HCL Technologies Ltd

Investors are cautioned that this discussion contains forward looking statements thatinvolve risks and uncertainties. When words like ‘anticipate’,‘believe’, ‘estimate’, ‘intend’, ‘will’, and‘expect’ and other similar expressions are used in this discussion, they relateto the Company or its business and are intended to identify such forward-lookingstatements. The Company undertakes no obligations to publicly update or revise anyforward-looking statements, whether as a result of new information, future events, orotherwise. Actual results, performances or achievements could differ materially from thoseexpressed or implied in such statements. Factors that could cause or contribute to suchdifferences include those described under the heading ‘Risk Factors’ in theProspectus filed with the Securities and Exchange Board of India (SEBI) as well as factorsdiscussed elsewhere in this report. Readers are cautioned as not to place undue relianceon the forward-looking statements as they speak only as of their dates. The followingdiscussion and analysis should be read in conjunction with the Company’s financialstatements included herein and the notes thereto.

Current State of Indian IT Industry

Indian IT Industry has witnessed a decade of growth. Indian IT exports have grown from$4bn in FY2000 to $50bn in FY2010 at a 10-year CAGR of 28.8%. During the first half of thedecade, Indian IT exports grew at a 5-year CAGR of 35% from $4bn in FY2000 to $18bn inFY2005. During the second half of the decade, Indian IT exports grew at a 5-year CAGR of23% from $18bn in FY2005 to $50bn in FY2010.

The industry can be segmented as per the (a) Verticals (b) Service Lines (c)Geographies.

BFSI, Hi-tech/Telecom, and Manufacturing were the dominant verticals contributing toover 3/4^th of the exports over past several years. BFSI contributed to 40% ofIndian IT Exports during FY10. Hitech/Telecom and Manufacturing contributed 20% and 16%respectively. Emerging verticals (Media & Entertainment, Retail, Healthcare,Utilities, and Transportation) have contributed to nearly 1/4^th of the exports.

IT Services contributed to 55% of the IT Exports during FY10. BPO and EngineeringServices contributed 25% and 20% respectively. This share distribution has remainedsomewhat constant over past several years.

Within IT Services, the share of Custom Application Development Services came down from49% to 37% during the 3-year period, whereas the share of Remote Infrastructure Managementand System Integration services increased from 11% to 20%. Application Management Servicesgrew much faster than Application development services at a 3-year CAGR of 24%. Other ITServices (such as IT Consulting, Support & Training, Software Testing, SOA/WebServices etc.) grew at a 3-year CAGR of 17%.

US and UK were the dominant regions receiving over 3/4^th of the Indian ITexports over past several years. US received 61% of Indian IT Exports during FY10, whereasUK received 18%. Continental Europe and APAC received 12% and 7% of exports respectively.The Geo distribution has not changed much over past several years.

HCL has grown faster than Indian IT Industry during the last decade. While HCL growthwas lagging behind Indian IT Industry growth during the first half of the decade, HCL cameback strongly during the second half of the decade. During the first half of the decade,HCL revenues grew at a 5-year CAGR of 30% from $207mn in FY2000 to $764mn in FY2005.During the second half of the decade, HCL revenues grew at a 5-year CAGR of 29% from$764mn in FY2005 to $2705mn in FY2010. Overall, HCL revenues grew at a 10-year CAGR of29.3%.

Drivers for Future Growth

While Indian IT exports grew at a 10-yr CAGR of 29% during the last decade, Global ITservices spending grew at a 10-yr CAGR in lower single digits during the same period. Thisis a story of ‘market-share gains’ or ‘replacement revenue’. At thestart of the last decade, in the year 2000, Top Indian 5 IT players Market Share in theGlobal IT Services spending was just about 0.1%. By the end of the decade, in the year2009, their Market share increased to about 2.4%. There is still big headroom for growthfor Indian IT Industry.

According to a customer satisfaction (CSAT) survey of HCL customers in 2009, costreduction was considered to be the most important business priority across all theverticals and geographies. With continued cost pressures across the businesses andIndia’s still attractive 30-40% cost advantage, the next level of replacement revenueis about to begin.

Growth opportunities for HCL can come from existing customers as well as new customers.From existing customers, opportunities are in cross-sell, up-sell, and new propositionssuch as business-aligned IT, cloud computing, platform-based BPO, and green IT. HCL’sability to grow customer relationships – particular into large accounts – willbe critical for the company’s growth in the coming years.

Growth opportunities from new customers can come from Vendor consolidation, NewVerticals, New Geographies, and New Propositions. Vendor consolidation means reducing thenumber of vendor engagements to an efficient "core" capable of providing allneeded services, software, systems, and partnering relationships. It offers the followingbusiness benefits to customers: reduced total cost of ownership (TCO), streamlined vendorrelationship management, reduced number of support contracts to negotiate and manage,increased procurement process leverage, and reduced training, certification, andadministration expenses. The trend of vendor consolidation will contribute significantlyto greater offshore content in global IT services.

For growth opportunities from new customers, the NASSCOM-McKinsey 2020 report providesuseful inputs. Published in April 2009, the NASSCOM-McKinsey 2020 report is the thirdreport published by NASSCOM and McKinsey on the future of IT Industry. The reportdiscusses seven Global Megatrends that will drive the increase in global sourcing anddomestic outsourcing addressable market opportunity from $500 bn to $1.5 trn by 2020.

The NASSCOM-Mckinsey 2020 report examines the total addressable global sourcing marketalong four dimensions:

1. Core Market Opportunities: The total addressable market for core markets(large enterprises in developed countries in verticals such as telecom, banking,insurance, and manufacturing) was $500 bn in 2008. It is expected to reach $700 bn by2020.

2. New Verticals: Over the next 12 years, several emerging verticals will becomethe next major segments after the core verticals. The four emerging verticals are: Publicsector & defense, Healthcare Providers, Utilities, and Media. The addressable marketfor these emerging verticals is expected to reach $190 bn by 2020.

3. New Geographies: BRIC countries will offer a domestic outsourcing market of$380 bn by 2020.

4. New Customer segments: The global sourcing addressable market for SMBs incore geographies is likely to be around $230 bn in 2020.

While core markets will present an additional $200 bn addressable market by 2020, newverticals and new geographies will present a $580 bn addressable market by 2020—threetimes the additional opportunity presented by core verticals.

When looking at the growth opportunities, another dimension to explore is that of newpropositions such as cloud computing, virtualization, platform-based BPO, green IT,digital technology & marketing, industry-specific smart Solutions, and advancedbusiness analytics. Of all these propositions, Cloud computing is being touted as the mostdisruptive proposition that has the potential to change the way IT services are delivered.The key reason for that are the trends of the Industralization and Consumerization of IT.

