· for the purpose of determining the shareholders entitled to the payment of Dividend declared,...

TATA ELXSI LIMITED ANNUAL REPORT 2006 05

TATA ELXSI LIMITED ANNUAL REPORT 200602

TATA ELXSI LIMITED ANNUAL REPORT 2006 03

ANNUAL REPORT 2005-06

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Notice is hereby given that the SEVENTEENTH ANNUAL GENERAL MEETING of TATA ELXSI LIMITED will be held at the Company’sCorporate Office, Whitefield, Hoody, Bangalore 560 048 on Friday, 28th July, 2006 at 12.00 noon to transact the following business :

1. To receive and adopt the Directors’ Report and the Audited Profit and Loss Account for the year ended 31st March, 2006 and theBalance Sheet as at that date and the Auditor’s Report thereon.

2. To declare dividend for the year ended 31st March 2006.

3. To appoint a Director in place of Mr. E. A.K. Faizullabhoy who retires by rotation and is eligible for re-appointment.

4. To appoint a Director in place of Mr. Sujit Gupta who retires by rotation and is eligible for re-appointment.

5. To appoint a Director in place of Mr. Syamal Gupta who retires by rotation and is eligible for re-appointment.

6. To appoint a Director in the place of Dr. R. Natarajan who was appointed as an Additional Director of the Company by the Boardof Directors with effect from 24th January, 2006 and who holds office upto the date of this Annual General Meeting under Section260 of the Companies Act, 1956 and Article 151 of the Articles of Association of the Company, but who is eligible for re-appointmentand in respect of whom the Company has received a notice in writing under Section 257 of the Act from a shareholder proposinghis candidature for the office of Director.

7. To consider and if thought fit, to pass, with or without modification, the following resolution as a Special Resolution:

“RESOLVED that pursuant to the provisions of Section 309 and other applicable provisions, if any, of the Companies Act, 1956, asum not exceeding 1% per annum of the net profits of the Company calculated in accordance with the provisions of Sections 198,349 and 350 of the Act, be and is hereby approved for payment to and distribution amongst the Directors of the Company orsome or any of them (other than the Managing Director and Whole-time Directors, if any) in such amounts or proportions and insuch a manner and in all respects as may be directed by the Board of Directors of the Company and that such payments anddistribution shall be made in respect of the profits of the Company for each year of the period of five years commencing from1st April, 2006”.

8. To consider and if thought fit, to pass, with or without modification, the following resolution as an Ordinary Resolution:

“RESOLVED that in partial modification of Resolution No. 7 passed at the Sixteenth Annual General Meeting of the Company heldon 22nd July, 2005 and in accordance with the provisions of Sections 198, 269, 309, 310 and other applicable provisions, if any, ofthe Companies Act, 1956 (“the Act”) read with Schedule XIII of the Act, the Company hereby approves of the revision in theperquisites and allowances payable to Mr. Madhukar Dev, Managing Director, (including the remuneration to be paid in the eventof loss or inadequacy of profits in any financial year during the tenure of his appointment) with effect from 1st April, 2006 for theremainder of the tenure of his contract as set out in the Explanatory Statement annexed to the Notice convening this Meeting.”

“RESOLVED FURTHER THAT the Board be and is hereby authorized to take all such steps as may be necessary, proper and expedientto give effect to this Resolution.”

9. To appoint Auditors to hold office from the conclusion of this Annual General Meeting upto the conclusion of the next AnnualGeneral Meeting and to fix their remuneration.

By Order of the Board of DirectorsFor TATA ELXSI LIMITED

VIJAY KRISHNAMURTHYChief Financial Officer& Company Secretary

Mumbai, 21st April, 2006,Registered Office :123, Richmond Road,Bangalore 560 025.

NOTES :

a) The relevant details in respect of Item Nos. 3 to 6 above pursuant to Clause 49 of the Listing Agreement are annexed hereto.

b) A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF ANDTHE PROXY NEED NOT BE A MEMBER.

c) Members desirous of getting any information in respect of Accounts of the Company are requested to send their queries inwriting to the Company at the Registered Office so as to reach at least 7 days before the date of the Meeting so that the requiredinformation can be made available at the Meeting.

d) Members / Proxies attending the Meeting are requested to bring their copy of the Annual Report for reference at the Meeting asalso the Attendance Slip duly filled in for attending the Meeting.

NOTICE

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e) Register of Members and Transfer Books of the Company will be closed from 15th July, 2006 to 28th July, 2006 (both dates inclusive)for the purpose of determining the shareholders entitled to the payment of Dividend declared, if any, at the Annual GeneralMeeting on 28th July, 2006 for the year ended 31st March, 2006.

Dividend on shares, when declared, will be paid only to those members whose names are registered as such in the Register ofMembers of the Company after giving effect to valid share transfers in physical form lodged with the Company on or before14th July, 2006 and to the Beneficial Holders as per the Beneficiary List at the close of business on 14th July, 2006 , provided by theNSDL and CDSL.

f ) Members holding shares in electronic form may please note that as per the regulations of National Securities Depository Ltd.(NSDL) and Central Depository Services (India) Ltd. (CDSL), the Company is obliged to print the bank details on the dividendwarrants as furnished by these Depositories to the Company and the Company cannot entertain any request for deletion / changeof bank details already printed on dividend warrants as per information received from the concerned Depositories. In this regard,Members should contact their Depository Participant (DP) and furnish particulars of any changes desired by them.

g) Members who have not received their dividend paid by the Company in respect of earlier years are requested to checkwith the Company’s Registrars & Transfer Agents i.e. M/s. TSR Darashaw Limited, Army & Navy Building, 148 M.G. Road,Fort, Mumbai 400 001. Members are requested to note that in terms of Section 205C of the Companies Act, 1956 anydividend unpaid / unclaimed for a period of 7 years from the date these first became due for payment are required to betransferred to the Central Government to the credit of the Investor Education & Protection Fund. Thereafter, no claimshall be entertained in respect of the dividend transferred to the Fund.

Members who have not yet encashed their dividends for the financial year ended 31st March, 2000 onwards are beingindividually intimated and are requested to make their claims to the Company’s Registrars & Transfer Agents accordingly,without undue delay. It may be noted that the unclaimed dividend for the financial year ended 31st March, 2000 is duefor transfer to the Investor Education & Protection Fund on 25th June, 2007

Explanatory Statement pursuant to Section 173 of the Companies Act, 1956

Item No. 6

At their Meeting held on 24th January, 2006, your Board appointed Dr. R. Natarajan as an Additional Director of your Companypursuant to the provisions of Article 151 of the Articles of Association of your Company and Section 260 of the Companies Act,1956. Accordingly, in terms of the said Article and Section, Dr. Natarajan holds office upto the date of this Annual General Meetingand being eligible, is proposed to be appointed at this Annual General Meeting as a Director liable to retire by rotation.

Dr. R. Natarajan is currently the Vice President of The Indian National Academy of Engineering and the Chairman of the ResearchCouncil of the Central Fuel Research Institute, Dhanbad, and was till November 2004, the Chairman of the All India Council forTechnical Education, a statutory body of the Government of India and from 1995 to 2001, had served as the Director of the IndianInstitute of Technology, Chennai.

Your Board considers that in view of the experience and expertise possessed by Dr. Natarajan, it would be in the interest of theyour Company to appoint Dr. Natarajan as a Director of your Company.

Notice and deposit as required under Section 257 of the Companies Act, 1956 has been received from a member proposing thecandidature of Dr. Natarajan as a Director of your Company.

The Directors commend the resolution for acceptance by the shareholders.

Item No. 7

In view of the valuable services being rendered by the Directors to the Company and the increased responsibilities they arerequired to shoulder, the members had at the Twelfth Annual General Meeting held on 6th September, 2001, approved paymentof commission not exceeding 1% per annum of the net profits of the Company to the non-Wholetime Directors of the Companyfor a period of five years commencing from 1st April, 2001, to be distributed amongst some or all of the Directors in accordancewith the directions given by the Board.

Consequent to the expiry of the said period of five years on 31st March, 2006, it is proposed to extend payment of such commissionby another five years commencing from 1st April, 2006.

All the non-Wholetime Directors of the Company may be deemed to be concerned or interested in the Resolution to the extentof the remuneration that may be received by them.

Item No. 8

Mr. Madhukar Dev was appointed as the Managing Director of the Company for the period of 3 years with effect from 16th January2005 on the terms and conditions and remuneration as approved by the Shareholders at the Sixteenth Annual General Meetingof the Company held on 22nd July 2005.

In order to give flexibility to the Board of Directors (“the Board”) to decide upon the perquisites and allowances to be granted tothe Managing /Whole-time Directors from time to time, within the overall ceilings prescribed under the Companies Act, 1956


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(“the Act”), it is proposed to revise the terms of remuneration relating to perquisites and allowances of Mr. Madhukar Dev witheffect from April 1, 2006. The Board at its Meeting held on 21st April 2006 have approved of the aforesaid proposal, subject to theapproval of the Members. All the other terms and conditions of appointment and remuneration of Mr. Dev would remainunchanged. The revised terms of remuneration are as set out below:

A. Remuneration: Salary upto a maximum of Rs.150,000 per month, with annual increments effective 1st April every year, asmay be decided by the Board, based on merit and taking into account the Company’s performance; benefits, perquisitesand allowances as determined by the Board from time to time; and incentive remuneration and/or commission based oncertain performance criteria to be prescribed by the Board.

B. Minimum Remuneration: Notwithstanding anything to the contrary herein contained, where in any financial year duringthe currency of the tenure of Mr. Dev, the Company has no profits or its profits are inadequate, the Company will payremuneration by way of salary, perquisites and allowances and incentive remuneration, as specified above.

The aggregate of the remuneration as aforesaid shall be within the maximum limits as laid down under Sections 198, 309 and allother applicable provisions, if any, of the Act read with Schedule XIII of the Act as amended and as in force from time to time.

In compliance with the provisions of Section 309 and 310 read with Schedule XIII of the Act, the revised terms of remuneration ofMr. Dev are now being placed before the Members in general meeting for their approval. .The Board commends the Resolutionfor approval by the Members.

This Explanatory Statement may also be treated as the abstract and memorandum of concern or interest under Section 302 ofthe Act

Mr. Dev is concerned or interested in this resolution at Item No. 8 of the Notice.

By Order of the Board of DirectorsFor TATA ELXSI LIMITED

VIJAY KRISHNAMURTHYChief Financial Officer& Company Secretary

Mumbai, 21st April, 2006Registered Office:123, Richmond Road,Bangalore 560 025.

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ANNEXURE

Name of the Director E. A. K. Faizullabhoy Sujit Gupta Syamal Gupta Dr. R. Natarajan

Date of Birth 8th April, 1933 25th September, 1937 15th April, 1934 9th January, 1941

Date of appointment 30th March, 1989 18th October, 1989 23rd June, 1999 24th January, 2006

Specialised Expertise Law General Management General Management General Management

Qualifications B.A., L.L.B. B.A. (Eco. Hons.); FREng:FIC, FIMechE B.E., M.E., Ph.D., M.A.ScB.Sc (Eco.) fromLondon School ofEconomics

Information pursuant to Clause 49 of the Listing Agreement regarding appointment of a new Director or reappointment of aDirector

Directorships of othercompanies as on31st March, 2006.(excluding foreign andprivate limitedCompanies)

The Jamshri RanjitsinghjiSpg. & Wvg. Mills Co. Ltd.

