RISK IN RELATION TO THE FIRST ISSUE

  Draft Prospectus Dated: January 7, 2013

  Please read Section 60 B of Companies Act, 1956

KAVITA FABRICS LIMITED

  Our Company was originally incorporated with the Registrar of Companies, Gujarat, Dadra and Nagar Havelli on October 18, 2005 as Kavita Fabrics Private Limited. Pursuant to shareholders Resolution dated July 31, 2012 the Company was converted into Public Limited Company and the name was changed to Kavita Fabrics Limited. For details of the changes in our name and Registered Office, refer “History and Certain Corporate Matters” on page 94 of this Draft Prospectus.

  

Registered Office: 105, Balaji Industrial Society - 1, Udhna Magdalla Road, Surat – 395007, Gujarat, India.

Tel: +91 – 261 – 3018 759; Fax: +91 – 261 - 3018 759; Email: info@kavitafabrics.com; Website: www.kavitafabrics.com

Contact Person: Mr. Amit Merai, Compliance Officer

  

Our Promoters: Mr. Harish Chandak, Mr. Shailesh Chandak, Mrs.Sudha Chandak, Mrs Sarika Chandak

THE ISSUE

  

PUBLIC ISSUE OF 12,75,000 EQUITY SHARES OF Rs. 10/- EACH (“EQUITY SHARES”) OF KAVITA FABRICS LIMITED (“KFL” OR THE

“COMPANY” OR THE “ISSUER”) FOR CASH AT PRICE OF Rs. 40/- PER SHARE (THE “ISSUE PRICE”), AGGREGATING TO Rs. 510

LACS (“THE ISSUE”), OF WHICH, 2,07,000 EQUITY SHARES OF Rs. 10/- EACH WILL BE RESERVED FOR SUBSCRIPTION BY MARKET

MAKERS TO THE ISSUE (AS DEFINED IN THIS PROSPECTUS) (THE “MARKET MAKER RESERVATION PORTION”). THE ISSUE LESS

THE MARKET MAKER RESERVATION PORTION I.E. THE ISSUE OF 10,68,000 EQUITY SHARES OF Rs. 10 EACH IS HEREINAFTER

REFERRED TO AS THE “NET ISSUE”. THE ISSUE AND THE NET ISSUE WILL CONSTITUTE 36.71% AND 30.75% RESPECTIVELY OF

THE POST ISSUE PAID UP EQUITY SHARE CAPITAL OF THE COMPANY.

  

THE FACE VALUE OF EQUITY SHARES IS Rs. 10. THE ISSUE PRICE IS Rs. 40.

  

THE ISSUE PRICE IS 4 TIMES OF THE FACE VALUE.

  

THIS ISSUE IS BEING MADE IN TERMS OF CHAPTER XB OF THE SEBI (ICDR) REGULATIONS, 2009 (as amended from time to time)

For further details see “Issue Related Information” beginning on page 174 of this Draft Prospectus.

  

All potential investors may participate in the Issue through an Application Supported by Blocked Amount (“ASBA”) process providing details about the bank account

which will be blocked by the Self Certified Syndicate Banks (“SCSBs”) for the same. For details in this regard, specific attention is invited to "Issue Procedure" on page 180

of this Draft Prospectus. In case of delay, if any in refund, our Company shall pay interest on the application money at the rate of 15% per annum for the period of delay.

  

RISK IN RELATION TO THE FIRST ISSUE

This being the first issue of the company, there has been no formal market for the securities of the company. The face value of the shares is Rs. 10/- per Equity Share and the issue

price is 4 times the face value. The Issue Price (as determined by Company in consultation with the Lead Manager) as stated under the paragraph on “Basis for Issue Price” on page

61 of this Draft Prospectus should not be taken to be indicative of the market price of the Equity Shares after the Equity Shares are listed. No assurance can be given regarding an

active or sustained trading in the equity shares of our company or regarding the price at which the equity shares will be traded after listing.

  

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 offering. 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 Securities and Exchange Board of India

nor does Securities and Exchange Board of India guarantee the accuracy or adequacy of this document. Specific attention of the Investors is invited to the statement of Risk

Factors beginning on page 12 of this Draft Prospectus.

  

ISSUER’S ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Offer Document contains all information with regard to the Issuer and the issue,

which is material in the context of the issue, that the information contained in this Offer Document is true and correct in all material aspects 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 Equity Shares offered through this Draft Prospectus are proposed to be listed on the SME Platform of BSE Limited (“BSE”). In terms of the Chapter XB of the SEBI (ICDR)

Regulations, 2009, as amended from time to time, we are not required to obtain an in-principal listing approval for the shares being offered in this issue. However, our company

_●

has received an approval letter dated [ ] from BSE for using its name in this offer document for listing our shares on the SME Platform of BSE. For the purpose of this Issue, the

  Designated Stock Exchange will be the BSE Limited (“BSE”).

  LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE Intensive Fiscal Services Private Limited Bigshare Services Private Limited

  131,C-Wing, Mittal Tower, E-2/3, Ansa Industrial Estate, Saki Vihar Road Nariman Point,

  Sakinaka, Andheri (E), Mumbai - 400021, Maharashtra Mumbai – 400 072. Maharashtra Tel No.: +91 – 22 – 2287 0443/44/45 Tel: +91 – 22 – 4043 0200 Fax No.: +91 – 22 –2287 0446 Fax: +91 – 22 – 2847 5207 Web: www.intensivefiscal.com Website: www.bigshareonline.com Email: ipo@intensivefiscal.com Email: ipo@bigshareonline.com Contact Person: Mr. Kevin Koradia Contact Person: Mr. Ashok Shetty SEBI Registration No.: INM000011112 SEBI Registration No.: INR000001385

  ISSUE OPENS ON

  ISSUE CLOSES ON

  TABLE OF CONTENTS SECTION CONTENTS PAGE NO.

  OUTSTANDING LITIGATIONS, MATERIAL DEVELOPMENTS AND OTHER DISCLOSURES

  OUR PROMOTER GROUP AND GROUP ENTITIES 116 RELATED PARTY TRANSACTIONS 124 DIVIDEND POLICY 125

  V FINANCIAL

  INFORMATION 126

  FINANCIAL STATEMENTS 126

  FINANCIAL INDEBTEDNESS 146

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

  148

  157 GOVERNMENT AND OTHER APPROVALS 159 OTHER REGULATORY AND STATUTORY DISCLOSURES 161

  I GENERAL

  VII

  TERMS OF THE ISSUE 174

  ISSUE STRUCTURE 178

  ISSUE PROCEDURE 180

  RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES 196

  INFORMATION 247

  MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION 247 DECLARATION 249

  97 OUR PROMOTERS 111

  94 OUR MANAGEMENT

  87 HISTORY AND CERTAIN CORPORATE MATTERS

  78 KEY INDUSTRY REGULATIONS AND POLICIES

  2 DEFINITIONS AND ABBREVIATIONS

  2 PRESENTATION OF FINANCIAL, INDUSTRY AND MARKET DATA

  10 FORWARD LOOKING STATEMENTS

  11 II RISK FACTORS

  12 III INTRODUCTION

  26 SUMMARY OF OUR INDUSTRY

  26 SUMMARY OF OUR BUSINESS

  28 SUMMARY OF OUR FINANCIALS

  30 BRIEF DETAILS OF THE ISSUE

  34 GENERAL INFORMATION

  35 CAPITAL STRUCTURE

  42 OBJECTS OF THE ISSUE

  57 BASIS FOR ISSUE PRICE

  61 STATEMENT OF POSSIBLE TAX BENEFITS

  63 IV ABOUT THE COMPANY

  70 INDUSTRY OVERVIEW

  70 BUSINESS OVERVIEW

VI LEGAL AND OTHER INFORMATION 157

ISSUE RELATED INFORMATION 174

VIII MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION 197

  

SECTION I – GENERAL

DEFINITIONS AND ABBREVIATIONS

  Refers to Mr. Harish Chandak, Mr. Shailesh Chandak, Mrs. Sarika Chandak and Mrs. Sudha Chandak. For details, please see the section “Our

  SEBI Act Securities and Exchange Board of India Act, 1992, as amended from time to time.

  SEBI Securities and Exchange Board of India constituted under the SEBI Act,1992

  The Registrar of Companies located at RoC Bhavan , Opp. Rupal Park Society, Behind Ankur Bus Stop, Naranpura, Ahmedabad – 380013, Gujarat, India.

  RoC / Registrar of Companies, Gujarat, Dadra & Nagar Havelli

  Registered Office The Registered Office of our Company, situated at105, Balaji Industrial Society- 1, Udhna Magdalla Road, Surat -395007, Gujarat.

  Peer Reviewed Auditor The peer reviewed auditor of our Company, being M/s. R. T. Jain & Co., Chartered Accountants.

  Our Promoter Group Includes such persons and entities constituting our promoter group in terms of Regulation 2(zb) of the SEBI Regulations and disclosed in the chapter titled “Our Promoter Group And Group Entities” on page 116 of this Draft Prospectus.

  Promoters” on page 111 of this Draft Prospectus.

