Hcl

4

The Year 2004-05 has been a landmark year, with the company having crossed USD 1 Billion in revenue during the courseof 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 newinitiatives 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 ofcustomers 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 abovesegments across the country.

During the last year the PC & Server range saw volumes grow. The Company retained its leadership position in theCommercial PC segment for the fifth year in a row. It increased its market share to 14.2 %, with the IDC rating it as thelargest selling PC brand of the country. The year saw introduction of several new models both in PCs and Servers. TheCompany maintained its track record of launching new technology products in India at the same time as they were releasedworldwide.

Some of the new innovative products launched in the commercial space were the 6 in 1 PC, a product that provides sixusers simultaneously an independent secure computing experience on one PC. The company released a secure PC for theITES segment, a product specifically designed to reduce the incidence of data theft in an ITES environment. On the serverfront the company released rack server products typically required by high density users, in addition to the launch of anumber of programs towards adoption of servers by enterprises in the mid market segment. Some of them are the ISVPartner 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 prestigiousorders 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’slargest internet backbone network to M/s. BSNL Limited. Another major project executed and handed over was the Schoolcomputerization project from the “Department of School Education”, Government of Punjab. HCL did a turnkey job ofsupplying, installing and commissioning computers and related infrastructure in 1287 schools across rural and urbanPunjab. The Company has won several prestigious projects on solutions around Oracle, SAP, Broad Vision, Filenet, amongothers. The Company today is addressing a number of opportunities in the system integration space by leveraging itsunderstanding 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 from4.9% 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 onEMI scheme @ Rs. 499/-. Taking a leadership role it worked with the banking and finance industry in bringing out such ascheme, to address the latent potential among the middle-income group consumers. Other initiatives include launch ofHCL-BSNL Broadband PC, Govt. Aided PC Purchase Program (GAPP). In a strategic tie up with leading technology partnersthe 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 forproviding 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 moneyproducts & 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

MANAGEMENT DISCUSSION AND ANALYSIS

5

market. The Company also maintained its leadership position in digital projectors, for the Infocus & Toshiba range ofmultimedia projectors that it markets. The Company cornered a market share of 35% of the total market with these twoproducts.

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 majororders 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 ofsolutions and services. The Company services prestigious clients from different business verticals across the country. TheCompany has invested in infrastructure and services that ensures a consistent level of service delivery to each of itscustomers, thereby keeping up its commitment of maximizing customer satisfaction. During the course of the year theCompany launched a complete End-to-End enterprise IP telephony and Global IP VPN services for its customers in India inpartnership 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 forEnterprise connectivity. In Telecom Services business, the Company in partnership with Ericsson launched a slew ofproducts for Business Conferencing, Broadband and Mini Link Radio. The Company emerged as a major player in videoconferencing business in the country.

The Company formally handed over the largest EPABX installation in the country at IIT Kharagpur, which consists of 14000lines providing traditional telephony, IP telephony & ADSL broadband connectivity to the entire campus. On the TelecomSystem Integration space the Company executed orders for integrated voice & data solution (Police Dial 100) for the PoliceForce – a solution that helps the Police force to deploy its resources in a timely and more efficient manner and in turnenable it to serve the citizens better.

The Company ramped up its sales & distribution network and support infrastructure to service the growth in customerdemand for GSM telephones. The Company leveraged its distribution network strength to introduce a slew of new handsetmodels at various price points based on different technologies. All this contributed to the increase in market share of NokiaGSM phones.

6

FINANCIAL PERFORMANCE

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

1. Gross Revenue:

Revenue grew by 76% from Rs. 4412 crores in the previous year to Rs. 7784crores in the current year.

Revenue for the Parent Company grew by 29% from Rs. 1522 crores in theprevious 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 inthe previous year. It includes income from investment in Mutual Funds Rs.11 crores (Previous Year Rs. 12 crores), interest income Rs. 12 crores (PreviousYear 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 cost for the current year increased to Rs. 145 crores from Rs. 108 crores inthe previous year. Manpower increased from 3287 as at June 2004 to 3879 as atJune 2005. Staff cost is 1.9% of sales for the current year as against 2.5% in theprevious year.

Staff cost for the Parent Company for the current year is Rs. 102 crores as againstRs. 78 crores in the previous year.

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 salesdeclined 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 previousyear 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. 65crores for current tax expense, Rs. 2 crores for deferred tax expense and Rs. 1crore for Fringe Benefit Tax applicable from April 05.

Profit after tax for the Parent Company grew by 10% from Rs. 121 crores inthe previous year to Rs. 133 crores.

#FY 03 exclude discontinued Software business

Staff Costs

7


10. Dividend:

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

11. Earning Per Share:

Consolidated Basic EPS grew from Rs. 10.9 in the previous year to Rs. 13.7 inthe current year. Diluted EPS grew from Rs. 10.2 in the previous year toRs. 12.9 in the current year.

Basic EPS of the Parent Company grew from Rs. 7.5 in the previous year toRs. 8.0 in the current year. Diluted EPS grew from Rs. 7.0 in the previous yearto Rs. 7.5 in the current year.

Calculated on equity shares of Rs. 2/- each

100%

210%

310%

FY 03 FY 04 FY 05

Dividend

8


FINANCIAL CONDITIONS

1. Net Worth/Shareholders Funds: Net Worth as on 30th June 2005 is Rs. 555 crores. Share capital as at 30th June, 2005is Rs. 33.4 crores divided into 16.7 crores shares of Rs. 2/- each. Reserves & surplus as at 30th June 2005 is Rs. 521crores 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 increasedfrom 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 ofRs. 2/- each) under the Employee Stock Options realizing Rs. 21.5 crores. The increase in share capital on account ofESOP 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 croresas on 30th June 2004 to Rs. 81 crores as on 30th June 2005. The Debt:Equitydropped from 15% to 13%.

3. Fixed Assets: Net block as on 30th June 2005 is Rs. 76 crores. During thecurrent year, the Company made capital expenditure of Rs. 27 crores mainlyfor 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. 25crores 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 30thJune 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 June2004.

Debtors of Parent Company increased from Rs. 295 crores as on 30th June 2004 to Rs. 370 crores as on 30th June2005. Debtors as number of days of sale stands reduced to 69 days as on 30th June 2005 from 71 days as on 30thJune 2004.

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

7. Other Current Assets including Loans and Advances: Other current assets increased from Rs. 70 crores as on 30th June2004 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 ason 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 2004to 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.

9


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 systemintegration products and providing a comprehensive range of IT services includingsystem 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. 123crores in the previous year to Rs. 138 crores in the current year. Capital Employedin the segment is Rs. 359 crores as on 30th June 2005 as against Rs. 205 croresas on 30th June 2004. The capital employed as at 30th June 2005 includes Rs. 73crores of Cash and Bank balances (PY Rs. 35 crores). Return on Capital Employedis 38%.

Office Automation & Telecommunication:

The segment addresses telecommunication products, office equipment productsand related comprehensive maintenance services.

Revenue of the segment for the current year grew by 101% from Rs. 2877 crores inthe previous year to Rs. 5779 crores. PBIT grew by 76% from Rs. 83 crores in theprevious year to Rs. 146 crores in the current year. Capital Employed in the segmentis Rs. 56 crores as on 30th June 2005 as against Rs. 65 crores as on 30th June2004. The Return on Capital Employed for the current year is 261% as against128% 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 thecurrent year. Despite revenue drop, segment registered a profit of Rs. 2 crores as against a loss of Rs. 2 crores in theprevious 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

Office Automation & Telecommunication

10

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.

CORPORATE INFORMATION

11

Revenue and ProfitabilityRs/Lacs

YEAR ENDED JUNE 30 2005 2004 2003 2002 2001

Total Revenue 199886 154295 166604 127003 116843PBIDT 15634 14523 11491 6784 9005Interest 96 656 805 371 193Depreciation 651 1019 1109 1268 1225Effect of Impairment 0 0 3322 0 0Profit before Tax 14887 12848 6255 5145 7587Provision for Tax 1610 759 82 532 690Profir after Tax (PAT) 13277 12090 6173 4613 6897Diminution in value of advances 0 0 0 0 1060Profit available for Appropriation 37161 32816 24944 20030 18461

Equity Dividend 10321** 6841 3191 798 2234

Basic Earning Per Share (Rs.)* 8.0 7.5 3.9 2.9 3.7Operating Margin (%) 8% 9% 7% 5% 8%Profit before Tax/ Revenue (%) 7% 8% 4% 4% 7%Return on Net worth(%) # 30% 30% 19% 14% 23%Return on Capital Employed(%)# 25% 26% 14% 10% 17%Equity Dividend (%) 310** 210 100 25 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 Rs/LacsAS AT JUNE 30 2005 2004 2003 2002 2001

Sources of FundsEquity Funds 3344 3289 3191 3191 3191Reserves and Surplus 40191 36552 29454 29493 26431Loan Funds 8132 7137 11787 12597 11241Deferred Tax Liabilities (Net) 681 308 563 1004 0

Total 52348 47286 44995 46285 40863

Application of FundsNet Block 5329 4925 4954 5552 5171Investments 12277 28060 21289 13668 8501Current Assets 81533 54091 45042 55985 51401Current Liabilities 46791 39790 26290 28920 24210Net Current Assets 34742 14301 18752 27065 27191

Total 52348 47286 44995 46285 40863

FIVE YEAR FINANCIAL OVERVIEW

12

DIRECTORS’ REPORT

To the Members,

Your Directors have pleasure in presenting their Nineteenth Annual Report together with the Audited Accounts for thefinancial year ended 30th June, 2005.

Financial Highlights(Rs. in Crores)

Particulars Consolidated Parent Company

2004-05 2003-04 2004-05 2003-04

Net Sales and other income 7794.93 4335.36 1959.57 1437.60Profit before Interest, Depreciation and Tax 319.01 238.35 156.34 145.23Finance Charges 7.76 8.83 0.96 6.56Depreciation 15.24 18.01 6.51 10.19Profit before Tax 296.01 211.51 148.87 128.48Provision for Taxation: Current 65.94 20.99 12.37 10.14 Deferred 2.36 15.41 3.74 (2.55)Net Profit after Tax 227.71 175.11 132.77 120.90Profit available for appropriation 490.80 352.42 371.61 328.16AppropriationsInterim Dividend (includes tax on dividend) 79.13 51.15 79.14 51.15Proposed Dividend (includes tax on dividend) 38.16 26.08 38.16 26.08Transfer to General Reserve 13.28 12.09 13.28 12.09Balance of Profit carried forward to next year 360.23 263.10 241.03 238.84

Performance

The consolidated revenue of the Company was Rs. 7784 crores as against Rs. 4412 crores in the previous year. Theconsolidated 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 thefinancial year ended on 30th June, 2005. During the first nine months, three interim (quarterly) dividends of 70% eachwere 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 neverbefore. 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, thusmaking it the most preferred PC brand in the country. Your Company led the market with a market share of 13.7 %, up from9.2% 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 ‘EzeeBeePride’ at a very affordable price of Rs. 12,990. Your Company initiated a number of large consumer contact programs toscale 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 alsoannounced the launch of the Six in One PC, a product that offers upto six users to a system. This new desktop solutionallows 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’slargest 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 tappingthe 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

13

DIRECTORS’ REPORT

as No. 1 in the sales of A3 MultiFunction Devices for the year 2004-2005. The Company also maintained lead position inInfocus & 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 ofnew handset models at various price points. It upgraded and strengthened its support network for phones, all this contributingto 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 responserate in the surveys over the last 5 years, we also got the highest Customer Satisfaction levels. Customer loyalty hasimproved, with more than 76% customers rating ‘Very Likely’ to continue to purchase products from the Company. Similarlyin other areas like product quality, delivery of machines and support the customers have given the Company the highestratings over the last 5 years.

Your Company is continuing to send Machine Uptime Status Reports to our Key Customers. The support reach across thecountry 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 grantof options to the employees of the Company and its subsidiaries (the ESOP 2000), the Board of Directors had approved thegrant 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 PostalBallot for grant of 33,35,487 options to the employees of the Company and its subsidiary. The Board of Directors hasgranted 31,96,840 options (each option confers on the employee a right for five equity shares of Rs. 2/- each) at anexercise price of Rs. 228.80 being the market price as specified in the SEBI (Employee Stock Option Scheme andEmployee 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 programof 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 notclaim 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 conditionsof 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 Kolkatafor de-listing the equity shares of the Company from these stock exchanges. The equity shares of the Company were de-listed from the Delhi Stock Exchange Association Limited and The Madras Stock Exchange Ltd. The application is underprocess 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 Exchangeof 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 re-appointment.

