Hcl

MANAGEMENT DISCUSSION AND ANALYSIS The Year 2004-05 has been a landmark year, with the company having crossed USD 1 Billion in revenue during the course of the year. The Company has consolidated its position as the market leader in the various product segments it operates in. Further it has taken several initiatives in opening new markets, partnering with global leaders to offer additional products, and increasing its sales and support reach in the ICT space. As the adoption of IT and Communication becomes more prevalent in business and daily use, the company with these new initiatives is poised to harness the same. Info Processing Business HCL Infosystems is one of the very few organizations that cater to the IT products, infrastructure & services needs of customers over the entire spectrum of users ranging from Large Enterprises, Government, Banking, Financial services, Education & Research, SME, SoHo & Home. The Company has built a large & loyal customer base in each of the above segments across the country. During the last year the PC & Server range saw volumes grow. The Company retained its leadership position in the Commercial PC segment for the fifth year in a row. It increased its market share to 14.2 %, with the IDC rating it as the largest selling PC brand of the country. The year saw introduction of several new models both in PCs and Servers. The Company maintained its track record of launching new technology products in India at the same time as they were released worldwide. Some of the new innovative products launched in the commercial space were the 6 in 1 PC, a product that provides six users simultaneously an independent secure computing experience on one PC. The company released a secure PC for the ITES segment, a product specifically designed to reduce the incidence of data theft in an ITES environment. On the server front the company released rack server products typically required by high density users, in addition to the launch of a number of programs towards adoption of servers by enterprises in the mid market segment. Some of them are the ISV Partner programs, the program for certification of servers by leading software vendors etc. The Company augmented its support network, which now has 2000+ trained engineers and a direct presence at 300+ locations. The Company has improved processes to ensure faster and accurate deliveries to customers across the country, to meet up with the growing numbers. The year saw the Company acquire a large number of new customers. The Company continues to bag large prestigious orders from our existing clients like the State Bank of India, Canara Bank, ACC, Department of Posts, Sun Pharmaceuticals, Seimens, Hindustan Aeronautics Ltd, HDFC Standard Life Insurance etc. The initiatives on the System Integration front saw the Company successfully commission and handover the country’s largest internet backbone network to M/s. BSNL Limited. Another major project executed and handed over was the School computerization project from the “Department of School Education”, Government of Punjab. HCL did a turnkey job of supplying, installing and commissioning computers and related infrastructure in 1287 schools across rural and urban Punjab. The Company has won several prestigious projects on solutions around Oracle, SAP, Broad Vision, Filenet, among others. The Company today is addressing a number of opportunities in the system integration space by leveraging its understanding of multiple technologies and the domain knowledge of various customer businesses. In the consumer PC segment, the Company emerged as the most preferred PC brand, increasing its market share from 4.9% in 2003 to 12.8% in 2004. The Company broke the PC price barrier by launching EzeeBee Pride at Rs. 12990/-, making branded PCs more affordable than ever before. The company launched another first in the Indian Market, a PC on EMI scheme @ Rs. 499/-. Taking a leadership role it worked with the banking and finance industry in bringing out such a scheme, to address the latent potential among the middle-income group consumers. Other initiatives include launch of HCL-BSNL Broadband PC, Govt. Aided PC Purchase Program (GAPP). In a strategic tie up with leading technology partners the Company launched for state governments, a low cost HCL Ezeebee with Operating system for Rs. 18000/-. In addition to this, the Company also introduced digital cameras, MP3 players and inkjet printers for its Home/SoHo users. As lifestyle are getting more digital, these products will increasingly find acceptance amongst the customers. HCL Ezeebee, the value PC launched last year, notched up good volumes this year, indicating high acceptance at the customer level. Going forward, the Company is targeting newer segments like retail and rural to capitalize on the emerging opportunities. Continuing its innovative strategy, the Company launched RP2 system for the semi urban & rural areas, a solution for providing uninterrupted power for four to six hours for a computer user in areas with power shortage. On the whole, the Company will endeavor to continue to offer leading-edge technology and provide best value for money products & services to its customers. Imaging & Communications Business The year saw your Company rapidly increase its customer base by offering new products and solutions. On the Imaging front, the Company was ranked No. 1 in India for the Toshiba A3 Multi Functional products it takes to

4

market. The Company also maintained its leadership position in digital projectors, for the Infocus & Toshiba range of multimedia projectors that it markets. The Company cornered a market share of 35% of the total market with these two products. The Company introduced new products like Konica Minolta printers, LCD TVs and Audio Visual System Integration (AVSI) solutions. The introduction of AVSI solutions met with encouraging response from customers. The Company bagged major orders from HDFC, Deccan Aviation, Tamil Nadu Police, Reliance Petro, Lafarge, Ranbaxy, Chennai Police, Essar, DHL, Hutch, Bharti Infotel, Aviva & ONGC. In corporate networking and managed networks segment, the Company continued to add more customers for its range of solutions and services. The Company services prestigious clients from different business verticals across the country. The Company has invested in infrastructure and services that ensures a consistent level of service delivery to each of its customers, thereby keeping up its commitment of maximizing customer satisfaction. During the course of the year the Company launched a complete End-to-End enterprise IP telephony and Global IP VPN services for its customers in India in partnership with Virtela. The Company added some prestigious customers like Royal Airways, Millennium Care, Balmer & Lawrie, Suzlon to name a few. On the telecom front, the Company consolidated its position as a trusted provider of communication equipments for Enterprise connectivity. In Telecom Services business, the Company in partnership with Ericsson launched a slew of products for Business Conferencing, Broadband and Mini Link Radio. The Company emerged as a major player in video conferencing business in the country. The Company formally handed over the largest EPABX installation in the country at IIT Kharagpur, which consists of 14000 lines providing traditional telephony, IP telephony & ADSL broadband connectivity to the entire campus. On the Telecom System Integration space the Company executed orders for integrated voice & data solution (Police Dial 100) for the Police Force – a solution that helps the Police force to deploy its resources in a timely and more efficient manner and in turn enable it to serve the citizens better. The Company ramped up its sales & distribution network and support infrastructure to service the growth in customer demand for GSM telephones. The Company leveraged its distribution network strength to introduce a slew of new handset models at various price points based on different technologies. All this contributed to the increase in market share of Nokia GSM phones.

5

FINANCIAL COMMENTS ON CONSOLIDATED OPERATIONS FOR THE YEAR ENDED 30TH JUNE, 2005 FINANCIAL PERFORMANCE

1.

Gross Revenue: Revenue grew by 76% from Rs. 4412 crores in the previous year to Rs. 7784 crores in the current year. Revenue for the Parent Company grew by 29% from Rs. 1522 crores in the previous year to Rs. 1967 crores in the current year.

2.

Other Income: Other income for the current year is Rs. 51 crores as against Rs. 29 crores in the previous year. It includes income from investment in Mutual Funds Rs. 11 crores (Previous Year Rs. 12 crores), interest income Rs. 12 crores (Previous Year Rs. 9 crores) and gains from foreign exchange fluctuation Rs. 14 crores (Previous Year Rs. 4 crores).

3.

Gross Margins: Gross margins for the current year are at Rs. 603 crores as against Rs. 445 crores in the previous year. Gross margins for the Parent Company are at Rs. 332 crores as against Rs. 282 crores in the previous year.

4.

Personnel Costs: Staff Costs

Staff cost for the current year increased to Rs. 145 crores from Rs. 108 crores in the previous year. Manpower increased from 3287 as at June 2004 to 3879 as at June 2005. Staff cost is 1.9% of sales for the current year as against 2.5% in the previous year. Staff cost for the Parent Company for the current year is Rs. 102 crores as against Rs. 78 crores in the previous year.

#FY 03 exclude discontinued Software business

5.

Administrative, Selling, Distribution and Others: Expenses amounted to Rs. 190 crores, as against Rs. 127 crores in the previous year. The expenses as a % to sales declined to 2.4% from 3.0%. Expenses for the Parent Company amounted to Rs. 105 crores, as against Rs. 80 crores in the previous year.

6.

Operating Profit (EBIDT): Operating profit excluding ‘Other income’ grew by 28% from Rs. 209 crores in the previous year to Rs. 268 crores.

7.

Finance Charges: Finance charges for the year is Rs. 8 crores as against Rs. 9 crores in the previous year.

8.

Profit Before Tax: PBT grew by 40% from Rs. 212 crores in the previous year to Rs. 296 crores in the current year. PBT for Parent Company grew by 16% from Rs. 128 crores in the previous year to Rs. 149 crores in the current year.

9.

Profit After Tax: Profit after tax grew by 30% from Rs. 175 crores in the previous year to Rs. 228 crores. The profits for the current year are after a provision for Rs. 65 crores for current tax expense, Rs. 2 crores for deferred tax expense and Rs. 1 crore for Fringe Benefit Tax applicable from April 05. Profit after tax for the Parent Company grew by 10% from Rs. 121 crores in the previous year to Rs. 133 crores.

6

FINANCIAL COMMENTS ON CONSOLIDATED OPERATIONS FOR THE YEAR ENDED 30TH JUNE, 2005 10. Dividend:

Dividend

310%

210%

100%

FY 03

FY 04

The Company continued with the practice of declaring quarterly dividends. Accordingly, it distributed dividends @ 70% in each of the first three quarters. The company proposes to pay a final dividend of 100% per fully paid up equity share of Rs. 2/- each. The interim dividends paid together with proposed final dividend total to 310% for the current year, entailing an outflow of Rs. 117 crores, including distribution tax.

FY 05

11. Earning Per Share: Consolidated Basic EPS grew from Rs. 10.9 in the previous year to Rs. 13.7 in the current year. Diluted EPS grew from Rs. 10.2 in the previous year to Rs. 12.9 in the current year. Basic EPS of the Parent Company grew from Rs. 7.5 in the previous year to Rs. 8.0 in the current year. Diluted EPS grew from Rs. 7.0 in the previous year to Rs. 7.5 in the current year.

Calculated on equity shares of Rs. 2/- each

7

FINANCIAL COMMENTS ON CONSOLIDATED OPERATIONS FOR THE YEAR ENDED 30TH JUNE, 2005 FINANCIAL CONDITIONS 1.

Net Worth/Shareholders Funds: Net Worth as on 30th June 2005 is Rs. 555 crores. Share capital as at 30th June, 2005 is Rs. 33.4 crores divided into 16.7 crores shares of Rs. 2/- each. Reserves & surplus as at 30th June 2005 is Rs. 521 crores after appropriating Rs 117.3 crores for three quarterly interim and final dividends. Net worth of the Parent Company is Rs. 435 crores. The book value per Rs. 2/- share of the Parent Company increased from Rs. 24 as on 30th June 2004 to Rs. 26 as on 30th June 2005. During the year, the Company allotted 5.46 lakh shares of Rs. 10/- each (sub divided into 27.32 lakh shares of Rs. 2/- each) under the Employee Stock Options realizing Rs. 21.5 crores. The increase in share capital on account of ESOP is Rs. 0.5 crores and increase in reserves is Rs. 21.0 crores.

2.

Borrowings: Year-end loan balances marginally increased from Rs. 72 crores as on 30th June 2004 to Rs. 81 crores as on 30th June 2005. The Debt:Equity dropped from 15% to 13%.

3.

Fixed Assets: Net block as on 30th June 2005 is Rs. 76 crores. During the current year, the Company made capital expenditure of Rs. 27 crores mainly for acquisition of Land in Uttaranchal, expanding customer support network, one time license fee to DOT for Internet Business and additions to Plant & Machinery. The Company retired various assets with a Gross block of Rs. 25 crores and a net book value of Rs. 0.1 crores. Net block of Parent Company as on 30th June 2005 is Rs. 53 crores.

4.

Inventories: Inventories increased from Rs. 280 crores as on 30th June 2004 to Rs. 349 crores as on 30th June 2005. The inventory turn over on sales grew from 15.7 times in the previous year to 22.3 times in the current year. Inventories of Parent Company increased from Rs. 161 crores as on 30th June 2004 to Rs. 188 crores as on 30th June 2005. The inventory turn over on sales grew from 9.4 times in the previous year to 10.5 in the current year.

5.

Debtors: Debtors increased from Rs. 416 crores as on 30th June 2004 to Rs. 532 crores as on 30th June 2005. Debtors as number of days of sale stands reduced to 25 days as on 30th June 2005 from 34 days as on 30th June 2004. Debtors of Parent Company increased from Rs. 295 crores as on 30th June 2004 to Rs. 370 crores as on 30th June 2005. Debtors as number of days of sale stands reduced to 69 days as on 30th June 2005 from 71 days as on 30th June 2004.

6.

Liquid Assets (Investment in Mutual Funds and Fixed Deposits with Banks): Liquid Assets as on 30th June 2005 are at Rs. 253 crores as against Rs. 254 crores as on 30th June 2004. These exclude cash in hand & balances with bank in collection and disbursement accounts.

7.

Other Current Assets including Loans and Advances: Other current assets increased from Rs. 70 crores as on 30th June 2004 to Rs. 154 crores as on 30th June 2005. Other current assets of the Parent Company increased from Rs. 40 crores as on 30th June 2004 to Rs. 111 crores as on 30th June 2005. Lease rent recoverable as on 30th June 2005 is Rs. 60 crores.

8.

Current Liabilities & Provisions: Current liabilities and provisions increased from Rs. 697 crores as on 30th June 2004 to Rs. 863 crores as on 30th June 2005. Current liabilities and provisions of the Parent Company increased from Rs. 398 crores as on 30th June 2004 to Rs. 468 crores as on 30th June 2005.

9.

Cash Flow: The cash generation from operating activities in the current year is Rs. 127 crores. The cash generation of Parent Company from operating activities in the current year is Rs. 27 crores.

The consolidated financial results include the results of the company’s 100% subsidiary, HCL Infinet Ltd.

8

FINANCIAL COMMENTS ON CONSOLIDATED OPERATIONS FOR THE YEAR ENDED 30TH JUNE, 2005 SEGMENT PERFORMANCE The Company recognises Computer Systems and related products & services, Office Automation & Telecommunication, and Internet & related services as its’ three primary segments. Computer Systems and Related Products & Services: The segment operations comprises of sale of computer hardware and system integration products and providing a comprehensive range of IT services including system maintenance, facilities management etc. in different industries. Segment revenue grew by 29% from Rs. 1522 crores in the previous year to Rs. 1967 crores in the current year. Segment results (PBIT) grew by 12% from Rs. 123 crores in the previous year to Rs. 138 crores in the current year. Capital Employed in the segment is Rs. 359 crores as on 30th June 2005 as against Rs. 205 crores as on 30th June 2004. The capital employed as at 30th June 2005 includes Rs. 73 crores of Cash and Bank balances (PY Rs. 35 crores). Return on Capital Employed is 38%.

Office Automation & Telecommunication: Office Automation & Telecommunication

The segment addresses telecommunication products, office equipment products and related comprehensive maintenance services. Revenue of the segment for the current year grew by 101% from Rs. 2877 crores in the previous year to Rs. 5779 crores. PBIT grew by 76% from Rs. 83 crores in the previous year to Rs. 146 crores in the current year. Capital Employed in the segment is Rs. 56 crores as on 30th June 2005 as against Rs. 65 crores as on 30th June 2004. The Return on Capital Employed for the current year is 261% as against 128% in the previous year. Internet & Related Services: The segment provides Virtual Private Network, Internet Access services, other connectivity services and related hardware. Revenue of the segment showed a marginal drop of 2% from Rs. 44 crores in the previous year to Rs. 43 crores in the current year. Despite revenue drop, segment registered a profit of Rs. 2 crores as against a loss of Rs. 2 crores in the previous year. This has been achieved through increase in the capacity utilization of leased lines and other cost reductions. Rs. crores

FY 03

FY 04

FY 05

Revenue

32

44

43

PBIT

-13

-2

2

9

CORPORATE INFORMATION BOARD OF DIRECTORS

Chairman & Chief Executive Officer Ajai Chowdhry Whole-time Directors J.V. Ramamurthy (appointed from 11-08-05) Ravi Thumboochetty (retired as whole-time Director from 10-08-05) Directors R.P. Khosla S. Bhattacharya D.S. Puri E.A. Kshirsagar Anita Ramachandran T.S. Purushothaman (retired as whole-time Director from 20-07-05 and appointed as Director from 21-07-05)

COMPANY SECRETARY

K.R. Radhakrishnan

AUDITORS

Price Waterhouse, New Delhi

BANKERS

State Bank of India Canara Bank HDFC Bank Ltd. ICICI Bank Ltd. Societe Generale Standard Chartered Bank State Bank of Patiala State Bank of Saurashtra

REGISTERED OFFICE

806, Siddharth, 96, Nehru Place, New Delhi- 110 019.

CORPORATE OFFICE

E - 4,5,6, Sector XI, Noida-201 301 (U.P.)

WORKS

♦ RS Nos: 34/4 to 34/7 and Part of RS No: 34/1, Sedarapet, Pondicherry- 605 111. ♦ RS Nos: 107/5,6 & 7, Sedarapet, Pondicherry— 605 111. ♦ 78, South Phase, Ambattur Industrial Estate, Chennai- 600 058. ♦ Spl- A2, Industrial Estate, Thattanchavadi, Pondicherry- 605 005.

10

FIVE YEAR FINANCIAL OVERVIEW Revenue and Profitability YEAR ENDED JUNE 30 Total Revenue PBIDT Interest Depreciation Effect of Impairment Profit before Tax Provision for Tax Profir after Tax (PAT) Diminution in value of advances Profit available for Appropriation Equity Dividend Basic Earning Per Share (Rs.)* Operating Margin (%) Profit before Tax/ Revenue (%) Return on Net worth(%) # Return on Capital Employed(%)# Equity Dividend (%)

2005

2004

2003

2002

Rs/Lacs 2001

199886 15634 96 651 0 14887 1610 13277 0 37161

154295 14523 656 1019 0 12848 759 12090 0 32816

166604 11491 805 1109 3322 6255 82 6173 0 24944

127003 6784 371 1268 0 5145 532 4613 0 20030

116843 9005 193 1225 0 7587 690 6897 1060 18461

10321**

6841

3191

798

2234

8.0 8% 7% 30% 25% 310**

7.5 9% 8% 30% 26% 210

3.9 7% 4% 19% 14% 100

2.9 5% 4% 14% 10% 25

3.7 8% 7% 23% 17% 70

* Based on equity shares of Rs. 2/- each on Balance Sheet date. ** Includes interim dividends aggregating to 210% and proposed final dividend of 100% amounting to Rs. 6975 Lacs and Rs.3346 Lacs respectively. # Calculated on “PAT” Assets and Liabilities AS AT JUNE 30

2005

2004

2003

2002

Rs/Lacs 2001

Sources of Funds Equity Funds Reserves and Surplus Loan Funds Deferred Tax Liabilities (Net)

3344 40191 8132 681

3289 36552 7137 308

3191 29454 11787 563

3191 29493 12597 1004

3191 26431 11241 0

Total

52348

47286

44995

46285

40863

Application of Funds Net Block Investments Current Assets Current Liabilities Net Current Assets

5329 12277 81533 46791 34742

4925 28060 54091 39790 14301

4954 21289 45042 26290 18752

5552 13668 55985 28920 27065

5171 8501 51401 24210 27191

Total

52348

47286

44995

46285

40863

11

DIRECTORS’ REPORT To the Members, Your Directors have pleasure in presenting their Nineteenth Annual Report together with the Audited Accounts for the financial year ended 30th June, 2005. Financial Highlights (Rs. in Crores) Particulars

Consolidated

Net Sales and other income Profit before Interest, Depreciation and Tax Finance Charges Depreciation Profit before Tax Provision for Taxation: Current Deferred Net Profit after Tax Profit available for appropriation Appropriations Interim Dividend (includes tax on dividend) Proposed Dividend (includes tax on dividend) Transfer to General Reserve Balance of Profit carried forward to next year

