1 mah subsidiary anuual report 05-06

Subsidiary Companies

Mahindra Engineering & Chemical Products Limited ..................................................................................... 1

Mahindra Intertrade Limited ........................................................................................................................... 20

Mahindra Middleeast Electrical Steel Service Centre (FZC) ........................................................................... 40

Mahindra Steel Service Centre Limited .......................................................................................................... 51

Mahindra Holdings & Finance Limited ............................................................................................................ 66

Mahindra Acres Consulting Engineers Limited ............................................................................................... 83

Mahindra Holidays And Resorts India Limited ............................................................................................. 97

Mahindra Holidays & Resorts USA Inc. .......................................................................................................... 114

NBS International Limited ............................................................................................................................... 120

Mahindra Ugine Steel Company Limited ........................................................................................................ 132

Mahindra Ashtech Limited .............................................................................................................................. 168

Mahindra Gesco Developers Limited.............................................................................................................. 184

Mahindra Infrastructure Developers Limited .................................................................................................. 216

Mahindra World City Developers Limited ....................................................................................................... 228

Mahindra World City (Jaipur) Limited ............................................................................................................. 241

Mahindra World City (Maharashtra) Limited ................................................................................................... 253

Mahindra & Mahindra Financial Services Limited ........................................................................................ 262

Mahindra Insurance Brokers Limited .............................................................................................................. 305

Tech Mahindra Limited ................................................................................................................................... 321

Tech Mahindra (Americas) Inc. ....................................................................................................................... 361

Tech Mahindra GmbH.................................................................................................................................... 369

Tech Mahindra (Singapore) Pte. Limited ........................................................................................................ 376

Tech Mahindra (Thailand) Limited ................................................................................................................... 391

Tech Mahindra (R & D Services) Limited ....................................................................................................... 396

Tech Mahindra (R & D Services), Inc. ............................................................................................................ 413

Tech Mahindra (R & D Services) Pte. Limited ................................................................................................ 421

Tech Mahindra Foundation ............................................................................................................................. 430

Bristlecone Limited ......................................................................................................................................... 436

Bristlecone Inc. ............................................................................................................................................... 446

Bristlecone India Limited ................................................................................................................................ 458

Bristlecone (Singapore) Pte. Ltd. .................................................................................................................... 474

Bristlecone GmbH ........................................................................................................................................... 492

Bristlecone UK Limited ................................................................................................................................... 504

Mahindra Logisoft Business Solutions Limited .............................................................................................. 510

Automartindia Limited ..................................................................................................................................... 522

Mahindra USA, Inc. ......................................................................................................................................... 536

Mahindra Gujarat Tractor Limited ................................................................................................................... 544

Mahindra Shubhlabh Services Limited............................................................................................................ 559

Mahindra And Mahindra South Africa (Proprietary) Limited ........................................................................... 573

Mahindra Engineering Design & Development Company Limited ................................................................. 584

Mahindra Overseas Investment Company (Mauritius) Limited ...................................................................... 597

Mahindra (China) Tractor Company Limited ................................................................................................... 606

Mahindra-BT Investment Company (Mauritius) Limited ................................................................................. 614

Mahindra Europe s.r.l. ..................................................................................................................................... 622

Mahindra SAR Transmission Private Limited.................................................................................................. 637

Plexion Technologies (India) Private Limited .................................................................................................. 654

Plexion Technologies (UK) Limited ................................................................................................................. 671

Plexion Technologies GmbH ........................................................................................................................... 677

Plexion Technologies Inc. ............................................................................................................................... 686

Stokes Group Limited ..................................................................................................................................... 695

Stokes Forgings Dudley Limited ..................................................................................................................... 702

Jensand Limited .............................................................................................................................................. 713

Stokes Forgings Limited ................................................................................................................................. 724

Mahindra Renault Private Limited ................................................................................................................... 734

Mahindra Automotive Steels Limited ............................................................................................................. 747

Mahindra International Limited ....................................................................................................................... 763

1

MAHINDRA ENGINEERING & CHEMICAL PRODUCTS LIMITED

Directors’ Report to the Shareholders

Your Directors have pleasure in presenting their Fifty-second Annual Report along with the audited accounts of the Company for theyear ended 31st March, 2006.

FINANCIAL RESULTS

(Rs. in lakhs)

2006 2005

Sales & Income from Operations.............................................................................................. 5078.20 5114.83

Other Income ............................................................................................................................ 300.05 772.83

Increase in Stocks ..................................................................................................................... 90.56 100.55

Total .......................................................................................................................................... 5468.81 5988.21

Profit before Interest, Depreciation, Taxation and Extra-ordinary Items ................................... 1060.83 1631.79

Less : Interest .......................................................................................................................... 3.80 60.91

Depreciation .............................................................................................................................. 100.10 86.50

Profit before Taxation ................................................................................................................ 956.93 1484.38

Provision for Taxation................................................................................................................

- Current Tax .................................................................................................................. (345.00) (525.00)

- Deferred Tax ................................................................................................................ 15.00 (1.00)

- Fringe Benefit Tax........................................................................................................ (16.00) —

- Excess Provision for current taxation for earlier years ................................................ 3.62 —

Profit after Taxation ................................................................................................................... 614.55 958.38

Balance of Profit brought forward from last year ...................................................................... 1919.06 960.68

Profit & Loss Account Balance carried forward ........................................................................ 2533.61 1919.06

DIVIDENDDIVIDENDDIVIDENDDIVIDENDDIVIDEND

Your Directors do not recommend a dividend for the year underreview as the Company needs to conserve resources for its futureplans.

OPERAOPERAOPERAOPERAOPERATIONSTIONSTIONSTIONSTIONS

The Engineering Division of the Company has shown a growthof 26% in sales volume. The M-Seal Division has shown amarginal decline as compared to the previous year and thus theoverall operating results for the year showed a marginal decreasein the sales.

The profit after tax for the year was Rs. 614.55 lakhs as againstRs. 958.38 lakhs achieved in the last year. The M-Seal Divisionmaintained its leading position in the cable jointing kit businessacross the country. With the addition of the Heat Shrink range toCable Jointing Kits, this Division has forayed into Gulf and EastAfrican markets where demand is on the increase for powercable jointing kits.

The impetus to the Company's operations from the EngineeringDivision has also been steadily picking up with the two ServiceCentres opened in Delhi to cater to the major customers of yourCompany. Material Handling Systems suiting the needs ofCement Industries were supplied during the year.

CURRENT YEARCURRENT YEARCURRENT YEARCURRENT YEARCURRENT YEAR

The outlook for the current year seems to be promising as yourCompany has procured several orders for both its Engineeringand M-Seal Divisions which is expected to be completed withinthe next 4 to 6 months.

Your Company expects an increase in demand for its existingproducts in Cable Jointing Kits due to addition of the Heat Shrinkrange which has provided an opportunity to the Companyto market its products abroad. Your Company is geared upto meet quality specifications and delivery schedules and isconfident of increasing its share in the global market.

CORPORACORPORACORPORACORPORACORPORATE SOCIAL RESPONSIBILITY ITE SOCIAL RESPONSIBILITY ITE SOCIAL RESPONSIBILITY ITE SOCIAL RESPONSIBILITY ITE SOCIAL RESPONSIBILITY INITIANITIANITIANITIANITIATIVESTIVESTIVESTIVESTIVES

As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced theirsocial well being. Since its inception, the Mahindra Group hasalways been engaged in activities which add value to thecommunity around us. A step forward was taken in thisdirection by the announcement made on the occasion of the60

th Anniversary of Mahindra & Mahindra Limited, the holding

company, that the Group would support a range of CorporateSocial Responsibility (CSR) initiatives by committing 1% ofProfit after Tax (PAT) on a continuing basis. The 1% PAT would

2


specifically benefit the economically disadvantaged andsocially weaker sections of the society. Accordingly, the Boardof your Company has resolved to contribute to recognisedcharitable and/or other Institutions, including K. C. MahindraEducation Trust and/or Mahindra Foundation, not related tothe business of the Company or the welfare of the employees,towards Corporate Social Responsibilities of the Company,such amounts which in the aggregate in any financial year willnot exceed 1% of the Company’s estimated PAT for the yearon a continuing basis until further review by the Board.

A beginning in this direction was made by your Company duringthe current year by making a contribution of Rs.9.54 lakhs toK. C. Mahindra Education Trust, after obtaining the approval ofthe Members at their Extraordinary General Meeting held on12th January, 2006.

DIRECTORS’ RESPONSIBILITY STDIRECTORS’ RESPONSIBILITY STDIRECTORS’ RESPONSIBILITY STDIRECTORS’ RESPONSIBILITY STDIRECTORS’ RESPONSIBILITY STAAAAATEMENTTEMENTTEMENTTEMENTTEMENT

Pursuant to section 217(2AA) of the Companies Act, 1956,your Directors, based on the representation receivedfrom the Operating Management, and after due enquiry,confirm that:

(i) in the preparation of the annual accounts, the applicableaccounting standards have been followed;

(ii) they have, in the selection of the accounting policies,consulted the Statutory Auditors and these have beenapplied consistently and reasonable and prudent judgmentsand estimates have been made so as to give a true andfair view of the state of affairs of the Company as at 31st

March, 2006 and of the profit of the Company for the yearended on that date;

(iii) proper and sufficient care has been taken for themaintenance of adequate accounting records inaccordance with the provisions of the Companies Act,1956 for safeguarding the assets of the Company andfor preventing and detecting fraud and otherirregularities;

(iv) the annual accounts have been prepared on a going concernbasis.

DIRECTORSDIRECTORSDIRECTORSDIRECTORSDIRECTORS

Mr. C. S. Devale retires by rotation, and being eligible, offershimself for re-appointment.

AUDIT COMMITTEEAUDIT COMMITTEEAUDIT COMMITTEEAUDIT COMMITTEEAUDIT COMMITTEE

The Audit Committee presently comprises Mr. Hemant Luthra(Chairman of the Committee), Mr. Raghunath Murti and Mr. C.S. Devale. The Audit Committee met twice during the year underreview.

AUDITORSAUDITORSAUDITORSAUDITORSAUDITORS

Messrs. A. F. Ferguson & Co., Chartered Accountants, retire as

Auditors of the Company and have given their consent for re-appointment. The shareholders will be required to appointauditors for the current year and fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromthe above Auditors to the effect that their re-appointment, if made,would be in conformity with the limits specified in the said section.

DEPOSITS AND LOANS/ADVDEPOSITS AND LOANS/ADVDEPOSITS AND LOANS/ADVDEPOSITS AND LOANS/ADVDEPOSITS AND LOANS/ADVANCESANCESANCESANCESANCES

The Company has not accepted deposits from the public or itsemployees during the year under review.

The Company has not made loans/advances which are requiredto be disclosed in the annual accounts of the Company pursuantto Clause 32 of the Listing Agreement with the parent company,Mahindra & Mahindra Limited.

CONSERCONSERCONSERCONSERCONSERVVVVVAAAAATION OF ENERGYTION OF ENERGYTION OF ENERGYTION OF ENERGYTION OF ENERGY, TECHNOLOGY ABSORPTION, TECHNOLOGY ABSORPTION, TECHNOLOGY ABSORPTION, TECHNOLOGY ABSORPTION, TECHNOLOGY ABSORPTIONAND FOREIGN EXCHANGE EARNINGS AND OUTGOAND FOREIGN EXCHANGE EARNINGS AND OUTGOAND FOREIGN EXCHANGE EARNINGS AND OUTGOAND FOREIGN EXCHANGE EARNINGS AND OUTGOAND FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars required to be disclosed under the Companies(Disclosure of Particulars in the Report of Board of Directors)Rules, 1988 are given in the enclosed Annexure ‘A’ to this Report.

INDUSTRIAL RELAINDUSTRIAL RELAINDUSTRIAL RELAINDUSTRIAL RELAINDUSTRIAL RELATIONSTIONSTIONSTIONSTIONS

Industrial Relations generally remained cordial throughout theyear.

SAFETYSAFETYSAFETYSAFETYSAFETY, HEAL, HEAL, HEAL, HEAL, HEALTH AND ENVIRONMENTTH AND ENVIRONMENTTH AND ENVIRONMENTTH AND ENVIRONMENTTH AND ENVIRONMENTAL PERFORMANCEAL PERFORMANCEAL PERFORMANCEAL PERFORMANCEAL PERFORMANCE

Your Company’s commitment towards safety, health andenvironment is being continuously enhanced by its variousinitiatives on safety awareness, health surveys of employees,recycling of wastes, etc. The health survey of employees isconducted once in every two years. Your Company maintainsgreen surrounding at the factory and has started recyclingwooden pallets and packing paper to save on fast depletingnatural resources. The requirements relating to variousenvironmental legislations and environment protection have beenduly complied by your Company.

PPPPPARARARARARTICULARS OF EMPLOYEES AS REQUIRED UNDERTICULARS OF EMPLOYEES AS REQUIRED UNDERTICULARS OF EMPLOYEES AS REQUIRED UNDERTICULARS OF EMPLOYEES AS REQUIRED UNDERTICULARS OF EMPLOYEES AS REQUIRED UNDERSECTION 217(2A) OF THE COMPSECTION 217(2A) OF THE COMPSECTION 217(2A) OF THE COMPSECTION 217(2A) OF THE COMPSECTION 217(2A) OF THE COMPANIES ACTANIES ACTANIES ACTANIES ACTANIES ACT, 1956 AND, 1956 AND, 1956 AND, 1956 AND, 1956 ANDRULES FRAMED THEREUNDERRULES FRAMED THEREUNDERRULES FRAMED THEREUNDERRULES FRAMED THEREUNDERRULES FRAMED THEREUNDER

The Company had no employee who was in receipt ofremuneration of not less than Rs.24,00,000 during the year ended31st March, 2006 or not less than Rs.2,00,000 per month duringany part thereof.

For and on behalf of the Board

Hemant Luthra

Chairman

Mumbai, 27th April, 2006.

3


Annexure 'A' to the Directors’ Report

PARTICULARS AS PER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES,

1988 AND FORMING PART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED 31ST MARCH, 2006.

A. CONSERVATION OF ENERGY

Besides maintaining and consolidating on the efforts madeearlier, the Company has further taken the following stepsto save energy :

1. Process–controls have been established over allpossible areas in ACH Department to reduce theindefinite energy requirement.

2. Efficient temperature control systems have beeninstalled on Injection Moulding Machine in Heat Shrinkarea to reduce the energy requirement.

B. TECHNOLOGY ABSORPTION

Research & Development :

Specific areas in which Research & Development (R&D)was carried out by the Company :

1. New Product Development :-

i) Heat Shrink Stress Control Mastics for 11 to 33KV, XLPE cables have been developed andsuccessfully productionized.

ii) Heat Shrink Dual-wall Tubes have beensuccessfully productionized.

iii) Heat Shrink Cable Terminations and Joints for 33KV voltage have been developed andproductionized.

iv) Prototype of 245 KV Operating Rod for ABB hasbeen successfully developed and is currently undergoing validation tests in a circuit breaker atcustomer’s end.

v) BHEL 420 KV - Operating Rod and Blast Cylinderhave been developed by zero degree windingtechnique.

2. Future Action Plan:-

The Company has plans for new product development,improvement in quality and reduction in costs.

Some of the major products under development are:-

i) Insulating Rod for Alstom for 245/420 KVapplication.

ii) Tap Changer Cylinder for BHEL, Bhopal.

iii) 145 KV Operating Rod for Vijay Electricals.

iv) Pipeline Coating.

v) Polymeric Insulators up to 36 KV.

vi) Thick-wall anti-tracking tubes for Heat Shrink 11KV to 33 KV applications.

vii) Dual-wall Tubes in medium thickness for HeatShrink Kits.

viii) 11 KV & 33 KV Stress Control Mastics for PILCapplication.

ix) Black Sealing Mastic for Heat Shrink kits andterminations.

x) Semi-Conducting & Insulating Tapes.

xi) Design for Kits upto 33 KV for export market.

3. Expenditure on R & D : -

Rs. in lakhs

2006 2005

(i) Capital 0.00 1.68

(ii) Recurring 30.52 56.63

30.52 58.31

Percentage of Total R & D

Expenditure to Total Turnover 0.66% 1.27%

C. FOREIGN EXCHANGE EARNINGS & OUTGO

Particulars with regard to Foreign Exchange Earnings andOutgo are given in the Notes on Accounts.


Hemant Luthra

ChairmanMumbai, 27th April, 2006.

4


Auditors' Report to the Members of Mahindra Engineering and Chemical Products Limited

1. We have audited the attached Balance Sheet of MahindraEngineering and Chemical Products Limited as at 31stMarch, 2006 and also the Profit and Loss Account and theCash Flow Statement for the year ended on that dateannexed thereto. These financial statements are theresponsibility of the Company’s management. Ourresponsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with the auditingstandards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are freeof material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessingthe accounting principles used and significant estimatesmade by the management, as well as evaluating the overallfinancial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order,2003 issued by the Central Government of India in terms ofsub-section (4A) of Section 227 of the Companies Act, 1956,we enclose in the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to inparagraph 3 above, we report that:

(a) we have obtained all the information and explanationswhich to the best of our knowledge and belief werenecessary for the purposes of our audit;

(b) in our opinion, proper books of account as required bylaw have been kept by the Company so far as appearsfrom our examination of the books;

(c) the Balance Sheet, Profit and Loss Account and Cash

Flow Statement dealt with by this report are inagreement with the books of account;

(d) in our opinion, the Balance Sheet, Profit and LossAccount and Cash Flow Statement dealt with by thisreport comply with the accounting standards referredto in sub-section (3C) of Section 211 of the CompaniesAct, 1956;

(e) on the basis of written representations received fromthe directors, as on 31st March, 2006 and taken onrecord by the Board of Directors, we report that noneof the directors is disqualified as on 31st March, 2006,from being appointed as a director in terms of Clause(g) of sub-section (1) of Section 274 of the CompaniesAct, 1956;

(f) in our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts give the information required by theCompanies Act, 1956 in the manner so required andgive a true and fair view in conformity with the accountingprinciples generally accepted in India;

(i) in the case of Balance Sheet, of the state of affairsof the Company as at 31st March, 2006;

(ii) in the case of the Profit and Loss Account, of theprofit for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of thecash flows for the year ended on that date.

For A.F. Ferguson & Co.

Chartered Accountants

G. Shankar

PartnerPune, 27th April, 2006 Membership No. 27023

5


Annexure referred to in paragraph 3 of the Auditors’ Report

of even date to the Members of Mahindra Engineering and

Chemical Products Limited on the accounts for the year

ended 31st March, 2006.

(i) (a) The Company has maintained proper records showingfull particulars including quantitative details and situationof fixed assets.

(b) As informed to us, the fixed assets have been physicallyverified by the management during the year and nomaterial discrepancies were noticed on suchverification. In our opinion, the frequency of physicalverification of fixed assets is reasonable having regardto the size of the Company and the nature of the assets.

(c) The fixed assets disposed off during the year are notsubstantial and hence it has not affected the goingconcern assumption.

(ii) (a) Inventories have been physically verified during theyear by the management (except for items lying withthird parties for which confirmation have beenreceived). In our opinion, the frequency of verificationis reasonable.

(b) In our opinion, the procedures of physical verificationof inventory followed by the management arereasonable and adequate in relation to the size of theCompany and the nature of its business.

(c) The Company has maintained proper records ofinventory. The discrepancies noticed on verificationbetween physical stocks and book stocks were notmaterial having regard to the size of operations of theCompany and have been properly dealt with in thebooks of accounts.

