HCL Infosystems Ltd

Overview

The year 2009-10 has seen the revival of economy and established a new growth path forthe Indian industry. As the economy recovered both consumers and enterprises demand forservices and solutions that allow them to 'do-more-with-less' and business modelinnovation, improved productivity, faster return on investment, cost savings took theforefront.

During the year, the enterprise & SMB market has slowly opened up to adopt more ITinto the system and the hiring spree, which had a ripple effect across industry in 2009,is back on revival thereby, resulting in increased IT buying. However, the market iswitnessing a paradigm shift in the purchase behaviour of enterprise and SMB withvirtualisation, green IT, on-premise delivery and outsourcing services gaining traction.The organisations are moving towards more secured investments and want to move ahead formore of opex than capex model. The sustenance of this model and preferences are likely toevolve and widespread adoption is to be seen in times ahead. The e-Governance and'Economic Stimulus Spending' will continue to invigorate Government / Public Sector ITspending to new levels in 2010. Large scale e-governance projects will witness increasedadoption of Document Management Services (DMS) and digital imaging technologies, notablyscanners.

Business outlook

The consumer is now moving to -'Consumer 2.0' - from 'Consumer 1.0' marked byadvancements in mobile computing leading to next generation 'Netbooks' and availability ofseveral new applications for smart handheld devices (SHDs) or smartphones. A lag in theroll out of 3G / WiMAX will affect the launch of new types of consumer services. Whileconsumers may experience newer digital products, they will have to make do with thelimited spectrum of applications currently available and wait for the full range of nextgeneration services experience.

The domestic IT market is expected to grow at 13.0% in 2010 to touch Rs. 1,07,655crore, while the data centre services market in the country is forecast to grow at acompound annual growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch closeto US$ 2.2 billion by the end of 2011, according to research firm IDC India's reportpublished in March 2010. The report further stated that the overall India data centreservices market in 2009 was estimated at US$ 1.39 billion.

Cloud computing is reshaping the IT marketplace, creating new opportunities forsuppliers and catalysing changes in the traditional IT offerings. Cloud computingprimarily evolved with the growing acceptance of SaaS, and the industry looking toreplicate the success of offering software-as-a-service to not just platforms /applications (PaaS) but also as infrastructure / hardware (IaaS or HaaS). In the currentscenario, when the market is passing through wide scale curtailment of CAPEX and focusingon deriving benefits through the OPEX route, this model is making its presence felt asorganisations can derive benefits without the need to worry about maintenance and upkeepof the hardware and software. This is especially important for small and mediumbusinesses, a sector that will be a key target in any plan for the broad economicrecovery.

After the inflexion in JAS 2009, there has been a continuous growth in the notebookmarket, maintaining the levels above 700 K every quarter. The market is bound to witnessand support more growth into this specific sector and also see more devices and variety ofnotebook/netbook range and offerings coming into the picture. Research firm IDC expectsthe combined India domestic IT-ITeS market to grow at rate of 15.0% in 2010 to achieverevenues of Rs. 1,20,666 crore as compared to Rs. 1,04,906 crore in 2009.

HCL Infosystems of Today

With advent of technology, as the key enabler and transforming the way we work andlive, HCL Infosystems over the years has established itself as a pioneer of moderncomputing. The multi-faceted HCL Infosystems of today has built a comprehensiverange of capabilities, giving it a unique advantage to leverage the new paradigms that areemerging from a converging world. HCL Infosystems has specialised verticals addressingmultifarious segments of the technology spectrum.

Today, HCL Infosystems is proudly poised as a global player and is fast spreading itspresence. Your company during the year has strengthened its global presence with theaddition of emerging markets like Middle East, Africa and south-east Asia. Apart fromfocused initiatives in the emerging markets, your company completed the buyout of amajority stake in the Dubai-based NTS Group. The acquisition will see NTS's customerrelationships across the Middle East get access to the HCL Infosystems three decades ofexpertise in the ICT domain. The completion of this acquisition represents a significantstep under the HCL Infosystems transformation strategy to expand in the emerginginternational markets, offering a complete set of solutions, services and products.

Enhancing company's capabilities in areas of application delivery and infrastructuredeployment and management, your company has also announced the launch of HCL O'zone -anend to end cloud based computing solution service for its customers. With this, HCLInfosystems has revolutionised the existing cloud framework with its new Infrastructure asa Service (IaaS) and Software as a Service (SaaS) platforms.

With innovative new products & services for the emerging markets andbuilding technology frameworks, your company is transforming itself into a Services andSystem Integration company. At the same time, it continues to be a leader in allthe core businesses in the field of computing, office automation, ICT infrastructurefor small, medium and large enterprises, ICT education and ICT retail.