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 wholetimedirector 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 receivednotices under Section 257 of the Companies Act, 1956 from some members signifying their intentions to propose theappointment of Mr. Purushothaman and Mr. Ramamurthy as Directors of the Company.

14

DIRECTORS’ REPORT

Your Directors while welcoming Mr. Ramamurthy on the Board place on record their sincere appreciation for the contributionsof 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 withproper explanation relating to material departures, if any

b. that appropriate accounting policies have been selected and applied consistently, and that the judgements andestimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company asat 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 withthe provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing anddetecting 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 toany 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) ofthe Companies Act, 1956, the report and the accounts are being sent to all the members excluding the statement ofparticulars 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 andOutgo.

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 andforms 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 subsidiaryof the Company.

The detailed annual accounts of the subsidiary are available at the Registered Office of the Company on any working dayto the shareholders requiring such information.

Acknowledgement

Your Directors wish to place on record their appreciation for the continued co-operation the Company received from variousdepartments of the Central and State Government, Bankers, Financial Institutions, Dealers, Partners and Suppliers andalso 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 theircontinued support and confidence reposed in the Company.

On behalf of the Board of Directors

AJAI CHOWDHRYAugust 18, 2005 Chairman and Chief Executive Officer.

15

INFORMATION RELATING TO CONSERVATION OF ENERGY, R&D, TECHNOLOGY ABSORPTION AND INNOVATION, ANDFOREIGN 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 optimumenergy 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 avoidingusage 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 eliminatingexcess electricity consumption for the testing of computers.

B. Research & Development

1.1.1.1.1. SSSSSpecific areas in which R&D is carried out by the comppecific areas in which R&D is carried out by the comppecific areas in which R&D is carried out by the comppecific areas in which R&D is carried out by the comppecific areas in which R&D is carried out by the company:any:any:any:any:

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 Suitwith support for both 32 and 64 bit architectures on various platforms. The function has ported many industrystandard and open source software on this suit and bagged many orders from prestigious corporate, researchand 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 MaxValue restoration s/w supporting backup of data on same Hard disk on a tape drive, CD writer, remote Hard Diskor 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 newproducts too.

In the CRT Monitors, the Peripherals Division of the Company released several models in 15”/17”/19” range andsome 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, thePeripherals 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 seriesbased on various embedded OS viz. WinCE, Linux, and WinXPe with a host of user preferred features. WINBee4000 and WINBee 5000 were customized to suit Core Banking Requirements and largely address the Banking andInsurance sector.

HCS 1600 is a 16 Port Console server which can be used for securely monitoring and managing multiple networkingdevices and system console through serial ports. The system administrator can securely access the serial consoleport 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 inboth 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

16

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 oldmachine to new machine

• HCL software Deployment is a software which will help to install software which has Microsoft software installersetup 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 theremote 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 twoserial 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 andare being exported to the USA.

The Peripherals Division of the Company also undertook many high-speed multi-layer PCB designs for various customersand 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, aswell as Laptops.

3. Expenditure on R & D :

(Rs./ Lacs )

Capital 7.31Revenue 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 systemsunder various brands like Infiniti Global Line, Infiniti Xcel Line, NetManager, Infiniti Challenger, Infiniti Pro, InfinitiOrbital, Beanstalk, Busybee, EzeeBee, Infiniti Powerlite and BeePOS.

NEBS certified Ruggedised Servers are launched for Telecom applications. 8 way to 32 way Servers based on IntelItanium 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 – MemorySparing, Memory Mirroring, RAID memory and hot pluggability. New 4 way server based on Opteron processor isintroduced. 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 ofsystems based on 800FSB processors and supporting EM64T technology. Added 64 bit Operating System support forServers & Desktops with EM64T & AMD64 technology based processors. Range of systems supporting high speed PCIExpress 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 operatingsystem, 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 operatingsystem. 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 – RP2systems 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).

17

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

Scheme 200030,18,000 which confer a right to get 1 equityshare of Rs.10/- each.

The members of the Company at the ExtraOrdinary General Meeting held on February25, 2000 approved the exercise price as theprice which will be not less than 85% of thefair market value of the shares on the date onwhich the Board of Directors of the Companyapproved the Grant of such options to theemployees or such price as the Board ofDirectors may determine in accordance withthe regulations and guidelines prescribed bySEBI. The members of the Company at theAnnual General Meeting held on October 21,2004, approved the amendment to the pricingformula that the options granted but not yetexercised by the employees or options thatwould be granted in future, would be at themarket price on the date of grant. For thispurpose the market price as specified in theamended provisions of SEBI (Employee StockOption Scheme and Employee Stock PurchaseScheme) Guidelines, 1999 and theregulations / guidelines prescribed by theSecurities and Exchange Board of India or anyrelevant authority, from time to time to theextent applicable.

(i) For the options granted on10-8-2000, 4,01,506 optionshad been vested.

(ii) For the options granted on28-1-2004, 3,65,152 optionshad been vested.

The vesting schedule for the rest of the grantsare as follows :

30% - 12 months after the grant date30% - 24 months after the grant date40% - 42 months after the grant date.

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

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

Scheme 200531,96,840 which confer a right to get 5equity shares of Rs.2/- each.

Subject to the approval of the members ofthe Company, the options would be grantedat the market price on the date of grant orsuch price as the Board of Directors maydetermine in accordance with theRegulations and Guidelines prescribed bythe Securities and Exchange Board of Indiaor other relevant authority from time to time.For this purpose, the market price asspecified in the amended provisions of SEBI(Employee Stock Option Scheme andEmployee Stock Purchase Scheme)Guidelines, 1999 and the regulations/guidelines prescribed by SEBI or anyrelevant authority from time to time to theextent applicable.

Not yet vested

Not applicable

Not applicable

DescriptionOptions Granted

Pricing Formula

Options vested

Options exercised

Total number ofshares arising as aresult of exercise ofoption.

18

Options lapsed

Variance of terms ofoptions

Money realized byexercise of options

Total number ofoptions in force

Employee-wisedetails of optionsgranted to-(i) SeniorManagement

(ii) Employeesholding 5% or moreof the total numberof options grantedduring the year

The details of options lapsed are as under :

Date of Options Grant priceGrant lapsed (Rs.)10/8/2000 0 289.0028/1/2004 2,21,351 538.1525/8/2004 54,360 603.9518/1/2005 18,910 809.8515/2/2005 15,520 809.3015/3/2005 2,800 834.4015/4/2005 0 789.8514/5/2005 0 770.1515/6/2005 2,560 756.15

The market price has been defined to meanthe market price as specified in the amendedprovisions of SEBI (Employee Stock OptionScheme and Employee Stock PurchaseScheme) Guidelines, 1999 and the regulations/guidelines prescribed by SEBI or any relevantauthority, from time to time to the extentapplicable.

Rs.49,85,44,516.35

Date of Options Grant priceGrant in force (Rs.)10/8/2000 84,894 289.0028/1/2004 9,87,304 538.1525/8/2004 1,71,758 603.9518/1/2005 2,72,950 809.8515/2/2005 8,400 809.3015/3/2005 57,416 834.4015/4/2005 23,384 789.8514/5/2005 17,400 770.1515/6/2005 18,400 756.15

Name No. of optionshares

Mr.T.S.Purushothaman 40,000Mr. Ravi Thumboochetty 30,000Mr. J.V.Ramamurthy 27,500Mr. Sandeep Kanwar 25,000Mr. Rajendra Kumar 25,000Mr. M.L.Taneja 18,000Mr. Hari Bhaskaran 15,000Mr. George Paul 14,000Mr. Rajiv Asija 14,000Mr. Rakesh Mehta 14,000Mr. Suman Ghose Hazra 12,500Mr. K.R. Radhakrishnan 8,000

NIL

Not applicable

No variation made.

Not applicable

Date of Options Grant priceGrant in force (Rs.)13/8/2005 31,96,840 228.80

Name No.of options

Mr. J.V.Ramamurthy 7,500Mr. George Paul 7,500Mr. Rajiv Asija 7,500Mr. Rakesh Mehta 7,500Mr. Sandeep Kanwar 7,500Mr. Hari Bhaskaran 7,500Mr. Rajendra Kumar 7,500Mr. M.L.Taneja 7,500Mr. Suman Ghose Hazra 7,500Mr. K.R.Radhakrishnan 6,500

NIL

19

(iii) Identifiedemployees who weregranted options duringany one year equal toor exceeding 1% of theissued capital(excluding outstandingwarrants andconversions) of theCompany at the time ofgrant.

Diluted EPS pursuantto issue of shares onexercise of options(Rs.)

Fair valuecompensation cost foroptions granted (Rs./Lacs) :

Weighted averageexercise price ofoptions granted :(Rs.)

Weighted average fairvalue of optionsgranted :(Rs.)

NIL

7.51

1252.46

418.97

1039.18

NIL

——

—— -

—— -

—— -

Earning Per Share (FV Rs. 2/-)As reported Basic Rs. 8.01

Diluted Rs. 7.51

Adjusted pro forma (FV Rs. 2/-) Basic Rs. 7.25Diluted Rs. 6.80

Significant AssumptionsDividend yield % 3.80% to 3.91%Expected life 24 to 54 monthsRisk free interest rates 6.02% to 6.69%Volatility 47.68% to 68.28%

20

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. NijhawanMembership Number F-87228PartnerFor and on behalf of

Place: New Delhi Price WaterhouseDate: August 18, 2005 Chartered Accountants

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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 includingshareholders, employees, lenders and the Government. The Company is committed to achieve and maintain the higheststandards of Corporate Governance. The Company believes that all its actions must serve the underlying goal of enhancingoverall 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 Boardis headed by an executive Chairman. The composition and category of Directors is as per the table given below. Duringthe 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 Membership Meetings Attended

Companies of other public last AGM

Companies Held Attended

Ajai Chowdhry Chairman & Chief Promoter and Executive 5 4 4 4 Yes

Executive Officer Director

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 1 1 4 3 Yes

Director

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.AjaiChowdhry 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 thisCommittee. Ms. Anita Ramachandran is the Chairperson.

REPORT ON CORPORATE GOVERNANCE

22

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 Salary & Perquisites Performance Commission SittingAllowances linked bonus Fees

Mr. Ajai Chowdhry 60.72 27.32 85.00 - -Mr. T.S. Purushothaman* 33.82 8.49 50.00 - -Mr. Ravi Thumboochetty* 27.08 9.42 15.00 - -Mr. R.P. Khosla - - - 3.30 0.80Mr. S. Bhattacharya - - - 3.60 0.80Mr. D.S. Puri - - - - -Mr. E.A. Kshirsagar - - - 2.25 0.80Ms. Anita Ramachandran - - - 1.99 0.60

The above remuneration excludes reimbursement of expenses on actual to Directors for attending meetings of theBoard/Board Committees.

* Mr. T.S. Purushothaman and Mr.Ravi Thumboochetty were granted 40000 and 30000 options respectively and allthe 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’ GrievanceCommittee. 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 ofshareholders 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 continuousimprovement 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 theChairman.

The Committee met 3 times during the financial year 2004-2005 on the following dates: 08/11/2004, 14/01/2005and 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 themembers of the Company through Postal Ballot pursuant to Section 192A of the Companies Act, 1956 read with theCompanies (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 Scrutinizerfor conducting the postal ballot process.


23

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

Description Total no. Total no. of For Against Invalidof Postal sharesBallotForms

No. of No. of No. of No. of No. of No. ofPostal shares Postal shares Postal shares

Ballot Ballot BallotForms Forms Forms

SPLIT OF 1533 21981342 1472 21975501 18 1119 43 4722SHARES 96.03% 99.97% 1.17% 0.01% 2.80% 0.02%

ALTERATION 1428 21965163 1361 21958748 23 1494 44 4921OF ARTICLES 95.31% 99.97% 1.61% 0.01% 3.08% 0.02%

ESOP TO 1392 21962641 1259 21948575 88 9094 45 4972

EMPLOYEES 90.45% 99.94% 6.32% 0.04% 3.23% 0.02%OF COMPANY

ESOP TO 1387 21961621 1252 21946440 90 10209 45 4972 EMPLOYEES 90.27% 99.93% 6.49% 0.05% 3.24% 0.02% OF SUBSIDIARY AMENDMENT 1381 21960697 1260 21947271 78 8754 43 4672

TO ESOP 2000 91.24% 99.94% 5.65% 0.04% 3.11% 0.02%

All the five resolutions mentioned in the Postal Ballot Notice dated April 19, 2005 were duly approved with requisitemajority 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 Directorsor the Management, their subsidiaries or relatives etc. that may have potential conflict with the interest of the Companyat 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 mattersrelated to capital markets during the last three years. There are no penalties or strictures imposed on the Company byStock 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 thewebsite 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.