Tata Petrodyne Ltd.North Delhi Power Ltd.Tinplate Company of IndiaLtd.Tata Advanced MaterialsLtd.

Tata Sons Ltd.Tata International Ltd.Tata BP Solar India Ltd.The Tata Power CompanyLtd.Tata Advanced MaterialsLtd.Global InformationServices Ltd.Grazeilla Shoes Ltd.TCE ConsultingEngineers Ltd.Tata AIG GeneralInsurance Company Ltd.Tata AIG Life InsuranceCompany Ltd.

Rane Brake Linings Ltd.,ChennaiIP Rings Ltd., Chennai

Chairmanship/Membership ofCommittees (across allpublic limitedCompanies)

Chairman - AuditCommitteeTata Petrodyne Ltd.NDPLChairman - InvestorGrievance CommitteeTinplate Company of IndiaLtd.Tata Advanced MaterialsLtd.Member - AuditCommitteeTata Advanced MaterialsLtd.

Member - AuditCommitteeTata Sons Ltd.The Tata Power CompanyLtd.Tata AIG GeneralInsurance Company Ltd.Tata AIG Life InsuranceCompany Ltd.Chairman - InvestorGrievances CommitteeThe Tata Power CompanyLtd.

No. of shares held inthe Company as on31st March, 2006

Member - AuditCommitteeTata Elxsi Ltd.Chairman - InvestorGrievances CommitteeTata Elxsi Ltd.

1,100 — 4,400 —


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1. Your Directors present the Seventeenth Annual Report together with the audited Statements of Accounts of your Company forthe year ended 31st March, 2006.

2. Financial Highlights

During the financial year 2005-06, the operations of the Company resulted in the following :

(Rs. Crores)

2005-2006 2004-2005

Sales and Service 235.63 185.77

Other income 0.68 1.08

Total Income 236.31 186.85

Profit before financial expenses and depreciation 47.35 36.89

Less : Financial expenses 0.22 0.14

Depreciation 6.73 5.02

Net profit for the year 40.40 31.73

Less : Provision for Income tax 6.07 5.44

Profit after tax 34.33 26.29

Add : Profit brought forward 12.94 9.21

Balance available for appropriationwhich has been appropriated as under : 47.27 35.50

Dividend 20.24 17.13

Dividend Tax thereon 2.84 2.43

Transfer to General Reserve 4.00 3.00

Balance of Profit carried to Balance Sheet 20.19 12.94

Total Appropriations 47.27 35.50

3. Dividend

Your Directors recommend for your approval a dividend of 65% (Rs. 6.50 per share) [previous year 55% (Rs. 5.50) per share] for theyear ended 31st March 2006, involving an outgo of Rs. 20.24 crores (previous year Rs. 17.13 crores). Additionally, dividend distributiontax at 14.03% (including surcharge) will involve an outlay of Rs. 2.84 crores (previous year Rs. 2.43 crores), which will be borne bythe Company.

4. Review of Operations

Your Company continued to target growth in all its business areas while simultaneously investing in capacity building activitiesduring the year to cater to the future.

A business-wise analysis of your Company’s two main segments viz. Software Development & Services and Systems Integration &Support follows hereunder.

Software Development & Services :

The businesses constituting this segment are Product Design Services (Design & Development of Hardware and Software),Innovation Design Engineering Services (Mechanical Design with a focus on Industrial Design) and the Visual Computing LabsDivision (Animation and Special Effects). This business segment grew to Rs. 188.82 crores during 2005-06 from Rs. 146.46 crores inthe previous year with corresponding increase in the segment results to Rs.40.47 crores from Rs.34.11 crores.

DIRECTORS’ REPORT TO THE MEMBERS

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Product Design Services : Your Company’s Product Design Services develop operating software for a wide variety of specializedtechnologies ranging from Automotive Systems, VLSI design, Embedded Systems, Networking, Digital Signal Processing, Multimediaand Storage systems.

Your Company provides global customers with services towards technology product development and outsourced R & D, includingDigital TV enabled products such as advanced displays and set-top boxes, multimedia and portable entertainment productssuch as audio and media players, consumer electronics such as digital video cameras, mobile phones, etc.

Your Company enables value to its customers through the cost-effective and timely service delivery of its technology and domainexpertise.

Your Company ensures this through delivery and quality processes that have been certified at the highest level of CMMI Level 5and ISO 9001:2000, and investing in continuous and ongoing technical training of its engineers, which helps build domain expertisein current and emerging technologies.

During the year, your Company commissioned new Development Centres in Chennai and Pune with an initial capacity of 100seats each to address opportunities in the area of Wireless and VoiP protocols respectively. The other Development Centres ofyour Company are located at Trivandrum and Bangalore. Your Company follows the model of geographical dispersal ofdevelopment centres, with each centre focusing on a distinct technology area with retrieval support at another Centre.

At the Bangalore Centre, your Company completed Phase 2 of the new building construction leading to a capacity addition ofanother 300 seats to cater to the distinct technology offerings. Construction of Phase 3 is now underway, which will provideanother 400 seats, during the year.

Business continued to grow in the existing territories of USA, UK, Germany, Japan and India where your Company has its offices. InIndia, your Company deals with the subsidiaries of its overseas customers who have set up development centres in India. Duringthe year, your Company also made a breakthrough in the S. Korean market where it is currently represented through its businessassociates.

Innovation Design Engineering Services : The industrial design business continued to grow with new customer additionswithout loosing a single customer. During the year, this business secured the distinction of being the only Design Partner basedin India for many of the world-wide subsidiaries of several prestigious multinationals. With a view of providing forward integrationin its operations, a “Proof of Principle” laboratory is being set up which will enable pilot production of the design concepts createdby this Division. The Division specializes in innovative design work in niche market areas like automotive styling, aesthetic andengineering design of consumer products, packaging design of FMCG goods etc. for customers in India and abroad.

Visual Computing Labs : This Group offers services in the areas of 3D animation, digital special effects for live-action films andgames development services for the television, film and mobile phone markets in the domestic and international markets. Inrespect of an overseas customer, Phase 1 and 2 of an animation order has been successfully executed during the year and it isexpected to lead to a larger order in Phase 3 which would be executed during the following year. This Division is also workingwith leading film producers in India for special effects and animation services.

Systems Integration & Support :

This segment caters to the domestic market and offers integrated hardware and packaged software solutions, sourced fromprincipals who are world leaders, to address the complex technical computing requirements of Indian customers. This Groupoffers a wide range of technical computing solutions spanning from high-end computing platforms, connectivity solutions,mechanical design automation tools, enterprise storage solutions, digital media and lifesciences solutions. During the year, thesegment turnover and results were Rs. 47.33 crores and Rs. 7.00 crores respectively, compared to Rs. 40.28 crores and Rs. 4.70crores respectively during 2004-05.

One thrust area is definitely the significant enlargement of the Video and Broadcast solutions portfolio, where your Company isentering into alliances with global leaders to provide this industry with a complete range of solutions across the hardwareequipment and software requirements. This should enable greater business, especially considering the proliferation of channelsand studios (regional and national), and the expected demand for content creation and delivery.

5. Finance

Interest costs increased marginally to Rs. 22.14 lakhs (previous year Rs.14.19 lakhs) nonwithstanding higher outlay towards dividendpayments and capital expenditure both of which were internally funded out of accruals.

DIRECTORS’ REPORT TO THE MEMBERS (Contd...)


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6. Directors

Your Board appointed Dr. R. Natarajan as an additional Director on 24th January 2006. Dr. Natarajan possesses considerabletechnical and administrative experience which would be useful to your Board’s deliberations. In accordance with Section260 of the Companies Act, 1956 and Article 151 of the Articles of Association of the Company, Dr. Natarajan vacates office atthe forthcoming Annual General Meeting.

A notice and the requisite deposit has been received from a member proposing the candidature of Dr. Natarajan at theforthcoming Annual General Meeting, as required under Section 257 of the Companies Act, 1956.

In accordance with the Guidelines on Board Composition adopted by your Company’s Board of Directors, Dr. F. C. Kohli andBrig. K. Balasubramaniam stepped down from your Company’s Board effective 1st April 2006, having crossed the maximum agepermissible for Directors under the said Guidelines. Dr. Kohli has been on the Board of your Company since inception and hasrendered invaluable services. Through his guidance and support, he stabilized your Company’s operations during its initial difficultperiod and subsequently, with his knowledge, guidance and vision, positioned your Company to make the rapid strides that it hasshown in recent times. Brig. Balasubramanian, also on your Company’s Board from inception, played a key role in advising andmonitoring its operations, especially during its initial difficult period. Your Board places on record its deep appreciation of thecontributions made to your Company by Dr. Kohli and Brig. Balasubramaniam.

Pursuant to the aforementioned Guidelines, a Nomination Committee is also required to be set up to periodically review thecomposition of the Board as also an Executive Committee to review in detail key operating parameters. In April 2006, your Boardconstituted of the Nomination Committee and reconstituted the Executive and other Committees of your Board.

Mr. E.A.K. Faizullabhoy, Mr. Sujit Gupta and Mr. Syamal Gupta retire by rotation and being eligible, offer themselves forre-appointment.

Pursuant to the requirements of the revised Clause 49 of the Listing Agreement, a Code of Conduct for non-Executive Directorswas adopted by your Board effective 31st December, 2005, and the same is posted on your Company’s website. The ManagingDirector, alongwith other employees of your Company, is governed by another Code of Conduct, which applies to all employeesof Tata Group companies and the same is also posted on your Company’s website.

7. Directors Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, your Directors, based on the representations received from the OperatingManagement, confirm that -

(i) In the preparation of the annual accounts, the applicable accounting standards have been followed and that there are nomaterial departures;

(ii) they have, in the selection of the accounting policies, consulted the Statutory Auditors and have applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairsof the Company at the end of the financial year and of the profit of the Company for that year;

(iii) they have taken proper and sufficient care, to the best of their knowledge and ability, for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act,1956, for safeguarding the assets of the Companyand for preventing and detecting fraud and other irregularities;

(iv) they have prepared the annual accounts on a going concern basis.

8. Personnel

In the services sector and more so, in the software industry, a company’s performance is determined by the size and quality of itsworkforce. Attraction, retention and upgradation of human capital is a key challenge in the software industry. Towards this end,your Company adopted innovative recruitment and retention strategies and also increased its investment in training inputs andcostly hardware and software tools. This enables your Company to provide a technically rich, niche environment which attractscritical talent. Also, with multi-locational development centres, your Company is in a position to address, wherever possible,individual-specific locational needs which helps in retention of employees.

9. Disclosure of Particulars

Particulars required to be furnished under the Companies (Particular of Employees) Rules, 1975 and Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988, to the extent applicable to the Company are given in the Annexure.

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10. Corporate Governance

Pursuant to Clause 49 (as revised, effective 31st December, 2005) of the Listing Agreement, the Management Discussion & AnalysisStatement, Corporate Governance Report and the Auditors’ Certificate regarding Compliance of Conditions of CorporateGovernance are part of this Annual Report.

11. Acknowledgements

The Directors wish to thank the Company’s esteemed customers, partners, suppliers, and above all, its shareholders and investorsfor their continued support and co-operation.

