Final Results

14 May 2012

Great Eastern Energy Corporation Limited

("Great Eastern" or "the Company")

Full Year Results Year ended 31 March 2012

Great Eastern Energy Corporation Limited (LSE: GEEC), the fully integrated, leading Indian Coal Bed Methane (CBM) company, is pleased to announce its Preliminary Results for the 12 months ended 31 March 2012.

Highlights

Financials:

·; Total revenue increased by 76% to US$23.72m (year ended 31 March 2011: US$13.48m)

·; EBITDA increased by 119% to US$14.30m (year ended 31 March 2011: US$6.54m)

·; PAT [pre MTM*] US$5.41m (year ended 31 March 2011: [pre MTM*] of US$1.62 m)

·; PAT [after MTM*] loss of US$2.75m (year ended 31 March 2011: loss [after MTM*] of US$0.26m)

·; On a constant currency basis total revenue has increased 85% to Rs.1,137m (year ended 31 March 2011: Rs.614m)

·; The Company has a long term debt of US$89.14m as at 31 March 2012

* MTM (Mark to Market) is on account of the restatement of the foreign currency loans and derivatives

Upstream:

Raniganj (South) Block:

·; Production increased to 8.9 mmscfd, up 22% from May 2011 and a 6% increase from November 2011

·; A total of 116 wells drilled; including 17 deviated wells successfully drilled

·; Total of 89 wells dewatering / producing gas, a 57% increase over the previous year

·; 5 deviated wells producing gas

·; Substantial increase of 411% in 3P reserves at Raniganj (South) Block

Midstream:

·; Gas Gathering capacity increased from 15 mmscfd to 31.95 mmscfd, a 113% increase

Downstream:

·; Great Eastern continues to supply to its existing customer base while adding further new industrial customers

·; 37.53 mmscfd gas under contract / MOU, an increase of 20% over the year

·; The Company has sufficient contracts in hand to meet its projected production targets

Outlook

·; Second rig to increase production at Raniganj Block

·; Work to commence on Mannargudi Block once expected approvals received in Q2 2012

·; Work consists of 30 pilot production wells and 50 core holes

·; Offer submitted to ONGC for Raniganj (North) Block

·; 184 wells planned to be drilled over the next five years on the Raniganj Block

Prashant Modi, President and COO of Great Eastern, commented:

"2011 has seen significant progress across all areas of the business. The Rupee weakened against the US$ over the period which impacted reported US$ figures but, with an increase in production leading to higher sales, we have exceeded our market forecast figures. We will continue to drive our ramp-up in production in 2012, with a second rig being deployed at Raniganj and best in class technology being used to accelerate fracturing. The substantial reserves upgrade we made in February is a positive sign about the recoverability of the Raniganj Block.

In terms of our medium-term growth profile, approvals for the Mannargudi Block are expected in the second quarter of 2012 and work will commence soon thereafter.

The supply/demand balance for gas in India continues to provide a very attractive opportunity, which is set to continue for many years to come. Based as we are in the heart of West Bengal's large and growing industrial centre, with an outstanding resource base and the infrastructure fully in place to allow us to translate production growth directly into sales, we are ideally positioned to take advantage of this demand and deliver on our significant growth potential."

A presentation for analysts will be held at 9 am on Monday 14th May 2012 at the offices of M:Communications, 1 Ropemaker Street, London EC2Y 9AW.

For further information please contact:

Chairman's Statement

Financials

In the 12 months to 31 March 2012 Great Eastern made excellent progress across the business, in line with our expectations and delivering significant growth in production, revenue and profit.

The increase in revenue and profit was as a result of the significant uplift in gas production and corresponding sales. With existing gas sales contracts / MOUs in place, any increase in production is immediately reflected in enhanced revenue, which in turn falls through to enhanced cash flow.

Total revenue increased by 76% to US$23.72m as compared to the corresponding previous financial year, while EBITDA increased by 119% to US$14.30m. On a constant currency basis total revenue has increased 85% to Rs. 1,137m.

At the PAT level (pre MTM) the company has made a significant profit of US$5.41m as compared to profit (pre MTM) of US$1.62m during the last financial year. MTM (Mark to Market) is on account of the restatement of the foreign currency loans and derivatives.

The Company has a long term debt of US$89.14m as at 31 March 2012. The Company is in negotiations to arrange further debt facilities, which are expected to be in place during H1 2012.

The supply and demand dynamic for Indian gas, and the pricing environment, remains extremely attractive and is likely to remain so for some years to come.

Reserves, Drilling & Production

In February we announced a significant increase in our reserve numbers, as provided by independent reserve engineers Netherland Sewell & Associates, Inc. (NSAI). There has been a substantial increase of 411% in gross Proven, Probable and Possible reserves (3P) at Raniganj (South) Block and Contingent Resources (3C) have increased by 295 BCF.

We continue to make progress in the ramp up of production. A total of 116 wells have now been drilled at our world-class Raniganj block, with a total of 89 wells dewatering and producing gas, a 57% increase over the previous year.