Industralization of IT refers to the standardization of IT services and coverspredesigned and preconfigured solutions that will be highly automated, efficient,repeatable, scalable, reliable, and available. Consumerization of IT refers the changingbuyer behavior in IT. Buying centers will shift from IT to business. Buyers will buyservices instead of skills – Infrastructure as a Service, Application as a Service,Platform as a Service, or even Business as a service. The key driver for theConsumerization of IT is the movement towards decreased IT hardware/software assets.Virtualization is making underlying hardware (and its ownership) non-strategic. Buyers arelooking for scalability, pay-as-you-go, and freedom from infrastructure build-out and lesscapex sensitivity.

Industry Outlook

The first decade of the 21^st Century was somewhat unique. It saw everythingfrom highly volatile Oil prices, increasingly rising commodity prices, bulls and bears ofstock markets, focus/defocus on climate change, and debates/concerns about scarcity ofnatural resources. It started with a recession and it is ending with a recession. But,there is big difference between the two. While the previous recession was led by theslowdown in business spending, the current recession is led by the slowdown in bothbusiness and consumer spending. Consumer confidence has completely shaken due toincreasing job losses, salary freeze/cuts, and memory of loan foreclosures. Consumers aretaking precautionary approach to spending and reducing their debt levels. They arespending on what they need rather than what they want. Banks have started adopting tightercredit and stricter lending standards towards consumers, as they side-step Risk with‘Be Prepared’ approach instead of a ‘Just do it’ approach. All this isleading to the phenomenon of ‘New Normal’.

The ‘New Normal’ means we will be living in a world of moderated businessgrowth during next few years. The businesses across the world won’t be growing at thesame pace as they were growing from 2005-08. The customers will be demanding more forless. They will look for business benefits than IT benefits. They would want vendors toput skin in the game and co-invest in the transformation initiatives.

Indian IT Industry will also witness lesser growth rates in the next decade than in thelast decade. As per NASSCOM Mckinsey 2020 report, the total global sourcing industry willgrow at a CAGR of 15% from 2008 until 2020. It is likely to expand more than five-fold by2020 from $80 bn in revenues in 2008 to $450 bn by 2020 (based on a penetration of 40% ofthe total addressable market of $ 1.1 trn). The Indian global sourcing industry will growat a slightly lower CAGR of 13% and is likely to expand four-fold by 2020 from $40 bn inrevenues in 2008 to $175 bn by 2020. This will imply a decline in India’s share ofthe global market from 51% to around 40% by 2020. The companies with disruptive businessmodels will be able to buck this trend and grow at much faster growth rates.

HCL Strategy

HCL’s strategy of focusing on growth, service innovation, and uniquepositioning in the marketplace has improved the company’s competitive standing.HCL has achieved profitable growth over the last five years, including through therecession.

HCL’s transformation journey starting in 2005 was the product of choices. By 2005,the Indian IT industry had come of age, but HCL was lagging. Y2K-related work and expandedglobal delivery offerings fueled industry-wide growth from 2000 to 2005 – and HCLitself grew its annual revenue from $207 m to $764 m during the period – butHCL’s market share in Indian IT exports had fallen. At risk of drifting intoirrelevance in the industry – and mindful of intensifying competition from the likesof IBM and Accenture in India – HCL charted a multi-pronged strategy to differentiateitself in the marketplace. To make up for its loss in market share, HCL chose to focus ongrowth and worked to diversify its revenue base through new service offerings. Torejuvenate its employee base and be seen as an employer of choice, HCL launched aportfolio of initiatives around Employees First Customers Second. To deliver increasedvalue for clients, HCL created new operating processes and methodologies for customerrelations through Trust, Transparency, and Flexibility and offered outcome-basedengagements before its peers. The company also worked to nurture customer intimacy throughinitiatives such as the annual Global Customer Meet. After falling behind Indiancompetitors during the first half of the decade, HCL increased its market share from 2005to 2010.

Over the course of the last five years, HCL has acquired capabilities and adaptedorganizationally to a changing market and intensifying competition. HCL has been able toupgrade some lines of business, such as infrastructure services and engineering andR&D services, organically. Infrastructure services, for example, offered network andsecurity services in 2005 but has since added world-class architecture and consultingcapabilities. HCL identified Enterprise Application Services as a promising line ofbusiness as clients shifted from custom to packaged applications, but saw gaps in itscapabilities that could not be filled organically. The company acquired Axon, the biggestacquisition in the history of the Indian IT industry, to add consulting and solutioningcapabilities to EAS and successfully retained Axon’s top leaders through a reversemerger. Organizationally, HCL simplified and consolidated its fragmented structure andestablished clear lines of accountability. Through Dual GTM, HCL presented its horizontaland vertical depth to potential customers. New offerings, domain depth, and consultingcapabilities enabled HCL to position itself as a provider of end-to-end services, not justskills.

Just as HCL was catching up to its Indian rivals, the financial crisis and recession of2008-09 hit the Indian IT industry. The pain of the recession was particularly acute forHCL and its peers because it was the industry’s first major recession.

HCL responded to the recession by demonstrating value to its existing customers andensuring security to its employees. Through the assurance that no HCLite would be leftbehind and a collaborative process of consulting with 10,000 employees before imposing newpolicies, HCL managed internal strain through the recession. The company also saw thedownturn as a rare opportunity to acquire new business and quality customers, andHCL’s performance during the period surpassed many rivals. HCL grew at 23% YoY inCY09, whereas most Indian/Global peers witnessed negative revenue growth during the sameperiod.

Going forward, HCL will continue to focus on revenue growth through existing and newcustomers. HCL will continue to evolve Account Management practices to make them"best in class". HCL will offer increased value to its existing customersthrough ecosystem alliances and partnerships. HCL will do joint solution development withPartners to build Industry-specific and cross-industry solutions that are high value anddifferentiated. HCL will offer increased portfolio of services for existing clients, thusblocking new entrants into its client base. HCL will target new customers with a focusedprogram for sourcing advisors. HCL will have dedicated hunters who will follow a NamedAccount strategy to target Fortune Global 500 clients. HCL will continue to makeinvestments in high value services and Global delivery model.

About HCL Technologies Ltd

HCL is a global technology enterprise and a name to reckon with in the industry. Thepassion of its founder and the entrepreneurial zeal of its employees have made itssoftware services arm, HCL Technologies, a leading provider of business transformation,enterprise and custom applications, infrastructure management, business processoutsourcing, and engineering services. HCL delivers solutions across a wide range ofverticals like financial services, manufacturing, consumer services, public services andhealthcare. Its global delivery model is spread across 26 countries around the globe andits empowered ‘transformers’ are busy working with over 500 forward lookingcustomers, seeking to shift paradigms and transform the way business is being done.