The year gone by has seen your company invest to grow both organically andinorganically. With a focus to address the emerging technological landscape, HCL

has been building up capacity to best leverage presenting opportunities. Your Company'sstrategy of focusing on core defensive sectors has enabled it to address new businessopportunities in growth sectors, and initiatives taken to expand the spectrum of businesshave enabled HCL Infosystems to de-risk its business strategy.

During the year under review, your company launched Enterprise Commercial Channel(ECC), a major initiative in its enterprise channel strategy. In line with the company'sobjective of strengthening its footprint to address SMB segment, ECC will not onlyextend HCL Infosystems' and its alliance partner's range of ICT solutions to SMB's butwill also provide opportunities to Channel partners to take complete bouquet of HCLInfosystems ICT Solutions to end customers.

In the ICT learning space, your company has established itself amongst the leadingplayers in the ICT education and training segment. Established with an objective to meetthe increasing demand for skilled professionals in the ICT arena, HCL Infosystems venturedinto high-end ICT Education & Training with HCL Infosystems Career DevelopmentCentres (CDC). Today, HCL Infosystems CDCs across the country are offering speciallydesigned courses in high-end infrastructure hardware, software, and middleware andnetworking integration. Apart from Career development centres HCL Infosystems this yearalso introduced 'HCL DigiSchool', its state-of-the-art solutions designed for Indianschools that offer modern multimedia classroom with world class content. HCL InfosystemsDigischool solutions are designed & customised as per Indian school curriculumincluding all K12 boards. HCL Infosystems DigiSchool offer students an opportunity to notjust learn according to the curriculum but also give a chance to improve their ITcompetency.

HCL Infosystems has built India's largest distribution and retail chain to address digitallifestyle demands of today's customers. With a network of HCL Infosystems ME zonestores across the country, more than 93,000 retail outlets across more than 11,000 townsand cities of India, HCL Infosystems has by far the largest value added distributionnetwork in the country. HCL Infosystems has partnerships with leading global brands suchas, Nokia, Apple, Kodak, Toshiba, Microsoft, Konica and Minolta among others. HCL ME Zones,a unique concept in our country, offer a single window for ICT consumers to experience acomprehensive range of digital lifestyle products, including Notebooks, PCs, digitalcameras, MP3 players, mobile phones, LCD's and related accessories.

In view of the increasing threat perception in our country as India emerges as a globalplayer, Homeland security and surveillance is increasingly becoming an importantrequirement. HCL Security is a 100% subsidiary of HCL Infosystems with focus on providingintegrated System Integration solutions in the field of Security & Surveillance.

I. System Integration & Services (engineering systems involving multi-dimensionalservices)

Over the years, HCL Infosystems has successfully transformed itself into a leadingServices and System Integration company in the country. HCL Infosystems brought about thistransformation by leveraging its strength in core technologies and its direct servicecapabilities. HCL Infosystems has designed, developed and delivered cost-effective,technology-enabled solutions that have enabled businesses to achieve a competitiveadvantage in their respective verticals. HCL Infosystems System Integration capabilitiesspan the entire gamut of services - from consulting, to design, roll-out implementation,management and support. HCL partners with leading technology vendors - CA, Cisco, EMC,Hitachi, HP, IBM, Intel, Microsoft, Oracle, SAP, Sun and Symantec - to roll out solutionsthat are customised as per the requirement of each business vertical.

The launch of HCL ERC and cloud computing has provided a new dimension to HCLInfosystems capabilities in the services space.

HCL System Integration services have been rapidly expanding presence across industryverticals, viz. Telecom, e-Governance, BFSI, Power, Media & Entertainment, Retail,Healthcare, Infrastructure, Railways, Education, Homeland security, Cooperative banks andDefence.

a) SI Telecom

The convergence of applications, networks and content like voice, video and data onthis new age information super highway has become the next path breaking move in core massmarket technology offering , providing seamless connectivity and integrated userexperience.

HCL Infosystems, with its multi-product and multiservice approach, is able tounderstand and address the challenges and opportunities brought by convergence. Our SITelecom projects encompass the following:

• Complete infrastructure rollout for WIMAX implementation for a leading Telecomplayer Roll out of Broad Band Multiplay Project and developed single window billingsolution to manage all the services of a leading Telecom operator

• Provided VPN Backbone Solution to manage the VPN network of a leading PSU inIndia Integrated solutions for complete ICT Core, Billing, Data centre and disasterrecovery

b) SI eGovernance

SI eGovernance practice provides technology and business solutions to governmentdepartments across the country. eGovernance empowered with its innovative solutionscontinues to help the Indian government to make government services accessible to thecommon man and ensure efficiency, transparency and reliability of such services ataffordable costs to realise the basic needs of the common man across India.