24

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 : 19th October, 2005

Adoption of Results for the quarter ending 31st 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, 2005to 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 ExchangeLtd. 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 theNational Stock Exchange of India Ltd. The Company has applied for delisting from the Calcutta Stock ExchangeAssociation 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.)

MONTH HIGH LOWJuly 2004 635.00 541.25August 2004 680.00 581.50September 2004 658.00 550.00October 2004 698.90 576.00November 2004 812.50 611.10December 2004 849.00 760.00January 2005 842.00 782.00February 2005 865.00 800.00March 2005 869.90 796.00April 2005 844.00 713.05May 2005 795.50 618.40June 2005 817.00 695.00

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

h) Registrar and Share transfer agents

As per the provisions of Listing Agreements entered with the Stock Exchanges, the Company has appointedM/s. MCS Limited, as the Common Registrar and Share Transfer Agents for the shares of the Company held in bothphysical and electronic modes. All correspondence with regard to share transfers and matters related therewith maydirectly 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]


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i) Share Transfer System

The shares received in physical mode by the Company’s Registrar and Share Transfer Agents are transferred withina period of 15 days from the date of receipt.

j) Distribution of Shareholding as on 30th June, 2005

Category No. of Shares % holding

A. Promoters’ holding1. Promoters

- Indian Promoters 20,441,222 61.13%- Foreign Promoters Nil

2. Persons acting in concert NilSub Total 20,441,222 61.13%

B. Non-Promoters’ holding3. Institutional Investors

a. Mutual Funds and UTI 2,172,129 6.50%b. Banks, Financial Institutions, Insurance Companies (Central/

State Government Institutions/Non-government institutions) 1,134,049 3.39%c. FIIs 6,283,337 18.79%

Sub Total 9,589,515 28.68%4. Others

a. Private Corporate Bodies 395,838 1.18%b. Indian Public 2,918,104 8.73%c. NRI/OCBs 91,675 0.27%d. Any other Nil Nil

Sub Total 3,405,617 10.19%Grand Total 33,436,354 100.00%

k) Dematerialisation of shares and liquidityDematerialisation 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 CorrespondenceThe shareholders may address their communication/ suggestions/ grievances/ queries to the Registrar and Share TransferAgents at the address mentioned above or to

The Company SecretaryHCL Infosystems Ltd.E – 4, 5, 6, Sector – XI,NOIDA (U.P.) – 201 301.Tel. No. : 0120-4526518, 4526519, 4526993Fax: 0120-4525196Email : [email protected]

26

AUDITORS’ CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OFCORPORATE 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, furnishedto 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 waslimited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditionsof 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 theefficiency 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 investorgrievances were pending exceeding a period of one month as per the records maintained by the Shareholders/ InvestorsGrievance Committee.

4. On the basis of our review and according to the information and explanations given to us , the conditions of CorporateGovernance as stipulated in Clause 49 of the listing agreement with the Stock Exchanges have been complied with inall material respect by the Company.

V.NijhawanMembership Number F-87228PartnerFor and on behalf of


27

AUDITORS’ REPORT

ToThe Members of HCL Infosystems Limited

1. We have audited the attached Balance Sheet of HCL Infosystems Ltd, as at 30th 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 underreference to this report. These financial statements are the responsibility of the company’s management. Our responsibilityis 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 Standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation. We believe that ouraudit 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 thecompany as we considered appropriate and according to the information and explanations given to us, we furtherreport that:

(i) (a) The company is maintaining proper records showing full particulars including quantitative details andsituation of fixed assets.

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

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

(ii) (a) The inventory, excluding stocks with third parties, has been physically verified by the management duringthe 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 reasonableand 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 properrecords of inventory. The discrepancies noticed on physical verification of inventory as compared to bookrecords were not material.

(iii) The company has neither granted nor taken any loans, secured or unsecured, to/from companies, firms or otherparties 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 andthe 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 theinformation and explanations given to us, we have neither come across nor have been informed of any continuingfailure 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 thatneed to be entered into the register in pursuance of Section 301 of the Act. Accordingly clause (v) (b) of theCompanies (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 withthe directives issued by Reserve Bank of India and the provisions of Sections 58A and 58AA of the Act and theCompanies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. Accordingto the information and explanations given to us, no Order under the aforesaid Sections has been passed by theCompany Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any otherTribunal on the company.

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

28

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 beenprescribed 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 detailedexamination 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 includingprovident 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 duesas 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 onaccount of a dispute have been stated below.

S. Name of the Nature Amount Amount deposited Period to Forum whereNo statute of the (Rs./Lacs) under protest which the dispute is

dues (Rs./Lacs) amount relates pending

1. U.P. Sales Tax Sales Tax 3.75 3.75 2002-2003 Joint Commissioner(including (Appeals) of Sales Taxinterest)

Sales Tax 4.05 4.05 2003-2004 Joint Commissioner(including (Appeals) of Sales Taxinterest)

Sales Tax 17.23 10.13 2004-2005 Joint Commissioner(including (Appeals) of Salesinterest) Tax

2. Delhi Sales Tax Sales Tax 25.57 0.05 1999-2000 AssistantCommissioner ofSales Tax

Sales Tax 29.80 29.80 2002-2003 DeputyCommissioner(Appeals) of Sales Tax

3. Tamil Nadu Sales Tax 5.48 3.36 1998-1999 Tamil Nadu Tribunal,Sales Tax Chennai

4. Kerala Sales Tax 6.56 1.34 2000-2001 DeputySales Tax Commissioner

(Appeals) of SalesTax

5. Rajasthan Sales Tax 0.37 0.06 2000-2001 DeputySales Tax Commissioner

(Appeals) of SalesTax

Sales Tax 0.60 0.35 2001-2002 DeputyCommissioner(Appeals) of Sales

Tax

6. Orissa Sales Tax 116.10 - 1998-1999 Orissa Tribunal,Sales Tax Cuttack

Total 209.51 52.89

7. Excise Act Excise Duty 46.12 25.00 1996-1997 CEGAT, Chennai

Customs Act Custom Duty 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 thefinancial 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

29

company has not defaulted in repayment of dues to any financial institution or bank or debenture holders as atthe 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 notapplicable 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 theguarantees 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 loanshave 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 theinformation and explanations given to us, there are no funds raised on a short-term basis which have been usedfor long-term investment.

(xviii) The company has not made any preferential allotment of shares to parties and companies covered in the registermaintained 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 withthe generally accepted auditing practices in India, and according to the information and explanations given tous, 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 werenecessary 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 appearsfrom our examination of those books;

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

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this reportcomply 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 bythe Board of Directors, none of the directors is disqualified as on June 30,2005 from being appointed as adirector 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 financialstatements together with the notes thereon and attached thereto give in the prescribed manner the informationrequired by the Act and give a true and fair view in conformity with the accounting principles generally acceptedin 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. NIJHAWANPartnerMembership Number F-87228For and on behalf of


AUDITORS’ REPORT

30

BALANCE SHEET AS AT 30TH JUNE, 2005

2005 2004Schedule Rs./Lacs Rs./ Lacs

Sources of Funds:

Shareholders’ Funds :Capital 1 3343.65 3289.00

Reserves and Surplus 2 40191.43 36551.57

Loan Funds:Secured Loans 3 5521.35 6903.70Unsecured Loans 4 2610.39 233.45Deferred Tax Liabilities (Net) 21(5) 681.41 307.73

52348.23 47285.45

Application of Funds:

Fixed Assets: 5Gross Block 9526.41 10947.48Less: Depreciation 4288.84 6035.17

Net Block 5237.57 4912.31Capital Work-In-Progress 91.21 12.62(Including Capital Advances) 5328.78 4924.93

Investments 6 12277.44 28059.88

Current Assets, Loans & Advances:

Inventories 7 18809.81 16125.89Sundry Debtors 8 36992.01 29454.44Cash and Bank Balances 9 14582.65 4463.47Other Current Assets 10 7942.35 1450.88Loans and Advances 11 3206.06 2596.01

81532.88 54090.69

Less:Current Liabilities& Provisions 12

Current Liabilities 41724.28 35902.18Provisions 5066.59 3887.87

46790.87 39790.05

Net Current Assets 34742.01 14300.64

52348.23 47285.45

Significant Accounting Policies 20Notes to Accounts 21

This is the Balance Sheet referred to The schedules referred to above form an integral part ofin our report of even date the Balance Sheet

For and on behalf of the Board of Directors

V.NIJHAWAN AJAI CHOWDHRY S. BHATTACHARYAPartner Chairman and DirectorMembership Number F-87228 Chief Executive OfficerFor and on behalf ofPrice WaterhouseChartered Accountants

Place : New Delhi K.R. RADHAKRISHNANDated : 18th August, 2005 Company Secretary

31

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE, 2005

2005 2004Schedule Rs./Lacs Rs./Lacs

IncomeBusiness Income 13 196737.57 152203.09Less : Excise Duty 3928.37 192809.20 10534.39 141668.70Other Income 14 3148.07 2091.65

195957.27 143760.35Expenditure

Cost of Sales and Services 15 159651.19 113500.33Personnel 16 10162.42 7799.36Administration, Selling, Distribution and Others 17 10026.75 7475.76Repairs and Maintenance 18 483.17 461.48Finance Charges 19 95.99 656.07Depreciation 655.30 1023.56Less : Transfer to Revaluation Reserve 4.58 650.72 4.58 1018.98

181070.24 130911.98

Profit before Tax 14887.03 12848.37

Tax expense 21 (5)-Current [ Wealth tax Rs.2.00 lacs(2004-Rs.2.00 lacs )] 1188.00 1014.00- Fringe Benefit 48.60 —-Deferred 373.68 1610.28 (255.27) 758.73

Profit after Tax 13276.75 12089.64Balance in Profit and Loss Account brought forward 23883.98 20726.52

Profit available for appropriation 37160.73 32816.16

Appropriations:Interim Dividend 6974.52 4534.01Proposed Final Dividend 3346.94 2306.82Tax on Interim Dividend 938.82 580.92Tax on Proposed Final Dividend 469.41 301.47Transfer to General Reserve 1327.66 1208.96Balance Carried Over 24103.38 23883.98

37160.73 32816.16Earning per equity shareBasic ( of Rs.2/- each) (in Rs.) 21 (22) 8.01 7.50Diluted (of Rs.2/- each) (in Rs.) 21 (22) 7.51 7.01Significant Accounting Policies 20Notes to Accounts 21

This is the Profit and Loss Account The schedules referred to above form an integral part ofreferred to in our report of even date the Profit and Loss Account




32

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

2005 2004

Rs./Lacs Rs./Lacs

1. Cash Flow from Operating Activities


Adjustments for:

Depreciation 650.72 1018.98

(Profit)/Loss on sale of Fixed Assets(Net) (14.47) (5.24)

(Profit)/Loss on disposal of

(Others) Investments (Net) (831.41) (777.55)

Interest on borrowings 712.56 827.60

Interest and Dividend income (413.22) (768.52)

Unrealised (Gain) / Loss on Foreign

Exchange Fluctuation (Net) (18.40) 179.77

Provision for Doubtful Debts 49.85 25.00

Provisions/Liabilities no longer required written back (643.81) (41.21)

Prior period expenses (62.00) -

Fixed Assets written off 4.73 (565.45) 0.01 458.84

Operating profit before Working Capital Changes 14321.59 13307.21

Adjustments for:

Trade and Other Receivables (14510.69) (7106.68)

Inventories (2683.92) (7221.11)

Trade Payables and Other Liabilities 6419.13 (10775.48) 14311.50 (16.29)

Cash generated from Operation 3546.11 13290.92

Direct Tax (paid)/ Refund (Net) (870.54) 415.42

(Including Interest)

Net Cash from Operating activities (A) 2675.57 13706.34

2 Cash Flow from Investing Activities

Interest and Dividend Received (Gross) 93.13 784.06

Purchase of Fixed Assets (1066.66) (1104.17)

Sale of Fixed Assets 99.56 15.61

Purchase of Investments (53075.99) (59249.81)

Disposal/Redemption of Investments 65489.84 52087.36

Investment in bonds of Subsidiary - (4200.00)

Redemption of Bonds / Purchase

Consideration received from Subsidiary 4200.00 9,404.67

Capital Work-in-Progress (78.59) 93.12

(Including Capital Advances)

Net cash from / (used in) Investing activities (B) 15661.29 (2169.16)

33

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

2005 2004

Rs./Lacs Rs./Lacs

This is the Cash Flow Statement For and on behalf of the Board of Directorsreferred to in our report of even date



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

Secured Loans - Long Term Received 4000.00 2007.89

Secured Loans - Long Term (Paid) (3027.19) (3930.44)

Unsecured Loans Received / (Paid) 2377.05 (3104.32)

Dividend Paid (including dividend tax) (10474.40) (8661.71)

Net cash from Financing Activities (C) (8217.68) (11412.14)

Opening Balance of Cash and Cash Equivalents 4463.47 4338.43

Closing Balance of Cash and Cash Equivalents 14582.65 4463.47

[(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

and Cash Equivalents 10119.18 125.04

Total (A)+(B)+(C) 10119.18 125.04

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.