Parent Company

2004-05

2003-04

2004-05

2003-04

7794.93 319.01 7.76 15.24 296.01 65.94 2.36 227.71 490.80

4335.36 238.35 8.83 18.01 211.51 20.99 15.41 175.11 352.42

1959.57 156.34 0.96 6.51 148.87 12.37 3.74 132.77 371.61

1437.60 145.23 6.56 10.19 128.48 10.14 (2.55) 120.90 328.16

79.13 38.16 13.28 360.23

51.15 26.08 12.09 263.10

79.14 38.16 13.28 241.03

51.15 26.08 12.09 238.84

Performance The consolidated revenue of the Company was Rs. 7784 crores as against Rs. 4412 crores in the previous year. The consolidated profit before tax was Rs. 296 crores as against Rs. 212 crores in the previous year. The gross revenue and profit before tax of the Parent Company were Rs. 1967 crores and Rs. 149 crores respectively. The gross revenue and profit before tax for the previous year were Rs.1522 crores and Rs.128 crores respectively. Your Directors are pleased to recommend final Dividend @ 100% on the fully paid-up equity shares of Rs.2/- each for the financial year ended on 30th June, 2005. During the first nine months, three interim (quarterly) dividends of 70% each were declared taking the total dividend for the year 2004-05 to 310 %. Infoprocessing Business: Your Company, in its true leadership style, stood up and took on the challenges and opportunities and performed like never before. It consolidated its position as India’s leading IT infrastructure hardware and services vendor. The latest annual IDC Report placed your Company at Number one in the Desktop PC segment for the year 2004, thus making it the most preferred PC brand in the country. Your Company led the market with a market share of 13.7 %, up from 9.2% in the year 2003, thus maintaining its leadership position for the fifth year in a row. On the consumer PC front, the Company launched several new models including the announcement of a new PC ‘EzeeBee Pride’ at a very affordable price of Rs. 12,990. Your Company initiated a number of large consumer contact programs to scale up the volumes during festive seasons. The Company in a first of its kind program in the country, launched PCs on an installment scheme of just Rs. 499 a month, bringing a computer within the reach of a larger section of the middle income consumers in our country. The Company also announced the launch of the Six in One PC, a product that offers upto six users to a system. This new desktop solution allows users to efficiently utilize the power of the PC to be shared by multiple users. On the System Integration front, the Company successfully completed the rollout and commissioning of the country’s largest Internet backbone network for Bharat Sanchar Nigam Limited (BSNL). During the course of the year, the Company strengthened its product offering, its sales & services network towards tapping the growing ICT market. Imaging & Communications Business (HCL Infinet) The year has seen your Company launch several new products and services in the field of Imaging and Communications. Among the many products launched are the Toshiba LCD TV’s, Ericsson range of solutions for Business conferencing, Broadband and Mini Link Radio. It launched complete end-to-end solutions for IP telephony and Global IP VPN services. HCL continued to lead in the various product categories that we take to market. IDC Survey 2005 has rated HCL – Toshiba

12

DIRECTORS’ REPORT as No. 1 in the sales of A3 MultiFunction Devices for the year 2004-2005. The Company also maintained lead position in Infocus & Toshiba Multimedia projectors in India with a total market share of 35% (Source: PMA Feb 2005) In the GSM handset distribution business, the Company leveraged its distribution network strength to introduce a slew of new handset models at various price points. It upgraded and strengthened its support network for phones, all this contributing to the increase in market share of Nokia GSM phones. Quality Initiatives During the year 2004-05 under review significant milestones were achieved on the quality initiatives front. Annual Customer Satisfaction Survey for all our business divisions was conducted. Apart from getting the highest response rate in the surveys over the last 5 years, we also got the highest Customer Satisfaction levels. Customer loyalty has improved, with more than 76% customers rating ‘Very Likely’ to continue to purchase products from the Company. Similarly in other areas like product quality, delivery of machines and support the customers have given the Company the highest ratings over the last 5 years. Your Company is continuing to send Machine Uptime Status Reports to our Key Customers. The support reach across the country of the Company has increased to more than 260 locations and your Company continues to be ranked No. 1 in PCs. Employee Stock Option Plan Employees Stock Option Plan 2000 Pursuant to the approval of the shareholders at the Extra-Ordinary General Meeting held on 25th February, 2000 for grant of options to the employees of the Company and its subsidiaries (the ESOP 2000), the Board of Directors had approved the grant of 30,18,000 options including the options that had lapsed out of each grant. Employees Stock Based Compensation Plan 2005 The shareholders of the Company have approved the Employees Stock Based Compensation Plan 2005 through a Postal Ballot for grant of 33,35,487 options to the employees of the Company and its subsidiary. The Board of Directors has granted 31,96,840 options (each option confers on the employee a right for five equity shares of Rs. 2/- each) at an exercise price of Rs. 228.80 being the market price as specified in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 on the date of grant. Credit Ratings The credit rating by ICRA continued at ‘A1+’ rating indicating highest safety to the Company’s Commercial Paper program of Rs. 75 crores. Fixed Deposits As on June 30, 2005, 79 depositors whose deposits amounting to Rs.10,15,000/- had become due for repayment did not claim their deposits. During the year net fixed deposits repaid amounted to Rs. 61,000/-. There has been no delay in making the payment of Fixed Deposits on maturity and in fulfilment of the terms and conditions of the Company’s scheme. De-listing of Equity Shares As approved by the shareholders the Company had made applications to the stock exchanges at Delhi, Chennai and Kolkata for de-listing the equity shares of the Company from these stock exchanges. The equity shares of the Company were delisted from the Delhi Stock Exchange Association Limited and The Madras Stock Exchange Ltd. The application is under process with the Calcutta Stock exchange Association Ltd, Kolkata. The shares of the Company will continue to be listed at The Bombay Stock Exchange Limited and National Stock Exchange of India Limited. Directors In accordance with the Articles of Association of the Company, Mr. R.P. Khosla, Mr. D.S. Puri and Mr. E.A. Kshirsagar, Directors will retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for reappointment. Mr.T.S.Purushothaman and Mr.Ravi Thumboochetty , retired as wholetime directors. Mr. Purushothaman and Mr. J.V. Ramamurthy were co-opted as additional directors with effect from July 21, 2005 and August 11, 2005 respectively. Mr. Purushothaman will hold office as non executive director and Mr. J.V. Ramamurthy will hold office as wholetime director designated as Head of Operations with effect from the dates of their appointments. Mr. Purushothaman and Mr. Ramamurthy will hold office till the conclusion of the forthcoming Annual General Meeting. The Company has received notices under Section 257 of the Companies Act, 1956 from some members signifying their intentions to propose the appointment of Mr. Purushothaman and Mr. Ramamurthy as Directors of the Company.

13

DIRECTORS’ REPORT Your Directors while welcoming Mr. Ramamurthy on the Board place on record their sincere appreciation for the contributions of the outgoing directors during their association with the Company. Directors’ Responsibility Statement Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm: a.

that in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures, if any

b.

that appropriate accounting policies have been selected and applied consistently, and that the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at June 30, 2005 and of the profit of the Company for the said period;

c.

that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d.

that the annual accounts have been prepared on a going concern basis.

Personnel Industrial Relations during the period under review continued to be peaceful and harmonious. No man-day was lost due to any Industrial dispute. Your Company successfully participated in DMA Watson Wyatt Award for Excellence in Innovative HR Practices in 2004 & was placed amongst the Top 10 companies. Your Company also successfully participated in DQ Best Employer Survey 2004 and was ranked 11th. Information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 forms part of this report. However as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the report and the accounts are being sent to all the members excluding the statement of particulars under Section 217(2A). Any member interested in obtaining a copy of the statement may write to the Company. Additional information relating to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo. The additional information required in accordance with sub-section (1)(e) of Section 217 of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules,1988, is appended to and forms part of this report. Particulars of subsidiary company The Company has obtained permission from the Ministry of Company Affairs, Government of India, vide their letter No: 47/ 41/2005-CL-III dated March 15, 2005 for not annexing the accounts of HCL Infinet Limited, the wholly owned subsidiary of the Company. The detailed annual accounts of the subsidiary are available at the Registered Office of the Company on any working day to the shareholders requiring such information. Acknowledgement Your Directors wish to place on record their appreciation for the continued co-operation the Company received from various departments of the Central and State Government, Bankers, Financial Institutions, Dealers, Partners and Suppliers and also acknowledge the contribution made by the employees. The Board also wish to place on record its gratitude to the valued Customers, Members and Investing public for their continued support and confidence reposed in the Company.

On behalf of the Board of Directors AJAI CHOWDHRY Chairman and Chief Executive Officer.

August 18, 2005

14

INFORMATION RELATING TO CONSERVATION OF ENERGY, R&D, TECHNOLOGY ABSORPTION AND INNOVATION, AND FOREIGN EXCHANGE EARNINGS / OUTGO FORMING PART OF THE DIRECTORS’ REPORT IN TERMS OF SECTION 217 (1) (e) OF THE COMPANIES ACT, 1956. A. Conservation of energy The entire product range including Personal Computers, Servers & Peripherals are designed keeping in view the optimum energy conservation. Several environment friendly measures have been adopted by the Company such as 1. Use of recycled materials in packaging. 2. Rain water harvesting. 3. Use of solar pasteurizing system for water purification instead of electrical heating. 4. Conservation of electrical energy by using natural day light with glare control measures in the factory thus avoiding usage of tube lights and bulbs in the day time in the operations area. 5. Use of displacement ventilation, eliminating Air-conditioning in the operations area. 6. Automatic power shutdown of machines in the Reliability testing area once the testing is completed thus eliminating excess electricity consumption for the testing of computers. B. Research & Development 1. Specific areas in which R&D is carried out by the comp any: company: The Company has introduced a variety of winning solutions during the year •

To address the High Performance Computing market, the R&D function has enhanced HCL HPC Cluster Suit with support for both 32 and 64 bit architectures on various platforms. The function has ported many industry standard and open source software on this suit and bagged many orders from prestigious corporate, research and academic institutions

•

Introduced 6 in 1 PC which attaches 6 users to a single Desktop CPU cutting down the cost of PC / user.

•

Introduced RP2, 6 to 8 hrs power backup solution for PC

•

Developed Platform Independent Disaster Recovery software supporting both Windows and Linux, HCL Max Value restoration s/w supporting backup of data on same Hard disk on a tape drive, CD writer, remote Hard Disk or even in hidden partition in the same disk in Windows

The Peripherals Division of the Company has many models in the existing product range and a variety of new products too. In the CRT Monitors, the Peripherals Division of the Company released several models in 15”/17”/19” range and some models were customized for OEMs also. In the 19” series, a Real Flat model HCM 985RFM was introduced. Many of the models were certified at Semko, Sweden for MPR II compliance. In the TFT LCD Monitors range, the Peripherals Division of the Company released LCD TV Display models to address both home and office environment. In Plasma, 42” Plasma display was released to address various verticals. In Thin Client range, the Peripherals Division of the Company released models in WINBee 3000/4000/5000 series based on various embedded OS viz. WinCE, Linux, and WinXPe with a host of user preferred features. WINBee 4000 and WINBee 5000 were customized to suit Core Banking Requirements and largely address the Banking and Insurance sector. HCS 1600 is a 16 Port Console server which can be used for securely monitoring and managing multiple networking devices and system console through serial ports. The system administrator can securely access the serial console port of remote systems such as servers, Ras, routers, power management devices (UPS and power switches), telecom equipments, network switches, firewalls and other serial accessible devices using LAN. Various switches were introduced to cover the broader spectrum of networking requirements. 2. Benefits derived as a result of the above R&D: The Company added more innovative features to its running Management S/W products for Servers and Desktops in both Windows and Linux. •

Device Lock : Software lock for restricting access to USB Storage device, floppy drive, CD drive and logical drives. When USB storage is locked user can use other USB devices

•

HCL ‘s own IPMI solution for Server Management S/W in both Windows and Linux on various platforms

•

Platform independent browser based software for receiving In band and Out of band alerts from Mother Board

•

HCL SMART: Hard disk Monitoring tool supporting SATA, Proactive backup based on Pre failure alert to CD and

15

remote tape drive in Windows and Linux •

HCL Migration: aids the user to capture and restore the User, System and network setting and data from the old machine to new machine

•

HCL software Deployment is a software which will help to install software which has Microsoft software installer setup remotely to a client machine from the administrator

•

HCL Flash BIOS update (Remote): Flash the BIOS from on top of OS (Windows) from the administrator to the remote client machine

•

Monitor Information including serial no

For a Fortune100 Company in the USA, R&D of the Peripherals Division of the Company designed and developed two serial communications cables with built-in embedded electronics for connecting Blood glucose Meters to the COMM / USB ports of PCs. Both these products are manufactured as per the FDA prescribed Quality Systems Regulations and are being exported to the USA. The Peripherals Division of the Company also undertook many high-speed multi-layer PCB designs for various customers and also augmented its EMI /EMC service setup to address wide spectrum of clients. The following new products were introduced by CNC : 1. IP 41 rack for Tele-com applications. 2. Customised Projector rack for digital cinema theater. 3. Kiosk for E-Governance applications. These solutions have contributed immensely to retain the leadership in PC sales, improved the figure in server sales, as well as Laptops. 3. Expenditure on R & D : (Rs./ Lacs ) Capital Revenue

7.31 76.29

Total

83.60

C. Technology absorption, adaptation and innovation The Company introduced a series of new products for its Server, Desktop, Workstation, Notebook, POS range of systems under various brands like Infiniti Global Line, Infiniti Xcel Line, NetManager, Infiniti Challenger, Infiniti Pro, Infiniti Orbital, Beanstalk, Busybee, EzeeBee, Infiniti Powerlite and BeePOS. NEBS certified Ruggedised Servers are launched for Telecom applications. 8 way to 32 way Servers based on Intel Itanium processors have been launched and the servers have the capability to run multiple Operating Systems together. Launched servers with capabilities to handle any kind of memory errors by employing latest technologies – Memory Sparing, Memory Mirroring, RAID memory and hot pluggability. New 4 way server based on Opteron processor is introduced. Received certification from SAP for our servers confirming their superiority in terms of performance & quality. New range of Servers & Desktops launched based on latest technology processors having dual core. Introduced range of systems based on 800FSB processors and supporting EM64T technology. Added 64 bit Operating System support for Servers & Desktops with EM64T & AMD64 technology based processors. Range of systems supporting high speed PCI Express bus technology and latest DDR2 memory technology are also launched. New Sempron processor based Desktop range of products are introduced. Microsoft Windows XP Starter Edition operating system, an unique offer, is added into product port folio. Systems supporting multiple Indian languages are launched. In the arena of home entertainment, products are launched including Windows XP Media Center Edition 2005 operating system. Many products & accessories added through various initiatives in the area of Digital Office, Digital Home & Ergonomics. Innovative products like desktops using low power, multiple users using same PC and rural power solution – RP2 systems using car battery for delivering 8 hours of power back up are introduced. New range of Notebooks supporting Centrino Mobile Technology are also introduced. D. Foreign exchange earnings / outgo During the period under review, the Company’s earnings in foreign currency were Rs. 4700.88 Lacs (Previous Year Rs. 4227.36 lacs). The expenditure in foreign currency including imports during the year amounted to Rs. 99950.95 Lacs (Previous year Rs. 67858.69 lacs).

16

The details of the options granted under the HCL Infosystems Ltd., Employee Stock Option Schemes as on 30th June, 2005 are given below:-

Description Options Granted

Scheme 2000 30,18,000 which confer a right to get 1 equity share of Rs.10/- each.

Scheme 2005 31,96,840 which confer a right to get 5 equity shares of Rs.2/- each.

Pricing Formula

The members of the Company at the Extra Ordinary General Meeting held on February 25, 2000 approved the exercise price as the price which will be not less than 85% of the fair market value of the shares on the date on which the Board of Directors of the Company approved the Grant of such options to the employees or such price as the Board of Directors may determine in accordance with the regulations and guidelines prescribed by SEBI. The members of the Company at the Annual General Meeting held on October 21, 2004, approved the amendment to the pricing formula that the options granted but not yet exercised by the employees or options that would be granted in future, would be at the market price on the date of grant. For this purpose the market price as specified in the amended provisions of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the regulations / guidelines prescribed by the Securities and Exchange Board of India or any relevant authority, from time to time to the extent applicable.

Subject to the approval of the members of the Company, the options would be granted at the market price on the date of grant or such price as the Board of Directors may determine in accordance with the Regulations and Guidelines prescribed by the Securities and Exchange Board of India or other relevant authority from time to time. For this purpose, the market price as specified in the amended provisions of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the regulations/ guidelines prescribed by SEBI or any relevant authority from time to time to the extent applicable.

Options vested

(i)

(ii)

For the options granted on 10-8-2000, 4,01,506 options had been vested. For the options granted on 28-1-2004, 3,65,152 options had been vested.

Not yet vested

The vesting schedule for the rest of the grants are as follows : 30% - 12 months after the grant date 30% - 24 months after the grant date 40% - 42 months after the grant date. Options exercised

Out of the options granted in August, 2000 and January 2004, 12,97,026 and 2,29,869 options respectively were exercised.

Not applicable

Total number of shares arising as a result of exercise of option.

15,26,895 equity shares of Rs.10/- each.

Not applicable

17

Options lapsed

The details of options lapsed are as under : Date of Grant 10/8/2000 28/1/2004 25/8/2004 18/1/2005 15/2/2005 15/3/2005 15/4/2005 14/5/2005 15/6/2005

Options lapsed 0 2,21,351 54,360 18,910 15,520 2,800 0 0 2,560

Not applicable

Grant price (Rs.) 289.00 538.15 603.95 809.85 809.30 834.40 789.85 770.15 756.15

Variance of terms of options

The market price has been defined to mean the market price as specified in the amended provisions of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the regulations/ guidelines prescribed by SEBI or any relevant authority, from time to time to the extent applicable.

No variation made.

Money realized by exercise of options

Rs.49,85,44,516.35

Not applicable

Total number of options in force

Date of Grant 10/8/2000 28/1/2004 25/8/2004 18/1/2005 15/2/2005 15/3/2005 15/4/2005 14/5/2005 15/6/2005

Employee-wise details of options granted to(i) Senior Management

Name

(ii) Employees holding 5% or more of the total number of options granted during the year

Options in force 84,894 9,87,304 1,71,758 2,72,950 8,400 57,416 23,384 17,400 18,400

Mr.T.S.Purushothaman Mr. Ravi Thumboochetty Mr. J.V.Ramamurthy Mr. Sandeep Kanwar Mr. Rajendra Kumar Mr. M.L.Taneja Mr. Hari Bhaskaran Mr. George Paul Mr. Rajiv Asija Mr. Rakesh Mehta Mr. Suman Ghose Hazra Mr. K.R. Radhakrishnan

Grant price (Rs.) 289.00 538.15 603.95 809.85 809.30 834.40 789.85 770.15 756.15

Date of Grant 13/8/2005

No. of option shares 40,000 30,000 27,500 25,000 25,000 18,000 15,000 14,000 14,000 14,000 12,500 8,000

Name

No.of options

Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr.

7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 6,500

NIL

Options Grant price in force (Rs.) 31,96,840 228.80

J.V.Ramamurthy George Paul Rajiv Asija Rakesh Mehta Sandeep Kanwar Hari Bhaskaran Rajendra Kumar M.L.Taneja Suman Ghose Hazra K.R.Radhakrishnan

NIL

18

(iii) Identified employees who were granted options during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant.

NIL

NIL

Diluted EPS pursuant to issue of shares on exercise of options (Rs.)

7.51

——

Fair value compensation cost for options granted (Rs./ Lacs) :

1252.46

——

-

Weighted average exercise price of options granted :(Rs.)

418.97

——

-

Weighted average fair value of options granted :(Rs.)

1039.18

——

-

Earning Per Share (FV Rs. 2/-) As reported

Adjusted pro forma (FV Rs. 2/-)

Basic Diluted

Rs. 8.01 Rs. 7.51

Basic Diluted

Rs. 7.25 Rs. 6.80

Significant Assumptions Dividend yield % Expected life Risk free interest rates Volatility

3.80% to 3.91% 24 to 54 months 6.02% to 6.69% 47.68% to 68.28%

19

AUDITORS’ CERTIFICATE We have examined the books and records of the HCL Infosystems Limited Stock Option Scheme 2000 and Employee Stock based Compensation Plan 2005 (“The Scheme”) as produced before us and based on such books and records and according to the information and explanations given to us, we hereby certify that HCL Infosystems Limited (“The Company”) has implemented The Scheme in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines ,1999 and in conformity with the resolutions passed by the shareholders in the Extra-Ordinary General Meeting of The Company held on February 25,2000 and through postal ballot, the results whereof declared on June 13, 2005. V. Nijhawan Membership Number F-87228 Partner For and on behalf of Price Waterhouse Chartered Accountants

Place: New Delhi Date: August 18, 2005

20

REPORT ON CORPORATE GOVERNANCE 1. A BRIEF STATEMENT ON COMPANY’S PHILOSOPHY ON CODE OF GOVERNANCE : The Company’s philosophy on Corporate Governance envisages attainment of the highest levels of transparency, accountability and equity in all facets of its operations and in all its interactions with its stakeholders including shareholders, employees, lenders and the Government. The Company is committed to achieve and maintain the highest standards of Corporate Governance. The Company believes that all its actions must serve the underlying goal of enhancing overall shareholder value over a sustained period of time. 2. BOARD OF DIRECTORS : The Board of Directors has an optimal combination of executive, non-executive and independent directors. The Board is headed by an executive Chairman. The composition and category of Directors is as per the table given below. During the financial year the Board of Directors of the Company met four times on the following dates: 25th August, 2004, 20th October 2004, 18th January 2005 & 19th April, 2005. Name

Designation

Category

Directorship in

Committee

No. of Board

Whether

other public Companies

Membership of other public Companies

Meetings

Attended last AGM

Held

Attended

Ajai Chowdhry

Chairman & Chief Executive Officer

Promoter and Executive Director

5

4

4

4

Yes

J.V. Ramamurthy*

Head of Operations

Executive Director

1

–

4

N/A

N/A

T. S. Purushothaman**

Director

Non-executive Director

1

Nil

4

4

Yes

Ravi Thumboochetty*** Whole-time Director

Executive Director

3

Nil

4

3

Yes

R.P. Khosla

Director

Independent, non-executive

2

1

4

4

Yes

S. Bhattacharya

Director

Independent, non-executive

9

7

4

4

Yes

D. S. Puri

Director

Promoter and non-executive Director

1

1

4

3

Yes

E.A. Kshirsagar

Director

Independent, non-executive

3

5

4

4

Yes

Anita Ramachandran

Director

Independent, non-executive

2

3

4

3

No

• *

Appointed as wholetime director with effect from August 11, 2005.

