Risks

Deterioration in economic conditions: The impact of the global financial crisis and European sovereign debt crisis continues to be a cause of concern, despite concerted efforts to contain the adverse effect of these events on global recovery.

In addition to India, the Company has automotive operations in the UK, South Africa, South Korea, Spain, Thailand and in Indonesia (being commissioned). The Indian automotive industry is affected substantially by the general economic conditions in India and around the world. The demand for automobiles in the Indian market is influenced by factors including the growth rate of the Indian economy, easy availability of credit, and increase in disposable income among Indian consumers, interest rates, freight rates and fuel prices. During the global financial crisis in FY 2008-09, RBI had eased its monetary policy stance to stimulate economic activity. Subsequently, as the Indian economy started recovering from the downturn, inflation pressures increased substantially, followed by several interest rate hikes by RBI. With inflation moderating in FY 2011-12, RBI reduced interest rates (repo rate and reverse repo rate) by 50 basis points in April 2012, however, muted industrial growth along with higher inflation and higher interest rates still continue to pose downside risks to overall growth. The automotive industry in general is cyclical and economic slowdowns in the past, have affected the manufacturing sector including the automotive and related industries. Deterioration in key economic factors such as growth rate, interest rates and inflation as well as reduced availability of financing for vehicles at competitive rates, may adversely affect our automotive sales in India and results of operations.

Jaguar Land Rover operations have significant presence in the UK, North America, Continental Europe and China, as well as sales operations in many major countries across the globe. The global economic downtown significantly impacted the global automotive markets, particularly in the United States and Europe, including the UK, where Jaguar Land Rover operations have significant presence. The Company's strategy with respect to Jaguar Land Rover operations, which includes new product launches and expansion into growing markets such as China, Russia and Brazil, may not be sufficient to mitigate the decrease in demand for the products in established markets and this could have a significant adverse impact on the financial performance. In response to the recent economic slowdown, the Company further intensified efforts to review and realign our cost structure such as reducing manpower costs and other fixed costs. Jaguar Land Rover business is exploring opportunities to reduce cost base through increased sourcing of materials from low cost countries, reduction in number of suppliers, reduction in number of platforms, reduction in engineering change costs, increased use of off-shoring and several other initiatives. While the markets in the United States in FY 2011-12, have begun to show signs of recovery and stability, the UK and Europe continue to struggle. If industry demand softens because of the impact of the debt crisis, or low or negative economic growth in key markets or other factors, the results of operations and financial condition could be substantially and adversely affected.

Interest rates and other inflationary trends: Due to anti inflationary monetary policy pursued by the RBI, the interest rates continued to be at higher levels and affected the growth of EMI-driven products in India throughout FY 2011-12. The impact of high inflation, interest rates, rising wages and raw material costs, coupled with suppressed aggregate demand in the economy, severely impacted the rate of industrial growth. As the rate of inflation has started to show some easing, the RBI has lowered policy rates (i.e. repo and reverse repo) in April 2012. On April 17, 2012, the RBI reduced the Repo Rate by 50 basis points from 8.50% to 8.00% and Reverse Repo Rate from 7.50% to 7.00%. The current Repo Rate cut comes after the RBI raised it by 375 basis points during the period of March 2010 - October 2011, presumably for anchoring inflationary expectations. Although interest rate and inflation have shown some signs of softening in the recent months, there is an upside risk to inflation, which could stop further softening of interest rate cycle and have an adverse impact on the demand and consequently growth in India.

Fuel Prices: The crude oil price continued at about US$110 per barrel (Brent crude oil) throughout FY 2011-12. There are renewed concerns of rapid growth in oil demand in emerging economics and downshift in oil supply trends. As a result, the oil prices are likely to continue at higher levels. The Indian Government has removed petrol from administered price mechanism. However, diesel and cooking gas continues to be subsidized by the Government, which has impacted the Government finances due to rising subsidies. There have been discussions regarding removing diesel from the administered price mechanism and imposing levy on passenger vehicles running on diesel. The fuel prices or levies could adversely impact the demand of automotive vehicles in India, particularly passenger vehicles. Increases in fuel costs also pose a significant challenge to automobile manufacturers worldwide, especially in the commercial and premium vehicle segments where increased fuel prices have an impact on demand. The Company's product programs initiatives are aimed at improving fuel efficiency of its products and development of alternate fuel solutions.