(iii) According to the information and explanations given to us,the Company has not granted or taken any loans, securedor unsecured to/from companies, firms or other partiescovered in the register maintained under Section 301 ofthe Companies Act, 1956. Sub-clauses (b), (c), (d), (f) and(g) are not applicable.

(iv) In our opinion and according to the information andexplanations given to us and having regard to theexplanation that most of the items purchased are of aspecial nature and comparable alternative quotations arenot available, there is an adequate internal control systemcommensurate with the size of the Company and thenature of its business, with regard to purchase of inventoryand fixed assets and for the sale of goods and services.During the course of our audit, no major weakness hasbeen noticed in the internal controls.

(v) (a) Based upon the audit procedures performed andaccording to the information and explanations given to us,

there are no contracts or arrangements that need to beentered into the register maintained in pursuance ofSection 301 of the Companies Act, 1956. Sub-clause (b) isnot applicable.

(vi) The Company has not accepted any deposits from thepublic to which the provisions of Sections 58A, 58AA orany other relevant provisions of the Companies Act, 1956and the rules framed there under apply.

(vii) The Company has an internal audit system commensuratewith its size and nature of its business.

(viii) We have been informed that the Central Government hasnot prescribed the maintenance of cost records by theCompany under Section 209(1)(d) of the Companies Act,1956 for any of its products.

(ix) (a) According to the records of the Company, the Companyhas been regular in depositing undisputed statutorydues including Provident Fund, Employees’ StateInsurance, Investor Education and Protection Fund,Income tax, Sales tax, Wealth tax, Service tax, CustomDuty, Excise Duty, Cess and other statutory dues withthe appropriate authorities. Based on our auditprocedures and according to the information andexplanations given to us, there are no arrears ofstatutory dues which has remained outstanding as at31st March, 2006 for a period of more than six monthsfrom the date they became payable.

(b) According to the information and explanations given tous and records of the Company, the details of the duesof sales tax/income tax/custom duty/wealth tax/servicetax/excise duty/cess, which have not been depositedon account of any dispute, are given below:

Nature of Amount Forum where dispute isthe Dues (Rs.) pending

Sales Tax 520,756 Assistant Commissioner(F.Y. 2000–01) of Sales Tax, Pune

Income Tax 254,403 Commissioner of Income(A.Y. 2000–01) Tax (Appeals), Mumbai

(x) The Company does not have any accumulated losses asat 31st March, 2006. The Company has not incurred anycash losses during the financial year covered by our auditand the immediately preceding financial year.

(xi) Based on our audit procedures and on the informationand explanations given by the management, the Companyhas not defaulted in repayment of dues to banks andfinancial institutions. There are no dues to debentureholders.

Annexure to the Auditors' Report

6


(xii) The Company has not granted any loans and advances onthe basis of security by way of pledge of shares, debenturesand other securities.

(xiii) The Company is not a chit fund, nidhi/mutual benefit fundand therefore the requirements pertaining to such class ofcompanies are not applicable.

(xiv) The Company is not dealing or trading in shares, securities,debentures and other investments.

(xv) The Company has not given any guarantee for loans takenby others from banks or financial institutions.

(xvi) There were no term loans taken during the year.

(xvii) The funds raised on short-term basis have not been usedfor long-term investment.

(xviii) The Company has not made any preferential allotmentof shares to parties and companies covered in theRegister maintained under section 301 of the CompaniesAct, 1956.

(xix) The Company has not issued any debentures during theperiod and therefore the question of creating security orcharge in respect thereof does not arise.

(xx) The Company has not made any public issue and thereforethe question of disclosing the end use of money does notarise.

(xxi) Based upon the audit procedures performed and accordingto the information and explanations given andrepresentations made by the management, we report thatno fraud on or by the Company had been noticed orreported during the period.

For A.F. Ferguson & Co.,


G. Shankar

PartnerPune, 27th April, 2006 Membership No. 27023

7


Balance Sheet as at 31st March, 2006

2006 2005Schedule Rupees Rupees Rupees

SOURCES OF FUNDS:

Shareholders’ Funds:Capital ......................................................................................... I 53,984,720 53,984,720Reserves and Surplus ................................................................. II 254,376,501 192,921,467

308,361,221 246,906,187Loan Funds: ............................................................................... IIIUnsecured Loans ........................................................................ 553,261 31,007,080Deferred Tax Balance:Deferred Tax Liability .................................................................. 14,000,000 14,100,000Less: Deferred Tax Asset ........................................................... 2,300,000 900,000

11,700,000 13,200,000

Total ............. 320,614,482 291,113,267

APPLICATION OF FUNDS:

Fixed Assets ............................................................................... IVGross Block ................................................................................. 217,586,741 211,902,539Less: Depreciation/Amortisation ................................................. 127,411,341 117,549,187

Net Block .................................................................................... 90,175,400 94,353,352Add: Capital Advance .................................................................. 797,660 —

90,973,060 94,353,352

Investments ............................................................................... V 35,643,232 —Current Assets, Loans and Advances: ..................................... VIInventories .................................................................................. 66,246,203 59,488,440Sundry Debtors ........................................................................... 129,240,854 157,828,963Cash and Bank Balances ............................................................. 18,294,975 14,646,574Other Current Assets .................................................................. 179,353 42,207Loans and Advances ................................................................... 11,994,246 13,804,293

225,955,631 245,810,477

Less:Current Liabilities and Provisions: ........................................... VIICurrent Liabilities ........................................................................ 62,708,951 100,194,716Provisions .................................................................................... 11,163,706 6,996,310

73,872,657 107,191,026

Net Current Assets .................................................................... 152,082,974 138,619,451Miscellaneous Expenditure (to the extent not written off) ......... VIII 41,915,216 58,140,464

Total ............. 320,614,482 291,113,267

NOTES TO THE ACCOUNTS .................................................... XV

Per our report attached



G. Shankar

Partner

Pune, 27th April, 2006

Hemant Luthra Chairman

C.S. Devale Executive Director

Raghunath Murti Director

Mumbai, 27th April, 2006

8


Profit and Loss Account for the Year ended 31st March, 2006


INCOME:

Gross Sales ................................................................................. 488,288,440 488,226,824

Less: Excise Duty ...................................................................... 26,641,315 29,697,147

Net Sales ..................................................................................... 461,647,125 458,529,677

Service Charges .......................................................................... 46,173,016 52,953,062

Other Income .............................................................................. IX 30,005,554 77,283,066

Increase/(Decrease) in stocks of finished goods and work-in-

process ....................................................................................... X 9,055,482 10,055,532

546,881,177 598,821,337

EXPENDITURE:

Consumption of Raw Materials, Stores, etc. .............................. XI 247,896,077 220,849,924

Purchase of Finished Goods for Resale ...................................... 8,729,896 32,043,281

Personnel .................................................................................... XII 71,207,818 64,238,573

Interest ........................................................................................ XIII 380,382 6,091,448

Depreciation/Amortisation .......................................................... 10,010,395 8,650,257

Other Expenses .......................................................................... XIV 112,963,813 118,510,023

451,188,381 450,383,506

PROFIT BEFORE TAXATION ..................................................... 95,692,796 148,437,831

Less: Provision for Taxation

Current Tax ...................................................................... 34,500,000 52,500,000

Deferred Tax .................................................................... (1,500,000) 100,000

Fringe Benefit Tax ............................................................ 1,600,000 —

PROFIT AFTER TAXATION ....................................................... 61,092,796 95,837,831

Add: Excess Provision for current taxation for earlier years .... 362,238 —

NET PROFIT ............................................................................... 61,455,034 95,837,831

Balance of Profit brought forward from last year ........................ 191,906,023 96,068,192

Profit and Loss Account Balance carried to the Balance Sheet .. 253,361,057 191,906,023

Basic Earnings Per Share (Nominal Value per share Rs. 10) ....... 11.38 17.75

Diluted Earnings Per Share (Nominal per share Rs. 10) .............. 11.38 17.75NOTES TO THE ACCOUNTS .................................................... XV

Per our report attached to the Balance Sheet



G. Shankar

Partner






9


Cash Flow Statement

2006 2005Rupees Rupees Rupees Rupees

A. CASH FLOW FROM OPERATING ACTIVITIES:

Net Profit Before Tax .................................................... 95,692,796 148,437,831

Adjustments for:

Depreciation ................................................................. 10,010,395 8,650,257

Interest Expense .......................................................... 380,382 6,091,448

Amortisation of Expenses ............................................ 16,225,248 16,225,248

Investment and Other Income ..................................... (4,054,332) (56,159,917)

(Profit)(–)/Loss(+) on Redemption/Sale of Investments(Net) .............................................................................. — (24,085)

(Profit)(–)/Loss(+) on Sale of Fixed Assets (Net) .......... 132,422 900,781

22,694,115 (24,316,268)

Operating Profit before Working Capital Changes ....... 118,386,911 124,121,563

Adjustments for Changes in Working Capital

Trade and Other Receivables ....................................... 28,588,109 (60,963,437)

Loans and Advances .................................................... 1,810,047 (1,819,936)

Inventories .................................................................... (6,757,763) (31,168,728)

Current Liabilities .......................................................... (37,485,765) 47,524,715

Provisions ..................................................................... (283,926) 143,668

(14,129,298) (46,283,718)

Cash generated from/(utilised in) Operations ............... 104,257,613 77,837,845

Direct Taxes Paid.......................................................... (31,286,440) (29,119,848)

NET CASH FROM OPERATING ACTIVITIES ............. 72,971,173 48,717,997

B. CASH FLOW FROM INVESTING ACTIVITIES:

Fixed Assets: Purchase ................................................ (6,830,117) (37,706,651)

Sale ............................................................................... 67,592 175,000

Investments: Purchase................................................. (85,738,111) (107,343,973)

Redemption/Sale of Investments ................................. 50,094,879 107,370,179

Interest Received ......................................................... 3,179,076 55,033,795

Dividend Received........................................................ 738,110 1,004,597

NET CASH FROM INVESTING ACTIVITIES .................. (38,488,571) 18,532,947

C. CASH FLOW FROM FINANCING ACTIVITIES:

Repayment of term borrowings ................................... (30,453,819) (87,973,263)

Interest Paid ................................................................. (380,382) (6,091,448)

NET CASH UTILISED IN FINANCING ACTIVITIES ....... (30,834,201) (94,064,711)

NET INCREASE/(DECREASE) IN CASH AND CASH

EQUIVALENTS ............................................................. 3,648,401 (26,813,767)

CASH AND CASH EQUIVALENTS:

Opening Balance .......................................................... 14,646,574 41,460,341

Closing Balance ............................................................ 18,294,975 14,646,574

3,648,401 (26,813,767)

10


Notes:

1. Figures in brackets represent outflows of cash and cash equivalents.

2. Cash and cash equivalents comprise of:

2006 2005 2004Rupees Rupees Rupees

Cash in Hand ................................................................ 91,502 53,026 18,802

Remittance in Transit ................................................... — — 232,000

Balance with Scheduled Banks:

On Current Account ................................................ 12,380,739 8,129,548 35,029,539

On Deposit Account [includes Rs. 5,822,734 (2005:Rs. 6,464,000; 2004: Rs. 6,180,000) under lien)] .... 5,822,734 6,464,000 6,180,000

18,294,975 14,646,574 41,460,341




G. Shankar

Partner






11


Schedules forming part of the Balance Sheet as at 31st March, 2006

SCHEDULE IV

FIXED ASSETS:

COST DEPRECIATION/AMORTISATION NET BOOK VALUE

As on 31st Additions Deductions As on 31st Upto 31st For the Deductions Upto 31st As on 31st As on 31stDescription March, during the during the March, March, year during the March, March, March,

2005 year year 2006 2005 year 2006 2006 2005

Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees

TANGIBLE ASSETS:

Freehold Land ........................................................... 8,826,776 — — 8,826,776 — — — — 8,826,776 8,826,776

Buildings ................................................................... 41,261,463 — — 41.261,463 16,044,310 1,168,918 — 17,213,228 24,048,235 25,217,153

Plant and Machinery .................................................. 141,864,768 5,659,737 348,255 147,176,250 91,367,309 6,710,930 148,241 97,929,998 49,246,252 50,497,459

Furniture and Fixtures ............................................... 8,608,893 — — 8,608,893 6,428,616 285,790 — 6,714,406 1,894,487 2,180,277

Vehicles ..................................................................... 3,350,008 — — 3,350,008 2,795,128 247,560 — 3,042,688 307,320 554,880

Assets taken on Finance Lease:Vehicles ..................................................................... 1,898,872 — — 1,898,872 435,908 180,393 — 616,301 1,282,571 1,462,964

INTANGIBLE ASSET:

(Other than internally generated)

Technical Know-how ................................................. 5,283,759 — — 5,283,759 390,853 1,056,752 — 1,447,605 3,836,154 4,892,906

Software ................................................................... 808,000 372,720 — 1,180,720 87,063 360,052 — 447,115 733,605 720,937

Total .......................................................................... 211,902,539 6,032,457 348,255 217,586,741 117,549,187 10,010,395 148,241 127,411,341 90,175,400 94,353,352

Capital Advance ........................................................ 797,660 —

90,973,060 94,353,352

Previous year ............................................................ 181,426,843 37,706,651 7,230,955 211,902,539 115,054,108 8,650,257 6,155,178 117,549,187 94,353,352

SCHEDULE I 2006 2005CAPITAL: Rupees RupeesAUTHORISED:5,500,000 Equity Shares of Rs. 10 each ............. 55,000,000 55,000,0002,500,000 Redeemable Preference Shares of

Rs. 100 each ...................................... 250,000,000 250,000,000

305,000,000 305,000,000

ISSUED, SUBSCRIBED AND PAID-UP:

5,398,472 Equity Shares of Rs. 10 each ............. 53,984,720 53,984,720

Of the above:

a) 111,006 shares have been allotted as fullypaid-up pursuant to a contract forconsideration other than cash.

b) 108,872 shares have been allotted pursuantto a Scheme of Amalgamationwithout payment having beenreceived in cash.

c) 64,880 shares have been allotted to theshareholders of the erstwhileMahindra Owen Limited (on receiptof necessary approvals) pursuant to aScheme of Amalgamation sanctionedby Board for Industrial and FinancialReconstruction without paymenthaving been received in cash.

d) 5,378,235 shares are held by Mahindra &Mahindra Limited, the HoldingCompany, either on its own or jointlywith others.

e) 20,237 shares are held by Mahindra Holdings& Finance Limited, subsidiary ofMahindra & Mahindra Limited

Total ............ 53,984,720 53,984,720

SCHEDULE II 2006 2005RESERVES AND SURPLUS: Rupees Rupees Rupees

Capital Reserve:

As per last Balance Sheet ............ 1,015,444 1,015,444

General Reserve:

As per last Balance Sheet ............ — —

Add: Transfer from Profit and LossAccount ........................................ — —

— —

Balance in Profit and Loss Account 253,361,057 191,906,023

Total ......... 254,376,501 192,921,467

SCHEDULE III 2006 2005LOAN FUNDS: Rupees Rupees

Unsecured Loans:

Short Term Loans and Advances from other thanBanks .................................................................... — 30,000,000

Other Loans and Advances from other than Banks (inrespect of assets taken on finance lease) [Repayablewithin a year Rs. 553,261 (2005: Rs. 453,819)] ..... 553,261 1,007,080

Total ............ 553,261 31,007,080

12


Schedules forming part of the Balance Sheet as at 31st March, 2006 (Contd…)

SCHEDULE V 2006 2005INVESTMENTS: Rupees Rupees

CURRENT INVESTMENTS:Non-Trade, UnquotedUnits of Mutual Funds3,563,610 PFRCDD Prudential ICICI Floating Rate

(2005: NIL) .... Plan C — Daily DividendOption ................................................ 35,643,232 —

Total ............ 35,643,232 —

The following investments (current investments,non-trade, unquoted) were purchased and sold duringthe year:

No. Costof Units Rs.

PFRPDD Prudential ICICI Floating Rate Plan — DailyDividend ................................................................ 1,504,896 15,050,764PFRCDD Prudential ICICI Floating Plan C — DailyDividend ................................................................ 2,753,552 27,540,518HDFC Cash Management Fund — Saving Plan —Dividend Reinvestment ......................................... 705,464 7,503,597

The following investments (current investments,non-trade, unquoted) were purchased and sold duringthe previous year:

No. Costof Units Rs.

P 32 IND Prudential ICICI Institutional Liquid Plan— Daily Dividend Option ....................................... 2,806,077 33,252,585PFRPD Prudential ICICI Floating Rate Plan —Dividend ................................................................ 1,172,783 11,779,761P 32 D Prudential ICICI Liquid Plan — Daily DividendOption ................................................................... 682,617 8,089,970GFRD Grindlays Floating Rate Fund — DailyDividend ................................................................ 1,108,658 11,164,081Templeton Floating Rate Income Fund — ShortTerm Plan .............................................................. 2,257,259 22,583,384HDFC Floating Rate Income Fund — Short TermPlan — Dividend Reinvestment ............................. 2,042,897 20,474,190

SCHEDULE VI 2006 2005CURRENT ASSETS, LOANS AND ADVANCES: Rupees Rupees

A. Inventories:Raw Materials and Components .................... 32,481,054 34,536,825Packing Materials ........................................... 781,541 1,023,489Work-in-Process ............................................. 30,177,471 18,041,012Finished Goods .............................................. 2,806,137 5,887,114

66,246,203 59,488,440

B. Sundry Debtors (Unsecured):Outstanding over Six Months:Considered Good ........................................... 10,929,210 14,785,466Considered Doubtful ...................................... 6,900,310 2,592,912

17,829,520 17,378,378Other Debts:Considered Good ........................................... 118,311,644 143,043,497

136,141,164 160,421,875Less: Provision for Doubtful Debts ................ 6,900,310 2,592,912

129,240,854 157,828,963

C. Cash and Bank Balances:Cash in Hand .................................................. 91,502 53,026With Scheduled Banks:On Current Account ....................................... 12,380,739 8,129,548On Deposit Account [includes Rs. 5,822,734(2005: Rs. 6,464,000) under lien] ................... 5,822,734 6,464,000

18,294,975 14,646,574

SCHEDULE VI (Contd.) 2006 2005CURRENT ASSETS, LOANS AND ADVANCES: Rupees Rupees

D. Other Current Assets:Interest Receivable ........................................ 179,353 42,207

179,353 42,207

E. Loans and Advances: (Unsecured,considered good, unless otherwise stated):Advances Recoverable in Cash or in Kind orfor value to be received ................................. 10,110,906 12,087,973Advance Payment of Income Tax [net ofprovisions] (current tax) .................................. — —Balance with Central Excise on CurrentAccount .......................................................... 1,883,340 1,716,320

11,994,246 13,804,293

Total ............ 225,955,631 245,810,477

SCHEDULE VII 2006 2005CURRENT LIABILITIES AND PROVISIONS: Rupees Rupees

A. Liabilities:Sundry Creditors:Due to Creditors other than Small ScaleIndustrial Undertakings .................................. 53,969,938 78,497,019Due to Small Scale Industrial Undertakings(See Note 5 Schedule XV) .............................. 3,584,736 8,347,047

57,554,674 86,844,066Advances from Customers ............................ 5,154,277 13,350,650

62,708,951 100,194,716

B. Provisions:Leave Encashment ........................................ 2,949,108 3,233,034Fringe Benefit Tax .......................................... 118,181 —Tax Provision Less Payments (Current Tax) ... 8,096,417 3,763,276

11,163,706 6,996,310

Total ............ 73,872,657 107,191,026

SCHEDULE VIII 2006 2005MISCELLANEOUS EXPENDITURE: Rupees Rupees(to the extent not written off or adjusted)Voluntary Retirement Scheme Compensation ...... 41,915,216 58,140,464

Total ............ 41,915,216 58,140,464

Schedules forming part of the Profit and Loss

Account for the Year ended 31st March, 2006SCHEDULE IX 2005–2006 2004–2005OTHER INCOME: Rupees Rupees

Dividend on Non-trade Current Investments ......... 738,110 1,004,597Interest on Non-trade, Long Term Investments[Includes interest pertaining to earlier years Rs. Nil(2005: 51,701,269)] ............................................... — 51,701,269Interest on Refund of Income-tax ......................... 1,894,377 1,683,967Interest on Overdue Bills, Bank Deposits, Staff Loans,etc. [Tax deducted at source Rs. 41,475 (2005:Rs. 81,980)] ........................................................... 1,421,845 1,770,084Commission .......................................................... 1,989,146 71,910Packing and Freight Recoveries ............................ 2,524,477 —Profit on Sale of Long Term Investments .............. — 8,500Net Profit on Sale of Current Investments ............ — 15,585Profit on Sale of Fixed Assets ............................... 32,000 13,657Rent ...................................................................... 16,050,000 17,171,864Sundry Credits and Provisions no longer requiredwritten back .......................................................... — 547,883Exchange Gain (Net) .............................................. 1,299,379 —Miscellaneous ....................................................... 4,056,220 3,293,750

Total ............ 30,005,554 77,283,066

13


Schedules forming part of the Profit & Loss Account for the Year ended 31st March, 2006 (Contd.)