• ** Retired as wholetime director with effect from July 20, 2005. • *** Retired as wholetime director with effect from August 10, 2005.

Some of the items discussed at the Board meetings are listed below : 1. Annual Business Plan. 2. Investments. 3. Review of operations of subsidiary. 4. Status of independence of directors. 5. Sub-division of the equity shares of the Company. 6. Delisting of the equity shares of the Company from The Delhi Stock Exchange Association Ltd. 7. Quarterly/ half yearly / annual financial results and dividend. 8. Employee Stock Option Scheme and matters related thereto. 3. ACCOUNTS & AUDIT COMMITTEE : The Accounts & Audit Committee of Directors was formed in August 1998, to review various areas of Accounting & Audit. Mr. E.A. Kshirsagar, Mr. S. Bhattacharya and Mr. R.P. Khosla are the members of this Committee. Mr.Ajai Chowdhry is an ex-officio member. Mr. E.A. Kshirsagar is the Chairman. The Committee met 4 times during the financial year 2004-2005 on the following dates: 24/8/2004; 20/10/2004; 18/1/2005 and 19/4/2005. All members attended all four meetings. 4. EMPLOYEE COMPENSATION AND EMPLOYEE SATISFACTION COMMITTEE : The Employees Compensation & Employees Satisfaction Committee was constituted in August 1998. Ms. Anita Ramachandran, Mr. Ajai Chowdhry, Mr. S. Bhattacharya and Mr. R.P. Khosla are the members of this Committee. Ms. Anita Ramachandran is the Chairperson.

21

REPORT ON CORPORATE GOVERNANCE The Committee met 3 times during the financial year 2004-2005 on the following dates: 25/8/2004, 18/01/2005, & 19/4/2005 and all the members attended all three meetings. a) Details of remuneration to all the directors for the period from 1/7/2004 to 30/6/2005: (Rs./Lacs) Name of Director

Mr. Ajai Chowdhry Mr. T.S. Purushothaman* Mr. Ravi Thumboochetty* Mr. R.P. Khosla Mr. S. Bhattacharya Mr. D.S. Puri Mr. E.A. Kshirsagar Ms. Anita Ramachandran

Salary & Allowances

Perquisites

Performance linked bonus

Commission

Sitting Fees

60.72 33.82 27.08 -

27.32 8.49 9.42 -

85.00 50.00 15.00 -

3.30 3.60 2.25 1.99

0.80 0.80 0.80 0.60

The above remuneration excludes reimbursement of expenses on actual to Directors for attending meetings of the Board/Board Committees. * Mr. T.S. Purushothaman and Mr.Ravi Thumboochetty were granted 40000 and 30000 options respectively and all the options granted are now vested and exercised. 5. SHAREHOLDERS’/INVESTORS’ GRIEVANCE COMMITTEE : Mr. R.P. Khosla, Mr. E.A. Kshirsagar and Mr. S. Bhattacharya are the members of the Shareholders’/ Investors’ Grievance Committee. Mr. Ajai Chowdhry is an ex-officio member. Mr. R.P. Khosla is the Chairman. The Committee met 4 times during the financial year 2004-2005 on the following dates: 25/8/2004, 20/10/2004, 18/1/2005 and 19/4/2005. All the members attended all the four meetings. Mr. K.R. Radhakrishnan, Company Secretary is the Compliance Officer of the Company. During the period from 01-07-2004 to 30-6-2005, the Company has received 19 complaints from SEBI/Stock Exchanges/ DCA and were replied to the satisfaction of shareholders. There were no complaints not solved to the satisfaction of shareholders and there were no shares pending for transfer as on 30th June, 2005. 6. CUSTOMERS’ SATISFACTION COMMITTEE : The Customers’ Satisfaction Committee was constituted in August 1998 to review and formulate strategies for continuous improvement of customer satisfaction. Mr. D.S. Puri, Mr. Ajai Chowdhry and Mr. R.P. Khosla are the members of this Committee. Mr. Ajai Chowdhry is the Chairman. The Committee met 3 times during the financial year 2004-2005 on the following dates: 08/11/2004, 14/01/2005 and 30/05/2005 and all the members attended the three meetings. 7. GENERAL BODY MEETINGS : Location and time of last 3 Annual General Meetings : Year

Location

Date

Day

Time

2003-2004

FICCI Auditorium, 1, Tansen Marg, New Delhi-110 001

21-10-2004

Thursday

10.00 A.M.

2002-2003

FICCI Auditorium, 1, Tansen Marg, New Delhi-110 001

25-11-2003

Tuesday

10.00 A.M.

2001-2002

FICCI Auditorium, 1, Tansen Marg, New Delhi-110 001

18-12-2002

Wednesday 10.00 A.M.

8. POSTAL BALLOT : During the year, the ordinary/special resolutions contained in the notice dated April 19, 2005, were passed by the members of the Company through Postal Ballot pursuant to Section 192A of the Companies Act, 1956 read with the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001. Mr. R.K. Pandey, Former Executive Director of the Delhi Stock Exchange Association Limited was appointed as Scrutinizer for conducting the postal ballot process.

22

REPORT ON CORPORATE GOVERNANCE As per the Report dated June 11,2005, submitted by Mr. R.K. Pandey, scrutinizer appointed for the Postal Ballot conducted by the Company vide Notice dated April 19, 2005, the results of the postal ballot are as follows:Description

Total no. of Postal Ballot Forms

Total no. of shares

For

No. of Postal

Against

No. of shares Ballot

Ballot Forms

No. of Postal

Invalid

No. of shares Ballot

Forms

No. of Postal

No. of shares

Forms

SPLIT OF SHARES

1533

21981342

1472 96.03%

21975501 99.97%

18 1.17%

1119 0.01%

43 2.80%

4722 0.02%

ALTERATION OF ARTICLES

1428

21965163

1361 95.31%

21958748 99.97%

23 1.61%

1494 0.01%

44 3.08%

4921 0.02%

ESOP TO EMPLOYEES OF COMPANY

1392

21962641

1259 90.45%

21948575 99.94%

88 6.32%

9094 0.04%

45 3.23%

4972 0.02%

ESOP TO EMPLOYEES OF SUBSIDIARY

1387

21961621

1252 90.27%

21946440 99.93%

90 6.49%

10209 0.05%

45 3.24%

4972 0.02%

1381

21960697

1260 91.24%

21947271 99.94%

78 5.65%

8754 0.04%

43 3.11%

4672 0.02%

AMENDMENT TO ESOP 2000

All the five resolutions mentioned in the Postal Ballot Notice dated April 19, 2005 were duly approved with requisite majority by the shareholders of the Company. 9. DISCLOSURES RELATED PARTY TRANSACTIONS : Related Party transactions are defined as transactions of the Company of material nature, with Promoters, the Directors or the Management, their subsidiaries or relatives etc. that may have potential conflict with the interest of the Company at large. There are no material transactions during the year 2004-2005 that are prejudicial to the interest of the Company. NON COMPLIANCE BY THE COMPANY, PENALTIES, STRICTURES : The Company has complied with the requirements of the Stock Exchange/ SEBI/ any Statutory Authority on all matters related to capital markets during the last three years. There are no penalties or strictures imposed on the Company by Stock Exchange or SEBI or any statutory authorities relating to the above. 10. MEANS OF COMMUNICATION a) At present quarterly results are sent to each household of shareholders. b) The quarterly/half yearly and annual results are published in English and Hindi Newspapers and displayed on the website of the Company – ‘www.hclinfosystems.in’ alongwith official news releases and presentations. c) The Management Discussion and Analysis forms a part of the Annual Report.

23

REPORT ON CORPORATE GOVERNANCE 11. GENERAL SHAREHOLDERS’ INFORMATION a) Annual General Meeting Date

: Thursday, 20th October, 2005

Time

: 10.00 A.M.

Venue

: FICCI Auditorium, 1, Tansen Marg, New Delhi-110 001.

b) Financial Calendar (Tentative Calendar for the financial year 2005 - 2006) Adoption of Results for the quarter ending 30th September, 2005 st

: 19th October, 2005

Adoption of Results for the quarter ending 31 December, 2005

: 17th January, 2006

Adoption of Results for the quarter ending 31st March, 2006

: 17th April, 2006

Adoption of Results for the quarter ending 30th June, 2006

: 23th August, 2006

c) Book Closure

: From Monday, 24th October, 2005 to Tuesday 25th October, 2005

d) Dividend payment date

: Before 19th November, 2005

e) Listing on Stock Exchanges The shares of the Company are listed on the National Stock Exchange of India Ltd., The Bombay Stock Exchange Ltd. and the Calcutta Stock Exchange Association Ltd. Listing fees for the period April 2005 to March 2006 have been paid to the Bombay Stock Exchange Ltd. and the National Stock Exchange of India Ltd. The Company has applied for delisting from the Calcutta Stock Exchange Association Ltd, Kolkata. f) Stock Code Trading Symbol on ‘National Stock Exchange of India Ltd.’

: HCL-INSYS

Trading Symbol on ‘The Bombay Stock Exchange Ltd., Mumbai’

: Physical Form – 179 Electronic Form-500179

g) Market price data (Rs.) LOW 541.25 581.50 550.00 576.00 611.10 760.00 782.00 800.00 796.00 713.05 618.40 695.00

Historical Stock Chart

S&P CNX NIFTY INDEX in points

HIGH 635.00 680.00 658.00 698.90 812.50 849.00 842.00 865.00 869.90 844.00 795.50 817.00

HCL Insys Share Price in Rs.

MONTH July 2004 August 2004 September 2004 October 2004 November 2004 December 2004 January 2005 February 2005 March 2005 April 2005 May 2005 June 2005

S&P CNX NIFTY

(Source : The National Stock Exchange of India Ltd.)

HCL Insys Share Price

h) Registrar and Share transfer agents As per the provisions of Listing Agreements entered with the Stock Exchanges, the Company has appointed M/s. MCS Limited, as the Common Registrar and Share Transfer Agents for the shares of the Company held in both physical and electronic modes. All correspondence with regard to share transfers and matters related therewith may directly be addressed to the Registrar and Share Transfer Agents at the address given below:MCS Limited Sri Venkatesh Bhawan W-40, Okhla Industrial Area, Phase II New Delhi-110 049 Phone Nos: 011 –2638 4917-20; Fax No: 011 – 26384908 Email : [email protected]

24

REPORT ON CORPORATE GOVERNANCE i) Share Transfer System The shares received in physical mode by the Company’s Registrar and Share Transfer Agents are transferred within a period of 15 days from the date of receipt. j) Distribution of Shareholding as on 30th June, 2005 Category

No. of Shares

% holding

20,441,222 Nil Nil 20,441,222

61.13%

61.13%

2,172,129

6.50%

1,134,049 6,283,337 9,589,515

3.39% 18.79% 28.68%

395,838 2,918,104 91,675 Nil 3,405,617 33,436,354

1.18% 8.73% 0.27% Nil 10.19% 100.00%

A. Promoters’ holding 1. Promoters - Indian Promoters - Foreign Promoters 2. Persons acting in concert Sub Total B. Non-Promoters’ holding 3. Institutional Investors a. Mutual Funds and UTI b. Banks, Financial Institutions, Insurance Companies (Central/ State Government Institutions/Non-government institutions) c. FIIs Sub Total 4. Others a. Private Corporate Bodies b. Indian Public c. NRI/OCBs d. Any other Sub Total Grand Total

k) Dematerialisation of shares and liquidity Dematerialisation of shares : The shares of the Company are compulsorily traded in dematerialised form by all categories of investors w.e.f. 31st May, 1999. As on 30th June, 2005, 84.42% shares of the Company are held in dematerialised form. Liquidity of shares : The shares of the Company are traded in the “A”/Forward Group in BSE. l) There are no outstanding GDRs/ADRs/Warrants or any Convertible instruments. m) Plant locations • R.S. Nos: 34/4 to 34/7 and part of Rs No: 34/1, Sedarapet, Pondicherry-605 111. • R.S. Nos: 107/5, 6 & 7, Sedarapet, Pondicherry-605 111. • 78, South Phase, Ambattur Industrial Estate, Chennai-600 058. • Spl. A2, Industrial Estate, Thattanchavadi, Pondicherry-605 005. n) Address for Correspondence The shareholders may address their communication/ suggestions/ grievances/ queries to the Registrar and Share Transfer Agents at the address mentioned above or to The Company Secretary HCL Infosystems Ltd. E – 4, 5, 6, Sector – XI, NOIDA (U.P.) – 201 301. Tel. No. : 0120-4526518, 4526519, 4526993 Fax: 0120-4525196 Email : [email protected]

25

AUDITORS’ CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF CORPORATE GOVERNANCE UNDER CLAUSE 49 OF THE LISTING AGREEMENT To the Members of HCL Infosystems Limited 1. We have reviewed the implementation of Corporate Governance procedures by HCL Infosystems Limited (the Company) during the year ended June 30, 2005, with the relevant records and documents maintained by the company, furnished to us for our review and the report on Corporate Governance as approved by the Board of Directors. 2. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance, it is neither an audit nor an expression of opinion on the financial statements of the Company. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which management has conducted the affairs of the Company. 3. As required by the Guidance Note issued by the Institute of Chartered Accountants of India, we state that no investor grievances were pending exceeding a period of one month as per the records maintained by the Shareholders/ Investors Grievance Committee. 4. On the basis of our review and according to the information and explanations given to us , the conditions of Corporate Governance as stipulated in Clause 49 of the listing agreement with the Stock Exchanges have been complied with in all material respect by the Company. V.Nijhawan Membership Number F-87228 Partner For and on behalf of Price Waterhouse Chartered Accountants

Place: New Delhi Date: August 18, 2005

26

AUDITORS’ REPORT To The Members of HCL Infosystems Limited th

1. We have audited the attached Balance Sheet of HCL Infosystems Ltd, as at 30 June 2005, and the related Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor’s Report) Order, 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004, issued by the Central Government of India in terms of sub-section (4A) of Section 227 of ‘The Companies Act, 1956’ of India (the ‘Act’) and on the basis of such checks of the books and records of the company as we considered appropriate and according to the information and explanations given to us, we further report that: (i)

(a)

The company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The fixed assets are physically verified by the management in a cycle of one to three years, which in our opinion, is reasonable having regard to the size of the company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during the year and no material discrepancies between the book records and the physical inventory have been noticed.

(ii)

(c)

In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed of by the company during the year.

(a)

The inventory, excluding stocks with third parties, has been physically verified by the management during the year. In respect of inventory lying with third parties, these have substantially been confirmed by them. In our opinion, the frequency of verification is reasonable.

(b) In our opinion, the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business. (c)

On the basis of our examination of the inventory records, in our opinion, the company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

(iii)

The company has neither granted nor taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the register maintained under Section 301 of the Act.

(iv)

In our opinion, there are adequate internal control procedures commensurate with the size of the company and the nature of its business for the purchase of inventory, fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books and records of the company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control procedures.

(v)

In our opinion and according to the information and explanations given to us, there are no transactions that need to be entered into the register in pursuance of Section 301 of the Act. Accordingly clause (v) (b) of the Companies (Auditor’s Report) Order, 2003 is not applicable to the Company for the current year.

(vi)

In our opinion and according to the information and explanations given to us, the company has complied with the directives issued by Reserve Bank of India and the provisions of Sections 58A and 58AA of the Act and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. According to the information and explanations given to us, no Order under the aforesaid Sections has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal on the company.

(vii)

In our opinion, the company has an internal audit system commensurate with its size and nature of its business.

27

AUDITORS’ REPORT (viii) We have broadly reviewed the books of account maintained by the company in respect of products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of sub-section (1) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete. (ix)

(a)

According to the information and explanations given to us and the records of the company examined by us, in our opinion, the company is generally regular in depositing the undisputed statutory dues including provident fund, investor education and protection fund, employees’ state insurance, income-tax, sales-tax, wealth tax, service tax, customs duty, excise duty, professional tax, cess and other material statutory dues as applicable with the appropriate authorities.

(b) According to the information and explanations given to us and the records of the company examined by us, the particulars of dues of sales-tax and excise duty as at June 30, 2005 which have not been deposited on account of a dispute have been stated below. S. Name of the No statute

Nature of the dues

1.

Sales Tax (including interest)

3.75

3.75

2002-2003

Joint Commissioner (Appeals) of Sales Tax

Sales Tax (including interest)

4.05

4.05

2003-2004

Joint Commissioner (Appeals) of Sales Tax

Sales Tax (including interest)

17.23

10.13

2004-2005

Joint Commissioner (Appeals) of Sales Tax

Sales Tax

25.57

0.05

1999-2000

Assistant Commissioner of Sales Tax

Sales Tax

29.80

29.80

2002-2003

Deputy Commissioner (Appeals) of Sales Tax

2.

U.P. Sales Tax

Delhi Sales Tax

Amount (Rs./Lacs)

Amount deposited Period to under protest which the (Rs./Lacs) amount relates

Forum where dispute is pending

3.

Tamil Nadu Sales Tax

Sales Tax

5.48

3.36

1998-1999

Tamil Nadu Tribunal, Chennai

4.

Kerala Sales Tax

Sales Tax

6.56

1.34

2000-2001

Deputy Commissioner (Appeals) of Sales

5.

Rajasthan Sales Tax

Sales Tax

0.37

0.06

2000-2001

Tax Deputy Commissioner (Appeals) of Sales

Tax Sales Tax

0.60

0.35

2001-2002

Deputy Commissioner (Appeals) of Sales

Tax 6.

Orissa Sales Tax

Sales Tax

7.

Excise Act

Excise Duty

Customs Act

Custom Duty

Total

116.10

-

1998-1999

Orissa Tribunal, Cuttack

209.51

52.89

46.12

25.00

1996-1997

CEGAT, Chennai

90.57

90.57

1998-1999

Commissioner (Appeals)

(x)

The company has no accumulated losses as at June 30, 2005 and it has not incurred any cash losses in the financial year ended on that date or in the immediately preceding financial year.

(xi)

According to the records of the company examined by us and the information and explanation given to us, the

28

AUDITORS’ REPORT company has not defaulted in repayment of dues to any financial institution or bank or debenture holders as at the balance sheet date. (xii)

The company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) The provisions of any special statute applicable to chit fund / nidhi / mutual benefit fund/societies are not applicable to the company. (xiv) In our opinion, the company is not a dealer or trader in shares, securities, debentures and other investments. (xv)

In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the company, for loans taken by others from banks or financial institutions during the year, are not prejudicial to the interest of the company.

(xvi) In our opinion, and according to the information and explanations given to us, on an overall basis, the term loans have been applied for the purposes for which they were obtained. (xvii) On the basis of an overall examination of the balance sheet of the company, in our opinion and according to the information and explanations given to us, there are no funds raised on a short-term basis which have been used for long-term investment. (xviii) The company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act during the year. (xix) The company has not issued any debentures which have remained outstanding at the year-end. (xx)

The company has not raised any money by public issues during the year.