Change has been the winning formula at HCL. The ability to transform businesses acrossthe world comes from the organization’s own readiness to transform itself in itsrelentless drive to better serve its customers. In 2005, HCL commenced on itstransformation journey based on the foundation of ‘Employees First’. Today, thisunique management philosophy has been recognized and praised worldwide for empoweringemployees to become the drivers of growth. And this in turn has led to extraordinarygrowth in thefipast 5 years, where HCL experienced:

• Tripling of revenue and operating profit

• Twenty percent year-on-year growth in market share

• Seventy percent of deals being won against the Big Four international ITcompanies

• Fivefold increase in the number of large ($20mn+) customers

• Nearly fifty percent decline in employee attrition rates

• Seventy percent increase in employee satisfaction scores

The phenomenal performance has won its share of approval. Today, HCL is proud to be onBusiness Week’s 5 most in uential companies to ‘watch’ list; considered‘disruptive’ by IDC; ranked in the top 10 outsourcers with the ‘highestaccountability, transparency and trust’ by Wall Street Journal; ranked #1 employer of2009 in a study done by Hewitt; #1 among the top 50 best managed global outsourcingvendors of 2009 by Brown & Wilson’s Black Book of Outsourcing; listed as one ofthe 44 Most Democratic Workplaces in the world by WorldBlu and featured as a case study inHarvard, London Business School, Darden Business Publishing, and more recently, David GThomson’s book, "Blueprint to a billion - 7 essentials to exponentialgrowth".

Indeed, HCL is more comfortable in forging its own trail rather than following theexpected – thereby bringing about unexpected and path breaking results.

Service Offerings

HCL believes in the good practice of regularly re-structuring and re-energizing itsdiversified portfolio of service offerings. By re-evaluating and realigning this portfoliofrom time to time, HCL is able to develop a robust and resilient business model. No singleservice line contributes more than 32% to the total revenue even while maintaining aleading edge in key verticals where HCL chooses to focus.

Custom Application Services

The Custom Application Services division at HCL leverages a domain-driven approach todesign, and implements scalable, reliable, robust, secure, and easily maintainableapplications that provide our customers with business differentiation through IT. Serviceofferings include application development,management,support,re-engineering,modernization,migration, and independent verificationand validation. With more than 10,000 domain and technology experts supporting more than100 clients across geographies, this group contributes over 29% of HCL’s revenues,and services at least two of the top ve players in various industries like retail,banking, insurance, media & publishing, gaming and life sciences.

A customer centric focus keeps HCL continuously investing and inventing robustmethodologies, tools, and processes. HCL’s BAIT is a new framework that allows theefficient alignment of IT with business; it provides a unified view of all businessprocesses with the underlying IT landscape and helps reduce cycle time while providing thelowest IT cost on a business transaction. Our unique Knowledge Transfer methodology -ASSET^TM ensures minimum cost with a smooth transition to offshore, forcustomers. And right now HCL is investing significantly in niche technologies and areaslike cloud computing, pay as you go services and hosted services.

With our dedicated CoEs, skills are continuously being upgraded, and customers areenjoying faster time to market as they leverage our extensive research and development onreusable components and frameworks. Technology partnerships nurtured with leading globalsolutions providers like Microsoft, TIBCO, WebMethods, Oracle, Digite, and IBM, SUNMicrosystems and others, enable HCL provide best-in-class services and solutions tocustomers. Additionally, all our software development centers are certified with ISO9001:2000, CMM Level 5 and British Security Standard—BS7799, in keeping with ourcustomers’ information security requirements. Our customized software and applicationservices have been rated as much higher than the industry average on the parameters ofproductivity, efficiency, and lower defects, and we provide 100% transparency to ourclients through CXO dashboards with online SLA tracking and status reporting.

Engineering and R&D Services [ERS]

fiHCL is one of the few Indian companies with signi cant focus on engineering services.Contributing to over 19% of the company’s revenues, this group brings a balance tothe service portfolio unlike some of our peers. The ERS group offers end-to-endengineering services and solutions in hardware, embedded, mechanical and software productengineering to industry leaders across Aerospace & Defence, Automotive, ConsumerElectronics, Industrial Manufacturing, Medical Devices, Networking & Telecom, OfficeAutomation, Semiconductor, Servers & Storage and Software Products.

HCL well understands the importance of Research & Development (R&D) inaugmenting its customers businesses and is committed to providing these world-classservices to them. Over a decade of operating in complex multi-vendor environments andcustomer value chains, we have the ability to seamlessly integrate into their existingR&D ecosystem, working with other innovation partners, captive centers, universities,industry bodies and manufacturing partners. The group has recently started a business unitwith a dedicated team to focus on Defense, Space & Security (DSS). It has alsodeveloped the Business Aligned Test Framework to specifically address the industry needfor a standard and cost-effective approach to testing and verification activities inhardware, software, mechanical, system safety assessment, test engineering, prototyping,design assurance and new product realization. The group has rich experience in developingsafety-critical embedded products involving cutting edge hardware, complex middleware,rich applications and interactive GUI across multiple processor families and real timeoperating systems. This group is Boeing’s 787 software partner developing subsystemsfor Boeing’s Tier-1 & Tier-2 partners. In addition, HCL reengineered the flighttest system that is being used for certification and regulatory approvals for Boeing 787.For the Swiss division of a global medical devices major, HCL was responsible for thecomplete development of a Class III implantable drug delivery medical device that hasrecently been launched in the market. HCL’s ERS was selected by an Italian Aerospacemajor to reengineer the complete aero structure of a transporter aircraft. With more than35,000 parts, the complete reengineering program reduced operational cost of upto 15%across various systems. HCL runs the largest third party engineering centre for a globalnetworking OEM company. For a European Tier-1 automotive company, HCL helped develop acomplete infotainment solution for a leading French car series.

HCL foresees a shift towards clients preferring outsourcing companies to share theirlong-term vision, risks, and rewards in developing product-based ecosystems that impactclient-experience. Towards this, HCL is investing heavily in developing its own IPs andsolutions to help customers’ impact the overall product ecosystem faster and better.Solutions include a unified communication platform, a remote diagnostic reusable module,telematics and test platforms in multiple verticals. Some of our key IPs today are: Agora(HCL SaaS platform), Nimbo (private cloud enablement solution), Cirrus (Microsoft Azureenablement solution), Athena (sentiment analytics solution), Retail Track and Tracesolution, UECPX (unified communications platform), ASPIRE (product portfolio managementsystem), Telematics platform, and H-PAC (Aerospace verification platform), amongst others.

This is what it takes to make an R&D ecosystem truly business aligned. And this,coupled with HCL’s 360 degree partnership approach, unique propositions like Conceptto Manufacture, Engineering Portfolio Optimization (EPO) and First 2.0, full lifecycleexpertise, IPs and frameworks and a strong vertical solutioning capability have positionedus as the Business Aligned R&D partner to several global technology giants.

Enterprise Application Services [EAS]

HCL’s Enterprise Applications Services (EAS) division provides best-in-classservices and solutions to customers in ERP, SCM, CRM, HCM, EPM, BI and Middleware. This isenhanced by leveraging strong strategic partnerships with SAP, Oracle and Microsoft. TheEAS division accounts for over 22% of HCL’s revenue and is one of the key areas ofgrowth.