SCHEDULE X 2005–2006 2004–2005INCREASE/(DECREASE) IN STOCKS OF Rupees RupeesFINISHED GOODS AND WORK-IN-PROCESS:

Opening Stock:Finished Goods ..................................................... 5,887,114 7,382,208

Work-in-Process .................................................... 18,041,012 6,490,386

23,928,126 13,872,594

Closing Stock:Finished Goods ..................................................... 2,806,137 5,887,114

Work-in-Progress ................................................... 30,177,471 18,041,012

32,983,608 23,928,126

Total ............ 9,055,482 10,055,532

SCHEDULE XI 2005–2006 2004–2005CONSUMPTION OF RAW MATERIALS, Rupees RupeesSTORES, ETC.:

Opening Stock of Raw Material/Packing Material .... 35,560,314 14,447,118

Add: Purchases [including processing chargesRs. 7,060,774 (2005: Rs. Nil] ................................. 242,208,097 239,061,908

Less: Closing Stock ............................................... 33,262,595 35,560,314

Consumption of Raw Material/Packing Material ... 244,505,816 217,948,712

Add: Consumption of Stores, Tools for Production 3,390,261 2,901,212

Total ............ 247,896,077 220,849,924

SCHEDULE XII 2005–2006 2004–2005PERSONNEL: Rupees Rupees

Salaries, Wages, Bonus, etc. [including Rs.16,225,248 (2005: Rs. 16,225,248) being amortisationof Voluntary Retirement Scheme Compensation] . 60,960,950 55,773,883

Contribution to Provident and Other Funds [includinggratuity settlement of Rs. 919,929 (2005:Rs. 1,522,926)] ...................................................... 4,761,635 4,781,357

Welfare .................................................................. 5,485,233 3,683,333

Total ............ 71,207,818 64,238,573

SCHEDULE XIII 2005–2006 2004–2005INTEREST: Rupees Rupees

On other than fixed period loans ........................... 380,382 6,091,448

Total ............ 380,382 6,091,448

SCHEDULE XIV 2005–2006 2004–2005OTHER EXPENSES: Rupees Rupees Rupees

Rent ............................................. 426,358 437,906

Rates and Taxes [including disputedsales tax liability in respect of earlieryears settled during this year Rs. Nil2004-05: Rs. 12,190,000)] ............ 1,985,946 13,705,511Insurance ...................................... 804,984 673,652

Repairs and Maintenance:Plant and Machinery ............. 2,676,449 2,945,379

Buildings ............................... 414,813 1,764,712

Others ................................... 2,195,594 2,090,044

Power and Fuel ............................ 8,669,477 6,976,320

Auditors’ Remuneration (includesservice tax, where applicable):

Audit Fees ............................. 673,440 661,200

Fees for Other Services ........ 84,180 82,650

Out of Pocket Expenses ....... 12,277 17,790

769,897 761,640

SCHEDULE XIV (Contd.) 2005–2006 2004–2005OTHER EXPENSES: Rupees Rupees Rupees

Legal and Professional Services ... 4,752,011 4,848,513

Travelling ...................................... 7,845,307 7,018,085

Excise Duty .................................. 6,323,016 302,973

Commission on Sales ................... 3,090,715 2,026,135

Sales Service Expenses ............... 24,728,618 27,590,993

Transport and Delivery Charges ... 6,964,165 4,546,786

Office and Establishment Expensesreimbursed to Mahindra &Mahindra Limited (Net) ................ 271,437 294,854

Advertisement and Publicity ......... 1,214,062 997,374

Research and Development ......... 3,052,265 5,663,098

Sales Promotion ........................... 4,364,924 4,880,227

Donation ....................................... 954,000 —

Directors’ Fees ............................. 6,000 9,000

Sub-Contract Charges .................. 9,779,051 9,338,041

Loss on Sale/Disposal of FixedAssets .......................................... 164,422 914,438

Bad Debts Written Off ................. 23,753 676,187

Provision for Doubtful Debts(Written back) ............................... 4,307,398 (345,459)

Exchange Loss ............................. — 247,517

Miscellaneous .............................. 17,179,151 20,146,097

Total ......... 112,963,813 118,510,023

SCHEDULE XV

NOTES ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS AT31ST MARCH, 2006, AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED31ST MARCH, 2006

1. Significant Accounting Policies:

(i) Fixed Assets and Depreciation/Amortisation:

(a) Fixed assets are stated at cost of acquisition or construction lessdepreciation/amortisation. Cost comprises of the purchase price andother attributable cost, including borrowing costs, of bringing theassets to its working condition for its intended use.

(b) Depreciation on tangible fixed assets is provided on the straight linemethod at the rates and in the manner laid down in Schedule XIV to theCompanies Act, 1956, except in respect of assets costing less thanRs. 5,000/- each which are fully depreciated in the year of purchase,Intangible Assets — Technical know-how is amortised over a period of5 years and software is amortised over a period of 3 years, on astraight line basis.

(ii) Investments:

Current investments are valued at lower of cost and fair value.

(iii) Inventories:

Inventories are stated at the lower of cost and net realisable value. Indetermining the cost of raw materials and components, stores and spares,and tools, the weighted average cost method is used.

Costs of work-in-process, manufactured components and tools andmanufactured finished goods include material costs, labour and appropriatefactory overheads.

(iv) Sundry Debtors and Advances:

Specific debts and advances identified as irrecoverable or doubtful areeither written off or provided for, respectively.

(v) Foreign Exchange Transactions (other than for Fixed Assets):

Transactions in foreign currencies are recorded at the exchange rateprevailing on the date of the transaction. Realised gains and losses and also

14


SCHEDULE XV (Contd.)

NOTES ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS AT31ST MARCH, 2006, AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED31ST MARCH, 2006

exchange differences arising on translation at year end exchange rates ofcurrent assets and current liabilities outstanding at the end of the year arerecognised in the Profit and Loss Account.

(vi) Revenue Recognition:

(a) sale of goods is recognised on shipment or despatch of goods tocustomers and are net of excise duty and sales tax.

(b) Income from services rendered is accounted for when the services arerendered as per the contract terms.

(c) Dividend income from investments is recognised when the right toreceive payment is established.

(d) Interest income from investments and deposits is recognised on timeproportion basis.

(vii) Employee Benefits (including on Retirement):

(a) Retirement benefits under approved schemes are provided for in thefollowing manner:

(i) Provident Fund : by payment of contribution to Mahindra &Mahindra Limited Staff Provident Fund.

(ii) Gratuity : gratuity liability is funded with Life InsuranceCorporation of India, which is actuarially valued.

(iii) Superannuation : by payment of contribution to Life InsuranceCorporation of India.

(b) Leave : as per Company’s policies determined inEncashment accordance with actuarial valuation.

(viii) Tax expense for the year, comprising of current tax and deferred tax, isincluded in the determination of the net profit for the year. Deferred tax isrecognised on all timing differences, subject to consideration of prudencein respect of deferred tax assets.

(ix) Borrowing cost that are directly attributable to the acquisition, constructionor production of a qualifying asset are capitalised as part of the cost of thatasset. Other borrowing costs are recognised as an expense in the year inwhich they are incurred.

(x) Miscellaneous Expenditure (to the extent not written off or adjusted):

Voluntary Retirement Scheme Compensation.

Compensation paid to employees who have retired under the voluntaryretirement scheme is amortised over a period of sixty months.

2005–2006 2004–2005Rupees Rupees

2. Contingent Liabilities in respect of:

(a) Excise Duty matters pending in appeal .... 590,915 590,915

(b) Income tax matters .................................. 3,101,460 2,019,107

(c) Sales tax matters ..................................... 1,190,265 669,509

(d) Claims against the Company not acknow-ledged as debts ........................................ 25,274 8,984,982

2005–2006 2004–2005Rupees Rupees

3. Contracts remaining to be executed on capitalaccount and not provided for ......................... 1,809,441 2,231,558

4. (a) Managerial Remuneration under Section198 of the Act:

Salary and Allowances ............................. — 975,000

Performance Linked Incentive .................. — 797,000

Perquisites ............................................... — 18,034

Directors’ Sitting Fees .............................. 6,000 9,000

Total ............ 6,000 1,799,034

(b) Computation of Net Profit in Accordance with Section 309(5) of the CompaniesAct, 1956

2005–2006 2004–2005Rupees Rupees Rupees

Profit Before Tax as per Profit andLoss Account ............................... 95,692,796 148,437,831Add: Provision for Doubtful Debts, Advances, etc. ............................. 4,307,398 (345,459)

Managerial Remuneration ............ 6,000 1,799,034

4,313,398 1,453,575

100,006,194 149,891,406

Less: Profit on Sale of Investments — 15,585

Profit on Sale of Long Term Invest-ments ........................................ — 8,500

Capital Profit on Sale of Fixed Assets 19,145 —

Excess of Income over expendi-ture of earlier year ........................ — 50,906,807

19,145 50,930,892

Net Profit as per Section 309(5) ... 99,987,049 98,960,514

Commission Payable to Directors Nil Nil

5. Dues to Small Scale Industrial Undertakings have been determined on the basisof verbal confirmations from the suppliers the status whereof has been reliedupon by the Auditors. As at the year end, there were no Small Scale IndustrialUndertakings to whom the Company owed a sum which is outstanding for morethan 30 days.

6. (i) Break-up of Deferred Tax Asset: 2006 2005Rupees Rupees

Provision for Doubtful Debts .................... 2,300,000 900,000

Others ...................................................... — —

Total ............ 2,300,000 900,000

(ii) Break-up of Deferred Tax Liability:

Provision for Depreciation ........................ 10,800,000 10,900,000

Others ...................................................... 3,200,000 3,200,000

Total ............ 14,000,000 14,100,000

15


7. ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PARAGRAPHS 3 AND 4 OF PART II OF SCHEDULE VI TO THE ACT:

(i) Information regarding Capacities, Production, Stock and Sales:

Capacity Opening Stock Production Closing Stock Turnover

Class of Goods Quantitive Licensed Installed Quantity Value Quantity Quantity Value Quantity ValueDenomination (Note a) (Note b) Rupees Rupees (Note c) Rupees

(a) Manufacturing:

1. Cable Jointing Products and .................. Nos. 74,554 262,400 5,818 4,926,933 167,748 11,789 2,475,710 160,614 232,938,935Arc-Chamber Housing (74,554) (127,400) (1,838) (5,493,257) (147,921) (5,818) (4,926,933) (142,450) (240,434,429)

2. Conveyors and Bucket Elevators ........... Nos. 100 100 — — 75,491 — — 75,491 214,601,831(including parts thereof) [See Note (d)] (100) (100) (—) (—) (50,437) (—) (—) (50,437) (150,915,355)

3. Electronic Corrosion Protection Devices Nos. N.A. No — — — — — — —separate (—) (—) (26,100) (—) (—) (26,100) (16,319,757)InstalledCapacity

4. Nozzle .................................................... Nos. N.A. No — — — — — — —separate (210) (254,940) (—) #(—) #(—) (—) (—)InstalledCapacity

Total (a) .......... 4,926,933 2,475,710 447,540,766(5,748,197) (4,926,933) (407,669,541)

Opening Stock Purchases Closing Stock Turnover

Class of Goods Quantity Value Quantity Value Quantity Value Quantity ValueRupees Rupees Rupees Rupees

(b) Trading:

Cable Jointing Products and .................. Nos. — 960,181 — 8,729,896 — 330,427 — 14,106,359Arc-Chamber Housing [See Note (f)] (—) (1,634,011) (—) (32,043,281) (—) (960,181) (—) (50,860,136)

Total (b) .......... 960,181 8,729,896 330,427 14,106,359

(1,634,011) (32,043,281) (960,181) (50,860,136)

Total (a + b) ... 5,887,114 2,806,137 461,647,125(7,382,208) (5,887,114) (458,529,677)

# Scrapped during the previous year.

Notes:

(a) As per industrial licence/permission letters/acknowledged memoranda on hand, even though licensing has been abolished vide Notification No. S.O.477(E) dated 25th July,1991 issued by Government of India, Ministry of Industry, Department of Industrial Development.

(b) The installed capacity varies in accordance with the product-mix and is as certified by the management and accepted by the Auditors without verification as this is atechnical matter.

(c) The quantity of turnover is exclusive of samples and replacements.

(d) The Engineering Division manufactures various components/assemblies of conveyors and bucket elevators. The manufactured as well as bought-out components/assemblies are invoiced on delivery and are reflected in the turnover/income of the year in which they are delivered. Therefore, the Engineering Division has given quantitativedetails of both manufactured components/assembles under actual production. The bifurcation of sales into manufactured and bought-out components/assemblies is notpracticable. Manufactured components/assemblies in stock are included under "work-in-process/manufactured components”. The licensed and installed capacity disclosedis in respect of the complete system whereas the production and turnover quantities includes parts thereof.

(e) Figures for licensed and installed capacities are on an annual basis.

(f) The quantities in respect of traded goods for the year have not been furnished as traded goods comprises of a number of items dissimilar in size.

(g) Figures in brackets are in respect of the previous year.


NOTES ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS AT 31ST MARCH, 2006, AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED31ST MARCH, 2006

16




2005–2006 2004–2005Rupees Rupees

(c) Import of goods on CIF basis:Raw Materials and Components .................... 49,146,902 50,219,655Stores, Spares and Tools ............................... 127,286 308,385Traded Goods ................................................. — 216,066Capital Goods ................................................. 1,368,000 —Material for Research and Development ....... 463,873 —

51,106,061 50,744,106

(d) Expenditure in Foreign Currency:Travel ............................................................. 1,373,443 1,148,851Technical Know-how Fees (Gross) ................. — 5,283,759Royalty (Gross) ............................................... 1,623,522 801,498Others ............................................................ 7,662,379 11,843,134

10,659,344 19,077,242

(e) Earnings in Foreign Exchange:Export of Goods on FOB Basis ...................... 59,440,233 44,787,465Commission ................................................... 1,989,146 71,910

61,429,379 44,859,375

9. Particulars of Assets taken on finance lease.

(i) Total minimum lease payment as at the Balance Sheet date is Rs. 565,390(2004–2005: Rs. 1,086,166) and the present value of total minimum leasepayments at the balance sheet date is Rs. 553,261 (2004–2005:Rs. 1,007,080). The difference represents the finance charge payable inthe future.

(ii) Payable Total Minimum Lease Present ValuePayments at the of Minimum

Balance Sheet date Lease Payments2005–2006 2004–2005 2005–2006 2004–2005

Rupees Rupees Rupees RupeesNot later than one year ................. 565,390 520,776 553,261 453,819Later than one year, but notlater than five years ...................... — 565,390 — 553,261Total ............................................. 565,390 1,086,166 553,261 1,007,080

(iii) The aforesaid leasing arrangements are in respect of vehicles. The leaseperiod is four years.

10. Earnings Per Share:

(a) The amount used as the numerator in calculating both basic and dilutedearnings per share is the ‘Net Profit’ disclosed in the Profit and Loss Account.

(b) The weighted average number of equity share used as the denominator incalculating both basic and diluted earnings per share is 5,398,472 shares(2005: 5,398,472 shares).

2005–2006 2004–2005Rupees Rupees

8. (a) Consumption of Raw Materials, Stores, etc.

Raw Materials and Components ................. 234,603,524 209,991,955

Packing Materials ........................................ 9,902,292 7,956,757

Stores and Spares ....................................... 2,593,059 1,818,657

Tools ........................................................... 781,523 965,040

Patterns ....................................................... 15,679 117,515

Total ............ 247,896,077 220,849,924

Particulars of Raw Materials and Components Consumed:

2005–2006 2004–2005Value Value

Quantity Rupees Quantity Rupees

Cable Jointing Compounds Kgs. 347,135 16,900,132 377,595 15,920,054

Steel MT. 1,041 31,255,514 871 29,288,095

Components 98,211,678 76,648,490

Others 88,236,200 88,135,316

234,603,524 209,991,955

(b) Value of imported and indigenous Raw Materials Consumed:

% of Total 2005–2006 % of Total 2004–2005

Con- Value Con- Value

sumption Rupees sumption Rupees

Imported Material 26 60,728,397 30 63,369,723

Indigenously Procured 74 173,875,127 70 146,622,232

100 234,603,524 100 209,991,955

Notes:

(i) Consumption of raw materials, components and spare parts have beenascertained on the basis of opening stock plus purchases less closing stock,which is after adjustment of excesses and shortages determined on physicalcount and excludes materials (imported) consumed for Research andDevelopment Rs. 305,962 (2005: Rs. 175,647). Value figures include write-offof unserviceable and obsolete raw materials, components and spare parts.

(ii) The term ‘Spare Parts’ in Paragraph 4D(c) of Part II of Schedule VI of the Act, isinterpreted to mean components used in manufactured of finished products orsold as such and not spares used for repairs and maintenance of machinery.