  Include such companies, firms, ventures, etc. promoted by the promoters of our Company, irrespective of whether such entities are covered under section 370(1)(B) of the Companies Act or not and disclosed in the chapter titled “Our Promoter Group And Group Entities” on page 116 of this Draft Prospectus. Our Promoters

  In this Draft Prospectus, unless the context otherwise requires, the terms and abbreviations stated hereunder shall have the meanings as assigned therewith.

  Kotak Mahindra Bank Limited Our Group Entities

  The Memorandum Of Association of our Company, as amended from time to time. Our Banker / Banker to our Company

  Board, Board of Directors or our Board The board of directors of our Company duly constituted from time to time. Director(s) The director(s) of our Company. Memorandum, our Memorandum or Memorandum of Association or MOA

  Articles or Articles of Association or AoA The articles of association of our Company, as amended from time to time.

  Company related Terms Term Description

  Unless the context otherwise indicates or implies, refers to Kavita Fabrics Limited, a public limited company incorporated under the Companies Act, 1956 with its registered office at 105, Balaji Industrial Society- 1, Udhna Magdalla Road, Surat - 395007, Gujarat.

  “KFL”, “the Company”, “our Company”, “Issuer”, “we”, “us” or “our” and “Issuer Company”

  Conventional / General Terms Term Description

  SEBI (ICDR) Regulations / SEBI SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

  Term Description

  Account maintained by an ASBA Applicants with an SCSB which will be blocked to the extent of the Application Amount. ASBA Investor Any prospective investor(s) in this Issue who apply through the ASBA process. Banker(s) to this Issue / Escrow Collection Banks

  Designated Date The date on which funds are transferred from the Escrow Account to the Public Issue Account or the Refund Account, as appropriate, or the amount blocked by the SCSBs is transferred from the ASBA Account specified by the ASBA Applicants to the Public Issue Account, as the case may be, after the Prospectus is filed with the RoC, following which the Board of Directors shall Allot Equity Shares to successful Applicants.

  Designated Branches Such branches of the SCSBs which shall collect the ASBA Forms from the ASBA Applicants and a list of which is available on www.sebi.gov.in, or at such other website as may be prescribed by SEBI from time to time.

  Depository / Depositories A depository registered with SEBI under the SEBI (Depositories and Participants) Regulations. 1996, as amended from time to time, in this case being CDSL and NSDL.

  Depositories Act The Depositories Act, 1996, as amended from time to time. Depository Participant / DP A Depository Participant as defined in the Depositories Act.

  Controlling Branches Such branches of the SCSBs which co-ordinate Applications under this Issue by the ASBA Applicants with the Registrar to the Issue and the Stock Exchanges and a list of which is available at http://www.sebi.gov.in, or at such other website as may be prescribed by SEBI from time to time.

  Basis of Allotment The basis on which the Equity Shares will be Allotted to successful Applicants under the Issue and which is described in the Chapter titled “Issue Procedure” beginning on page 180 of this Draft Prospectus.

  The bank(s) which is / are clearing members and registered with the SEBI as bankers to the Issue with whom the Escrow Account will be opened, being Axis Bank Limited and IndusInd Bank Limited

  Applications Supported by Blocked Amount (ASBA) means an application for subscribing to the Issue containing an authorisation to block the application money in a bank account maintained with SCSB. ASBA Account

  Regulations issued by SEBI on August 26, 2009, as amended, including instructions and clarifications issued by SEBI from time to time. SEBI Takeover Regulations

  The Form in terms of which the applicant shall apply for the Equity Shares of the Company. Applications Supported by Blocked Amount / ASBA

  Any prospective investor who makes an application for Equity Shares in terms of this Draft Prospectus Application Form

  Unless the context otherwise requires, the allocation of Equity Shares pursuant to this Issue Allottee Successful Applicants to whom Equity Shares are / have been allotted. Applicant

  Unless the context otherwise requires, the allotment of Equity Shares, pursuant to this Issue to the successful Applicants Allocation / Allocation of Equity Shares

  Allot / Allotment / Allotment of Equity Shares

  Issue Related Terms Term Description

  The statutory auditor of our Company, being M/s. Sanjay Maheshwari & Associates, Chartered Accountants.

  Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011, as amended from time to time depending on the context of the matter being referred to. Statutory Auditor

  Designated Market Maker(s) / K.M. Jain Stock Brokers Private Limited and Intensive Softshare Private Limited

  Term Description

  Issue Proceeds Proceeds to be raised by our Company through this Issue. Listing Agreement

  2,00,000. OCB / Overseas Corporate Body

  Non-Institutional Investors All Applicants that are not Qualified Institutional Buyers or Retail Individual Investors and who have Applied for Equity Shares for an amount more than Rs.

  NIF National Investment Fund set up by resolution F. No. 2/3/2005-DD-II dated November 23, 2005 of Government of India published in the Gazette of India.