By acquiring Axon group plc, HCL made one of the biggest acquisitions by an Indiancompany, in recent times. HCL reverse merged its SAP practice with Axon and created HCLAXON, the largest dedicated SAP Global Partner in the world. HCL won the FT ArcelorMittal‘Boldness in Business’ award in 2009 for this strategic acquisition. AMRResearch believes that the Axon acquisition puts HCL in the Top 10 of SAP serviceproviders, with a combined SAP consulting and support capability that is 60% larger thanits closest India-based competitor.

The success of the acquisition has been recognized by analysts and clients. This yearAMR published a case study on the HCL AXON SAP implementation for Birmingham City Council,highlighting the ‘huge business value’ generated (400M worth of savings), andcategorized this as a ‘business transformation’ case. More recently, IDC’sMarketscape report on SAP System Integrators has ranked HCL higher than its competition.This has been supported by HCL AXON winning strategic deals at, GSK, Vodafone and ITT.Additional success includes winning the Frost & Sullivan Aerospace IT SolutionsProvider 2010 award for outstanding performance. This was followed up by HCL AXONannouncing that its iMRO solution that can reduce cost, complexity and risk for large andsmall airlines manufacturers and third-party providers is now a SAP-endorsed ERP add-on.

The second element of HCL’s EAS service line is Oracle Universe (OU), whichprovides the entire range of end-to-end application life-cycle management services. Thegroup delivers high value solutions in Oracle, PeopleSoft, Siebel, JD Edwards, Hyperion,Agile, Oracle Transportation Management, Stellent, and other Oracle Edge applications andtechnology products. HCL’s OU has proven solution accelerators and proprietary tools,built to support this Oracle product suite, providing real value to clients. In additionto professional services, OU provides product engineering on Oracle Applications andFusion Middleware, building connectors for Oracle’s Content Management products, andtesting services for Oracle product suites.

HCL’s EAS service line is completed by its Microsoft group. This team enjoys apivotal partnership with Microsoft’s Business Solutions group. It has builtcapabilities on key Microsoft Dynamics product lines, particularly Microsoft Dynamics AXand Microsoft Dynamics CRM. The team provides life cycle services and solutions for theseproducts across retail, insurance, media and entertainment, hi-tech, and manufacturingverticals. Being a Global Systems Integrator and Gold Certified Partner of Microsoft hasenabled the team work with Microsoft to identify niche market opportunities in theDynamics space and develop solutions to address specific client pain points. HCL is alsoone of the seven offshore Upgrade Partners worldwide for Microsoft Dynamics AX 4.0. Tocomplement its Dynamics capability HCL recently launched the XpressMigrate suite ofofferings for Windows 7 migration, enabling enterprises to minimize risk, bring highervisibility and reduce Windows 7 deployment costs by up to 25%.

HCL’s EAS team has achieved Capability Maturity Model Integration (CMMI) Level 3for Oracle Universe and Microsoft Dynamics as con rmed by SEI. The audit spanned multiplelines, locations and types of projects.

Enterprise Transformation Services (ETS)

HCL’s Enterprise Transformation Services assists customers in developing atransformation roadmap by aligning business with IT strategy. HCL partners with customersand helps them identify the initiatives driving change, manage the transformation process,and implement supporting technology solutions that add value to the organization.

HCL’s ETS offers an integrated approach for enabling transformations through the"Advise to Execute" servicesportfolio.TheserviceportfolioconsistsofProcessTransformation Services, Data ManagementServices, Integration Services, Architecture Services, Disruptive Technology Services(Including Cloud related services) and IT Strategy and Change Management services. This isoffered through the bouquet of best-in-class services in key areas including Middleware& SOA, Data Warehousing & Business Intelligence Services, Enterprise ContentManagement & Portals, Independent Verification & Validation, Mainframe andMidrange Services, Business Consulting and Technology Consulting.

HCL’s ETS services is backed by a rich set of IPs, frameworks and accelerators,domain solutions, robust methodologies, niche skills and strong infrastructure and BPOcapabilities that puts ETS in a unique position to offer guaranteed benefits oftransformation to its customers. Methodologies employed are compliant with industrystandard frameworks such as ITIL, Six Sigma and CMM-I. Some of the propositions andframeworks that the group has launched in 2009-2010 include CoQ (Cost of Quality),"Test Factory in a Box", EBITS (Enterprise Business IntelligenceTransformational Services), Social intelligence and xFIT (xFIT addresses challenges inEAI, SOA and BPM testing). HCL’s ETS has recently won several accolades from advisorsand partners for its propositions, frameworks and methodologies, technical depth,innovation and process delivery including accolades for bolt-on framework FraME [Frameworkfor Manufacturing Execution], Visible Demand and EAD [Enterprise Analytics Dashboard]. In2009, Butler Group has profiled HCL’s Middleware and SOA practice as having acomprehensive service suite encompassing the SOA lifecycle and various integrationrequirements - IPs and frameworks that reduce the time to value. HCL featured in the jointtop spot for overall SOA client work and account management and its maturity in currentofferings of SOA and BPM services.

Highly purposed and focused, Enterprise Transformation Services is a key area for HCLto drive value in customer engagements. In the past year, in conjunction with the EASdivision, this group has bagged several global transformational high impact and high valuedeals.

Infrastructure Management Services (IMS)

HCL’s Infrastructure Management Services group is the fastest growing businessline and contributes to over 22% of HCL Technologies’ total revenues. Through itsdifferentiated value proposition - "Industrialized IT Management and co-sourcingmodel", this practice has been able to carve a credible growth story and solidfoundation for the future. Today, it has close to 200+ customers globally, out of which,100 are G/F 1000 companies - world leaders in their own space. The IMS division has beenrecognized as the leader in Global Delivery of Infrastructure Management by severalIndustry analysts, and is said to be the "leading light in RIM" by NASSCOM. HCLwas the co-founder of the "NASSCOM IMS forum", which comprises of the leadingindustry players. David G Thomson in his global best seller, "Blueprint to aBillion" has compared HCL’s Infrastructure Services’ Division (ISD) growthstory to world leaders like Cisco, Microsoft and Google.