As announced in February 2012, an independent assessment by Advanced Resources International, Inc. indicated that the coal seams of the southern area of our Raniganj block are under-saturated. Because of under-saturation character of coal seams, the dewatering time has been pushed out to 8-12 months instead of 2-3 months.

This under-saturation of coal seams is widely seen in some CBM fields in USA. For example, Powder River, North Appalachian, and portions of the Uinta and San Juan basin where, despite under-saturation, more than 30,000 wells are commercially producing.

Historical studies demonstrate that under-saturation has minimal long term effect on commercial production of the wells, and also the percentage Expected Ultimate Recovery (EUR) per well. Consequently the sole impact of under-saturation is on the time required to dewater the well to achieve initial production. 9 wells in the southern area of our Raniganj block are now producing, as opposed to 3 wells in February 2012.

Since the announcement of the half yearly results we have fracced a further 20 wells, which puts us on track to achieve our target of fraccing 40 wells per year.

The commencement of drilling deviated wells from a single well site and the drilling of multiple wells from the same location will also accelerate production, with increased time efficiency and faster completions. To date 17 deviated wells have been drilled.

Oil and Natural Gas Corporation Limited (ONGC) has opened an offer process for partners in its various CBM blocks. The Company has submitted its offer for their Raniganj (North) block which is located adjacent to the existing Raniganj (South) block of the Company. The said ONGC block covers an area of 350 sq. km and according to Directorate General of Hydrocarbons, it has a resource potential of 1.52 TCF, which is comparable with Great Eastern Energy's producing block in its vicinity.

Sales, Marketing, & Distribution

Since November 2011 additional contracts were signed for 3.24 mmscfd. In total, the Company has 37.53 mmscfd gas under contract / MOU. This represents an increase of 20% over the year.

Great Eastern is well placed to be the supplier of choice for gas resources in the highly industrialised area of West Bengal, where demand is both substantial and growing. Our position as supplier of choice to our local customers is underpinned by our fully-functioning infrastructure, including our pipeline which runs through the key industrial areas.

Mannargudi CBM Block

The Mannargudi Block covers an effective area of 667 sq. km. and is located in the southern part of the country.

The Company signed a CBM Contract for the Mannargudi block with the Government of India on 29 July 2010, and has signed the Petroleum Exploration License (PEL) with the Government of Tamil Nadu. The Company has also applied for the Environment Clearance which is in process. The approvals are expected to be in place in H1 2012 and the work will start soon thereafter which will consist of 30 pilot production wells and 50 core holes.

CSR

Great Eastern views itself as an integral part of the community in which it works, with the business designed to not only create value for the company but also to make a positive contribution to the sustainable development of the local area. The Company has added value not only in economic terms, but also through improving the quality of life in its surroundings.

While achieving high levels of safety in its operations, the company has contributed towards create primary and secondary employment in the area. Great Eastern has contributed towards improving the environment in its operational area through substitution of polluting fuels with the use of clean energy.

To encourage better mental and physical health Great Eastern sponsors a number of medical camps, blood donation camps, sporting activities, and community health initiatives in the region.

I would like to thank our management team and all personnel for their ongoing contribution to our continuing success.

Outlook

We are well placed to build on the success of the 12 months to 31 March 2012 in the current year to 31 March 2013. We will continue to drive production growth in the Raniganj Block, and project execution will be facilitated by the second rig and best-of-breed fracturing technology.

We have the infrastructure in place to meet the needs of the multiple large industrial customers in the region, and consequently each increase in production feeds directly through to revenue.

We look forward to commencing work at the Mannargudi Block on the basis of receiving the expected approvals in Q2 2012.

Looking further ahead we have an exciting drilling schedule with some 184 wells planned to be drilled over the next five years on the Raniganj block alone. We are confident that our consistent execution in growing our production will continue to deliver value to our shareholders.

Great Eastern Energy Corporation Limited

(All amounts in US dollars unless otherwise stated)

Statement of changes in equity Attributable to owners of the Company

For the year ended 31 March 2011

*Share premium represents the premium paid by the shareholders on issue of shares and is net of equity transaction costs. Under the Indian Companies Act 1956, such a reserve has a restricted usage.

1. Organization and nature of operations

Great Eastern Energy Corporation Limited ('GEECL' or 'the Company') is a public limited company incorporated in India with its registered office at M-10, ADDA Industrial Area, Asansol-713305, West Bengal, India. GEECL's shares were listed as Global Depository Receipts in the Alternate Investment Market, London, upto 27 May 2010. The Company made a publication of its prospectus in relation to the introduction of its Global Depositary Receipts ('GDRs') to the standard list on the official list of the UK Listing Authority (the 'Official List') and admission to trading on the London Stock Exchange Plc's Main Market for listed securities (the 'Main Market'). Pursuant to the admission of its GDRs to the standard list on the official list and commencement of trading in the GDRs on the main market on 28 May, 2010, trading of the Company's GDRs on AIM has been cancelled.