34

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

2005 2004Rs./Lacs Rs./Lacs

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) 8000.00 8000.005,00,000 (2004-5,00,000) Preference Shares of Rs. 100/- each 500.00 500.00

8500.00 8500.00

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 ofRs.10/- each, fully paid up) 3343.64 3288.99Add : Shares Forfeited 0.01 0.01

3343.65 3289.00

1. The shareholders of the Company through postal ballot, results whereof declared on June 13, 2005 authorised the subdivision 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-divisionof the shares. The credit of Equity Share of Rs.2/- each has been given to respective beneficiary accounts of theshareholders, holding shares in electronic form, by the depositories. For the Equity Shares held in physical formnew share certificate of face value of Rs. 2/- each is to be issued on receipt of the old share certificate of face value ofRs. 10/- each. The Equity shares of the face value of Rs. 2/- each of the Company are being traded on stock exchangesince 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 pursuantto 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 sharesissued 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 theexercise 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 Sharesof Rs. 10/- each) are held by HCL Corporation Limited. During the year ended June 30, 2005, 27,32,405 equity sharesof 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 to49.66% as on June 30, 2005.

2- Reserves and Surplus As At As At01.07.2004 Additions Deductions 30.06.2005

Rs./Lacs Rs./Lacs Rs./Lacs Rs./Lacs

General Reserve 5622.20 1327.66 - 6949.86(4413.24) (1208.96) ( - ) (5,622.20)

Profit and Loss Account 23883.98 219.40 - 24103.38(20726.52) (3157.46) ( - ) (23883.98)

Share Premium 6739.37 2097.38 - 8836.75(4004.01) (2735.36) ( - ) (6739.37)

Revaluation Reserve (Adj.) 305.65 - 4.58 301.07(310.23) ( - ) (4.58) (305.65)

Capital Reserve 0.37 - - 0.37(0.37) ( - ) ( - ) (0.37)

36551.57 3644.44 4.58 40191.43Previous year (29454.37) (7101.78) (4.58) (36551.57)

35



3- Secured Loans

Loans and Advances from Banks:

Cash Credits 530.07 -

Foreign Currency loan

External Commercial Borrowings 554.61 1589.15

Others 436.67 2287.36

Term Loan

Foreign currency - 875.60

Others 4000.00 2151.59

5521.35 6903.70

a) Cash Credits along with non-fund based facilities and Foreign Currency Loans from Bank are secured by way ofhypothecation of stock-in-trade, book debts as first charge and by way of second charge on all the immovable andmovable 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 chargein 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)


4- Unsecured Loans(Schedule-21, Note 20)

Public Deposits 10.15 10.76

Interest accrued and due 1.91 2.02

Short Term Loans and Advances:

- From Banks -Commercial Paper 2500.00 -

Other Loans and Advances:

- From a Financial Institution 59.72 146.74

Deferred Lease Obligations 38.61 73.93

2610.39 233.45

Notes:-

1) Amount payable within one year Rs.2593.39 Lacs (2004-Rs.63.94 Lacs)

2) Public Deposits include unclaimed matured deposits.

36

5- Fixed Assets(Schedule -21, Notes 1 & 8) Rs./Lacs

Gross Block Depreciation Net Block

As at Additions/ Deductions/ As at Upto Additions Deductions Upto As at As at

01.07.2004 Adjustment Adjustments/ 30.06.2005 01.07.2004 during during 30.06.2005 30.06.2005 30.06.2004

during Retired during the year the year

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

Air Conditioners

Furniture, Fixtures & 2966.77 384.81 530.09 2821.49 2420.88 315.49 512.54 2223.83 597.66 545.89

Office Equipment

Vehicles 218.32 34.10 20.25 232.17 145.19 25.46 18.86 151.79 80.38 73.13

Intangible :

Acquired Software 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

Capital Work-In-Progress 91.21 12.62

[Including Capital Advances of Rs.50.57 lacs (2004-Rs.1 lacs)] 5328.78 4924.93

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 Purchased / Redemption Closing Face As at As atUnits Reinvested Units Units Value (Rs) 30.06.2005 30.06.2004

Units Rs.in Lacs Rs.in Lacs

Unquoted (Others) Current :

Growth Options

Birla Cash Fund 1300465 - 1300465 - 10.00 - 225.00

Birla Floating Rate Fund - Long Term - 4183930 - 4183930 10.00 450.00 -

Deutsche Floating Rate Fund 5008219 - 5008219 - 10.00 - 516.30

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 -

Grindlays Super Saver Income Fund - IP 6095319 - 6095319 - 10.00 - 879.02

37


Grindlays Super SaverIncome 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 -

Kotak Dynamic Income Plan 4572838 - 4572838 - 10.00 - 464.98

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

Prudential ICICI Income Plan 1565051 4756179 6321230 - 10.00 - 281.53

Prudential ICICI Liquid Plan 12653943 68558284 74281698 6930529 10.00 1148.65 1972.07

Prudential ICICI Short Term Plan - 13197876 8716523 4481353 10.00 565.00 -

Prudential ICICI Very Cautious Plan 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 -

Tata Floating Rate Fund Short Term 4898503 - 4898503 - 10.00 - 500.00

Tata Dynamic Bond Fund 947320 - 947320 - 10.00 - 99.51

Templeton Floating RateIncome Fund - Long Term 22517971 3029189 15184992 10362168 10.00 1197.57 2591.97

Templeton India Income Builder 2350428 2169717 4520145 - 10.00 - 411.37

Templeton India Short Term - 40932 - 40932 10.00 500.00 -

Templeton Treasury Management A/c 7897 - 7897 - 1000.00 125.38

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 19506750 - - 19506750 10.00 1950.68 1950.68

HCL Infinet Limited - OptionallyConvertible Bonds 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)

Unquoted (Others) - Current

Opening Purchased / Redemption Closing Face As at As atUnits Reinvested Units Units Value (Rs) 30.06.2005 30.06.2004

Units Rs.in Lacs Rs.in Lacs

38



7- Inventories[Schedule-21, Note 8(c)]

Raw materials and Components ( Including in Transit ) 7793.60 6126.95Stores and Spares 2987.10 2621.56Finished Goods ( Including in Transit ) 7245.30 6506.15Work-in-Progress 783.81 871.23

18809.81 16125.89

8- Sundry Debtors -Unsecured

Debts exceeding six months : -Considered Good 6024.16 1646.56 -Considered Doubtful 134.09 69.80

6158.25 1716.36Less : Provision for Doubtful Debts 134.09 6024.16 69.80 1646.56

Other debts -Considered Good 30967.85 27807.88

36992.01 29454.44

9- Cash and Bank BalancesCash in Hand and in Transit 128.97 118.33Cheques in Hand 2787.37 1718.06Balances with Scheduled Banks: -On Current Account 4202.50 1585.89 Less :- Money held in Trust 0.63 4201.87 0.98 1584.91

- On Unpaid Dividend Account 146.38 99.15- On Margin Account 38.97 2.00

- On Fixed Deposits 7314.09 977.02 Less :- Money held in Trust 35.00 7279.09 36.00 941.02

14582.65 4463.47

10-Other Current Assets(Schedule-21, Notes 17 & 20)

Deposits 1038.16 818.11Prepaid Expenses 886.43 285.67Lease Rental Recoverable 6017.76 347.10

7942.35 1450.88

39



11-Loans and Advances(Schedule-21, Note 21)

Unsecured Considered Good- Amounts recoverable in cash or in kind or for value to be received 2723.03 1986.68- Advances and Loans to Subsidiary 218.88 370.91- Balances with Customs, Port Trust and Excise Authorities 264.15 238.42

3206.06 2596.01

12-Current Liabilities and Provisions(Schedule-21 Notes 6 & 21)

Current Liabilities:Acceptances 19554.80 16838.51 Sundry Creditors - Due to Subsidiary 41.83 188.75 - Due to SSI undertakings 130.36 146.87 - Others 11129.87 11302.06 12223.94 12559.56

Sundry Deposits 201.38 220.85 Interest accrued but not due: - On Secured Loans 4.03 182.32 - On Unsecured Loans 1.26 0.88Investor Education and Protection Fund : - Unclaimed Dividend * 146.38 99.15Advances from Customers 741.99 1110.57Other Liabilities 2816.86 2123.30Unaccrued Revenue 6955.52 2767.04

41724.28 35902.18Provisions:

Proposed Final Dividend 3346.94 2306.82Tax on Proposed Final Dividend 469.41 301.47Provision for Tax [ Net of AdvancesRs.3549.11 Lacs (2004-Rs.3646.05 Lacs )] 314.07 97.92For Warranty Liability 180.94 559.39For Gratuity and Other Employee Benefits 755.23 622.27

5066.59 3887.87

46790.87 39790.05

* 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.

40

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 184733.31 142148.56Services 12004.26 10054.53

196737.57 152203.0914- Other IncomeInterest : - Refund from Income Tax Authority 149.91 328.73 - Others 5.75 0.15Dividend from (Others) Current Investments 12.17 268.11Miscellaneous Income 242.77 253.54Insurance Claims 21.10 1.71Provisions/Liabilities no longer required written back 643.81 41.21Profit on Sale of Fixed Assets (Net) 14.47 5.24Profit on disposal of (Others) Current Investments (Net) 831.41 777.55Profit on Foreign Exchange Fluctuation (Net) 1226.68 415.41

3148.07 2091.6515- Cost of Sales and Services

[Schedule-21, Notes 8(b) & (c), 9,10 & 18]Raw Materials & Components Consumed 97971.31 57775.14Purchase of Finished Goods & Services 51822.22 50750.02Stores and Spares Consumed 1227.05 1546.34Power and Fuel 122.26 112.57Labour and Processing Charges 280.01 381.73Royalty 8880.07 6277.37

160302.92 116843.17

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

Closing Stock - Finished Goods (Including in Transit) 7245.30 6506.15 - Work-in-progress 783.81 871.23

8029.11 7377.38Opening Stock - Finished Goods (Including in Transit) 6506.15 3546.86 - Work-in-Progress 871.23 487.68

7377.38 4034.54

(651.73) (3342.84)

159651.19 113500.33

16- Personnel

Salaries, Wages, Allowances, Bonus & Gratuity 9494.44 7161.42Contribution to Provident Fund & Other Funds 387.07 281.26Staff Welfare Expenses 531.03 548.89Prior period expenses ( Allowances ) 62.00 -

10474.54 7991.57Less : Operating Cost recovered 312.12 192.21

10162.42 7799.36

41

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


17- Administration, Selling, Distribution and Others

Rent 504.81 495.31Rates and Taxes 310.19 328.99Printing and Stationery 230.45 219.05Communication 540.23 472.29Travelling and Conveyance 1345.52 1127.17Packing, Freight & Forwarding 2411.15 1715.81Legal and Professional 692.44 403.95Training and Conference 144.27 137.01Office Electricity and Water 281.95 261.91Miscellaneous 1171.07 793.22Insurance 298.79 242.20Advertisement, Publicity & Entertainment(Net of Reimbursements) 1057.71 472.61Hire Charges 174.87 125.23Commission on Sales 358.11 261.53Bank Charges 678.65 587.61Provision for Doubtful Debts 49.85 25.00Fixed Assets Written Off 4.73 0.01


10026.75 7475.76

18- Repairs and Maintenance

Plant and Machinery 24.26 13.51Buildings 52.16 11.18Others 428.32 452.55


483.17 461.48

19- Finance Charges(Schedule-21, Notes 20(a))

Interest paid : - On Fixed Loans 225.46 512.67 - On Public Deposits - 0.07 - On Others 487.10 712.56 314.86 827.60

Less : Interest received : - On Lease Rental 371.18 103.12 - On Fixed Deposits 241.80 62.58 [TDS Rs .48.45 Lacs (2004-Rs.17.86 lacs)] - On Other Loans and Advances 3.59 616.57 5.83 171.53

95.99 656.07

42

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 theGenerally Accepted Accounting Principles in India and comply with the mandatory Accounting Standards issued bythe 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 arerevalued 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 minimumlease 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 thoseassets 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 inSchedule XIV of the Companies (Amendment) Act, 1988. These assets are subject to annual technicalevaluation for their economic useful life and additional depreciation is charged if there is any reduction ineconomic useful life as re-evaluated.

c) Assets acquired on and after 16.12.1993 on a prorata basis based on economic useful life determined byway 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 4-6 yearsBuilding - Factory 25-28 years - Others 50-58 yearsFurniture & Fixture 4-6 yearsAir Conditioners 3-6 yearsVehicles 4-6 yearsOffice Equipment 3-6 yearsComputers 3-5 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 declinein the value of the said investment, other than a temporary decline, is recognised and charged to Profit and LossAccount.