(xxi) During the course of our examination of the books and records of the company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the company, noticed or reported during the year, nor have we been informed of such case by the management. 4. Further to our comments in paragraph 3 above, we report that: (a)

We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

(b)

In our opinion, proper books of account as required by law have been kept by the company so far as appears from our examination of those books;

(c)

The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

(d)

In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act;

(e)

On the basis of written representations received from the directors, as on June 30,2005 and taken on record by the Board of Directors, none of the directors is disqualified as on June 30,2005 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act;

(f)

In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and attached thereto give in the prescribed manner the information required by the Act and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the company as at June 30,2005; (ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and (iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

V. NIJHAWAN Partner Membership Number F-87228 For and on behalf of Price Waterhouse Chartered Accountants

Place: New Delhi Date: August 18, 2005

29

BALANCE SHEET AS AT 30TH JUNE, 2005

Schedule

2005 Rs./Lacs

2004 Rs./ Lacs

Shareholders’ Funds : Capital

1

3343.65

3289.00

Reserves and Surplus

2

40191.43

36551.57

5521.35 2610.39 681.41

6903.70 233.45 307.73

52348.23

47285.45

Sources of Funds:

Loan Funds: Secured Loans Unsecured Loans Deferred Tax Liabilities (Net)

3 4 21(5)

Application of Funds: Fixed Assets: Gross Block Less: Depreciation

5

Net Block Capital Work-In-Progress (Including Capital Advances) Investments

9526.41 4288.84

10947.48 6035.17

5237.57 91.21

4912.31 12.62

6

5328.78

4924.93

12277.44

28059.88

Current Assets, Loans & Advances: Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances

Less:Current Liabilities & Provisions

7 8 9 10 11

18809.81 36992.01 14582.65 7942.35 3206.06

16125.89 29454.44 4463.47 1450.88 2596.01

81532.88

54090.69

41724.28 5066.59

35902.18 3887.87

46790.87

39790.05

12

Current Liabilities Provisions

Net Current Assets

Significant Accounting Policies Notes to Accounts

34742.01

14300.64

52348.23

47285.45

20 21

This is the Balance Sheet referred to in our report of even date

The schedules referred to above form an integral part of the Balance Sheet For and on behalf of the Board of Directors

V.NIJHAWAN Partner Membership Number F-87228 For and on behalf of Price Waterhouse Chartered Accountants

AJAI CHOWDHRY Chairman and Chief Executive Officer

Place : New Delhi Dated : 18th August, 2005

S. BHATTACHARYA Director

K.R. RADHAKRISHNAN Company Secretary

30

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE, 2005 2005 Rs./Lacs

Schedule Income Business Income Less : Excise Duty Other Income

13

196737.57 3928.37

14

192809.20 3148.07

2004 Rs./Lacs 152203.09 10534.39

141668.70 2091.65

195957.27

143760.35

159651.19 10162.42 10026.75 483.17 95.99

113500.33 7799.36 7475.76 461.48 656.07

Expenditure Cost of Sales and Services Personnel Administration, Selling, Distribution and Others Repairs and Maintenance Finance Charges Depreciation Less : Transfer to Revaluation Reserve

15 16 17 18 19 655.30 4.58

Profit before Tax Tax expense 21 (5) -Current [ Wealth tax Rs.2.00 lacs(2004-Rs.2.00 lacs )] - Fringe Benefit -Deferred

1188.00 48.60 373.68

650.72

1023.56 4.58

1018.98

181070.24

130911.98

14887.03

12848.37

1610.28

1014.00 — (255.27)

758.73

Profit after Tax Balance in Profit and Loss Account brought forward

13276.75 23883.98

12089.64 20726.52

Profit available for appropriation

37160.73

32816.16

Appropriations: Interim Dividend Proposed Final Dividend Tax on Interim Dividend Tax on Proposed Final Dividend Transfer to General Reserve Balance Carried Over

6974.52 3346.94 938.82 469.41 1327.66 24103.38

4534.01 2306.82 580.92 301.47 1208.96 23883.98

37160.73

32816.16

8.01 7.51

7.50 7.01

Earning per equity share Basic ( of Rs.2/- each) (in Rs.) Diluted (of Rs.2/- each) (in Rs.) Significant Accounting Policies Notes to Accounts

21 (22) 21 (22) 20 21

This is the Profit and Loss Account referred to in our report of even date

The schedules referred to above form an integral part of the Profit and Loss Account For and on behalf of the Board of Directors

V.NIJHAWAN Partner Membership Number F-87228 For and on behalf of Price Waterhouse Chartered Accountants

AJAI CHOWDHRY Chairman and Chief Executive Officer

Place : New Delhi Dated : 18th August, 2005

S. BHATTACHARYA Director

K.R. RADHAKRISHNAN Company Secretary

31

CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE, 2005 2005

2004

Rs./Lacs

Rs./Lacs

14887.04

12848.37

1. Cash Flow from Operating Activities Profit before Tax Adjustments for: Depreciation

650.72

1018.98

(Profit)/Loss on sale of Fixed Assets(Net)

(14.47)

(5.24)

(831.41)

(777.55)

(Profit)/Loss on disposal of (Others) Investments (Net) Interest on borrowings Interest and Dividend income

712.56

827.60

(413.22)

(768.52)

(18.40)

179.77

Unrealised (Gain) / Loss on Foreign Exchange Fluctuation (Net) Provision for Doubtful Debts Provisions/Liabilities no longer required written back Prior period expenses

49.85

25.00

(643.81)

(41.21)

(62.00)

Fixed Assets written off

4.73

Operating profit before Working Capital Changes

(565.45)

0.01

14321.59

458.84 13307.21

Adjustments for: Trade and Other Receivables

(14510.69)

Inventories

(7106.68)

(2683.92)

Trade Payables and Other Liabilities

6419.13

(7221.11) (10775.48)

14311.50

(16.29)

Cash generated from Operation

3546.11

13290.92

Direct Tax (paid)/ Refund (Net)

(870.54)

415.42

2675.57

13706.34

(Including Interest) Net Cash from Operating activities

(A)

2 Cash Flow from Investing Activities Interest and Dividend Received (Gross) Purchase of Fixed Assets

93.13

784.06

(1066.66)

(1104.17)

99.56

15.61

(53075.99)

(59249.81)

65489.84

52087.36

-

(4200.00)

4200.00

9,404.67

(78.59)

93.12

Sale of Fixed Assets Purchase of Investments Disposal/Redemption of Investments Investment in bonds of Subsidiary Redemption of Bonds / Purchase Consideration received from Subsidiary Capital Work-in-Progress (Including Capital Advances) Net cash from / (used in) Investing activities

(B)

15661.29

32

(2169.16)

CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE, 2005 2005

2004

Rs./Lacs

Rs./Lacs

3 Cash Flow from Financing Activities Share Capital Issued

54.65

98.04

Interest Paid

(890.58)

(934.33)

Share Premium Received

2097.38

2,735.36

Secured Loans - Short Term Received/(Paid)

(2354.59)

377.37

4000.00

2007.89

(3027.19)

(3930.44)

2377.05

(3104.32)

(10474.40)

(8661.71)

Secured Loans - Long Term Received Secured Loans - Long Term (Paid) Unsecured Loans Received / (Paid) Dividend Paid (including dividend tax) Net cash from Financing Activities

(C)

Opening Balance of Cash and Cash Equivalents

(8217.68)

(11412.14)

4463.47

4338.43

14582.65

4463.47

and Cash Equivalents

10119.18

125.04

Total (A)+(B)+(C)

10119.18

125.04

Closing Balance of Cash and Cash Equivalents [(Includes Exchange Rate Fluctuation of Rs {-1.13} Lacs (2004-Rs 3.42 Lacs)] [Includes unclaimed dividend of Rs. 146.38 lacs (2004-Rs. 99.15 lacs)] Net Increase /(Decrease) in Cash

Note The above Cash Flow Statement has been prepared under the indirect method set out in AS-3 issued by Institute of Chartered Accountants of India.

This is the Cash Flow Statement referred to in our report of even date

For and on behalf of the Board of Directors

V.NIJHAWAN Partner Membership Number F-87228 For and on behalf of Price Waterhouse Chartered Accountants

AJAI CHOWDHRY Chairman and Chief Executive Officer

Place : New Delhi Dated : 18th August, 2005

S. BHATTACHARYA Director

K.R. RADHAKRISHNAN Company Secretary

33

SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE, 2005 2005 Rs./Lacs

2004 Rs./Lacs

8000.00 500.00

8000.00 500.00

8500.00

8500.00

3343.64 0.01

3288.99 0.01

3343.65

3289.00

1- Capital (Schedule-21, Note 19) Authorised: 40,00,00,000 Equity Shares of Rs.2/- each (2004 - 8,00,00,000 Equity shares of Rs.10/- each) 5,00,000 (2004-5,00,000) Preference Shares of Rs. 100/- each

Issued, Subscribed and Paid up: 16,71,81,770 Equity shares of Rs.2/- each, fully paid up. (2004-3,28,89,873 Equity shares of Rs.10/- each, fully paid up) Add : Shares Forfeited

1. The shareholders of the Company through postal ballot, results whereof declared on June 13, 2005 authorised the sub division of Equity shares, in accordance with the provisions of Section 94 of the Companies Act, 1956. Accordingly, each Equity share was sub-divided from face value of Rs. 10/- each into 5 Equity shares of face value of Rs. 2/- each. 2. The Company had fixed July 15, 2005 as the Record Date for determining the shareholders entitled to the sub-division of the shares. The credit of Equity Share of Rs.2/- each has been given to respective beneficiary accounts of the shareholders, holding shares in electronic form, by the depositories. For the Equity Shares held in physical form new share certificate of face value of Rs. 2/- each is to be issued on receipt of the old share certificate of face value of Rs. 10/- each. The Equity shares of the face value of Rs. 2/- each of the Company are being traded on stock exchange since July 16, 2005. 3. Paid up share capital includes : a) 5,04,47,295 Equity Shares of Rs. 2/- each (2004 - 1,00,89,459 Equity Shares of Rs. 10/- each) issued pursuant to contract without payment being received in cash. b) 5,31,82,765 Equity Shares of Rs. 2/- each (2004- 1,06,36,553 Equity Shares of Rs. 10/- each) bonus shares issued from Share Premium Account. c) 76,34,475 Equity Shares of Rs. 2/- each (2004- 9,80,414 Equity Shares of Rs. 10/- each) issued pursuant to the exercise of options granted under ESOP Scheme 2000. 4. Out of the total paid up share capital, 8,30,19,205 Equity Shares of Rs. 2/- each (2004 - 1,66,03,841 Equity Shares of Rs. 10/- each) are held by HCL Corporation Limited. During the year ended June 30, 2005, 27,32,405 equity shares of Rs. 2/- each fully paid up were issued pursuant to the exercise of options granted under ESOP Scheme 2000. Consequently, HCL Corporation Limited’s shareholding percentage reduced from 50.48% as on June 30, 2004 to 49.66% as on June 30, 2005.

2- Reserves and Surplus

General Reserve Profit and Loss Account Share Premium Revaluation Reserve (Adj.) Capital Reserve

Previous year

As At 01.07.2004 Rs./Lacs

Additions Rs./Lacs

Deductions Rs./Lacs

As At 30.06.2005 Rs./Lacs

5622.20 (4413.24)

1327.66 (1208.96)

(-)

6949.86 (5,622.20)

23883.98 (20726.52)

219.40 (3157.46)

(-)

24103.38 (23883.98)

6739.37 (4004.01)

2097.38 (2735.36)

(-)

8836.75 (6739.37)

305.65 (310.23)

(-)

4.58 (4.58)

301.07 (305.65)

0.37 (0.37)

(-)

(-)

0.37 (0.37)

36551.57 (29454.37)

3644.44 (7101.78)

4.58 (4.58)

40191.43 (36551.57)

34

SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE, 2005 2005 Rs./Lacs

2004 Rs./Lacs

530.07

-

External Commercial Borrowings

554.61

1589.15

Others

436.67

2287.36

-

875.60

4000.00

2151.59

5521.35

6903.70

3- Secured Loans Loans and Advances from Banks: Cash Credits Foreign Currency loan

Term Loan Foreign currency Others

a) Cash Credits along with non-fund based facilities and Foreign Currency Loans from Bank are secured by way of hypothecation of stock-in-trade, book debts as first charge and by way of second charge on all the immovable and movable assets of the Company. The charge ranks pari-passu amongst Bankers. b) Term loan in Indian rupees from a Bank is secured by way of hypothecation of all movable assets subject to prior charge in favour of Company’s bankers on book debts and stock in trade for working capital facilities. c) Amount payable within one year from the Balance Sheet date is Rs.4991.28 Lacs (2004-Rs.6903.70 Lacs) 2005 Rs./Lacs

2004 Rs./Lacs

10.15

10.76

1.91

2.02

2500.00

-

59.72

146.74

38.61

73.93

2610.39

233.45

4- Unsecured Loans (Schedule-21, Note 20) Public Deposits Interest accrued and due Short Term Loans and Advances: - From Banks -Commercial Paper Other Loans and Advances: - From a Financial Institution Deferred Lease Obligations

Notes:1) Amount payable within one year Rs.2593.39 Lacs (2004-Rs.63.94 Lacs) 2) Public Deposits include unclaimed matured deposits.

35

SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE, 2005 5- Fixed Assets (Schedule -21, Notes 1 & 8)

Rs./Lacs Gross Block

Depreciation

As at

Additions/

Deductions/

As at

Upto

01.07.2004

Adjustment

Adjustments/

30.06.2005

01.07.2004

during

Retired during

the year

the year

Net Block

Additions Deductions during

Upto

As at

As at

during 30.06.2005 30.06.2005 30.06.2004

the year

the year

Tangible : Land - Leasehold

398.96

252.41

-

651.37

20.30

9.87

-

30.17

621.20

378.66

Land - Freehold

379.76

-

59.33

320.43

-

-

-

-

320.43

379.76

Buildings

3626.22

146.79

0.60

3772.41

827.27

97.37

0.60

924.04

2848.37

2798.95

Plant & Machinery and

2476.91

252.27

1000.64

1728.54

1740.99

207.11

989.09

959.01

769.53

735.92

2966.77

384.81

530.09

2821.49

2420.88

315.49

512.54

2223.83

597.66

545.89

218.32

34.10

20.25

232.17

145.19

25.46

18.86

151.79

80.38

73.13

880.54

-

880.54

-

880.54

-

880.54

-

-

-

TOTAL

10947.48

1070.38

2491.45

9526.41

6035.17

655.30

2401.63

4288.84

5237.57

4912.31

Previous Year

10056.27

1097.45

206.24

10947.48

5207.47

1023.56

195.86

6035.17 91.21

12.62

5328.78

4924.93

Air Conditioners Furniture, Fixtures & Office Equipment Vehicles Intangible : Acquired Software

Capital Work-In-Progress [Including Capital Advances of Rs.50.57 lacs (2004-Rs.1 lacs)]

Notes : 1. Land - Freehold and Building at Ambattur amounting to Rs. 57.33 lacs (2004-Rs.101.01 lacs) and building at Mumbai amounting to Rs.43.54 lacs (2004-Rs.43.54 lacs) are pending registration in the name of the Company . 2. Addition to Plant and Machinery includes Rs.Nil (2004- Rs.1.82 ) representing restatement of assets during the year due to exchange rate fluctuation.

6- Investments (Schedule -21, Notes 15) Opening Units

Purchased / Reinvested Units

Redemption Units

Closing Units

Face Value (Rs)

1300465

-

-

4183930

5008219

-

As at 30.06.2005 Rs.in Lacs

As at 30.06.2004 Rs.in Lacs

1300465

-

-

4183930

10.00

-

225.00

10.00

450.00

5008219

-

-

10.00

-

516.30

Unquoted (Others) Current : Growth Options Birla Cash Fund Birla Floating Rate Fund - Long Term Deutsche Floating Rate Fund Deutsche Premier Bond Fund

884877

-

884877

-

10.00

-

98.12

DSP Merrill Lynch Bond Fund

983628

2234443

3218070

-

10.00

-

200.00

DSP Merrill Lynch Liquidity Fund

3934839

18229669

22164508

-

10.00

-

603.49

DSP Merrill Lynch Short Term Fund

5879080

-

5879080

-

10.00

-

634.00

DSP Merrill Lynch Floating Rate Fund

3079868

4601806

-

7681674

10.00

825.00

325.00

Grindlays Cash Fund

7137082

87874020

87032835

7978267

10.00

1000.00

850.00

Grindlays Dynamic Bond Fund

20141503

-

20141503

-

10.00

-

2138.32

Grindlays Floating Rate Fund - Long Term

2358869

20633398

11057342

11934925

10.00

1205.44

250.00

Grindlays Floating Rate Fund - Short Term

-

446030

-

446030

10.00

50.00

-

6095319

-

6095319

-

10.00

-

879.02

Grindlays Super Saver Income Fund - IP

36

SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE, 2005 Unquoted (Others) - Current Opening Units

Purchased / Reinvested Units

Redemption Units

Closing Units

Face Value (Rs)

As at 30.06.2005 Rs.in Lacs

As at 30.06.2004 Rs.in Lacs

Grindlays Super Saver Income Fund - Short Term

6214319

-

6214319

-

10.00

-

750.00

Grindlays Super Saver Medium Term Fund

6394887

-

6394887

-

10.00

-

650.00

HDFC Floating Rate Fund - Short Term

5596545

9170592

10177229

4589908

10.00

503.75

600.00

HDFC Institutional Plan Cash Management Fund

4179122

-

4179122

-

10.00

-

547.44

HSBC Cash Fund

5777355

53955907

56633174

3100089

10.00

350.00

625.00

HSBC Income Fund - Short Term

-

4526398

-

4526398

10.00

515.00

-

JM Floating Rate Fund - Long Term

-

994085

-

994085

10.00

100.00

-

4572838

-

4572838

-

10.00

-

464.98

Kotak Dynamic Income Plan Prudential ICICI Blended Plan

-

5000000

-

5000000

10.00

500.00

-

Prudential ICICI Flexible Income Plan

16310812

-

16310812

-

10.00

-

1842.76

Prudential ICICI Floating Rate Plan

11786732

20165206

21832903

10119035

10.00

1064.65

1250.00

1565051

4756179

6321230

-

10.00

-

281.53

12653943

68558284

74281698

6930529

10.00

1148.65

1972.07

Prudential ICICI Income Plan Prudential ICICI Liquid Plan Prudential ICICI Short Term Plan

-

13197876

8716523

4481353

10.00

565.00

-

500000

-

500000

-

10.00

-

50.00

Reliance Fixed Maturity Plan

5020650

12618165

15121776

2517039

10.00

251.70

502.06

Reliance Floating Rate Fund

-

992349

-

992349

10.00

100.00

-

4898503

-

4898503

-

10.00

-

500.00

Tata Dynamic Bond Fund

947320

-

947320

-

10.00

-

99.51

Templeton Floating Rate Income Fund - Long Term

22517971

3029189

15184992

10362168

10.00

1197.57

2591.97

2350428

2169717

4520145

-

10.00

-

411.37

-

40932

-

40932

10.00

500.00

7897

-

7897

-

1000.00

Prudential ICICI Very Cautious Plan

Tata Floating Rate Fund Short Term

Templeton India Income Builder Templeton India Short Term Templeton Treasury Management A/c

125.38

Dividend Options Templeton India Liquid Fund

5753271

-

5753271

-

10.00

-

575.33

Prudential ICICI Fixed Maturity Plan

8500000

4079883

12579883

-

10.00

-

850.00

JM Fixed Maturity Plan

5005536

-

5005536

-

10.00

-

500.55

10326.76

21909.20

Unquoted (Trade) : Long Term In Subsidiary Company HCL Infinet Limited - Equity Shares HCL Infinet Limited - Optionally Convertible Bonds

19506750

-

-

19506750

10.00

1950.68

1950.68

4200000

-

4200000

-

100.00

-

4200.00

1950.68

6150.68

12277.44

28059.88

Note :- Net asset value of Unquouted (Others) Current Investments in Mutual Funds as on 30th Jun ’05 - Rs.10692.50 Lacs(2004- Rs.22367.08 Lacs)

37

SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE, 2005 2005 Rs./Lacs

2004 Rs./Lacs

7793.60 2987.10 7245.30 783.81

6126.95 2621.56 6506.15 871.23

18809.81

16125.89

7- Inventories [Schedule-21, Note 8(c)] Raw materials and Components ( Including in Transit ) Stores and Spares Finished Goods ( Including in Transit ) Work-in-Progress

8- Sundry Debtors -Unsecured Debts exceeding six months : -Considered Good -Considered Doubtful

6024.16 134.09

Less : Provision for Doubtful Debts

6158.25 134.09

Other debts -Considered Good

9- Cash and Bank Balances Cash in Hand and in Transit Cheques in Hand Balances with Scheduled Banks: -On Current Account Less :- Money held in Trust

4202.50 0.63

- On Unpaid Dividend Account - On Margin Account

1646.56 69.80 6024.16

1716.36 69.80

30967.85

27807.88

36992.01

29454.44

128.97 2787.37

118.33 1718.06

4201.87

1585.89 0.98

146.38 38.97

- On Fixed Deposits Less :- Money held in Trust

7314.09 35.00

1646.56

7279.09

1584.91 99.15 2.00

977.02 36.00

941.02

14582.65

4463.47

1038.16 886.43 6017.76

818.11 285.67 347.10

7942.35

1450.88

10-Other Current Assets (Schedule-21, Notes 17 & 20) Deposits Prepaid Expenses Lease Rental Recoverable

38

SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE, 2005 2005 Rs./Lacs

2004 Rs./Lacs

2723.03 218.88 264.15

1986.68 370.91 238.42

3206.06

2596.01

19554.80

16838.51

11-Loans and Advances (Schedule-21, Note 21) Unsecured Considered Good - Amounts recoverable in cash or in kind or for value to be received - Advances and Loans to Subsidiary - Balances with Customs, Port Trust and Excise Authorities

12-Current Liabilities and Provisions (Schedule-21 Notes 6 & 21) Current Liabilities: Acceptances Sundry Creditors - Due to Subsidiary - Due to SSI undertakings - Others

41.83 130.36 11129.87

Sundry Deposits Interest accrued but not due: - On Secured Loans - On Unsecured Loans Investor Education and Protection Fund : - Unclaimed Dividend * Advances from Customers Other Liabilities Unaccrued Revenue

11302.06

188.75 146.87 12223.94

12559.56

201.38

220.85

4.03 1.26

182.32 0.88

146.38 741.99 2816.86 6955.52

99.15 1110.57 2123.30 2767.04

41724.28

35902.18

3346.94 469.41

2306.82 301.47

314.07 180.94 755.23

97.92 559.39 622.27

5066.59

3887.87

46790.87

39790.05

Provisions: Proposed Final Dividend Tax on Proposed Final Dividend Provision for Tax [ Net of Advances Rs.3549.11 Lacs (2004-Rs.3646.05 Lacs )] For Warranty Liability For Gratuity and Other Employee Benefits

* There is no amount due and outstanding to be credited to Investor Education and Protection Fund as at 30th June, 2005.These amounts shall be credited and paid to the fund as and when due.