  Net Issue The Issue (excluding the Market Maker Reservation Portion) of 10,68,000 Equity Shares of Rs. 10/- each at Rs. 40/- (including share premium of Rs. 30/-) per Equity Share aggregating to Rs. 427.20 Lakhs (Rupees Four Crores and Twenty Seven Lakhs and Twenty Thousand Only) by Kavita Fabrics Limited.

  Mutual Funds Means mutual funds registered with SEBI pursuant to the SEBI (Mutual Funds) Regulations, 1996, as amended from time to time.

  The Reserved portion of 2,07,000 Equity shares of Rs. 10/- each at Rs, 40/- (including share premium of Rs. 30/-) per Equity Share aggregating to Rs. 82.80 Lakhs (Rupees Eight Two lakhs and Eighty Thousand Only) for Designated Market Makers in the Initial Public Offer of Kavita Fabrics Limited.

  Lead Manager to the Issue, in this case being Intensive Fiscal Services Private Limited. Market Makers Reservation Portion

  Unless the context specifies otherwise, this means the Equity Listing Agreement to be signed between our company and the SME Platform of BSE Limited. LM / Lead Manager

  Issue Price The price at which the Equity Shares are being issued by our Company under this Draft Prospectus being Rs. 40/-.

  Market Maker(s) Eligible NRIs

  Issue Period The period between the Issue Opening Date and the Issue Closing Date inclusive ofboth days and during which prospective Applicants may submit their application.

  Issue Closing Date The date on which the Issue closes for subscription. Issue Opening Date The date on which the Issue opens for subscription.

  Public Issue of 12,75,000 Equity Shares of Rs. 10/- each of Kavita Fabrics Limited (“KFL” or the “Company” or the “Issuer”) for cash at a price of Rs. 40/- per Equity Share (including a share premium of Rs. 30/- per Equity Share) aggregating to Rs. 510 lakhs. The Issue will constitute 36.71% of the post issue paid up capital of the Company.

  Indian GAAP Generally Accepted Accounting Principles in India. Issue / Issue Size / Initial Public Offer

  Escrow Collection Bank(s) The banks, which are registered with SEBI as Banker(s) to the Issue at which the Escrow Account for the Issue will be opened.

  Escrow Agreement Agreement to be entered into by our Company, the Registrar to the Issue, the LM and the Escrow Collection Bank(s) for collection of the Application Amounts and where applicable, refunds of the amounts collected from the Applicants (excluding ASBA Applicants) on the terms and conditions thereof.

  Escrow Account Account opened with Escrow Collection Bank(s) and in whose favour the Applicant will issue cheque(s) or draft(s) in respect of the Application Amount when submitting an Application(s).

  NRIs from such jurisdiction outside India where it is not unlawful for our Company to make this Issue or an invitation under this Issue and in relation to whom the Draft Prospectus constitutes an invitation to subscribe to the Equity Shares issued herein. Equity Shares Equity Shares of our Company of face value of Rs. 10 each.

  A company, partnership, society or other corporate body owned directly or indirectly to the extent of at least 60% by NRIs, including overseas trust in which not less than 60% of beneficial interest is irrevocably held by NRIs directly or

  Term Description

  indirectly as defined under Foreign Exchange Management (Deposit) Regulations, 2000. OCBs are not allowed to invest in this Issue. Payment through electronic Payment through NECS, NEFT or Direct Credit, as applicable. transfer of funds

  The Prospectus, filed with the RoC containing, inter alia, the Issue opening and Prospectus closing dates and other information

  As defined under the SEBI ICDR Regulations, including public financial institutions as specified in Section 4A of the Companies Act, scheduled commercial banks, mutual fund registered with SEBI, FII and sub-account (other than a sub-account which is a foreign corporate or foreign individual) registered with SEBI, multilateral and bilateral development financial institution, venture

  QIBs/ Qualified Institutional capital fund registered with SEBI, foreign venture capital investor registered with Buyers SEBI, state industrial development corporation, insurance company registered with Insurance Regulatory and Development Authority, provident fund with minimum corpus of Rs. 2,500 lakhs, pension fund with minimum corpus of Rs. 2,500 lakhs, NIF and insurance funds set up and managed by army, navy or air force of the Union of India, insurance funds set up and managed by the Department of Posts, India Account(s) opened with the Refund Bank(s) from which refunds if any, of the

  Refund Account(s) whole or part of the Payment Amount shall be made to the Applicants (excluding ASBA Applicants)

  Refunds through electronic Refunds made through NECS, Direct Credit, NEFT or the ASBA process, as transfer of funds applicable The bank(s) which is/ are clearing members and registered with the SEBI as

  Refund Banker(s) Bankers to the Issue, at which the Refund Accounts will be opened, in this case being Axis Bank Limited. Registrar/ Registrar to the Issue Registrar to the Issue being Bigshare Services Private Limited.