11. Related Party Disclosures:(A) Name of the related party and nature of relationships where control exists.

Name of the Related Party Nature of RelationshipMahindra & Mahindra Ltd. Holding Company

(B) Related Party Transactions:

NAME OF THE RELATED PARTY DESCRIPTION OF NATURE OF TRANSACTION AMOUNT OF TRANSACTION AMOUNT OUTSTANDINGRELATIONSHIP AT THE END OF THE

YEAR DEBIT/(CREDIT)(Rupees) (Rupees)

2005–2006 2004–2005 2005–2006 2004–2005

Mahindra & Mahindra Ltd. Holding Company Office and Establishment Expenses 271,437 294,854 273,723 437,559Lease Rental 5,462 5,462Reimbursement of Expenses 330,841 218,221Rent Paid 56,096 71,968

Mahindra Ashtech Ltd. Fellow Subsidiary Recovery of Expenses 114,363 93,190 — 822,973Rent Received 1,200,000 971,864Reimbursement of Expenses 29,657 38,864Sale of Goods 512,927 —

Tech Mahindra Ltd. Fellow Subsidiary EDP Services Procured 1,200,000 1,200,000 — —Mahindra Intertrade Ltd. Fellow Subsidiary Reimbursement of Expenses 18,734 58,711 — —

Service Contracts 8,265 16,365Mahindra Holding & Finance Ltd. Fellow Subsidiary Interest Paid 313,425 5,972,024 — (30,000,000)

Repayment of Unsecured Loan 30,000,000D.G. Bokare Key Management Personnel Remuneration — 1,790,034 — —

17


12. SEGMENT INFORMATION:

(A) PRIMARY SEGMENTS — BUSINESS SEGMENTS CHEMICAL ENGINEERING TOTAL CHEMICAL ENGINEERING TOTALDIVISION DIVISION AMOUNT DIVISION DIVISION AMOUNT

2005–2006 2005–2006 2005–2006 2004–2005 2004–2005 2004–2005Rupees Rupees Rupees Rupees Rupees Rupees

(a) Segment Revenue

— Sales to External Customers(including other income) 297,246,655 236,524,708 533,771,363 341,677,914 190,903,889 532,581,803

— Inter-Segment Sales — — — — — —

Total Segment Revenue 297,246,655 236,524,708 533,771,363 341,677,914 190,903,889 532,581,803

(b) Segment Results 39,767,003 52,576,843 92,343,846 54,585,844 44,029,691 98,615,535

— Unallocated Corporate Expenses (325,000) (270,258)

— Interest Expense (380,382) (6,091,448)

— Interest Income 3,316,222 55,155,320

— Dividend Income 738,110 1,004,597

— Profit on Sale of Investments — 24,085

— Profit Before Tax 95,692,796 148,437,831

— Fringe Benefit Tax 1,600,000 —

— Income Tax 33,000,000 52,600,000

— Profit After Tax 61,092,796 95,837,831

(c) Segment Assets 195,763,279 102,691,084 298,454,363 235,433,525 148,181,987 383,615,512

— Unallocated Corporate Assets 54,117,560 — — 14,688,781

Total Assets 352,571,923 398,304,293

(d) Segment Liabilities 32,548,384 33,109,675 65,658,059 42,254,942 61,172,808 103,427,750

— Unallocated Corporate Liabilities 20,467,859 47,970,356

Total Liabilities 86,125,918 151,398,106

(e) Cost Incurred during the period toacquire segment fixed assets 4,966,456 1,066,001 6,032,457 36,551,002 1,155,649 37,706,651

(f) Depreciation/Amortisation 8,445,767 1,564,628 10,010,395 6,993,453 1,656,804 8,650,257

(g) Amortisation — Miscellaneous Expenditure 13,600,476 2,624,772 16,225,248 13,600,476 2,624,772 16,225,248

(h) Non-Cash expenses other thanDepreciation/amortisation 2,000,000 2,331,151 4,331,151 676,187 — 676,187

Note: Business Segments of the Company are organised on the basis of two divisions — Chemical Division and Engineering Division. Chemical Division comprises ofmanufacturing/trading/trading of Cable-Jointing Kts, Arc-Chamber Housing, Heat Shrink & Accessories and Services in respect thereof. Engineering Divisioncomprises of manufacturing/trading of Parts of Bucket Elevators, Flow Conveyors, Screw Conveyors and Services in respect thereof.

(B) SECONDARY SEGMENTS-GEOGRAPHICAL SEGMENTS:

Domestic Export Total Domestic Export Total2005–2006 2005–2006 2005–2006 2004–2005 2004–2005 2004–2005

Rupees Rupees Rupees Rupees Rupees Rupees

Segment revenue by geographical area based ongeographical location of customers 472,341,984 61,429,379 533,771,363 487,722,428 44,859,375 532,581,803

Note: The Company’s operating facilities are located in India.



18


13. Details of provisions and movements in each class of provisions as required bythe Accounting Standard on Provisions. Contingent Liabilities and ContingentAssets (Accounting Standard-29).

Particulars Leave Encashment

2005–2006 2004–2005Amount (Rs.) Amount (Rs.)

Carrying Amount at the beginning of the year 3,233,034 3,089,366

Additional Provision made during the year ..... 550,449 744,716

Amount used during the year ......................... 834,375 601,048

Unused amount reversed during the year ...... — —

Carrying Amount at the end of the year ......... 2,949,108 3,233,034

Brief description of the nature of the obligation and the expected timing of anyresulting outflows of economic benefits:

Leave Encashment:

Leave Encashment is a benefit to an employee in respect of encashment ofaccumulated leave to the credit of the employees either during employment or onseparation as per the rules of the Company.



14. Exchange gain adjusted in the carrying cost of Fixed Assets Rs. 8,678(2005: Rs. Nil).

15. (A) Details of Derivative Instruments (for hedging):

None.

(B) Details of foreign currency exposures that are not hedged by a derivativeinstrument or otherwise:

2005–2006

Particulars Amount in EquivalentForeign Currency amount in Rs.

Sundry Creditors (Liability) 8,753 USD 393,448

57,040, CAD 2,214,863

25,293,500 YEN 9,709,416

Sundry Debtors (Asset) 221,920 USD 9,857,686

640 EURO 34,470

591,700 YEN 223,308

16. Previous year’s figures have been regrouped to confirm with the current year.

19


ANNEXURE

Additional Information Pursuant to the Provisions of Part IV of Schedule VI to the Companies Act, 1956 of India for the year

ended 31st March, 2006 (See Schedule XV, Note 10)

Balance Sheet Abstract and Company's General Business Profile

I. Registration Details:

Registration No. 1 9 9 0 8 State Code 1 1Balance Sheet Date 3 1 0 3 2 0 0 6

II. Capital Raised during the Year (Amount in Rs. Thousands):

Public Issue Right IssueN I L N I L

Bonus Issue Private PlacementN I L N I L

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

Total Liabilities Total Assets8 6 1 2 6 3 5 8 0 4 6

Sources of Funds:Paid-up Capital Reserves and Surplus

5 3 9 8 5 2 5 4 3 7 7Secured Loans Unsecured Loans

N I L 5 5 3Application of Funds

Net Fixed Assets Investments9 0 1 7 5 3 5 6 4 3

Net Current Assets Miscellaneous Expenditure1 5 2 0 8 3 4 1 9 1 5

Accumulated LossesN I L

IV. Performance of Company (Amount in Rs. Thousands):

Turnover# Total Expenditure5 0 7 8 2 0 4 5 1 1 8 8

+ – Profit Before Tax + – Profit After Tax9 5 6 9 3 6 1 0 9 3

Earnings Per Share Dividend Rate%1 1 . 3 8 N I L

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

Item Code No. (ITC Code) 8 5 4 7 9 0Product Description C A B L E J O I N T I N G K I T S A N D

A C C E S S O R I E SItem Code No. (ITC Code) 8 4 2 8 1 0

Product Description L I F T S / B U C K E T E L E V A T O R SItem Code No. (ITC Code) 8 5 3 8 0 0Product Description A R C C H A M B E R H O U S I N G

# Excluding Other Income of Rs. 30,006 (000)





20

MAHINDRA INTERTRADE LIMITED


Your Directors present the Twenty-eighth Annual Report together with the audited accounts of your Company for the year ended31st March, 2006.

Financial Results

Rs. in lakhs

2006 2005

Income ................................................................................................... 72,062 50,118

Profit before depreciation, interest and taxation .................................... 4,558 3,745

Less: Depreciation ................................................................................. 89 109

Profit before interest and taxation ......................................................... 4,470 3,636

Less : Interest ........................................................................................ 593 323

Profit before tax ..................................................................................... 3,877 3,313

Less : Provision for taxation ................................................................. 1,330 1,150

Provision for deferred taxation .................................................. (12) 45

Provision for fringe benefit tax .................................................. 25 -

Tax adjusted for previous years ................................................. 24 162

Profit for the year after tax ..................................................................... 2,510 1,956

Balance of Profit for earlier years ........................................................... 1,796 627

Less: Interim Dividend on equity shares ............................................. 382 299

Proposed Dividend on preference shares ................................. 136 136

Proposed Dividend on equity shares ......................................... 209 88

Less : Income-tax on Dividend .............................................................. 104 68

Transfer to General Reserve ...................................................... 251 196

Balance carried to Balance Sheet .......................................................... 3,224 1,796

Your Company’s gross income for the year has increased to Rs.73,742 lakhs as compared to Rs. 52,432 lakhs in the previous yearregistering a growth of 41%. Profit Before Tax for the year was higher at Rs. 3,877 lakhs than Rs. 3,313 lakhs in the previous year,representing an increase of 17%.

Your Company could achieve an improved level of financial performance despite supply constraints particularly in the electrical steelsegment and volatility in prices of other categories of steel, metals and ferro alloys. Your Company’s ability to leverage its criticalsuccess factors and de-risk its operations from market fluctuations enabled it to grow despite the volatile nature of the market almostthrough the year. In addition, your Company continued its emphasis on initiatives aimed at sizeable savings through cost competitivenessand optimum utilization of available resources by linking with Steel Service Centers of its associate companies.

After providing for taxes of Rs.1,367 lakhs (Rs.1,357 lakhs, in the previous year) including deferred tax credit of Rs.12 lakhs (Rs.45lakhs debit, for the previous year), fringe benefit tax Rs.25 lakhs (previous year - Nil) and tax for the prior years Rs.24 lakhs (previousyear Rs.162 lakhs), Profit After Tax (PAT) rose by 28% to Rs.2,510 lakhs, as compared to Rs.1,956 lakhs in the previous year.

Your Directors also recommend a final dividend of 12.60% on1,21,00,007 fully paid up equity shares of Rs.10 each and on apro rata basis on 1,50,00,000 partly paid up equity shares of theface value of Rs.10 each, Rs.3 per share paid up, both aggregatingRs.209.16 lakhs. The dividend, if approved, will be paid to thoseequity shareholders whose names will appear on the Registerof Members as on 1st July, 2006.

The total preference and equity dividends for the year, togetherwith the tax will absorb a total sum of Rs.828.85 lakhs.

FOREIGN SUBSIDIARY

Your Company’s foreign subsidiary ‘Mahindra MiddleEast

DIVIDEND

During the year under review, your Directors paid an interimdividend of 23% on 1,21,00,007 fully paid up equity shares ofRs.10 each aggregating Rs.278.30 lakhs and on a pro rata basison 1,50,00,000 partly paid up equity shares of the face value ofRs.10 each, Rs.3 per share paid-up aggregating Rs.103.50 lakhs.

Your Directors recommend dividend of 7.25% on 18,75,000cumulative redeemable preference shares of the face value ofRs.100 each aggregating Rs.135.94 lakhs. The dividend, ifapproved, will be paid to those preference shareholderswhose names will appear on the Register of Members as on1st July, 2006.

21


Electrical Steel Service Centre FZC’ (MMESSC) functions in theSharjah Airport International Free Zone for supply of slit electricalSteel Coils to the transformer industry in the Middle East.

During the year under review, MMESSC entered into a JointVenture Agreement with Nippon Steel Corporation (NSC), thefourth largest producer of electrical steel in the world, under whichNSC has subscribed to 10% of the paid up capital of MMESSC.Your Company will benefit from this joint venture in which it holdsa majority stake. Consequently, the status of the subsidiary hasbeen changed to FZC and it is since renamed as MahindraMiddleEast Electrical Steel Service Center FZC. This facility is thefirst such unit for electrical steel in the Middle East.

Your Company launched its international operations in the MiddleEast during the year by opening a branch office in the MiddleEast.

The audited statement of accounts for the year ended 31st March,2006 of the Company’s subsidiary, together with reports of theDirectors and Auditors, and a statement pursuant to section 212of the Companies Act, 1956 is attached.

INTERNAL CONTROLS

Your Company has an adequate system of internal controls andcontinues to improve its internal business processes by tighteningcontrols to meet the demands of growth and complexities of itsbusinesses. Corporate Management Services department of theholding company Mahindra & Mahindra Limited (M&M) assessesthe financial and operating controls of various businesses of theCompany. Significant issues are brought to the attention of theAudit Committee of the Board. Statutory Auditors and the Headof Corporate Management Services of M&M are invited to attendthe Audit Committee meetings.

Risk Management

Being in the trading business, your Company is exposed to avariety of risks. These risks are mitigated by using an integratedRisk Management approach which employs a number oftechniques to cover the full range of risks in its operations.

OPERATIONS

The momentum of industrial growth remained buoyant duringthe year in all the major business segments your Companyoperated in and this operating environment is likely to besustained during the current year.

The Company concentrated its efforts in expanding its corebusiness activities, namely, steel, ferro alloys, engineeringexports, distribution of specialized equipment and retail, whichled to significant growth over the previous year. Your Companyis continually focusing on building robust business processes,and implementing risk management procedures, to enhancecustomer service and satisfaction.

Steel business continues to contribute significantly to theprofitability of the Company despite supply constraints primarilyin electrical steel grades. Demand for steel softened globallyresulting in decline in unit prices during the second half ofthe year.

HUMAN RESOURCES

Your Company is focused on building a talent pool for the future.Your Company has a robust performance-linked reward schemefor its employees. Your Company continues to enhance the skillsand abilities of its people and keen attention is given to bothhands-on experience and training programmes. The Companyalso regularly deputes its personnel for programmes organisedat the group corporate level.

CURRENT YEAR

Your Company expects that with continued emphasis by theGovernment on infrastructure, particularly in the power sector,demand for steel would remain strong in the current year whichwill enhance your Company’s market share and the earnings.Your Company expects to maintain its growth momentum aidedby further improvements in its productivity and processes.

Your Company continues to explore other segments and lineextensions that provide a sustainable growth model. It isimplementing a high precision Blanking Line project to processsteel coils for supply of automotive body profiles required forthe automobile industry. This is in line with your Company’sbusiness philosophy of constantly innovating to serve the needsof its evolving customer needs. The proposed Blanking Linewill be the first such independent facility for automotive skinpanels in India.

SHIFTING OF REGISTERED OFFICE

During the year under review, your Company shifted itsRegistered Office from Gateway Building, Apollo Bunder,Mumbai - 400 001 to Mahindra Towers, P. K. Kurne Chowk,Worli, Mumbai - 400 018 for operational convenience.

CORPORATE GOVERNANCE

Constitution of the Board

The Board presently has ten Directors. The Directors have wideexperience in business related to trading, finance and generalcorporate management.

Board Meetings

The Board Meetings are conducted at least once every quarterto review the financial results of the Company, the StatutoryCompliance Certificates and matters relating to the operationsof the Company. Five Board Meetings were held during theyear. These were well attended.

Directors

Dr. Pawan Kumar Goenka was appointed by the Board as anAdditional Director on 28th October, 2005.

Mr. Harsh Kumar was appointed by the Board as an AdditionalDirector on 24th January, 2006. He was also appointed as DeputyManaging Director of the Company, for a period of five years,effective 24th January, 2006.

Dr. Goenka and Mr. Harsh Kumar hold office only up to the dateof the forthcoming Annual General Meeting of the Company.

22


The Company has received notices from a member signifyinghis intention to propose Dr. Goenka and Mr. Harsh Kumar asDirectors of the Company at the forthcoming Annual GeneralMeeting.

Mr. Raghunath Murti, Mr. U. Y. Phadke and Mr. Rajeev Dubeyretire by rotation and, being eligible, offer themselves forre-election at the forthcoming Annual General Meeting.

Audit Committee

The Audit Committee presently comprises Ms. Tarjani Vakil(Chairperson of the Committee), Mr. U. Y. Phadke andMr. Zhooben Bhiwandiwala.

The Audit Committee met twice during the year under review.

Remuneration / Compensation Committee

The Remuneration/ Compensation Committee presentlycomprises Mr. Bharat Doshi, Mr. U.Y. Phadke and Mr. RajeevDubey. This Committee met thrice during the year under review.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to section 217(2AA) of the Companies Act, 1956, yourDirectors, based on the representation received from theOperating Management, and after due enquiry, confirm that:

(i) in the preparation of annual accounts, the applicableaccounting standards have been followed;

(ii) they have, in the selection of the accounting policies, consultedthe Statutory Auditors and these have been applied consistentlyand reasonable and prudent judgments and estimates havebeen made so as to give a true and fair view of the state ofaffairs of the Company as at 31st March, 2006 and of the profitof the Company for the year ended on that date;

(iii) proper and sufficient care has been taken for themaintenance of adequate accounting records in accordancewith the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventingand detecting fraud and other irregularities;


CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced their socialwell being. Since its inception, the Mahindra Group has alwaysbeen engaged in activities which add value to the communityaround us. A step forward was taken in this direction by theannouncement made on the occasion of the 60

th Anniversary of

Mahindra & Mahindra Limited, the holding company, that theGroup would support a range of Corporate Social Responsibility(CSR) initiatives by committing 1% of Profit after Tax (PAT) on acontinuing basis. The 1% PAT would specifically benefit theeconomically disadvantaged and socially weaker sections of thesociety. Accordingly, the Board of your Company has resolvedto contribute to recognised charitable and/or other Institutions,including K.C. Mahindra Education Trust and/or Mahindra

Foundation, not related to the business of the Company or thewelfare of the employees, towards Corporate SocialResponsibilities of the Company, such amounts which in theaggregate in any financial year will not exceed 1% of theCompany's estimated PAT for the year on a continuing basis untilfurther review by the Board.

A beginning in this direction was made by your Company duringthe current year by making a contribution of Rs.5 lakhs toRambhau Mhalgi Prathistan.

AUDITORS

Messrs A. F. Ferguson Associates, Chartered Accountants, retireas Auditors of the Company at the forthcoming Annual GeneralMeeting and have given their consent for re-appointment. Theshareholders will be required to elect Auditors for the currentyear and fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromMessrs A. F. Ferguson Associates, Chartered Accountants, tothe effect that their re-appointment, if made, would be inconformity with the limits specified in the said section.

PUBLIC DEPOSITS AND LOANS/ADVANCES


The particulars of loans/advances and investment in its ownshares by listed companies, their subsidiaries, associates, etc.,required to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with the parentcompany, Mahindra & Mahindra Limited, are furnished separately.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTIONAND FOREIGN EXCHANGE EARNINGS AND OUTGO

In view of the nature of activities which are being carried on bythe Company, Rules 2A and 2B of the Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988concerning conservation of energy and technology absorptionrespectively are not applicable to the Company.

The information on foreign exchange earnings and outgo isfurnished in the Notes on Accounts.

PARTICULARS OF EMPLOYEES AS REQUIRED UNDERSECTION 217(2A) OF THE COMPANIES ACT, 1956 AND THERULES MADE THEREUNDER

As required under section 217(2A) of the Companies Act, 1956and Rules thereunder, a statement containing particulars of theCompany’s employees who were in receipt of remuneration ofnot less than Rs.24,00,000 during the year ended 31st March,2006 or not less than Rs.2,00,000 per month during any part ofthe said year is given in the Annexure to this Report.


Anand G. Mahindra

Chairman

Mumbai , 12th May, 2006.

23


Annexure to the Directors’ Report

ADDITIONAL INFORMATION AS REQUIRED UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956 READ WITH THE

COMPANIES (PARTICULARS OF EMPLOYEES) RULES, 1975 AND FORMING PART OF THE DIRECTORS' REPORT FOR THE

YEAR ENDED 31st MARCH, 2006

Name of the Designation/ Gross Qualifications Experience Age Date of Last Employmentemployee Nature of Remuneration (years) (years) commencement held, Organisation

duties (subject to of employment & DesignationIncome tax)(Rs)

Raghunath Murti * Managing 1,455,259 Diploma in Mktg 34 57 April 1, 2005 Mahindra & MahindraDirector Mgmt - Jamnalal Ltd., Executive Vice

Bajaj, B.Com (Hons) President, Business- St Xaviers College, DevelopmentCalcutta

Harsh Kumar * Deputy 1,484,272 B.Tech (Mech) - 27 52 December 1, Tata Metaliks Ltd.Managing IIT-Delhi, PGDBM 2005 Vice President -Director (Mktg/Finance) - XLRI Marketing & Sales

* Part of the year.