39

SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE

13- Business Income [Schedule-21, Note 8 (c)] Sales and Related Income Services

14- Other Income Interest : - Refund from Income Tax Authority - Others Dividend from (Others) Current Investments Miscellaneous Income Insurance Claims Provisions/Liabilities no longer required written back Profit on Sale of Fixed Assets (Net) Profit on disposal of (Others) Current Investments (Net) Profit on Foreign Exchange Fluctuation (Net) 15- Cost of Sales and Services [Schedule-21, Notes 8(b) & (c), 9,10 & 18] Raw Materials & Components Consumed Purchase of Finished Goods & Services Stores and Spares Consumed Power and Fuel Labour and Processing Charges Royalty

2005 Rs./Lacs

2004 Rs./Lacs

184733.31 12004.26

142148.56 10054.53

196737.57

152203.09

149.91 5.75 12.17 242.77 21.10 643.81 14.47 831.41 1226.68

328.73 0.15 268.11 253.54 1.71 41.21 5.24 777.55 415.41

3148.07

2091.65

97971.31 51822.22 1227.05 122.26 280.01 8880.07

57775.14 50750.02 1546.34 112.57 381.73 6277.37

160302.92

116843.17

7245.30 783.81

6506.15 871.23

8029.11

7377.38

6506.15 871.23

3546.86 487.68

7377.38

4034.54

(651.73)

(3342.84)

159651.19

113500.33

9494.44 387.07 531.03 62.00

7161.42 281.26 548.89 -

10474.54 312.12

7991.57 192.21

10162.42

7799.36

(Increase)/Decrease in Stocks of Finished Goods & Work - In - Progress :

Closing Stock - Finished Goods (Including in Transit) - Work-in-progress Opening Stock - Finished Goods (Including in Transit) - Work-in-Progress

16- Personnel Salaries, Wages, Allowances, Bonus & Gratuity Contribution to Provident Fund & Other Funds Staff Welfare Expenses Prior period expenses ( Allowances ) Less : Operating Cost recovered

40

SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE 2005 Rs./Lacs

2004 Rs./Lacs

504.81 310.19 230.45 540.23 1345.52 2411.15 692.44 144.27 281.95 1171.07 298.79

495.31 328.99 219.05 472.29 1127.17 1715.81 403.95 137.01 261.91 793.22 242.20

1057.71 174.87 358.11 678.65 49.85 4.73

472.61 125.23 261.53 587.61 25.00 0.01

10254.79 228.04

7668.90 193.14

10026.75

7475.76

Plant and Machinery Buildings Others

24.26 52.16 428.32

13.51 11.18 452.55

Less : Operating Cost recovered

504.74 21.57

477.24 15.76

483.17

461.48

17- Administration, Selling, Distribution and Others Rent Rates and Taxes Printing and Stationery Communication Travelling and Conveyance Packing, Freight & Forwarding Legal and Professional Training and Conference Office Electricity and Water Miscellaneous Insurance Advertisement, Publicity & Entertainment (Net of Reimbursements) Hire Charges Commission on Sales Bank Charges Provision for Doubtful Debts Fixed Assets Written Off

Less : Operating Cost recovered

18- Repairs and Maintenance

19- Finance Charges (Schedule-21, Notes 20(a)) Interest paid : - On Fixed Loans - On Public Deposits - On Others

225.46 487.10

Less : Interest received : - On Lease Rental - On Fixed Deposits [TDS Rs .48.45 Lacs (2004-Rs.17.86 lacs)] - On Other Loans and Advances

712.56

371.18 241.80 3.59

827.60

103.12 62.58 616.57

95.99

41

512.67 0.07 314.86

5.83

171.53

656.07

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES 1.

BASIS OF ACCOUNTING The financial statements are prepared on mercantile basis under the historical cost convention in accordance with the Generally Accepted Accounting Principles in India and comply with the mandatory Accounting Standards issued by the Institute of Chartered Accountants of India.

2.

FIXED ASSETS Fixed Assets including in-house capitalisation and Capital Work-in-Progress are stated at cost except those which are revalued from time to time on the basis of current replacement cost / value to the Company, net of depreciation. Assets taken on finance lease on or after 1.4.2001 are stated at fair value of the assets or present value of minimum lease payments whichever is lower. Intangible Assets are stated at cost net of amortization.

3.

DEPRECIATION (i)

Depreciation has been calculated under Straight Line Method on: a)

Buildings capitalised prior to 1.5.1986 at the rates computed in the respective years of acquisition of those assets as per Section 205(2)(b) of the Companies Act, 1956.

b)

Assets acquired on or after 1.5.1986 and before 16.12.93 on a prorata basis at the rates specified in Schedule XIV of the Companies (Amendment) Act, 1988. These assets are subject to annual technical evaluation for their economic useful life and additional depreciation is charged if there is any reduction in economic useful life as re-evaluated.

c)

Assets acquired on and after 16.12.1993 on a prorata basis based on economic useful life determined by way of periodical technical evaluation. Economic useful lives which are not exceeding those stipulated in Schedule XIV of the Companies Act, 1956 are as under: Plant and machinery Building - Factory - Others Furniture & Fixture Air Conditioners Vehicles Office Equipment Computers

4-6 25-28 50-58 4-6 3-6 4-6 3-6 3-5

years years years years years years years years

(d) The assets taken on finance lease on or after April 1, 2001 over their expected useful lives. (ii) Leasehold land, premises and improvements are amortised over the primary lease period. (iii) Intangible Assets are amortised over a period of 1-3 years. 4.

INVESTMENTS Long-term investments are stated at cost of acquisition inclusive of expenditure incidental to acquisition. Any decline in the value of the said investment, other than a temporary decline, is recognised and charged to Profit and Loss Account. Current Investments are carried at lower of cost or fair value. Income from investments (Dividend Option) is recognised in the accounts in the year in which it is accrued.

5.

INVENTORIES Raw Materials and components held for use in the production of inventories are valued at cost if the finished goods in which they will be incorporated are expected to be sold at or above cost. If there is a decline in the price of materials / components and it is estimated that the cost of finished goods will exceed the net realisable value, the materials/ components are written down to net realisable value measured on the basis of their replacement cost.

42

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT Stores and Spares are valued at lower of cost and net realisable value. Adequate adjustments are made to the carrying value for obsolescence. Work in progress and Finished Goods are valued at lower of cost and net realisable value. Cost of Finished Goods and Work in Progress includes direct labour and proportionate overhead expenses. Cost is determined on the basis of weighted average. Goods in Transit are valued inclusive of custom duty, where applicable. 6.

FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transactions. Foreign currency monetary assets and liabilities are restated at the exchange rates prevailing at the year end and the overall net gain/loss including those arising out of fluctuations in exchange rates on settlement during the period is adjusted to the Profit and Loss Account, except in cases of liabilities relating to acquisition of fixed assets which are adjusted in the cost of respective assets. Foreign currency monetary assets and liabilities covered by forward contracts are stated at the forward contract rates and the difference between the forward rate and the exchange rate at the inception of the forward contract is recognised in the Profit and Loss Account over the life of the contract, except in cases of liabilities relating to acquisition of fixed assets which are adjusted in the cost of respective assets.

7.

8.

RETIREMENT BENEFITS TO EMPLOYEES a)

Liability for gratuity and leave encashment is provided as determined on actuarial valuation made at the end of the year which is computed using projected unit credit method.

b)

Company’s contributions towards recognised Provident Fund and Superannuation Fund are accounted for on accrual basis.

REVENUE RECOGNITION a)

Sales, net of discount, are inclusive of excise duty and the related revenue is recognised (after providing for expenses to be incurred connected to such sale) on transfer of all significant risks and rewards of ownership to the customer and when no significant uncertainty exists regarding realisation of the consideration.

(b) Service income includes income i)

From maintenance of products and facilities under maintenance agreements and extended warranty, which is recognised upon creation of contractual obligations rateably over the period of contract, where no significant uncertainty exists regarding realisation of the consideration.

ii)

From software services (a) The revenue from time and material contracts is recognised based on the time spent as per the terms of contracts. (b) In case of fixed priced contracts revenue is recognised on percentage of completion basis. Foreseeable losses, if any, on contract completion are recognised immediately.

9.

GOVERNMENT GRANTS Revenue grants, where reasonable certainty exists that the ultimate collection will be made are recognized on a systematic basis in profit and loss statement over the periods necessary to match them with the related cost which they are intended to compensate.

10. LEASES a)

Lease transactions entered into prior to April 1, 2001: i)

Assets leased out are stated at cost and amortised over the primary lease period.

ii)

Lease rentals in respect to the assets taken/given on lease are recognised in the Profit and Loss Account on accrual basis.

43

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT b)

Lease transactions entered into on or after April 1, 2001: i)

Assets taken under leases where the Company has substantially all the risks and rewards of ownership are classified as Finance leases. Such assets are capitalised at the inception of the lease at the lower of fair value or the present value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on outstanding liability for each period.

ii)

Assets taken on leases where significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to the Profit and Loss account on straightline basis over the lease term.

iii) Profit on sale and leaseback transactions is recognised over the period of the lease. iv) Assets given under finance lease are recognised as receivables at an amount equal to the net investment in the lease. Inventories given on finance lease are recognised as deemed sale at fair value. Lease income is recognised over the period of the lease so as to yield a constant rate of return on the net investment in the lease. v)

Assets leased out under operating leases are capitalised. Rental income is recognised on accrual basis over the lease term.

vi) Initial direct costs relating to the finance lease transactions are included as part of the amount capitalised as an asset under the lease. 11. INCOME TAXES The current charge for income taxes is calculated in accordance with the relevant tax regulations. Deferred tax assets and liabilities are recognised for the future tax consequences attributable to timing differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted or substantially enacted tax rates as on the balance sheet date. Deferred tax asset is recognized and carried forward when it is reasonably certain that sufficient taxable profits will be available in future against which deferred tax assets can be realised. 12. PROVISIONS AND CONTINGENCIES The company creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that probably will not require an outflow of resources or where a reliable estimate of the amount of the obligation cannot be made. 13. EMPLOYEE STOCK OPTION SCHEME The Company applies the intrinsic value method to compute the compensation cost for stock options granted to the employees under its Employee Stock Option Scheme (ESOP). Under this method, pursuant to the amended provisions of the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by the Securities and Exchange Board of India (“SEBI”), the excess of market price of underlying equity shares as of the date of the grant of the options over the exercise price of the options given to employees under the ESOP of the Company, is recognized as employee compensation cost and is amortised over the vesting period. 14. BORROWING COSTS Borrowing costs to the extent related /attributable to the acquisition/construction of assets that necessarily take substantial period of time to get ready for their intended use are capitalised along with the respective fixed asset up to the date such asset is ready for use. Other borrowing costs are charged to the Profit and Loss Account.

44

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT SCHEDULE 21 - NOTES TO ACCOUNTS 1.

Land and Buildings and certain Plant and Machinery were revalued by registered valuers’ after considering depreciation upto that date on the governing principle of current replacement cost/value to the Company. The amounts added/ reduced on aforesaid revaluation were as under: Rs./Lacs Land 444.39 Buildings 643.81 Plant & Machinery (100.78) Total 987.42 Less : Goodwill 570.00 Transferred to Revaluation Reserve 417.42 Less: - Expenditure incurred on acquisition of business in 1992 86.31 - Loss on sale of Land 15.16 315.95

2.

Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances) are Rs. 58.50 lacs (2004 - Rs. 7.38 lacs)

3.

Contingent Liabilities: a)

Claims not acknowledged as debts for: -

Sales Tax* – Rs. 409.45 lacs ( 2004 – Rs. 205.07 lacs) Excise* – Rs. 63.72 lacs (2004 – Rs. 640.05 lacs) Income Tax* – Rs. 53.52 lacs (2004 – Rs. 68.04 lacs) Other Statutory Claims – Rs. 535.16 lacs (2004 – Rs. 497.95 lacs)

* Against the above, the Company has deposited a sum of Rs. 110.61 Lacs (2004 - Rs. 2.49 Lacs)

4

b)

Corporate Guarantee of Rs. 27450.00 lacs (2004 - Rs. 6950.00 lacs) was given to Banks for working capital facilities sanctioned to the 100% subsidiary, against which total amount utilised is Rs. 19729.54 lacs (2004Rs. 3739.35 lacs).

c)

Non fund based facilities amounting to Rs. 13.83 lacs (2004 - Rs. 20.30 lacs) related to the demerged business.

The company has the following warranty provision in the books of accounts: Rs./lacs Outstanding at the beginning of the year Additions during the year Utilised/Reversed during the year Balance as on 30th June 05

559.39 355.60 734.05 180.94

The warranty provision has been recognised for expected warranty claims for the first year of warranty on products sold during the year. Due to the very nature of such costs, it is not possible to estimate the timing / uncertainties relating to the outflows of economic benefits. From the current year the cost for warranty to be provided beyond one year will be accounted for as and when the related warranty revenue amounting to Rs. 3364.09 lacs is recognised. 5.

Taxation: a)

Provision for taxation has been computed by applying the Income Tax Act, 1961 to the profit for the financial year ended 30th June, 2005, although the actual tax liability of the Company has to be computed each year by reference to the taxable profit for each fiscal year ended 31st March.

b)

The significant components and classification of deferred tax asset and liability on account of timing differences are as follows:

45

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT Deferred tax assets

2005 Rs./Lacs

Allowances for doubtful debts Demerger Scheme Expenses Expense accruals Deferred tax liabilities Depreciation Other timing differences Deferred tax liabilities (Net) 6.

38.42 13.50 348.57 344.77 737.13

2004 Rs./Lacs 23.53 21.29 385.75

400.49

313.47 424.83

1081.90 681.41

430.57

738.30 307.73

There are no Small Scale Industrial Undertakings to whom the Company owes money where the dues are outstanding for more than 30 days from the mutually agreed due dates as at the Balance Sheet date.

7.

Expenditure on Research and Development:

Capital Revenue Total 8.

2005 Rs./Lacs 7.31 76.29

2004 Rs./Lacs 85.66 40.63

83.60

126.29

Capacities, Production, Sales & Stocks: •

Sales, Purchases, Opening and Closing stocks have been given in terms of values and/or, where ascertainable, in numbers.

•

Bought out Computers and certain peripherals have been included in the stock/sales of systems.

•

Sales value are net of capitalisation of the Company’s products at cost-Rs.305.94 Lacs (2004 - Rs. 64.34 Lacs)

a)

Particulars of goods manufactured: Class of Product

Computers/Micro processor Based systems

Nos.

Data Graphic/Display Monitor/Terminals, Hubs etc

Nos.

Installed capacity

Actual Production

600000 (525000) 425000 (350000)

448121 (295192) 406917 (297991)

Note: Installed capacity being a technical matter has been certified by the management. b)

Information in respect of purchase of finished goods and services:

Computers Printers/Scanners/UPS/CVT Cellular Phones Others Total

Nos.

Value Rs./Lacs

27015 (16282) 216839 (158536) 1932 (46131)

14226.11 (18428.74) 15053.47 (14962.95) 129.20 (2588.97) 22413.44 (14769.36) 51822.22 (50750.02)

46

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT c)

Stocks and Sales:

Class of Products

Unit

Sales/Adjustments Qty. Value Rs./Lacs

Computers/Micro processor based Systems

Nos

472051 136626.63 (307270) (101668.83)

10799 (6595)

3189.99 (1774.38)

13884 (10799)

4659.59 (3189.99)

Printers/Scanners/ UPS/CVT’S

Nos

214197 18738.21 (154273) (16708.50)

8185 (3922)

565.14 (180.01)

10827 (8185)

577.88 (565.14)

Cellular Phones

Nos

1386 (4033)

103.95 (246.32)

72 (1386)

9.74 (103.95)

3246 (48778)

Others Total

220.25 (2803.94)

Opening Stock Qty. Value Rs./Lacs

Closing Stock Qty. Value Rs./Lacs

29148.22 (20967.29)

2647.07 (1346.15)

1998.09 (2647.07)

184733.31 (142148.56)

6506.15 (3546.86)

7245.30 (6506.15)

Note: Previous year’s figures are given in brackets. 9.

Value of imported and indigenous raw materials and components consumed during the year (excluding value of consumption of stores and spares which is not readily ascertainable) classified on the basis of ratio between purchase of imported and indigenous raw materials and components during the year:

Rs./Lacs

2005 % of Consumption

Rs./Lacs

2004 % of Consumption

Imported Indigenous

70784.27 27187.04

72.25 27.75

42129.63 15645.51

72.92 27.08

Total

97971.31

100.00

57775.14

100.00

10. Details of raw materials and components consumed (in value): 2005 Rs./Lacs a) b) c) d) e) f)

2004 Rs./Lacs

Mother Boards and Assemblies Hard Disk Drives Processors Monitors CRT, Key Tops, PCBs & Cabinets Others

18945.21 11533.96 13101.04 9416.17 30970.74 15590.55 6997.19 1394.26 12661.44 8832.95 15295.69 11007.25

Total

97971.31 57775.14

Note: Separate quantitative numbers of raw materials & components (including for resale) are not readily ascertainable. 11. Value of Imports calculated on CIF basis: 2005 Rs./Lacs a) b) c) d)

2004 Rs./Lacs

Raw materials & components Stores and spares Capital goods Traded items

75137.71 49653.43 316.07 191.98 132.58 253.73 17176.63 12879.05

Total

92762.99 62978.19

47

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT 12. Expenditure in Foreign Currency: (On actual payment basis)

a) b) c) d)

2005 Rs./Lacs

2004 Rs./Lacs

Travel Royalty (Net of tax) Interest Others

23.79 7051.91 44.38 67.88

31.03 4683.68 122.09 43.70

Total

7187.96

4880.50

2005 Rs./Lacs

2004 Rs./Lacs

Commission FOB value of exports (including deemed exports) Others (including reimbursement of expenses)

63.98 3316.72 1320.18

60.12 3207.59 959.65

Total

4700.88

4227.36

2005 Rs./Lacs

2004 Rs./Lacs

As Auditor* In Other Capacity: Tax Audit* Certification* Out-of-Pocket Expenses

25.00

16.00

9.00 1.00 2.50

9.00 1.00 2.32

Total

37.50

28.32

13. Earnings in Foreign Currency:

a) b) c)

14. Remuneration to Auditor:

a) b)

* Excluding service tax 15. Details of Investments purchased, reinvested and sold on various dates within the financial year are as follows. Name of the Fund

Face Value Rs. per unit

* No. of Units

Cost Rs./Lacs

10 10 10 10 10 10 10 10 10 10 10 10

2894610.337 6406525.756 17289221.196 841318.851 2933824.670 3900528.601 6710187.280 3937128.576 1025754.118 621372.740 947591.853 11843382.220

560 1000 2250 100 500 512 753 500 103 100 150 1425

1000 10 10 10 10 10

38161.301 2219012.640 9102157.441 945036.667 3295619.544 899914.894

577 222 919 100 336 100

Growth Options Prudential ICICI Income Plan HDFC Income Fund HDFC Liquid Fund HDFC High Interest Fund Kotak Bond Kotak Liquid Reliance Short Term Fund Principal Cash Management Fund Grindlays Dynamic Bond Fund Prudential ICICI Liquid Fund Reliance Treasury Plan Grindlays Cash Fund Dividend Options Templeton India TMA DSP Merrill Lynch Floating Rate Fund Grindlays Floating Rate Plan Grindlays Cash Fund Templeton Floating Rate Income Fund Reliance Liquid Fund

*Represents total of transactions on account of renewals and reinvestments.

48

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT 16. Managerial Remuneration : (I)

Computation of net profit under Section 349 of the Companies Act, 1956.

Profit before Taxation Add: Directors Remuneration Paid/payable Depreciation Provision for Doubtful Debts

2005 Rs./Lacs

2004 Rs./Lacs

14887.04

12848.37

330.98 650.72 49.85

309.94 1018.98 25.00 1031.55 15918.59

Less: Depreciation under Section 350 of the Companies Act, 1956 Profit on Disposal of (Other) Investments (Net) Profit on sale of Fixed Assets (Net)

650.72 831.41 14.47

Net Profit under Section 349 Calculation of Commission under Section 309 of the Companies Act, 1956 @ 1% Restricted to (II) Paid/payable to the Wholetime Directors a) Salaries, Allowances & Bonus Contribution to Provident and Superannuation Funds Perquisites b) Directors’ Sitting Fees Commission to Non Wholetime Directors Managerial remuneration under Section 198 of the Companies Act, 1956

1353.92 14202.29

1018.98 777.55 5.24 1496.60 14421.99

1801.77 12400.52

144.22 11.14

124.01 15.82

271.62 16.84 28.38 316.84 3.00 11.14

242.81 15.55 32.56 290.92 3.20 15.82

330.98

309.94

17. Unaccrued forward exchange cover as on 30th June, 2005 of Rs. 0.30 lacs (2004- Rs. 7.78lacs) has been included in prepaid expenses. 18. Duty drawback recognised during the year of Rs. 576.27 lacs (2004 – Rs. 121.78 lacs) has been adjusted against cost of sales and services. 19. Employee Stock Option Plan (ESOP) a) ESOP 2000 Pursuant to the approval of the shareholders at the Extra-Ordinary General Meeting held on 25th February, 2000 for grant of options to the employees of the Company and its subsidiaries (the ESOP 2000), the Board of Directors had approved the grant of following options including the grant of options that had lapsed out of each grant. Subsequent to the sub-division of shares, the above grant of options confer a right to get five (5) equity shares of Rs. 2/- each. 30,18,000 Options granted at the exercise price of Rs. 289 Options outstanding at the beginning of the year Less: Exercised during the year Lapsed during the year Options outstanding at the end of the year

16,06,100 Options granted at the exercise price of Rs. 538.15 Options outstanding at the beginning of the year Add: Granted during the year Less: Exercised during the year Lapsed during the year Options outstanding at the end of the year

49

2005 401,506 316,612 – 84,894

2004 2,108,500 980,414 726,580 401,506

1,438,524 – 229,869 221,351 987,304

– 1,511,484 – 72,960 1,438,524

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT Granted during the year Date of grant

Options granted

25/8/2004 18/1/2005 15/2/2005 15/3/2005 15/4/2005 14/5/2005 15/6/2005 b)

2,26,118 2,91,860 23,920 60,216 23,384 17,400 20,960

Grant Price Rs. Rs. Rs. Rs. Rs. Rs. Rs.