Input Costs/Supplies: Prices of commodity items used in manufacturing automobiles, including steel, aluminium, copper, zinc, rubber, platinum, palladium and rhodium have become increasingly volatile over the past two years. While the Company continues to pursue cost reduction initiatives, an increase in price of input materials could severely impact our profitability to the extent such increase cannot be absorbed by the market through price increases and/or could have a negative impact on the demand. In addition, because of intense price competition and the considering level of fixed costs, the Company may not be able to adequately address changes in commodity prices even if they are foreseeable.

In addition, an increased price and supply risk could arise from the supply of rare and frequently sought raw materials for which demand is high, especially those used in vehicle electronics such as rare earths, which are predominantly found in China. In the past, China limited the export of rare earths from time to time. If the Company is unable to find substitutes for such raw materials or pass price increases on to customers by raising prices, or to safeguard the supply of scarce raw materials, the Company's vehicle production, business and results from operations could be affected.

Restrictive covenants in financing agreements: Some of the Company's financing agreements and debt arrangements set limits on and/or require the Company to obtain lender consents before, among other things, pledging assets as security. In addition, certain financial covenants may limit the Company's ability to borrow additional funds or to incur additional liens. In the past, the Company has been able to obtain required lender consents for such activities. If the financial or growth plans require such consents and such consents are not obtained, the Company may be forced to forego or alter plans, which could adversely affect our results of operations and financial condition.

In the event that the Company breaches these covenants, the outstanding amounts due under such financing agreements could become due and payable immediately. A default under one of these financing agreements may also result in crossdefaults under other financing agreements and result in the outstanding amounts under such other financing agreements becoming due and payable immediately. Defaults under one or more of our financing agreements could have a material adverse effect on the Company's results of operations and financial condition.

Environmental Regulations: As an automobile company, the Company is subject to extensive governmental regulations regarding vehicle emission levels, noise, safety and levels of pollutants generated by our production facilities. These regulations are likely to become more stringent and compliance costs may significantly impact the future results of operations. In particular, the US and Europe have stringent regulations relating to vehicular emissions. The proposed tightening of vehicle emissions regulations by the European Union will require significant costs for compliance. While the Company is pursuing various technologies in order to meet the required standards in the various countries in which the Company sell our vehicles, the costs for compliance with these required standards can be significant to the operations and may adversely impact the results of operations.

To comply with current and future environmental norms, the Company may have to incur additional capital expenditure and R&D expenditure to upgrade products and manufacturing facilities, which would have an impact on the Company's cost of production and the results of operations and may be difficult to pass through to its customers. If the Company is unable to develop commercially viable technologies within the time frames set by the new standards, the Company could face significant civil penalties or be forced to restrict product offerings drastically to remain in compliance. Moreover, meeting government mandated safety standards is difficult and costly because crash worthiness standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards.

The Company's product development plan is structured to allow it to develop vehicles which comply with current and expected future environmental regulations particularly in the United States covered by the CAFE and in other countries such as China.

Intensifying Competition: The global automotive industry is highly competitive and competition is likely to further intensify in view of the continuing globalization and consolidation in the worldwide automotive industry. Competition is especially likely to increase in the premium automotive categories as each market participant intensifies its efforts to retain its position in established markets while also developing a presence in emerging markets, such as China. The factors affecting competition include product quality and features, innovation and product development time, ability to control costs, pricing, reliability, safety, fuel economy, customer service and financing terms.

The Company also faces strong competition in the Indian market from domestic as well as foreign automobile manufacturers. Improving infrastructure and robust growth prospects compared to other mature markets, are attracting a number of international companies to India either through joint ventures with local partners or through independently owned operations in India. International competitors bring with them decades of international experience, global scale, advanced technology and significant financial resources. Consequently, domestic competition is likely to further intensify in the future.

Exchange and interest rate fluctuations: The Company's operations are subject to risk arising from fluctuations in exchange rates with reference to countries in which it operates. These risks primarily stem from the relative movements of the GBP, the US dollar, the Euro, the Chinese Yuan, the Russian Ruble and the Indian Rupee.

