC Bank Guarantee sub limit of unsecured LC Stand-by LC^ Derivatives Sub Total - B Total (A+ B) Additional 2352.1 290 895.2 3247.3 Existing Limit Proposed Total 2352.1 290 895.2 3247.3 O/s at 04/01/2013 -

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BENCHMARKING:

Companies Principal Business Segment For the Year Ended March 31st '12 Price Earning (P/E) Price to Book Value ( P/BV) Price/Cash EPS (P/CEPS) Market Cap/Sales PBIDT/Sales (%) Sales Sales/Net Assets PBDIT/Net Assets PAT/PBIDT(%) Net Assets/Net Worth ROE(%) Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio ROCE (%) RONW (%) 2.46 7.92 31.35 2.04 12.59 9.21 2.42 8.41 8.83 1.07 11.49 1.49 22.54 1.96 11.02 0.45 7.75 89065 2.12 0.16 26.26 2.06 9.21 1.03 0.54 0.72 43.36 0.46 3.91 0.06 5.65 48248 2.5 0.14 2.77 2.94 1.49 1.73 0.78 0.76 Apollo Ceat

( in millions) MRF 4.52 1.22 3.23 0.26 11.6 106370 2.32 0.27 50.18 1.99 17.47 0.91 0.74 1.54 2.95 8.07 10.04 6.14 14.98 17.47 JK Tyres 37.42 0.55 3.15 0.06 4.63 61485 2.19 0.1 3.86 4.45 1.57 2.45 1.1 0.83 2.28 9.11 7.81 1.07 7.24 1.57 BKT 7.94 2.54 6.28 0.85 17.9 28446 0.98 0.17 52.73 2.7 28.09 1.19 0.49 1.23 2.54 6.38 7.08 13.67 18.06 28.09

Comments:
BIL as compared to its peers has low market share and turnover which in lead by MRF at 106,370 Million. But BIL deals in niche products like Off-Highway Specialty Tyres with 90% of production being exported, which gives better margins as evident from two ratios PBIDT/Sales (%), PAT/PBIDT (%) at 17.9 and 52.73. BIL does have some concern about the lowest inventory turnover ratio 6.38 as compared to the peers. The interest cover ratio is the best in the industry at 13.67 which reflects good cash flow. Along this return on net worth is highest amongst all major industry players.

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Share-market Data:
Last traded price at 01/04/2013 52 week High / Low Market capitalization at 01/04/2013 Promoter holding (%) 288.55 153.00/ 307.50 27890.8 million 54.37%

COMPANY BACKGROUND AND BUSINESS DESCRIPTION:

BIL is the world's premier manufacturer of pneumatic tyres for special applications. Company was incorporated on November 20, 1961. The company operates mainly in the business segment of tyres. They focus on the production of range of off-highway tires that includes agricultural, industry, material handling, forestry, lawn and garden, construction and earth moving tyres. The company has a worldwide distribution network ensuring extensive reach and penetration. Agri Max, Agri Max force, Agri Max fortis, Agri Max Teris, Earth Max, Fores Tech, Multi Max, Ride Max are different varieties of product under BKT brand. During the year FY2003, the company acquired the Auto tyre Plant of Govind Rubber Ltd at Bhiwadi in Rajasthan. During the financial year FY2005, the company launched Tractor Radial Tyres. The company expanded the production capacity in Bhiwadi unit and Waluj unit to 42000 tpa and 18000 tpa respectively. They also installed five MW Wind-Farm near Jaisalmer in Rajasthan for captive usage. In February, FY2005, the company has set up a 100% subsidiary company in UK under the name of BIL (Europe) Ltd to promote sales and marketing of the products of their tyre division in Europe which commenced their business activities on April 1, 2005. The company expanded the production capacity in Bhiwadi unit by 3000 tpa to 45000 tpa. In August 30, 2006, the company incorporated BIL Europe srl in Italy as a wholly owned subsidiary company and in January FY2007 they incorporated BIL Exim Ltd as a wholly owned subsidiary. Also they incorporated Balkrishna Paper Mills Ltd and Balkrishna Synthetic Ltd in March FY2007 as wholly owned subsidiary companies to facilitate the transfer of their paper and textile processing business respectively. During the year 2006-07, the company increased the production capacity in Bhiwadi unit from 45000 tpa to 48000 tpa and Waluj unit from 18000 tpa to 22000 tpa. Also, the company introduced the product 'Premium Super Chromo Board' in the market. The company has three business activities namely tyre, paper and textile processing. The tyre business is a focused business activity of the company that constitutes more than 80% of company's total business and becomes their core business. In order to pay more attention to their various business activities, the company transferred their Paper business and Textile Processing business to their wholly owned subsidiaries, Balkrishna Paper Mills Ltd and Balkrishna Synthetic Ltd respectively with effective from April 1, FY2007. During the year FY2008, BKT Tyres Pvt Ltd became the subsidiary of the company. Also BIL (Europe) Ltd and BKT Europe srl ceased to be the subsidiaries of the company due to the disinvestment by the company. Balkrishna Industries Ltd Page 10