On behalf of the Board of Directors

SYAMAL GUPTAChairman

Mumbai, 21st April, 2006


Particulars pursuant to Section 217 (1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in theReport of Board of Directors) Rules, 1988

1. Conservation of Energy

Though the Company does not have energy intensive operations, it continues to pursue energy conservation measures.Energy conservation programs adopted by the Company are :(i) Continuous monitoring of energy consumption;(ii) Scheduled Preventive Maintenance for HVAC and other plant & machinery systems;(iii) Regular “Cost review” with action plans on effective utilization of power, including purchase/use of energy saving devices

based on techno-commercial evaluation.Your Company will continue to tightly monitor and control overall energy expenses, even as it is expected to increase in directproportion to the increased infrastructure build-up and space utilization as part of its growth.

2. Technology Absorption

a. Research & DevelopmentYour Company is engaged in embedded product development based on current and emerging technologies such asMultimedia, VoiP, WiMAX, Imaging, Image processing, etc.The Company actively engages in developing in-house expertise on current and emerging technologies, through in-housedevelopment projects and training.

b. Benefits derived out of the above R & DThe Company derives benefit of addressing project requirements of customers, based on the expertise acquired anddeveloped through in-house R & D.The R & D activities have also resulted in the development of Intellectual Property (IP) for areas such as multimedia codecs,image processing, networking and communication protocols. This also leads to revenue through the licensing of these IPfor use by customers in their products.

c. Future plan of actionYour Company intends to continue building competencies and familiarity with technologies and standards, to help expandthe expertise and resource base.

d. Expenditure on R & D during the yeari. Capital : Rs. 2.18 crsii. Recurring : Rs. 6.23 crsiii. Total : Rs. 8.41 crsiv. Total R & D expenditure as a percentage total turnover : 3.57%

ANNEXURE “A” TO DIRECTOR’S REPORT


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Information as per Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975and forming part of the Directors’ Report for the year ended 31st March, 2006.

Sl. Name Designation Remuneration Qualification Experience Commencement Age Particulars of Last Employment/No. (Rs.) (Yrs.) of Employment (Yrs.) Employer / Last Post & Period

for which post held

1 Madhukar Dev Managing Director 74,67,641 M.Sc, M.B.A. 28 03.06.91 51 Bennet Coleman & Co. Ltd.Chief Manager (RMD) - 1year

2 Prakash S General Manager 24,82,147 M.E. (Elect.) 19 08.02.93 42 Hinditron Infomatics Ltd.Senior Software Engineer - 7 months

3 Rajesh Kumar General Manager 33,35,710 B. Tech. 22 10.04.97 45 C-DAC - Team Coordinator VisualComputing and Multimedia)- 7 years 5 months

4 Thangarajan M General Manager 25,78,837 B.E. 20 02.09.96 43 Larsen & Toubro Ltd. - Sr. ExecutiveQuality Assurance - 5 yrs 8 months

Notes :

1. Nature of employment is contractual. Other terms and conditions are as per the Company’s Rules.

2. The above employees are not related to any Director of the Company.

3. Remuneration received includes Salary, Commission, House Rent Allowance, Privilege Leave Encashment, Contribution toProvident, Superannuation and Gratuity Funds, Leave Travel Assistance, Medical Assistance and other Perquisites evaluatedin accordance with the Income-Tax Rules as applicable.

On behalf of the Board of Directors

SYAMAL GUPTAMumbai, 21st April, 2006 Chairman

ANNEXURE “B” TO DIRECTORS’ REPORT

3. Technology absorption, adaptation and innovation

Your Company’s quality systems are certified at the highest level of ISO 9001 and CMM i Level 5, with mature processes, techniquesand methodologies that have been implemented, continuously validated and refined, reflecting the enhancement of overallquality and productivity, and high degree of technology absorption, adaptation and innovation.

Your Company is also engaged in on-going efforts to study and track various emerging and evolving technology segments, tohelp identify technologies with market potential and develop in-house expertise, resulting in enhancement of addressablecustomer opportunities in the future.

4. Foreign Exchange earnings and outgoYour Company’s growing Software Design & Development operations as also the increasing proportion of agency business withoverseas principals in the Systems Integration business ensures a continued export thrust. The particulars of foreign exchangeearnings and outgo are given in Item Nos. 19 and 20 of Schedule 16 to the Accounts.

ANNEXURE “A” TO DIRECTOR’S REPORT (Contd...)

The Company has adopted a Code of Conduct for all its employees, including the Managing Director. In addition, the Companyhas adopted a Code of Conduct for its Non-Executive Directors. Both these Codes are available on the Company’s website(www.tataelxsi.com).

I hereby confirm that all Board members and senior management personnel have affirmed compliance with the Code ofConduct applicable to them in respect of the year ended 31st March, 2006.

Madhukar DevMumbai, 21st April, 2006 Managing Director

Affirmation regarding Compliance with the Code of Conduct

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Mandatory Requirements:

1. A brief statement on the Company’s philosophy on code of governance. Your Company believes in conducting its affairs withthe highest levels of integrity, with proper authorisations, accountability and transparency. The business operations of yourCompany are conducted not to benefit any particular interest group but for the benefit of all stakeholders.

2. Board of Directors

The Company has a Non-Executive Chairman and the number of Independent Directors exceeds one-third of the total number ofDirectors. The number of Non-Executive Directors (NEDs) exceeds 50% of the total number of Directors. None of the Directors onthe Board is a Member on more than 10 Committees and Chairman of more than 5 Committees (as specified in Clause 49 of theListing Agreement with Stock Exchanges), across all the companies in which they are Directors. The necessary disclosures regardingCommittee positions have been made by the Directors.

Five Board Meetings were held during the year 2005-06 and the gap between any two meetings did not exceed four months. Thedates on which the Board Meetings were held were 20th April 2005, 22nd July 2005, 28th October 2005, 24th January 2006 and29th March 2006.

The names and categories of the Directors on the Board, their attendance at Board Meetings during the year and at the lastAnnual General Meeting, as also the number of Directorships held by them in other companies are given below:

Name Category No. of Board Whether No. of Directorships inMeetings attended other Companiesattended AGM held on

during 2005-06 22nd July 2005 Chairman Member

Mr. Syamal Gupta Not Independent / 5 Yes 4 6(Chairman) Non-Executive

Mr. S Ramadorai Not Independent / 2 No 2 8(Vice Chairman) Non-Executive

Dr. F C Kohli Independent / 3 No 2 2Non-Executive

Brig. K Balasubramaniam Independent / 4 Yes — 1Non-Executive

Mr. E A K Faizullabhoy Independent / 5 Yes — 1Non-Executive

Mr. Sujit Gupta Independent / 3 Yes — 4Non-Executive

Mr. H H Malgham Independent / 5 Yes — 3Non-Executive

Mr. P G Mankad Independent / 4 No — 6Non-Executive

Mr. P McGoldrick Independent / 2 Yes — 1Non-Executive

Mr. C P Mistry Independent / 4 Yes — 5Non-Executive

Dr. R Natarajan* Independent / — N.A. — 2Non-Executive

Mr. Madhukar Dev Not Independent / 5 Yes — —Managing Director

* Appointed as Additional Director on 24th January 2006

The information as required under Annexure I to Clause 49 has been made available to the Board.

COMPLIANCE REPORT ON CORPORATE GOVERNANCE


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3. Audit Committee

The terms of reference of the Audit Committee mandated by the statutory and regulatory requirements, which are also in linewith the mandate given by your Board of Directors, are:

a. Oversight of the Company’s financial reporting process and the disclosure of its financial information to ensure that thefinancial statement is correct, sufficient and credible.

b. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutoryauditor and the fixation of audit fees.

c. Approval of payment to statutory auditors for any other services rendered by the statutory auditors.d. Reviewing, with the management, the annual financial statements before submission to the Board for approval, with particular

reference to:

i. Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s Report interms of clause (2AA) of Section 217 of the Companies Act, 1956;

ii. Changes, if any, in accounting policies and practices and reasons for the same;iii. Major accounting entries involving estimates based on the exercise of judgement by management;iv Significant adjustments made in the financial statements arising out of audit findings;v. Compliance with listing and other legal requirements relating to financial statements;vi. Disclosure of any related party transactions; andvii. Qualifications in the draft audit report.

e. Reviewing, with the management, the quarterly financial statements before submission to the Board for approval.

f. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems.

g. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffingand seniority of the official heading the department, reporting structure, coverage and frequency of internal audit.

h. Discussion with internal auditors any significant findings and follow up thereon.

i. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud orirregularity or a failure of internal control systems of a material nature and reporting the matter to the Board.

j. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-auditdiscussion to ascertain any area of concern.

k. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in caseof non payment of declared dividends) and creditors.

l. To review the functioning of the Whistle Blower mechanism.

m. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.

The Audit Committee reviewed the reports of the internal auditors, the reports of the statutory auditors arising out of the quarterly,half-yearly and annual review of the accounts, considered significant financial issues affecting the Company and held discussionswith the internal and statutory auditors and the Company management, during the year.

Four Audit Committee Meetings were held during the year 2005-06. The dates on which the Audit Committee Meetings wereheld were 20th April 2005, 22nd July 2005, 27th October 2005 and 24th January 2006.The composition, names of the members, chairperson, particulars of the Meetings and attendance of the members during theyear are as follows:

Sl. Names of Members Category No. of Meetings attendedNo. during theyear 2005-06

1. Mr. H H Malgham, Chairman Independent/Non-Executive 4

2. Mr. S Ramadorai Not Independent/Non-Executive 2

3. Mr. E A K Faizullabhoy Independent/Non-Executive 4

4. Mr. C P Mistry Independent/Non-Executive 3

4. Remuneration Committee

The terms of reference mandated by your Board are:● To decide the policy on specific remuneration packages for Managing/Executive Directors including pension rights and

any compensation payments.● To approve the terms of any Employee Stock Option Scheme or Plan as may be issued from time to time by the Company.

COMPLIANCE REPORT ON CORPORATE GOVERNANCE (Contd...)

24

All Non-Executive Directors of your Company receive sitting fees for each meeting of the Board or Committee thereof attendedby them. The net profits of the Company, not exceeding 1%, are distributable, as commission, amongst the Non-Executive Directorsconsidering the special services and efforts rendered.

Other than sitting fees and commission on the net profits of the Company, no other remuneration is payable to the Non-ExecutiveDirectors for 2005-06.

During the year, the Remuneration Committee held its Meeting on 20th April 2005

The composition, names of the members, chairperson, particulars of the Meetings and attendance of the members during theyear are as follows:

Sl. Names of Members Category No. of Meetings attendedNo. during theyear 2005-06

1. Dr. F C Kohli, Chairman Independent/Non-Executive 1

2. Mr. Syamal Gupta Not Independent/Non-Executive 1

3. Mr. S Ramadorai Not Independent/Non-Executive 1

The remuneration earned during 2005-06 by the Non-executive Directors is given below:

Sl. Name of the Non-Executive Director Sitting Fees CommissionNo. Rs. Rs.

1. Mr. Syamal Gupta 65,000 9,00,000

2. Mr. S. Ramadorai 25,000 5,00,000

3. Dr. F C Kohli 55,000 8,50,000

4. Brig. K Balasubramaniam 30,000 3,00,000

5. Mr. E A K Faizullabhoy 65,000 3,25,000

6. Mr. Sujit Gupta 15,000 1,50,000

7. Mr. H H Malgham 65,000 4,75,000

8. Mr. P G Mankad 20,000 1,50,000

9. Mr. P McGoldrick 10,000 1,50,000

10. Mr. C P Mistry 40,000 2,50,000

11. Dr. R Natarajan * Nil 50,000

*Appointed on 24th January, 2006

Details of remuneration for 2005-06 in respect of Mr. Madhukar Dev, Managing Director, are given below:

Basic Salary Commission Contribution to Other TotalRs. Rs. Provident & other Funds Allowances & Perquisites Rs.