The Company was incorporated in 1992 to explore, develop, distribute and market Coal Bed Methane gas or CBM gas in India. GEECL originally entered into a license agreement in December 1993 with Coal India Limited (CIL) for exploration and development of CBM over an area of approximately 210 Sq. km (approximately 52,000 acres) in the Raniganj coalfields of West Bengal (the block). Following the transfer of CBM administration in India from the Ministry of Coal to the Ministry of Petroleum and Natural Gas (MoPNG), the Company entered into Production Sharing Contract (PSC) for CBM gas on 31 May 2001 with the Government of India for the block.

The PSC has been effective from 9 November 2001 as a result of the granting by Government of West Bengal of the Petroleum Exploration License on the same date and provides for a five year initial assessment and market development phase, followed by a five year development phase and then a twenty-five year production phase, extendable with the approval of the Government of India (GOI). The Company does not have any subsidiary and accordingly, does not require any consolidated financial statements. Since the Company does not have investments in associates and joint venture also, hence these are individual financial statements.

The financial statements of the Company as at and for the year ended 31 March 2012 are available upon request from the Company's registered office at M-10, ADDA Industrial Area, Asansol-713305, West Bengal, India, or at www.geecl.com.

2. Basis of preparation and measurement

a) Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by International Accounting Standards Board ('IASB').

The financial statements have been authorized for issue by the Board of Directors in its meeting held on11 May 2012.

b) Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

- Derivative financial instruments: measured at fair value

- Available for sale financial assets are measured at fair value.

- Share based payments are measured fair value.

c) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The functional currency of the Company is Indian Rupees ("Rs." or "INR"). The financial statements are presented in US Dollar (US $), which is the Company's presentation currency.

d) Use of estimates and judgments

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom be equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed in the paragraphs that follow.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

The Company invests in the development and production of coal bed methane gas. The assessment as to whether this expenditure will achieve the ultimate objective for which the technical feasibility is assured is a matter of judgment, as is the forecasting of how the product will generate future economic benefit. Finally, the period of time over which the economic benefit associated with the expenditure occurred will arise, is also a matter of judgment.

(i) Measurement of defined benefit obligation and other long-term employment benefits

The cost of defined benefit plans consisting of the gratuity plan, superannuation and compensated absences plan is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. The net employee liability for these three plans at 31 March 2012 is USD 747,293 (31 March 2011: USD 652,523) (refer note 18).

(ii) Income taxes

Significant judgment is required in determining the amount for income tax expense. There are many transactions and positions for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(iii) Impairment of property, plant and equipment

The Company assesses its properties, plant and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Such indicators include changes in the Company's business plans, changes in commodity prices and significant downward revisions of estimated reserve quantities etc. An impairment loss is recognised if the carrying value of an asset exceeds the higher of its fair value less costs to sell and the value in use.

Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, production profiles, and the outlook for global or regional market supply and demand conditions for natural gas. However, the impairment reviews and calculations are based on assumptions that are consistent with the Company's business plans and long-term investment decisions.

(iv) Functional currency

Functional currency is the currency of the primary economic environment in which the entity operates. In determining the functional currency, the Company emphasises the currency that determines the pricing of the transactions that it undertakes, rather than focusing on the currency in which those transactions are denominated.

Further, the Company also considers the following factors in determining its functional currency:

- the currency that mainly influences sales prices for goods and services;

- the currency of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services; and

- the currency that mainly influences labour, material and other costs of providing goods or services.

The Company also considers certain supplementary factors in determining the functional currency:

- the currency in which funds from financing activities are generated.

- the currency in which receipts from operating activities are usually retained.

v) Useful life of property, plant and equipment (PPE) and intangibles

The estimated useful life of PPE is based on a number of factors including the effects of obsolescence, demand, competition and other economic factors (such as the stability of the industry and known technological advances) and the level of maintenance expenditures required to obtain the expected future cash flows from such assets.

The Company reviews the useful life of PPE at the end of each reporting date.

Refer to Notes 3(b) for the Company's policy in this regard and refer to Notes 6 and 8 for carrying amounts of PPE and intangible assets.

vi ) Gas reserves

Reserves are those quantities of hydrocarbons anticipated to be commercially recoverable by application of development projects to known accumulations from a given date onwards under defined conditions. Reserves must further satisfy four criteria: they must be discovered, recoverable, commercial and remaining (as of the evaluation date) based on the development project(s) applied. Reserves are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterised by development and production status.

The reserves are estimated annually by the management based on internal best estimates or independent expert's evaluation, as considered appropriate.

Annual adjustments in reserves include changes in estimates, volume of produced gas as well as fresh discoveries made during the year. A reduction in the reserves would result in increased rate of depletion charge.

Refer to note 3(b) for the Company's policy in this regard.

vii) Site restoration obligation

The assessments undertaken in recognising provisions and contingencies is made in accordance withIAS 37, 'Provisions, Contingent Liabilities and Contingent Assets'.

A provision is recognised only when the Company has a present obligation and it is probable that rehabilitation/restoration costs will be incurred at a future date. An obligation exists when there is no realistic alternative but to undertake the rehabilitation/restoration or when the entity becomes legally or constructively obliged to rectify damage caused and restore the environment. A provision is recognised when a reasonable estimate of the obligation can be made. The amount recognised as a provision is the best estimate of the expenditure to be incurred.