IMS delivery is structured into six horizontal strategic business units such as EndUser Computing Services, Data Center Services, Cross Functional Services, EnterpriseNetwork Services, Security Services, Integrated Operation Management, and Mainframe &AS400 Services. Its vertical reach spans 15 industries – Automotive, Chemical, Energy(Oil & Gas) and Utilities, Financial Services, Hi-Tech, Insurance, Manufacturing,Retail, Travel, Tourism & Logistics, Banking, Consumer Electronics, Food, Beverages& Tobacco, Independent Software Vendor (ISV), Life Science, Healthcare &Pharmaceuticals, and Telecom, Media, Publishing & Entertainment. IMS has a robustglobal delivery network with 17 delivery centres across the globe of which, six areoutside India. The scale of IMS operations today stands at:

• 250,000 large/mid-range servers and over 200,000 distributed computing servers

• More than 60 PB of storage

• More than 250,000 network and security devices

• 800,000 mail boxes, and 10 million helpdesk trouble tickets

• Over 12,000 employees

This group has received its share of accolades: TPI recognizes HCL among the Top 10Infrastructure Providers in the world; Datamonitor’s Black Book of Outsourcing ranksHCL as the #1 vendor in both Traditional IT Outsourcing as well as RIM Outsourcing;Forrester featured HCL in their research study on Managed Desktop Services in EMEA. HCLwas among the only two Indian MNCs featured in the report; Gartner Market Scope for DataCenter Outsourcing, North America, rated HCL ‘positive’ with the necessarytechnical skills and resources to support most client requirements, and offer high-qualityservices; Gartner Magic Quadrants for Helpdesk and Desktop Services in EMEA features HCL -the only Indian MNC to be featured.

Business Process Outsourcing (BPO)

HCL’s BPO Business Services accounts for over 6% of the company’s revenues.This division of HCL Technologies is heading towards a maturity level where a new form ofBPO called ‘Transformational BPO’ is evolving which constitutes Full Process andMultiple Process outsourcing. With over 11,000 professionals operating out of India,Northern Ireland and USA, it serves customers in Telecom, Retail, Media PublishingEntertainment (MPE), Energy Utility & Public Services, Banking & FinancialServices, Insurance, and Healthcare. HCL BPO Business Services runs 25 delivery centersacross India, UK and USA and offers 24x7 multi-channel, multi-lingual support in eightEuropean and eight APAC languages. It also services various operations across CustomerRelationship Management, Technical Support Services, Knowledge Process Management, Financeand Accounting Outsourcing (FAO), Human Resources Outsourcing (HRO), and other nicheservices.

HCL’s BPO Business Services leadership credentials are myriad, including runningthe largest telecom engagement fiin India; the rst Indian BPO to enter theTelecommunications Expense Management (TEM) market; the rst Indian company and 3rd in theworld to be COPC certified in the specialized area of collections; the first BPO companyin the world to be successfully appraised at Maturity Level 5 of People CMM. BPO BusinessServices is also the first BPO in the world to evolve and adopt ‘Integrated BusinessManagement System’ a collation of best practices catering to multiple standards suchas COPC, ISO 9001, OHSAS 18001 and ISO 14001. HCL’s BPO Business Services tops theBlack Book of Outsourcing’s list of Top Cross Industry BPO Vendors; the organizationranks among the Top 10 ITeS-BPO companies in India (according to NASSCOM & Dataquest);HCL is the largest BPO service provider in Northern Ireland, won the largest engagement inIndian BPO history, and is the largest provider of Telecom BPO services in Asia. HCLpioneered the blended shore operations for Indian BPO service providers. HCL’s BPOBusiness Services division won the CIO ‘Ingenious 100’ Award 2009 for the secondconsecutive year (2009) for its IT Service Management Platform which enables aprocess-driven blend of people and technology resulting in 99.9% of service uptime. Theannual award program by IDG India’s CIO magazine recognizes organizations thatexemplify the highest level of operational and strategic excellence in informationtechnology.

Competition Related Risks

New competitors are emerging from adjacent markets and distant geographies. The Companyfaces competition not only from the India based IT service providers but increasingly fromthe multinational IT vendors who are expanding their presence in the country owing toattractiveness of the Offshoring model.

HCL Strategy

HCL’s differentiation strategy incorporating its unique business approach has ledto its emerging as a "Thought Leader" in the rapidly dynamic IT industry.HCL’s differentiation strategy is four fold which includes Employee First initiative,Value centricity and Trust, Transparency and Flexibility.

Employee Related Risks – Managing Talent

Global economy is recovering from the bottoms of one of the deepest recession era whichmeans more and more opportunities are available to the skilled manpower. However, due tocost cutting measures already in places, organizations are finding it difficult toincrease the monetary incentives. Due to manpower intensive business model, IT serviceorganizations are heavily impacted by this. In India, there is uptick in attrition incompanies operating in IT vertical. Consequently, attrition for HCL has also increasedfrom 13% in June 2009 to 15.7% in June 2010.

HCL Strategy

HCL continues with its "Employees First" initiative which has now entered inits fifth year of successful implementation. The focus on employees as key resources hasled to introduction of several employee friendly policies. Success of this programcontinues to be hailed globally as it won various accolades. HCL has been ranked the No. 1Employer in India and Best Employer in Asia by Hewitt 2009 Study and was also voted as theMost Innovative Company in the world for its workforce practices and won the Optimas awardinstituted by Workforce Management in US. In addition, HCL was declared Leaders in thecategory Human Capital Development and ranked 3rd amongst the 100 best global IT serviceprovider companies that made it to the Global Services 100 list 2009. In Europe, HCL wasnamed as one of Britain’s Top Employers 2009 for the third successive year by CRFInternational, an independent business research organisation.

HCL has been taking adequate steps to improve and augment the supply of experiencedmanpower. It has partnered with select local engineering colleges/institutes and impartsquality and contemporary technical education.

HCL continues to make investment in Employee Development initiatives throughUp-gradation of skills, re-skilling and leadership development. These programs have notonly helped in ensuring that there is no skill mismatch and building high motivationlevels of employees through skill enhancement.

Technology Risks

HCL operates in an ever evolving and dynamic technology environment and it is of utmostimportance that the Company continuously reviews and upgrades its technology, resourcesand processes lest it faces technology obsolescence.

HCL Strategy

The Company keeps itself abreast and updated on the contemporary developments intechnology landscape through participation in key technology forums, in-house training anddevelopment initiatives and its intensive focus on core research and developmentactivities. The Company is not dependent on any single technology or platform. HCL hasdeveloped competencies in various technologies, platforms and operating environment andoffers the wide range of technology options to clients to choose from, for their needs.

Further, HCL has a dedicated Delivery Excellence Group (DEX) which offers consulting tovarious delivery teams in developing best practices, development of reusable code andregistering patents for methodologies and tools developed. This group works closely withTechnology Research Council (TRC) of respective Vertical Delivery Units for adopting andimplementing the latest technological enhancements in their respective domains.

Exchange Rate Risks

Global financial position continues to remain volatile during current fiscal withswings in both the directions on Indian Rupee impacting the IT industry. This trend isexpected to continue in near to medium term with added complexity of cross -currencymovements.

HCL Strategy

As a risk containment strategy, HCL has taken forward covers to hedge its receivablesand forecast revenues against the foreign currency fluctuations. This strategy ensurescertainty in revenue collection and also provides safeguards against any unfavorablemovement to stakeholder. The treasury department of the Company continues to track theforeign exchange movements and takes advice from financial experts to decide its hedgingstrategy from time to time.