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 inwhich 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.

43

Stores and Spares are valued at lower of cost and net realisable value. Adequate adjustments are made to the carryingvalue for obsolescence.

Work in progress and Finished Goods are valued at lower of cost and net realisable value. Cost of Finished Goods andWork in Progress includes direct labour and proportionate overhead expenses. Cost is determined on the basis ofweighted 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 theoverall net gain/loss including those arising out of fluctuations in exchange rates on settlement during the period isadjusted to the Profit and Loss Account, except in cases of liabilities relating to acquisition of fixed assets which areadjusted in the cost of respective assets.

Foreign currency monetary assets and liabilities covered by forward contracts are stated at the forward contract ratesand the difference between the forward rate and the exchange rate at the inception of the forward contract is recognisedin the Profit and Loss Account over the life of the contract, except in cases of liabilities relating to acquisition of fixedassets which are adjusted in the cost of respective assets.

7. RETIREMENT BENEFITS TO EMPLOYEES

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

b) Company’s contributions towards recognised Provident Fund and Superannuation Fund are accounted for onaccrual basis.

8. REVENUE RECOGNITION

a) Sales, net of discount, are inclusive of excise duty and the related revenue is recognised (after providing forexpenses to be incurred connected to such sale) on transfer of all significant risks and rewards of ownership to thecustomer 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, whichis recognised upon creation of contractual obligations rateably over the period of contract, where no significantuncertainty 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 ofcontracts.

(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 asystematic basis in profit and loss statement over the periods necessary to match them with the related cost whichthey 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 onaccrual basis.


44


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 areclassified as Finance leases. Such assets are capitalised at the inception of the lease at the lower of fair valueor the present value of minimum lease payments and a liability is created for an equivalent amount. Eachlease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodicrate 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 thelessor 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 inthe lease. Inventories given on finance lease are recognised as deemed sale at fair value. Lease income isrecognised over the period of the lease so as to yield a constant rate of return on the net investment in thelease.

v) Assets leased out under operating leases are capitalised. Rental income is recognised on accrual basis overthe lease term.

vi) Initial direct costs relating to the finance lease transactions are included as part of the amount capitalised asan 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 differencesbetween 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 balancesheet 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 requiresan outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for acontingent liability is made when there is a possible obligation or a present obligation that probably will not require anoutflow 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 theemployees under its Employee Stock Option Scheme (ESOP). Under this method, pursuant to the amended provisionsof the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by the Securitiesand Exchange Board of India (“SEBI”), the excess of market price of underlying equity shares as of the date of thegrant of the options over the exercise price of the options given to employees under the ESOP of the Company, isrecognized 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 takesubstantial period of time to get ready for their intended use are capitalised along with the respective fixed asset up tothe date such asset is ready for use. Other borrowing costs are charged to the Profit and Loss Account.

45

SCHEDULE 21 - NOTES TO ACCOUNTS

1. Land and Buildings and certain Plant and Machinery were revalued by registered valuers’ after considering depreciationupto 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./LacsLand 444.39Buildings 643.81Plant & Machinery (100.78)Total 987.42Less : Goodwill 570.00Transferred to Revaluation Reserve 417.42Less:- 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) areRs. 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)

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

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

4 The company has the following warranty provision in the books of accounts:

Rs./lacs

Outstanding at the beginning of the year 559.39Additions during the year 355.60Utilised/Reversed during the year 734.05Balance as on 30th June 05 180.94

The warranty provision has been recognised for expected warranty claims for the first year of warranty on products soldduring the year. Due to the very nature of such costs, it is not possible to estimate the timing / uncertainties relatingto 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 therelated 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 yearended 30th June, 2005, although the actual tax liability of the Company has to be computed each year byreference 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 differencesare as follows:


46

Deferred tax assets 2005 2004Rs./Lacs Rs./Lacs

Allowances for doubtful debts 38.42 23.53Demerger Scheme Expenses 13.50 21.29Expense accruals 348.57 400.49 385.75 430.57Deferred tax liabilitiesDepreciation 344.77 313.47Other timing differences 737.13 1081.90 424.83 738.30Deferred tax liabilities (Net) 681.41 307.73

6. 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 7.31 85.66Revenue 76.29 40.63

Total 83.60 126.29

8. Capacities, Production, Sales & Stocks:

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

• 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 Installed Actualcapacity Production

Computers/Micro processor Based systems Nos. 600000 448121(525000) (295192)

Data Graphic/Display Monitor/Terminals, Hubs etc Nos. 425000 406917(350000) (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:

Nos. ValueRs./Lacs

Computers 27015 14226.11(16282) (18428.74)

Printers/Scanners/UPS/CVT 216839 15053.47(158536) (14962.95)

Cellular Phones 1932 129.20(46131) (2588.97)

Others 22413.44(14769.36)

Total 51822.22

(50750.02)


47

c) Stocks and Sales:

Class of Products Unit Sales/Adjustments Opening Stock Closing StockQty. Value Qty. Value Qty. Value

Rs./Lacs Rs./Lacs Rs./Lacs

Computers/Micro Nos 472051 136626.63 10799 3189.99 13884 4659.59processor based Systems (307270) (101668.83) (6595) (1774.38) (10799) (3189.99)

Printers/Scanners/ Nos 214197 18738.21 8185 565.14 10827 577.88UPS/CVT’S (154273) (16708.50) (3922) (180.01) (8185) (565.14)

Cellular Phones Nos 3246 220.25 1386 103.95 72 9.74(48778) (2803.94) (4033) (246.32) (1386) (103.95)

Others 29148.22 2647.07 1998.09(20967.29) (1346.15) (2647.07)

Total 184733.31 6506.15 7245.30(142148.56) (3546.86) (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 ofconsumption of stores and spares which is not readily ascertainable) classified on the basis of ratio between purchaseof imported and indigenous raw materials and components during the year:

2005 2004Rs./Lacs % of Consumption Rs./Lacs % of Consumption

Imported 70784.27 72.25 42129.63 72.92Indigenous 27187.04 27.75 15645.51 27.08

Total 97971.31 100.00 57775.14 100.00

10. Details of raw materials and components consumed (in value):2005 2004

Rs./Lacs Rs./Lacs

a) Mother Boards and Assemblies 18945.21 11533.96b) Hard Disk Drives 13101.04 9416.17c) Processors 30970.74 15590.55d) Monitors 6997.19 1394.26e) CRT, Key Tops, PCBs & Cabinets 12661.44 8832.95f) Others 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 2004

Rs./Lacs Rs./Lacs

a) Raw materials & components 75137.71 49653.43b) Stores and spares 316.07 191.98c) Capital goods 132.58 253.73d) Traded items 17176.63 12879.05

Total 92762.99 62978.19


48

12. Expenditure in Foreign Currency:(On actual payment basis)


a) Travel 23.79 31.03b) Royalty (Net of tax) 7051.91 4683.68c) Interest 44.38 122.09d) Others 67.88 43.70

Total 7187.96 4880.50

13. Earnings in Foreign Currency:2005 2004

Rs./Lacs Rs./Lacs

a) Commission 63.98 60.12b) FOB value of exports (including deemed exports) 3316.72 3207.59c) Others (including reimbursement of expenses) 1320.18 959.65

Total 4700.88 4227.36

14. Remuneration to Auditor:2005 2004

Rs./Lacs Rs./Lacs

a) As Auditor* 25.00 16.00b) In Other Capacity:

Tax Audit* 9.00 9.00Certification* 1.00 1.00Out-of-Pocket Expenses 2.50 2.32

Total 37.50 28.32

* 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 * No. of Units CostRs. per unit Rs./Lacs

Growth Options

Prudential ICICI Income Plan 10 2894610.337 560HDFC Income Fund 10 6406525.756 1000HDFC Liquid Fund 10 17289221.196 2250HDFC High Interest Fund 10 841318.851 100Kotak Bond 10 2933824.670 500Kotak Liquid 10 3900528.601 512Reliance Short Term Fund 10 6710187.280 753Principal Cash Management Fund 10 3937128.576 500Grindlays Dynamic Bond Fund 10 1025754.118 103Prudential ICICI Liquid Fund 10 621372.740 100Reliance Treasury Plan 10 947591.853 150Grindlays Cash Fund 10 11843382.220 1425

Dividend Options

Templeton India TMA 1000 38161.301 577DSP Merrill Lynch Floating Rate Fund 10 2219012.640 222Grindlays Floating Rate Plan 10 9102157.441 919Grindlays Cash Fund 10 945036.667 100Templeton Floating Rate Income Fund 10 3295619.544 336Reliance Liquid Fund 10 899914.894 100

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


49

16. Managerial Remuneration :

(I) Computation of net profit under Section 349 of the Companies Act, 1956.2005 2004

Rs./Lacs Rs./Lacs

Profit before Taxation 14887.04 12848.37

Add:Directors Remuneration Paid/payable 330.98 309.94Depreciation 650.72 1018.98Provision for Doubtful Debts 49.85 25.00

1031.55 1353.9215918.59 14202.29

Less:Depreciation under Section 350 of theCompanies Act, 1956 650.72 1018.98Profit on Disposal of (Other) Investments (Net) 831.41 777.55Profit on sale of Fixed Assets (Net) 14.47 5.24

1496.60 1801.77Net Profit under Section 349 14421.99 12400.52Calculation of Commission under Section 309 ofthe Companies Act, 1956 @ 1% 144.22 124.01Restricted to 11.14 15.82

(II) Paid/payable to the Wholetime Directorsa) Salaries, Allowances & Bonus 271.62 242.81

Contribution to Provident and Superannuation Funds 16.84 15.55Perquisites 28.38 32.56

316.84 290.92b) Directors’ Sitting Fees 3.00 3.20

Commission to Non Wholetime Directors 11.14 15.82Managerial remuneration under Section 198

of the Companies Act, 1956 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 inprepaid 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 2000Pursuant to the approval of the shareholders at the Extra-Ordinary General Meeting held on 25th February, 2000for grant of options to the employees of the Company and its subsidiaries (the ESOP 2000), the Board of Directorshad 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 ofRs. 2/- each.

30,18,000 Options granted at the exercise price of Rs. 289 2005 2004Options outstanding at the beginning of the year 401,506 2,108,500Less: Exercised during the year 316,612 980,414 Lapsed during the year – 726,580Options outstanding at the end of the year 84,894 401,506

16,06,100 Options granted at the exercise price of Rs. 538.15Options outstanding at the beginning of the year 1,438,524 –Add: Granted during the year – 1,511,484Less: Exercised during the year 229,869 –

Lapsed during the year 221,351 72,960Options outstanding at the end of the year 987,304 1,438,524


50

Granted during the year

Date of grant Options granted Grant Price Options lapsed outof the grant

25/8/2004 2,26,118 Rs. 603.95 54,36018/1/2005 2,91,860 Rs. 809.85 18,91015/2/2005 23,920 Rs. 809.30 15,52015/3/2005 60,216 Rs. 834.40 2,80015/4/2005 23,384 Rs. 789.85 -14/5/2005 17,400 Rs. 770.15 -15/6/2005 20,960 Rs. 756.15 2,560

b) Employees Stock Based Compensation Plan 2005The shareholders of the Company have approved the Employees Stock Based Compensation Plan 2005 througha Postal Ballot for grant of 3,335,487 options to the employees of the Company and its subsidiary. The Board ofDirectors has granted 3,196,840 options (2004 – NIL) (each option confers on the employee a right for fiveequity 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) Finance Leases:

(i) Assets acquired under Sale and Leaseback arrangements comprises of Computers. There are no exceptional/restrictivecovenants in the lease agreements.

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

Total minimum Interest included in Present value oflease payments minimum lease minimum lease

outstanding payments payments


Not later than one year 40.28 (2.54) 37.74(42.43) (7.11) (35.32)

0.88 0.01 0.87Later than one year and not later than five years (41.16) (2.55) (38.61)

Total 41.16 2.55 38.61(83.59) (9.66) (73.93)


(iii) The Company has given on finance lease certain Assets/ Inventories, which comprise of computers. These leases havea primary period, which are fixed and non-cancelable. There are no exceptional/restrictive covenants in the leaseagreements.