The company is in the process to set up a new green field Tyre plant into special economic zone to increase the production capacity. Also the company plans to set up storage facilities at different locations to store finished goods and raw materials. Year - Milestone Events: 1988 - First Manufacturing unit was established at Aurangabad in Western India, with full-fledged in- house R & D department. 1992 - A range of Light Commercial Vehicle tires launched in the international market. 1995 - Identified a niche segment for International Market, commenced production of Off Highway Segment. 1996 - Commenced exports to Europe & North American markets with Agricultural Range of tires. Based on initial success in the International markets, a massive production expansion program was undertaken 2000 - More than 500 SKUs developed in Agricultural application segment since FY1996. 2001 - Started production of Flotation & MPT tires and further expanded the production capacities and capabilities. 2002 - Second Manufacturing unit was established at Bhiwadi in Northern part of India, thereby doubling the production capacity. Awarded with prestigious ISO 9001:2000 certificate for Quality Management System by KPMG, Netherlands. 2003 - Launch of Earthmover tires, All Terrain Vehicle (ATVs), Lawn & Garden tires. 2004 - Launch of Radial Agricultural tires. First company from India to introduce Radial Agricultural tires sub branded as AGRIMAX. 2005 - In house mould shop established. 2006 - Third Manufacturing unit commissioned at Chopanki in Northern India Opened European office at Milan, Italy Launched Floatation Radial tires 2007 - Introduced 65 series and 90 Series AGRIMAX range of tires Port application tires & Row crop tires. 2008 - Launch of All Steel Radial OTR tires. 2009 - Launch of Radial MPT Range of tires. 2010 - Introduced Radial Harvester tires sub branded as AGRIMAX TERIS Radial extra-large tires sub branded as AGRI MAX FORTIS Introduced Steel belted Forestry tires sub branded as FORSTECH also introduced steel belted ROADMAX range of tires. 2011 - 4th Plant; a Greenfield project. Work commenced.

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Infrastructure Details: BKT has state of the art three manufacturing units & one mould shop located in North and Western Province of India. To provide tyre as per customer's requirements BKT has strategically located warehouses at each plants, a huge ware house in between the two manufacturing units in Northern Province and a centralized warehouse near the Port. All the warehouses are equipped with all modern storage facilities for better tyre storage and handling. 1. Bhiwadi Factory 1. Located in Northern Province of India. Around 100 kms from national capital New Delhi. 2. Plant features manufacturing Radial Agricultural tires 3. Other range manufactured are Bias Agriculture & Industrial tires 2. Chopanki Factory 1. Located in Northern Province, 13 kms away from the Bhiwadi plant, plant was commissioned in FY2006. 2. Plant boast of manufacturing All steel Radial OTR tires 3. Other range manufactured Bias OTR , Industrial & construction tires 4. Plant has one the most modern machineries used in the world for tyre manufacturing. 3. Waluj Factory Aurangabad 1. Located in Western Province of India, around 250 kms from commercial capital Mumbai 2. This was the first plant of BIL commissioned in FY1988. 3. Range manufactured in this plant includes material handling, floatation, Industrial & OTR tires. 4. Dombivali Mould Plant As part of backward integration, BIL has in-house mould manufacturing unit which caters to designing and development of all moulds requirements. Mould shop is equipped with latest and most modern designing and carving technologies.

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Share Holding Pattern as on 30/09/2012

No. Of Shares Promoters Holding Indian Promoters 52551510 Sub Total 52551510 Non Promoters Holding Institutional Investors Mutual Funds and UTI 19241516 Banks Fin. Inst. and Insurance 15895 FII's 10406761 Sub Total 29664172 Other Investors Private Corporate Bodies 2533159 NRI's/OCB's/Foreign Others 242036 Others 100 Sub Total 2775295 General Public 11667618 Total 96658595 % Holding 54.37 54.37

19.91 0.02 10.77 30.69 2.62 0.25 0 2.87 12.07 100

PHYSICAL AND FINANCIAL PERFORMANCE:

Physical Performance: For the year ended March 31 1. Tyres Installed capacity (million pieces) Production (million pieces) Capacity utilization (%) Sales (million pieces) Gross Sales ( in millions) Avg. Sales realization ( per piece) 2. Tyre Flaps Installed capacity (million pieces) Production (million pieces) Capacity utilization (%) Sales (million pieces) Gross Sales ( in millions) Avg. sales realization (/unit) 3. Tubes Installed capacity (tones) Production (tones) Capacity utilization (%) Balkrishna Industries Ltd 2010 39400000 18833860 47.8 19254730 13475.1 699.8 3790000 807270 21.3 1602270 25.7 16.0 0 0 0 2011 41020000 24502720 59.73 24901780 18830.3 756.2 3790000 961950 25.38 1938570 34.1 17.6 0 0 0 2012 42630000 27819910 65.26 27897290 27923.1 1000.9 3790000 468240 12.35 1814590 40.1 22.1 12440000 371830 2.99 Page 13

Sales (tones) Gross Sales ( in millions) Avg. Sales realization ( per tones) 4. Power-Wind Mill Installed capacity (tones) Production (tones) Capacity utilization (%) Sales (tones) Gross Sales ( in millions) Avg. Sales realization ( per tones)

1638550 120.7 73.7 50 70299840 0 0 0 0

2281480 190 83.3 50 54937840 0 0 0 0

2167310 231.1 106.6 0 61972180 0 0 0 0

Comment on Physical Performance: BIL approx. 95% revenue is generated from Tyres segment, under this capacity utilization is around 65%, which is decided on the basis of order book and inventory maintenance cost. As per the projection if company revenue would increase by 15% than capacity utilization would go up to 85% by FY 2014

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Financial Performance:

Year Ended March 31, in million No of months Total operating income (TOI) EBIDTA EBIDTA/TOI (%) Interest Depreciation Operating Profit (OP) Net of non-operating income / expenses PBT PAT PAT/TOI (%) Net Cash Accruals (NCA) Net fixed assets Tangible Networth (TNW) Exposure in subsidiaries /Group Cos. Investments Loans and advances Adjusted TNW (ATNW) Long term debt (LTD) Short term debt (STD) Working Capital Bank Finance Guarantee* Total Debt Total Debt /ATNW LTD/ ATNW Total Current Assets Total Current Liabilities Net working capital Current ratio ROCE (%) Interest cover Total debt/ EBIDTA Total debt/ NCA DSCR Note: Unaudited figures are for Q2 2013

2010 Actuals 12 13,869.6 3,899.4 28.11% 186.6 662.2 3,050.7 62.7 3,113.3 2,087.3 15.05% 2,614.1 6,737.5 6,607.8 807.3 807.3 0.0 5,800.5 883.3 3,540.3 3,290.1 7,713.6 1.33 0.15 8,172.6 8,226.4 (53.8) 0.99 25.93% 15.74 1.98 2.95 20.90

2011 Actuals 12 19,341.4 3,051.6 15.78% 206.6 744.4 2,100.5 648.8 2,749.4 1,855.6 9.59% 2,464.6 7,296.8 8,299.7 322.4 322.4 7,977.3 4,496.7 2,080.4 3,645.9 10,223.1 1.28 0.56 8,714.5 8,160.8 553.6 1.07 15.36% 13.58 3.35 4.15 14.77

2012 Actuals 12 28,199.6 5,650.8 20.04% 277.5 831.4 4,541.9 (559.8) 3,982.2 2,685.2 9.52% 3,371.6 12,766.0 10,786.6 322.4 322.4 10,464.3 11,358.1 3,540.3 3,951.9 18,850.3 1.80 1.09 15,378.9 10,256.7 5,122.2 1.50 18.13% 13.67 3.34 5.59 20.36

Unaudited Actuals 3 8,871.0 1,872.4 21.11% 61.0 254.2 1,557.2 259.0 1,557.2 1,237.1 13.95%