In India, the Company imports capital equipment, raw materials and components from, and also sells its vehicles in various countries. These transactions are denominated primarily in US dollars and Euros. Moreover, the Company has outstanding foreign currency denominated debt and is sensitive to fluctuations in foreign currency exchange rates. During the year, the depreciation of the Indian Rupee against the US dollar adversely impacted the borrowing cost and consequently, the results of operations. The Company has experienced and expects to continue to experience foreign exchange losses and gains on obligations denominated in foreign currencies in respect of its borrowings and foreign currency assets and liabilities due to currency fluctuations.

Jaguar Land Rover operations have significant exposure considering the vehicle sales in the US, Europe and China. In addition, Jaguar Land Rover source a significant portion of input material from European suppliers.

Although the Company engages in currency hedging in order to decrease its foreign exchange exposure, a weakening of the Indian Rupee against the US dollar or other major foreign currencies may have an adverse effect on the cost of borrowing and consequently may increase the financing costs, which could have a significant adverse impact on the Company's results of operations.

The Company also has interest-bearing assets (including cash balances) and interest-bearing liabilities, which earn interest at variable rates. The Company is therefore exposed to changes in interest rates in the various markets in which it borrows.

New products, emissions and technology- Intensifying competition, reducing product life cycles and breadth of the product portfolio, necessitates the Company to continuously invest in new products, upgrades and capacity enhancement programme. Though the Company employs sophisticated techniques and processes to forecast the demand of new products yet the same is subject to margin of error.

Further the competitors can gain significant advantages if they are able to offer products satisfying customer needs earlier than the Company able is to and this could adversely impact the Company's sales and results of operations. Unanticipated delays or cost overruns in implementing new product launches, expansion plans or capacity enhancements could adversely impact the Company's results of operations. Timely introduction of new products, their acceptance in the market place and managing the complexity of operations across various manufacturing locations, would be the key to sustain competitiveness.

Customer preferences especially in many of the developed markets seem to be moving in favour of more fuel efficient vehicles. Further, in many countries there has been significant pressure on the automotive industry to reduce carbon dioxide emissions. In many markets these preferences are driven by increased government regulation and rising fuel prices. The Company's operations may be significantly impacted if there is a delay in developing fuel efficient products that reflect changing customer preferences, especially in the premium automotive category. The Company endeavors to take account of climate protection and the ever more stringent laws and regulations that have been and are likely to be adopted. The Company focuses on researching, developing and producing new drive technologies, such as hybrid engines and electric cars. The Company is also investing in development programs to reduce fuel consumption through the use of lightweight materials, reducing parasitic losses through the driveline and improvements in aerodynamics.

In addition, the climate debate and promotion of new technologies are increasingly resulting in the automotive industry's customers no longer looking for products only on the basis of the current standard factors, such as price, design, performance, brand image or comfort/features, but also on the basis of the technology used in the vehicle or the manufacturer or provider of this technology. This could lead to shifts in demand and the value added parameters in the automotive industry.

One of the Company's principal goals is to enhance its status as a leading manufacturer of premium passenger vehicles by investing in products, R&D, quality improvement and quality control. The Company's strategy is to maintain and improve its competitive position by developing technologically advanced vehicles. Over the years, the Company has enhanced its technological strengths through extensive in-house R&D activities, particularly through the Company's advanced engineering and design centers. These centralise the Company's capabilities in product design and engineering. Further, the Company is pursuing various quality improvement programmes, both internally and its suppliers' operations, in an effort to enhance customer satisfaction and reduce future warranty costs.

Underperformance of distribution channels and supply chains: The Company products are sold and serviced through a network of authorized dealers and service centers across the domestic market, and a network of distributors and local dealers in international markets. The Company monitors the performance of its dealers and distributors and provides them with support to enable them to perform to the expectations. Any under-performance by the dealers or distributors could adversely affect the Company's sales and results of operations.

The Company relies on third parties to supply raw materials, parts and components used in the manufacture of products. Furthermore, for some of these parts and components, the Company is dependent on a single source. The Company's ability to procure supplies in a cost effective and timely manner is subject to various factors, some of which are not within its control. While the Company manages its supply chain as part of the vendor management process, any significant problems with supply chain in the future could affect the results of operations. Impact of natural disasters and man-made accidents, adverse economic conditions, decline in automobile demand, lack of access to sufficient financing arrangements could have a negative financial impact on the Company's suppliers and distributors, in turn impairing timely availability of components, or increases in costs of components.