14,40,000 32,00,000 4,24,800 24,02,841 74,67,641

5. Investor Grievances Committee

The terms of reference mandated by your Board, which is also in line with the statutory and regulatory requirements, are:

● Redressing of Shareholders and Investors complaints;

● To ensure expeditious share transfers;

● To review status of legal cases involving the investors where the Company has been made a party.

Three Investor Grievance Committee Meetings were held during the year 2005-06. The dates on which the Investor GrievanceCommittee Meetings were held were 22nd July 2005, 27th October 2005 and 24th January 2006. The composition, names of themembers, chairperson, particulars of the Meetings and attendance of the members during the year are as follows:



25

Sl. Names of Members Category No. of Meetings attendedNo. during the year 2005-06

1. Mr. E A K Faizullabhoy, Chairman Independent/Non-Executive 3

2. Mr. H H Malgham Independent/Non-Executive 3

3. Mr. C P Mistry Independent/Non-Executive 1

Name, designation & address of Compliance Officer:Mr. Vijay KrishnamurthyChief Financial Officer & Company SecretaryTata Elxsi Ltd.,123 Richmond Road, Bangalore – 560 025.Phone : +91-80-22979736Fax : +91-80-25575889E-mail : [email protected]

Details of Investors complaints received during 2005-06 are as follows:

Sl. No. Nature of Complaint Received Disposed Pending

1. Non-receipt of Dividend Warrant 520 520 Nil

2. Non-receipt of Share certificates after TR/Cons./Trans 66 66 Nil

3. Non-receipt of I/W/Redemption 67 67 Nil

4. Non-receipt of A/R, Right offer/Registration of C/A 19 19 Nil

Total 672 672 Nil

Complaints/correspondence are usually dealt with within 10 days of receipt and are completely resolved except in cases wherelitigation is involved.

Details of shares in physical form lodged for transfer during 2005-06 are as follows:

Sl. No. Lodged for transfer Transferred and returned Pending Remarks

1. 164900 163500 1400 Nil

Share transfer lodgements are processed within 30 days and returned except in cases where litigation is involved.

The following persons can also be contacted in case of investors grievances:

a. Ms. Mary Alles (email: [email protected];Phone: +91-080-22979789; Fax: +91-080-25575889)

b. TSR Darashaw Ltd. (email: [email protected]: +91-022-66568484; Fax: +91-022-66568494)

6. Other Committees

In addition to the Committees referred to above, the Board has also constituted an Executive Committee, a Legal Committee andan Ethics Committee. The Executive Committee reviews and guides the Company on various operational matters. The LegalCommittee monitors the legal compliances by the Company. The Ethics Committee reviews compliance by the Company and itsemployees with the Tata Code of Conduct and other Company Policies relating to ethical conduct.

The composition, names of the members, chairperson, particulars of the Meetings and attendance of the members during theyear are as follows:


26

Executive Committee

The Executive Committee met on the following dates: 8th July 2005, 22nd November 2005, 30th November 2005, 27th December2005, 21st January 2006, 16th February 2006 & 24th March 2006.


1. Dr. F C Kohli, Chairman Independent/Non-Executive 7

2. Mr. Syamal Gupta Not Independent/Non-Executive 7

3 Mr. Madhukar Dev Not Independent/Executive 7

Legal Committee

The Legal Committee met on 22nd July 2005


1. Mr. E A K Faizullabhoy, Chairman Independent/Non-Executive 1

2. Mr. H H Malgham Independent/Non-Executive 1

3. Mr. Madhukar Dev Not Independent/Executive 1

Ethics Committee

The Ethics Committee met on 2nd September 2005 and 23rd February 2006.


1. Brig. K Balasubramaniam Independent/Non-Executive 2Chairman

2. Mr. Madhukar Dev Not Independent/Executive 2

7. General Body Meetings

Particulars about the last three Annual General Meetings (AGM’s) of the Company are:

Sl. No AGM Particulars Date Venue Time

1. 16th AGM in respect of 22nd July 2005 Tata Elxsi Limited, Whitefield, Hoody, 12:00 noonthe year 2004-05 Bangalore

2. 15th AGM in respect of 30th July 2004 Tata Elxsi Limited, Whitefield, Hoody, 12:00 noonthe year 2003-04 Bangalore

3. 14th AGM in respect of 28th July 2003 J N Tata Auditorium, Indian Institute 12.00 noonthe year 2002-03 of Science Campus, Bangalore

No item of business, which required the members’ approval through postal ballot, was transacted during 2005-06. Accordingly,the Companies (Postal Ballot) Rules 2001 is not applicable to the Company during the said year.

8. Disclosures

● There are no materially significant related party transactions during the year that have potential conflict with the interestsof the Company at large.

● There has been no non-compliance or penalties or strictures imposed on your Company by any of the Stock Exchanges orSEBI or any statutory authority on any matter related to capital markets during the last three years.



27

● During the year, your Company adopted a Whistle Blower Policy which was circulated to all the Company’s employees andpermanently posted on the Company’s intranet. Any issues raised under the Whistle Blower Policy are directly reported tothe Chairman of the Company’s Audit Committee and no personnel has been denied access to the Audit Committee.

● The Company has complied with all the mandatory requirements and most of the non-mandatory requirements specifiedin the revised Clause 49 of the Listing Agreement.

9. Means of Communication

● Your Company uses several modes of communicating with its external stakeholders such as announcements and pressreleases in newspapers, circular letters and other reports to the members, posting information on its website(www.tataelxsi.com), intimation to the Stock Exchanges, responding to analyst’s queries etc.

● Your Company’s quarterly results are disseminated through all the modes mentioned above. Business Standard (Englishdaily) and Prajavani (vernacular daily) are usually the papers in which the quarterly results are published.

● Your Company’s Management Discussion & Analysis of the Business for the year ended 31st March 2006 forms a part of thisAnnual Report and is given under the Section so captioned.

10. General Shareholders Information

Sl. No. Salient Items of Interest Particulars

i. AGM Date, time and venue 28th July 2006, Tata Elxsi Corporate Office,Whitefield Road, Hoody, Bangalore 560 048

ii. Financial Calendar Year ending 31st March 2006

iii. Dates of Book Closure 15th to 28th July 2006 (both dates inclusive)

iv. Dividend Payment Date 31st July 2006

v. Listing on Stock Exchanges The Bangalore Stock Exchange LimitedStock Exchange Towers, 51, 1st Cross,J. C. Road, Bangalore – 560 027, IndiaTel. : +91-80-5157 5234Fax : +91-80-5157 5242

Bombay Stock Exchange LimitedPhiroze Jeejeebhoy Towers, Dalal Street,Mumbai – 400 001, IndiaTel. : +91-22-2272 1234Fax : +91-22-2272 3353

The Delhi Stock Exchange Association LimitedDSE House, 3/1 ASAF Ali Road,New Delhi – 110 002, IndiaTel. : +91-11-2329 2417,Fax: +91-11-2329 2176

The National Stock Exchange of India LimitedExchange Plaza Plot No. C/1,G Block Bandra-Kurla Complex Bandra (East)Mumbai – 400 051, IndiaTel. : +91-22-2659 8100,Fax : +91-22-2659 8120

vi. Stock Code Bombay Stock Exchange Limited - 500408The National Stock Exchange of India Limited - Tata Elxsi

vii. Registrar & Share Transfer Agents TSR Darashaw Limited,Army & Navy Building,148 Mahatma Gandhi Road,Fort, Mumbai – 400 001.


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viii. Share Transfer System Shares lodged in physical form with the Company/its Registrars & ShareTransfer Agents are processed and returned, duly transferred within 30 daysnormally, except in cases where litigation is involved.

In respect of shares held in dematerialized mode, the transfer takes placeinstantaneously between the transferor, transferee and the DepositoryParticipant through electronic debit/credit of the accounts involved.

ix. Dematerialisation of shares and As at 31st March 2006, 2,85,67,463 shares were held in dematerializedliquidity mode.

x. Outstanding GDRs/ADRs/Warrants or There are no outstanding instruments and hence there will be no dilutionany convertible instruments, of the equity.conversion date and likely impact onequity

xi. Plant Locations Your Company’s software development centres are located at the followingaddresses:

a. ITPL Road, Hoody, Bangalore – 560 048

b. 123 Richmond Road, Bangalore – 560 025

c. “Gayatri” Technopark, Trivandrum – 695 581

d. ‘Guna Complex’ No. 443, Annasalai, Teynampet, Chennai – 600 018

e. Alpha – 1 Building, GIGA Space, 198/1B, Nagar Road, Pune – 411 014

f. ‘Boston House’, Suren Road, Off Andheri-Kurla Road, Andheri (E),Mumbai - 400 093.

xii. Address for correspondence ITPL Road, Hoody, Bangalore – 560 048

Market Price Data: High/Low during each month of 2005-06 on the following exchanges:

Mumbai National

Month High (Rs.) Low (Rs.) Vol (No.) High (Rs.) Low (Rs.) Vol (No.)

April 2005 204.50 166.20 2156980 204.50 156.55 4063391

May 2005 188.10 170.05 1158719 185.90 169.75 2426221

June 2005 202.90 180.00 1265453 202.80 180.00 2128241

July 2005 226.70 182.45 3215375 225.75 176.00 5408719

August 2005 231.80 198.30 1967516 231.90 192.65 3044348

September 2005 232.00 186.90 1118410 232.00 186.00 2000335

October 2005 208.85 182.10 418189 208.55 180.80 1015846

November 2005 210.90 186.90 1046026 210.70 187.75 1665418

December 2005 228.90 199.10 2278931 228.80 198.50 2725573

January 2006 222.45 184.00 1120936 221.00 183.15 1396989

February 2006 205.00 181.50 711788 210.00 182.00 1121851

March 2006 203.15 185.05 1095937 203.85 182.70 1495195



29

Distribution of Shareholding as on 31st March 2006

Range of Shares No. of Shareholders % of Shareholders No. of Shares held % of Shareholding

1 – 500 52827 95.63 7996126 25.68

501 – 1000 1483 2.69 1209693 3.89

1001 – 2000 553 1.00 831931 2.67

2001 – 3000 128 0.23 328032 1.05

3001 – 4000 74 0.13 264963 0.85

4001 – 5000 48 0.09 227511 0.73

5001 – 10000 71 0.13 504877 1.62

Over 10,000 56 0.10 19775087 63.50

Total 55240 100.00 31138220 100.00

Categories of Shareholding as on 31st March 2006

Category No. of Shareholders No. of Shares held % of Shareholding

Individuals 53888 10968710 35.23

NRI’s 234 76187 0.24

Companies 1077 1159251 3.72

Tata Group 3 11880504 38.15

Mutual Funds, FI’s, FII’s 38 7053568 22.66

NSDL/CSDL transit position 0 0 0.00

Total 55240 31138220 100.00


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TEL Share Prices

Auditors’ Certificate on Compliance of conditions of Corporate Governance as per Clause 49 of the Listing Agreementwith the Stock Exchanges

TO THE MEMBERS OF TATA ELXSI LIMITED

We have examined the compliance of conditions of Corporate Governance by Tata Elxsi Limited (‘the Company’), for the yearended on March 31, 2006 as stipulated in Clause 49 of the Listing Agreement of the Company with stock exchanges.

The compliance of conditions of corporate governance is the responsibility of the management. Our examination was limited toprocedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of CorporateGovernance. It is neither an audit nor an expression of opinion on the financial statements of the Company.