HCL Infosystems offerings in eGovernance projects span across several states andcentral government Mission mode projects. HCL marked its presence by partnering inprestigious nation building projects such as Sitapur NREGA, State wide implementation ofPublic Distribution System on UIDAI guidelines in Chandigarh and Madhya Pradesh, Pilotproject of PDS in Andhra Pradesh & Haryana, Automation of Municipalities in Kolhapur,Sangli & Kolkata, India's largest e-procurement project of Indian Railways,Commissioning of Infrastructure to host central database and application of the Departmentof Trade and Taxes, Biometric attendance system in Gujarat Tribal school, Smart cardsystem for NACO, Setting up and running the complete operations of eSeva centres acrossAndhra Pradesh.

c) SI BFSI & Cooperative

HCL SI BFSI is focused on Retail and Corporate Banking, Insurance and Capital Markets.HCL Infosystems has been working with several nationalised, MNC, private, rural andcooperative banks across the country. Among other innovations HCL Infosystems at its R& D center, has developed a Core Banking Solution - HCL BancMate. HCL Infosystemssuccessfully implemented 'BancMate CBS' in some of the leading cooperative banks acrossthe country. The Company has also successfully introduced its state-of-the-art co-brandedATM solutions. HCL is the preferred partner for many BFSI customers and its clienteleincludes all major banks and insurance companies.

d) SI Power

The foundation of HCL Infosystems power practice is based on deep power domainknowledge and understanding of prevailing power sector field scenario in our country. HCLstarted with IT implementation in the power sector moving onto the distribution, committedto collaborate with the Indian government for bringing reforms in power distributionsector.

As we moved forward with automating the commercial, technical and operational functionsthrough an integrated IT system in two large utilities, our vision in power business hasseen no limitation in our thoughts and continues to create and bring innovation in theIndian Power sector.

Under RAPDRP, the Indian Distribution sector is transforming with implementation oflarge IT and automation projects. HCL Infosystems has been awarded the first largecontract of this program in the state of Rajasthan involving over 8 million consumers.

HCL Infosystems today offers consulting and services practice in Energy Audit forutilities and has created capability for design and implementation of Advance MeteringInfrastructure, matured Automated Meter Reading system to read metering data in real timefrom Distribution transformers and Substation feeder meters. HCL Infosystems also offerutilities automation systems to improve feeder reliability, by avoiding the situation ofcomplete feeder shutdown situations due to temporary faults. HCL Infosystems is alsofocusing on implementing ERP projects in Utilities and looking at emerging new technologyopportunities in the area of Power Generation, Transmission and Distribution sector.

e) SI Defence

In modern times, availability of information has become the key battle winning factorfor armed forces as the information exchange platform enabling decision making forcommanders at all level to shape the battle field in real time. HCL SI Defence has emergedas the vertical to design, develop and implement the infrastructure for communication --for both Terrestrial & Mobile forms.

Developing C4ISR solutions along with foreign and Indian OEMs, to participate inforthcoming opportunities like Tactical Communication systems, Battle Field ManagementSystem and Defence Communication Network, SI Defence is focussed to position HCLInfosystems as the true long term Partner to Indian Armed Forces capable of providingsupport at all times.

Fluid battle theatre demands highly flexible support and logistics support where SIDefence is partnering with major ERP OEMs like SAP and Oracle to deliver the backbone forthe logistics support. To enable the same and keep pace with the changing technology SIDefence is also contributing in customising platforms for Unit Level management Packages.

Completion of a PAN India Defence terrestrial network, ongoing implementation of ERP ata DRDO lab are few of the key projects which will shape the path ahead for SI Defence toemerge as a major business vertical capable of delivering fully integrated Defence Systemsfor the Indian Armed Forces.

II. ICT Services

HCL Infosystems has consolidated on the comprehensive, IT Infrastructure solutions andservices offerings, in a quest to provide end-to-end ICT Infrastructure Solutions andServices to its customers. These comprehensive range of solutions are in the areas of:

• Data Centre(DC) using virtualisation technologies, Storage backup, Archival& Replication Solutions, Disaster Recovery/Business Continuity Plan(DR/BCP) solutionsusing Information Lifecycle Management (ILM)

• Enterprise Management Solutions using tools for health, performance, fault andconfiguration management of Server, Storage, Network, Security, Client PCs, System andApplication Software, setting up of Network/Security/IT Operations Centre and managingthem.

• Borderless Networks & collaborative communication solutions comprising ofUnified Communication & Messaging solutions, Wide area network/Virtual Private Networksolutions.

• Information Security Solutions including perimeter security, Data centresecurity, network security, client security, Application security & SOC (SecurityOperations Centre) etc.

We have setup and operationalised a Global IT operations Centre to enhance ourofferings to our customers in the area of Managed services. Using this ISO-27001 certifiedfacility, we are providing the Infrastructure (Network, DC/DR, Clients) Management,Application management and Operations management services to our customer.