(iv) The gross investment in the assets given on finance leases as at 30th June, 2005 and its present value as at that dateare as follows:


Receivable payments receivable payments receivable


Not later than one year 1648.89 339.54 1309.35(274.44) (58.18) (216.26)5432.80 724.39 4708.41

Later than one year and not later than five years (181.40) (50.56) (130.84)

Total 7081.69 1063.93 6017.76(455.84) (108.74) (347.10)

[includes minimum sub lease receivable Rs. 22.20 Lacs (2004 - Rs. 68.67 Lacs)]



51

B) Operating Lease:

(i) The Company has taken various residential/commercial premises under cancellable operating leases. These leasesare 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 ChowdhryMr. 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) Other Key Management Personnel:Mr. George PaulMr. Hari BhaskaranMr. K.R. RadhakrishnanMr. Manohar Lal TanejaMr. Rajeev AsijaMr. Rajendra KumarMr. Rakesh MehtaMr. Sandeep KanwarMr. S. PattabiramanMr. Suman Ghose Hazra

d) Summary of Related Party disclosures (Rs./Lacs)

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


52

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 Associates Key Management Total

[See note 21(a)] [See note 21(c)] & Others Personnel

June 05 June 04 June 05 June 04 June 05 June 04 June 05 June 04 June 05 June 04 June 05 June 04

Sales & Related Income 15.57 0.13 243.63 234.84 3933.09 2916.01 40.21 128.25 4232.50 3279.23

Services 31.30 63.15 298.54 89.25 5.51 5.22 335.35 157.62

Other Income 98.93 108.39 98.93 108.39

Purchase of Goods 203.52 2673.66 7.21 40.44 210.73 2714.10

Purchase of Services 76.60 24.60 877.63 386.92 954.23 411.52

Donations Given 48.00 48.00

Impairment/Debts written off 3.74 2.17 3.74 2.17

Assets Purchased 8.20 15.60 8.20 15.60

Assets Sold 2.85 2.85

Remuneration 650.40 485.15 650.40 485.15

Reimbursements towards expenditure

a) Received 3.46 4.04 571.28 346.46 57.79 80.63 0.66 632.53 431.79

b) Made 2.43 5.47 5.85 0.66 8.56 3.09 19.88

B. Amount due to / from related parties Holding Company 100% Subsidiary FellowSubsidiaries Associate Key Management Total

[See note 21(a) [See note 21(c) & Others Personnel

Jun-05 Jun-04 Jun-05 Jun-04 Jun-05 Jun-04 Jun-05 Jun-04 Jun-05 Jun-04 Jun-05 Jun-04

Investment 1950.68 6150.68 1950.68 6150.68

Accounts Receivables 14.07 67.34 30.02 400.83 362.85 0.63 482.87 392.87

Loans & Advances & Other Recoverables 0.09 218.88 370.91 62.80 91.05 281.68 462.05

Creditors 41.83 188.75 83.16 63.86 124.99 252.61

Other Payables 0.04 41.56 56.05 4.43 8.00 8.00 49.60 68.48

* 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 iscomputed and disclosed using the weighted average number of equity shares outstanding during the year. Dilutedearnings per share is computed and disclosed using the weighted average number of equity and dilutive equivalentshares 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) 13,276.76 12,089.64Weighted average number of sharesconsidered as outstanding in computation of Basic EPS * 1,65,774,340 1,61,095,395Add dilutive impact of stock options: - Outstanding 6,843,750 5,061,930- Exercised 1,407,430 3,353,970 - Lapsed 690,895 1,276,655 - Issued for no consideration 2,079,700 1,585,835Weighted average number of sharesoutstanding in computation of Diluted EPS* 1,76,796,115 1,72,373,785Basic EPS (of Rs. 2/- each) Rs. 8.01 Rs. 7.50Diluted EPS (of Rs. 2/- each) Rs. 7.51 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. 15thJuly 2005 was fixed as record date for this purpose. The previous year weighted average number of equity shares anddiluted number of equity shares have been adjusted accordingly.

23. The Company is significantly operating in a single segment, hence segment reporting is not applicable.

53

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 duringthe year ended 30th June, 2005.

A. Loans and Advances in the nature of Loans to Subsidiary.

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

B. Loans and Advances in the nature of loans to Fellow Subsidiaries

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

C. Loans and Advances in the nature of loans where no interest or interest below Section 372 A of Companies Actis charged - Nil.

Loans given to employees under various schemes of the Company have been considered to be out of purview ofdisclosure requirement.

D. Loans and Advances in the nature of loans to firms/Companies in which directors are interested-Nil.

E. Disclosure of Investment in the Company’s own shares

a. Name of the Loanee Nilb. Balance outstanding at the year end Nilc. Maximum amount outstanding during the year ended 30th June, 2005 Nild. Investments made by the loanee Nile. Maximum amount of Investment during the year ended 30th June, 2005 Nil

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

54

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 Total Assets

Sources of Funds 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 2 6 1 0 3 9

Application of Funds 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 + 1 3 2 7 6 7 5

Earning Per Share in Rs. Dividend Rate (%)

8 . 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 P E R I P H E R A L S

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

55

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 30thJune 2005, the Consolidated Profit and Loss Account for the year ended on that date annexed thereto, and theConsolidated Cash Flow Statement for the year ended on that date, which we have signed under reference to thisreport. These consolidated financial statements are the responsibility of the management. Our responsibility is toexpress 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 requirethat 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 materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financial statement presentation. We believe that our audit providesa reasonable basis for our opinion.

3. We report that the consolidated financial statements have been prepared by HCL Infosystems Limited’s Managementin accordance with the requirements of Accounting Standard 21, Consolidated Financial Statements, issued by theInstitute 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 consolidatedfinancial 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 Limitedand 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 InfosystemsLimited 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 Limitedand its subsidiary for the year ended on that date.

V. NIJHAWANPartnerMembership Number F-87228For and on behalf of

Place: New Delhi Price WaterhouseDate: 18th August, 2005 Chartered Accountants

56

CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

This is the Balance Sheet referred to The schedules referred to above form an integral part ofin our report of even date the Balance Sheet


V. NIJHAWAN AJAI CHOWDHRY S. BHATTACHARYAPartner Chairman and DirectorMembership Number F-87228 Chief Executive OfficerFor and on behalf ofPrice WaterhouseChartered Accountants


2005 2004Schedule Rs./Lacs Rs./Lacs

Sources of Funds:

Shareholders’ Funds :

Capital 1 3343.65 3289.00Reserves and Surplus 2 52110.90 38977.19

Loan Funds:Secured Loans 3 5521.35 6903.70Unsecured Loans 4 2610.39 298.49

Deferred Tax : 21 ( 4 ) Deferred Tax Assets (760.31) (591.24) Deferred Tax Liabilities 1495.08 734.77 1090.47 499.23

64321.06 49967.61

Application of Funds:

Fixed Assets: 5Gross Block 15215.22 15040.38Less: Depreciation 7718.91 8594.64Net Block 7496.31 6445.74Capital Work-In-Progress 105.95 7602.26 124.61 6570.35(Including Capital Advances)

Investments 6 14345.66 21909.20

Current Assets, Loans & Advances:Inventories 7 34939.32 28042.02Sundry Debtors 8 53239.10 41643.22Cash and Bank Balances 9 25077.39 14523.22Other Current Assets 10 10812.05 4478.83Loans and Advances 11 4567.25 2520.78

128635.11 91208.07

Less: Current Liabilities & Provisions 12Current Liabilities 80803.83 65270.42Provisions 5458.14 4449.59

86261.97 69720.01

Net Current Assets 42373.14 21488.06

64321.06 49967.61Consolidated Significant Accounting Policies 20Consolidated Notes to Accounts 21

57

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

2005 2004

Schedule Rs./Lacs Rs./Lacs

IncomeBusiness Income 13 778360.81 441178.35Less : Excise Duty 3928.37 774432.44 10534.39 430643.96Other Income 14 5060.27 2892.22

779492.71 433536.18

Expenditure

Cost of Sales and Services 15 714092.73 386123.75Personnel 16 14522.93 10861.64Administration, Selling, Distribution and Others 17 18118.43 11826.23Repairs and Maintenance 18 857.60 889.10Finance Charges 19 776.13 882.68Depreciation 1528.83 1806.03Less : Transfer to Revaluation Reserve 4.58 1524.25 4.58 1801.45

749892.07 412384.85


Tax Expense 21 ( 4 )-Current [Wealth tax Rs. 2.00 lacs (2004-Rs. 2.00 lacs)] 6510.59 2099.00- Fringe Benefit 83.90 –-Deferred 235.55 6830.04 1540.87 3639.87

Profit after Tax 22770.60 17511.46Balance in Profit and Loss Account brought forward 26309.60 17730.32

Profit available for Appropriation 49080.20 35241.78

Appropriations:Interim Dividend 6974.52 4534.01Proposed Final Dividend 3346.94 2306.82Tax on Interim Dividend 938.82 580.92Tax on Proposed Final Dividend 469.41 301.47Transfer to General Reserve 1327.66 1208.96Balance Carried Over 36022.85 26309.60

Earning per equity shareBasic ( of Rs. 2/- each) (in Rs.) 21 ( 9 ) 13.74 10.87Diluted (of Rs. 2/- each) (in Rs.) 21 ( 9 ) 12.88 10.16

Consolidated Significant Accounting Policies 20Consolidated Notes to Accounts 21

This is the Profit and Loss Account The schedules referred to above form an integral part ofreferred to in our report of even date the Profit and Loss Account


V. NIJHAWAN AJAI CHOWDHRY S. BHATTACHARYAPartner Chairman and DirectorMembership Number F-87228 Chief Executive OfficerFor and on behalf ofPrice WaterhouseChartered Accountants

Place : New Delhi K.R. RADHAKRISHNANDated :18th August, 2005 Company Secretary

58

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE

2005 2004

Rs./Lacs Rs./Lacs

1. Cash Flow from Operating Activities


Adjustments for:

Depreciation 1524.25 1801.45

(Profit)/Loss on sale of Fixed Assets (Net) (15.81) (3.71)

(Profit)/Loss on disposal of Investments (Net) (850.53) (795.58)

Interest on borrowings 776.13 882.68

Interest and Dividend income (688.10) (1321.14)

Unrealised (Gain) / Loss on Foreign Exchange

Fluctuation (Net) (55.41) 240.80

Prior period expenses (62.00) -

Provision for Doubtful Debts 144.23 148.01

Liabilities no longer required written back (839.71) (70.72)

Diminution in the value of Current Investments 0.53 -

Fixed Assets written off 4.73 (61.69) 0.01 881.80

Operating profit before Working Capital Changes 29538.96 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)

(Including Interest)

Net Cash from Operating Activities (A) 12674.61 16140.17

2. Cash Flow from Investing Activities

Interest and Dividend Received (Gross) 362.08 1331.99

Purchase of Fixed Assets (2678.31) (1806.83)

Sale of Fixed Assets 107.56 34.88

Purchase of Investments (167566.08) (73024.56)

Disposal/Redemption of Investments 175979.63 73761.84

Capital Work-in-Progress 19.39 10.84

(Including Capital Advances)

Net cash from/(used in) Investing activities (B) 6224.27 308.16

59

3. Cash Flow from Financing Activities

Share Capital Issued 54.65 98.04

Interest Paid (954.15) (989.41)

Share Premium Received 2097.38 2735.36

Secured Loans - Short Term Received/(Paid) (2354.59) 411.07

Secured Loans - Long Term Received 4000.00 2007.89

Secured Loans - Long Term (Paid) (3027.19) (3930.44)

Unsecured Loans Received / (Paid) 2313.59 (3148.36)

Dividend Paid (including dividend tax) (10474.40) (8661.72)

Net cash from Financing activities (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

[(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

and Cash Equivalents 10554.17 4970.76

Total (A)+(B)+(C) 10554.17 4970.76

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.

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE

2005 2004

Rs./Lacs Rs./Lacs

This is the Cash Flow Statement For and on behalf of the Board of Directorsreferred to in our report of even date

V. NIJHAWAN AJAI CHOWDHRY S. BHATTACHARYAPartner Chairman and DirectorMembership Number - F-87228 Chief Executive OfficerFor and on behalf ofPrice WaterhouseChartered Accountants


60

SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

2005 2004

Rs./Lacs Rs./Lacs

1- Capital(Schedule-21, Note 5)

Authorised:40,00,00,000 Equity Shares of Rs. 2/- each (2004 - 8,00,00,000Equity shares of Rs. 10/- each) 8000.00 8000.005,00,000 (2004 - 5,00,000) Preference Shares of Rs. 100/- each 500.00 500.00

8500.00 8500.00

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) 3343.64 3288.99

Add : Shares Forfeited 0.01 0.01

3343.65 3289.00

Notes:-

1 The shareholders of the Company through postal ballot, results whereof declared on June 13, 2005 authorised the sub division ofEquity 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 inelectronic form, by the depositories. For the Equity Shares held in physical form new share certificate of face value of Rs. 2/- each isto 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/- eachof 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 paidup were issued pursuant to the exercise of options granted under ESOP Scheme 2000. Consequently, HCL Corporation Limited’sshareholding percentage reduced from 50.48% as on June 30, 2004 to 49.66% as on June 30, 2005.