NOTES :

1. Nature of employment is contractual.

2. The above employees are not related to any other Director.

3. No employee holds by himself/herself or along with his/her spouse and dependent children 2% or more of the equity shares of theCompany.

4. Terms and conditions of employment are as per Company’s Rules/contract.

5. Gross remuneration received as shown in the statement includes Salary, Commision, Bonus, House Rent Allowance or value ofperquisites for accommodation, car perquisites value/allowances as applicable, employer's contribution to Provident Fund andSuperannuation Scheme including group insurance premium, leave encashment, leave travel facility, reimbursement of medicalexpenses and all allowances/perquisites and terminal benefits as applicable.


Anand G. Mahindra

Mumbai, 12th May, 2006. Chairman

Particulars of loans/advances and investment in its own shares by listed companies, their subsidiaries, associates, etc.,

required to be disclosed in the annual accounts of the Company pursuant to Clause 32 of the Listing Agreement with the

parent company, Mahindra & Mahindra Limited

Loans and advances in the nature of loans to firms / companies in which Directors are interested:

Rs. in lakhs

Name of the Company Balance as on Maximum outstanding31st March, 2006 during the year

Mahindra Steel Service Centre Limited Nil 160

The Company has not made any loans and advances in the nature of loans to subsidiaries, associates, and loans and advances in thenature of loans where there is no repayment schedule or repayment beyond seven years or no interest or interest below section 372Aof the Companies Act, 1956.

24


1. We have audited the attached balance sheet of MahindraIntertrade Limited as at 31st March, 2006, the profit and lossaccount and also the cash flow statement for the year endedon that date annexed thereto. These financial statements arethe responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with the auditingstandards generally accepted in India. Those Standards requirethat we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing theaccounting principles used and significant estimates made bymanagement, as well as evaluating the overall financialstatement presentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003issued by the Central Government in terms of sub-section(4A) of section 227 of the Companies Act, 1956, we enclosein the Annexure a statement on the matters specified inparagraphs 4 and 5 of the Order.

4. Further to our comments in the Annexure referred to inparagraph (3) above, we report that:

(i) We have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purposes of our audit;

(ii) In our opinion, proper books of account as required by lawhave been kept by the Company so far as appears fromour examination of those books and proper returnsadequate for the purposes of our audit have been receivedfrom the branches not visited by us;

(iii) The balance sheet, profit and loss account and cash flowstatement dealt with by this report are in agreement withthe books of account;

(iv) In our opinion, the balance sheet, profit and loss accountand cash flow statement dealt with by this report complywith the accounting standards referred to in sub-section(3C) of section 211 of the Companies Act, 1956;

(v) On the basis of written representations received from thedirectors, as on 31st March, 2006 and taken on record bythe Board of Directors, we report that none of the directorsis disqualified as on 31st March, 2006 from being appointedas a director in terms of clause (g) of sub-section (1) ofsection 274 of the Companies Act, 1956;

(vi) In our opinion and to the best of our information andaccording to the explanations given to us, the said accountsgive the information required by the Companies Act,1956, in the manner so required and give a true and fairview in conformity with the accounting principles generallyaccepted in India:

(a) in the case of the balance sheet, of the state of affairsof the Company as at 31st March, 2006;

(b) in the case of the profit and loss account, of the profitfor the year ended on that date; and

(c) in the case of the cash flow statement, of the cashflows for the year ended on that date.

For A. F. Ferguson Associates


Neeta S. Potnis

PartnerPlace: Mumbai Membership Number: 42463Date: 25th April, 2006

Auditors’ Report to the Members of Mahindra Intertrade Limited

25


(e) In our opinion and according to the information andexplanations given to us, the Company has takenunsecured loans, from one company covered in theregister maintained under section 301 of theCompanies Act, 1956. The maximum amount involvedduring the year in respect of such loans taken wasRs.1006 lakhs (in respect of which no stipulationshave been made for repayment, interest) and the yearend balance of loans taken from such party was Rs.706 lakhs.

(f) According to the information and explanations givento us, the Company has not taken any loans, securedor unsecured from companies, firms or other partiescovered in the register maintained under section 301of the Companies Act, 1956, where the rate ofinterest and other terms and conditions are, in ouropinion, prima facie prejudicial to the interest of theCompany.

(g) Since there are no stipulations for repayment, interestin respect of the loan stated in (e) above, the provisionsof Clause 4(iii)(g) are not applicable to the Company.

(iv) In our opinion and according to the information andexplanations given to us, having regard to the explanationsthat some of the items are of a special nature for whichalternative quotations are not available, there is an adequateinternal control system commensurate with the size of theCompany and the nature of its business for the purchase ofinventory, fixed assets and for the sale of goods andservices. Further, on the basis of our examination andinformation and according to explanations given to us, wehave neither come across nor have we been informed ofany instance of major weaknesses in the aforesaid internalcontrol system.

(v) (a) In our opinion and according to the information andexplanations given to us, the particulars of contractsor arrangements referred to in section 301 of theCompanies Act, 1956 have been entered in the registerrequired to be maintained under that section; and

(b) In our opinion and according to the information andexplanations given to us, having regard to commentin (iv) above, in respect of transactions exceeding thevalue of rupees five lakhs during the financial year,with each such party, made in pursuance of suchcontracts or arrangements have been made at priceswhich are reasonable having regard to the prevailingmarket prices at the relevant time.

(vi) The Company has not accepted any deposits from public,to which the provisions of the directives issued by theReserve Bank of India and the provisions of section 58A,58AA or any other relevant provisions of the CompaniesAct, 1956, and the rules framed there under are applicable.

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

(viii) We have broadly reviewed the books of account maintainedby the Company relating to the manufacture of Diesel

(i) (a) The Company has maintained proper recordsshowing full particulars, including quantitative detailsand situation of fixed assets.

(b) No physical verification of fixed assets was carriedout by the management during the year. The Companyhas a system of verifying the fixed assets once inevery three years. In our opinion, the frequency ofverification of fixed assets is at reasonable intervals.

(c) During the year, in our opinion, a substantial part offixed assets has not been disposed off by theCompany.

(ii) (a) The inventory of the Company has been physicallyverified by the management during the year and at theyear end. The stock lying with third parties have beenconfirmed by third parties as at the year end. In ouropinion, the frequency of verification is reasonable.

(b) In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventory followed by the managementwere found reasonable and adequate in relation to thesize of the Company and the nature of its business.

(c) On the basis of our examination of records of inventory,in our opinion, the Company has maintained properrecords of inventory. The discrepancies noticed onphysical verification between the physical stocks andthe book records were not material in relation to theoperations of the Company.

(iii) (a) In our opinion and according to the information andexplanations given to us, the Company has grantedunsecured loans to two companies covered in theregister maintained under section 301 of theCompanies Act, 1956. The maximum amount involvedduring the year in respect of loans granted was Rs.1160 lakhs (including Rs.160 lakhs in respect of whichno stipulations have been made for repayment,interest) and the year end balance of loan granted tosuch parties was Rs.nil.

(b) According to the information and explanations givento us, the Company has not given any loans, securedor unsecured to companies, firms or other partiescovered in the register maintained under section 301of the Companies Act, 1956, where the rate ofinterest and other terms and conditions are, in ouropinion, prima facie prejudicial to the interest of theCompany.

(c) In respect of loans granted where stipulations havebeen made, the parties have repaid the principalamount and interest as stipulated or as rescheduled.

(d) There is no overdue amount of loans, secured orunsecured, granted to companies, firms or otherparties covered in the register maintained underSection 301 of the Companies Act, 1956.

Annexure to the Auditors' Report[Referred to in Paragraph (3) thereof]

26


Generator Sets pursuant to the rules made by the CentralGovernment for the maintenance of cost records undersection 209(1)(d) of the Companies Act, 1956 and we are ofthe opinion that prima facie the prescribed accounts andrecords have been maintained and are being made up. Wehave not, however, made a detailed examination of therecords with a view of determining whether they areaccurate or complete. To the best of our knowledge andaccording to the information given to us, the CentralGovernment has not prescribed the maintenance of costrecords under section 209(1)(d) the Companies Act, 1956,for any other products of the Company.

(ix) (a) According to the information and explanations givento us and according to the books and records asproduced and examined by us, in our opinion, theundisputed statutory dues in respect of providentfund, employees’ state insurance, income-tax, sales-tax, wealth tax, service tax, customs duty, exciseduty, cess and other material statutory dues applicableto it, have generally been regularly deposited by theCompany during the year with the appropriateauthorities. According to the information andexplanations given to us, no undisputed amountpayable in respect of aforesaid statutory dues were inarrears as at 31st March, 2006 for a period of morethan six months from the date they became payable.

Further, since the Central Government has till datenot prescribed the amount of cess payable undersection 441A of the Companies Act, 1956, we are notin a position to comment upon the regularity orotherwise of the Company in depositing the same.

(b) According to the information and explanations givento us, there are no disputed dues of income-tax,sales-tax, wealth tax, service tax, custom duty, exciseduty and cess that have not been deposited onaccount of any dispute and therefore Clause 4(ix)(b) ofthe Order is not applicable to the Company.

(x) The Company has neither accumulated losses as at 31st

March, 2006 nor has it incurred any cash losses during thefinancial year ended on that date or in the immediatelypreceding financial year.

(xi) In our opinion and based on the information andexplanations given by the management, we are of theopinion that the Company has not defaulted in repaymentof its dues to any financial institution, bank or to debentureholders during the year.

(xii) In our opinion and according to the information andexplanations given to us, the Company has not granted anyloans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

(xiii) The provisions of any special statute as specified underClause 4(xiii) of the Order are not applicable to the Company.

(xiv) In our opinion and according to the information andexplanations given to us, the Company is not dealing in ortrading in shares, securities, debentures and otherinvestments. Accordingly, the provisions of Clause 4(xiv) ofthe Order are not applicable to the Company.

(xv) The Company has not given any guarantees for loans takenby others from banks or financial institutions, the terms andconditions, whereof, in our opinion, are prima facie,prejudicial to the interest of the Company.

(xvi) The Company has not obtained any term loans that werenot applied for the purpose for which these were raised.

(xvii) Based on the information and explanations given to us andon an overall examination of the balance sheet of theCompany, in our opinion, there are no funds raised on ashort term basis which have been used for long terminvestment.

(xviii) During the year, the Company has not made any preferentialallotment of shares to parties and companies covered in theregister maintained under section 301 of the CompaniesAct, 1956.

(xix) As the Company has not issued any debentures, Clause4(xix) of the Order is not applicable to the Company.

(xx) The Company has not raised any money by public issueduring the year.

(xxi) According to the information and explanations given to us,no fraud on or by the Company has been noticed or reportedduring the year.



Neeta S. Potnis

PartnerPlace: Mumbai Membership Number: 42463Date: 25th April, 2006

27



2006 2005Schedule Rs. in lakhs Rs. in lakhs Rs. in lakhs

I. SOURCES OF FUNDS :

SHAREHOLDERS’ FUNDS:

Share Capital ............................................................................ I 3,535.00 3,535.00

Reserves and Surplus .............................................................. II 3,823.29 2,144.26

7,358.29 5,679.266

LOAN FUNDS .......................................................................... III 1,670.54 1,867.40

Total .......... 9,028.83 7,546.66

II. APPLICATION OF FUNDS :

FIXED ASSETS ......................................................................... IV 383.32 355.64

Capital work-in-progress (refer note 15) .................................. 256.83 —

640.15 355.64

INVESTMENTS ........................................................................ V 475.02 224.30

DEFERRED TAX ASSET (NET) (refer note 7) ........................... 108.50 96.22

NET CURRENT ASSETS :

Current Assets, Loans and Advances ...................................... VI 23,466.86 21,217.81

Less : Current Liabilities and Provisions .................................. VII 15,661.70 14,347.31

7,805.16 6,870.50

Total ......... 9,028.83 7,546.66

NOTES TO THE ACCOUNTS ................................................... XIII




Neeta S. Potnis

Partner


Anand G. Mahindra Chairman

Bharat Doshi Vice Chairman

Raghunath Murti Managing Director

U. Y. Phadke

Zhooben Bhiwandiwala

Pawankumar Goenka DirectorsMs. Tarjani Vakil

Rajeev Dubey

A.K. Nanda

Arnavaz M. Pardiwalla Company Secretary


}

28


Profit and Loss Account for the year ended 31st March, 2006

2006 2005Schedule Rs. in lakhs Rs. in lakhs

SALES AND OTHER INCOME :

Gross Sales ..................................................................................... 72,007.21 50,569.01Less : Excise duty ........................................................................... 1,679.43 2,314.30

Net sales ......................................................................................... 70,327.78 48,254.71Income from services rendered ...................................................... 276.70 519.01Commission .................................................................................... 785.15 693.98Other income .................................................................................. VIII 672.55 649.90

TOTAL INCOME .............................................................................. 72,062.18 50,117.60

EXPENDITURE :Raw Materials, Components and Finished products ...................... IX 64,907.27 44,154.10Personnel ........................................................................................ X 616.29 555.45Interest ............................................................................................ XI 592.71 322.98Depreciation and Amrotisation ........................................................ 88.64 109.09Other Expenses .............................................................................. XII 1,980.32 1,663.18

68,185.23 46,804.80

Profit before tax for the year ........................................................... 3,876.95 3,312.80Less : Provision for taxation for the year

Current Tax .......................................................................... 1,330.00 1,150.00Deferred Tax ........................................................................ (12.28) 44.86Fringe Benefit Tax ................................................................ 25.00 —

1,342.72 1,194.86Less: Tax adujstment for prior years ............................................... 24.21 162.43

Profit after tax for the year .............................................................. 2,510.02 1,955.51

Add : Balance of Profit/(loss) for earlier years ................................. 1,795.71 626.76Less : Interim Divided paid on Equity Shares ................................. (381.80) (298.80)Less : Proposed Divided on Preference Shares .............................. (135.94) (135.94)Less : Proposed Divided on Equity Shares ..................................... (209.16) (87.98)Less : Tax on Divided [includes Rs. 2.14 lakhs ............................... (104.09) (68.29)(2005 : Rs. Nill) pertaining to the previous year]Less : Transfer to General Reserve ................................................. (251.00) (195.55)

Balance carried to Balance Sheet ................................................... 3,223.74 1,795.71

Earning Per Share (Basic/Diluted) (note 8) (Rs.) .............................. 14.18 10.85

NOTES TO THE ACCOUNTS .......................................................... XIII




Neeta S. Potnis

Partner





U. Y. Phadke



Rajeev Dubey

A.K. Nanda



}

29


Cash Flow Statement:

Cash Flow Statement for the year ended 31st March, 20062006 2005

Rs. in lakhs Rs. in lakhs Rs. in lakhs Rs. in lakhs Rs. in lakhsA. CASH FLOW FROM OPERATING ACTIVITIES

Profit before tax for the year 3,876.95 3,312.80Adjustments for:Depreciation & Amortisation 88.64 109.09Foreign Exchange (0.21) 0.45Interest income (469.05) (329.15)Interest expense 592.71 322.98Profit on sale of Fixed Assets (net) (0.93) (0.72)

211.16 102.65

Operating Profit before Working Capital Changes 4,088,11 3,415.45Changes In:Trade & Other Receivables (907.68) (3,885.42)Inventories 95.68 (1,588.98)Trade & Other Payables 930.43 5,641.95

118.43 167.55Cash Generated from Operations 4,206.54 3,583.00Income Taxes Paid (net) [including FBT Rs. 21.34 lakhs (2005: Nil)] (1,573.57) 1,323.69

NET CASH FROM OPERATING ACTIVITIES 2,632.97 2,259.31

B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (377.08) (77.42)Sale of Fixed Assets 10.38 2.17Interest Received 294.35 235.92Purchase of Investments (250.72) (224.29)

NET CASH USED IN INVESTING ACTIVITIES (323.07) (63.62)

C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from Bank Borrowings (net) 103.14 (260.86)Repayment of Borrowings (short term loan from Mahindra & Mahindra Ltd) (300.00) (300.00)Intercorporate Deposits Placed (1,500.00) —Intercorporate Deposits refunded 1,660.00 —Dividends Paid on Preference shares (includnig Income Tax on dividends) (155.00) (88.83)Dividends Paid on Equity shares (includnig Income Tax on dividends) (535.66) (618.72)Interest paid (559.88) (246.92)

NET CASH USED IN FINANCING ACTIVITIES (1,287.40) (1,515.33)

NET INCREASE IN CASH & CASH EQUIVALENTS 1,022.50 680.36

CASH & CASH EQUIVALENTS:OPENING BALANCE [including unrealised exchangeloss of Rs. 0.45 lakh (2005: Rs. Nil)] 1,000.94 320.58CLOSING BALANCE [including unrealised exchange loss of Rs.0.24 lakh (2005: Rs. 0.45 lakh)] 2,023.44 1,000.94

1,022.50 680.36




Neeta S. Potnis

Partner





U. Y. Phadke



Rajeev Dubey

A.K. Nanda



}

30


Schedules forming part of the Balance Sheet and the Profit and Loss Account

for the year ended 31st March, 20062006 2005

Rs. in Rs. in Rs. in Rs. inSCHEDULE V Lakhs Lakhs Lakhs LakhsINVESTMENTS :Unquoted :Long Term (At Cost) :In Other Companies (trade):500 Ordinary Shares of Rs.1000 each fullypaid up in Seekar Fashions Private Ltd. ......... 5.00 5.00Less : Provision for Permamentdimunition in the value ................................... 5.00 5.00

— —100 Ordinary Shares of Rs.10 eachfully paid up in MahindraHoldings & Finance Ltd. ................................. 0.01 0.01In subsidiary company (2005: wholly owned subsidiary)(Trade) : 900 (2005:12) Shares of USD 550(2005: AED 150,082) each in Mahindra MiddleEastElectrical Steel Service Centre ....................... 225.01 224.29(FZC), Sharjah [formerly known as Mahindra MiddleEastElectrical Steel Service Centre (FZE), Sharjah, wholly ownedsubsidiary]Current (At the lower of cost and fair value) :25,00,000(2005: Nil) units of Rs. 10 each in KotakFMP Series 23 - Dividend of Kotak MahindraMutual Fund (Acquired (during the year) ........ 250.00 —

475.02 224.30

2006 2005SCHEDULE VI Rs. in Rs. in Rs. in Rs. inCURRENT ASSETS & Lakhs Lakhs Lakhs LakhsLOANS AND ADVANCES :(A) Current Assets:

Stock-in-Trade (at cost or netrealisable value whichever is lower):(i)Finished products purchased for sale 465.47 380.91(ii)Finished products produced for sale 136.92 123.72(iii)Raw Materials & Components 5,514.13 5,707.57

6,116.52 6,212.20Sundry Debtors:Unsecured:Outstanding over six months:Considered good 1,552.77 994.73Considered doubtful 176.84 207.22

1,729.61 1,201.95Other Debts, Considered good

12,811.29 11,813.56

Total 14,540.90 13,015.51Less: Provision for doubtful debts (176.84) (207.22)

[refer note 12(i) & (ii)] 14,364.06 12,808.29Cash and Bank Balances :Cash in hand ................................................... — 0.08Cheque in hand ............................................... 138.47 3.96

138.47 4.04Balances with Scheduled Banks:On Current Account ....................................... 252.73 244.37On Margin Money Account ............................ 27.50 27.50On Fixed Deposit Account ............................. 1,604.50 724.58

1,884.73 2,023.20 996.45 1,000.49

(B) Loans and Advances:Unsecured, considered good unless otherwise statedAdvance recoverable in cash or in kindor for value to be received (refer note 10) 387.99 861.38VAT Credit receivable 56.11 —Advance payment of Current Income tax (net of prov.) 518.98 335.45

23,466.86 21,217.81SCHEDULE IV

FIXED ASSETS : (Rs. in lakhs)(Rs. in lakhs)(Rs. in lakhs)(Rs. in lakhs)(Rs. in lakhs)

Description Original Cost Additions Deductions Cost as at Deprecia- Deprecia- Depreciation Deprecia- Net Balance Net Balanceof Assets As at during the during the 31st March, tion upto tion for Adjustments tion upto As at As at

1st April, 2005 year year 2006 1st April, 2005 the year during the year 31st Mar, 2006 31st Mar, 2006 31st March,2005Tangible Assets:FREEHOLD LAND — 73.44 — 73.44 — — — — 73.44 —Building* 24.55 — — 24.55 0.20 0.82 — 1.02 23.53 24.35Office Equipment, Computers, 208.45 12.50 16.05 204.90 124.34 25.41 12.47 137.28 67.62 84.11Plant & MachineryFurniture and Fittings 18.26 1.00 0.70 18.56 7.76 0.92 0.14 8.54 10.02 10.50Vehicles 78.15 38.83 29.09 87.89 31.70 13.93 23.78 21.85 66.04 46.45Intangibles Assets:Intangibles [refer note 1(i)(c)] 475.58 — — 475.58 285.35 47.56 — 332.91 142.67 190.23Website 47.05 — — 47.05 47.05 — — 47.05 — —

Total 852.04 125.77 45.84 931.97 496.40 88.64 36.39 548.65 383.32 355.642005 786.22 77.42 11.60 852.04 397.46 109.09 10.15 496.40 355.64* Includes Rs. 500 (2005 : Rs. 500) in respect of 10 shares of Rs. 50 each in Shah and Nahar Industrial Premises (A-1) Co. op. Society Limited.