  Individual Applicants, or minors applying through their natural guardians, Retail Individual Investors including HUFs (applying through their Karta) and ASBA Applicants, who have Applied for an amount less than or equal to Rs. 2,00,000.

  The form used by the Applicants to modify the quantity of Equity Shares in any Revision Form of their Application Forms or any previous Revision Form(s)

  Shall mean a Banker to an Issue registered under SEBI (Bankers to an Issue) Regulations, 1994 and which offers the service of making Application/s

  Self Certified Syndicate Banks Supported by Blocked Amount including blocking of bank account and a list of

  (SCSBs) which is available on www.sebi.gov.in, or at such other website as may be prescribed by SEBI from time to time. The deemed agreement between the SCSBs, the LM, the Registrar to the Issue

  SCSB Agreement and our Company, in relation to the collection of Applicants from the ASBA Applicants and payment of funds by the SCSBs to the Public Issue Account.

  The SME Platform of BSE for listing of equity shares offered under Chapter XB SME Platform of BSE of the SEBI (ICDR) Regulations which was approved by SEBI as an SME Exchange on September 27, 2011.

  Stock Exchange Unless the context requires otherwise, refers to, the BSE Limited.

  Intensive Fiscal Services Private Limited, K.M. Jain Stock Brokers Private Underwriters

  Limited and Intensive Softshare Private Limited The agreement dated December 10, 2012 to be entered into between the Lead

  Underwriting Agreement Manager, Underwriter, Designated Market Makers and our Company. Working Days Unless the context otherwise requires:

  (i) Till the Application / Issue closing date: All days other than a Saturday, Sunday or a public holiday;

  Term Description

  (ii) Post the Application / Issue closing date: All days other than a Sunday or a public holiday And on which commercial banks in Mumbai are open for business in accordance with the SEBI circular no. CIR/CFD/DIL/3/2010 dated April 22, 2010.

  Industry Related Terms Term Description

  CSO Central Statistical organisation

  IIP Index of Industrial Production Ktpa Kilo-Tonnes per Annum MEG Mono Ethylene Glycol MMF Man made Fibres Mtrs. Meters MW Megawatt PTA Purified Terephthalic Acid Sq. Mtrs. Square Meters T&C Textile and Clothes Industry TFO Two-for-One Twisting Machine TPA/tpa Tonnes Per Annum TPM/tpm Tonnes per Month TUFS Technology Upgradation Fund Scheme TWRFS Textile Workers Rehabilition Fund Scheme WPI Wholesale Price Index WTO World Trade Organisation

  Conventional/General Terms/Abbreviations Abbreviation Full Form

  A/c Account ACS Associate Company Secretary AGM Annual General Meeting AS Accounting Standards issued by the Institute of Chartered Accountants of India Asst Assistant AY

  Assessment Year; the period of twelve months commencing from the first day of April every year

  Bn Billion BSE BSE Limited CAGR Compounded Annual Growth Rate CDSL Central Depository Services (India) Limited CENVAT Central Value Added Tax CFO Chief Financial Officer CIN Corporate Identity Number CPC Centralized Processing Center CRR Cash Reserve Ratio Companies Act The Companies Act, 1956, as amended from time to time CSO Central Statistics Office

  Abbreviation Full Form

  GDP Gross Domestic Product GIR Number General Index Registry Number GoI/ Government Government of India HUF Hindu Undivided Family

  Merchant banker as defined under the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992 as amended

  I. T. Rules The Income Tax Rules, 1962, as amended from time to time Ltd. Limited MoF Ministry of Finance, Government of India Merchant Banker

  I. T. Act The Income Tax Act, 1961, as amended from time to time

  IRDA Insurance Regulatory and Development Authority

  IPO Initial Public Offer

  IFRS International Financial Reporting Standards

  FVCI Regulations Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000, as amended

  Depositories Act The Depositories Act, 1996, as amended from time to time DIN Director’s Identification Number DMO Debt Management Office, Ministry of Finance DP Depository Participant EBIDTA

  Foreign venture capital investor as defined in and registered under the FVCI Regulations

  FIPB Foreign Investment Promotion Board FY Financial Year FVCI

  FII Regulations Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, as amended

  FII Foreign Institutional Investor, as defined under the FII Regulations and registered with the SEBI under applicable laws in India

  Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended

  Foreign Exchange Management Act, 1999, together with rules and regulations framed thereunder, as amended FEMA Regulations

  Earnings before Interest, Depreciation, Tax, Amortisation and extra-ordinary items ECB External Commercial Borrowings ECS Electronic Clearing System EGM Extra-ordinary General Meeting EPS Earnings per Share ESIC Employee’s State Insurance Corporation FCNR Account Foreign Currency Non Resident Account FDI Foreign Direct Investment FEMA