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Comment on financials: Total Income: Total operating income registered significant growth rate of 45.80% in FY2012 vis-vis 39.45% in FY2011. International sales increased by 51% in FY2012 whereas domestic sales increased by only 6% in FY2012. Company major revenue contribution is from outside India (majorly from Europe). Profitability: EBITDA margins have increased from 15.78% in FY2011 to 20.04% in FY2012. This was primarily due to reduction in manufacturing cost from 84% to 79.9% (as % of total revenue) SGA has also reduced from 2.7% to 2.5 of total cost which was due to reduction in the professional expenses. The profit before tax for FY2012 was 3982.2 million against 2749.4 million for the twelve months ending March 31, 2011. PAT margin slightly decreased from 9.59% in FY2011 to 9.52% in FY2012. The profit after tax for FY2012 was 2685.2 million. The increase in PAT is commensurate with the increase in top line of the company. Interest: Interest part has been increased for the company due to significant increase in borrowing cost and interest expense. Interest part has increased from 10.7% in FY2011 to 34.3% in FY2012. Non-operating income and expense: In FY2012, non-operating expenses were higher than nonoperating income and it has come down by 186% in FY2012, it was mainly due to high misc. expenses, loss of foreign exchange fluctuations and writing off of fixed asset. Net cash accruals: Due to significant increase in profit net cash accruals have increased by 37% in FY2012. Company has paid 5.4% in the form of dividend out of its net profit in FY2012. Net fixed assets: Company has purchased plant and equipment of 1196.95 million during FY2012. Net fixed asset increased by 8% in FY2011 and 75% in FY2012. Tangible Net worth: The physical worth of the company increased to 10786.6 million as on March 31, 2012 from 8299.7 million as on March 31, 2011 due to increase in general reserves by 4500 million. Adjusted Tangible Net worth: Robust performance in revenues and growth in retained earnings has led to an increase in ATNW from 7977.3 million in FY2011 to 10464.3 million in FY2012. Net working capital: Net working capital gap has gone up from 553 million to 5122 in FY2012. Rationale for low current ratio: Company is having high cash balance which leads to increase in current asset in comparison of current liability, which further leads to current ratio of 1.5. Current ratio increased from 0.99 in FY2010 to 1.5 in FY2012. Deatisl of current asset and current liability in FY2011 and FY2012 is given below -

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Cuurent Asset 2011 Cash and Bank Balances 109.9 Sundry Debtors 3242.4 Inventory 4103.8 Advances to Supplier 323.0 Advance payment of taxes 561.9 Other CA 373.6 Total Current Asset Current liability 2011 Short term borrowing 5726.3 Sundry Creditors 1249.1 Provision for tax and div payable 187.9 Installment payments 89.3 Other CL 908.2 Total Current Liability 8160.8

( in million) 2012 3574.0 4796.1 4810.7 1037.5 912.4 248.1 2012 7492.2 2157.9 206.7 102.3 297.5 10256.7

Leverage: The outstanding debt as on March 31, 2012 was 18850.3 million, which include WC bank finance of 3951.9 million, STD of 3540.3 and LTD of 11358.1. The total debt has increased by 84% in March 31, 2012. Company has set up a new plant at Bhuj and this project was funded through ECB of USD 175 million which increases the debt level of the company substantially. Non-current assets: The non-current assets of the company as at March 31, 2012 were 12780 million ( 7296 million in the previous year). The non-current assets mainly comprised of advances to supplier of capital goods and contractors of 3929.2 million. During the year, the company has incurred capital expenditure of 150 crores (approx.) to increase production capacity at all the three plants through de-bottlenecking and regular maintenance capex. The company also incurred capital expenditure of 531 crores (approx.) for its upcoming green field tyre project at Bhuj in the State of Gujarat.

Contingent Liabilities The contingent liabilities of the company are detailed in the following table: Particulars Guarantees undertaken Disputed Income Tax FY2011 6615.6 138.8 136.4 0.0 6890.8 ( in millions) FY2012 15959.1 79.0 140.4 0.0 16178.5

Disputed Excise Duty Others Total

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Foreign currency risk: BIL took an ECB loan of USD 175 for capex for its tyre project at Bhuj. Additionally, 90% of the companys total revenues are earned via exports. 80% of the total raw materials are imported. In FY2012 total foreign exchange earned and used were in the tune of 25700 million and 17190 million, respectively. Also BIL incurred the loss of 179.7 million in FY2012. Hence, due to huge exposure to foreign currency and fluctuations and volatility in foreign currency BIL faces huge foreign currency risk. Statutory auditors comment: Messers Jayantilal Thakkar & Co., Chartered Accountants, is the current auditor of Balkrishna Industries Limited. According to annexure given to auditors report in Annual report nothing found out discrepant. Company is regular in payment of dues of borrowing, service tax and custom duty. Only some disputes which are currently pending under various statute.

Details are mention below Name of Statute Income Tax Act Sales Tax Acts Nature of Dues Income Tax(Including Interest and Penalty Sales Tax(Including Interest and Penalty) Amount 19.0 2.2 0.3 18.8 2.0 42.3 6.2 29.0 Total Period to which the Amount Relates 2004-2005 2006-2007 2007-2008 2004-2005 1996-1999 2002-2006 2002-2006 2003-2011 1999-2001 2005-2011 1994-2004 144.6

( in millions) Forum where dispute is pending Commissioner (Appeals) Assessing Authority High Court Commissioner (Appeals) High Court Tribunal Commissioner (Appeals) Assessing Authority

Central Excise Act

Excise Duty(Including Interest and Penalty)

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Cash flow analysis ( in millions)