Enhancements of IT Infrastructure practices (Network, Security, Storage & Servers)with Centres of Excellences (COEs) have been key to positioning and winning deals in theseareas. In order to procure best in the global IT, HCL Infosystems has also partnered withglobal technology leaders like Cisco, CA, Symantec, IBM, HP, Sun, EMC, Hitachi DataSystems, Microsoft & Oracle.

The Strategic Outsourcing (SO) group at HCL Infosystems was conceived to meet thegrowing customer demand for simplifying and streamlining business portfolios, de-riskinginvestments and focusing on core business. The group focuses on development of long-term,multi-layer, SLA based contracts and relationship providing end-to-end services thatinclude infrastructure, applications, processes, tools and methodologies. It leveragesdiverse skill sets from across the enterprise and over three decades of HCL Infosystems ITpresence in products and services while delivering measurable, value-adding solutions viainnovative commercial constructs (e.g. revenue share, Capex/Opex, transaction based etc,)that eventually makes HCL Infosystems a preferred partner.

At present, the HCL Infosystems SO group is managing multiple client relationshipsacross different business verticals. Examples of some of our SO relationships includecomplete outsourcing of IT applications, infrastructure services and processes for aleading Indian healthcare chain, total IT outsourcing services including applications,infrastructure and ERP rollout for a large auto ancillary; and e-governance services formultiple departments of a large municipal corporation on a BOOT model with citizen facingoperations.

III. Computer systems & related products

Over the years, HCL has been working effortlessly to understand needs of variedcustomers and develop technology that not only empowers its customers but also isenvironment friendly. This year, too, your company laid special emphasis on introducingproducts which not only addressed customer need but also were intone to take care of theenvironmental concerns.

Keeping its commitment to promote inclusive growth by providing an impetus to PC &Broadband penetration in rural India, your company along with BSNL launched HCLInfosystems' broadband PC under the National Broadband Penetration Program (NBPP). Theprogram is a nationwide initiative to accelerate IT proliferation in rural India. Theproject aims to accelerate PC and broadband penetration by offering a complete solutionand to create new markets in the interiors of the country. The NBPP project, believed tobe the largest government program to promote rural connectivity till date, aims to breakthrough the affordability barrier. The project aims to power the next million PC+Broadband connections in untapped market space.

HCL Infosystems also launched 'Maza PC' in Maharashtra. HCL in association withMaharashtra State Co-operative Bank's Association (MSCBA) will facilitate purchase of PCsacross the state of Maharashtra. Any Institution, SMB, Students, Farmer, entrepreneurs orindividual can avail Interest free loan from MSCBA member banks for purchase of PC &Laptops.

The year under review also saw HCL Infosystems announcing an alliance with Central Bankof India to enable consumer finance for purchase of computing devices and accessoriesunder the 'cent computer loan' scheme. The scheme has been extended to students, salariedpersons and professionals with low interest rates and no processing charges.

This year your company also rolled out its new marketing initiative 'HCL MobileExcitement' HCL ME. The multi dimension initiative includes more focused marketingstrategy towards today's nomadic customer and saw the launch of a new logo and TVcommercial focused around Mobility and life-on-the-go. HCL ME campaign has been designedaround the concept -- 'It's all about ME' - thereby, reaching out to the largest emergingconsumer group -the youth and the young executives. As a part of rebranding exercise HCLDigilife stores have been rebranded post the new brand launch of ME. The Multi categorystores offering a range of ICT products including laptops, mobiles, cameras, MP3 Playersand gaming consoles have been branded as "ME-Zones" and the Computing Storesselling desktops, laptops and netbooks are called "ME-Xclusives".

HCL Infosystems is undoubtedly the leader in the desktop business in India and itsexisting range of products for the enterprise segment and the consumer segment continuesto grow. This year, HCL Infosystems announced the return of Beanstalk, its most populardesktop range to cater to the growing demand for cutting-edge technology on the homecomputing front. With power-packed features and advanced technologies, the all new HCLBeanstalk range offers the ultimate convenience of productivity, connectivity and anincredible new entertainment experience. HCL Beanstalk was India's first Home MultimediaPC launched by HCL Infosystems in 1995 with a view to address the fast emerging homecomputing market. Not only this, your company also launched various sales promotioncampaigns for HCL desktops and laptops. 'Young India Offer', 'Freedom To Win', 'Tick andClick offer' and 'Winter Carnival' consumer offers were successfully launched in differentparts of the country during the year.

Committed to a sustainable future, your company this year joined the exclusive club oforganisations across the globe to commit to 'sustainability' as part of its visionstatement. Leading from the front HCL Infosystems introduced a new range of path breakingenvironment friendly computing products, with the launch of India's first PVC and BFR freeHCL ME Series 40 Notebook. The eco-friendly 'ME' notebook is designed and manufacturedwith materials completely free of harmful chemicals like Polyvinyl Chloride(PVC), ahazardous toxin, absence of which makes recycling of electronic products safer andenvironment friendly.