The tragic earthquake and tsunami in Japan in March 2011, shows the vulnerability of the automotive supply chain to external shocks. Several suppliers to the automotive industry, including those to the Company, were severely impacted by the earthquake and tsunami and its after-effects. The Company, however, managed to avoid any production disruption by working with its overall supply base to temporarily resource components and help Japanese suppliers to restart production.

In managing a complex supply chain the Company has developed close relationships with both direct and indirect suppliers. The Company continues to develop long-term strategic relationships with suppliers to support the development of parts, technology and production facilities.

With respect to Jaguar Land Rover operations, as part of a separation agreement from Ford, the Company entered into supply agreements with Ford and certain other third parties for critical components. Any disruption of such transitional services could have a material adverse impact on the operations and financial condition.

Changes in tax, tariff or fiscal policies and regulations: Imposition of any additional taxes and levies designed to limit the use of automobiles could adversely affect the demand for the Company's vehicles and the results of operations. Changes in corporate and other taxation policies as well as changes in export and other incentives given by the various governments, could also adversely affect the results of operations. The Government of India had proposed a comprehensive national goods and services tax, or GST, regime that will combine taxes and levies by the central and state governments into one unified rate structure. The same was to be effective from April 1, 2012, but its implementation has been deferred. While both the Government of India and other state governments of India have publicly announced that all committed incentives will be protected following the implementation of the GST, there is no clarity all aspects of the tax regime following implementation of the GST. The implementation of this rationalized tax structure might be affected by any disagreement between certain state governments, which could create uncertainty.

The Direct Tax Code Bill 2010, or DTC, proposes to replace the existing Income Tax Act, 1961 and other direct tax laws, with a view to simplify and rationalize the tax provisions into one unified code. The DTC is currently proposed to come into effect from April 1, 2013. The various proposals included in DTC are subject to review by Indian parliament and as such impact if any, is not quantifiable at this stage.

Further, Brazil has recently increased import duty for foreign build vehicles which put pressure on margins. The Company is considering a number of options to counter this issue, including discussions with the Brazilian government to exempt a number of imported vehicles from the increased tariff.

Political instability, wars, terrorism, multinational conflicts, natural disasters, fuel shortages/prices, epidemics, labour strikes: The Company's products are exported to a number of geographical markets and the Company plans to expand international operations further in the future. Consequently, the Company is subject to various risks associated with conducting the business both within and outside the domestic market and the operations may be subject to political instability, wars, terrorism, regional and/or multinational conflicts, natural disasters, fuel shortages, epidemics and labour strikes. In addition, conducting business internationally, especially in emerging markets, exposes the Company to additional risks, including adverse changes in economic and government policies, unpredictable shifts in regulation, inconsistent application of existing laws and regulations, unclear regulatory and taxation systems and divergent commercial and employment practices and procedures.

Product liability, warranty and recall: The Company is subject to risks and costs associated with product liability, warranties and recalls, should the Company supply defective products, parts, or related after-sales services, including by generating negative publicity, which may adversely affect the Company's business, results of operations and financial conditions. Such events also require the Company, expend considerable resources in correcting these problems and could adversely affect the demand for the products. Furthermore, the Company may also be subject to class actions or other large scale product liability or other lawsuits in various jurisdictions in which it has a significant presence.

Jaguar Land Rover Pension obligations: The Company provides post-retirement and pension benefits to its employees, some of which are defined benefit plans. The pension liabilities are generally funded and the pension plan assets are particularly significant. As part of its Strategic Business Review process, the Company closed the Jaguar Land Rover defined benefit pension plan to new joiners as at April 19,2010. All new employees in the operations from April 19,2010 have joined a new defined contribution pension plan.

Lower return on pension fund assets, changes in market conditions, changes in interest rates, changes in inflation rates and adverse changes in other critical actuarial assumptions, may impact its pension liabilities and consequently increase funding requirements, which will adversely affect the Company's financial condition and results of operations.