  MICR Magnetic Ink Character Recognition MoA Memorandum of Association MOU Memorandum of Understanding Mn Million MNC Multi National Company N.A. Not Applicable NAV Net Asset Value being paid-up equity share capital plus free reserves (excluding

  Abbreviation Full Form

  reserves created out of revaluation, preference share capital and share application money) less deferred expenditure not written off (including miscellaneous expenses not written off) and debit balance of ‘profit and loss account’, divided by number of issued equity shares outstanding at the end of Fiscal. NECS National Electronic Clearing System NEFT National Electronic Fund Transfer NBFC Non-Banking Finance Company NRE Account Non-resident External Account NRIs Non-resident Indians NSDL National Securities Depository Limited NSE National Stock Exchange of India Limited NTA Net Tangible Assets OCB Overseas Corporate Bodies p.a. Per annum PAN Permanent Account Number PAT Profit After Tax PBT Profit Before Tax P/E Ratio Price/Earnings Ratio R & D Research and Development RBI Reserve Bank of India RBI Act Reserve Bank of India Act, 1934, as amended from time to time RoNW Return on Net Worth ` / ` / Rupees / INR / Rs. Indian Rupees, the legal currency of the Republic of India RTGS Real Time Gross Settlement SCRA Securities Contracts (Regulation) Act, 1956, as amended from time to time SCRR Securities Contracts (Regulation) Rules, 1957, as amended from time to time SEBI Insider Trading Regulations

  SEBI (Prohibition of Insider Trading) Regulations, 1992, as amended from time to time, including instructions and clarifications issued by SEBI from time to time

  Sec. Section Securities Act The U.S. Securities Act of 1933, as amended SICA

  Sick Industrial Companies (Special Provisions) Act, 1995, as amended from time to time Sub-Account

  Sub-accounts registered with SEBI under the Securities and Exchange Board of India (Foreign Institutional Investor) Regulations, 1995, as amended. sq.ft. Square feet sq.mtrs. Square meters TDS Tax Deducted at Source UIN

  Unique Identification Number issued in terms of SEBI (Central Database of Market Participants) Regulations, 2003, as amended from time to time

  ULIP Unit Linked Insurance Plan UoI Union of India U.S. GAAP Generally accepted accounting principles in the United States of America U.S. or US or U.S.A The United States of America

  VCFs Venture Capital Funds as defined in and registered with SEBI under the VCF Regulations.

  VCF Regulations Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, as amended

  Abbreviation Full Form

  Woking Days All days except Saturday, Sunday and public holiday Notwithstanding the following: - (i) In the section titled ‘Main Provisions of the Articles of Association’ beginning on page 197 of the Draft

  Prospectus, defined terms shall have the meaning given to such terms in that section; (ii) In the section titled ‘Financial Information’ beginning on page 126 of the Draft Prospectus, defined terms shall have the meaning given to such terms in that section; and (iii) In the chapter titled “Statement of Possible Tax Benefits” beginning on page 63 of the Draft Prospectus, defined terms shall have the meaning given to such terms in that chapter.

PRESENTATION OF FINANCIAL, INDUSTRY AND MARKET DATA

  All references to “India” are to the Republic of India and all references to the “Government” are to the Government of India.

  Financial data

  Unless stated otherwise, the financial data which are included in the Draft Prospectus are derived from the restated financial statements of the Company, prepared in accordance with Indian GAAP and the SEBI (ICDR) Regulations. The fiscal year of the Company commences on April 1st of each year and ends on March 31st of the next year. All references to a particular fiscal year are to the 12 month period ended March 31st of that year. In the Draft Prospectus, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding- off. There are significant differences between Indian GAAP, IFRS and US GAAP. The Company has not attempted to quantify their impact on the financial data included herein and urges you to consult your own advisors regarding such differences and their impact on the Company’s financial data. Accordingly to what extent, the financial statements included in the Draft Prospectus will provide meaningful information is entirely dependent on the reader’s level of familiarity with Indian accounting practices / Indian GAAP. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in the Draft Prospectus should accordingly be limited. Any percentage amounts, as set forth in “Risk Factors”, “Business Overview”, “Management’s Discussion and

  

Analysis of Financial Conditions and Results of Operations” and elsewhere in the Draft Prospectus unless otherwise

  indicated, have been calculated on the basis of the Company’s restated financial statements prepared in accordance with Indian GAAP.

  Currency of presentation

  In the Draft Prospectus, references to “Rupees” or “`” or “INR” are to Indian Rupees, the official currency of the Republic of India. All references to “$”, “US$”, “USD”, “U.S. $”or “U.S. Dollars” are to United States Dollars, the official currency of the United States of America.