Further, there is an increased focus on Europe, Asia Pacific and Rest of World forgenerating business which not only insulates from dependency on a single chosen economybut also ensures that the revenue streams are denominated in multiple currencies therebyde-risking the currency risk.

Physical Security

Increased risk to human life and assets due to frequent incidents of terror assaultremains major risk for companies operating in third world. The impact would be more onservice companies as against manufacturing companies due to manpower intensive businessmodel applicable to IT/ ITeS companies.

HCL Strategy

HCL has stringent security levels on all its facilities and ODCs. Comprehensivesecurity is provided by leveraging on People, Processes and Technologies. Formation of ERT(Emergency Response Team), Evacuation plan and strengthening of Disaster Recovery andBusiness Continuity Plan (DR-BCP) are other related steps in this direction to minimizethe loss of human life and to provide continuity of operations with minimal disruptions.

Compliance with regulatory requirements

As HCL is operating in no. of developing countries alongwith new destinations added inAfrica, Latin America, China etc., therefore there is an increased risk of non-complianceto local regulatory requirements. This risk in terms of ensuring total compliance withregulatory framework increases with increase in global reach and operations.

HCL Strategy

HCL has put in place a comprehensive Regulatory Compliance framework in place to managethe regulatory compliance related issues. Detailed checklists are available withrespective process owners to ensure compliance with legal requirements. BesidesSpecialized legal function helps in creating awareness around the regulatory framework andfocuses on various local compliance related aspects being faced by business entities inrespective countries.

Business Continuity & Information Security

HCL is dealing in maintaining, developing and operating time critical Business and ITapplications for various customers. Any natural or man-made catastrophe may halt businessactivities and cause irreparable damage to brand reputation of the company resulting intoloss of Business. Similarly, confidentiality and security of confidential data also poserisk of compromise of information.

HCL Strategy

HCL has put in place comprehensive Business Continuity program to ensure that HCL meetsits Business Continuity and Disaster Recovery related requirements as agreed withCustomer. Similarly, there is Information Security team to assess and manage theinformation security and data privacy and related risks by leveraging on People, Processes& Technology.

Internal Control Systems and their adequacy

The company has put in place an adequate system of internal control commensurate withits size and nature of business. These systems provide a reasonable assurance in respectof providing financial and operational information, complying with applicable statutes,safeguarding of assets of the company and ensuring compliance with corporate policies.

The company has a dedicated Internal Audit team which ensures that:

• Adequate processes, systems, internal controls are implemented and thesecontrols are commensurate with the size and operations of the company.

• Transactions are executed in accordance with policies and authorization.

• Resources have been deployed as per the business plan, policies andauthorization.

The company has a rigorous business planning system to set targets and parameters foroperations which are reviewed with actual performance to ensure timely initiation ofcorrective action, if required.

The company’s audit committee comprising of 4 independent directors, which is asub-committee of the board, reviews adherence to internal control systems, internal auditreports and legal compliances. This committee reviews all quarterly and yearly results ofthe company and recommends the same to Board for their approval.

Discussion on Financial Performance

The financial performance of the Company as per Indian GAAP is discussed hereunder intwo parts:

1. HCL Technologies Limited (Consolidated) which includes the performance of itssubsidiaries and joint ventures.

2. HCL Technologies Limited (Standalone) which excludes the performance of itssubsidiaries and joint ventures.

The Financial Statements have been prepared in compliance with the requirements ofCompanies Act 1956, and Indian Generally Accepted Accounting Practices (GAAP).

HCL Technologies Limited (consolidated)

The Management Discussion and Analysis in this paragraph relates to the consolidatedfinancial statements of HCL

Technologies Limited and its subsidiaries. The discussion should be read in conjunctionwith the financial statements and related notes to the consolidated accounts of HCLTechnologies Limited for the year ended 30 June 2010.

RESULTS OF OPERATIONS (CONSOLIDATED)

Revenues:-

Revenues during scal 2010 have grown by 18.6% compared to Fiscal 2009.

TheCompanyderivesitsrevenuefromthreesegmentsvizSoftware, Infrastructure services andBusiness Process Outsourcing services. Among the three segments, revenues fromInfrastructure services have registered highest growth rate of 65.1%.

Revenue from BPO segment have declined by 15.0% compared to fiscal 2009 which is partlyon account of reduction in volume of business as a result of world wide recession andpartly because of weakening of GBP and USD against INR.

Segment wise details are given below:

The Segmentation of software services income by delivery location is as follows:-

The segmentation of IT revenue (Software and Infrastructure Services) by project typesis as follows:-

Geography wise breakdown of revenue

The company also reviews its business on a geographic basis. The following tableclassifies total revenue by geographic areas:

Revenues from US geography have grown by 23% resulting in increase in its shares intotal revenue from 54.4% to 56.5%. Europe has grown by 14.9%.

Personnel Expenses:-

Personnel costs have increased to Rs 6,253.7 crores in 2010 from Rs 5,194.4 crores in2009, an increase of 20.4%. The increase is primarily on account of – (a) Increase innumber of employees during the year from total of 54,216 at the end of fiscal 2009 to64,366 at the end of fiscal 2010 and (b) increase in proportion of onsite employees (basedoutside India). Personnel costs as a percentage of revenues have increased from 50.8% in2009 to 51.5 % in fiscal 2010.

In respect of Software services division, total software professional persons- monthsincreased to 381,453 from 344,781 person- months during previous year. Of this billedperson-months are 305,662 for the current year as compared to 274,481 person months forthe previous year. The non billable and trainee person months are 75,791 during thecurrent year compared to 70,220 during previous year.

The utilization of billable software persons are as follows:-

Operating and other expenses:-

Outsourcing costs includes (a) outsourcing of several customer related activities e.g.hosting services, facilities management, disaster recovery, maintenance, break fixservices etc in Infrastructure Division. (b) hiring of third party consultants from timeto time to supplement the in house teams in Software Division. These costs increased to Rs894.8 crores in fiscal 2010 from Rs 488.9 crores in fiscal 2009.

The company derives over 90% of its revenues in foreign currencies while over 40% ofit’s costs are incurred in INR. This exposes the company to risk of adverse variationin foreign currency exchange rates. The company uses foreign exchange forward contracts tomitigate the risk of movements in foreign exchange rates associated with receivables andforecasted transactions in certain foreign currencies. During the fiscal year the companyhas earned net exchange gain of Rs. 4.2 crores (Included in other Income) versus loss ofRs. 239.1 crores during the fiscal 2009 mainly on account of mark to market of forwardcovers and restatement of foreign currency assets and liabilities.

The company follows cash fl ow hedge accounting in respect of forward covers takenagainst forecasted revenues. Exchange gain / (loss) arising on those forward covers wherecash flow hedge accounting is followed has been reported under revenues.