603.95 809.85 809.30 834.40 789.85 770.15 756.15

Options lapsed out of the grant 54,360 18,910 15,520 2,800 2,560

Employees Stock Based Compensation Plan 2005 The shareholders of the Company have approved the Employees Stock Based Compensation Plan 2005 through a Postal Ballot for grant of 3,335,487 options to the employees of the Company and its subsidiary. The Board of Directors has granted 3,196,840 options (2004 – NIL) (each option confers on the employee a right for five equity shares of Rs. 2/- each) at an exercise price of Rs. 228.80 being the market price as specified in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 on the date of grant.

20. Leases: a) (i)

Finance Leases:

Assets acquired under Sale and Leaseback arrangements comprises of Computers. There are no exceptional/restrictive covenants in the lease agreements.

(ii) The minimum lease payments and its present value as at 30th June, 2005 in respect of assets acquired under finance lease are as follows: Total minimum lease payments outstanding

Interest included in minimum lease payments

Present value of minimum lease payments

Rs./Lacs

Rs./Lacs

Rs./Lacs

40.28 (42.43) 0.88 (41.16)

(2.54) (7.11) 0.01 (2.55)

37.74 (35.32) 0.87 (38.61)

41.16 (83.59)

2.55 (9.66)

38.61 (73.93)

Not later than one year

Later than one year and not later than five years Total

Note: Previous year’s figures are given in brackets. (iii) The Company has given on finance lease certain Assets/ Inventories, which comprise of computers. These leases have a primary period, which are fixed and non-cancelable. There are no exceptional/restrictive covenants in the lease agreements. (iv) The gross investment in the assets given on finance leases as at 30th June, 2005 and its present value as at that date are as follows: Total minimum lease payments Receivable

Not later than one year

Later than one year and not later than five years Total

Interest included in Present value of minimum lease minimum lease payments receivable payments receivable

Rs./Lacs

Rs./Lacs

Rs./Lacs

1648.89 (274.44) 5432.80 (181.40)

339.54 (58.18) 724.39 (50.56)

1309.35 (216.26) 4708.41 (130.84)

7081.69 (455.84)

1063.93 (108.74)

6017.76 (347.10)

[includes minimum sub lease receivable Rs. 22.20 Lacs (2004 - Rs. 68.67 Lacs)] Note: Previous year’s figures are given in brackets.

50

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT B)

Operating Lease: (i)

The Company has taken various residential/commercial premises under cancellable operating leases. These leases are normally renewable on expiry.

(ii) The rental expense in respect of operating leases is Rs. 504.81 Lacs (2004 - Rs. 495.31 Lacs) 21. Disclosure of related parties and related party transactions. a)

Holding Company: HCL Corporation Ltd. (Upto 10th February 2005 and having substantial interest in the voting power after that)

b)

List of Parties where control exists/existed: Subsidiary: HCL Infinet Ltd.

c)

Other related parties with whom transactions have taken place during the year and/or balances exist: Fellow Subsidiaries: [Refer note 21(a)] -

HCL Technologies Ltd HCL Comnet Ltd. HCL Technologies BPO Services Ltd. Shipara Technologies Ltd. Infosystems (Europe) Ltd. HCL Technologies Singapore Pte. Ltd. HCL Peripherals Ltd HCL Infosolutions Ltd. Network Ltd. (Ceased to be a related party w.e.f. November 2004)

Others (where there is significant influence): Shri Sivasubramaniya Nadar Educational and Charitable Trust. Key Management Personnel i)

Directors: Mr. Ajai Chowdhry Mr. T.S. Purushothaman* Mr. Ravi Thumboochetty** Mr. J. V. Ramamurthy*** * Ceased to be whole time director w.e.f. 20th July 05 ** Ceased to be whole time director w.e.f. 10th August 05 *** Appointed as whole time director w.e.f. 11th August 05

ii)

d)

Other Key Management Personnel: Mr. George Paul Mr. Hari Bhaskaran Mr. K.R. Radhakrishnan Mr. Manohar Lal Taneja Mr. Rajeev Asija Mr. Rajendra Kumar Mr. Rakesh Mehta Mr. Sandeep Kanwar Mr. S. Pattabiraman Mr. Suman Ghose Hazra

Summary of Related Party disclosures (Rs./Lacs)

Note: All transactions with related parties have been entered into in the normal course of business.

51

SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT Related Party Transactions for 12 months ended 30th June 2005 and Balances as on that date (Rs./Lacs) A. Transactions

*Holding Company 100% Subsidiary

Fellow Subsidiaries

[See note 21(a)] Sales & Related Income

[See note 21(c)]

Associates

Key Management

& Others

Personnel

June 05

June 04

June 05

June 04

June 05

June 04

June 05

June 04

15.57

0.13

243.63

234.84

3933.09

2916.01

40.21

128.25

31.30

63.15

298.54

89.25

5.51

5.22

98.93

108.39

Services Other Income Purchase of Goods Purchase of Services

203.52

2673.66

7.21

40.44

76.60

24.60

877.63

386.92

Total

June 05

June 04

June 05 335.35

157.62

98.93

108.39

210.73 2714.10 954.23

Donations Given

48.00

Impairment/Debts written off

3.74

Assets Purchased

8.20

Assets Sold

2.85

June 04

4232.50 3279.23

411.52 48.00

2.17

15.60

3.74

2.17

8.20

15.60

2.85

Remuneration

650.40

485.15

650.40

485.15

632.53

431.79

Reimbursements towards expenditure a) Received

3.46

4.04

b) Made

2.43

5.47

B. Amount due to / from related parties

Holding Company

571.28

346.46

57.79

80.63

5.85

0.66

8.56

100% Subsidiary

Jun-04

Investment Accounts Receivables

14.07

Loans & Advances & Other Recoverables

0.09

Creditors Other Payables

3.09

FellowSubsidiaries

[See note 21(a) Jun-05

0.66 Associate

[See note 21(c) Jun-05

Jun-04

1950.68

6150.68

67.34

Key Management

& Others Jun-04

19.88 Total

Personnel

Jun-05

Jun-04

Jun-05

Jun-05

Jun-04

Jun-05

Jun-04

30.02

400.83

362.85

0.63

482.87

392.87

218.88

370.91

62.80

91.05

281.68

462.05

41.83

188.75

83.16

63.86

124.99

252.61

41.56

56.05

49.60

68.48

1950.68 6150.68

0.04

4.43

8.00

8.00

* HCL Corporation Ltd. has ceased to be the holding company since 10th February 2005.

22. Earnings per share (EPS) The earnings considered in ascertaining the Company’s EPS represent profit for the year after tax. Basic EPS is computed and disclosed using the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed and disclosed using the weighted average number of equity and dilutive equivalent shares outstanding during the year, except when results would be anti dilutive. Calculation of EPS: Particulars Profit after tax (Rs./Lacs) Weighted average number of shares considered as outstanding in computation of Basic EPS * Add dilutive impact of stock options: - Outstanding - Exercised - Lapsed - Issued for no consideration Weighted average number of shares outstanding in computation of Diluted EPS* Basic EPS (of Rs. 2/- each) Diluted EPS (of Rs. 2/- each)

30.06.2005

30.06.2004

13,276.76

12,089.64

1,65,774,340

1,61,095,395

6,843,750 1,407,430 690,895 2,079,700

5,061,930 3,353,970 1,276,655 1,585,835

1,76,796,115 Rs. 8.01 Rs. 7.51

1,72,373,785 Rs. 7.50 Rs 7.01

*Consequent to the approval of the shareholders through postal ballot, results whereof declared on June 13, 2005, each equity share of face value of Rs. 10/- were sub-divided into five equity shares of face value of Rs. 2/- each. 15th July 2005 was fixed as record date for this purpose. The previous year weighted average number of equity shares and diluted number of equity shares have been adjusted accordingly. 23. The Company is significantly operating in a single segment, hence segment reporting is not applicable.

52

24. Additional disclosure as per Clause 32 of the Listing Agreement Disclosure of amounts at the year end and the maximum amount of loans/advances/investments outstanding during the year ended 30th June, 2005. A.

Loans and Advances in the nature of Loans to Subsidiary.

a. b. c.

Name. Balance outstanding at the year end Maximum amount outstanding during the year ended 30th June, 2005

Nil Nil Nil

B. Loans and Advances in the nature of loans to Fellow Subsidiaries a. Name b. Balance outstanding at the year end c. Maximum amount outstanding during the year ended 30th June, 2005 C.

Nil Nil Nil

Loans and Advances in the nature of loans where no interest or interest below Section 372 A of Companies Act is charged - Nil. Loans given to employees under various schemes of the Company have been considered to be out of purview of disclosure requirement.

D.

Loans and Advances in the nature of loans to firms/Companies in which directors are interestedNil.

E.

Disclosure of Investment in the Company’s own shares

a. b. c. d. e.

Name of the Loanee Balance outstanding at the year end Maximum amount outstanding during the year ended 30th June, 2005 Investments made by the loanee Maximum amount of Investment during the year ended 30th June, 2005

Nil Nil Nil Nil Nil

25. Previous year’s figures have been regrouped/recasted, where necessary, to conform to current year’s presentation.

53

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE Registration Details Registration No.

State Code

0 2 3 9 5 5

5 5

Balance Sheet Date 3 0

0 6

2 0 0 5

D D

M M

Y Y Y Y

Capital Raised During the Year (Amount in Rs. Thousands) Public Issue

Rights Issue

N I L

N I L

Bonus Issue

Private Issue

N I L

N I L

Position of Mobilisation and Deployment of funds (Amount in Rs. Thousands) Total Liabilities Sources of Funds

Total Assets

5 2 3 4 8 2 3

5 2 3 4 8 2 3

Paid-up Capital

Reserves and Surplus

3 3 4 3 6 5

4 0 1 9 1 4 3

Secured Loans

Unsecured Loans

5 5 2 1 3 5 Application of Funds

2 6 1 0 3 9

Net Fixed Assets

Investments

5 3 2 8 7 8

1 2 2 7 7 4 4

Net Current Assets

Misc. Expenditure

3 4 7 4 2 0 1

N I L

Accumulated Losses N I L Performance of Company

Turnover

Total Expenditure

1 9 5 9 5 7 2 7

1 8 1 0 7 0 2 4

(Please tick Appropriate box

Profit/ Loss before Tax

Profit/ Loss After Tax

+ for Profit, - for Loss)

+

+

1 4 8 8 7 0 3

Earning Per Share in Rs. 8 .

1 3 2 7 6 7 5

Dividend Rate (%)

0 1

3 1 0

Generic Name of Three Principal Products/ Services of Company (as per monetary terms.) Item Code No. (ITC Code)

8 4 7 1 0 0

Product Description

C O M P U T E R S

Item Code No. (ITC Code)

8 4 7 1 6 0

Product Description

C O M P U T E R

54

P E R I P H E R A L S

AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS To, The Board of Directors of HCL Infosystems Limited, 1. We have audited the attached Consolidated Balance Sheet of HCL Infosystems Limited and its subsidiaries, as at 30th June 2005, the Consolidated Profit and Loss Account for the year ended on that date annexed thereto, and the Consolidated Cash Flow Statement for the year ended on that date, which we have signed under reference to this report. These consolidated financial statements are the responsibility of the management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework and are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We report that the consolidated financial statements have been prepared by HCL Infosystems Limited’s Management in accordance with the requirements of Accounting Standard 21, Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India. 4. In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: (a)

in the case of the consolidated balance sheet, of the consolidated state of affairs of HCL Infosystems Limited and its subsidiary as at 30th June 2005;

(b)

in the case of the consolidated profit and loss account, of the consolidated results of operations of HCL Infosystems Limited and its subsidiary for the year ended on that date; and

(c)

in the case of the consolidated cash flow statement, of the consolidated cash flows of HCL Infosystems Limited and its subsidiary for the year ended on that date.

V. NIJHAWAN Partner Membership Number F-87228 For and on behalf of Price Waterhouse Chartered Accountants

Place: New Delhi Date: 18th August, 2005

55

CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

Schedule

2005 Rs./Lacs

2004 Rs./Lacs

Sources of Funds: Shareholders’ Funds : Capital Reserves and Surplus

1 2

3343.65 52110.90

3289.00 38977.19

Loan Funds: Secured Loans Unsecured Loans

3 4

5521.35 2610.39

6903.70 298.49

Deferred Tax : Deferred Tax Assets Deferred Tax Liabilities

21 ( 4 ) (760.31) 1495.08

734.77

(591.24) 1090.47

499.23

64321.06

49967.61

Application of Funds: Fixed Assets: Gross Block Less: Depreciation Net Block Capital Work-In-Progress (Including Capital Advances)

5

Investments

6

Current Assets, Loans & Advances: Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances Less: Current Liabilities & Provisions Current Liabilities Provisions

15215.22 7718.91 7496.31 105.95

7 8 9 10 11

6570.35

14345.66

21909.20

34939.32 53239.10 25077.39 10812.05 4567.25 128635.11

28042.02 41643.22 14523.22 4478.83 2520.78 91208.07

80803.83 5458.14 86261.97

65270.42 4449.59 69720.01

12

Net Current Assets Consolidated Significant Accounting Policies Consolidated Notes to Accounts

7602.26

15040.38 8594.64 6445.74 124.61

42373.14

21488.06

64321.06

49967.61

20 21

This is the Balance Sheet referred to in our report of even date

The schedules referred to above form an integral part of the Balance Sheet For and on behalf of the Board of Directors

V. NIJHAWAN Partner Membership Number F-87228 For and on behalf of Price Waterhouse Chartered Accountants

AJAI CHOWDHRY Chairman and Chief Executive Officer

Place : New Delhi Dated : 18th August, 2005

S. BHATTACHARYA Director

K.R. RADHAKRISHNAN Company Secretary

56

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE

Schedule Income Business Income Less : Excise Duty Other Income

13

778360.81 3928.37

2005

2004

Rs./Lacs

Rs./Lacs

14

774432.44 5060.27 779492.71

15 16 17 18 19

714092.73 14522.93 18118.43 857.60 776.13

441178.35 10534.39

430643.96 2892.22 433536.18

Expenditure Cost of Sales and Services Personnel Administration, Selling, Distribution and Others Repairs and Maintenance Finance Charges Depreciation Less : Transfer to Revaluation Reserve

1528.83 4.58

Profit before Tax Tax Expense 21 ( 4 ) -Current [Wealth tax Rs. 2.00 lacs (2004-Rs. 2.00 lacs)] - Fringe Benefit -Deferred

6510.59 83.90 235.55

1524.25

386123.75 10861.64 11826.23 889.10 882.68 1806.03 4.58

1801.45

749892.07

412384.85

29600.64

21151.33

6830.04

2099.00 – 1540.87

3639.87

Profit after Tax Balance in Profit and Loss Account brought forward

22770.60 26309.60

17511.46 17730.32

Profit available for Appropriation

49080.20

35241.78

Appropriations: Interim Dividend Proposed Final Dividend Tax on Interim Dividend Tax on Proposed Final Dividend Transfer to General Reserve Balance Carried Over

6974.52 3346.94 938.82 469.41 1327.66 36022.85

4534.01 2306.82 580.92 301.47 1208.96 26309.60

13.74 12.88

10.87 10.16

Earning per equity share Basic ( of Rs. 2/- each) (in Rs.) Diluted (of Rs. 2/- each) (in Rs.) Consolidated Significant Accounting Policies Consolidated Notes to Accounts

21 ( 9 ) 21 ( 9 ) 20 21

This is the Profit and Loss Account referred to in our report of even date

The schedules referred to above form an integral part of the Profit and Loss Account For and on behalf of the Board of Directors

V. NIJHAWAN Partner Membership Number F-87228 For and on behalf of Price Waterhouse Chartered Accountants

AJAI CHOWDHRY Chairman and Chief Executive Officer

Place : New Delhi Dated :18th August, 2005

S. BHATTACHARYA Director

K.R. RADHAKRISHNAN Company Secretary

57

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE 2005

2004

Rs./Lacs

Rs./Lacs

29600.65

21151.33

1. Cash Flow from Operating Activities Profit before Tax Adjustments for: Depreciation

1524.25

1801.45

(15.81)

(3.71)

(850.53)

(795.58)

776.13

882.68

(688.10)

(1321.14)

Fluctuation (Net)

(55.41)

240.80

Prior period expenses

(62.00)

-

(Profit)/Loss on sale of Fixed Assets (Net) (Profit)/Loss on disposal of Investments (Net) Interest on borrowings Interest and Dividend income Unrealised (Gain) / Loss on Foreign Exchange

Provision for Doubtful Debts Liabilities no longer required written back

144.23

148.01

(839.71)

(70.72)

Diminution in the value of Current Investments

0.53

Fixed Assets written off

4.73

Operating profit before Working Capital Changes

(61.69)

0.01

29538.96

881.80 22033.13

Adjustments for: Trade and Other Receivables

(19934.11)

(15933.86)

Inventories

(6897.30)

(4232.81)

Trade Payables and Other Liabilities

16432.29

(10399.12)

14717.64

(5449.03)

Cash generated from Operation

19139.84

16584.10

Direct Tax (paid)/ refund (Net)

(6465.23)

(443.93)

12674.61

16140.17

(Including Interest) Net Cash from Operating Activities

(A)

2. Cash Flow from Investing Activities Interest and Dividend Received (Gross) Purchase of Fixed Assets

362.08

1331.99

(2678.31)

(1806.83)

Sale of Fixed Assets Purchase of Investments Disposal/Redemption of Investments

107.56

34.88

(167566.08)

(73024.56)

175979.63

73761.84

19.39

10.84

Capital Work-in-Progress (Including Capital Advances) Net cash from/(used in) Investing activities

(B)

6224.27

58

308.16

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE 2005

2004

Rs./Lacs

Rs./Lacs

3. Cash Flow from Financing Activities Share Capital Issued Interest Paid Share Premium Received Secured Loans - Short Term Received/(Paid) Secured Loans - Long Term Received Secured Loans - Long Term (Paid) Unsecured Loans Received / (Paid) Dividend Paid (including dividend tax) Net cash from Financing activities

54.65

98.04

(954.15)

(989.41)

2097.38

2735.36

(2354.59)

411.07

4000.00

2007.89

(3027.19)

(3930.44)

2313.59

(3148.36)

(10474.40)

(8661.72)

(C)

(8344.71)

(11477.57)

Opening Balance of Cash and Cash Equivalents

14523.22

9552.46

Closing Balance of Cash and Cash Equivalents

25077.39

14523.22

and Cash Equivalents

10554.17

4970.76

Total (A)+(B)+(C)

10554.17

4970.76

[(Includes Exchange Rate Fluctuation of Rs. (-1.13) Lacs (2004-Rs 3.42 Lacs)] [Includes unclaimed dividend of Rs. 146.38 lacs (2004-Rs. 99.15 lacs)] Net Increase /(Decrease) in Cash

Note The above Cash Flow Statement has been prepared under the indirect method set out in AS-3 issued by Institute of Chartered Accountants of India.