2011 Operating Activities PBT Depreciation Interest Paid Income tax paid Change in Work ing Capital Interest/dividend received Cash Flow from Operating Activities Investing Activities Interest/dividend received Capital Expenditures Investment Expenditure Additions to Goodwill / Intangibles Due from director Cash Flow from Investing Activities 2,749.4 629.4 206.6 (893.8) (895.7) (68.9) 1,727.0 2012 3,982.2 764.6 277.5 (1,297.0) (1,410.5) (22.9) 2,293.9

68.9 (1,188.7) (4,133.3) (18.1) (5.4) (5,276.6)

22.9 (6,233.8) 689.0 3.8 0.4 (5,517.6)

CASH FLOW AVAILABLE FOR FINANCING ACTIVITIES Financing Activities Interest Paid Proceeds from / (Repayment of) Revolver Proceeds from / (Repayment of) Long Term Debt Issuance / (Repurchase of) Equity Dividends Issue of Work ing capital loan Income from other sources Cash Flow from Financing Activities

(3,549.6)

(3,223.7)

(206.6) 3,613.4 (157.2) 355.9 11.6 3,617.1

(277.5) 6,861.3 (168.5) 306.0 (33.5) 6,687.8

Effects of Exchange Rates on Cash Net Change in Cash Beginning Cash Balance Ending Cash Balance

67.6 42.3 109.85385

3,464.1 109.9 3,574.0

As per audited cash flow statement

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Projections (Cash Flow table):

( in millions)
2012 2013 4,835.3 1,061.8 277.5 (1,574.8) (795.3) (22.9) 3,781.5 2014 5,485.4 1,540.9 277.5 (1,786.5) (1,115.6) (22.9) 4,378.7

Operating Activities PBT Depreciation Interest Paid Income tax paid Change in Working Capital Interest/dividend received Cash Flow from Operating Activities Investing Activities Interest/dividend received Capital Expenditures Investment Expenditure Additions to Goodwill / Intangibles Due from director Cash Flow from Investing Activities

3,982.2 764.6 277.5 (1,297.0) (1,410.5) (22.9) 2,293.9

22.9 (6,233.8) 689.0 3.8 0.4 (5,517.6)

22.9 (1,076.1) (1,053.1)

22.9 (1,540.9) (1,517.9)

CASH FLOW AVAILABLE FOR FINANCING ACTIVITIES Financing Activities Interest Paid Proceeds from / (Repayment of) Revolver Proceeds from / (Repayment of) Long Term Debt Issuance / (Repurchase of) Equity Dividends Issue of Working capital loan Income from other sources Cash Flow from Financing Activities

(3,223.7)

2,728.3

2,860.7

(277.5) 6,861.3 (168.5) 306.0 (33.5) 6,687.8

(277.5) (1,500.0) (242.2) (0.0) (2,019.8)

(277.5) (1,500.0) (273.5) (2,051.0)

Effects of Exchange Rates on Cash Net Change in Cash Beginning Cash Balance Ending Cash Balance

3,464.1 109.9 3,574.0

708.6 3,574.0 4,282.6

809.7 4,282.6 5,092.3

Balkrishna Industries Ltd

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Key assumptions about the projected Cash Flow numbers: Depreciation rate: Historically assets have been depreciated considering the useful life of asset in the range of 11-12 years. Hence in the projected years depreciation rate is used taking useful life assets as 12 years. Capex: For the projected year the current capex and the previous years work in progress is used to calculate the cash flows. Also the maintenance capex at the rate of 9 % is considered. Working capital changes: Considering the growing market share the bargaining for BIL is assumed to have increased in FY2012. So during the projected years the payable days have been kept at high of FY2012. While in case of current assets given the softening of raw material prices and better management of stock the inventory days are kept at reduced levels of 77.5 days (FY2012) for the projected period. In case of the accounts receivable, given the fact that maximum revenues are generated from Europe and export sales, and taking into consideration the tightness in money supply in those economies the accounts receivable days are kept at increased levels of 62.1 days(FY2012) for the projected period. With rise in revenues and net cash accruals advance payments of taxes are kept at increase level of 3.2% of the Net sales of the company. Assuming that further loan is not taken by the company the interest expense in kept at levels of 277.5 million over the projected period. Dividend distribution rate: There is no constant dividend distribution rate for the company observed in the past. Hence for the projected period the dividend distribution rate is kept as an average of past three years dividend distribution rate and the dividend tax is calculated as a effective dividend distribution tax rate of the previous year. Income tax rate: It was observed that for the previous three years company has paid tax at an effective tax rate of 3233%. Hence for the projected period the tax rate was assumed to be at 32.57%. Term Loan Repayment: With healthy cash flows we have projected that company would repay its term liability by 1,500 million in the first year and 1,500 million in the second year of projection.