In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company hascomplied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement.

We state that no investor grievances are pending for a period exceeding one month against the Company as per the recordsmaintained by the Investor Grievance Committee.

We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency oreffectiveness with which the management has conducted the affairs of the Company.

For RSM & Co.Chartered Accountants

Vijay N. BhattPartner (F – 36647)


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1. Business Analysis

Your Company’s operations are broadly broken up into two business segments i.e. Software Development & Services and SystemsIntegration & Support.

Software Development and Services:

This segment grew from Rs.146.46 crores during 2004-05 to Rs. 188.82 crores in the year 2005-06 with a corresponding increasein the segment results from Rs. 34.11 crores to Rs. 40.47 crores.

Software Development and Services is broken up into three distinct business groups:

Product Design Services:

This business unit offers product design and development services for embedded products in industries such as Automotive,Consumer Electronics, Media, Networking, Semiconductor, Storage and Telecom. The range of services offered includes:

● Hardware design including VLSI, FPGA & Boards

● Development and integration of embedded software including firmware and middleware

● Development and integration of Device drivers and tools

● Full product and system-level integration

These services are enabled by technology and domain expertise in areas such as:

● Graphics, Imaging & Image Processing

● Multimedia

● DSP Software

● Routing & Switching

● VOIP

● Network Management

● Storage & File-systems

● Real time Control systems

This technology and people development focus has helped in providing a diverse and rich environment to attract and retainengineering and technical talent.

The embedded electronics market is expected to register strong growth in segments such as Digital TV, portable entertainmentand multimedia products and wireless phones. This is also expected to aid good growth in the semiconductor industry.

There is also an increasing trend towards use of reusable components and readymade IP blocks and design frameworks by productmanufacturers to enable faster time-to-market and overall reduction in development costs.

Your Company has invested towards in-house R & D to enable creation of Intellectual Property (IP) and technology expertise inareas such as multimedia, Digital TV, wireless and convergence.

This technology expertise and IP is expected to contribute to revenues of this division in the following years, through licensingfees and services for integration and customization along with the licensing of these IPs and technologies.

Your Company will continue to invest in such R & D to help create domain expertise and licensable IP within the Company onemerging technologies in the targeted industry sectors.

Innovation Design Engineering Services:

The business unit (Design Engineering Services) addresses the mechanical product design requirements of its customers, with astrong focus on industrial design and styling.

Your Company possesses a talented pool of industrial designers and product design engineers, servicing global customers indifferent industries such as automotive, FMCG, Consumer electronics, etc.

This group has enlarged the scope of its expertise in the previous year, to be able to provide customers with an integrated productdesign, graphics and branding service offering.

Your Company has also leveraged synergies of this group with the Product Design Services group in addressing designrequirements for certain global customers for whom the Product Design Services group does work.

MANAGEMENT DISCUSSION & ANALYSIS FOR THE YEAR ENDED 31ST MARCH, 2006

32

Visual Computing Labs:

This business unit creates digital media content and special effects for advertising, television and motion pictures, targetingcustomers in India and abroad.

The group has consciously focused on high-end content development including advanced special effects and 3D animation.

The Indian market is rapidly maturing towards high-end content requirement, and the group has seen some significant workdelivered for Indian customers the previous year for advertising and motion pictures.

However, there is still a scarcity of expertise in such high-end content development, considering the relative technical maturity ofthe domestic media industry and the available talent pool. This has also limited the ability to address overseas markets aggressively.

The group has invested in acquiring additional software, technology and equipment required to deliver these services, as well astraining and expertise development of its manpower pool.

Apart from the business risks releating to this Segment mentioned above, your Company also faces industry specific risks andchallenges such as attraction, upgradation and retention of human resources, foreign currency exchange risks arising from thedifferent countries in which your Company operates, visa processing delays arising out of increased security requirements in theoverseas countries, growing tendency of overseas customers – existing and potential – to open captive development centers inIndia, which directly affects your Company’s ability to provide offerings to these customers.

Your Company has responded to these challenges in several ways. Recruitment and retention initiatives have been strengthenedand made more innovative. Hedging transactions are regularly carried out to offset the adverse foreign currency fluctuations.Your Company is also working with the Indian subsidiaries of overseas customers by providing and augmenting niche technicalservices.

Systems Integration and Support:

This segment recorded a turnover and results during the year of Rs. 47.33 crores and Rs. 7.00 crores respectively as compared withits turnover and results of Rs.40.28 crores and Rs. 4.70 crores during 2004-05.

Due to the inherent nature of this business viz. value-added reselling and maintenance revenues, there is a greater upward anddownward volatility in this segment over the years, driven by large customer orders in any accounting period which may notrepeat in the following period. Also, depending on the customer’s eligibility to import with or without customs duty, your Companyturnover either records the entire duty-paid turnover or only the agency commission. Due to this, the turnover varies upwards ordownwards over consecutive accounting periods depending on the customer profile. Your Company’s approach in this businessgroup has been to maintain its domestic presence, exploit synergies wherever its principals in this segment are also its customersin another segment, and consciously refuse orders which are not commercially attractive whilst targeting only profitable andcommercially neat orders. Several large and technically challenging orders were executed for government as well as privatecorporate customers during the year.

One thrust area is definitely the significant enlargement of the Video and Broadcast solutions portfolio, where your Company isentering into alliances with global leaders to provide a complete range of solutions across the hardware equipment and softwarerequirements. This should enable greater business, especially considering the proliferation of channels and studios (regional andnational), and the expected demand for content creation and delivery.

This business Segment provides systems solutions to domestic customers through value-added reselling, integration andmaintenance support. The Company’s order generation and execution cycle comprises of offering an optimum configuration ofvaried IT hardware and software products that matches the customer specifications, at an optimum cost and serviced by timelydeliveries of individual products from its several principals, which are then integrated, installed and commissioned at the customerpremises as a turnkey solution, along with user training and maintenance support. Critical skills required in this area are thetechnical knowledge and the integration capabilities of the hardware and software products of the diverse principals which aresupplied to the customer and balancing the customer delivery schedules with the different supply lead times of the differentprincipals.

The business Segment operates in an environment of high obsolescence due to continuous technological upgradations by theprincipals and other global players, consequent falling hardware and software prices and rapidly changing market scenarios. TheSegment delivers value to its customers by using its technical knowledge of the products and market trends and its alliances withglobal players to provide optimum cost-configuration-integration-maintenance solutions to its Indian customers to meet theirrequirements.

MANAGEMENT DISCUSSION & ANALYSIS FOR THE YEAR ENDED 31ST MARCH, 2006 (Contd...)


33

Some of the strategic alliances in this business group offering state-of-the-art solutions to customers are:

✓ Computing Platforms❖ Silicon Graphics for High Performance Computing and Visualization Solutions❖ Hewlett Packard for Enterprise and High Performance Computing

✓ Connectivity Solutions❖ Enterasys and Nortel for Networking solutions

✓ Mechanical Design Automation Tools❖ UGS – PLM for Product Lifecycle Management Solutions❖ Alias (now an Autodesk company after merger) for Product Design & Styling❖ Tecnomatix for Manufacturing Process Management❖ Opticore for Digital Prototyping & Design Visualization

✓ Enterprise Storage Solutions❖ StorageTek (now a Sun Microsystems company after merger) for Automated Data Backup & Archival Solutions❖ EMC and Hewlett Packard for Enterprise Storage Consolidation, High Availability & Disaster Recovery Solutions❖ Veritas (now Symantec after merger) for Data Storage Management Tools

✓ Digital Media Solutions❖ Apple Computers for Non-linear Film, Video editing and Archiving solutions❖ Cambridge Animation for 2D animation❖ Thomson,WeatherCentral & Seachange for broadcast automation❖ Masstech for media archival

2. Internal Controls systems and their adequacy:

The internal controls of the Company are operated through an exhaustive system of internal checks and balances involving inter-dependencies of job responsibilities, which ensures that there are joint discussions and approvals before any financial commitmentsare made. The nature and limits for financial commitments for each Department in the Company are also set out in a detailedManual, which has to be adhered to for all financial approvals. Periodic audits by the internal and statutory auditors and regularmeetings of the Audit Committee of the Board of Directors who discuss with the auditors and the management regarding issuesraised in the audit reports and all financial matters also reinforce the impact of internal controls in the Company. With theseongoing initiatives, there are adequate internal control systems in the Company.

3. Financial Analysis:

The following are relevant financial performance details with respect to the operational performance of the Company:

Salient Financial Data Expenditure Analysisrelating to the Profit & Loss Account as a percentage of Income

Particulars 2005-06 2004-05 % change 2005-06 2004-05Rs. Crores Rs. Crores over previous year % %

Sales 235.63 185.77 + 27 99.71 99.42

Other Income 0.68 1.08 – 37 0.29 0.58

Total Revenues 236.31 186.85 + 26 100.00 100.00

Cost of Sales 35.14 30.18 + 16 14.87 16.16

Personnel Expenses 119.74 92.71 + 29 50.67 49.62

Overheads 34.08 27.07 + 26 14.42 14.49

Financial Expenses 0.22 0.14 + 57 0.09 0.07

Depreciation 6.73 5.02 + 34 2.85 2.69

Total Expenditure 195.91 155.12 + 26 82.90 83.03

Profit before Tax 40.40 31.73 + 27 17.10 16.97

Tax 6.07 5.44 + 12 2.57 2.91

Profit after Tax 34.33 26.29 + 31 14.53 14.06


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Analysis:1. Sales:

While the overall Sales grew by 27% from Rs. 185.77 cr. during 2004-05 to Rs. 235.63 cr. during 2005-06, the Sales in theSoftware Development and Services Segment grew by 29% from Rs. 146.46 cr. to Rs. 188.82 cr. and the Sales in the SystemsIntegration and Support Segment grew by 18% from Rs. 40.27 cr. to Rs. 47.33 cr. during the corresponding periods. The Salesmix of the two Segments marginally changed from 78:22 during 2004-05 to 80:20 during 2005-06.

2. Other Income:This comprises mainly of interest on deferred credit and surplus funds deployed with the banks.

3. Cost of Sales:This has increased by 16% in line with the increase in the Sales of the Systems Integration and Support business whichinvolves value-added reselling.

4. Personnel Cost:This has increased by 29% from Rs. 92.71 cr. in 2004-05 to Rs. 119.74 cr. in 2005-06 corresponding to the increase in therevenues of the Software Development and Services Segment and is due to increase in the employee strength, overseasdeployment of marketing and engineering personnel and salary revision costs.

5. Overheads:

Account Head Increase Decrease RemarksRs. Crores Rs. Crores

Operating Lease Rentals 1.84 — More premises taken on rent consequent to the increase in theemployees strength

Power & Fuel 1.00 — Consequent to more premises being taken on rent(as explained above)

Overseas Travel 1.58 — Due to increased onsite deployments and marketing visits.Commission on Sales 1.39 — Consequent to increase in SalesBad debts — 1.12 Due to tight follow-up on outstandings.