2006 2005SCHEDULE I Rs. in lakhs Rs. in lakhsSHARE CAPITAL :Authorised :28,000,000 (2005: 28,000,000) Equity Shares of

Rs. 10/- each .............................. 2,800.002,800.002,800.002,800.002,800.00 2,800.001,875,000 (2005: 1,875,000) Cumulative

Redeemable Preference Shares ofRs.100 each ............................... 1,875.00 1,875.00

4,675.00 4,675.00

Issued and Subscribed :12,100,007 (2005: 12,100,007) Equity shares of

Rs. 10/- each fully paid up ......... 1,210.00 1,210.0015,000,000 (2005: 15,000,000) Equity shares of

Rs. 10/- partly paid at Rs.3/- per share 450.00 450.001,875,000 (2005: 1,875,000) 7.25% Cumulative

Redeemable Preference Shares ofRs. 100/- each fully paid up [note 2] 1,875.00 1,875.00

(Of the above, 12,100,006 (2005: 12,100,006) EquityShares of Rs.10/- each fully paid up, 15,000,000 EquityShares of Rs. 10/- each, Rs.3/- Paid up and 1,875,0007.25% Cumulative Redeemable Preference Shares ofRs. 100/- each fully paid up are held by Mahindra andMahindra Ltd., the holding company and its nominees. )

3,535.00 3,535.00

2006 2005SCHEDULE II Rs. in lakhs Rs. in lakhsRESERVES AND SURPLUS :1. General Reserve

As per last balance sheet 348.55 153.00Add: Transfer from Profit andLoss Account ............................................. 251.00 195.55

Total ................ 599.55 348.55

2. Profit and Loss Account 3,223.74 1,795.71

Total ................ 3,823.29 2,144.26

2006 2005SCHEDULE III Rs. in lakhs Rs. in lakhsLOAN FUNDS :(A) Secured :

From Banks :(i) Loans and Advances on cash credit Account 264.54 161.40(ii) Short Term Loan 700.00 700.00

Total (A) 964.54 861.40(B) Unsecured :

Short term loans from Mahindra & Mahindra Ltd., the Holding company 706.00 1,006.00

Total (B) .......... 706.00 1,006.00Grand Total (A+B) 1,670.54 1,867.40

31


Schedules forming part of the Balance Sheet and the Profit and Loss Account

for the year ended 31st March, 2006SCHEDULE VII 2006 2005CURRENT LIABILITIES AND PROVISIONS : Rs. in lakhs Rs. in lakhs(A) Current Liabilities :

Acceptances .................................................. 9,908.60 10,062.44Sundry Creditors:Total outstanding dues of creditors other thansmall scale Industrial undertakings ................ 5,138.00 3,826.56

15,046.60 13,889.00(B) Provisions :

Provision for Group gratuity liability 62.95 46.80Provision for leave encashable at retirement/cessation ........................................................ 47.23 36.09Provision for current Income Tax(net of payments) ....................... 107.76 122.24Provision for Fringe Benefit Tax(net of advance tax thereon) ....................... 3.66 —Provision for dividend on preferenceshares ............................................................ 135.94 135.94Provision for dividend on equity shares .......... 209.16 87.98Provision for tax on dividend .......................... 48.40 29.26

615.10 458.31

Total (A) + (B) 15,661.70 14,347.31

2006 2005SCHEDULE VIII Rs. in lakhs Rs. in lakhsOTHER INCOME :Interest – Others ................................................... 462.04 329.15(Including tax deducted at sourceRs.52.78 lakhs (2005: Rs.40.58 lakhs))Interest on income tax refund ............................... 7.01 —Insurance claims received ..................................... 56.54 106.77Sundry credit balances/provisions no longerpayable/required written back ............................... 32.32 13.46Provision for doubtful debts no longer requiredwritten back .......................................................... — 77.10Profit on sale of fixed assets (net) ......................... 0.93 0.72Cash Discount ....................................................... 58.29 104.02Miscellaneuos Income .......................................... 55.42 18.68

Total ....................... 672.55 649,90

SCHEDULE IX

RAW MATERIALS AND COMPONENTS AND FINISHED PRODUCTS :2006 2005

Rs. in lakhs Rs. in lakhs(A) Decrease/(Increase) in Stock of Finished Goods:

Opening Stock:Finished Products purchased for sale ............ 380.91 820.05Less : VAT Credit Available (4.60) —

376.31 820.05Finished Products produced for sale ....... 123.72 64.00

500.03 884.05Less : Closing Stock :Finished Products purchased for sale (465.47) (380.91)Finished Products produced for sale (136.92) (123.72)

Decrease / (Increase) in Stock ....................... (102.36) 379,42

(B) Consumption of Raw Materials and Components :Opening Stock: .............................................. 5,707.57 3,739.17Less: VAT Credit Available .............................. (39.15) —

5,668.42 3,739.17Add: Purchases [including processing chargesAdd: Rs. 937.46 lakhs (2005: Rs. 619.88 lakhs)] 34,724.71 17,783.66Less: Closing Stock ........................................ (5,514.13) (5,707.57)

34,879.00 15,815.26

(C) Purchases of Finished Products for Sale ........ 30,130.63 27,959.42

Total .................... 64,907.27 44,154.10

2006 2005SCHEDULE X Rs. in lakhs Rs. in lakhsPERSONNEL :

Salaries, Wages, Bonus etc. .......................... 531.93 509.59Contribution to Provident and Other Funds .... 58.27 33.26Welfare .......................................................... 26.09 12.60

Total .................... 616.29 555.45

2006 2005SCHEDULE XI Rs. in lakhs Rs. in lakhsINTEREST :

Interest on fixed period loans ......................... 49.00 69.24Others ............................................................ 543.71 253.74

Total* .................. 592.71 322.98

*Net of interest capitalised Rs. 5.52 lakhs (2005 : Rs. Nil)

2006 2005SCHEDULE XII Rs. in lakhs Rs. in lakhsOTHER EXPENSES :

Electricity Expenses ....................................... 4.32 4.25Rent ............................................................... 156.47 159.04Rates & Taxes ................................................ 117.54 38.13Insurance ....................................................... 36.29 23.66Repairs & Maintenance - others ..................... 26.90 29.83Bank Charges (including discounting charges) 183.12 167.76Clearing Forwarding and Freight Charges ...... 599.40 425.60Director’s Fees ............................................... 1.20 1.25Commission to Non-wholetime Director (refernote 13) .......................................................... 3.00 3.00Commission to Selling Agents ....................... 18.72 138.06Processing charges ........................................ — 45.25Bad Debts and Advances written off ............. 59.58 253.62Provision for doubtful debts (net) .................... (30.38) (187.36)Foreign Exchange Loss (Note 4) .................... 233.47 9.92General Miscellaneous expenses .................. 570.69 551.17

Total .................... 1,980.32 1,663.18

SCHEDULE XIII

NOTES ON ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 20061. Significant Accounting Policies followed by the Company:

(i) Fixed Assets:(a) All Fixed assets are carried at cost less depreciation. Financing

costs that are attributable to the acquisition, construction orproduction of a qualifying asset are included in the cost of thatasset upto the date the asset is ready for use.

(b) Depreciation is calculated on the straight line method (SLM) at therates and in the manner prescribed by schedule XIV to theCompanies Act, 1956. except depreciation on vehicles which isprovided at 20% p.a. on the SLM.

(c) Goodwill arising on acquisition of business (included in intangibles,schedule IV) is being amortised equally over a period of ten years.

(ii) Inventories:Inventories are stated at cost or net realisable value, whichever is lowerafter making provision for obsolescence. The Cost is arrived at on a movingweighted average method and includes where appropriate excise duty.

(iii) Foreign currency Transactions:

All foreign currency monetary items are translated at the relevent ratesof exchange prevailing at the year end. In respect of forward exchangecontracts the premium or discount arising at the inception of such acontract is amortised as expense or income over the life of the contract.In case of monetary items (other than those acquisition of fixed assetfrom a country outside India) the exchange differences are recognisedin the Profit Loss Account.

In the case of monetary items incurred for the acquisition of fixed assetsfrom a country outside India, the exchange differences are adjusted tothe cost of such assets.

32


(iv) Revenue Recognition:Sales of products and services including commission are recognisedwhen the products are shipped or services rendered. Income frominsurance claims is recognised on acceptance of claim.

(v) Investments:Long term investments are valued at cost less permanent diminution invalue of investments, if any. Current investment are valued at the lowerof cost and fair value

(vi) Retirement Benefit:Contribution to Life Insurance Corporation of India in respect ofCompany’s liability for retirement gratuity payable to employees is madeon the basis of a letter from the Life Insurance Corporation of India statingthe actuarial liability, the fund available and the contribution/funds requiredin respect of the liability.Retirement Benefits in respect of leave encashment are provided forbased on a valuation as at the Balance Sheet date, made by anindependent actuary.

(vii) Taxes on Income:Current tax is accounted at the amount expected to be paid to/recoveredfrom the taxation authorities using the applicable tax rates and tax laws.Deferred tax is recognised subject to the consideration of prudence, ontiming differences, being the differences between taxable income andaccounting income that originate in one period and are capable of reversalin one or more subsequent periods. Deferred tax assets are notrecognised on unabsorbed depreciation and carry forward of losses unlessthere is virtual certainty that sufficient future taxable income will beavailable against which such deferred tax assets can be realised.

(viii) Segment Reporting:The accounting policies adopted for segment reporting are in line withthe accounting policies of the company. Revenue and expenses havebeen identified to segments on the basis of their relationship to theoperating activities of the segment. Revenue and expenses, which relateto the enterprise as a whole and are not allocable to segments on areasonable basis, have been included under “Unallocated CorporateExpenses” (refer note 21).

2. Redemption of preference shares:7.25% cumulative redeemable preference shares of the face value of Rs. 100each are redeemable at the end of 5th year from the date of allotment being2nd September, 2003.

3. Loans from Banks are secured by a first charge on the Company’s entire presentand future inventories book debts, receivables, investments, machinery etc. interms of the deeds of hypothecation executed by the Company.

4. The net difference in foreign exchange debited to the Profit and Loss Accountis Rs. 233.47 Lakhs (net) (2005: Rs. 9.92 Lakhs (net)).

5. Managerial Remuneration: 2006 2005Rs. in Lakhs Rs. i n Lakhs

Salary ........................................................ 4.63 10.60Commission ................................................... 5.89 27.14Contribution to Provident and other funds ..... 0.55 2.86Other perquisites and allowances .................. 10.82 33.17@

# 21.89* 73.77*

*excludes the accural for leave encashment and gratuity as it is accrued for theCompany as a whole.@ includes Rs. 3.22 lakhs pertaining to the earlier year.# include remuneration to the Managing Director from 1st April, 2005 to 30thJune, 2005 and to the Deputy Managing Director from 24th January, 2006being the date of appointment.

6. Miscellaneous expenses include auditor’s remuneration (including servicestax and education cess where applicable) as follows:

2006 2005Rs. in lakhs Rs. in lakhs

Audit fees ...................................................... 7.02 5.51Fess for other services .................................. — 3.47Reimbursement of expenses ......................... 0.86 0.34

7. The components of Deferred tax liability and assets as at 31st March, 2006 areas under:


Deferred Tax Assets:On provision for doubtful debts and advances 59.52 75.83Disallowance u/s 40a 19.30 —On provision for Leave encashment 15.90 13.21On provision for gratuity liability 21.20 17.13

115.92 106.17Deferred Tax Liabilities:On depreciation 7.42 9.95

7.42 9.95Deferred Tax Asset (net) 108.50 96.22`````

8. Earning per share: 2006 2005Rs. in lakhs Rs. in lakhs

Profit after tax and preferencedividend including tax thereon ................... (A) 2,353.71 1,801.80Weighted average number of shares ......... (B) 16,600,007 16,600,007Earning per share (Basic/Diluted) (Rs.) ... (A/B) 14.18 10.85Nominal value of equity share (Rs.) ................ 10 10

9. The identification of suppliers as small scale industrial undertakings (SSIs) hasbeen done on the basis of the information provided by the suppliers to thecompany. At the year end there were no balance due to small scale industrialundertakings.

10. Advances recoverable in cash or in kind or for value to be received – consideredgood (Schedule VI(B)) includes:(i) the Intercorporate Deposits Rs. Nil (2005 : Rs. 160.00 lakhs);(ii) Rs. 9.84 lakhs (2005: Rs. 25.43 lakhs) due from Mahindra MiddleEastElectrical Steel Service Centre, (FZC) a subsidiary company.

11. Contingent liabilities: 2006 2005Rs. in lakhs Rs. in lakhs

(i) Claims against the Company notacknowledged as debts:Taxation demand [including interestRs. 90.66 lakhs (2005: Rs. 196.81 lakhs)]for the assessment year 2001-02 againstwhich the Company has filed appealsbefore Income Tax Appellate Tribunal 225.41 222.91

(ii) Corporate Guarantee given by theCompany against deferred credit facilitysanctioned by Union Bank of India,Mumbai, to the subsidiarycompany Mahindra MiddleEast ElectricalSteel Service Centre, FZC by openingletter of credit of the tenure of 35 monthson supplier of equipment. In the event ofdefault by the subsidiary company inretiring letter of credit on due date, thebank would have recourse to the Company. 550.00 550.00

(iii) Financial guarantee given by the Companyagainst bank guarantee issued by StateBank of India in favour of a supplier ofraw materials of Mahindra Gujarat TractorLimited (MGTL). In the event of defaultby MGTL in discharging its obligations tothe supplier on the due date, the bankwould have recourse to the Company. 45.00 15.00

12. Sundry debtors outstanding include:(i) Rs. 620.30 Lakhs (2005 : Rs.526.37 lakhs) which in accordance with the

terms of the contracts, arrangements are not due for payment within oneyear.

(ii) Rs. 1,725.23 lakhs (2005: Rs. 313.92 lakhs) from Mahindra MiddleEastElectrical Steel Service Centre, (FZC) a subsidiary company.

13. Computation of Net profit in accordance with section 309(5) of the CompaniesAct, 1956 for the year ended 31st March, 2006.

2006 2005Rs. Lakhs Rs. Lakhs

Profit before Tax for the year 3,876.95 3,312.80Add: Depreciation charged in accounts ....... 88.64 109.09

Directors Remuneration includingdirectors fees ...................................... 17.20 47.88Commission to Non-Wholetimedirector ................................................ 3.00 3.00Commission to Managing Director andDeputy Managing Director .................. 5.89 27.14(Profit) / Loss on sale of fixedassets (net) ......................................... (0.93) (0.72)Provisions for doubtful debts (net) (30.38) (264.46)

83.42 (78.07)Less: Depreciation under section 350 of the

Companies Act, 1956 .......................... 92.00 109.71Less: Bad debts and advances written

off (net) ............................................... 59.58 253.62Net profit under Section 349 ....................... 3,808.79 2,871.40Commission payable to Non Wholetimedirector ................................................... 3.00 3.00Commission payable to Managing Directorand Deputy Managing Director ...................... 5.89 27.14

33


14. Contracts remaining to be executed on capital account and not provided forRs. 3,051.90 lakhs (2005 : Rs. Nil)

15. Capital work-in-progress includes capital advances Rs. 233.36 Lakhs (2005:Rs. Nil)

16. Depreciation charge for the year ended 31st March, 2005 was higher byRs. 15.36 lakhs consequent to a change in a rate of depreciation on vehicle to20% p.a. on the SLM method with effect from 1st April, 2004.

17. Joint Venture Disclosure :

i) Jointly Controlled Entity by the CompanyName of the Entity Country of % Holding

IncorporationMahindra MiddleEast Electrical SteelService Centre, FZC Sharjah 90%

ii) Interests in the Assets, Liabilities, Income and Expenses with respectto Jointly Controlled Entity

Rs. In Lakhs2006

I. ASSETS1. Fixed assets 522.022. Current Assets, Loans and Advances

(a) Inentories 942.33(b) Debtors and other receivables 728.29(c) Cash and Bank 416.03

II. LIABILITIES1. Loan Funds

Foreign Currency loan from a bank 306.362. Current Liabilities and Provisions

Creditors and other payables 2,022.48III. INCOME1. Sales and Service 2,423.992. Other income 9.31IV. EXPENSES1. Cost of sales 2,200.422. Administrative and General expenses 43.563. Distribution Costs 31.364. Interest expenses 38.645. Depreciation 28.42Since it is the first year of the joint venture, the previous year's figures havenot been given.

18. Additional information pursuant to the provisions of paragraphs 3(i)(a) and (ii),4C & 4D, ofPart II of Schedule VI to the Companies Act, 1956 - See ScheduleXIV. Previousyear's figures are indicated below the current year's figures.

19. Additional information pursuant to the provision of Part IV of Schedule VI to theCompanies Act, 1956 - See Schedule XV.