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DETIALED PROPOSAL: The current proposal is for sanction of: 1. Letters of Credit facility of 2352.1 million with Bank Guarantee as sub limit 290 million 2. Derivatives limits of 895.2 million.

ASSESSMENT OF LIMITS: Fund based limits: Computation of Assessed Bank Finance Year ended / ending March 31, Sales (Net) Total Current Assets (TCA) Current Liabilities (other than bank borrowings) Working Capital Gap Net working capital Assessed Bank Finance (ABF) Net Working Capital Analysis Year ended / ending March 31, NWC / TCA ABF / TCA Sundry Creditors Liabilities / TCA ( in millions) FY2012 Actual 28,445.7 11,062.4 6,304.7 4,757.7 5,122.2 (364.6) FY2013 Projections 32,712.6 14,489.9 7,375.8 7,114.1 8,126.1 (1,012.0) FY2014 Projections 38,600.8 18,423.5 8,777.5 9,646.0 11,551.5 (1,905.5)

FY2012 Actual 0.46 -0.03 Current 0.57

FY2013 Projections 0.56 -0.07 0.51

FY2014 Projections 0.63 -0.1 0.48

&

Other

As per the above table, going forward there is no requirement of fund based assessment. Assessment of Non-Fund Based Limits: Letter of Credit: The company requires letter of credit for procurement of raw material both imported and domestic. The letter of credit is required for import/purchases of raw materials like steel tyre cord, carbon black, rubber chemicals. Assessment details is given in table below -

Balkrishna Industries Ltd

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Particulars Raw materials consumption - Imported (rounded off) - Indigenous (rounded off) Procurement through L/C Imported - A1 Indigenous - A2 Sub-Total (rounded off) A Imported Lead time (30 days) + Average usance (90 days) - B1 Limit turnover (365/B1) - C1 Requirement (Imports) (A1/C1) - D1 Indigenous Lead time (15 days) + Average usance (90 days) B2 Limit turnover (365/B2) - C2 Requirement (Indigenous) (A2/C2) - D2 Total Requirement (D1 + D2) Proposed total (70% of total requirement) Additional LC limit required Total LC Limit proposed from ICICI Bank Limited Limit to be tied (10%)

FY2013 16,189.9 4,048.6 8,095.0 2,429.2 10,524.1 120.0 3.0 2,661.4 105.0 3.5 698.8 3,360.2 2,352.1 2,352.1 235.2

Bank Guarantee:
Particulaors ( in million) 1] Opening Balance as on 01st April 2] Guarantees required: a) Earnest Money Deposits : b) Security Deposits : c) Advance Payment Guarantees : d) Retention / Maintenance Guarantees : e) Guarantees on account of Sales Tax, Commercial Tax and Excise Duty payments Total : (1 + 2) 3] Less : Bank Guarantees expected to be expired during the year 4] Bank Guarantees Limit required 5] Bank Guarantees Limit recommended for sanction FY 2013 141.7 150.0 -

150.0 291.7 291.7 290.0

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Forex/ Derivative Products: The total derivative limit required for the company has been assessed in the table below: (` in millions)
Derivative Products Particulars Amount Loan Amount in (USD Million) 175.0 Exchange Rate 51.2 Loan Amount in ( million) 8,952.4 Conversion factor 0.1 Limits required ( million) 895.2
Forex Products Particulars Amount Forward Cover limit (USD million) 899.7 Credit conversion factor (%) for 1 year 0.1 Loan equivalent value (USD million) 90.0 Exchange Rate 51.2 LEV INR ( in million INR) 4,602.4

Salient terms and conditions: Facility 1: Letter of Credit

Term s and Condition Principal amount Stipulated interest rate Stipulated front end fee/ commission/renew al fee Security Validity of facility Average maturity (for ECB facilities) Repayment schedule 0 0.75% pa NIL Subservient Charge 12 Months NA NA

Facility 2: Bank Guarantee

Terms and Condition Principal amount Stipulated interest rate Stipulated front end fee/ commission/renewal fee Security Validity of facility Average maturity (for ECB facilities) Repayment schedule

million % per annum

Years

290 0.5 NA NA 1 NA NA

Balkrishna Industries Ltd

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Facility 3: Forex/ Derivative Products

Terms and Condition - Derivative Products Principal amount ( million) 8,952.4 Stipulated interest rate N.A. Stipulated front end fee/ commission/renewal fee As per treasury rates Security Subservient Charge Validity of facility 12 months Average maturity (for ECB facilities) N.A. Repayment schedule N.A.