Automobile financing business: The Company is subject to risks associated with its automobile financing business. Any defaults by the customers or inability to repay installments as due, could adversely affect the business, results of operations and cash flows. In addition, any downgrades in the Company's credit ratings may increase the borrowing costs and restrict the access to the debt markets. Over time, and particularly in the event of any credit rating downgrades, market volatility, market disruption, regulatory changes or otherwise, the Company may need to reduce the amount of financing receivables it originates, which could adversely affect the ability to support the sale of vehicles.

Further, Jaguar Land Rover offers residual value guarantees on the purchase of certain leases in some markets. The value of these guarantees is dependent on used car valuations in those markets at the end of the lease, which is subject to change. Consequently, the Company may be adversely affected by movements in used car valuations in these markets. Also, Jaguar Land Rover has arrangements in place with FGA Capital, a joint venture between Fiat Auto and Credit Agricole (FGAC) for the UK and European consumer finance, Chase Auto Finance in North America, and has similar arrangements with local providers in a number of other key markets. The Company works closely with its commercial finance providers to minimize the risk around residual values which in turn reduces the level of lease subvention.

Labour unrest: The Company's permanent employees, other than officers and managers, in India and most of the permanent employees in South Korea and the United Kingdom, including certain officers and managers, in relation to automotive business, are members of labour unions. They are covered by wage agreements, where applicable, with those labour unions.

In general, the Company considers labour relations with all of employees to be good. However, in the future the Company may be subject to labour unrest, which may delay or disrupt the operations in the affected regions, including the acquisition of raw materials and parts, the manufacture, sales and distribution of products and the provision of services. If work stoppages or lock-outs at the facilities or at the facilities of the major vendors occur or continue for a long period of time, the business, financial condition and results of operations of the Company may be adversely affected.

Jaguar Land Rover operations in key mature market: Jaguar Land Rover, which contributes approximately 63% of the Company's consolidated revenues, has a significant presence in the United Kingdom, North American and continental European markets. The global economic downturn significantly impacted the automotive industry in these markets in FY 2008-09. Even though sales of passenger cars were aided by government-sponsored car-scrap incentives, these incentives primarily benefited the compact and micro-compact car segments and had virtually no slowing effect on the sales declines in the premium car or all-terrain vehicle segments in which we operate. Although demand in these markets has recovered strongly, any decline in demand for the Company's vehicles in these major markets may in the future significantly impair the Company's business, financial position and results of operations. The strategy, which includes new product launches and expansion into growing markets, such as China, India, Russia and Brazil, may not be sufficient to mitigate a decrease in demand for the Company's products in mature markets in the future.

Growing business through mergers and acquisitions: The Company believes that its acquisitions provide opportunities to grow significantly in the global automobile markets by offering premium brands and products. The acquisitions have provided access to technology and additional capabilities while also offering potential synergies. However, the scale, scope and nature of the integration required in connection with acquisitions present significant challenges, and the Company may be unable to integrate the relevant subsidiaries, divisions and facilities effectively within our expected schedule. An acquisition may not meet the Company's expectations and the realization of the anticipated benefits may be blocked, delayed or reduced as a result of numerous factors, some of which are outside the Company's control.

The Company will continue to evaluate growth opportunities through suitable mergers and acquisitions in the future. Growth through mergers and acquisitions involves business risks, including unforeseen contingent risks or latent business liabilities that may only become apparent after the merger or acquisition is completed. The key success factors will be seamless integration and effective management of the merged/acquired entity, retention of key personnel, and generating cash flow from synergies in engineering and sourcing, joint sales and marketing efforts, and management of a larger business.

Inability to protect or preserve intellectual property: With respect to Jaguar Land Rover, the Company owns or otherwise has rights to a number of patents relating to the products, which have been obtained over a period of years. In connection with the design and engineering of new vehicles and the enhancement of existing models, the Company seeks to regularly develop new technical designs for use in its vehicles. The Company also uses technical designs which are the intellectual property of third parties with such third parties' consent. These patents and trademarks have been of value in the growth of the business and may continue to be of value in the future. Although the Company does not regard any of its businesses as being dependent upon any single patent or related group of patents, an inability to protect this intellectual property generally, or the illegal breach of some or a large group of our intellectual property rights, would have a materially adverse effect on the Company's operations, business and/or financial condition. The Company may also be affected by restrictions on the use of intellectual property rights held by third parties and it may be held legally liable for the infringement of the intellectual property rights of others in its products.