  All references to ‘million’ / ‘Million’ / ‘Mn’ refer to one million, which is equivalent to ‘ten lacs’ or ‘ten lakhs’, the word ‘Lacs / Lakhs / Lac’ means ‘one hundred thousand’ and ‘Crore’ means ‘ten millions’ and ‘billion / bn. / Billions’ means ‘one hundred crores’.

  Market and industry data

  Unless stated otherwise, industry data used throughout the Draft Prospectus has been obtained from industry publications including inter alia RBI and Ministry of Finance. Industry publications generally state that the information contained in those publications 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 we believe industry data used in the Draft Prospectus is reliable, it has not been verified by any independent source. Further, the extent to which the market data is presented in the Draft Prospectus is meaningful depends on the reader’s familiarity with and understanding of the methodologies used in compiling such data. There are no standard data gathering methodologies in the industry in which we conduct our business, and methodologies and assumptions may vary widely among different industry sources.

FORWARD LOOKING STATEMENTS

  We have included statements in the Draft Prospectus which contain words or phrases such as “will”, “aim”, “is likely to result in”, “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, that are “forward-looking statements”. Similarly, statements that describe our objectives, strategies, plans or goals are also forward looking statements. These forward-looking statements are based on our current plans and expectations and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations and our future financial condition and results of operations. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following:

  General economic and business conditions in the markets in which we operate and in the local, regional, x national and international economies; Changes in laws and regulations relating to the sectors/areas in which we operate; x The performance of the Indian and Global financial markets; x Increased competition or other factors affecting the industry segments in which our Company operates; x Our ability to successfully implement our growth strategy and expansion plans, and to successfully launch x and implement various financial products; Our ability to meet our capital expenditure requirements and/or increase in capital expenditure;; x Fluctuations in operating costs and impact on the financial results; x Our ability to attract and retain qualified personnel; x Changes in technology; x Changes in political and social conditions in India, the monetary and interest rate policies of India and other x countries, inflation, deflation, unanticipated turbulence in interest rates, equity prices or other rates or prices; Any adverse outcome in the legal proceedings in which we are involved. x

  Market fluctuations and industry dynamics beyond our control; x Occurrence of natural disasters or calamities affecting the areas in which we have operations; x Conflicts of interest with affiliated companies, the promoter group and other related parties; x Contingent liabilities, environmental problems and uninsured losses; and x Changes in government policies and regulatory actions that apply to or affect our business; x

  For further discussion of factors that could cause our actual results to differ, see the section titled “Risk Factors” and chapter titled “Management‘s Discussion and Analysis of Financial Conditions and Results of Operations” beginning on pages 12 and 153 respectively of the Draft Prospectus.

  

SECTION II - RISK FACTORS

  An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information in the Draft Prospectus, including the risks and uncertainties described below, before making an investment in our Equity Shares. To obtain a complete understanding, you should read this section in conjunction with the section titled “Business Overview” beginning on page 78, “Industry Overview” beginning on page 70 and “Management's

  

Discussion and Analysis of Financial Conditions and Results of Operations” beginning on page 148 and the section

  titled “Financial Information” beginning on page 126 as well as the other financial and statistical information contained in the Draft Prospectus. The risks and uncertainties described in this section are not the only risks and uncertainties we currently face. Additional risks and uncertainties not known to us or that we currently deem immaterial may also have an adverse effect on our business, financial condition and results of operations. If any of the following risks, or other risks that are not currently known or are now deemed immaterial, actually occur, our business, results of operations and financial condition could suffer, the price of our Equity Shares could decline, and you may lose all or part of your investment. The financial and other related implications of risks concerned, wherever quantifiable, have been disclosed in the risk factors mentioned below. However, there are risk factors where the effect is not quantifiable and hence the same has not been disclosed in such risk factors. In making an investment decision, prospective investors must rely on their own examination of the Company and the terms of the Issue, including the risks involved.

  Materiality:

  The risk factors have been determined on the basis of their materiality. The following factors have been considered for determining the materiality: a) Some events may not be material individually, but may be found material collectively.

  b) Some events may have material impact qualitatively instead of quantitatively.

  c) Some events may not be material at present but may have material impact in future.

  Internal Risk Factors RISK RELATED TO OUR BUSINESS, COMPANY AND THE PROJECT Our Company and Promoters are involved in certain legal proceedings and claims in relation to tax matters, 1. which are pending at different stages before the statutory authorities.