IV. Telecommunications & office Automation Products

During the year under review, HCL Infosystems consolidated its position in thedistribution of Nokia Cellular phones and Digital Lifestyle products. India continues toshow growth in the mobile subscriber base. With 3G and mobile number portability expected,the cellular market is set to achieve new landmarks. Nokia continues to dominate themarket share in the GSM cellular phone market with its well established product line-upand strong distribution reach.

HCL Infosystems continues to grow the Digital Lifestyle business by adding new productsto its portfolio of consumer electronics and mobile accessories. This year, your companycontinued to build a robust Office Automation (OA) channel to address the sale of Imagingand Printing products. The Company added new products from the existing and new partnersto consolidate its offerings in this space. HCL Infosystems deployed a prestigious projectto cater to various operational and service requirements with Airport Operation ControlCentre (AOCC) for daily airport management system at the New Terminal (T3) at DelhiInternational Airport. The project integrates 19 IT systems to manage the terminal andalso is capable to view and monitor overall operations of Airport for real time inputs andcollaborative operations. Your company also deployed Dial 100 solutions for Policedepartments across regions. Dial 100 solution provides technology to equip the policeforce to access automated information which will help the police force to act in a moreefficient way. The control room consists of the state-of-the-art multimedia contact centreand can also track all PCR vans fitted with GPS devices (Global Positioning System) andcoordinate their movement to help public.

HCL Infosystems telecom products business registered growth. This vertical won ordersof deploying voice solutions from Corporate to Defence & Police establishments,Railways and infrastructure companies. The company also bagged prestigious orders fordeploying its video solutions from leading multi-national companies in infrastructure andBFSI sectors to Railways and other companies in IT, oil & gas and banking.

In the year under review, HCL Infosystems telecom products business won orders todeploy voice solutions from leading Corporates, Railways and Defence establishments. Thecompany also bagged prestigious order for its video solutions from a leadinginfrastructure multi-national company to deploy tele-presence solutions. The company alsobagged projects for nationwide rollout of video conferencing solutions from leading namesin BFSI, education and oil & natural gas sectors.

V. Quality Initiatives

Quality and Excellence journey has been the key highlight of this year's initiatives.The transformation journey started with a focused exercise of realigning the Vision andMission statements to reflect the future Business Goals and Plans of enhancing BusinessPortfolio and expanding the Global footprint.

Achieving 'Excellence' has been the key theme of the year. A companywide drive - QuestFor Excellence (QFE) was undertaken to train and sensitize the teams.

Progressing on the transformational journey and aiming at enabling both the Top andBottom lines growth, the Corporate Quality Excellence Group (CQEG) has been focussing ondriving Integrated and Value Centric approach. The scope of Quality charter has beenenhanced to cover the end to end Process Management related requirements.

CQEG has been aiming at creation and institutionalization of Integrated QualityManagement System; covering Process Portfolio. Synthesizing and Strengthening the existingframeworks and practices, Transforming the existing Processes into an Integrated QualityManagement System and Optimising the Quality Assurance program.

Achieving Customer Delight has been the key goal; various initiatives undertaken in2009-10 have retained HCL Infosystems on the top in CSA 2010 (Customer Satisfaction Audit)conducted by IDC-DQ during Oct-Dec'09. Out of 16 parameters your company got highest scorein 9 parameters with "Pre - Contract stage experience" and "Post contractexperience" being significant ones.

Centre of Excellence capabilities have further been strengthened by enhancing solutionsand process portfolios. COE- ITOC provides Remote Infrastructure Management (RIM) servicesand managed support services to customers and helps utilization of high skilled resourcesbetter by consolidating them at IT Operation Centre (ITOC). Quality Management System hasbeen established at ITOC and ISO 9001:2008 (Quality Management System Certification)certification has been achieved. ITOC also embarked on the journey of strengtheningInformation Security related controls and achieved ISO 27001:2005 (Information SecurityManagement Certification) Certification.

Taking manufacturing Quality to the next levels, the Puducherry and UttarakhandManufacturing Operations Units demonstrated highest commitment towards 'Employee CentricApproach', the units adopted the best practices for ensuring Occupational Health andSafety; implemented the system, enabled the controls and got certified for ISO 18001:2007(OHSAS Standard). In addition, the Operations in both the units have undergone successfulSurveillance audits of IS0 9001-2008 (QMS) and ISO 14001-2004) (EMS) Standards.