Refer to Note 3 (n) for the basis of the provision for site restoration obligations and refer to Note 20 for the carrying amount of the provision.

e) Change in accounting policy

During the year ended 31 March 2011, the Company had adopted the amendment as per IAS 17, Leases. The amendment is effective for period beginning on or after 1 January 2010 and provides guidance regarding classification of leases of land, so as to eliminate inconsistency with the general guidance on lease classification. As a result, leases of land should be classified as either finance or operating, using the general principles of IAS 17.

As a result, during the previous year, the Company had changed its accounting policy with respect to those leases for land which transfer to the Company substantially all risks and rewards incidental to the ownership. Such leases amounting of USD 177,051 as at 31 March 2011 had been considered as finance leases and hence reclassified from "prepayments" to "property, plant and equipment" in accordance with the above amendment. Consequently, the cumulative amortization of prepayments amounting of USD 6,703 as at 31 March 2011 had also been reclassified to accumulated amortization on leasehold land with retrospective effect.

Change in presentation of income statement.

Till 31 March 2011, the Company had presented a single statement of comprehensive income, which includes all components of profit or loss and other comprehensive income. During the year ended 31 March 2012, the Company has changed the manner of presentation and has presented two statements, being an 'income statement' (which displays components of profit or loss) followed immediately by a separate 'statement of comprehensive income' (which begins with profit or loss as reported in the income statement and displays components of comprehensive income to sum to total comprehensive income for the year).

3. Summary of significant accounting policies

The accounting policies set out below have been applied consistently to all the years presented in these financial statements except explanation in note 2(e), which address changes in accounting policies.

a. Foreign currency transactions

Transactions in foreign currencies are retranslated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on a monetary item is the difference between its amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value, are retranslated to the functional currency at the exchange rate at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences are recognised in income statement as a part of finance income or expense as the case may be, except for difference arising on the retranslation of available for sale equity instruments which are recognized in comprehensive income.

For the purpose of conversion from the functional currency to the presentation currency, the assets and liabilities, for each balance sheet presented, are translated at the closing rate at the date of that balance sheet. Income and expense for each income statement presented are converted using an average rate of the relevant year and all resulting exchange differences are recognized as a separate component of equity viz, foreign currency translation reserve.

b. Property, plant and equipment

Property, plant and equipment is stated at historical cost including an initial estimate of dismantling and site restoration cost, less accumulated depreciation and any impairment in value. Historical cost includes expenditure that is directly attributable to the acquisition or self-construction of property, plant and equipment. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with them will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance expenditures are charged to the income statement during the financial year in which they are incurred. When any major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied.

The net carrying value of gas producing well is depleted using the unit of production method by reference to the ratio of production in the year to the related proved developed reserves.

Proved reserves are those quantities of hydrocarbons which by analysis of geo-science and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date onwards, from known reservoirs and under defined economic conditions, operating methods and government regulations. Developed reserves are expected quantities to be recovered from existing wells and facilities. Reserves are considered developed only after the necessary equipment have been installed, or when the costs to do so are relatively minor compared to the cost of a well.

Proved developed reserves are estimated by the management based on internal best estimates or independent expert's evaluation as considered appropriate. These estimates are reviewed at least annually.

Depreciation (other than on Gas producing properties) is calculated on a straight-line basis over the estimated useful life of the assets as follows -

The asset's residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each reporting date.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within other income/other expenses in the income statement. When revalued assets are sold, any related amount included in the revaluation reserve is transferred to retained earnings.

c. Capital work in progress / wells in progress

Expenses incurred for development and construction of wells are included under the heading capital work-in-progress until the wells are ready for their intended use, applying the Full Costing method. When a well is ready for its intended use, the relevant cost are transferred to gas producing properties. The cost of drilling, wire line logging and perforation services, cementing and fracturing services, which have been outsourced, have been included in well development costs. All other expenses directly attributable in respect to developing and constructing wells are capitalized and included under capital work in progress.

Inventories consumed as well as inventories lying in stock for the purpose of well development are grouped as part of capital work in progress. These items are not meant for sale in the ordinary course of business or for use as supplies in the production process of saleable gas, but are to be used towards well development and hence, are treated as capital work in progress. Advances paid for supply of capital goods and services are also grouped as part of capital work in progress.

Changes in the measurement of an existing decommissioning, restoration and similar provisions that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation, are deducted from the cost of the related asset in the current period, to the extent of the carrying amount of the asset.

d. Impairment of non-financial assets

The carrying amounts of the Company's non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, as per the requirement of relevant IFRS, the Company makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflow of other assets or group of assets (the 'cash- generating unit' or 'CGU'). The recoverable amount of an assets or a CGU is the greater of its value in use and its fair value less costs to sell. The Company has identified each of its block (i.e. 'production sharing contract / permit') as a separate CGU.