2- Reserves and Surplus As At Deductions/ As At(Schedule-21, Note 5) 01.07.2004 Additions Adjustments 30.06.2005

Rs./Lacs Rs./Lacs Rs./Lacs Rs./Lacs

General Reserve 5622.20 1,327.66 – 6949.86(4413.24) (1208.96) (0) (5622.20)

Profit and Loss Account 26309.60 9713.25 – 36022.85(17730.32) (8579.28) ( - ) (26309.60)

Share Premium 6739.37 2,097.38 – 8836.75(4004.01) (2735.36) (0) (6739.37)

Revaluation Reserve (Adj.) 305.65 – 4.58 301.07(310.23) (0) (4.58) (305.65)

Capital Reserve 0.37 – – 0.37(0.37) ( – ) (0) (0.37)

38977.19 13138.29 4.58 52110.90Previous year (26458.17) (12523.60) (4.58) (38977.19)

61


2005 2004

Rs./Lacs Rs./Lacs

3- Secured Loans

Loans and Advances from Banks:

- Cash Credits 530.07 –

- Foreign Currency Loan

External Commercial Borrowings 554.61 1589.15

Others 436.67 2287.36

- Term Loan

Foreign currency Loan – 875.60

Others 4000.00 2151.59

5521.35 6903.70

a) Cash Credits along with non-fund based facilities, Foreign Currency Loans and Foreign Currency Term Loan from Banksby the Parent are secured by way of hypothecation of stock-in-trade, book debts as first charge and by way of secondcharge 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 theimmovable assets of the Parent Company and hypothecation of all movable assets subject to equitable mortgage ofspecific assets under term loan from another bank and prior charge in favour of Company’s bankers on book debts andstock in trade for working capital facilities. Term loan from another Bank by the Parent is secured by equitable mortgageon 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./Lacs4- Unsecured Loans

(Schedule-21, Notes 6)

Public Deposits 10.15 10.76

Interest accrued and due 1.91 2.02

Short Term Loans and Advances:

- From Banks -Commercial Paper 2500.00 –

Other Loans and Advances:

- From a Financial Institution 59.72 146.74

Deferred Lease Obligations 38.61 138.97

2610.39 298.49

Notes:-

1) Amount payable within one year is Rs. 2593.39 Lacs (2004 - Rs. 128.29 Lacs )

2) Public Deposits include unclaimed matured deposits.

62

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 398.96 252.41 — 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 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

Air Conditioners

Furniture, Fixtures & 3504.15 519.52 536.14 3487.53 2685.12 449.60 515.47 2619.25 868.28 819.03

Office Equipment

Vehicles 223.75 34.10 20.25 237.60 147.47 26.76 18.86 155.37 82.23 76.28

Intangible :

Acquired Software 1103.66 — 880.54 223.12 1103.66 — 880.54 223.12 — —

License Fees — 1000.00 — 1000.00 — 47.22 — 47.22 952.78 —

TOTAL 15040.38 2675.88 2501.04 15215.22 8594.64 1528.83 2404.56 7718.91 7496.31 6445.74

Previous Year 13470.19 1801.17 230.98 15040.38 6988.40 1806.03 199.79 8594.64

Capital Work-In-Progress 105.95 124.61

[Including Capital Advances of Rs. 50.86 Lacs (2004- Rs. 4.81 Lacs)] 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 Purchase Redemption Closing Face 2005 2004Units /Reinvest Units Units Value (Rs) Rs. in Lacs Rs. in Lacs

Unquoted (Others) Current :Growth OptionsBirla Cash Fund 1300465 – 1300465 – 10.00 – 225.00

Birla Floating Rate Fund - Long Term – 4183930 – 4183930 10.00 450.00 –

Deutsche Floating Rate Fund 5008219 – 5008219 – 10.00 – 516.30

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 –

Grindlays Super Saver Income Fund - IP 6095319 – 6095319 – 10.00 – 879.02

Grindlays Super Saver IncomeFund - 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 - 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 –

Kotak Dynamic Income Plan 4572838 – 4572838 – 10.00 – 464.98

Prudential ICICI Blended Plan – 5000000 – 5000000 10.00 500.00 –

Prudential ICICI Flexible Income Plan 16310812 – 16310812 – 10.00 – 1842.76

(Contd.)

63


Prudential ICICI Floating Rate Plan 11786732 20165206 21832903 10119035 10.00 1064.65 1250.00

Prudential ICICI Income Plan 1565051 4756179 6321230 – 10.00 – 281.53

Prudential ICICI Liquid Plan 12653943 68558284 74281698 6930529 10.00 1148.65 1972.07

Prudential ICICI Short Term Plan – 13197876 8716523 4481353 10.00 565.00 –

Prudential ICICI Very Cautious Plan 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 –

Tata Floating Rate Fund Short Term 4898503 – 4898503 – 10.00 – 500.00

Tata Dynamic Bond Fund 947320 – 947320 – 10.00 – 99.51

Templeton Floating Rate IncomeFund - Long Term 22517971 3029189 15184992 10362168 10.00 1197.57 2591.97

Templeton India Income Builder 2350428 2169717 4520145 – 10.00 – 411.37

Templeton India Short Term – 40932 – 40932 10.00 500.00

Templeton Treasury Management A/c 7897 – 7897 – 1000.00 – 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

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

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)

Opening Purchase Redemption Closing Face 2005 2004

Units /Reinvest Units Units Value (Rs) Rs.in Lacs Rs.in Lacs

(Contd.)

64



7- Inventories

Raw Materials and Components (Including in Transit) 7793.60 6126.95Stores and Spares 4316.23 3810.56Finished Goods (Including in Transit) 22045.68 17233.28Work-In-Progress 783.81 871.23

34939.32 28042.02

8- Sundry Debtors - Unsecured

Debts exceeding six months :- Considered Good 6360.78 1896.24- Considered Doubtful 227.17 186.23


Other debts -Considered Good 46878.32 39746.98-Considered Doubtful 1.29 25.51


53239.10 41643.22

9- Cash and Bank Balances

Cash in hand and in Transit 195.05 865.57Cheques in hand 3154.23 2656.17Balances with Scheduled Banks : - On Current Account 10703.16 7420.74 Less :- Money held in Trust 76.48 10626.68 19.12 7401.62

- On Unpaid Dividend Account 146.38 99.15 - On Margin Account 38.97 2.00 - On Fixed Deposits 10951.08 3534.71 Less :- Money held in Trust 35.00 10916.08 36.00 3498.71

25077.39 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

65



11- Loans and Advances

Unsecured Considered Good

- Amounts recoverable in cash or in kind or for value to be received 4005.52 2282.36

- Balances with Customs, Port Trust and Excise Authorities 561.73 238.42

4567.25 2520.78

12- Current Liabilities and Provisions

Current Liabilities:Acceptances 24179.69 20670.00

Sundry Creditors :

- Due to SSI Undertakings 130.36 146.87

- Others 40878.63 41008.99 33759.56 33906.43

Sundry Deposits 271.26 286.05

Interest accrued but not due :

- On Secured Loans 4.03 182.32

- On Unsecured Loans 1.26 0.88

Investor Education and Protection Fund :

- Unclaimed Dividend* 146.38 99.15

Advances from Customers 1247.30 1556.32

Other Liabilities 4286.72 3205.40

Unaccrued Revenue 9658.20 5363.87

80803.83 65270.42

Provisions:

Proposed Final Dividend 3346.94 2306.82

Tax on Proposed Final Dividend 469.41 301.47Provision for Tax [Net of Advances Rs. 10020.84 Lacs

(2004 - Rs. 4523.09 Lacs )] 340.23 360.88

For Warranty Liability 296.78 661.52

For Gratuity and other Employee Benefits 1004.78 818.90

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.

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


13- Business Income

Sales and Related Income 754652.42 422285.60Services 23708.39 18892.75

778360.81 441178.35

14- Other Income

Interest :- Refund from Income Tax Authority 149.91 330.55- On Lease Rental 773.20 483.04- On Fixed Deposits 291.58 83.70[TDS Rs. 56.28 lacs (2004 - Rs. 22.92 lacs)]- Others 9.34 5.98

Dividend from (Others) Current Investments 237.27 417.87Miscellaneous Income 405.75 299.54Insurance Claims 37.45 22.52Provisions/Liabilities no longer required written back 839.71 70.72Profit on disposal of (Others) Current Investments (Net) 850.53 795.58Profit on Foreign Exchange Fluctuation (Net) 1449.72 379.01Profit on Sale of Fixed Assets 15.81 3.71

5060.27 2892.22

15- Cost of Sales and Services

Raw Materials & Components Consumed 97971.31 57775.14Purchase of Finished Goods & Services 609141.50 319110.18Stores and Spares Consumed 2270.25 2439.32Power and Fuel 122.26 112.57Labour and Processing Charges 441.49 521.93Royalty 8880.07 6277.37

718826.88 386236.51

(Increase)/Decrease in stocks ofFinished Goods & Work-In-Progress :

Closing Stock- Finished Goods (Including in Transit) 22060.79 17239.22- Work-In-Progress 783.81 871.23

22844.60 18110.45Opening stock

- Finished Goods (Including in Transit) 17239.22 17510.01- Work-In-Progress 871.23 487.68

18110.45 17997.69

(4734.15) (112.76)

714092.73 386123.75

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


17- Administration, Selling, Distribution and Others(Schedule-21, Notes 6)

Rent 890.40 814.37Rates and Taxes 1647.30 766.67Printing and Stationery 340.06 326.54Communication 782.15 623.56Travelling and Conveyance 1914.88 1547.86Packing, Freight & Forwarding 3136.15 2145.79Legal and Professional 895.57 730.40Training and Conference 359.20 255.92Office Electricity and Water 513.42 446.83Miscellaneous 1540.20 1121.14Insurance 1206.63 638.50Advertisement, Publicity & Entertainment (Net of Reimbursements) 2625.35 860.81Hire Charges 221.15 160.70Commission on Sales 1113.64 573.60Bank Charges 782.84 684.48Provision for Doubtful Debts 144.23 148.01Fixed Assets Written Off 4.73 0.01Diminution in value of Current Investment 0.53 –

18118.43 11845.19

Less : Operating Cost recovered – 18.96

18118.43 11826.23

18- Repairs and Maintenance

Plant and Machinery 127.44 138.48Buildings 52.59 12.52Others 677.57 741.32

857.60 892.32Less : Operating Cost recovered – 3.22

857.60 889.10

19- Finance Charges(Schedule-21, Note 6)

Interest paid :

- On Fixed Loans 225.46 512.67

- On Public Deposits – 0.07

- On Others 550.67 369.94

16- Personnel

Salaries, Wages, Allowances, Bonus & Gratuity 13232.05 9843.98Contribution to Provident Fund & Other Funds 540.71 376.52Staff Welfare Expenses 688.17 668.47Prior Period Expenses 62.00 –

14522.93 10888.97Less : Operating Cost recovered – 27.33

14522.93 10861.64

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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 costconvention in accordance with generally accepted accounting principles applicable in India and Accounting Standard21 on Consolidation of Financial Statements issued by the Institute of Chartered Accountants of India to the extentpossible in the same format as that adopted by the Parent Company (HCL Infosystems Ltd) for its separate financialstatements.

Intra-group balances and intra-group transactions and resulting unrealised profits are eliminated in full. Unrealisedlosses 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 arerevalued 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 minimumlease 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 thoseassets 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 inSchedule XIV of the Companies (Amendment) Act, 1988. These assets are subject to annual technicalevaluation for their economic useful life and additional depreciation is charged if there is any reduction ineconomic useful life as re-evaluated.

c) Assets acquired on and after 16.12.1993 on a prorata basis based on economic useful life determined byway 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 4-6 yearsBuilding - Factory 25-28 yearsBuilding - Others 50-58 yearsFurniture & Fixture 4-6 yearsAir Conditioners 3-6 yearsVehicles 4-6 yearsOffice Equipment 3-6 yearsNetworking equipment 3-6 yearsComputers 3-5 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.

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5. INVENTORIES

Raw Materials and components held for use in the production of inventories are valued at cost if the finished goods inwhich 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 andWork in Progress includes direct labour and proportionate overhead expenses. Cost is determined on the basis ofweighted average.

Stores and Spares are valued at lower of cost and net realisable value. Adequate adjustments are made to the carryingvalue 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 theoverall net gain/loss including those arising out of fluctuations in exchange rates on settlement during the period isadjusted to the Profit and Loss Account, except in cases of liabilities relating to acquisition of fixed assets which areadjusted in the cost of respective assets.