Exchange rates for major currencies are given below:-

Profit before Interest, Other Income & Tax

The Company’s Operating profit has increased to Rs.1522.5 crores in fiscal 2010from Rs. 1454.0 crores in 2009, increase of 4.7%.

Other Income

The details of Other Income are as follows:-

Interest:

The Company was net cash positive company till it acquired AXON in December’2008when Company took a bridge loan of USD 585Mn to fund the purchase consideration of Rs3,302.4 crores.

During the year the Company has repaid short term foreign currency bridge loan of Rs2,491.9 ($585Mn) and substituted the same by long term foreign currency borrowing of Rs1,212.1 crores ($261Mn) and secured redeemable Debentures of Rs 1000 crores( $200Mn).Current year finance cost has full year impact of such borrowings which has resulted inthe increase in interest cost to Rs. 204.1 crores against Rs. 112.4 crores during theprevious year.

Taxation:-

The net tax expense for 2010 was Rs. 213.4 crores compared to Rs. 284.3 crores in 2009.Tax as a %age of Profit before tax has reduced to 14.5% in 2010 from 17.7% in 2009.Reduction in tax expenses is primarily on account of:-

• Abolition of fringe benefit tax by Finance Bill 2009 with effect from 1 April2010.

• Reversal of tax provision of Rs 32 crores during the current year on account ofretrospective amendment in Section 10AA of the Income Tax Act as per Finance Bill 2010removing the anomaly in the definition for computing the income tax relating to SEZ.

The provision for taxation includes tax liabilities in India and any tax liabilitiesarising overseas on incomes sourced from those countries. Company’s operations areconducted through Software Technology Parks ("STPs") and Special Economic Zones("SEZs"). Income from STPs are tax exempt for the earlier of 10 years commencingfrom the fiscal year in which the unit commences the software development, or March 31,2011.Income from SEZs is fully tax exempt for the first 5 years, 50% exempt for the next 5years and 50% exempt for another 5 years subject to fulfilling certain conditions.

The tax exempt income of the Company attributable to export operations of unitssituated in STPs is subject to Minimum Alternate Tax (MAT). Any MAT paid for a year isavailable for set-off against tax liability for ten subsequent years. The Company foreseesthat an additional tax burden will arise due to the expiry of tax holiday period by 2011.Accordingly, the Company has recognized deferred tax assets for such tax credit amountingto Rs. 77.9 crores and Rs. 196.0 crores as at June 30, 2009 and 2010 respectively.

Acquisitions Consummated during the year:-

The Company has made following acquisitions during the year:-

• UCS Solutions holding (pty ) Limited

On August 1, 2009, the group, through its subsidiary, acquired Enterprise Solution SAPpractice of UCS Group in South Africa for a cash consideration of Rs.38.4 Crores (ZAR57.1mn) and Rs.44.1 crores as earn out payable on achieving specified targets over thenext 2 years. The transaction has been accounted by following the purchase method andresulted in goodwill aggregating to Rs. 82.4 Crores. The goodwill has been allocated toSoftware segment.

• RKV Technologies

On March 31’2010, the group through its subsidiary, acquired unemploymentInsurance Practice for a total cash consideration of Rs 22.2 crores (USD 5mn), and earnout payable on achieving specified terms as specified in Business purchase agreement. Thetransaction has been accounted by following the purchase method and resulted in goodwillaggregating to Rs. 23.2 crores. The goodwill has been allocated to Software segment

Share capital:-

Authorized Share Capital consists of 750,000,000 equity shares of Rs 2 each. During theyear, employees exercised 2355096, 3688408 and 2480108 equity shares under the employeesstock options plan 1999, 2000 & 2004 respectively. Consequently issued, subscribed andpaid capital increased by 8,527,212 equity shares and share capital increased by Rs 1.71crores.

Debenture Redemption Reserve:-

During the year company has raised Rs 1000 crores through secured redeemable nonconvertible debentures of Rs 10 lacs each which is redeemable in tranches of 2, 3 & 5years. As per Section 117C of the Companies Act 1956, Company is required to createdebenture redemption reserve to which adequate amounts should be credited from out of itsprofits until such debentures are redeemed. Accordingly Company has apportioned Rs 295crores out of itsficurrent year pro ts towards debenture redemption reserve.

Borrowings:-

Company has outstanding borrowings of Rs. 2,724.2 crores as of June 30 2010 primarilyconsisting of the following:-

• Secured redeemable non convertible debentures of Rs 10 lacs each issued for Rs.1000 Crores redeemable in tranches of 2, 3 & 5 years and have an interest cost varyingbetween 7.55% to 8.80%.

• Secured long term foreign currency loan of Rs. 1212.1 crores (USD Equivalent261.0 Mn) crores from banks repayable within a period eight half yearly equal installmentsstarting from May 2011 carrying interest ranging from 3% to 4%.

Fixed Assets:-

The Company has made additions of Rs. 678.8 crores during 2010 in the gross block offixed assets which comprises computers, software, other equipments and investment infacilities. Additions include Rs. 105.6 crores being assets (including goodwill) acquiredon consummation of acquisition during the year. Gross block of fixed assets as at the endof fiscal 2010 stood at Rs. 7061.6 crores and capital work in progress (including capitaladvances) stood at Rs. 609.1 crores.

The Company is in the process of developing facilities in its campuses at NOIDA,Chennai, Bangalore and Manesar. These campuses are spread over a combined area of 121acres. 8400 seats have already become operational at these campuses and 16,000 seats areunder development at these campuses. All the campuses excluding Manesar are approved SEZlocations. Expenditure incurred till end of fiscal 2010 for the facilities underconstruction is appearing under capital work in progress.

Treasury Investments:-

The guiding principle of the Company’s treasury investment is Safety, liquidity& Return. The Company has efficiently managed its surplus funds through carefultreasury operations.

The Company deploys its surplus funds primarily in debt mutual funds and bank fixeddeposits with a limit on investments with individual fund/bank. As at the end of fiscal2010, almost entire surplus funds are invested in fixed deposit with nationalized banks.

Cash Flows from Operating Activities:-

Cash generated from operations provides the major source of funds for the growth of thebusiness. Net cash provided by operating activities was Rs. 1,791.2 crores and Rs. 1,117.8crores in fiscal 2010 and 2009 respectively.

Cash Flows from Investing Activities:-

In fiscal 2010, an amount of Rs. 646.8 crores was invested in fixed assets. Rs.50.8crores were used for payment for business acquisitions.

Cash Flows from Financing Activities:-

Cash flow from financing activities in the year under review had an outfl ow of Rs.727.8 crores against inflow of Rs 2,249.9 crores in 2009. This is mainly because ofrepayment of short term foreign currency loan of Rs 2395.0 crores (USD 585Mn) and Rs 315.2crores pertaining to the final dividend declared in the previous fiscal year as well asthe interim dividends paid during the year.