20. Previous year's figures have been regrouped wherever necessary to conformwith the groupings in the current year.

21. As per the Accounting Standard 17 “Segment Reporting” issued by the Institute of Chartered Accountants of India which is mandatory, the Company has disclosedSegment Reporting as follows: Rs. in lakhs

STEEL & STEEL RAW MATERIALS OTHERS TOTAL

2006 2005 2006 2005 2006 2005

REVENUE

Gross External Sales 63,611.20 48,937.62 9,331.31 2,680.29 72,942.51 51,617.91

Less: Excise duty 1,679.43 2,314.30 – – 1,679.43 2,314.30

Total Revenue (Net External Sales) 61,931.77 46,623.32 9,331.31 2,680.29 71,263.08 49,303.61

SEGMENT RESULT 3,905.62 3,448.78 332.02 (131.55) 4,237.64 3,317.23

Unallocated Corporated Expenses – – – – 237.04 10.60(net of income)

Operating Profit 3,905.62 3,448.78 332.02 (131.55) 4,000.60 3,306.63

Interest Expenses – – – – 592.70 322.98

Interest Income – – – – 469.05 329.15

Income Taxes - Current tax – – – – 1,330.00 1,150.00

- Deferred tax – – – – (12.28) 44.86- Fringe Benefit Tax 25.00 -

3,905.62 3,448.78 332.02 (131.55) 2,534.23 2,117.94

Tax adjustment for prior years 24.21 162.43

Profit After Tax 3,905.62 3,448.78 332.02 (131.55) 2,510.02 1,955.51

OTHER INFORMATION

Segment Assets 17,656.77 17,679.51 2,555.07 1,364.41 20,211.83 19,043.92

Unallocated Corporate Assets – – – – 4,486.11 2,737.76

Total Assets 17,656.77 17,679.51 2,555.07 1,364.41 24,697.95 21,781.68

Segment Liabilities 13,300.06 12,264.24 1,250.06 970.26 14,550.12 13,234.50

Unallocated Corporate Liabilities – – – – 2,789.54 2,867.92

Total Liabilities 13,300.06 12,264.24 1,250.06 970.26 17,339.66 16,102.42

Capital Expenditure (in India) 19,06 32.89 12.31 10.14 382.60 77.41

Depreciation (including amortisation of Goodwill) 12.23 23.65 4.38 8.85 88.64 109.09

Non Cash expenses other than depreciation (18.64) (91.17) 8.29 (35.51) (8.51) (316.93)

34


External Revenue by Geographical Market:2006 2005

Rs. in lakhs Rs. in lakhs

India 70,208.65 49,864.42

Outside India 2,733.86 1,753.49

TOTAL 72,942.51 51,617.91

Segment Assets by Geographical Market 2005 2004Rs. in lakhs Rs. in lakhs

India 20,210.93 19,042.89

Outside India 0.90 1.03

TOTAL 20,211.83 19,043.92

Business Segments :

The Company has considered business segments as the primary segment fordisclosure. The segments have been identified taking into account the organisationalstructure and differing returns and risks of these segments. The Company’s operationcomprise mainly of steel and other operations.

The steel segment relates to steel and raw materials for steel industry and involvesimports, indenting, stock & sale and marketing of the items in domestic andinternational markets.

Other operations include :

(i) the Technical business which is engaged in imports, indenting and marketingmachine tools, ultrasonic testing equipment, and providing technical servicesin connection with erection and commisioning projects, mainly for theequipment marketed.

(ii) the Fast Moving Consumer Goods business which is engaged in distributionand marketing of play materials, gift, novelties, apparel and other brandedproducts.

(iii) the exports business which deals in export of products, mainly engineeringitems.

(iv) Commodity trading

(V) Diesel Generator sets

Geographical Segments :

The geographical segments are considered for disclosure as secondary segments.The Company’s geographical segments have been determined on the basis oflocation of customers.

Segment Revenue and Expense :

Some infrastructural items like office premises and other facilities are shared bydifferent segments and are allocated on a reasonable basis. All other segmentrevenues and expenses are directly attributable to the segments.

Inter Segment Sales :

There are no inter segment sales, purchases or transfers during the year.

External Revenue :2006 2005

Rs. in lakhs Rs.in lakhs

Sales and other income 73,741.61 52,431.90

Less: Commission and service incomenetted against unallocated corporate costs 330.05 484.84

Less: Interest income 469.05 329.15

External Sales and other income 72,942.51 51,617.91

22. As per Accounting Standard 18 “Related Party” issued by the Institute ofChartered Accountants of India which is mandatory, the Company has identifiedall the related parties having transactions during the period as per the detailsgiven below:

1. In respect of the outstanding balances recoverable as at 31st March, 2006,no provision for doubtful debts has been made in respect of these parties.

2. During the year there were no amounts written off and written back fromsuch parties.

(A) Related parties where control exists:Holding Company Mahindra & Mahindra Ltd (M&M)Subsidiary Company Mahidra MiddleEast Electrical Steel Service Centre,

(FZC) (MME)

(B) a) Other related parties with whom the company has transactions, etc:Fellow Subsidiaries Mahindra Steel Service Centre Ltd (MSSCL)

Mahindra Holdings Finance Ltd (MHFL)Mahindra & Mahindra Financial Services Ltd (MMFSL)Mahindra Gujarat Tractor Ltd (MGTL)Bristlecone India Ltd (MCL)Mahindra Holidays & Resorts India Ltd. (MHRIL)Mahindra USA Inc. (MUSA)Mahindra Shubhlabh Services Ltd (MSSLP)Mahindra Engg & Chem Products Ltd (MECP)Bristlecone UK Ltd (MILUK)Mahindra International Ltd (MINT)Automartindia Ltd. (AIL)Mahindra Ugine Steel Company Ltd (MUSCO)(wef 21st June, 2005)

Key Managerial Mr. Raghunath Murti, Managing DirectorPersonnel (2005 : Mr. R. R. Krishnan)

Mr. Harsh Kumar, Deputy Managing Director(wef 24th January, 2006)

(C) (a) Disclosure of transactions between the Company and related partiesand the status of outstanding balance as on 31st March 2006:

Rs. in lakhs(Receipt/income)/Expenditure/payment

HoldingHoldingHoldingHoldingHolding SubsidiarSubsidiarSubsidiarSubsidiarSubsidiaryyyyy FellowFellowFellowFellowFellowCompanyCompanyCompanyCompanyCompany CompanyCompanyCompanyCompanyCompany SubsidiariesSubsidiariesSubsidiariesSubsidiariesSubsidiaries

2006 2005 2006 2005 2006 2005Purchase of finished goods 2,788.10 163.41 – – 4,564.36 0.99Purchase of Fixed Asset 7.43 7.09 – – – –Sale of Assets - (1.10) – – – (0.98)Processing charges paid - – – – 937.46 665.13Sales of finished goods(excluding sales tax) (16,390.45) (7,239.37)(1,688.34) (327.85)(7,072.41) (708.23)Income from services rendered (13.77) (23.40) – – (180.67) (283.57)Deputation of Personnel torelated parties (8.11) (5.89) – – (31.80) (24.57)Deputation of Personnel fromrelated parties 36.06 29.99 – – 1.28 1.47Other Income (1.56) (0.64) – – (0.90) (0.30)Other Expenses 422.34 213.80 – 1.19 27.69 12.02Reimbursement ReceivedFrom Parties (456.69) (295.01) (4.01) (33.19) (0.08) (0.07)Reimbursement Made to Parties 175.77 72.55 1.22 – 5.41 5.32Interest Received – – (33.72) (0.82) (227.19) (77.46)Interest Paid – – – – 7.00 –Investments made – – 0.72 224.29 – –Inter Corporate Deposits Placed – – – – 1,500.00 –Inter Corporate DepositsRefunded By Parties – – – –(1,660.00) (215.00)Inter Corporate DepositsRefunded To Parties 300.00 300.00 – – – –Dividend on preference sharefor the previous year paid duringthe current year 135.94 78.74 – – – –Dividend on equity share forthe previous year paid duringthe current year 87.98 249.00 – – – –Interim dividend on equityshares paid 381.80 298.80 – – – –Corporate guarantee given – – – 550.00 – –Financial guarantee given – – – – 30.00 15.00

b) Transactions with Key Management Personnel2006 2005

Rs. in lakhs Rs. in lakhs

Managerial Remuneration 21.89 73.77Sales of assets – 0.09Loss on sale of fixed assets – 0.50

c) Outstanding receivables as on 31.03.2006 2006 2005From subsidiary Company Rs. in lakhs Rs. in lakhs(including Investment made) 1,960.08 563.64From fellow subsidiaries(including inter-corporate Deposits) 2,899.07 906.52

d) Outstanding payables as on 31.03.2006 2006 2005To Holding Company * 4,010.17 4,391.81To Fellow Subsidiaries 150.18 5.75To Key Managerial Personnel 5.70 27.14

* includes equity share cpaital, preference share capital

35


Disclosure of transactions between the Company and fellow subsidiaries and the status of outstanding balance as on 31.03.2006Rs. in lakhs

MSSCL MUSCO MECP MHFL MMFSL MINT MGTL MCL MHRIL MUSA MSSLP AIL MILUK

Purchase of finished goods – 4,564.36 – – – – – – – – – – –(–) (–) (–) (–) (–) (–) (–) (–) (–) (0.99) (–) (–) (–)

Sale of asset – – – – – – – – – – – – –(–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (0.98) (–)

Processing charges paid 937.46 – – – – – – – – – – – –(665.13) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Sales of finished goods (excluding sales tax) 240.99 6,686.52 – – – 143.77 – – 1.13 – – – –(708.23) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Income from services rendered 116.82 0.43 0.25 63.17 – – – – – – – – –(109.06) (–) (–) (174.51) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Deputation of Personnel to related parties 31.80 – – – – – – – – – – – –(24.57) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Deputation of Personnel from related parties 1.28 – – – – – – – – – – – –(1.47) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Other Income – – – – – – 0.90 – – – – – –(–) (–) (–) (–) (–) (–) (0.30) (–) (–) (–) (–) (–) (–)

Other Expenses 6.85 – – – – – – 6.26 14.58 – – – –(5.09) (–) (–) (–) (–) (–) (–) (4.70) (–) (–) (2.23) (–) (–)

Reimbursement Received from Parties 0.08 – – – – – – – – – – – –(0.07) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Reimbursement made to Parties 5.41 – – – – – – – – – – – –(2.67) (–) (–) (–) (–) (–) (–) (–) (–) (–) (2.65) (–) (–)

Interest Received 0.96 156.75 – 64.85 4.63 – – – – – – – –(34.59) (–) (–) (42.87) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Interest Paid – 7.00 – – – – – – – – – – –(–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Inter Corporate Deposits Placed – – – – 1,500.00 – – – – – – – –(–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Inter Corporate Deposits Refunded by Parties 160.00 – – – 1,500.00 – – – – – – – –(215.10) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–) (–)

Financial guarantee given – – – – – – 30.00 – – – – – –(–) (–) (–) (–) (–) (–) (15.00) (–) (–) (–) (–) (–) (–)

Outstanding receivables – 2,215.59 – 620.30 – 62.70 – – 0.48 – – – –389.70 (–) (–) 516.82 (–) (–) (–) (–) (–) (–) (–) (–) (–)

Outstanding payables 147.53 – – – – – – 1.32 – 0.99 – – 0.34(–) (–) (–) (–) (–) (–) (–) (1.24) (–) (0.99) (3.18) (–) (0.34)

23. Derivative Instruments :The Company has entered into Forward Exchange Contracts (being a derivative Instrument), which are not intended for trading or speculative purposes, but for hedgepurpose, to establish the amount of reporting currency required or available at the settlement date of certain payables.

The following are the outstanding Forward Exchange Contracts entered into by the Company as on 31st March, 2006.Currency Amount Buy/sell Cross CurrencyUSD 3,675,423.14 Buy RupeesThe year end foreign currency exposures that have been hedged by a derivative instrument or otherwise are give below :a) Amounts receivable in foreign currency on account of the following :

Export of goods and services USD 4,078,388.47 Rs. 1,812.84 LakhsEURO 23,875.52 Rs. 12.87 Lakhs

Commission and Services rendered AED 5,900.00 Rs. 0.70 LakhsCAD 961.20 Rs. 0.37 LakhsEURO 19,668.82 Rs. 10.60 LakhsGBP 11,367.87 Rs. 8.80 LakhsUSD 118,883.09 Rs. 52.84 Lakhs

b) Amount payable in foreign currency on account of the following :Import of goods and services AED 52,943.08 Rs. 6.61 Lakhs

EURO 26,570.00 Rs. 14.54 LakhsGBP 42,452.10 Rs. 33.28 LakhsUSD 18,347,582.92 Rs. 8,230.73 Lakhs

The above disclosures have been made consequent to an annoucement by the Institute of Chartered Accountant of Indian in December, 2005, which is applicable to thefinancial periods ending on or after 31st March, 2006. Therefore, figures for the previous year have not been disclosed.

36


(C) Particulars in Respect of Raw Materials & Components Consumed :Rs. in lakhs

2006 2005

Quantity Value* Quantity Value*

Steel Products 62,420.69 28,851.52 45,982.52 15,457.09

Diesel

Generator Sets $ 6,027.48 358.17

62,420.69 34,879.00 45,982.52 15,815.26

Note: The consumption in value has been ascertained on the basis of openingstock plus purchases less closing stock and includes the adjustment ofexcesses and shortage as ascertained on physical count.

* Including processing charges (see Schedule IX)$ Includes numerous items of diverse nature therefore it is neither practicalnor meaningful to give the quantities


(D) Value of imports on CIF basis :

a) Raw materials .......................... 16,246.01 10,006.93

b) Finished goods for resale ......... 13,801.81 14,154.55


(E) Earnings in Foreign Exchange :a) Export of goods on FOB basis . 2,072.08 1,242.42b) Commissions ........................... 580.11 454.95c) Others (freight, insurance,

services rendered) ................... 81.67 56.12

(F) Expenditure in Foreign Currency :

a) Travelling .................................. 34.65 61.82b) Commission ............................. — 126.27c) Interest .................................... 435.81 151.19d) Professional fees ..................... — 1.59e) Others ...................................... 38.94 67.25

(G) Value of imported and Indigenous Consumption :

2006 2005Rs. in lakhs % Rs. in lakhs %

Imported Steel ........... 13,949.84 40% 10,752.98 68%Local Steel ................. 20,929.16 60% 5,062.28 32%

34,879.00 15,815.26

Schedule XIV

Additional Information pursuant to the provision of paragraphs 3(i)(a), 3(ii), 4C and 4D, of Part II of Schedule VI to the Companies Act, 1956.

(A) Particulars in Respect of Goods Manufactured: (Rs. in lakhs)

Unit of Production* Opening Stock Closing Stock SalesMeasure Quantity Quantity Value Quantity Value Quantity Value

Steel Products MT #62,420.69 249.03 100.21 280.65 134.85 @62,389.07 @33,364.48#(45,982.52) (165.42) (64.00) (249.03) (100.21) @(45,898.91) @(19,796.13)

Diesel Generator Sets Nos. 3,787.00 33.00 23.51 2.00 2.07 3,818.00 6,652.14(369.00 (–) (–) (33.00) (23.51) (305.00) (410.47)

66,207.69 282.03 123.72 282.65 136.92 66,207.07 40,016.62(46,351.52) (165.42) (64.00) (282.03) (123.72) (46,203.91) (20,206.60)

* Produced at a third party# Including scrap 2133 MT (2005: 1402 MT)@ Including sales of scrap 2133 MT (2005: 1410 MT) Rs. 596.89 lakhs (Rs. 331.62 lakhs)

Previous Year’s figures are in brackets

(B) Particulars in Respect of Traded Goods:

Sr. Class of Goods Unit of Purchases # Opening Stock Closing Stock SalesMeasure Quantity Value Quantity Value Quantity Value Quantity Value

Rs. in lakhs Rs. in lakhs Rs. in lakhs Rs. in lakhs

1 Other Engineering Products@ 222.03 — — 344.07(312.87) (—) (—) (568.15)

2 Steel and Steel raw materials MT 71,981.59 28,122.55 134.55 53.59 280.69 90.52 71,867.49 29,565.96(71,787.19) (26,535,46) (664.39) (349.90) (134.72) (53.59) (72,316.86) (28,353.29)

3 Spare Parts@ 245.99 77.69 66.67 378.08(237.33) (61.84) (77.69) (365.74)

4 Play Material@ 542.48 189.11 248.50 725.27(485.07) (245.29) (189.11) (602.73)

5 Apparel@ 239.00 60.52 59.78 222.17(81.31) (135.98) (60.52) (130.63)

6 Others 758.58 — — 755.04(307.38) (27.04) (—) (341.87)

30,130.63 380.91 465.47 31,990.59Less: VAT Credit Available (4.60)

376.31(27,959.42) (820.05) (380.91) (30,362.41)

# Purchase quantities are net of adjustments for shortage/excess on physical verification

@ Includes numerous items of diverse nature therefore it is neither practical nor meaningful to give the quantities

Previous year's figures are in brackets.

37


I. Registration Details :

Registration No. 2 0 2 2 2 State Code 1 1

Balance Sheet Date 3 1 0 3 2 0 0 6

Date Month Year

II. Capital raised during the year (Amount in Rs. Thousands)

Public Issue Right Issue

N I L N I L

Bonus Issue Private Placement

N I L N I L

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

Total Liabilitiesincluding Shareholders’ Funds Total Assets

2 4 6 9 0 5 3 2 4 6 9 0 5 3

Sources of Funds

Paid-up Capital Reserves and Surplus

3 5 3 5 0 0 3 8 2 3 2 9

Secured Loans Unsecured Loans

9 6 4 5 4 7 0 6 0 0

Application of Funds

Net Fixed Assets Investment

6 4 0 1 5 4 7 5 0 2

Net Current Assets # Miscellaneous Expenditure

7 9 1 3 6 6 –

Accumulated Losses

–

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

Turnover @ Total Expenditure

7 2 0 6 2 1 8 6 8 1 8 5 2 3

+ (–) Profit/(Loss) before Tax + (–) Profit/(Loss) after Tax

+ 3 8 7 6 9 5 + 2 5 1 0 0 2

Earning per Share in Rupees Dividend Rate %

1 4 . 1 8 3 5 . 6 0

@ includes sales and other income

# includes Deferred Tax assets (net)

Additional information pursuant to the provisions of Part IV of Schedule VI to the Companies Act, 1956

Schedule XV

Balance Sheet Abstract and Company’s General Business Profile:

38


Signatures to Schedule I to XV

Schedule XV (Contd.)

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

Item Code No. (ITC Code) 7 2 0 9

Product Description F L A T R O L L E D P R O D U C T S ( C O L D R O L L E D )


Product Description E L E C T R I C A L S T E E L S H E E T S


Product Description S T E E L S C R A P




U. Y. Phadke



Rajeev Dubey

A.K. Nanda



}

39


Statement pursuant to Section 212 of the Companies Act, 1956 relating to Subsidiary Companies

Particulars

Name of the Subsidiary Company Mahindra Middle East Steel Service Centre FZC

The Financial year of the Subsidiary Company ended on 31st March, 2006

Number of shares in the Subsidiary Company held byMahindra Intertrade Limited at the above date:

Equity 500

Extent of holding 90%

The net aggregate of profits/(losses) of the Subsidiary Companyfor its financial year so far as they concern the members ofMahindra Intertade Limited

a. Dealt with in the accounts of Mahindra Intertrade Limitedfor the year ended 31st March, 2006 Nil

b. Not dealt with in the accounts of Mahindra Intertrade Limitedfor the year ended 31st March 2006 AED 831,162

Rs. 100.98 Lakhs

The net aggregate of profits/(losses) of the Subsidiary Companyfor its previous financial year so far as they concern the members ofMahindra Intertrade Limited

a. Dealt with in the accounts of Mahindra Intertrade Limitedfor the year ended 31st March, 2005 Nil

b. Not dealt with in the accounts of Mahindra Intertrade Limitedfor the year ended 31st March 2005 AED (279,788)

Rs. (33.32) Lakhs




U. Y. Phadke



Rajeev Dubey

A.K. Nanda



}

40

MAHINDRA MIDDLEEAST ELECTRICAL STEEL SERVICE CENTRE (FZC)

Directors’ Report to the Members for the year ended 31st March, 2006

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Directors’ Responsibility Statement

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Raghunath Murti

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We have audited the accompanying balance sheet of MahindraMiddleEast Electrical Steel Service Centre (FZC) [formerly knownas Mahindra MiddleEast Electrical Steel Service Centre (FZE)] (aLimited Liability Company incorporated and licensed at SharjahAirport International Free Zone) (hereinafter referred to as ‘theCompany’) as at 31 March 2006, and the related statements ofprofit and loss and retained earnings and cash flows for the yearthen ended. These financial statements are the responsibility ofthe company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

We conducted our audit in accordance with the InternationalStandards on Auditing. Those Standards require that we plan andperform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatements. Anaudit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used andsignificant estimates made by the management, as well asevaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.