Progressing on the journey of strengthening Software Practice, Jaipur DevelopmentCentre has embarked on the journey of achieving Highest Maturity Level. With CMMI Level 3assessed system as base, the centre benchmarked its processes and performance indicatorsin line with CMMI Level 5 requirements and is well poised to achieve the successful CMMILevel

5 Assessment during the current Financial Year. In addition, the Centre hassuccessfully completed the ISO 9001- 2008 Re-certification. This will enhance operationalresponsiveness and efficiencies. Career Development Centre, Nokia Repair Factory &Info Structure Services have also undergone successful surveillance audits and have beenrecommended for continuation of ISO 9001-2008 certificates.

VI. Risks & concerns and risk mitigation

In constant pursuit of excellence, HCL has designed a well defined Enterprise RiskManagement Framework to address various risks to our business. It covers identification,analyzing, planning, monitoring, controlling and prevention of risks across theenterprise; covering all the Business Divisions and Support Functions. Broad levelcategories of risks covered are as follows.

(a) Business Risk:- Captures & Mitigates the division and function wise riskscovering various key aspects related to Strategy, Operations, Resources, Regulatory,Compliance. etc.

(b) Process Risk (Gaps / Non Compliance): - Captures & Mitigates the division andfunction wise process gaps and process non compliances

(c) Project Risk: - Captures & Mitigates the Project risk. This is integral part ofProject Management Process spanning all stages of the Project Life Cycle. This has enabledHCL to manage and optimise risks related to Bid Terms, Deals, Service Level Agreements,Customer credit worthiness in project engagements.

The framework is enabled by establishing Risk Management Organisation Structure andrelated processes. The Periodic reviews of the business processes and risk analysisreports are carried in a planned and systematic manner with respective stakeholders. Thereports of Enterprise Risk Management are presented to Board of Directors at regularintervals. Some of the key example areas are described below.

To ensure managing the risks related to Information Security & Business Continuity,HCL has established comprehensive information security framework and business continuityplan. The Data Centre and IT Operation Centre are ISO 27001:2005 (Information SecurityManagement System)

Certified. The comprehensive security controls are established which are preventive innature and aims at protecting people and assets.

HCL has a strong HR policy to mitigate the risks related to sourcing and attrition. Itensures attracting, training, motivating and retaining the best of industry talents andmoulding them into global leaders.

The company business growth strategy and framework ensures the continuous enhancementof the existing Business and Offerings portfolio by innovating and introducing newer linesof product range, services and geographies on an ongoing basis.

VII. Internal control systems and their adequacy

The Company has in place adequate systems for internal control that are commensuratewith its size and the nature of its operations. These have been designed to providereasonable assurance with regard to recording and providing reliable financial andoperational information, complying with applicable statutes, safeguarding assets fromunauthorized use or losses, executing transactions with proper authorization and ensuringcompliance of corporate polices. The Company has a well-defined delegation of power withauthority limits for approving revenue as well as capital expenditure. Processes forformulating and reviewing annual and long-term business plans have been laid down.

The Internal audit is based on an Audit Plan, which is reviewed each year inconsultation with the Audit Committee. The Internal Audit process is designed to reviewthe adequacy of internal control checks in the system and covers all significant areas ofthe Company's operations such as accounting and finance, procurement, employee engagement,travel, insurance, IT processes, safeguarding of assets and their protection againstunauthorised use, among others.

The Company has an Audit

Committee, the details of which have been provided in the Corporate Governance Report.The Audit Committee reviews reports submitted by the Internal Auditors. Suggestions forimprovement are considered by the Management and the Audit Committee follows up on theimplementation of corrective actions.

VIII.Human resource development

The year under review has been a year of renewed business transformation, wherein wehave created new and Innovative HR Practices for new business areas like StrategicOutsourcing, Services and System Integration Solutions. Starting our foray into Globaloperations, we have established HR practices for HCL Infosystems employees based in MiddleEast, Singapore and Africa.

The employee strength has increased from 5921 in 2009 to 6731 in 2010. Our attritionrate stands at 11.27% compared to 10.4% for the previous year.

People are vital to the growth of HCL. This year we took significant steps towardsTalent Review with a focus on Individual Development & Growth. During the year, weinitiated iLead Development Centres to systematically develop and assess leadershipcapabilities to link career movements to competencies. As part of this programme, selectpeople at various levels within the organisation underwent a one year intensivedevelopment.

Your company continue to invest in people development and skill enhancement to empowerthem to perform their best. This year HCL had organised an unprecedented number oftraining programmes with participants from different levels. Several online learninginitiatives were launched to provide an array of blended learning opportunities to eachemployee.

Talent engagement activities continue to strengthen the bonds within HCL family throughregular get-togethers, shared celebration of all festivals, unified employee campaignstowards Healthy living, Environment Conservation and various Social causes.

An internal survey 'My Voice' was conducted to measure employee engagement scores.Including a response rate from approximately 80% of employees, the overall Engagementscore was observed to be higher than previous surveys.