Significant Ratio Analysis

Particulars Unit 2005-06 2004-05

Profit before Tax/Sales % 17.10 16.97Earning before Interest and Tax/Sales % 17.19 17.05Profit after Tax/Sales % 14.53 14.07Current Ratio No. of times 1.28 1.33Debt Equity Ratio % — —Earnings per Share Rs. 11.02 8.44Dividend per Share Rs. 6.50 5.50Book Value per Share Rs. 21.18 17.56Return on Networth % 52.06 48.07Return on Capital employed % 49.45 46.13

4. Human Resources:The Company stepped up its recruitment drive in the year under review and this thrust is expected to continue in the followingyears. Employee attrition, keeping pace with market compensation trends and ensuring that while the Company grows in sizeand multi-locational spread, focus on individual employees needs are not diluted are key challenges. Technical training on anongoing basis, sponsorship of higher technical education, ongoing and responsive employee welfare measures are some of theinitiatives taken by the Company to nurture, attract and retain its human talent. Additionally, the Company’s growth, rich technicalcontent, multi-location delivery centres and global spread provide employees a diverse and enriching environment and flexibilityto the Company, wherever possible, to address individual requirements.

5. Quality Initiatives:The Company has a very strong process orientation in the execution of its software projects and is a pioneer in the use of statisticalmethods of process controls. The Company is assessed at CMMI Level V certification which affirms the Company’s capability toprovide end-to-end design solutions that would match the customer requirements. The Company has also received BS7799certification which represents the highest level of information security processes followed by the Company.



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AUDITORS’ REPORT

TO THE MEMBERS OF TATA ELXSI LIMITED

1. We have audited the attached Balance Sheet of Tata Elxsi Limited (‘the Company’) as at March 31, 2006, and also the Profitand Loss Account and the Cash Flow Statement of the Company for the year ended on that date annexed thereto(all together referred to as ‘financial statements’). These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis forour opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003, (‘the Order’), issued by the Central Government of India interms of Section 227 (4A) of the Companies Act, 1956 we enclose in the Annexure, a statement on the matters specified inparagraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:

a. We have obtained all the information and explanations which to the best of our knowledge and belief were necessaryfor the purposes of our audit;

b. In our opinion, proper books of account as required by law have been kept by the Company, so far as appears fromour examination of those books;

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

d. In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement comply with the accountingstandards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956;

e. On the basis of the written representations received by the Company from its directors, and taken on record by theBoard of Directors, we report that none of the directors are disqualified as on March 31, 2006 from being appointed asa director under clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;

f. In our opinion and to the best of our information and according to the explanations given to us, the said financialstatements, read with the notes thereon, give the information required by the Companies Act, 1956 in the mannerso required, and give a true and fair view in conformity with the accounting principles generally accepted in India;

i. in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2006;

ii. in the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date; and

iii. in case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.


Vijay N. BhattPartner (F-36647)


36

ANNEXURE TO AUDITORS’ REPORT

(Referred to in paragraph 3 of our report of even date to the members of Tata Elxsi Limited on the financial statements for theyear ended March 31, 2006)

(i) (a) The Company has maintained proper records showing full particulars including quantitative details and situation offixed assets.

(b) The Company has a system of verification of all fixed assets once in a period of two years which in our opinion, isreasonable having regard to the size of the Company and the nature of its business. According to the information andexplanations given to us, no material discrepancies were noticed on the physical verification as compared to thebook records maintained.

(c) The Company has not disposed off a substantial parts of fixed assets during the year; accordingly there is no questionof the going concern being affected.

(ii) (a) According to the information and explanations given to us, the management conducted physical verification of theinventory at reasonable intervals during the year.

(b) In our opinion, and according to the information and explanations given to us, the procedures of physical verificationof inventory followed by the management are reasonable and adequate in relation to the size of the Company andnature of its business.

(c) In our opinion, the Company has maintained proper records of inventory during the year. Discrepancies noticed onphysical verification of inventory as compared to the book records were not material and have been properly dealtwith in the books of account.

(iii) During the year under report, the Company has neither granted nor availed any loans, secured or unsecured, to or fromcompanies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956.Accordingly, the provisions of sub-clauses (b), (c), (d), (f ) and (g) of clause (iii) of paragraph 4 of the Order, are not applicable.

(iv) In our opinion, the Company has an adequate internal control procedure commensurate with the size of the Company andnature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. In the course ofour audit, we have not noticed any continuing failure to correct major weaknesses in the internal control system.

(v) (a) According to the information and explanations given to us, and based on the disclosure of interest made by thedirectors of the Company, we are of the opinion that contracts or arrangements that need to be entered into a registerin pursuance of Section 301of the Companies Act, 1956 have been so entered.

(b) In our opinion and according to the information and explanations given to us, in respect of the transactions made inpursuance of contracts or arrangement entered in the register maintained under Section 301 of the Companies Act,1956 and exceeding the value of Rupees five hundred thousand for the year under report, the rates at which suchservices are rendered are reasonable having regard to market prices of such services prevailing at the relevant times.

(vi) The Company has not accepted any deposits from the public to which the directives issued by the Reserve Bank of Indiaand the provisions of Section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framedthereunder, apply.

(vii) In our opinion, the Company has an internal audit system commensurate with the size of the Compay and nature of itsbusiness.

(viii) The Central Government has not prescribed maintenance of cost records under Section 209(1)(d) of the Companies Act,1956 for any of the activities of the Company.

(ix) (a) According to the information and explanations given to us, the Company was regular during the year in depositingundisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ StateInsurance, Income tax, Sales tax, Service Tax, Custom duty, and Cess with the appropriate authorities. As at the balancesheet date, there were no statutory dues of a material nature that remained unpaid for a period exceeding six monthsfrom the date they were payable.

(b) According to the information and explanations given to us, as at the balance sheet date, the Company has not depositedan amount of Rs.102.69 lacs being income-tax relating to the assessment year 2003-2004, which is disputed by theCompany. Subsequent to the balance sheet date, the Company has deposited the said amount and preferred anappeal with the Commissioner of Income-tax (Appeals).


37

ANNEXURE TO AUDITORS’ REPORT (Contd...)

(x) The Company does not have any accumulated losses as at the balance sheet date. The Company did not incur cash lossesduring the financial year under report and in the immediately preceding financial year.

(xi) During the year under report, the Company has not defaulted in repayment of dues to banks in respect of its borrowings.The Company did not have borrowings from financial institutions and also did not have any debentures outstanding duringthe year under report.

(xii) Based on our examination of the books and records of the Company, we report that the Company has not granted anyloans and advances on the basis of security by way of pledge of shares, debentures or other securities.

(xiii) The Company is not a Chit Fund, Nidhi or a Mutual Benefit Funds/Society. Accordingly, the provisions of clause (xiii) ofparagraph 4 of the Order are not applicable.

(xiv) Based on our examination of the books and records of the Company, we report that during the year under report, it did notdeal or trade in shares, securities, debentures and other investments.

(xv) According to the information and explanations given to us, the Company has given guarantee for loans availed by itsemployees from banks and financial institutions aggregating to Rs. 318.41 lacs as at the balance sheet date. In our opinion,the terms and conditions of such guarantees are not prejudicial to the interest of the Company.

(xvi) During the year under report, the Company has not availed any term loans; accordingly, we have no comments to offer onthe provisions of clause (xvi) of paragraph 4 of the Order.

(xvii) According to the information and explanations given to us, and on an overall examination of the balance sheet of theCompany, we report that, prima facie, the Company has not applied short-term funds for long-term investments.

(xviii)During the year under report, the Company has not made any preferential allotment of shares to parties and companiescovered in the register maintained under Section 301 of the Companies Act, 1956.

(xix) The Company did not have any debentures outstanding during the year under report; accordingly, the question of creatingsecurity in respect thereof does not arise.

(xx) The Company has not raised any money by way of public issue during the year under report; consequently, the provisionsof clause (xx) of paragraph 4 of the Order are not applicable.

(xxi) To the best of our knowledge and belief, and according to the information and explanations given to us, no fraud on or bythe Company has been noticed or reported during the year.


Vijay N. BhattPartner (F-36647)


38

Rs. lakhsAs at

Schedules March 31, 2005SOURCES OF FUNDSShareholders’ funds

Share capital 1 3,113.82 3,113.82Reserves and surplus 2 3,480.23 2,355.66

6,594.05 5,469.48

Deferred tax liability ( Net) 347.56 230.18

Total 6,941.61 5,699.66

APPLICATION OF FUNDSFixed assets

Gross block 3 7,768.75 6,043.92Less: Depreciation and impairment 3,239.44 2,566.81

Net block 4,529.31 3,477.11Capital work in progress (including advances) 314.59 108.80

4,843.90 3,585.91

Current assets, loans and advancesInventories 4 13.78 31.07Sundry debtors 5 4,663.94 4,113.61Cash and bank balances 6 1,455.24 1,410.73Loans and advances 7 3,576.98 2,818.29

9,709.94 8,373.70

Less: Current Liabilities and ProvisionsCurrent liabilities 8 3,746.14 2,611.67Provisions 9 3,866.09 3,648.28

7,612.23 6,259.95

Net current assets 2,097.71 2,113.75

Total 6,941.61 5,699.66

BALANCE SHEET AS AT MARCH 31, 2006

Significant accounting policies and notes on accounts 16

The schedules referred to above and the notes thereon form an integral part of the Balance Sheet.

As per our report of even date attached For and on behalf of the BoardFor RSM & Co. Syamal Gupta ChairmanChartered Accountants

S Ramadorai Vice ChairmanVijay N. BhattPartner (F - 36647) H H Malgham Director

Madhukar Dev Managing Director

V Krishnamurthy Chief Financial Officer& Company Secretary

Mumbai, April 21, 2006 Mumbai, April 21, 2006


39

Rs. lakhsSchedules Previous year

INCOME

Sales and services 10 23,563.18 18,577.40

Other income 11 68.12 108.04

Total 23,631.30 18,685.44

EXPENDITURE

Cost of sales 12 3,514.33 2,996.15

Decrease in stock 13 — 21.91

Personnel expenses 14 11,973.69 9,271.23

Administration and selling expenses 15 3,407.57 2,707.00

Financial expenses 22.14 14.19

Depreciation/ Amortisation 673.35 501.81

Total 19,591.08 15,512.29

Profit before tax for the year 4,040.22 3,173.15

Provision for tax - Current (410.00) (470.00)

- Deferred (117.38) (74.01)

- Fringe Benefit Tax (80.00) —

Net Profit for the year 3,432.84 2,629.14

Profit brought forward 1,294.54 920.96

Balance available for appropriation 4,727.38 3,550.10

Less: Proposed dividend 2,023.98 1,712.60

Less: Dividend tax thereon 284.29 242.96

Less: Transfer to general reserve 400.00 300.00

Balance of profit carried to balance sheet 2,019.11 1,294.54

Earning per share of Rs. 10 each - basic and diluted ( Rs.) 11.02 8.44

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Significant accounting policies and notes on accounts 16

The schedules referred to above and the notes thereon form an integral part of the Profit & Loss account.