The Company's corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognised in income statement. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

e. Intangible assets

The useful lives of intangible assets are assessed to be finite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognized in the income statement.

A summary of the policies applied to the Company's intangible assets is as follows:

- Gas exploration rights are capitalized at historical costs.

- Computer software-costs associated with identifiable and unique software products controlled by the Company having probable economic benefits exceeding the costs beyond one year are recognized as intangible assets. These costs are amortized using the straight line method over their useful lives not exceeding 5 years.

Exploration and evaluation cost are related to each exploration license ('block' or 'production sharing contract' or 'permit') are initially capitalised within 'intangible under development'. Such exploration and evaluation cost may include costs of license acquisition, technical services and studies, seismic acquisition, exploration drilling testing, directly attributable overhead and administrative expenses, including remuneration of personnel and supervisory management, and the projected cost of retiring the assets (if any),but do not include general prospecting or evaluation cost incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the income statement as they are incurred.

f. Financial assets and non-derivative financial liability

Financial assets within the scope of IAS 39 are classified as either loans and receivables; or available for sale financial assets; as appropriate. The classification of financial assets depends on the purpose for which the financial assets were acquired. The management determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates this classification at each financial year end.

The Company initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument.

Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

• Loans and receivables

Loans and receivables are non- derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. They are included in current assets except for maturities greater than 12 months after the balance sheet date in which case, these are classified as non-current assets. The Company's loans and receivables comprise of 'trade and other receivables' deposits with banks' and 'cash and cash equivalents' on the balance sheet date. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired and any impairment loss is required to be recognised in the income statement. Impairment testing of receivables has been discussed in note 3(h).

The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract.

All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Company commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

• Available for sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose it off within 12 months of the end of the reporting period. Changes in the fair value of securities classified as available-for-sale are recognised in comprehensive income and presented within equity in fair value reserve. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are transferred to the income statement.

Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented in the fair value reserve in equity.

Non-derivative financial liabilities

The Company initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument.

The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The Company classifies non-derivative financial liabilities into the other financial liabilities category.

Such financial liabilities are recognised. initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

g. Derecognition of financial assets and liabilities

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires. Where the Company has transferred a financial asset and retained substantially all the risks and rewards of ownership of the transferred financial asset, the Company continues to recognize the transferred asset in its entirety and recognises a financial liability for the consideration received. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the respective carrying amounts together with any costs or fees incurred are recognised in income statement.

h. Trade and other receivables

Trade and other receivables are initially recognized at fair value. Subsequent to initial recognition, trade and other receivables are carried at amortized cost using the effective interest method less any allowance for impairment. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs.

A provision for impairment of trade and other receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. The allowance for impairment of receivables reflects management's best estimate of probable losses inherent in the accounts receivable balance. Management primarily determines the allowance based on the ageing of accounts receivable balances, historical write-off experience and customer credit worthiness. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement. When the receivable is uncollectible, it is written off against the allowance account.

i. Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and at bank and term deposits held with banks with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

j. Trade and other payables

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

k. Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or erection of qualifying assets are capitalised as part of the cost of such asset and other borrowing costs are expensed. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying assets for their intended use are complete. Borrowing costs include exchange differences (both exchange gains and losses) arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Other foreign currency gains and losses are reported under finance income and expenses on a net basis.

l. Derivatives

Derivatives initially recognised at fair value on the date the contract is entered into and subsequently remeasured at their fair value. Gains or losses arising from changes in the fair value of the derivative financial instruments are recognised in the income statement.

m. Share capital

Equity shares are classified as equity. Incremental cost, directly attributable to the issue of equity share are recognised as a deduction from equity, net of any tax effect.

n. Provisions and contingent liabilities

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as other finance expense.

These provisions are capitalized where they are directly relatable to or are expected to increase the economic benefits flowing from the use or eventual disposal of the asset, or when they represent an obligation to remediate at the end of the asset's life and are recoverable from future economic benefits of using the asset. In all other cases, they are charged to the income statement.

Site restoration

The Company's core activities give rise to dismantling, decommissioning and site disturbance remediation activities. A provision is made for the estimated cost of site restoration which is capitalised in the relevant asset category unless it arises from the normal course of production activities, in which case it is recognised in the income statement.

Contingent liabilities

Contingent liabilities are possible obligations that arise from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events not wholly within the control of the Company. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

o. Employee benefits

i. Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into fund maintained by the Government of India and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in income statement in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan which are due for more than 12 months after the end of the period in which the employees render the service, are discounted to their present value.

State administered provident fund

Under Indian law, employees are entitled to receive benefits under the Provident Fund, which is a defined contribution plan. Both the employee and the employer make monthly contributions to the plan at a pre-determined rate (currently 12%) of the employee's basic salary to a government recognised provident fund. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they accrue. Upon retirement or separation, an employee becomes entitled for this lump sum benefit, which is paid directly to the concerned employee by the fund.

ii. Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company's net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. The benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is based on the prevailing market yields of Indian government securities as at the reporting date that have maturity dates approximating the terms of the Company's obligations and that are denominated in the same currency in which the benefits are expected to be paid.