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PROJECTIONS ( in million)

Year Ended March 31, in million No of months Total operating income (TOI) EBIDTA EBIDTA/TOI (%) Interest Depreciation Operating Profit (OP) Net of non-operating income / expenses PBT PAT PAT/TOI (%) Net Cash Accruals (NCA) Net fixed assets Tangible Networth (TNW) Exposure in subsidiaries /Group Cos. Investments Loans and advances Adjusted TNW (ATNW) Long term debt (LTD) Short term debt (STD) Working Capital Bank Finance Guarantee* Total Debt Total Debt /ATNW LTD/ ATNW Total Current Assets Total Current Liabilities Net working capital Current ratio ROCE (%) Interest cover Total debt/ EBIDTA Total debt/ NCA DSCR Note: Unaudited figures are for Q2 2013

2012 Actuals 12 28,199.6 5,650.8 20.04% 277.5 831.4 4,541.9 (559.8) 3,982.2 2,685.2 9.52% 3,371.6 12,766.0 10,786.6 322.4 322.4 10,464.3 11,358.1 3,540.3 3,951.9 18,850.3 1.80 1.09 15,378.9 10,256.7 5,122.2 1.50 18.13% 13.67 3.34 5.59 20.36

2013 Estimates 12 32,429.5 6,153.3 18.97% 277.5 1,061.8 4,814.0 21.2 4,835.3 3,260.5 10.05% 4,113.8 12,780.3 13,804.8 322.4 322.4 13,482.5 9,858.1 4,141.7 3,951.9 17,951.7 1.33 0.73 17,953.9 11,327.8 6,626.1 1.58 18.50% 16.57 2.92 4.36 22.17

2014 Projections 12 38,266.9 7,282.6 19.03% 277.5 1,540.9 5,464.2 21.2 5,485.4 3,698.8 9.67% 5,004.4 12,780.3 17,230.2 322.4 322.4 16,907.9 8,358.1 4,928.8 3,951.9 17,238.8 1.02 0.49 21,281.0 12,729.5 8,551.5 1.67 20.32% 19.88 2.37 3.44 26.24

Balkrishna Industries Ltd

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Key assumptions with respect to fin note: Revenue growth rate: BIL showed robust growth in revenues during FY2011 and FY2012. Considering the bigger base and economic pressure in Europe its biggest segment, the revenue growth is moderated at 15% for FY2013 and increased marginally to 18% in FY2014. Raw material prices: Prices of natural rubber which forms 30% of the tyre cost are expected to soften going forward with marginal increase in supply. However, prices of other raw materials are expected to remain firm over the medium term. Also, rupee is likely to appreciate in short term which will reduce the import burden of the raw materials. Considering above assumptions raw material cost is expected to remain at moderate levels and thus aid operating margins of the company. Power and fuel cost: With like fall in crude prices power and fuel cost is assumed to reduce marginally. Other manufacturing expenses: with maintenance and de-bottlenecking capex done recently on all the three factories other manufacturing expenses are also expected to soften marginally during the projected period.

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TERMS AND CONDITIONS:

Covenants 1 Facility Limit for Derivative transactions for: Business purpose other than ECB linked transactions/Buyer's credit Existing Limit- LEV (Loan Equivalent Value ) of 0.00 Proposed Limit- LEV (Loan Equivalent Value) of 895.2 million only NIL To enter into forwards, swaps, options or other derivatives ("Contracts") with ICICI Bank to hedge interest rate or currency risk 12 months from the date of sanction 12 months Security template for working capital facilities. Nil INR, USD As per treasury rates. No

2 Limit 3 Interchangeability 4 Purpose 5 6 7 8 9 10 Validity period Tenor Security Cash Margin Functional Currency Pricing Margining Clause is 11 Applicable 12 Break Clause is Applicable

No Credit Backed Limit The facility is subject to the terms and conditions contained in the standard International Swaps and Derivatives Association (ISDA) Agreement The company shall execute the ISDA Agreement in a form and manner satisfactory to ICICI Bank before entering into any Contract under the facility. In addition to the above, ICICI Bank may ask the Company to furnish the following documents from time to time: Proof of underlying transaction/declaration of underlying exposure, required by ICICI Bank from time to time. Duly executed Confirmation for every transaction in a format prescribed by ICICI Bank. Board Resolution in a format prescribed by ICICI Bank. List of Authorized Signatories Any other documents as required by ICICI Bank from time to time Underlying documents shall be collected at the time of deal. In case the underlying documents are not submitted on time, ICICI Bank reserves the right to withold the payouts and terminate the transaction at the cost and expense of the company