Although the Company does not regard any of its businesses as being dependent upon any single patent or related group of patents, its inability to protect this intellectual property generally, or the illegal breach of some or a large group of the company's intellectual property rights, would have a materially adverse effect on the Company's operations, business and/or financial condition.

Inability to manage growing international business: The Company's growth strategy relies on the expansion of its operations by introducing certain automotive products in other parts of the world, including Europe, China, Russia, Brazil, US, Africa, and other parts of Asia. The costs associated with entering and establishing in new markets, and expanding such operations, may be higher than expected, and the Company may face significant competition in those regions. In addition, the Company's international business is subject to many actual and potential risks and challenges, including language barriers, cultural differences and other difficulties in staffing and managing overseas operations, inherent difficulties and delays in contract enforcement and the collection of receivables under the legal systems of some foreign countries, the risk of non-tariff barriers, other restrictions on foreign trade or investment sanctions, and the burdens of complying with a wide variety of foreign laws and regulations.

Insurance coverage may not be adequate to protect us against all potential losses: The Company believes that the insurance coverage that it maintain is reasonably adequate to cover all normal risks associated with the operation of our business. To the extent that we suffer loss or damage that is not covered by insurance or which exceeds our insurance coverage, our financial condition may be affected.

Manufacturing and engineering: The Company has manufacturing facilities and design and engineering centres, located in India, the United Kingdom, South Korea, Thailand, Spain and South Africa. The Company could experience disruption to its manufacturing, design and engineering capabilities for a variety of reasons, including, among others, extreme weather, fire, theft, system failures, natural calamities, mechanical or equipment failures and similar risks. Any significant disruptions could adversely affect the Company's ability to design, manufacture and sell the Company's products and, if any of those events were to occur, the Company cannot be certain that the company would be able to shift its design, engineering and manufacturing operations to alternative sites in a timely manner or at all. Any such disruption could therefore materially affect the Company's business, financial condition or results of operations.

Regulation of production facilities: The Company's production facilities are subject to a wide range of environmental, health and safety requirements. These requirements address, among other things, air emissions, wastewater discharges, accidental releases into the environment, human exposure to hazardous materials, the storage, treatment, transportation and disposal of wastes and hazardous materials, the investigation and clean up of contamination, process safety and the maintenance of safe conditions in the workplace. Many of the Company's operations require permits and controls to monitor or prevent pollution. The Company has incurred, and will continue to incur, substantial on-going capital and operating expenditures to ensure compliance with current and future environmental, health and safety laws and regulations or their more stringent enforcement. Other environmental, health and safety laws and regulations could impose restrictions or onerous conditions on the availability or the use of raw materials required for the Company's manufacturing process. The Company's manufacturing process results in the emission of greenhouse gases such as carbon dioxide.

For Jaguar Land Rover operations, the EU Emissions Trading Scheme, an EU-wide system in which allowances to emit greenhouse gases are issued and traded, is anticipated to cover more industrial facilities and become progressively more stringent over time, including by reducing the number of allowances that will be allocated free of cost to manufacturing facilities. In addition, a number of further legislative and regulatory measures to address greenhouse gas emissions, including national laws and the Kyoto Protocol, are in various phases of discussion or implementation. These measures could result in increased costs to: (i) operate and maintain the company's production facilities; (ii) install new emissions controls; (iii) purchase or otherwise obtain allowances to emit greenhouse gases; and (iv) administer and manage the company's greenhouse gas emissions programme.

Inability to attract and retain skills: The Company believes that the Company's growth and future success depend in large part on the skills of the Company's workforce, including executives and officers, as well as the designers and engineers. The loss of the services of one or more of these employees could impair the Company's ability to continue to implement its business strategy. The Company's success also depends, in part, on the Company's continued ability to attract and retain experienced and qualified employees, particularly qualified engineers with expertise in automotive design and production. The competition for such employees is intense, and the Company's inability to continue to attract, retain and motivate employees could adversely affect its business and plans to invest in the development of new designs and products.

