It was an eventful year for the industry in every sense.

The much-needed improvement in market conditions happened in the latter part of the year. The cost of raw material in the petrochemicals chain and fuels came down to a sustainable level and the demand-supply equilibrium was restored.

The Indian optical media market is over one billion discs.

The industry reaped the benefit of the fall in prices of commodity-based raw material and fuel. With demand for CD-R tapering off, the share of DVD-R started rising rapidly. Indeed, DVD-R maintained a positive growth trend during the year with robust demand from developed as well as emerging markets. Strategic Marketing and Decisions (SMD) estimates global demand for blank optical media products to be 16 billion units in 2009, as against 18 billion in 2008. However, corresponding value growth will be driven by the transition to the DVD-R format and on to Blu-ray, led by the growth in the high definition media format and the expected growth in Blu-ray drive penetration.

The global economic environment in which Moser Baer's optical media business operated was challenging for most part of the Fiscal Year. The cost of raw material in the petrochemical chain and fuel had increased substantially. But with input prices softening, the business turned around rapidly and it will continue to reap the benefit of the fall in prices of commodity-based raw materials and fuel for some time to come.

EBITDA margins for the business has declined to 23.8 per cent from 26 per cent in the previous year but recovered strongly during the second half of the year. The optical media business is significantly cash accretive, driven by robust cash margins materially lower incremental capex resulting in better asset turnover and the continued improvement in working capital cycles.

With customers increasingly migrating to new and valueadded formats, the optical media product profile is changing and this will impact volumes in the near term. However, operating parameters for the business are recovering strongly and margin improvement and upgradation in product profile will continue to positevely impact business performance. High definition media formats will give Moser Baer a growth edge over

competition and this year the industry is set to witness faster penetration.

OPPORTUNITIES AND THREATS Optical Storage Media

Opportunities 2. The Company has emerged as one of the largest players in the DVDR/RW formats in the world and continues to strengthen its position in the global market which is growing at a healthy clip of over 20% p.a. 3. Domestic market: India is one of the fastest growing markets for Optical Media. The Company has a strong Brand and presence in the channel and is well positioned to dominate this key market.

The new emerging revenue streams like animation, gaming, merchandise, etc are creating new business opportunities for E&M Industry. Next-generation technologies will reinvigorate maturing segments and drive E&M growth. Threats 2. Prices of key inputs: Polycarbonate for optical media is a critical key raw material, and is influenced by a variety of factors, including crude prices, demandsupply balance, etc. Any sharp increase in prices or demand supply imbalances could adversely impact business. The Company works on strategic sourcing relationships and has long term agreements with key vendors for critical raw materials. This should ease the impact of any pricing volatility and improve production planning.

4. Fall in product prices: As products move into the mature phase in their life-cycle, they start to emulate commodity type characteristics. Also, optical media industry has relatively high capital intensity; hence a sharp fall in prices could severely impact overall returns. The Company has been consistently improving its asset turnover by installing more efficient lines, improving product mix towards higher value added products, etc. The leadership position in high value next generation formats and resulting ability to leverage the higher profitability early in the product cycle should further improve these returns. Fungibility of equipment will reduce capital intensity while increasing sales of new formats.

The major threat in E&M Industry is rising content price and piracy.

OTHER RISKS AND ITS MITIGATION INITIATIVES a) Customer Attrition Risk Being dependent on few large customers could impact revenues in case of attrition of the customer. The Company is making efforts to introduce new customers base to maintain revenue growth with its combined value proposition of high quality standards, competitive prices, and excellent services. It has always maintained a strategic relationship cutting across business, technology and other forms of partners with all key OEMs. The company is constantly pursuing business opportunities with leading retail private label players in partnership with importers. Further the company is increasing its base among non OEM customers as well as in the domestic market.

f) Failure to enter into Long Term Contract for Critical Raw Materials and consumables: Your company is exposed to the risk of price fluctuation and supply for key raw materials. g) Cash Flow Risk Your Company operates in a high growth and capital intensive industry. Hence, it is imperative to efficiently estimate and manage cash flows in this volatile environment. The Company's working capital arrangements are well in place to guard against any uneven or unforeseen factors. Our business is significantly cash accretive, driven by higher asset turnover and continued improvement in working capital cycles.

Internal Control Systems and their Adequacy: The company has a strong, independent and adequate system of internal control procedures commensurate with the size and nature of its business to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and that transactions are authorized, recorded and reported correctly. An extensive programme of internal audits, reviews by management and documented policies, guidelines and procedures, supplements the internal control systems. The internal control systems are designed to ensure that the financial and other records are reliable for preparing financial statements and other data and for maintaining accountability of assets.