The calculation is performed annually by an actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Company if it is realisable during the life of the plan, or on settlement of the plan liabilities.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement.

The Company recognises all actuarial gains and losses arising from defined benefits plan in the income statement.

The Gratuity plan

The gratuity plan is a defined benefit plan that provides a lump sum payment to vested employees on retirement, death, incapacitation or termination of employment based on the respective employee's last drawn salary and length of employment.

The liability recognized in the balance sheet in respect of the gratuity plan is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized past-service costs. The defined benefit obligation each year, is determined by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to income statement in the period in which they arise.

Superannuation

The Superannuation (pension) plan for the Company is a defined benefit scheme where monthly contribution at the rate of 15% of salary is payable. These contributions will accumulate at the prevailing rate of interest. At the time of retirement, termination or separation of employee, accumulated contribution will be utilized to buy pension annuity from an insurance Company. The Company makes provision of such liability in the books of accounts on the basis of actuarial valuation.

iii. Other long term employee benefits

Benefits under the Company's compensated absences constitute other long-term employee benefits.

The Company's net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is based on the prevailing market yields of Indian government securities as at the reporting date that have maturity dates approximating the terms of the Company's obligations. The calculation is performed by an independent actuary using the projected unit credit method. Any actuarial gains or losses are recognised in the income statement in the period in which they arise.

iv. Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

v. Employee stock option scheme

The fair value of the employee services received in exchange for grant of options are recognised as an expense with a corresponding increase in equity (share based payment reserve). The total amount to be expensed is determined by reference to fair value of the options granted, excluding the impact of any non-market service and performance vesting conditions (for example, profitability, sales growth targets and tenure of the employee in the Company). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total amount expensed is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement of with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

In case of a modification of share based payment that changes the classification of arrangement from equity settled to cash settled, and amount equal to the fair value of liability at the date of modification is reclassified from equity to liability. If the amount of liability recognised is less than the amount previously recognised as an increase in equity, then no gain is recognised in the income statement as a result of reclassification. The company still recognises, as a minimum, the grant date fair value of the equity instruments granted as the cost of the share based payment. However any subsequent re-measurement of liability is recognised in income statement.

p. Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:

a) There is a change in contractual terms, other than a renewal or extension of the arrangement.

b) A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term.

c) There is a change in the determination of whether fulfillment is dependent on a specified asset.

d) There is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a), c) or d) and at the date of renewal or extension period for scenario b).

• Company as a lessee

Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term.

q. Revenue

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Company's activities. Revenue is shown net of value-added tax, sales tax, returns, rebates and discounts.

Other operating revenue in respect of minimum guarantee offtake is recognised on accrual basis as per contractual arrangements with customers.

Revenue from the sale of Coal Bed Methane ('CBM') and Compressed Natural Gas (CNG) in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised on sale of gas to customers at delivery point which coincides when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of products can be estimated reliably, there is no continuing management involvement with the products, and the amount of revenue can be measured reliably.

r. Finance income and expenses

Finance income includes interest income on funds invested, and changes in the fair value of financial assets or liabilities at fair value through profit or loss. Interest income is recognised as it accrues in income statement, using the effective interest method.

Finance expenses includes interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets or liabilities at fair value through profit or loss, and impairment losses recognised on financial assets.

s. Government grants

Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all the conditions attached to it will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Government grants relating to the purchase of property, plant and equipment are adjusted against the carrying amount of the related asset.

t. Taxes

Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Deferred tax

Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilized except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the accounting profit nor taxable profit or loss.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognized directly in equity is recognized in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

u. Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employee.

v. Equity instruments

Equity instruments, convertible into fixed number of equity shares at a fixed predetermined price, and which are exercisable after a specific period, are accounted for as and when such instruments are exercised. The transaction costs pertaining to such instruments are adjusted against equity.

w. Segment reporting

The Company has adopted IFRS 8, 'Operating Segments' which became effective as of 1 January 2009. An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses. All operating segment's operating results are reviewed regularly by the Chief Operating Decision Maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

The Company has only one reportable segment, i.e., gas. Accordingly, the Company has made relevant entity-wide disclosures (refer to Note 31).

x. New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 March 2012 and have not been adopted early in preparing these financial statements. None of these, except IFRS 9 'Financial Instruments', is likely to have a significant effect on the financial statements of the Company. IFRS 9 is part of the IASB's wider project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. IFRS 9 retains, but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets, amortised cost and fair value. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. The Company is in the process of evaluating the impact of the applicability of the new standard.

4. Determination of fair values

The Company's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. Fair values have been determined for measurement and/or disclosure purposes based on the following methods:

(i) Investments in mutual funds (included under available for sale financial assets)

The fair value of financial assets available for sale is determined by reference to their quoted price/net assets value declared at the reporting date.

(ii) Loans and receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. The fair value is determined for disclosure purposes only.

(iii) Non-derivative financial liabilities carried at amortised cost

Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. In respect of the liability component of convertible debentures, the market rate of interest is determined by reference to similar liabilities that do not have a conversion option. The fair value is determined for disclosure purposes only.