This is the Cash Flow Statement referred to in our report of even date

For and on behalf of the Board of Directors

V. NIJHAWAN Partner Membership Number - F-87228 For and on behalf of Price Waterhouse Chartered Accountants

AJAI CHOWDHRY Chairman and Chief Executive Officer

Place : New Delhi Dated : 18th August, 2005

S. BHATTACHARYA Director

K.R. RADHAKRISHNAN Company Secretary

59

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE 2005

2004

Rs./Lacs

Rs./Lacs

8000.00 500.00

8000.00 500.00

8500.00

8500.00

3343.64

3288.99

0.01

0.01

3343.65

3289.00

1- Capital (Schedule-21, Note 5) Authorised: 40,00,00,000 Equity Shares of Rs. 2/- each (2004 - 8,00,00,000 Equity shares of Rs. 10/- each) 5,00,000 (2004 - 5,00,000) Preference Shares of Rs. 100/- each

Issued, Subscribed and Paid up: 16,71,81,770 Equity shares of Rs. 2/- each, fully paid up. (2004 - 3,28,89,873 Equity shares of Rs. 10/- each, fully paid up) Add : Shares Forfeited

Notes:1

2

3

4

The shareholders of the Company through postal ballot, results whereof declared on June 13, 2005 authorised the sub division of Equity shares, in accordance with the provisions of Section 94 of the Companies Act, 1956. Accordingly, each Equity share was subdivided from face value of Rs. 10/- each into 5 Equity shares of face value of Rs. 2/- each. The Company had fixed July 15, 2005 as the Record Date for determining the shareholders entitled to the sub-division of the shares. The credit of Equity Share of Rs. 2/- each has been given to respective beneficiary accounts of the shareholders, holding shares in electronic form, by the depositories. For the Equity Shares held in physical form new share certificate of face value of Rs. 2/- each is to be issued on receipt of the old share certificate of face value of Rs. 10/- each. The Equity shares of the face value of Rs. 2/- each of the Company are being traded on stock exchange since July 16, 2005. Paid up share capital includes : a) 5,04,47,295 Equity Shares of Rs. 2/- each (2004 - 1,00,89,459 Equity Shares of Rs. 10/- each) issued pursuant to contract without payment being received in cash. b) 5,31,82,765 Equity Shares of Rs. 2/- each (2004 - 1,06,36,553 Equity Shares of Rs. 10/- each) Bonus shares issued from Share Premium Account. c) 76,34,475 Equity Shares of Rs. 2/- each (2004 - 9,80,414 Equity Shares of Rs. 10/- each) issued pursuant to the exercise of options granted under ESOP Scheme 2000. Out of the total paid up share capital, 8,30,19,205 Equity Shares of Rs. 2/- each (2004 - 1,66,03,841 Equity Shares of Rs. 10/each) are held by HCL Corporation Limited. During the year ended June 30, 2005, 27,32,405 equity shares of Rs. 2/- each fully paid up were issued pursuant to the exercise of options granted under ESOP Scheme 2000. Consequently, HCL Corporation Limited’s shareholding percentage reduced from 50.48% as on June 30, 2004 to 49.66% as on June 30, 2005.

2- Reserves and Surplus (Schedule-21, Note 5)

General Reserve Profit and Loss Account Share Premium Revaluation Reserve (Adj.) Capital Reserve

Previous year

As At 01.07.2004 Rs./Lacs

Additions Rs./Lacs

Deductions/ Adjustments Rs./Lacs

As At 30.06.2005 Rs./Lacs

5622.20 (4413.24)

1,327.66 (1208.96)

– (0)

6949.86 (5622.20)

26309.60 (17730.32)

9713.25 (8579.28)

– (-)

36022.85 (26309.60)

6739.37 (4004.01)

2,097.38 (2735.36)

– (0)

8836.75 (6739.37)

305.65 (310.23)

– (0)

4.58 (4.58)

301.07 (305.65)

0.37 (0.37)

– (– )

– (0)

0.37 (0.37)

38977.19 (26458.17)

13138.29 (12523.60)

4.58 (4.58)

52110.90 (38977.19)

60

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE 2005

2004

Rs./Lacs

Rs./Lacs

530.07

–

External Commercial Borrowings

554.61

1589.15

Others

436.67

2287.36

–

875.60

4000.00

2151.59

5521.35

6903.70

3- Secured Loans Loans and Advances from Banks: - Cash Credits - Foreign Currency Loan

- Term Loan Foreign currency Loan Others

a) Cash Credits along with non-fund based facilities, Foreign Currency Loans and Foreign Currency Term Loan from Banks by the Parent are secured by way of hypothecation of stock-in-trade, book debts as first charge and by way of second charge on all the immovable and movable assets of the Parent Company. The charge ranks pari-passu amongst Bankers. b) Term loan in Indian rupees from a Bank taken by the Parent Company is secured by equitable mortgage on all the immovable assets of the Parent Company and hypothecation of all movable assets subject to equitable mortgage of specific assets under term loan from another bank and prior charge in favour of Company’s bankers on book debts and stock in trade for working capital facilities. Term loan from another Bank by the Parent is secured by equitable mortgage on specific assets. c) Amount payable within one year from the Balance Sheet date is Rs. 4991.28 Lacs (2004 - Rs. 6903.70 Lacs)

2005

2004

Rs./Lacs

Rs./Lacs

10.15

10.76

1.91

2.02

2500.00

–

59.72

146.74

38.61

138.97

2610.39

298.49

4- Unsecured Loans (Schedule-21, Notes 6) Public Deposits Interest accrued and due Short Term Loans and Advances: - From Banks -Commercial Paper Other Loans and Advances: - From a Financial Institution Deferred Lease Obligations

Notes:1) Amount payable within one year is Rs. 2593.39 Lacs (2004 - Rs. 128.29 Lacs ) 2) Public Deposits include unclaimed matured deposits.

61

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE 5- Fixed Assets (Schedule - 21, Note 2)

Rs./Lacs Gross Block

Depreciation

Net Block

As at

Additions/Adjusments

Deductions/Adjustments/

As at

As at

Additions

Deductions

As at

As at

As at

01.07.2004

during

Retired during

30.06.2005

01.07.2004

during

during

30.06.2005

30.06.2005

30.06.2004

the Year

the Year

the Year

the Year

Tangible: Land - Leasehold

398.96

Land - Freehold

379.76

252.41

—

—

651.37

20.30

59.33

320.43

—

9.87

—

30.17

621.20

378.66

—

—

—

320.43

379.76

Buildings

3673.56

146.79

0.60

3819.75

828.52

98.22

0.60

926.14

2893.61

2845.04

Plant & Machinery and

5756.54

723.06

1004.18

5475.42

3809.57

897.16

989.09

3717.64

1757.78

1946.97

3504.15

519.52

536.14

3487.53

2685.12

449.60

515.47

2619.25

868.28

819.03

223.75

34.10

20.25

237.60

147.47

26.76

18.86

155.37

82.23

76.28

223.12

1103.66

880.54

223.12

Air Conditioners Furniture, Fixtures & Office Equipment Vehicles Intangible : Acquired Software

1103.66

License Fees

—

—

880.54

1000.00

—

1000.00

—

— 47.22

—

952.78 7496.31

TOTAL

15040.38

2675.88

2501.04

15215.22

8594.64

1528.83

2404.56

7718.91

Previous Year

13470.19

1801.17

230.98

15040.38

6988.40

1806.03

199.79

8594.64

Capital Work-In-Progress [Including Capital Advances of Rs. 50.86 Lacs (2004- Rs. 4.81 Lacs)]

—

47.22

— — 6445.74

105.95

124.61

7602.26

6570.35

Notes : 1.

Land - Freehold and Building at Ambattur amounting to Rs. 57.33 lacs (2004-Rs. 101.01 lacs) and Building at Mumbai amounting to Rs. 90.88 lacs (2004 - Rs. 90.88 lacs) are pending registration in the name of the Group .

2.

Addition to Plant and Machinery includes Rs. 0.69 Lacs (2004 - Rs. 2.88 Lacs ) and Capital Work-In-Progress Rs. Nil (2004 - Rs. 0.73 Lacs ) representing restatement of assets during the year due to exchange rate fluctuation.

6- Investments Opening Units

Purchase /Reinvest

Redemption Units

1300465

–

–

4183930

Deutsche Floating Rate Fund

5008219

–

Deutsche Premier Bond Fund

884877

DSP Merrill Lynch Bond Fund

983628

DSP Merrill Lynch Liquidity Fund

3934839

18229669

22164508

–

10.00

–

603.49

DSP Merrill Lynch Short Term Fund

5879080

–

5879080

–

10.00

–

634.00 325.00

Unquoted (Others) Current : Growth Options Birla Cash Fund Birla Floating Rate Fund - Long Term

Closing Units

Face Value (Rs)

2005 Rs. in Lacs

2004 Rs. in Lacs

1300465

–

10.00

–

–

4183930

10.00

450.00

–

5008219

–

10.00

–

516.30

–

884877

–

10.00

–

98.12

2234443

3218070

–

10.00

–

200.00

225.00

DSP Merrill Lynch Floating Rate Fund

3079868

4601806

-

7681674

10.00

825.00

Grindlays Cash Fund

7137082

87874020

87032835

7978267

10.00

1000.00

850.00

20141503

–

20141503

–

10.00

–

2138.32

Grindlays Floating Rate Fund - Long Term

2358869

20633398

11057342

11934925

10.00

1205.44

250.00

Grindlays Floating Rate Fund - Short Term

–

446030

–

446030

10.00

50.00

–

Grindlays Super Saver Income Fund - IP

6095319

–

6095319

–

10.00

–

879.02

Grindlays Super Saver Income Fund - Short Term

6214319

–

6214319

–

10.00

–

750.00

Grindlays Super Saver Medium Term Fund

6394887

–

6394887

–

10.00

–

650.00

HDFC Floating Rate Fund - Short Term

5596545

9170592

10177229

4589908

10.00

503.75

600.00

Grindlays Dynamic Bond Fund

HDFC Institutional Plan Cash Management Fund

4179122

–

4179122

–

10.00

–

547.44

HSBC Cash Fund - Institutional

5777355

53955907

56633174

3100088

10.00

350.00

625.00

HSBC Income Fund - Short Term

–

4526398

–

4526398

10.00

515.00

JM Floating Rate Fund - Long Term

–

994085

–

994085

10.00

100.00

–

4572838

–

4572838

–

10.00

–

464.98

–

5000000

–

5000000

10.00

500.00

–

16310812

–

16310812

–

10.00

–

1842.76

Kotak Dynamic Income Plan Prudential ICICI Blended Plan Prudential ICICI Flexible Income Plan

62

(Contd.)

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

Prudential ICICI Floating Rate Plan Prudential ICICI Income Plan Prudential ICICI Liquid Plan Prudential ICICI Short Term Plan

Opening

Purchase

Redemption

Closing

Face

2005

Units

/Reinvest

Units

Units

Value (Rs)

Rs.in Lacs

Rs.in Lacs

2004

11786732

20165206

21832903

10119035

10.00

1064.65

1250.00

1565051

4756179

6321230

–

10.00

–

281.53

12653943

68558284

74281698

6930529

10.00

1148.65

1972.07

–

13197876

8716523

4481353

10.00

565.00

–

500000

–

500000

–

10.00

–

50.00

Reliance Fixed Maturity Plan

5020650

12618165

15121776

2517039

10.00

251.70

502.06

Reliance Floating Rate Fund

–

992349

-

992349

10.00

100.00

–

4898503

–

4898503

–

10.00

–

500.00

947320

–

947320

–

10.00

–

99.51

Prudential ICICI Very Cautious Plan

Tata Floating Rate Fund Short Term Tata Dynamic Bond Fund Templeton Floating Rate Income Fund - Long Term

22517971

3029189

15184992

10362168

10.00

1197.57

2591.97

Templeton India Income Builder

2350428

2169717

4520145

–

10.00

–

411.37

–

40932

–

40932

10.00

500.00

7897

–

7897

–

1000.00

–

Templeton India Liquid Fund

5753271

–

5753271

–

10.00

–

575.33

Prudential ICICI Fixed Maturity Plan

8500000

4079883

12579883

–

10.00

–

850.00

JM Fixed Maturity Plan

5005536

–

5005536

–

10.00

–

500.55

Principal Cash Management Liquid Fund

–

72041998

62034479

10007519

10.00

1000.85

–

ABN AMRO Cash Fund

–

40097536

30052069

10045467

10.00

1004.55

–

Grindlays Cash Fund

–

29220100

14389345

14830755

10.00

1512.23

Templeton Mutual Fund Collection A/c

–

50083

–

50083

1000.00

501.27

–

14345.66

21909.20

Templeton India Short Term Templeton Treasury Management A/c Dividend Options

–

125.38

–

Note :- Net asset value of Unqouted (Others) Current Investment in Mutual Funds as on 30th Jun ’05 is Rs. 14712.00 Lacs (2004 Rs. 22367.08 Lacs)

63

(Contd.)

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE 2005 Rs./Lacs

2004 Rs./Lacs

7793.60 4316.23 22045.68 783.81

6126.95 3810.56 17233.28 871.23

34939.32

28042.02

7- Inventories Raw Materials and Components (Including in Transit) Stores and Spares Finished Goods (Including in Transit) Work-In-Progress

8- Sundry Debtors - Unsecured Debts exceeding six months : - Considered Good - Considered Doubtful

6360.78 227.17

Less : Provision for Doubtful Debts

6587.95 227.17

Other debts - Considered Good - Considered Doubtful

46878.32 1.29

Less : Provision for Doubtful Debts

46879.61 1.29

1896.24 186.23 6360.78

2082.47 186.23

1896.24

39746.98 25.51 46878.32

39772.49 25.51

39746.98

53239.10

41643.22

195.05 3154.23

865.57 2656.17

9- Cash and Bank Balances Cash in hand and in Transit Cheques in hand Balances with Scheduled Banks : - On Current Account Less :- Money held in Trust

- On Unpaid Dividend Account - On Margin Account - On Fixed Deposits Less :- Money held in Trust

10703.16 76.48

10626.68

7420.74 19.12

146.38 38.97 10951.08 35.00

10916.08 25077.39

7401.62

99.15 2.00 3534.71 36.00

3498.71 14523.22

Note:- Fixed Deposit includes Rs. 6.86 Lacs (2004-Rs.6.86 Lacs) under lien as margin money on bank guarantee.

10- Other Current Assets (Schedule-21, Note 6) Deposits

1389.52

1148.19

Prepaid Expenses

1630.50

1069.64

Lease Rental Recoverable

7792.03

2261.00

10812.05

4478.83

64

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE 2005 Rs./Lacs

2004 Rs./Lacs

4005.52

2282.36

561.73

238.42

4567.25

2520.78

24179.69

20670.00

11- Loans and Advances Unsecured Considered Good - Amounts recoverable in cash or in kind or for value to be received - Balances with Customs, Port Trust and Excise Authorities

12- Current Liabilities and Provisions Current Liabilities: Acceptances Sundry Creditors : - Due to SSI Undertakings

130.36

- Others

40878.63

Sundry Deposits

146.87 41008.99

33759.56

33906.43

271.26

286.05

- On Secured Loans

4.03

182.32

- On Unsecured Loans

1.26

0.88

- Unclaimed Dividend*

146.38

99.15

Advances from Customers

1247.30

1556.32

Interest accrued but not due :

Investor Education and Protection Fund :

Other Liabilities

4286.72

3205.40

Unaccrued Revenue

9658.20

5363.87

80803.83

65270.42

3346.94

2306.82

469.41

301.47

(2004 - Rs. 4523.09 Lacs )]

340.23

360.88

For Warranty Liability

296.78

661.52

1004.78

818.90

Provisions: Proposed Final Dividend Tax on Proposed Final Dividend Provision for Tax [Net of Advances Rs. 10020.84 Lacs

For Gratuity and other Employee Benefits

5458.14

4449.59

86261.97

69720.01

* There is no amount due and outstanding to be credited to Investor Education and Protection Fund as at 30th June,2005. These amounts shall be credited and paid to the fund as and when due.

65

SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE 2005 Rs./Lacs

2004 Rs./Lacs

754652.42 23708.39

422285.60 18892.75

778360.81

441178.35

149.91 773.20 291.58

330.55 483.04 83.70

9.34 237.27 405.75 37.45 839.71 850.53 1449.72 15.81

5.98 417.87 299.54 22.52 70.72 795.58 379.01 3.71

5060.27

2892.22

97971.31 609141.50 2270.25 122.26 441.49 8880.07

57775.14 319110.18 2439.32 112.57 521.93 6277.37

718826.88

386236.51

22060.79 783.81

17239.22 871.23

22844.60

18110.45

17239.22 871.23

17510.01 487.68

18110.45

17997.69

(4734.15)

(112.76)

714092.73

386123.75

13- Business Income Sales and Related Income Services

14- Other Income Interest : - Refund from Income Tax Authority - On Lease Rental - On Fixed Deposits [TDS Rs. 56.28 lacs (2004 - Rs. 22.92 lacs)] - Others Dividend from (Others) Current Investments Miscellaneous Income Insurance Claims Provisions/Liabilities no longer required written back Profit on disposal of (Others) Current Investments (Net) Profit on Foreign Exchange Fluctuation (Net) Profit on Sale of Fixed Assets

15- Cost of Sales and Services Raw Materials & Components Consumed Purchase of Finished Goods & Services Stores and Spares Consumed Power and Fuel Labour and Processing Charges Royalty

(Increase)/Decrease in stocks of Finished Goods & Work-In-Progress : Closing Stock - Finished Goods (Including in Transit) - Work-In-Progress Opening stock - Finished Goods (Including in Transit) - Work-In-Progress

66

SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE 2005 Rs./Lacs

2004 Rs./Lacs

Salaries, Wages, Allowances, Bonus & Gratuity Contribution to Provident Fund & Other Funds Staff Welfare Expenses Prior Period Expenses

13232.05 540.71 688.17 62.00

9843.98 376.52 668.47 –

Less : Operating Cost recovered

14522.93 –

10888.97 27.33

14522.93

10861.64

890.40 1647.30 340.06 782.15 1914.88 3136.15 895.57 359.20 513.42 1540.20 1206.63 2625.35 221.15 1113.64 782.84 144.23 4.73 0.53

814.37 766.67 326.54 623.56 1547.86 2145.79 730.40 255.92 446.83 1121.14 638.50 860.81 160.70 573.60 684.48 148.01 0.01 –

18118.43

11845.19

–

18.96

18118.43

11826.23

Plant and Machinery Buildings Others

127.44 52.59 677.57

138.48 12.52 741.32

Less : Operating Cost recovered

857.60 –

892.32 3.22

857.60

889.10

225.46

512.67

16- Personnel

17- Administration, Selling, Distribution and Others (Schedule-21, Notes 6) Rent Rates and Taxes Printing and Stationery Communication Travelling and Conveyance Packing, Freight & Forwarding Legal and Professional Training and Conference Office Electricity and Water Miscellaneous Insurance Advertisement, Publicity & Entertainment (Net of Reimbursements) Hire Charges Commission on Sales Bank Charges Provision for Doubtful Debts Fixed Assets Written Off Diminution in value of Current Investment

Less : Operating Cost recovered

18- Repairs and Maintenance

19- Finance Charges (Schedule-21, Note 6) Interest paid : - On Fixed Loans - On Public Deposits - On Others

67

–

0.07

550.67

369.94

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT SCHEDULE 20 - CONSOLIDATED SIGNIFICANT ACCOUNTING POLICIES 1.

BASIS OF ACCOUNTING AND CONSOLIDATION The Consolidated Financial Statements of HCL Infosystems Ltd and its subsidiary are prepared under historical cost convention in accordance with generally accepted accounting principles applicable in India and Accounting Standard 21 on Consolidation of Financial Statements issued by the Institute of Chartered Accountants of India to the extent possible in the same format as that adopted by the Parent Company (HCL Infosystems Ltd) for its separate financial statements. Intra-group balances and intra-group transactions and resulting unrealised profits are eliminated in full. Unrealised losses resulting from intra-group transactions are also eliminated unless cost can be recovered.

2.

FIXED ASSETS Fixed Assets including in-house capitalisation and Capital Work-in-Progress are stated at cost except those which are revalued from time to time on the basis of current replacement cost / value to the Company, net of depreciation. Assets taken on finance lease on or after 1.4.2001 are stated at fair value of the assets or present value of minimum lease payments whichever is lower. Intangible Assets are stated at cost net of amortization.

3.

DEPRECIATION Depreciation has been calculated under Straight Line Method on: (i)

a)

Buildings capitalised prior to 1.5.1986 at the rates computed in the respective years of acquisition of those assets as per Section 205(2)(b) of the Companies Act, 1956.

b)

Assets acquired on or after 1.5.1986 and before 16.12.93 on a prorata basis at the rates specified in Schedule XIV of the Companies (Amendment) Act, 1988. These assets are subject to annual technical evaluation for their economic useful life and additional depreciation is charged if there is any reduction in economic useful life as re-evaluated.

c)

Assets acquired on and after 16.12.1993 on a prorata basis based on economic useful life determined by way of periodical technical evaluation. Economic useful lives which are not exceeding those stipulated in Schedule XIV of the Companies Act, 1956 are as under: Plant and machinery Building - Factory Building - Others Furniture & Fixture Air Conditioners Vehicles Office Equipment Networking equipment Computers

4-6 25-28 50-58 4-6 3-6 4-6 3-6 3-6 3-5

years years years years years years years years years

(d) The assets taken on finance lease on or after 1st April, 2001 over their expected useful lives. (ii) Leasehold land, premises and improvements are amortised over the primary lease period. (iii) Intangible Assets are amortised over a period of 1-3 years. (iv) The one-time licence fee capitalised is amortised equally over the balance period of license from the date of payment of license fee. 4.

INVESTMENTS Current Investments are carried at lower of cost or fair value. Income from Investments (Dividend Option) is recognised in the accounts in the year in which it is accrued.

68

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT 5.

INVENTORIES Raw Materials and components held for use in the production of inventories are valued at cost if the finished goods in which they will be incorporated are expected to be sold at or above cost. If there is a decline in the price of materials/ components and it is estimated that the cost of finished goods will exceed the net realisable value, the materials/ components are written down to net realisable value measured on the basis of their replacement cost. Work in Progress and Finished Goods are valued at lower of cost and net realisable value. Cost of Finished Goods and Work in Progress includes direct labour and proportionate overhead expenses. Cost is determined on the basis of weighted average. Stores and Spares are valued at lower of cost and net realisable value. Adequate adjustments are made to the carrying value for obsolescence. Goods in Transit are valued inclusive of custom duty, where applicable.