40

Rs. lakhs2005-06 2004-05

A. Cash flows from operating activitiesNet Profit before tax 4,040.22 3,173.15

Adjustment for:Depreciation 673.35 501.81Interest income (51.53) (77.92)Interest expense 22.14 14.19Loss/(Profit) on sale of assets — (2.20)

Operating profit before working capital changes 4,684.18 3,609.03

Decrease/(Increase) in sundry debtors (550.33) (960.92)Decrease/(Increase) in inventories 17.29 42.75Decrease/(Increase) in loans and advances (567.00) (159.03)Increase/(Decrease) in current liabilities 676.14 530.34

Cash inflow from operations 4,260.28 3,062.17Income tax paid (391.88) (382.20)

Net cash inflow from operating activities 3,868.40 2,679.97

B. Cash flows from investing activitiesPurchase of fixed assets/Capital advances (1,932.79) (1,735.29)Proceeds of sale of fixed assets 1.45 20.97Subsidy from Kerala State Government — 25.00Interest received 51.53 77.92

Net cash outflow from investing activities (1,879.81) (1,611.40)

C. Cash flows from financing activitiesInterest paid (22.14) (14.19)Dividend paid (1,681.75) (1,221.03)Tax on dividend paid (240.19) (162.74)

Net cash outflow from financing activities (1,944.08) (1,397.96)

Net increase/(decrease) in cash and cash equivalents 44.51 (329.39)Cash and cash equivalents as at beginning of the year 1,410.73 1,740.12Cash and cash equivalents as at end of the year 1,455.24 1,410.73

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006







41

SCHEDULES TO BALANCE SHEET AS AT MARCH 31, 2006

Rs. lakhsAs at

March 31, 20051. SHARE CAPITAL

Authorised:350,00,000 equity shares of Rs. 10/- each 3,500.00 3,500.00

Issued and subscribed:311,65,620 equity shares of Rs. 10/- each 3,116.56 3,116.56

Paid up:311,38,220 equity shares of Rs.10/- each, fully paid up 3,113.82 3,113.82

Total 3,113.82 3,113.82

2. RESERVES AND SURPLUS

Capital reserve:Subsidy received from KeralaState Government 25.00 25.00

General reserve:Opening balance 1,036.12 790.00Add: Transferred from the Profit and

loss account 400.00 300.00Less: Impairment loss adjusted (Net of

deferred tax of Rs. 27.98 lakhs) — 53.88

1,436.12 1,036.12Surplus in Profit and loss account 2,019.11 1,294.54

Total 3,480.23 2,355.66

3. FIXED ASSETSRs. Lakhs

DESCRIPTION Gross Block Depreciation Block Net Block

As at Sale/ As at As at For the Sale/ As at Impired As at As atApril 1, Additions Adjustment March 31, April 1, Period Adjustment March 31, Assets March 31, March 31,

2005 2006 2005 2006 2006 2005

Land - Freehold 49.06 — — 49.06 — — — — — 49.06 49.06

Land - Leasehold — 82.50 — 82.50 — 1.24 — 1.24 — 81.26 —

Buildings 923.17 251.45 — 1,174.62 181.87 39.52 — 221.39 — 953.23 741.30

Improvements to 107.01 7.03 — 114.04 103.80 9.32 — 113.12 — 0.92 3.21leasehold premises

Plant and machinery 201.95 — — 201.95 112.14 0.57 — 112.71 81.86 7.38 7.95

Computer equipment 2,735.53 701.78 — 3,437.31 1,173.83 413.86 — 1,587.69 — 1,849.62 1,561.70

Furniture and fixtures 550.67 164.93 — 715.60 185.09 35.16 — 220.25 — 495.35 365.58

Office equipment 425.91 211.75 2.17 635.49 87.50 23.63 0.72 110.41 — 525.08 338.41

Vehicles 37.09 — — 37.09 10.90 3.52 — 14.42 — 22.67 26.19

Intangibles- Software 1,013.53 307.56 — 1,321.09 629.82 146.53 — 776.35 — 544.74 383.71

Total 6,043.92 1,727.00 2.17 7,768.75 2,484.95 673.35 0.72 3,157.58 81.86 4,529.31 3,477.11

Previous Year 4,412.74 1,653.93 22.75 6,043.92 1,987.12 501.81 3.98 2,484.95 81.86 3,477.11

42

Rs. lakhsAs at

March 31, 20054. INVENTORIES

(as taken, valued and certified by management)

Components and spares 13.78 31.07

Total 13.78 31.07

5. SUNDRY DEBTORS(Unsecured - considered good)

Debts outstanding for a period exceeding six months 88.68 214.08Other debts 4,575.26 3,899.53

Total 4,663.94 4,113.61

6. CASH AND BANK BALANCES

Cash on hand 0.71 0.80Cheques on hand 279.13 78.54Funds in transit 275.49 —Balances with scheduled banks

- in current accounts - for unencashed debentureredemption, interest warrants and dividends 154.88 127.69

- in current accounts 420.39 964.00- in deposit accounts 0.29 13.42

575.56 1,105.11Balances with non-scheduled banks - in current accounts 324.35 226.28

Total 1,455.24 1,410.73

7. LOANS AND ADVANCES(Unsecured, considered good)

Advances recoverable in cash or in kindor for value to be received 1,281.59 897.36Deposits 539.80 357.03TDS/Advance tax paid 1,755.59 1,563.90

Total 3,576.98 2,818.29

8. CURRENT LIABILITIES

Sundry creditors ( Refer Note 15 in Schedule 16) 3,152.25 1,973.95Advance from customers 121.25 179.25Investor Education and Protection Fund shall becredited by the following amounts when due:

Unencashed debenture — 15.32Unencashed debenture interest — 2.81Unencashed dividend 141.55 110.70

Other liabilities 331.09 329.64

Total 3,746.14 2,611.67

9. PROVISIONS

Provision for leave encashment 202.48 169.82Provision for gratuity 29.86 —Provision for taxation 1,325.91 1,526.10Proposed dividend 2,023.98 1,712.60Tax on dividend 283.86 239.76

Total 3,866.09 3,648.28

SCHEDULES TO BALANCE SHEET AS AT MARCH 31, 2006 (Contd...)


43

SCHEDULES TO PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

10. SALES AND SERVICES

Sales and support (Net of returns) 4,596.93 3,794.78Services 18,881.25 14,618.30Computer systems rentals 85.00 164.32

Total 23,563.18 18,577.40

11. OTHER INCOME

Interest from:- banks 4.99 11.65

(Tax deducted at source Rs. 1.02 lakhs(Previous year Rs. 2.38 lakhs))

- others 46.54 66.27

51.53 77.92Exchange gain (net) — 14.30Profit on sale of asset — 2.20Miscellaneous income 16.59 13.62

Total 68.12 108.04

12. COST OF SALES

Cost of goods sold 3,211.76 2,648.34Maintenance and spares 260.62 213.96Lease charges 41.95 133.85

Total 3,514.33 2,996.15

13. (INCREASE) / DECREASE IN STOCKSOpening stock - Computer systems and software — 21.91Less: Closing stock - Computer systems and software — —

Total — 21.91

14. PERSONNEL COST

Salaries (including fees paid to consultants andoverseas travel allowances) 11,290.11 8,831.70Contribution to provident and other funds 491.21 294.76Staff welfare expenses 192.37 144.77

Total 11,973.69 9,271.23

44

15. ADMINISTRATION AND SELLING EXPENSES

Operating lease rentals 410.27 225.50Rates and taxes 23.39 75.74Power and fuel 270.70 170.32Repairs and maintenance: building 6.86 14.20

plant and machinery 92.39 79.38others 115.94 79.39

215.19 172.97Telephone, datalink, courier and postage 424.04 351.81Inland travel and conveyance 267.90 241.08Overseas travel 1,024.19 1,553.85Less: Travel allowance for software development 331.74 692.45 1,019.09 534.76

Advertisement and sales promotion expenses 135.17 97.29Commission on sales 159.46 20.78Hiring charges 27.81 30.39Printing and stationery 67.52 58.74Motor vehicle expenses 94.16 80.69Recruitment 89.05 110.42Training 140.52 130.13Legal and professional charges 52.03 36.89Secretarial charges 9.69 16.70Insurance 38.21 55.60Bank and other charges 39.12 31.74Exchange loss (net) 44.32 -Commission to non-executive directors 41.00 32.00Auditors’ remuneration 13.31 9.11Bad debts/advances written off (net of credit balances) 61.46 173.35General expenses 90.80 50.99

Total 3,407.57 2,707.00

SCHEDULES TO PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006 (Contd...)


45

SCHEDULES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006

Schedule 16 - Significant Accounting Policies and Notes on Accounts

A. SIGNIFICANT ACCOUNTING POLICIES

1. Basis of preparationThe financial statements are prepared in accordance with Indian Generally Accepted Accounting Principles (“GAAP”) under thehistorical cost convention on the accrual basis of accounting and comply with the mandatory accounting standards and statementsissued by Institute of Chartered Accountants of India, (ICAI) and the provisions of the Companies Act, 1956.

2. Use of estimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the period reported. Actual results could differfrom those estimates. Any revision to accounting estimates is recognized prospectively in the current and future periods.

3. Fixed assetsFixed assets are stated at cost, less accumulated depreciation/amortisation.

Depreciation is provided on straight line method on pro rata basis in accordance with the provisions of Schedule XIV to theCompanies Act, 1956, except that leasehold land and improvements to leasehold premises is depreciated over the lease periodon straight-line basis.

If any addition to the fixed assets is made on or before 15th of the month, then full depreciation for that month is provided,otherwise no depreciation is provided for that month.

Capital advances represent outstanding or advance paid to acquire fixed assets.

4. Impairment of assetsAt each balance sheet date, the Company reviews the carrying amounts of its fixed assets to determine whether there is anyindication that those assets suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of impairment loss. Recoverable amount is the higher of an asset’s net selling priceand value in use. In assessing value in use, the estimated future cash flows expected from the continuing use of the asset and fromits disposal are discounted to their present value using a pre-discount rate that reflects the current market assessment of timevalue of money and the risks specific to the asset.

Reversal of impairment loss is recognised immediately as income in the profit and loss account.

5. InventoriesComponents and spares are valued at cost. Cost is determined on the basis of specific identification method. Appropriate provisionsare made for anticipated losses, if any.

Computer systems and software, components and spares intended for customer support are written off over the effective life ofthe systems maintained, as estimated by management.

6. IncomeSalesIncome from sales is recognized upon completion of sale. Warranty charges forming part of the sales are not recognised separatelyand expenditure in this regard is accounted as and when incurred.

Servicesa) Income from services is recognised upon rendering of the services. Income from maintenance contracts relating to the year

is recognized when the contracts are entered into on a time proportionate basis.b) Revenue from software development on fixed price, fixed time frame contracts is recognised as per the proportionate

completion method. On time and materials contracts, revenue is recognised as the related services are rendered.c) In respect of orders procured, for which sales are effected directly to the customers by Company’s vendors, the Company

accounts only for the commission, installation and other charges to which it is entitled.

7. Retirement BenefitsLiability for gratuity and superannuation is funded with the Life Insurance Corporation of India and incremental liability for theyear is charged to the profit and loss account.Provision for leave encashment is based on actuarial valuation done as at the close of the financial year.

8. Research and DevelopmentExpenditure on research and development on revenue account is charged off to the profit and loss account. Assets acquired forresearch and development activity are capitalised and depreciated in the same manner as other fixed assets.

46

9. Foreign currency transactionsa) Foreign branches:

i) Fixed assets are translated at the rates on the date of purchase of assets and depreciation is calculated on the value soarrived.

ii) Current assets and current liabilities are translated at the exchange rate prevailing as at the end of the financial year.iii) Income and expenses are translated at average rates of exchange.

b) Other foreign currency transactions:i) Foreign exchange transactions are recorded at the rates of exchange on the dates of the respective transactions.

Assets and liabilities designated in foreign currency are converted into rupees at the rates of exchange prevailing ason the balance sheet date or at the rate contracted and corresponding adjustment made to the relevant income,expenditure, assets and liabilities.

ii) Forward contracts are accounted at maturity or on cancellation.

10. TaxationCurrent income tax expense comprises taxes on income from operations in India and foreign tax jurisdictions. Income tax payablein India is determined in accordance with the provisions of the Income Tax Act, 1961. Tax expense relating to overseas operationsis determined in accordance with tax laws applicable in countries where such operations are domiciled.