(iv) Equity-settled share-based payments

The fair value of stock options is measured using a Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility, weighted average expected life of the instruments, expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

(v) Derivative financial instruments

The fair value of interest rate swaps is based on the quotes provided by the concerned authorised dealer. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Company and counterparty, when appropriate.

5. Financial risk management

Overview

The Company's activities expose it to a variety of financial risks that arise as a result of its exploration, development and production of CBM and CNG and also financing activities. These are as under:

a) Market risk

b) Credit risk

c) Liquidity risk

d) Operational risk

Risk management framework

This note presents information about the Company's exposure to each of the above risks, the Company's objectives; policies; and processes for measuring and managing such risks, and the Company's management of capital. Further, quantitative disclosures are included through these financial statements, wherever considered appropriate.

The Board of directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The Board has established the Risk Management Committee, which is responsible for developing and monitoring the Company's risk management policies. The Committee reports regularly to the Board of Directors on its activities.

During the year ended 31 March 2012, the Company has amended the risk management policy by including the following clauses to facilitate the Company to enter into Indian Rupee derivative transactions and arrangements pursuant to the guidelines/norms of Reserve Bank of India:

(i) The risk limit for various risk exposures.

(ii) Hedging in cases where currency of the hedge is different from the currency of the underlying exposure.

(iii) Various types of cost reduction structure as permitted and defined by the Reserve Bank of India

The Board of Directors is also responsible for reviewing and updating the risk profile, monitoring the effectiveness of the risk management framework and reviewing at least annually the implementation of the risk management policy and framework.

The purpose of the Risk Management Committee is to assist the Board in fulfilling its corporate governance in overseeing the responsibilities with regard to the identification, evaluation and mitigation of operational, strategic and external environment risks.

The Committee has overall responsibility for monitoring and approving the risk policies and associated practices of the Company. The Risk Management Committee is also responsible for reviewing and approving risk disclosure statements in any public documents or disclosures.

The Board of Directors approves the Risk Management Policy and associated frameworks, processes and practices of the Company. There are periodic reviews to update the policy by the Board of Directors on its own, or as recommended by the risk management committee. The Risk Management Committee evaluates the significant risk exposures of the Company and takes actions to mitigate the exposures in a timely manner.

The Board reviews the performance of the Risk Management Committee annually.

The Board of Directors oversees management's establishment and execution of the Company's risk management framework. The Company's Risk management policies are to identify and analyse the risks faced by the Company, to set appropriate risk controls, and to monitor risks and adherence to market conditions and the Company's activities.

The Company has established policies covering all the financial risks, namely market risk, credit risk and liquidity risk.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial assets and financial liabilities are disclosed in Notes 2 and 3 to the financial statements.

a) Market risk

Market risk is the risk that arises from changes in market prices, such as commodity prices, foreign exchange rates interest rates and equity prices and will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Company is exposed to interest rate risk that arises mainly from debt. The Company is exposed to interest rate risk because the fair value of fixed rate borrowings and the cash flows associated with floating rate borrowings fluctuate with changes in interest rates.

The Company is exposed to market risk with respect to its investments in mutual funds and change in foreign exchange rates.

i) Currency risk:

The Company's exposure to foreign currency risk arises from foreign-currency denominated liabilities on account of purchase of services and materials from foreign contractors and suppliers and foreign currency denominated borrowings. The Company does not hold any financial assets denominated in any currency other than INR.

The Company has entered into various derivative contracts with banks.

The Company's exposure to foreign currency risk was based on the following amounts as at the reporting dates (in equivalent US dollars):

The following exchange rates against USD 1 and EURO were applied to the currencies which are generally used by the Company:

Sensitivity analysis

A strengthening of the US dollar and Euro, as indicated below, against the INR as at 31 March 2012 and 31 March 2011 would have increased/(decreased) profit or loss by the amounts shown below (without considering any consequential impact). This analysis is based on foreign currency exchange rate variances that the Company considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables remain constant.

Any change in the exchange rate of INR against currencies other than USD and Euro is not expected to have significant impact on the Company's profit or loss.

A weakening of the USD and EURO against the above currencies at 31 March 2012 and 31 March 2011 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant (without considering any consequential impact).

ii) Interest rate risk

All the financial assets and financial liabilities of the Company are either interest-free or at a fixed rate of interest except for borrowings at various floating rates linked to prime lending rates of respective banks. The carrying value of this loan as at 31 March 2012 is USD 89,022,595 (31 March 2011: USD 86,609,004). Accordingly, the Company is exposed to cash flow interest rate risk on its secured loans.

The Company analyses its interest rate exposure regularly. Various scenarios are analysed taking into consideration refinancing, alternative financing, etc., based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift.

Fair value sensitivity analysis for fixed rate instruments and derivative financial instruments

The Company does not account for any fixed rate financial asset and liabilities at fair value through profit or loss account and the Company does not designate derivatives (interest rate swap) as hedging instruments, under fair value hedge accounting model. Therefore, change in interest rate at reporting date will not affect profit or loss.