Outlook

In India, the current year ended with slow growth in most of the critical segments, mainly due to anti inflationary monetary policy pursued by the RBI. The current fiscal has started with a positive action by the RBI of easing of the monetary policy in April 2012, with an expectation of moderating the inflation. However, a series of such cuts would be required to revive industrial growth. Liquidity in the banking system which remained in the deficit for the whole of FY 2011-12, remains a concern. While the situation is improving in Q1 of FY 2012-13, this remains critical to ensuring sustainable growth

While there continues to concurrence over deteriorating Government finances and slowing pace of reforms, there is an expectation of fiscal consolidation back on track giving fillip to savings and capital formation. The service sector will continue to contribute positively. On the assumptions of good monsoon, the growth in agriculture is likely to be rebound. The RBI is likely to ease the monetary policy based on review of inflation. The Indian economy is likely to grow moderately at 7.6% (+ –0.25%). These factors could improve investment outlook on disposable income from Q2 of FY 2012-13.

Input costs continue to remain under pressure from increasing commodity prices. With increased intensity in the competitive scenario, pricing power remains limited and margins are likely to be under pressure.

Against this backdrop, the Company will continue to focus on providing new products and solutions to the customer with a view to reduce the Total Cost of Ownership. Along with initial acquisition price, the focus would be on improving fuel efficiency and reducing maintenance costs of the vehicles. With a view to maintain its advantage of reach and penetration, the Company will also deepen its sales and service network with a focus on up-country markets. Aggressive cost reduction continues to be a focus area to offset the increased input costs and continuously improve margins. The Company is also actively pursuing opportunities in the International markets including the possibility of CKD and SKD assembly to offset high import costs.

The Company will continue its initiative of setting up Nano Specific and UV Specific dealerships to improve reach and penetration along with providing an added focus to the products as required. It will continue to work with all partners as well as multiple financiers to work towards a best-in-class sales and service experience.

The European economy continues to struggle, with austerity measures in place in a number of countries. The economic situation and recent national election results continue to create uncertainty around European zone stability, the Euro and borrowing costs. Credit continues to be difficult to obtain for customers and the outlook remains volatile. Initial figures suggest that the UK economy has re-entered recession in the last three months. Trading conditions in the UK remain difficult. The US economy has recovered more favourably than other mature economies since the economic downturn, with GDP growth and falling unemployment, although the position remains fragile.

The Chinese economy has continued to grow strongly throughout FY 2011-12. GDP growth is likely to slow in future, although may remain above 8%. The Asia Pacific region main markets are Japan, Australia and New Zealand. These regions were less affected by the economic crisis compared to western economies and are recovering more favourably, often due to increased trade with China and other growth economies. The major constituents in other markets are Russia, South Africa and Brazil, alongside the rest of Africa and South America. These economies were not as badly affected by the economic crisis as the western economies and have continued GDP growth in the last few years, partially on the back of increased commodity and oil prices.

Jaguar Land Rover will continue to focus on profitable volume growth, managing costs, improving efficiencies to sustain the growth momentum and continuous sustainable investments in technology and products. It will also focus on increasing its presence in the growth markets such as China, Russia, India and Brazil along with launching new products and variants.

Internal Control Systems and their adequacy

The Company has an adequate system of internal controls in place. It has documented procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliances with regulations and for ensuring reliability of financial reporting. The Company has continued its efforts to align all its processes and controls with global best practices in these areas as well.

Some significant features of the internal control systems are:

The Board takes responsibility for the total process of risk management in the organisation. The Audit Committee reviews reports covering operational, financial and other business risk areas. Through an Enterprise Risk Management programme, each Business Unit addresses opportunities and the attendant risks through an institutionalized approach aligned to the Company's objectives. This is also facilitated by internal audit. The business risk is managed through cross functional involvement and communication across businesses. The results of the risk assessment and residual risks are presented to the senior management.

Material Developments in Human Resources/Industrial Relations

A cordial industrial relations environment prevailed at all the manufacturing units of the Company during the year. The permanent employees' strength of the Company (standalone) was 29,401 and that of the Tata Motors' Group (consolidated) was 58,618 as on March 31, 2012. The Company entered into a three year wage settlement with its Union at Lucknow and Uttaranchal through amicable process of negotiations.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Company's objective, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company's operations include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.