Deferred tax expense or benefit is recognised on timing differences being the difference between taxable income and accountingincome that originate in one period and are capable of reversal in on or more subsequent periods. Deferred tax assets and liabilitiesare measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets in respect of unabsorbed depreciation and carry forward of losses are recognised only to the extent that thereis virtual certainty that sufficient taxable income will be available to realise these assets. All other deferred tax assets are recognisedonly to the extent that there is reasonable certainty that sufficient future taxable income will be available to realise these assets.

11. SubsidiesSubsidies not specifically related to fixed assets are credited to capital reserve.

Other revenue subsidies are credited to profit and loss account or deducted from related expenses.

B. NOTES ON ACCOUNTS

12. Estimated amount of contracts remaining to be executed on capital account (net of advances) Rs. 597.75 lakhs (previous yearRs. 182.43 lakhs).

13. Contingent liabilitiesa) Counter guarantees given to bankers for guarantees issued by the bankers Rs. 735.96 lakhs (Previous year Rs. 477.89 lakhs).b) Disputed demands for Income Tax aggregates to Rs. 307.58 lakhs (Previous year Rs. 197.43 lakhs).c) Guarantees given to Housing Finance Company for housing loans availed by employees during their employment with the

Company Rs. 318.41 lakhs (Previous year Rs. 291.35 lakhs).d) Disputed amount of Sales Tax aggregates to Rs. 5.58 lakhs (Previous year Rs. 4.90 lakhs).

14. The Company has credit facility from banks secured by hypothecation of stock of components and spares, computer systems,consumables stores, book debts etc.; pari passu charge on immovable property at Karnataka and other movable properties.

15. Based on the information available with management, the Company does not owe any sum to a small-scale industrial undertakingas defined in clause (j) to Section 3 of the Industries (Development and Regulation) Act, 1951.

16. Bank balances – Details of balances kept with non-scheduled banks as on balance sheet date and the maximum balances keptwith non-schedule banks during the year are as follows:

Rs. lakhs

Name of the non-scheduled Balance as at Maximum balance held forbanks March 31, the year ended March 31,

2006 2005 2006 2005

HSBC London 19.14 16.07 30.69 41.42Sumitomo Mitsui BankingCorporation Tokyo 268.46 152.87 307.21 291.58Deutsche Bank AG Frankfurt 36.75 57.34 124.47 57.34

Total 324.35 226.28

SCHEDULES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 (Contd...)


47

17. Particulars in respect of sales, stocks etc.Rs. lakhs

Class of goods Opening Stock Closing Stock Purchases SalesNos. Value Nos. Value Nos. Value Nos. Value

Computer systems,Peripherals, etc2006 Workstations — — — — 535 637.96 535 704.40

Desktops — — — — 10 5.28 10 3.352005 Workstations 15 18.52 — — 182 170.19 197 189.35

Desktops — — — — 63 25.17 63 35.90

Software, etc.2006 — — 1,834.39 2,408.622005 3.39 — 1,941.01 2,176.92

Total — 2,477.63 3,116.37

(Previous year) 21.91 2,136.37 2,402.17

Quantities are expressed in terms of base units whereas the corresponding value includes peripherals, etc.

18. Imports (valued on the cost, insurance and freight basis)

Rs. lakhs2005-2006 2004-2005

Computer systems, Peripherals,Software, etc. 1,461.60 1,329.85Capital goods 577.68 533.72

2,039.28 1,863.57

19. Expenditure in foreign exchangeOverseas offices’ expenses 3,790.25 2,529.17Foreign travel 536.20 1,203.31Other expenditure 103.23 78.21

4,429.68 3,810.69

20. Earnings in foreign currencyService income 15,226.71 10,869.73

21. Particulars of earning per shareNet profit for the year (Rs. lakhs) 3,432.84 2,629.14Number of equity shares 311,38,220 311,38,220Nominal value of the shares (Rs.) 10.00 10.00Earning per share (Rs.) 11.02 8.44

22. Deferred taxationIn accordance with Accounting Standard 22 “Accounting for Taxes on Income” (AS 22) and the pronouncements issued by theInstitute of Chartered Accountants of India, the Company has accounted for deferred taxes during the year.

Following are the major components of deferred tax assets/(liabilities):Rs. lakhs

As at As atMarch 31, 2006 March 31, 2005

Difference between book and tax depreciation (453.42) (270.90)Gratuity and other amounts that can be claimed in tax assessments in future 105.86 40.72

Total (net) (347.56) (230.18)


48


23. Related party transactionsThe Company has entered into related party transactions whose details are given below:

Rs. lakhs

Name of related party Nature of relation Nature of Transaction 2005-06 2004-05

Tata Consultancy Services Limited Associate Company Sales and Services 710.95 840.49Purchases 108.90 23.14Outstanding at the year end 77.47 97.54

Tata Sons Limited Associate Company Brand Fee 19.50 Nil

Mr. Madhukar Dev Key management Managerial Remuneration paid 41.41 35.19personnel

Commission paid 32.00 25.00

24. Finance leaseThe Company has sold computer hardware/software and peripherals on hire-purchase basis. Future minimum lease paymentsreceivables are as follows:

As at March 31, Rs. lakhs

2006 2005

Present PresentValue Value

Minimum lease payment upto the end of the lease 206.04 188.55 402.76 346.58Due not later than one year 173.54 157.10 196.72 158.03Due later than one year, and not later than 5 years 32.50 31.45 206.04 188.55Due later than 5 Years — — — —Unearned finance income 17.49 56.18

25. Segment reportingThe Company’s operations predominantly relate to providing systems integration and software development services in theInformation Technology field.Accordingly the systems integration & support and software development & services comprise the primary basis for segmentalinformation. The secondary segment is geographical, determined based on the location of the clients, where invoiced. Clients areclassified as either domestic or overseas (comprising of Japan, North America and Europe).Fixed assets used in the Company’s business or liabilities contracted have not been identified to any segments, as allocation ofassets and liabilities to the segments is currently not practicable. Accordingly, no disclosure relating to segment assets are made.

Primary segment information

Rs. lakhs

Systems Software TotalIntegration and Development

Support and Services

Revenues 4,733.42 18,882.42 23,615.84(4,027.58) (14,646.21) (18,673.79)

Identifiable operating expenses 4,032.86 14,835.21 18,868.07(3,557.99) (11,234.72) (14,792.71)

Segmental operating Income 700.56 4,047.21 4,747.77(469.59) (3,411.49) (3,881.08)


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Systems Software TotalIntegration and Development

Support and Services

Unallocable expenses:

Interest and finance charges 22.14(14.19)

Other unallocable expenses (Net) 685.41(693.74)

Total profit before tax 4,040.22(3,173.15)

Taxes 607.38(544.01)

Net income after taxes 3,432.84(2,629.14)

Previous year’s figures are shown in brackets.

Secondary segment informationRs. Lakhs

Domestic Sales Overseas Sales Totaland Services and Services

Revenues 8,764.73 14,851.11 23,615.84(8,661.44) (10,012.35) (18,673.79)

Identifiable operating expenses 7,370.26 11,497.81 18,868.07(7,133.05) (7,659.66) (14,792.71)

Segmental operating income 1,394.47 3,353.30 4,747.77

(1,528.39) (2,352.69) (3,881.08)

Unallocable expenses:

Interest and finance charges 22.14(14.19)

Other unallocable expenses (Net) 685.41(693.74)

Total profit before tax 4,040.22(3,173.15)

Taxes 607.38(544.01)

Net income after taxes 3,432.84

(2,629.14)

Previous year’s figures are shown in brackets.

26. The details of provisions as required by the provisions of Accounting Standard 29 “ Provisions, Contingent Liabilities andContingent Assets” are as under.

Rs. Lakhs

Nature of provision Claims againstthe Company

Opening Balance 5.00Additional provisioning (Including increases to existing provisioning) —Amounts used during the year —Amounts reversed during the year —Closing Balance 5.00

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27. Auditors’ remunerationRs. lakhs

2005-2006 2004-2005

Audit fees 7.71 5.51Tax audit fees 1.92 0.83Fee for certification and others 3.31 2.19Reimbursement of out of Pocket expenses 0.37 0.58

13.31 9.11

28. Managerial remunerationThe account includes managerial remuneration to a director under Section 198 of the Companies Act, 1956 amounting toRs. 72.69 lakhs (Rs. 60.19 lakhs) inclusive of estimated monetary value of perquisites and benefits Rs. 25.79 lakhs (Rs. 22.69 lakhs)and commission of Rs. 32.00 lakhs (Rs. 25.00 lakhs) as well as commission to non-wholetime directors of Rs. 41.00 lakhs (Rs. 32.00lakhs), computed below:

Rs. Lakhs

2005-06 2004-05

Profit before tax 4,040.22 3,173.15Add: - Commission to non-executive directors 41.00 32.00

- Managerial remuneration 72.69 60.19- Directors sitting fees 3.90 3.65

4,157.81 3,268.99

Less:- Profit on sale of assets — 2.20

Net profit as computed under Section 349 4,157.81 3,266.79

Commission payable to:a) Managing Director 32.00 25.00b) Non-wholetime Directors @1% of the

Net profits i.e. Rs. 41.58 lakhs(Rs. 32.66 lakhs) restricted to 41.00 32.00

29. Figures for the previous year have been regrouped and rearranged wherever necessary to conform to the current year’sclassifications.

Signature to Schedules 1 to 16For and on behalf of the Board

Syamal Gupta Chairman

S Ramadorai Vice chairman

H H. Malgham Director



Mumbai, April 21, 2006



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I. Registration Details

Registration No. State Code

Balance Sheet Date

Date Month YearII. Capital raised during the year (Amount in Rs. Lakhs)

Public Issue Bonus Issue

Rights Issue Private Placement

III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Lakhs)

Total Liabilities Total Assets

Sources of Funds :

Paid-up Capital Reserves & Surplus

Secured Loans Unsecured Loans

Application of Funds :

Net Fixed Assets Investments

Net Current Assets Miscellaneous Expenditure

Accumulated Losses

IV. Performance of the Company (Amount in Rs. Lakhs)

Turnover (Total Income) Total Expenditure

+ – Profit/Loss Before Tax + – Profit/(Loss) After Tax

Earnings per Share in Rupees (Rs.) Dividend Rate (%)

V. Generic Names of Three Principal Products/Services of Company (as per Monetary terms)

Item Code Nos. (ITC Codes)

Product Descriptions





0 9 9 6 8

3 1 0 3 2 0 0 6

0 8

3 1 1 3 . 8 2

6 9 4 1 . 6 16 9 4 1 . 6 1

3 8 2 7 . 7 9

N I L N I L

4 8 4 3 . 9 0 N I L

2 0 9 7 . 7 1 N I L

2 3 6 3 1 . 3 0 1 9 5 9 1 . 0 8

+ 4 0 4 0 . 2 2

6 51 1 . 0 2

+ 3 4 3 2 . 8 4

N I L

N I L

N I L

N I L

N I L

8 4 7 1 9 0 . 0 0

A U T O M A T I C D A T A P R O C E S S I N G

M A C H I N E S A N D U N I T S T H E R E O F

N I L

M A I N T E N A N C E O F A U T O M A T I C D A T A

P R O C E S S I N G M A C H I N E S A N D U N I T S

N I L

D E S I G N A N D D E V E L O P M E N T O F

C O M P U T E R H A R D W A R E A N D S O F T W A R E

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

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