13 Nature of Limit 14 Documentation

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Covenants 1 2 3 5 Facility Type Proposed Limit Sublimits Bank Guarantee Performance guarantees (PBG) 290.0 million ( as a sublimit of LC ) Nil Full interchangeability between Inland Bank Guarantees and Foreign currency Bank and Letter of Credit. For meeting the working capital requirements Towards bid bond, security deposit, earnest money deposit, contract performance/ performance guarantees, advance payment and retention money purposes; Customs, central excise, sales tax, electricity, insurance purposes. 12 months from the date of Credit Arrangement Letter Security template for working capital facilities. Guarantees covering disputed liabilities 100% Performance guarantees Nil For Performance guarantee - Maximum period of BG (excluding claim period, if any) to be restricted to 60 months. The Borrower shall pay to the Bank commission as follows: Advance Payment Guarantee: 0.5% p.a. (all inclusive) PBG: 0.5% p.a. (all inclusive) 12 Commission In case of foreign currency bank guarantees, the following charges will be additional: SWIFT/communication charges 500.0 per guarantee Correspondent bank charges, if any, shall be charged on actuals. Other Charges NIL 14 Commission Collection frequency At the beginning of each quarter in advance The bank guarantees to be issued shall be as per the format acceptable to the Bank. In case of bid bond/EMD/advance payment/retention money guarantees stipulated under project exports, Bank shall obtain counter guarantees from ECGC at the expense of the If the guarantees to be issued come under EPCG scheme, bank will obtain counter guarantee of ECGC at the expense of the company. To issue Bank guarantees with URDG clause after taking the required indemnity from the To issue BG without the NWC clause or with modified NWC clause to PSU and public sector undertakings BG after taking required indemnity from the company.

6 Interchange-ability

7 Purpose

8 Validity 9 Security 10 Cash margin 11 BG Tenor

15 General

Balkrishna Industries Ltd

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KEY RISKS AND MITIGANTS

Risks Industry Business Structure Financial flexibility Promoters/Manageme nt Project risk (If any) Others, if any Medium Low Medium Medium Low NA NA

Mitigants Robust domestic and export growth. Also recent USFDA approvals will allow the company to penetrate into the regulated markets. Significant presence in different countries. Secured by first pari-passu charge over all present and future movable fixed assets and WCDL secured through hypothecation of inventories. High capacity addition, Strong global netwrok, healthy return ratios. Highly experienced and focussed promotors, and is fully compliant with the Corporate Governance norms. NA NA

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CMA form V COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE FOR WORKING CAPITAL ( in millions)

First Method of Lending

Last Year Actuals Year 2010 6,009.9 4,936.3 1,073.6 268.4 (53.8) 805.2 1,127.3 805.2 322.2

Last Year Actuals 2011 5,796.3 4,514.9 1,281.4 320.4 553.6 961.1 727.8 727.8

Last Year Actuals 2012 11,062.4 6,304.7 4,757.7 1,189.4 5,122.2 3,568.2 (364.6) (364.6)

Next Year Next Year Estimates Projections 2013 2014 14,489.9 7,375.8 7,114.1 1,778.5 8,126.1 5,335.6 (1,012.0) (1,012.0) 18,423.5 8,777.5 9,646.0 2,411.5 11,551.5 7,234.5 (1,905.5) (1,905.5)

1. Total Current Assets (Form-IV-9) 2. Other Current Liabilities (other than bank borrowings (Form-IV-14) 3. Working Capital Gap (WCG) (1-2) 4. Min. stipulated net working capital: (25% of WCG excluding export receivables) 5. Actual / Projected net working capital (Form-III-45) 6. Item-3 minus Item-4 7. Item-3 minus Item-5 8. Max. permissible bank finance (item-6 or 7, whichever is lower) 9. Excess borrowings representing shortfall in NWC (4 - 5)

Second Method of Lending 1. Total Current Assets (Form-IV-9) 2. Other Current Liabilities (other than bank borrowings (Form-IV-14) 3. Working Capital Gap (WCG) (1-2) 4. Min. stipulated net working capital: (25% of total Current Assets excluding export receivables) 5. Actual / Projected net working capital (Form-III-45) 6. Item-3 minus Item-4 7. Item-3 minus Item-5 8. Max. permissible bank finance (item-6 or 7, whichever is lower) 9. Excess borrowings representing shortfall in NWC (4 - 5)
Balkrishna Industries Ltd

6,009.9 4,936.3 1,073.6

5,796.3 4,514.9 1,281.4

11,062.4 6,304.7 4,757.7

14,489.9 7,375.8 7,114.1

18,423.5 8,777.5 9,646.0

1,502.5 (53.8) (428.9) 1,127.3 (428.9) 1,556.2

1,449.1 553.6 (167.7) 727.8 (167.7) 895.4

2,765.6 5,122.2 1,992.1 (364.6) (364.6)

3,622.5 8,126.1 3,491.6 (1,012.0) (1,012.0)

4,605.9 11,551.5 5,040.1 (1,905.5) (1,905.5)

Page 31