  Our Company and Promoters are a party to certain litigations related to tax matters. No assurances can be given that these proceedings will be determined in our favour. A classification of the legal proceeding involving us and our Promoters and the monetary amount involved, wherever quantifiable, in these cases is mentioned in brief below:

  Sr. No. Nature of Litigation Particulars No. of Aggregate amount cases ascertainable (Amount in Rs.)

  1. Income Tax Related Cases involving our Company 1 12,100 (Refund)

  2. Income Tax Related Cases involving our Promoters 1 12,110 (Refund) For further details, please see “Outstanding Litigations, Material Developments and Other Disclosures” beginning on page 157 of the Draft Prospectus.

2. Our Company has not applied for VAT Registration required under Gujarat Value Added Tax Act, 2003 (GVAT Act), as amended. This may attract penalty in future.

  Fabrics are an exempted commodity under the GVAT Act, if additional excise duty is leviable in lieu of sales tax under the Additional Duties of Excise (Goods of Special Importance) Act, 1967. In our case, the yarns purchased by us are excise duty levied and hence, VAT on the fabrics manufactured by us is exempt from GVAT. As the product manufactured by our Company is not taxable under GVAT Act, hence we have not applied for the registration under the GVAT Act, even though the registration is applicable. Hence, we may be liable to penalty at the discretion of the authorities under GVAT Act.

  

3. We require certain approvals, licenses, registrations and permits for our business, and the failure to

obtain or renew them in a timely manner may adversely affect our operations.

  Our Company requires certain statutory and regulatory registrations, licenses, permits and approvals for our business. In future, we shall be required to renew such registrations and approvals and obtain new registrations and approvals for any proposed operations, including any expansion of existing operations. While we believe that we will be able to renew or obtain such registrations and approvals, as and when required, there can be no assurance that the relevant authorities will renew or issue any such registrations or approvals in the time frame anticipated by us or at all. Failure to obtain and renew such registrations and approvals with statutory time frame attracts penal provisions. If we are unable to renew, maintain or obtain the required registrations or approvals, it may result in the interruption of our operations and may have a material adverse effect on our revenues, profits and operations and profits. For further details see section on “Government and Other Approvals” beginning on page 159 of the Draft Prospectus.

  4. Our Company has applied for the registration under the Factories Act, 1948.

  Our Company has recently applied for the registration required under the Factories Act, 1948. Once our establishment falls within the purview of the Factories Act, 1948, we will be required to comply with the provisions of the said Act. Non-compliance of the same could eventually result in penalty being levied on us and prosecution.

  

5. We have issued Equity Shares during the period of last one year at a price that may be below the Issue

Price.

  We have issued certain Equity Shares to our Promoters, in the last twelve months, at a price that may be lower than the Issue Price. Details of such issuances are given in the table below:

  Allotment Date No. of Shares Issue Price (Rs.) Reason for Allotment

  March 31, 2012 5,23,600

  10 Business takeover pursuant to Share Swap Agreement

  For Further details of equity shares issued, please refer to the section titled “Capital Structure” beginning on page 42 of the Draft Prospectus.

  6. We have not entered into any definitive arrangements to monitor the utilization of the Issue Proceeds.

  As per the SEBI ICDR Regulation 2009, appointment of monitoring agency is required only for Issue size above Rs. 50,000 lakhs. Hence we have not appointed any monitoring agency and the deployment of Issue Proceeds as stated in the “Objects of the Issue” on page 57 of the Draft Prospectus is not subject to monitoring by any independent agency. Major portion of the funds being raised through this Issue will be utilized for working capital requirements which are based on the management estimates.

  

7. We propose to utilise a part of the Net Proceeds for general corporate purpose and our management will

have the discretion to deploy the funds. In any case, the deployment towards general corporate purposes out of the IPO proceeds shall not exceed 25% from the said issue.

  We propose to utilise the Net Proceeds for purposes identified in the section titled “Objects of the Issue” and we propose to utilise the balance portion of the Net Proceeds towards general corporate purposes, namely, including but not restricted to for our working capital requirements, bank deposits, deposits for renting or otherwise acquiring business premises, margin money, acquiring business assets, starting new products, obtaining new or enabling accreditations and licenses, investment in business venture, strategic alignment, strategic initiatives as per the objects of the Company, expansion into new geographies, investment in securities, brand building exercises, strengthening of our production and marketing capabilities, implementing enterprise resource planning tools and methodology, in our operations and other project related investments and commitments and execution capabilities in order to strengthen our operations. The manner of deployment and allocation of such funds is entirely at the discretion of our management and our Board, subject to compliance with the necessary provisions of the Companies Act.

  

8. Our Company has advanced Rs. 35 lakhs as application money towards purchase of land at Gujarat Eco

Textile Up-Scale Park Ltd. (GETUP) located in Surat, Gujarat in FY 2010, but the land has still not been allotted to the Company.