Your company continues to get accolades from third party agencies who conduct annualEmployee Satisfaction Surveys.

DISCLAIMER

Certain statements made in this report relating to the Company's objectives,projections, outlook, estimates, etc. may constitute 'forward looking statements' withinthe meaning of applicable laws and regulations. Actual results may differ from suchestimates or projections etc., whether expressed or implied. Several factors including butnot limited to economic conditions affecting demand and supply, government regulations andtaxation, input prices, exchange rate fluctuation, etc., over which the

Company does not have any direct control, could make a significant difference to theCompany operations. The Company undertakes no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, future events, orotherwise. Readers are cautioned not to place undue reliance on any forward lookingstatements. The MD&A should be read in conjunction with the Company's financialstatements included herein and the notes thereto. Information provided in this MD&Apertains to HCL Infosystems Limited and its subsidiaries on a consolidated basis, unlessotherwise stated.

FINANCIAL COMMENTS ON CONSOLIDATED OPERATIONS FOR THE YEAR ENDED JUNE 30, 2010

The financial statements have been prepared in compliance with the requirements of theCompanies Act, 1956 and Generally Accepted Accounting Principles (GAAP) in India.

The Group's consolidated financial statements have been prepared in compliance with theAccounting Standard AS 21 on Consolidation of Accounts and presented in a separate sectionof the Annual Report.

The Management Discussion and Analysis on Financial performance relates to ConsolidatedFinancial Statements of the Company and its subsidiaries. This should be read inconjunction with the financial statements and related notes to the consolidated accountsfor the year ended June 30, 2010.

FINANCIAL PERFORMANCE

Rs. /crores

During the financial year ended June 2010, the company focused on expanding itsspectrum of services in the areas of Enterprise Business Solutions, IT InfrastructurePractices, Application Services, Strategic Outsourcing to strengthen the SystemIntegration Business.

Pursuant to the approval of the shareholders, the Company raised Rs. 727 crores throughQualified Institutions Placements and Preferential issue to certain promoters to expandexisting businesses, develop infrastructure for future growth, meet working capitalrequirements and make acquisitions.

Gross Business Income

Consolidated Revenue for the year is Rs. 12159 crores as against Rs. 12378 crores inthe previous year.

Services revenue grew by 11% from Rs. 648 crores to Rs. 722 crores in the current year.

Gross Margins

Gross margins for the current year grew from 8.8% to 9.1%. In absolute value, grossmargins are Rs. 1104 crores as against Rs. 1089 crores in the previous year.

Exchange Fluctuation

During FY 2010, rupee was very volatile, opening the year with Rs. 47.9/$ to a low ofRs. 44.2/$ before ending the year at Rs. 46.4/$.

Exchange difference on account of difference in rate on payments and collections madeduring the year and also on restatement of debtor and vendor balances as on June 30, 2010was Rs. 12 crores gain as against a negative of Rs. 26 crores for the last financial year.

Operating expenses

a) Personnel Costs

The Company, during the year, augmented man power resources especially in newer areasof Services and Systems Integration. As a result, personnel costs increased from Rs. 338crores in FY 2009 to Rs. 391 crores in FY 2010. The Company strengthened its permanentemployee base from 5921 to 6731 in the year and also increased the flexi force.

Employee costs as a percentage of sales increased from 2.7% to 3.2% in current year.

b) Administration, Selling, Distribution and Other Expenses

Administration, Selling & other operating expenses (including provisions) increasedfrom Rs. 345 crores in FY 2009 to Rs. 366 crores in FY 2010. Cost as a % to sales is at3.0% in FY 2010 as against 2.8% in FY 2009. Advertisement & Sales promotion expensesincreased from Rs. 57 crores to Rs. 77 crores, mainly due to various branding initiatives.

Other Income

Other income in FY 2010 is Rs. 34 crores as against Rs. 15 crores in FY 2009. Theincrease is primarily due to returns on higher surplus funds.

Finance Costs

Finance costs in FY 2010 are Rs. 39 crores, down from Rs. 45 crores in FY 2009. Financecosts mainly represent interest on borrowings for working capital, and interest on importcredit facilities.

Profit Before Tax (PBT)

Profit before tax in FY 2010 is Rs. 346 crores as against Rs. 351 crores in theprevious year.

Tax Expense

The provision for current and deferred tax for the year is Rs. 104 crores.

Profit After Tax

Profit after Tax for FY 2010 is Rs. 242 crores as against Rs. 240 crores in FY 2009.Basic EPS for FY 2010 is Rs. 11.92. EPS for the current year is based on enhanced sharecapital after Qualified Institutions Placements and Preferential issue.

FINANCIAL CONDITIONS Net Worth / Shareholders Fund

Net Worth grew to Rs. 1893 crores as at June 30, 2010 from Rs. 1122 crores as at theclose of the previous year.