6.

FOREIGN CURRENCY Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transactions. Foreign currency monetary assets and liabilities are restated at the exchange rates prevailing at the year end and the overall net gain/loss including those arising out of fluctuations in exchange rates on settlement during the period is adjusted to the Profit and Loss Account, except in cases of liabilities relating to acquisition of fixed assets which are adjusted in the cost of respective assets. Foreign currency monetary assets and liabilities covered by forward contracts are stated at the forward contract rates and the difference between the forward rate and the exchange rate at the inception of the forward contract is recognised in the Profit and Loss Account over the life of the contract, except in cases of liabilities relating to acquisition of fixed assets which are adjusted in the cost of respective assets.

7.

8.

RETIREMENT BENEFITS TO EMPLOYEES a)

Liability for gratuity and leave encashment is provided as determined on actuarial valuation made at the end of the year which is computed using projected unit credit method.

b)

The contributions towards recognised Provident Fund and Superannuation Fund are accounted for on accrual basis.

c)

The Group has no further obligations beyond the yearly provisions and contributions.

REVENUE RECOGNITION a)

Sales, net of discount, are inclusive of excise duty and the related revenue is recognised (after providing for expenses to be incurred connected to such sales) on transfer of all significant risks and rewards to the customer and when no significant uncertainty exists regarding realisation of the consideration.

(b) Service income includes income i)

From maintenance of products and facilities under maintenance agreements, and extended warranty, which is recognised upon creation of contractual obligations rateably over the period of contract, where no significant uncertainty exists regarding realisation of the consideration.

ii)

From software services (a) The revenue from time and material contracts is recognised based on the time spent as per the terms of contracts. (b) In case of fixed priced contracts revenue is recognised on percentage of completion basis. Foreseeable losses, if any, on contract completion are recognised immediately.

iii) Internet Access services: Revenue is recognised on the basis of actual usage of hours by the customer or over the period of the validity of the pack based on the customer agreements. iv) Virtual private networks: Revenue is recognised on proportionate basis over the period of contract with the customer. One time charges recovered from the customers are recognised as revenue at the commencement of service.

69

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT v)

9.

Technical help desk: The Group is engaged in providing technical and administrative help desk support to its various customers through the Web. Revenue for the same has been recognised based on fulfilling obligations as contracted in the respective agreements.

GOVERNMENT GRANTS Revenue grants where reasonable certainty exists that the ultimate collection will be made are recognized on a systematic basis in profit and loss statement over the periods necessary to match them with the related cost which they are intended to compensate.

10. LICENCE FEES – REVENUE SHARE With effect from January 1, 2005 the variable licence fee computed at prescribed rate of revenue share is being charged to the Profit and Loss Account in the year in which the related revenue from ISP Operations arises. 11. LEASES a)

b)

Lease transactions entered into prior to April 1, 2001 by the parent and it’s Indian subsidiary: i)

Assets leased out are stated at cost and amortised over the primary lease period.

ii)

Lease rentals in respect to the assets taken/given on lease are recognised in the Profit and Loss Account on accrual basis.

Other lease transactions i)

Assets taken under leases where the Company has substantially all the risks and rewards of ownership are classified as Finance leases. Such assets are capitalised at the inception of the lease at the lower of fair value or the present value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on outstanding liability for each period.

ii)

Assets taken on leases where significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to the Profit and Loss Account on straight line basis over the lease term.

iii) Profit on sale and leaseback transactions is recognised over the period of the lease iv) Assets given under finance lease are recognised as receivables at an amount equal to the net investment in the lease. Inventories given on finance lease are recognised as deemed sale at fair value. Lease income is recognised over the period of the lease so as to yield a constant rate of return on the net investment in the lease. v)

Assets leased out under operating leases are capitalised. Rental income is recognised on accrual basis over the lease term.

vi) Initial direct costs relating to the finance lease transactions are included as part of the amount capitalised as an asset under the lease. 12. SEGMENT ACCOUNTING The segment accounting policy is in accordance with the policies consistently used in the preparation of financial statements of the Group. The basis of reporting is as follows: a)

Revenue and expenses distinctly identifiable to a segment are recognised in that segment. Identified expenses include direct material, labour, overheads and depreciation on Fixed Assets. Expenses that are identifiable with/ allocable to segments have been considered for determining segment results. Allocated expenses include support function costs which are allocated to the segments in proportion of the services rendered by them to each of the business segments. Depreciation on Fixed Assets is allocated to the segments on the basis of their proportionate usage.

b)

Unallocated expenses are enterprise expenses, which are not attributable or allocable to any of the business segment.

70

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT c)

Assets and liabilities which arise as a result of operating activities of the segment are recognised in that segment. Fixed Assets which are exclusively used by the segment or allocated on a reasonable basis are also included.

d)

Unallocated assets and liabilities are those which are not attributable or allocable to any of the segments and includes liquid assets like Investments, Bank Deposits and Non-attributable Cash and Bank balances.

e)

Segment revenue resulting from transactions with other business segments is accounted on the basis of transfer price which is at par with the prevailing market price.

13. BORROWING COSTS Borrowing costs to the extent related/attributable to the acquisition/construction of assets that necessarily take substantial period of time to get ready for their intended use are capitalised along with the respective fixed asset up to the date such asset is ready for use. Other borrowing costs are charged to the Profit and Loss Account. 14. INCOME TAXES The current charge for income taxes is calculated in accordance with the relevant tax regulations. Deferred tax assets and liabilities are recognised for the future tax consequences attributable to timing differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted or substantially enacted tax rates as on the balance sheet date. Deferred tax asset is recognized and carried forward when it is reasonably certain that sufficient taxable profits will be available in future against which deferred tax assets can be realised. 15. PROVISIONS AND CONTINGENCIES The company creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that probably will not require an outflow of resources or where a reliable estimate of the amount of the obligation cannot be made. 16. EMPLOYEE STOCK OPTION SCHEME The Company applies the intrinsic value method to compute the compensation cost for stock options granted to the employees under its Employee Stock Option Scheme (ESOP). Under this method, pursuant to the amended provisions of the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by the Securities and Exchange Board of India (“SEBI”), the excess of market price of underlying equity shares as of the date of the grant of options over the exercise price of the options given to employees under the ESOP of the Company, is recognized as employee compensation cost and is amortised over the vesting period.

71

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT SCHEDULE 21 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.

The Consolidated Financial Statements have been prepared in accordance with the Accounting Standard (AS) 21 “Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India. The subsidiary (which along with HCL Infosystems Ltd., the parent, constitute the Group), considered in preparation of Consolidated Financial Statements is as under: Name of the Subsidiary Company

Country of Incorporation

Extent of holding (%) as at 30th June 2005

HCL Infinet Ltd

India

2004

100

100

2.

Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances) are Rs 72.70 lacs (2004 - Rs. 15.96 lacs)

3.

Contingent Liabilities: (i)

Claims not acknowledged as debts for:

- Sales Tax*- Rs. 1542.43 lacs ( 2004 - Rs. 286.42 lacs) - Excise*- Rs. 63.72 lacs (2004 - Rs. 640.05 lacs) - Income Tax*- Rs. 53.52 lacs (2004 - Rs. 68.04 lacs) - Other Statutory Claims- Rs. 608.97 lacs (2004- Rs. 529.12 lacs) *Against the above, the Company has deposited a sum of Rs. 132.53 Lacs (2004 - Rs. 24.50 Lacs) (ii) Non fund based facilities amounting to Rs. 13.83 Lacs (2004 - Rs. 20.30 Lacs) related to the demerged business. 4.

Taxation The significant components and classification of deferred tax asset and liability on account of timing differences as at 30th June are as follows: Deferred tax assets

5.

2005 Rs./Lacs

Allowances for doubtful debts De-Merger Scheme expenses Expense accruals Other timing differences

64.45 13.50 419.02 263.34

Deferred tax liability Depreciation/Amortisation Other timing differences Net deferred tax (liability)/ assets

757.95 737.13

2004 Rs./Lacs

760.31

1495.08 (734.77)

72.25 21.29 426.01 71.69 665.64 424.83

591.24

1090.47 (499.23)

Employee Stock Option Plan (ESOP) (a) ESOP 2000 Pursuant to the approval of the shareholders at the Extra-Ordinary General Meeting held on 25th February, 2000 for grant of options to the employees of the Company and its subsidiaries (the ESOP 2000), the Board of Directors had approved the grant of following options including the grant of options that had lapsed out of each grant. 30,18,000 Options granted at the exercise price of Rs. 289 Options outstanding at the beginning of the year Less:Exercised during the year Lapsed during the year Options outstanding at the end of the year

16,06,100 Options granted at the exercise price of Rs. 538.15 Options outstanding at the beginning of the year Add: Granted during the year Less: Exercised during the year Lapsed during the year Options outstanding at the end of the year

72

2005 401506 316612 – 84894

2004 2108500 980414 726580 401506

2005

2004

1438524 – 229869 221351 987304

– 1511484 – 72960 1438524

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT Granted during the year Date of grant

Options granted

25/8/2004 18/1/2005 15/2/2005 15/3/2005 15/4/2005 14/5/2005 15/6/2005

Grant Price

2,26,118 2,91,860 23,920 60,216 23,384 17,400 20,960

Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Options lapsed out of the grant

603.95 809.85 809.30 834.40 789.85 770.15 756.15

54,360 18,910 15,520 2,800 – – 2,560

(b) Employees Stock Based Compensation Plan 2005 The shareholders of the Company have approved the Employees Stock Based Compensation Plan 2005 through a Postal Ballot for grant of 3,335,487 options to the employees of the Company and its subsidiary. The Board of Directors has granted 3,196,840 options (2004 – NIL) (each option confers on the employee a right for five equity shares of Rs. 2/- each) at an exercise price of Rs. 228.80 being the market price as specified in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 on the date of grant. 6.

Leases: (a) Finance Leases: (i)

Assets acquired under sale and leaseback arrangements comprise mainly computers and office equipment. There are no exceptional/ restrictive covenants in the lease agreements.

(ii)

The minimum lease rentals and its present value as at 30th June, 2005 in respect of assets acquired under finance leases are as follows: Total minimum lease payments outstanding

Interest included in minimum lease payments

Present value of minimum lease payments

Rs./Lacs

Rs./Lacs

Rs./Lacs

40.28 (111.40) 0.88 Later than one year and not later than five years (41.87)

2.54 (11.73) 0.01 (2.57)

37.74 (99.67) 0.87 (39.30)

Total

2.55 (14.30)

38.61 (138.97)

Not later than one year

41.16 (153.27)

Note: Previous year’s figures are given in brackets. (iii) The Group has given on finance lease certain assets/inventories. These comprise computers and office equipment. These leases have a primary period, which are fixed and non-cancellable. There are no exceptional/ restrictive covenants in the lease agreements. (iv) The gross investment in the assets given on finance lease as at 30th June, 2005 and its present value as at that date are as follows: Total minimum lease payments receivable

Interest included in minimum lease payments receivable

Present value of minimum lease payments receivable

Rs./Lacs

Rs./Lacs

Rs./Lacs

2649.42 (1208.07) 6865.71 Later than one year and not later than five years (1893.44)

680.84 (382.54) 1042.27 (457.97)

1968.58 (825.53) 5823.45 (1435.47)

Total

1723.11 (840.51)

7792.03 (2261.00)

Not later than one year

9515.13 (3101.51)

[includes minimum sub lease receivable Rs. 76.93 lacs (2004 - Rs. 184.86 lacs)] Note: Previous year’s figures are given in brackets.

73

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT b)

Operating Lease: (i)

Cancellable Operating leases (a) The Group has taken various residential/ commercial premises under cancellable operating leases. These leases are normally renewable on expiry. (b) The rental expense in respect of operating leases is Rs. 890.40 lacs. (2004 - Rs. 796.37 lacs).

(ii) Non cancellable leases a) The future minimum lease payments under non cancellable operating leases are: Rs./Lacs Not later than one year Later than one year and not later than five years Total b)

115.30 (18.00)

Lease Payments recognised in the Profit & Loss Account for the year ended 30th June, 2005. Minimum Lease Payments Contingent Rents Note: Previous year’s figures are given in brackets.

7.

Disclosure of related parties/related party transactions. (i)

Holding Company: HCL Corporation Ltd. (Upto 10th February 2005 and having substantial interest in the voting power after the date)

(ii) Related parties with whom transactions have taken place during the year and/or balances exist Fellow Subsidiaries: [Refer note 7(i)] HCL Technologies Ltd. HCL Comnet Ltd. HCL Comnet Systems and Services Ltd. HCL Technologies BPO services Ltd. Shipara Technologies Ltd. Infosystems (Europe) Ltd. HCL Technologies Singapore Pte. Limited HCL Peripherals Ltd HCL Office Automation Ltd. HCL Infosolutions Ltd. Network Ltd. (Ceased to be a related party w.e.f Nov 2004) Others (where there is significant influence): Shri Sivasubramaniya Nadar Educational & Charitable Trust. (iii) Key Management Personnel a)

Directors: Mr Ajai Chowdhry Mr. T.S. Purushothaman* Mr. Ravi Thumboochetty** Mr. J.V. Ramamurthy*** * Ceased to be whole time director w.e.f. 20th July 05 ** Ceased to be whole time director w.e.f. 10th August 05 *** Appointed as whole time director w.e.f. 11th August 05

b)

23.14 (18.00) 92.16 –

Other Key Management Personnel: Mr. George Paul Mr. Hari Bhaskaran Mr. J. V. Ramamurthy Mr. K. R .Radhakrishnan Mr. Manohar Lal Taneja

74

18.38 (18.00) –

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT Mr. Mr. Mr. Mr. Mr. Mr.

Rajeev Asija Rajendra Kumar Rakesh Mehta Sandeep Kanwar S. Pattabiraman Suman Ghose Hazra

(iv) Summary of Related party disclosures (Rs./Lacs) Note: All transactions with related parties have been entered into in the normal course of business.

Summary of Consolidated Related Party Disclosures (Rs./Lacs) A. Transactions

Holding

Fellow

Associates

Key Management

Company

Subsidiaries

& Others

Personnel

June 05 June 04 Sales & Related Income Services

54.03 1.00

5.67

Other Income Demerger/Transfer of Business Interest Income Purchase of Goods Purchase of Services Donations Given

June 05

June 04

4352.54 3183.75 945.21 881.85

June 04

4448.92 952.56

3378.48 887.72

189.06 5.87

98.93

108.39

98.93

108.39

29.88 982.51

84.03 510.45

29.88 982.51

84.03 510.45 48.00

3.74

2.17

3.74

2.17

650.40

485.15

67.36

87.72

3.27

22.01

Remuneration Reimbursements towards expenditure a) Received

3.46

4.04

63.90

83.02

b) Made

2.43

5.47

0.84

16.54

650.40 485.15

Holding Company June 05 June 04

Accounts Receivables 53.55 Loans & Advances & Other Recoverables Creditors Other Payables

42.35 6.35

June 05 June 04 June 05

48.00

Impairment/Debts written off Assets Purchased Assets Sold

B. Amount due to/from related parties

June 05 June 04

Total

0.04

0.01 0.09

Fellow Subsidiaries June 05 June 04 493.21 62.80

448.00 91.62

138.17 57.36

90.82 81.04

0.66

Others June 05 June 04 1.47

Key Management Total Personnel June 05 June 04 June 05 June 04

1.08

4.43

8.00

8.00

548.23 62.80

449.09 91.71

138.17 65.40

90.82 93.47

8. Segment Reporting The Group recognises the following segments as its primary segments. a) The operations of Product & Related Services consists of sale of Computer Hardware & system integration products and providing a comprehensive range of IT services, including system maintenance and facility management in different industries. b) Internet & Related Services include Internet related products & services consist of Internet Access services, Virtual Private Network, other connectivity services and sale of related hardware. c) The businesses of Office Automation, Telecom products and services consist of sale of telecommunication products, office equipment products and related comprehensive maintenance services. Secondary segmental reporting is based on the geographical location of the customers. Details of secondary segments are not disclosed as more than 90% of the Company’s revenues, results and assets relate to the domestic market.

75

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT Consolidated Segment wise performance for the year ended 30th June, 2005 Primary Segments

(i)

Revenue External Revenue Intersegment Revenue Total Gross Revenue Less: Excise Duty Total Net Revenue

(ii)

Results

Product & Related Services Computer Office Automation & Systems Telecommunication 196469.94 (151907.71) 267.63 (295.38) 196737.57 (152203.09) 3928.37 (10534.39) 192809.20 (141668.7) 13782.60 (12298.98)

Internet & Related Services

577697.56 (284950.66) 231.94 (2726.6) 577929.50 (287677.26)

4193.31 (4319.98) 129.90 (95.94) 4323.21 (4415.92)

577929.50 (287677.26) 14627.55 (8325.34)

4323.21 (4415.92) 155.65 (-194.87)

Less: Unallocable Expenditure Operating Profit Add: Other Income (Excluding gains on Exchange Rate Fluctuations and Other Operational Income) Less: Interest (Net of interest income Rs. 1068.37 Lacs, Previous Year Rs. 572.57 Lacs) Profit Before Tax Less: Tax Expense - Current

43725.30 (34893.33)

1334.34 (1459.35)

b) Deferred Tax Assets c) Others Total Assets Segment Liabilities

42467.52 (36417.27)

38113.25 (28396.78)

-629.47 (-3117.92)

778360.81 (441178.35) – – 778360.81 (441178.35) 3928.37 (10534.39) 774432.44 (430643.96) 28565.80 (20429.45) 910.28 (746.17) 27655.52 (19683.28) 1652.88 (1778.15) -292.24 (310.11) 29600.64 (21151.32)

25300.71 (25408.33) 760.31 (591.24) 929.37 (765.35) 151343.34 (120278.86) 81915.11 (66273.4)

Unallocated Corporate Assets a) Liquid Assets

(iv)

-629.47 (-3117.92) -629.47 (-3117.92)

Total

2299.75 (1723.2)

- Fringe Benefit Tax Profit After Tax 78327.90 (56897.41)

Intersegment Elimination

6510.59 (2099.00) 235.55 (1540.87) 83.90 22770.60 (17511.45) 124352.95 (93513.94)

- Deferred

(iii) Segment Assets

Rs./Lacs

Unallocated Corporate Liabilities a) Current Liabilities

4346.86 (3446.61) 1495.08 (1090.47) 8131.74 (7202.19)

b) Deferred Tax Liabilities c) Loan Funds

Total Liabilities

95888.79 (78012.67)

(v)

Capital Expenditure

(vi)

Depreciation

(vii) Other Non Cash Expenses

1070.38 (1097.45) 627.10 (892.25) -144.83 (204.77)

268.17 (503.98) 198.27 (179.96) -55.47 (153.11)

1337.33 (199.74) 708.88 (626.11) 53.83 (30.94)

Note: Previous year’s figures are given in brackets.

76

2675.88 (1801.17) 1534.25 (1698.32) -146.47 (388.82)

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT 9.

Earnings per share The earnings considered in ascertaining the Group’s earnings per share comprise net profit for the year after tax. Basic earnings per share are computed and disclosed using the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed and disclosed using the weighted average number of equity and dilutive equivalent shares outstanding during the year, except when results would be anti dilutive. Calculation of EPS: Particulars

30.06.2005

30.06.2004

Profit after tax (Rs./lacs) 22,770.61 Weighted average number of shares considered as outstanding in computation of Basic EPS* 1,65,774,340 Add dilutive impact of stock options: - Outstanding 6,843,750 - Exercised 1,407,430 - Lapsed 690,895 - Issued for no consideration 2,079,700 Weighted average number of shares outstanding in computation of Diluted EPS* 1,76,796,115 Basic EPS (of Rs. 2/- each) Rs. 13.74 Diluted EPS (of Rs. 2/- each) Rs. 12.88

17,511.46 1,61,095,395 5,061,930 3,353,970 1,276,655 1,585,835 1,72,373,785 Rs 10.87 Rs 10.16

*Consequent to the sub division of equity shares having a face value of Rs. 10 each to equity shares having a face value of Rs. 2 each on 15th July 2005, the previous year weighted average number of equity shares and diluted number of equity shares have been adjusted. 10. Previous year’s figures have been regrouped/recasted, where necessary, to conform to current year’s presentation.

77

Financial Summary of HCL Infinet Limited, a wholly owned subsidiary as at 30th June, 2005 Particulars

Amount in Rs. 2004-05

Share Capital Reserves Total Assets Total Liablities Details of investment (except in case of investment in subsidiary) Turnover Profit before taxation Provision for taxation/Deferred Tax Charge/(credit) Profit After Taxation Proposed Dividend

195067570 1196696224 1397100986 1397100986 401889266 58353209637 1469266551 521976366 947291185 -

For and on behalf of the Board of Directors

AJAI CHOWDHRY Chairman and Chief Executive Officer Place : New Delhi Dated : August 25, 2004

S. BHATTACHARYA Director K.R. RADHAKRISHNAN Company Secretary

78