Cash flow sensitivity analysis for variable rate instruments

A change of 100 bps in interest rates as at the reporting dates would have increased/(decreased) profit or loss by the amounts shown below:

iii) Price risk:

The Company's exposure to securities price risk arises primarily from investment made in the units of mutual funds classified in the balance sheet as available-for-sale financial assets. To manage its price risk arising from investments in mutual fund units, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company. The Company measures the price risk as a product of the mutual fund units held and net asset value of the units. It has not entered into any contracts to hedge such exposure in absence of practice of taking cover against such risk.

At 31 March 2012, the Company does not have any units of mutual funds. Accordingly if price of the units had weakened/ strengthened by 5%, equity for the year would have been USD Nil (31 March 2011: USD 8,670) lower/higher respectively. The sensitivity analysis is based on a reasonably possible change in the net asset value of the units computed from historical data and is representative of the price risk inherent in financial assets reported at the balance sheet date.

b) Credit risk

Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The Company makes advances to suppliers and vendors in the normal course of its business and generally requires bank guarantees from them against these advances. The Company also makes advances to employees and places security deposits with related parties and restricted margin money deposits with banks. The majority of the Company's sales to its customers are on credit and it generally requires these customers to provide bank guarantees against the sales made to them. These transactions expose the Company to credit risk on account of default by any of the counterparties. Credit risk is managed through credit approvals and continuously monitoring the creditworthiness of counterparties.

The below table discloses by class of financial instruments, the maximum amounts of exposures to credit risk as at the balance sheet date without taking into account any collateral or credit enhancements.

* The Company holds bank guarantees against trade receivables amounting to USD 892,561 (31 March 2011: USD 739,857). The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (where available) or to historical information about counterparty default rates. The below table provides information in that respect.

c) Liquidity Risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities. The Company ensures flexibility in funding by maintaining availability under committed credit lines. The unused amount under the line of credit as of the balance sheet date is to the tune of USD 5,877,561 (31 March 2011: USD 20,395,431). These unused amounts pertain to the credit facility availed from the bank. The management prepares quarterly budgets based on the business plans and needs and submits the same to the bank for disbursement of funds in the following quarter. In addition, the Company's liquidity management policy involves considering the level of liquid assets necessary to meet the funding requirement; monitoring balance sheet liquidity ratios against internal requirements and maintaining debt financing plans.

Capital risk management

The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for stakeholders. The Company also proposes to maintain an optimal capital structure to reduce the cost of capital. Hence, the Company may adjust any dividend payments, return capital to shareholders or issue new shares. Total capital is the equity as shown in the balance sheet. Currently, the Company primarily monitors its capital structure in terms of evaluating the funding of potential new investments. The Directors are in the process of further enhancing the Company's systems for monitoring capital use.

Consistent with others in the industry, the Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the balance sheet) less cash and cash equivalents. Total capital is the sum of equity and debt as shown in the Statement of financial position calculated as 'equity' as shown in the balance sheet plus net debt.

The above amounts are disclosed based on information provided internally by the key management personnel of the Company.

 Fair value estimation

The fair value of Company's financial assets and financial liabilities significantly approximate their carrying amount.

Set out below is a comparison of carrying amounts and fair values by class of the Company's financial instruments with reference to the corresponding IAS 39 measurement categories that are carried in the financial statements.

* LaR = loans and receivables

**AfS = available for sale-investments

*** FLaC = financial liability at amortised cost

****FVPL=fair value through profit and loss.

Trade receivables, cash and cash equivalents and financial assets (current) have remaining terms of less than one year and are non-interest bearing. Therefore, their present value as of the reporting date is approximately the same as their fair value.

Trade liabilities and other financial liabilities (current) have remaining terms of less than one year and are non-interest bearing. Therefore, their present value as of the reporting date is approximately the same as their fair value

Effective 1 January 2009, the Company adopted the amendment to IFRS 7 for financial instruments that are measured in the Statement of financial position at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

d) Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes; personnel; technology; and infrastructure, and from external factors (other than credit; market; and liquidity risks) such as those arising from perspective of legal and regulatory requirements and generally accepted standards of corporate behavior.

The Company's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company's reputation with overall cost effectiveness.

The Company has an Internal Control Framework which identifies key controls and supervision of operational efficiency of designed key controls. The framework is aimed to providing elaborate system of checks and balances based on self-assessment. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:

- requirements of appropriate segregation of duties, including the independent authorisation of transactions;

- requirements of reconciliation and monitoring of transactions;

- compliance with regulatory and other legal requirements;

- documentation of controls and procedures;

- requirements of periodic assessment of adequacy of controls and procedures to address the risks identified;

- requirements of reporting of operational losses and proposed remedial action;

- development of contingency plans;

- training and professional development;

- ethical and business standards;

- risk mitigation, including insurance, where this is effective.

Derivative Instruments

The Company enters into various derivative instruments. These derivative instruments are fair valued as at the year end. The details of derivative liabilities and assets instruments as at the year end are as below:-

6. Property, plant and equipment