During the year, the Company allotted

• 1,64,38,848 equity shares of Rs. 2/- each to certain promoters at a price of Rs.152.9 per share amounting to Rs. 251.3 crores.

• 46,20,667 warrants to certain promoters on receipt of 25% of subscription moneyof Rs. 152.9 per share amounting to Rs. 17.7 crores.

• 3,05,55,713 equity shares of Rs. 2/- each at a price of Rs. 154.69 per equityshare through Qualified Institutions Placement amounting to Rs. 472.7 crores.

Consequently, the paid up capital as at June 30, 2010 stands at Rs. 43.7 crores,comprising 21.8 crores equity shares of Rs. 2/- each.

Reserves & Surplus are at Rs. 1831 crores at year-end after appropriating Rs. 199crores for dividend and dividend distribution tax.

Borrowings

Loan Funds are at Rs. 521 crores as on June 30, 2010. The Debt/ (Debt + equity) ratiostands at 22%.

Fixed Assets

Net block increased from Rs. 185 crores as at June 30, 2009 to Rs. 287 crores as atJune 30, 2010. The capital expenditure during the year is mainly on acquisition of Land inGreater Noida, SAP upgrade and other additions for Infrastructure.

Inventories

Inventories as at June 30, 2010 are Rs. 840 crores as against Rs. 889 crores as on June30, 2009.

Inventory turnover on sales in financial year ended 2010 is 14 times.

Debtors

Debtors as at June 30, 2010 amount to Rs. 1967 crores. Debtors as number of days ofsales in FY 2010 are at 59 days as against 44 days in FY 2009.

Liquid Assets (Investments and Cash Bank)

Investments in Mutual Funds and Term Deposits with Banks increased to Rs. 856 crores asat June 30, 2010 from Rs. 269 crores as at June 30, 2009.

Cash in Hand & Balances with Bank in collection/ disbursement accounts are Rs. 298crores as at June 30, 2010 as against Rs. 201 crores as at June 30, 2009.

Other Current Assets

Other current assets increased to Rs. 507 crores as at June 30, 2010 from Rs. 306crores as at June 30, 2009. The increase is primarily in accrued revenue to be billed anddeferred lease assets.

Current Liabilities & Provisions

Current liabilities and provisions as at June 30, 2010 amount to Rs. 2356 crores asagainst Rs. 2014 crores as at June 30, 2009. The increase is primarily in vendor liabilityand customer advances to be billed.

Dividend

The Board recommends a final dividend of Rs. 2/- per share (100% per fully paid upequity share) subject to shareholder approval at the ensuing annual general meeting.

The total dividend proposed and paid for FY 2010 (including interim dividend of Rs.5.50 per share) is Rs. 7.50 per share (375% per fully paid up equity share), amounting toRs. 199 crores including dividend distribution tax.

SEGMENT PERFORMANCE

The company has identified three primary segments namely Computer Systems and relatedproducts & services, Telecommunication & Office Automation and Internet &related services.

Computer Systems and Related Products & Services

The segment operations comprise of manufacturing of computer hardware systems,providing comprehensive Systems Integration, Roll out and Infrastructure managementsolutions in different Industry verticals, providing IT services including maintenance& facility management and ICT training.

Segment revenue grew 3% in FY 2010 to Rs. 3643 crores from Rs. 3540 crores in FY 2009.Five year CAGR is 11%.

Segment PBIT grew 7% in FY 2010 to Rs. 190 crores as against Rs. 177 crores in FY 2009.PBIT as a % to sales is 5.2%, as against 5.0% in the previous year.

Capital employed in the segment as at June 30, 2010 is Rs. 1215 crores.

Telecommunication & Office Automation

The segment operations comprise of distribution of telecommunication and other digitallifestyle products, office automation products and related comprehensive maintenance andallied services, and Homeland security & surveillance through its subsidiary HCLSecurity Ltd.

Segment revenue in FY 2010 is Rs. 8529 crores as against Rs. 8874 crores in theprevious year.

Segment PBIT in FY 2010 is Rs. 216 crores as against Rs. 246 crores in the previousyear. PBIT as % to sales is 2.5% in FY 2010 as against 2.8% in FY 2009.

Capital employed in the segment as at June 30, 2010 is Rs. 203 crores as against Rs.187 crores as at June 30, 2009.

Internet and Related Services

The segment provides Internet and related services through the Company's wholly ownedsubsidiary HCL Infinet Limited to business enterprises. The offerings include Internetaccess services, virtual private network and other connectivity services

Segment Revenue in FY 2010 is Rs. 77 crores as against Rs. 46 crores in the previousyear. Profit before Interest and Tax is Rs. (14) crores. Profit after tax is Rs. (12)crores.