Foreign currency monetary assets and liabilities covered by forward contracts are stated at the forward contract ratesand the difference between the forward rate and the exchange rate at the inception of the forward contract is recognisedin the Profit and Loss Account over the life of the contract, except in cases of liabilities relating to acquisition of fixedassets which are adjusted in the cost of respective assets.

7. RETIREMENT BENEFITS TO EMPLOYEES

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

b) The contributions towards recognised Provident Fund and Superannuation Fund are accounted for on accrualbasis.

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

8. REVENUE RECOGNITION

a) Sales, net of discount, are inclusive of excise duty and the related revenue is recognised (after providing forexpenses to be incurred connected to such sales) on transfer of all significant risks and rewards to the customerand 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, whichis recognised upon creation of contractual obligations rateably over the period of contract, where no significantuncertainty 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 ofcontracts.

(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 overthe 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 thecustomer. One time charges recovered from the customers are recognised as revenue at the commencementof service.


70

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

9. GOVERNMENT GRANTS

Revenue grants where reasonable certainty exists that the ultimate collection will be made are recognized on asystematic basis in profit and loss statement over the periods necessary to match them with the related cost whichthey 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) 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 onaccrual basis.

b) Other lease transactions

i) Assets taken under leases where the Company has substantially all the risks and rewards of ownership areclassified as Finance leases. Such assets are capitalised at the inception of the lease at the lower of fair valueor the present value of minimum lease payments and a liability is created for an equivalent amount. Eachlease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodicrate 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 thelessor 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 inthe lease. Inventories given on finance lease are recognised as deemed sale at fair value. Lease income isrecognised over the period of the lease so as to yield a constant rate of return on the net investment in thelease.

v) Assets leased out under operating leases are capitalised. Rental income is recognised on accrual basis overthe lease term.

vi) Initial direct costs relating to the finance lease transactions are included as part of the amount capitalised asan asset under the lease.

12. SEGMENT ACCOUNTING

The segment accounting policy is in accordance with the policies consistently used in the preparation of financialstatements 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 expensesinclude 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 theservices rendered by them to each of the business segments. Depreciation on Fixed Assets is allocated to thesegments on the basis of their proportionate usage.

b) Unallocated expenses are enterprise expenses, which are not attributable or allocable to any of the businesssegment.


71


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 andincludes 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 substantialperiod of time to get ready for their intended use are capitalised along with the respective fixed asset up to the datesuch 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 differencesbetween 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 balancesheet date. Deferred tax asset is recognized and carried forward when it is reasonably certain that sufficient taxableprofits 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 requiresan outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for acontingent liability is made when there is a possible obligation or a present obligation that probably will not require anoutflow 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 theemployees under its Employee Stock Option Scheme (ESOP). Under this method, pursuant to the amended provisionsof the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by theSecurities and Exchange Board of India (“SEBI”), the excess of market price of underlying equity shares as of the dateof the grant of options over the exercise price of the options given to employees under the ESOP of the Company, isrecognized as employee compensation cost and is amortised over the vesting period.

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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 preparationof Consolidated Financial Statements is as under: -

Name of the Subsidiary Country of Extent of holding (%)Company Incorporation as at 30th June

2005 2004

HCL Infinet Ltd India 100 100

2. Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances) areRs 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 at30th June are as follows:

Deferred tax assets 2005 2004Rs./Lacs Rs./Lacs

Allowances for doubtful debts 64.45 72.25De-Merger Scheme expenses 13.50 21.29Expense accruals 419.02 426.01Other timing differences 263.34 760.31 71.69 591.24

Deferred tax liabilityDepreciation/Amortisation 757.95 665.64Other timing differences 737.13 1495.08 424.83 1090.47Net deferred tax (liability)/ assets (734.77) (499.23)

5. 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 forgrant of options to the employees of the Company and its subsidiaries (the ESOP 2000), the Board of Directors hadapproved 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 2005 2004Options outstanding at the beginning of the year 401506 2108500Less:Exercised during the year 316612 980414

Lapsed during the year – 726580Options outstanding at the end of the year 84894 401506

16,06,100 Options granted at the exercise price of Rs. 538.15 2005 2004

Options outstanding at the beginning of the year 1438524 –Add: Granted during the year – 1511484Less: Exercised during the year 229869 –

Lapsed during the year 221351 72960Options outstanding at the end of the year 987304 1438524


73

Granted during the year

Date of grant Options granted Grant Price Options lapsed out of the grant

25/8/2004 2,26,118 Rs. 603.95 54,36018/1/2005 2,91,860 Rs. 809.85 18,91015/2/2005 23,920 Rs. 809.30 15,52015/3/2005 60,216 Rs. 834.40 2,80015/4/2005 23,384 Rs. 789.85 –14/5/2005 17,400 Rs. 770.15 –15/6/2005 20,960 Rs. 756.15 2,560

(b) Employees Stock Based Compensation Plan 2005

The shareholders of the Company have approved the Employees Stock Based Compensation Plan 2005 througha Postal Ballot for grant of 3,335,487 options to the employees of the Company and its subsidiary. The Board ofDirectors has granted 3,196,840 options (2004 – NIL) (each option confers on the employee a right for fiveequity 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 underfinance leases are as follows:


outstanding payments payments


Not later than one year 40.28 2.54 37.74(111.40) (11.73) (99.67)


Total 41.16 2.55 38.61(153.27) (14.30) (138.97)


(iii) The Group has given on finance lease certain assets/inventories. These comprise computers and officeequipment. 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 atthat date are as follows:


receivable payments paymentsreceivable receivable


Not later than one year 2649.42 680.84 1968.58(1208.07) (382.54) (825.53)


Total 9515.13 1723.11 7792.03(3101.51) (840.51) (2261.00)

[includes minimum sub lease receivable Rs. 76.93 lacs (2004 - Rs. 184.86 lacs)]



74

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 23.14(18.00)

Later than one year and not later than five years 92.16–

Total 115.30(18.00)

b) Lease Payments recognised in the Profit & Loss Account for the year ended 30th June, 2005.Minimum Lease Payments 18.38

(18.00)Contingent Rents –


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 ChowdhryMr. 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) Other Key Management Personnel:Mr. George PaulMr. Hari BhaskaranMr. J. V. RamamurthyMr. K. R .RadhakrishnanMr. Manohar Lal Taneja


75

Mr. Rajeev AsijaMr. Rajendra KumarMr. Rakesh MehtaMr. Sandeep KanwarMr. S. PattabiramanMr. 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 TotalCompany Subsidiaries & Others Personnel

June 05 June 04 June 05 June 04 June 05 June 04 June 05 June 04 June 05 June 04

Sales & Related Income 54.03 5.67 4352.54 3183.75 42.35 189.06 4448.92 3378.48

Services 1.00 945.21 881.85 6.35 5.87 952.56 887.72

Other Income 98.93 108.39 98.93 108.39

Demerger/Transfer of Business

Interest Income

Purchase of Goods 29.88 84.03 29.88 84.03

Purchase of Services 982.51 510.45 982.51 510.45

Donations Given 48.00 48.00

Impairment/Debts written off 3.74 2.17 3.74 2.17

Assets Purchased

Assets Sold

Remuneration 650.40 485.15 650.40 485.15

Reimbursements towards expenditure

a) Received 3.46 4.04 63.90 83.02 0.66 67.36 87.72

b) Made 2.43 5.47 0.84 16.54 3.27 22.01

B. Amount due to/from related Holding Fellow Key Management Totalparties Company Subsidiaries Others Personnel

June 05 June 04 June 05 June 04 June 05 June 04 June 05 June 04 June 05 June 04

Accounts Receivables 53.55 0.01 493.21 448.00 1.47 1.08 548.23 449.09

Loans & Advances & Other Recoverables 0.09 62.80 91.62 62.80 91.71

Creditors 138.17 90.82 138.17 90.82

Other Payables 0.04 57.36 81.04 4.43 8.00 8.00 65.40 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 productsand providing a comprehensive range of IT services, including system maintenance and facility management indifferent industries.

b) Internet & Related Services include Internet related products & services consist of Internet Access services, VirtualPrivate 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 segmentsare not disclosed as more than 90% of the Company’s revenues, results and assets relate to the domestic market.

76


Consolidated Segment wise performance for the year ended 30th June, 2005 Rs./Lacs

Primary Segments Product & Related Services Internet & Inter- TotalComputer Office Automation & Related segmentSystems Telecommunication Services Elimination

(i) RevenueExternal Revenue 196469.94 577697.56 4193.31 778360.81

(151907.71) (284950.66) (4319.98) (441178.35)Intersegment Revenue 267.63 231.94 129.90 -629.47 –

(295.38) (2726.6) (95.94) (-3117.92) –Total Gross Revenue 196737.57 577929.50 4323.21 -629.47 778360.81

(152203.09) (287677.26) (4415.92) (-3117.92) (441178.35)Less: Excise Duty 3928.37 3928.37

(10534.39) (10534.39)Total Net Revenue 192809.20 577929.50 4323.21 -629.47 774432.44

(141668.7) (287677.26) (4415.92) (-3117.92) (430643.96)(ii) Results 13782.60 14627.55 155.65 28565.80

(12298.98) (8325.34) (-194.87) (20429.45)Less: Unallocable Expenditure 910.28

(746.17)Operating Profit 27655.52

(19683.28)Add: Other Income (Excluding gains on Exchange Rate Fluctuations and Other Operational Income) 1652.88

(1778.15)Less: Interest (Net of interest income Rs. 1068.37 Lacs, Previous Year Rs. 572.57 Lacs) -292.24

(310.11)Profit Before Tax 29600.64

(21151.32)Less: Tax Expense- Current 6510.59

(2099.00)- Deferred 235.55

(1540.87)- Fringe Benefit Tax 83.90Profit After Tax 22770.60

(17511.45)(iii) Segment Assets 78327.90 43725.30 2299.75 124352.95

(56897.41) (34893.33) (1723.2) (93513.94)Unallocated Corporate Assets a) Liquid Assets 25300.71

(25408.33) b) Deferred Tax Assets 760.31

(591.24) c) Others 929.37

(765.35)Total Assets 151343.34

(120278.86)(iv) Segment Liabilities 42467.52 38113.25 1334.34 81915.11

(36417.27) (28396.78) (1459.35) (66273.4)Unallocated Corporate Liabilities a) Current Liabilities 4346.86

(3446.61) b) Deferred Tax Liabilities 1495.08

(1090.47) c) Loan Funds 8131.74

(7202.19)

Total Liabilities 95888.79

(78012.67)

(v) Capital Expenditure 1070.38 268.17 1337.33 2675.88(1097.45) (503.98) (199.74) (1801.17)

(vi) Depreciation 627.10 198.27 708.88 1534.25(892.25) (179.96) (626.11) (1698.32)

(vii) Other Non Cash Expenses -144.83 -55.47 53.83 -146.47(204.77) (153.11) (30.94) (388.82)


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9. Earnings per share

The earnings considered in ascertaining the Group’s earnings per share comprise net profit for the year after tax. Basicearnings per share are computed and disclosed using the weighted average number of equity shares outstandingduring the year. Diluted earnings per share is computed and disclosed using the weighted average number of equityand 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 17,511.46Weighted average number of shares considered as outstanding incomputation of Basic EPS* 1,65,774,340 1,61,095,395Add dilutive impact of stock options:- Outstanding 6,843,750 5,061,930- Exercised 1,407,430 3,353,970- Lapsed 690,895 1,276,655- Issued for no consideration 2,079,700 1,585,835Weighted average number of shares outstanding in computation of Diluted EPS* 1,76,796,115 1,72,373,785Basic EPS (of Rs. 2/- each) Rs. 13.74 Rs 10.87Diluted EPS (of Rs. 2/- each) Rs. 12.88 Rs 10.16

*Consequent to the sub division of equity shares having a face value of Rs. 10 each to equity shares having a facevalue of Rs. 2 each on 15th July 2005, the previous year weighted average number of equity shares and dilutednumber of equity shares have been adjusted.

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

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

Particulars Amount in Rs.2004-05

Share Capital 195067570Reserves 1196696224Total Assets 1397100986Total Liablities 1397100986Details of investment (except in case of investment in subsidiary) 401889266Turnover 58353209637Profit before taxation 1469266551Provision for taxation/Deferred Tax Charge/(credit) 521976366Profit After Taxation 947291185Proposed Dividend -


AJAI CHOWDHRY S. BHATTACHARYAChairman and DirectorChief Executive Officer

Place : New Delhi K.R. RADHAKRISHNANDated : August 25, 2004 Company Secretary

Hcl

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