The Consolidated Financial Statements brings out comprehensively the performance of theCompany and are more relevant for understanding the Company’s Performance.

The discussion in the paragraph 1 which follows should be read in conjunction with thefinancial statements and related notes relevant to HCLT Limited (Standalone) for the yearended 30 June ‘2010.

RESULTS OF OPERATIONS (STANDALONE)

Revenues:-

Revenue during thefiscal 2010 has grown by 8.6% as compared to fiscal 2009.

The Company derives its revenue from three segments viz Software, infrastructure andbusiness process outsourcing services. Among the three segments, revenues from Infraservices have registered highest growth rate of 306.0%.

Revenue from BPO segment have declined by 29.0% compared to fiscal 2009 which is partlyon account of reduction in volume of business as a result of worldwide recession andpartly because of weakening of GBP and USD against INR.

Segment wise details are given below:

Geography wise breakdown of revenue

The company also reviews its business on a geographic basis. The following tableclassifies total revenue by geographic areas:

Personnel Expenses:-

Personnel costs have increased to Rs 2,187.7 crores in 2010 from Rs 1,930.2 crores in2009, an increase of 13.3% in personnel costs have been driven primarily by an increase innumber of employees during the year from total of 38,525 at the end of fiscal 2009 to47,072 at the end of fiscal 2010 and increase in average cost per employee.

Personnel costs as a percentage of revenues have increased from 41.3% in 2009 to 43.1 %in fiscal 2010.

Operating and other expenses:-

The Company derives almost entire revenues in foreign currencies while almost entirecosts are incurred in INR. This exposes the company to risk of adverse variation inforeign currency exchange rates. The company uses foreign exchange forward contracts tomitigate the risk of movements in foreign exchange rates associated with receivables andforecasted transactions in certain foreign currencies. During the fiscal year the companyhas exchange loss of Rs. 47.8 crores versus loss of Rs. 174.3 crores mainly on account ofmark to market of forward covers and restatement of foreign currency assets andliabilities.

The company follows cash fl ow hedge accounting in respect of forward covers takenagainst forecasted revenues. Exchange gain / (loss) arising on those forward covers wherecash flow hedge accounting is followed has been reported under revenues.

The Company also subcontracts certain projects to subsidiaries or hires consultantsfrom third parties. These costs decreased to Rs 404.8 crores in fiscal 2010 from Rs. 462.1crores in scal 2009, decrease of 22.8%.

Profit before Interest & Other Income & Tax

The Company’s Operating profit has increased to Rs.1082.4 crores in fiscal 2010from Rs. 954.0 crores in 2009, increase of 13.5%.

Taxation:-

The net tax expense for 2010 was Rs. 96.2 crores compared to Rs. 194.4 crores in 2009.Tax as a %age of Pro fit before tax has reduced to 8.3% in 2010 from 16.3% in 2009.Reduction in tax expenses is primarily on account of:-

• Abolition of fringe benefit tax by Finance Bill 2009 with effect from 1 April2010.

• Reversal of tax provision of Rs 32 crores during the current year on account ofretrospective amendment in Section 10AA of the Income Tax Act as per Finance Bill 2010removing the anomaly in the definition for computing the income tax relating to SEZ..

Company’s operations are conducted through Software Technology Parks("STPs") and Special Economic Zones ("SEZs") .Income from STPs are taxexempt for the earlier of 10 years commencing from the fiscal year in which the unitcommences the software development, or March 31, 2011. Income from SEZs is fully taxexempt for the first 5 years, 50% exempt for the next 5 years and 50% exempt for another 5years subject to fulfilling certain conditions.

The tax exempt income of the Company attributable to export operations of unitssituated in STPs is subject to Minimum Alternate Tax (MAT). Any MAT paid for a year isavailable for set-off against tax liability for ten subsequent years. The Company foreseesthat an additional tax burden will arise due to the expiry of tax holiday period by 2011.Accordingly, the Company has recognized deferred tax assets for such tax credit amountingto Rs. 53.4 crores and Rs. 179.4 crores as at June 30, 2009 and 2010 respectively.

Debenture Redemption Reserve:-

During the year company has raised Rs 1000 crores through secured redeemable nonconvertible debentures of Rs 10 lacs each which is redeemable in tranches of 2, 3 & 5years. As per Section 117C of the Companies Act 1956, Company is required to createdebenture redemption reserve to which adequate amounts should be credited from out of itsprofits until such debentures are redeemed. Accordingly Company has apportioned Rs 295crores out of its current year profits towards debenture redemption reserve.

Borrowings:-

Company has outstanding borrowings of Rs. 1,397.4 crores as of June 30 2010 primarilyconsisting of the following:-

• Secured redeemable non convertible debentures of Rs 10 lacs each issued for Rs.1000 Crores redeemable in tranches of 2, 3 & 5 years and have an interest cost varyingbetween 7.55% to 8.80%.

Fixed Assets:-

The Company has made additions of Rs. 366.7 crores during 2010 in the gross block offixed assets which comprises computers, software, other equipments and investment infacilities. Gross block of fixed assets as at the end of fiscal 2010 stood at Rs. 2293.4crores and capital work in progress (including capital advances) stood at Rs. 477.2crores.

The Company is in the process of developing facilities in its campuses at NOIDA,Chennai, Bangalore and Manesar. These campuses are spread over a combined area of 121acres. 8400 seats have already become operational at these campuses and 16,000 seats areunder development at these campuses. All the campuses excluding Manesar are approved SEZlocations. Expenditure incurred till end of fiscal 2010 for the facilities underconstruction is appearing under capital work in progress.

Treasury Investments:-

The guiding principle of the Company’s treasury investment is Safety, liquidity& Return. The Company has efficiently managed its surplus funds through carefultreasury operations.

The Company deploys its surplus funds primarily in debt mutual funds and bank fixeddeposits with a limit on investments with individual fund/bank. As at the end of fiscal2010, almost entire surplus funds are invested in fixed deposit with nationalized banks.

Cash Flows from Operating Activities:-

Cash generated from operations provides the major sources of funds for the growth ofthe business. Net cash provided by operating activities was Rs. 739.3 crores and Rs. 590.1crores in fiscal 2010 and 2009 respectively.

Cash Flows from Investing Activities:-

In fiscal 2010, an amount of Rs. 400.3 crores was invested in fixed assets and Rs 752.7crores were invested in Debts Mutual funds and Bonds during the current fiscal.

Cash Flows from Financing Activities:-

Cash flow from financing activities in the year under review has an inflow of Rs. 583.4crores against outfl ow of Rs 227.9 crores in 2009. This is mainly because of issue ofsecured redeemable non convertible debentures of Rs 10 each issued for Rs. 1000 Croresduring the current fiscal and outfl ow of Rs. 315.2 crores pertaining to the finaldividend declared in the previous fiscal year as well as the interim dividends paid duringthe year.