According to the information and explanations given to us, in ouropinion, the accompanying financial statements have been

AUDITORS’ REPORT

To the Members of Mahindra MiddleEast Electrical Steel Service Centre (FZC)

prepared in accordance with the Emiri Decree No. (2) of 1995regarding the establishment of Sharjah Airport International Free-Zone Authority and give a true and fair view, in all materialrespects: (a) in the case of the balance sheet, of the state of affairsof the company as at 31 March 2006; (b) in the case of the Profitand Loss Statement and retained earnings, of the profit of thecompany for the year ended on that date; and (c) in the case of thecash flow, of the cash flows for the year ended on that date, inaccordance with the Statements of International FinancialReporting Standards issued by the International AccountingStandards Committee.

In respect of the presentation of financial information in IndianRupees and United States Dollars in the financial statements, wehave verified the arithmetic accuracy of the presentation basedupon an exchange rate provided by the Management (refer Note2 to the Financial Statements). We did not audit and do notexpress an opinion on such information.

B.P. Shroff

Partner

A.F. Ferguson & Co.

12th May, 2006 Accountant’s Regn. No. 354

43


BALANCE SHEET

31 March 2006

Note 31 March 31 March 31 March 31 March 31 March 31 March2006 2006 2006 2005 2005 2005Dhs. Rs. USD Dhs. Rs. USD

FIXED ASSETS at Net BookValue .............................. 4 4,773,855 58,002,339 1,304,331 4,902,604 59,566,639 1,339,509

CURRENT ASSETS

Inventories ......................... 5 8,617,570 104,703,476 2,354,527 1,112,354 13,515,100 303,922

Debtors and OtherReceivables .................... 6 6,660,155 80,920,885 1,819,714 1,974,805 23,993,881 539,565

Cash and Bank ................... 7 3,804,570 46,225,525 1,039,500 180,183 2,189,223 49,230

Total current assets .......... 19,082,295 231,849,886 5,213,741 3,267,342 39,698,204 892,717

CURRENT LIABILITIES

Creditors and OtherPayables ......................... 4,498,642 54,658,503 1,229,136 573,528 6,968,364 156,702

Due to Related Parties ....... 10 13,996,857 170,061,812 3,824,278 2,936,493 35,678,390 802,320

Total current liabilities ..... 18,495,499 224,720,315 5,053,414 3,510,021 42,646,754 959,022

NET CURRENT ASSETS .. 586,796 7,129,571 160,327 (242,679) (2,948,550) (66,305)

5,360,651 65,131,910 1,464,658 4,659,925 56,618,089 1,273,204

FINANCED BY

Share Capital ...................... 8 2,007,620 24,392,583 548,530 1,800,983 21,881,943 492,072

Reserve .............................. 9 551,374 6,699,194 150,648 (279,788) (3,399,424) (76,445)

2,558,994 31,091,777 699,178 1,521,195 18,482,519 415,627

SECURED LOAN

Foreign Currency Loanfrom a Bank .................... 13 2,801,657 34,040,133 765,480 3,133,811 38,075,804 856,233

UNSECURED LOAN

From Standard CharteredBank ............................... — — — 4,919 59,766 1,344

5,360,651 65,131,910 1,464,658 4,659,925 56,618,089 1,273,204

The attached Notes 1 to 18 form part of these Financial Statements.

Raghunath Murti - Chairman

Sumit Issar

Mitsuru TsukakoshiDirectors

12th May, 2006

}

44


STATEMENT OF PROFIT AND LOSS AND RETAINED EARNINGS

For the Year Ended 31 March 2006

For the Year Ended For the Period

8 August 8 August 8 August2004 to 2004 to 2004 to

Note 31 March 31 March 31 March 31 March 31 March 31 March2006 2006 2006 2005 2005 2005Dhs. Rs. USD Dhs. Rs. USD

INCOME

Sales and Service ............... 22,167,211 269,331,614 6,056,615 2,052,967 24,943,549 560,920

Cost of Sales ...................... 20,122,689 244,490,671 5,498,002 1,897,270 23,051,831 518,380

GROSS PROFIT ................. 2,044,522 24,840,943 558,613 155,697 1,891,718 42,540Other Income ..................... 85,121 1,034,220 23,257 4,848 58,903 1,325

2,129,643 25,875,163 581,870 160,545 1,950,621 43,865

EXPENDITURE

Administrative and GeneralExpenses ........................ 12 398,354 4,840,002 108,841 290,112 3,524,862 79,266

Distribution Costs .............. 286,791 3,484,511 78,358 58,875 715,329 16,086

Interest Expenses .............. 353,400 4,293,810 96,557 26,717 324,612 7,300

Depreciation ....................... 4 259,936 3,158,222 71,021 64,629 785,242 17,658

1,298,481 15,776,545 354,777 440,333 5,350,045 120,310

INCOME/(LOSS) FOR THEYEAR .............................. 831,162 10,098,618 227,093 (279,788) (3,399,424) (76,445)

Accumulated Loss at thebeginning of the Year ..... (279,788) (3,399,424) (76,445) — — —

Less: Statutory Reserve ..... 83,116 1,009,859 22,709 — — —

Accumulated Profit/(Loss)at the end of the Year ..... 468,258 5,689,335 127,939 (279,788) (3,399,424) (76,445)



Sumit Issar


12th May, 2006

}

45


STATEMENT OF CHANGES IN EQUITY

For the Year Ended 31 March 2006

Issued Capital Accumulated Profits Total

Dhs. Rs. USD Dhs. Rs. USD Dhs. Rs. USD

Balance as at 31March 2005 ....... 1,800,983 21,881,943 492,072 (279,788) (3,399,424) (76,445) 1,521,195 18,482,519 415,627

Issued of Sharesduring the Year . 206,637 2,510,640 56,458 — — — 206,637 2,510,640 56,458

Income for theYear ................... — — — 831,162 10,098,618 227,093 831,162 10,098,618 227,093

Balance as at 31March 2006 ...... 2,007,620 24,392,583 548,530 551,374 6,699,194 150,648 2,558,994 31,091,777 699,178


46


CASH FLOW STATEMENT

For the Year Ended 31 March 2006For the Year Ended For the Period

31 March 2006 8 August 2004 to 31 March 2005

Dhs. Rs. USD Dhs. Rs. USD

Operating Activities:

Profit/(Loss) for the year ................ 831,162 10,098,618 227,093 (279,788) (3,399,424) (76,445)

Adjustments for Non-cash Itemand items shown separately:

Depreciation ................................... 259,936 3,158,222 71,021 64,629 785,242 17,658

Interest Expenses .......................... 353,400 4,293,810 96,557 26,717 324,612 7,300

Unrealised exchange differences... (332,154) (4,035,671) (90,752) 17,359 210,912 4,743

Changes in Operating Assets andLiabilities:

Increase in Inventories ................... (7,505,216) (91,188,374) (2,050,605) (1,112,354) (13,515,101) (303,922)

Increase in Debtors and OtherReceivables .................................... (4,685,350) (56,927,003) (1,280,150) (1,974,805) (23,993,881) (539,565)

Increase in Creditors and OtherPayables ......................................... 3,919,856 47,626,250 1,070,999 469,445 5,703,756 128,264

Increase in Due to Related Parties . 11,060,364 134,383,423 3,021,957 2,766,280 33,610,302 755,814

Cash Flow from Operations ........ 3,901,998 47,409,275 1,066,120 (22,517) (273,582) (6,153)

Investing Activities:

Acquisition of Fixed Assets............ (131,187) (1,593,922) (35,843) (4,718,114) (57,325,085) (1,289,102)Net Cash used in InvestingActivities ...................................... (131,187) (1,593,922) (35,843) (4,718,114) (57,325,085) (1,289,102)

Financing Activities:

Proceeds from Issue of Shares ...... 206,637 2,510,640 56,458 1,800,983 21,881,943 492,072

Proceeds from Secured Loan ........ — — — 3,116,452 37,864,892 851,490

Interest Paid ................................... (348,142) (4,229,925) (95,121) (1,540) (18,711) (421)

Net Cash from Financing Activities (141,505) (1,719,285) (38,663) 4,915,895 59,728,124 1,343,141Increase in Cash and CashEquivalents ................................... 3,629,306 44,096,068 991,614 175,264 2,129,457 47,886

Cash and Cash Equivalents:

Cash and Cash Equivalents at thebeginning of the year* ................... 175,264 2,129,457 47,886 — — —

Cash and Cash Equivalents at theend of the year* ............................. 3,804,570 46,225,525 1,039,500 175,264 2,129,457 47,886

3,629,306 44,096,068 991,614 175,264 2,129,457 47,886

*Cash and Bank ............................. 3,804,570 46,225,525 1,039,500 180,183 2,189,223 49,230Unsecured Loan from a Bank ........ — — — (4,919) (59,766) (1,344)

3,804,570 46,225,525 1,039,500 175,264 2,129,457 47,886



Sumit Issar


12th May, 2006

}

47


NOTES TO THE FINANCIAL STATEMENTS31 March 2006

1. ACTIVITIES:

Mahindra MiddleEast Electrical Steel Service Centre (FZE) was incorporated andlicensed on 8 August 2004, at Sharjah Airport International Free Zone, Sharjah(FZ) with limited liability. Subsequently, the Company has entered into anagreement on subscription for capital interest with Nippon Steel Corporation(NSC), Japan, to reorganise the Company and manage as a FZC. Consequentupon the induction of NSC as a shareholder, the status has changed from FreeZone Establishment (FZE) to Free Zone Company (FZC) with limited liability witheffect from 28 November 2005. The Company is engaged in processing of steelcoils and supply of slit coils.

2. FINANCIAL PRESENTATION IN DHS, INR AND USD:

Amounts reported in Indian Rupees and in United State Dollars for the yearsended 31 March 2006, and 31 March 2005, have been given for convenience bytranslating the figures reported in Dhs. at the exchange rate of Rs. 12.15 = Dhs.1 and USD 1 = Dhs. 3.66 which are the market rates as on 31 March 2006.

3. SIGNIFICANT ACCOUNTING POLICIES:

(a) Accounting Convention:

The financial statements have been prepared under the historical costconvention and comply with Statements of International Financial ReportingStandards issued by the International Accounting Standards Committee.

(b) Depreciation:

The cost of fixed assets is expensed in equal annual instalments (pro rata inthe year of addition and disposal) over the estimated useful life of the assets.The estimated useful lives of the assets for the purpose of depreciation areas follows:

Plant and Machinery 20 yearsVehicles 5 yearsFurniture and Fixtures 10 yearsOffice Equipment 5 yearsComputers 5 years

Fixed assets having value less than or equal to 500 Dhs. (Rs. 6,075) (USD137) each, are fully depreciated in the year of acquisition.

(c) Inventories:

Inventories are valued at lower of cost and net realisable value after makingdue allowance for any obsolete or slow moving items. Cost is determinedon weighted average basis.

(d) Debtors and Receivables:

Provision is made towards accounts receivable considered doubtful.

(e) Revenue Recognition:

Income is recognised when goods are sold or services rendered. Sales areaccounted net of trade discount and sales return.

(f) Foreign Currency Transactions:

Foreign currency transactions are recorded in U.A.E. Dirhams at the approximaterates of exchange prevailing at the time of transactions. At the year end, assetsand liabilities are translated at the foreign exchange rates prevailing at thebalance sheet date. All exchange differences thus arising or on settlementhave been reported in the profit and loss statement for the year.

(g) Provision for Gratuity:

Provision is made for amount payable under the labour law in force in SharjahAirport International Free Zone, Sharjah (FZ) authority, applicable to theemployees’ accumulated periods of service at the balance sheet date.

48


4. FIXED ASSETS

Particulars Plant and Machinery Vehicles Furniture and Fixtures

Dhs. Rs. USD Dhs. Rs. USD Dhs. Rs. USD

Cost:At 31 March 2006 .................................................. 4,898,291 59,514,236 1,338,331 55,750 677,363 15,232 4,250 51,638 1,161

Additions ................................................................ 114,608 1,392,487 31,314 — — — 9,700 117,855 2,650

At 31 March 2006 .................................................. 5,012,899 60,906,723 1,369,645 55,750 677,363 15,232 13,950 169,493 3,811

Depreciation:At 31 March 2005 .................................................. 61,212 743,726 16,725 2,788 33,874 762 182 2,211 50

Depreciation for the year ....................................... 245,053 2,977,394 66,954 11,150 135,473 3,046 1,201 14,592 328

At 31 March 2006 .................................................. 306,265 3,721,120 83,679 13,938 169,347 3,808 1,383 16,803 378

Net Book Value:At 31 March 2006 .................................................. 4,706,634 57,185,603 1,285,966 41,812 508,016 11,424 12,567 152,690 3,433

At 31 March 2005 .................................................. 4,837,079 58,770,510 1,321,606 52,962 643,488 14,470 4,068 49,426 1,111

4. FIXED ASSETS (Contd.)

Particulars Office Equipment Computers As at 31 March 2006 As at 31 March 2005

Dhs. Rs. USD Dhs. Rs. USD Dhs. Rs. USD Dhs. Rs. USD

Cost:At 31 March 2006 ................ 2,777 33,741 759 6,165 74,905 1,684 4,967,233 60,351,881 1,357,167 — — —

Additions .............................. — — — 6,879 83,580 1,880 131,187 1,593,922 35,843 4,967,233 60,351,881 1,357,167

At 31 March 2006 ................ 2,777 33,741 759 13,044 158,485 3,564 5,098,420 61,945,803 1,393,010 4,967,233 60,351,881 1,357,167

Depreciation:At 31 March 2005 ................ 139 1,689 38 308 3,742 84 64,629 785,242 17,658 — — —

Depreciation for the year ..... 555 6,743 152 1,977 24,021 540 259,936 3,158,222 71,021 64,629 785,242 17,658

At 31 March 2006 ................ 694 8,432 190 2,285 27,763 624 324,565 3,943,464 88,679 64,629 785,242 17,658

Net Book Value:At 31 March 2006 ................ 2,083 25,309 569 10,759 130,722 2,940 4,773,855 58,002,339 1,304,331 4,902,604 59,566,639 1,339,509

At 31 March 2005 ................ 2,638 32,052 721 5,857 71,163 1,600 4,902,604 59,566,639 1,339,509

NOTES TO THE FINANCIAL STATEMENTS – Continued31 March 2006

49


5. INVENTORIES: 31 March 2006 31 March 2005Dhs. Rs. USD Dhs. Rs. USD

Raw Materials ................................................................ 4,088,824 49,679,212 1,117,165 102,928 1,250,575 28,122Work-in-Progress ........................................................... — — — 12,102 147,039 3,307Finished Goods .............................................................. 101,811 1,237,004 27,817 514,255 6,248,198 140,507Goods in Transit ............................................................. 4,426,935 53,787,260 1,209,545 483,069 5,869,288 131,986

8,617,570 104,703,476 2,354,527 1,112,354 13,515,100 303,922

6. DEBTORS AND OTHER RECEIVABLES: 31 March 2006 31 March 2005Dhs. Rs. USD Dhs. Rs. USD

Trade Debtors ................................................................ 6,485,305 78,796,456 1,771,941 1,874,787 22,778,662 512,237Deposits ......................................................................... 20,250 246,038 5,533 19,346 235,054 5,286Prepayments .................................................................. 3,250 39,488 888 7,000 85,050 1,913Advance to Suppliers ..................................................... 151,350 1,838,903 41,352 73,672 895,115 20,129

6,660,155 80,920,885 1,819,714 1,974,805 23,993,881 539,565

7. CASH AND BANK BALANCES: 31 March 2006 31 March 2005Dhs. Rs. USD Dhs. Rs. USD

Cash on Hand ................................................................ 147 1,786 40 3,649 44,335 997Bank Balance in Current Account ................................... 3,804,423 46,223,739 1,039,460 176,534 2,144,888 48,233

3,804,570 46,225,525 1,039,500 180,183 2,189,223 49,230

8. SHARE CAPITAL: 31 March 2006 31 March 2005Dhs. Rs. USD Dhs. Rs. USD

Authorised:1,000 Shares of USD 550 (Dhs. 2,013) (Rs. 24,458) each(2005: 12 Shares of Dhs. 150,082 [(USD 41,006)(Rs. 1,823,496)] each ..................................................... 2,007,620 24,392,583 548,530 1,800,983 21,881,943 492,072

Issued and Paid:(1000 Shares of USD 550 (Dhs. 2,013) (Rs. 24,458) each(2005: 12 Shares of Dhs. 150,082 [(USD 41,006)(Rs. 1,823,496)] each ..................................................... 2,007,620 24,392,583 548,530 1,800,983 21,881,943 492,072

900 Shares of USD 550 (Dhs 2,013) (Rs. 24,458) each[2005: 12 Shares of Dhs. 150,082 (USD 41,006)(Rs.1,823,496) each held by Mahindra Intertrade Limited,which is a subsdiary of Mahindra & Mahinda Limited]

9. RESERVE: 31 March 2006 31 March 2005Dhs. Rs. USD Dhs. Rs. USD

Statutory Reserve (Refer Note 15) ................................. 83,116 1,009,859 22,709 — — —Retained Earnings .......................................................... 468,258 5,689,335 127,939 (279,788) (3,399,424) (76,445)

551,374 6,699,194 150,648 (279,788) (3,399,424) (76,445)

10 DUE TO RELATED PARTIES: 31 March 2006 31 March 2005Dhs. Rs. USD Dhs. Rs. USD

Mahindra Intertrade Limited ........................................... 13,985,483 169,923,618 3,821,170 2,932,928 35,635,075 801,346Mahindra Steel Service Centre Limited .......................... 11,374 138,194 3,108 3,565 43,315 974

13,996,857 170,061,812 3,824,278 2,936,493 35,678,390 802,320

11. TRANSACTIONS WITH RELATED PARTIES: 31 March 2006 31 March 2005Dhs. Rs. USD Dhs. Rs. USD

Management’s policy is to conduct transactions withrelated parties on prices and terms substantially similar tothose with unrelated parties.Purchase of Raw Materials ............................................ 13,973,329 169,775,947 3,817,849 2,753,810 33,458,792 752,407Purchase of Fixed Assets .............................................. 81,540 990,711 22,279 — — —Reimbursement Paid ..................................................... 28,275 343,541 7,725 257,606 3,129,913 70,384Reimbursement Received .............................................. 10,236 124,367 2,797 — — —Share Capital Subscribed ............................................... 5,722 69,522 1,563 1,800,983 21,881,943 492,072


50


12. ADMINISTRATIVE AND GENERAL EXPENSES: 31 March 2006 31 March 2005Dhs. Rs. USD Dhs. Rs. USD

Travelling and Conveyance ............................................ 70,331 854,522 19,216 51,895 630,524 14,179

Communication Expenses ............................................. 50,196 609,881 13,715 11,458 139,215 3,131

Audit Fees [(including Dhs. 2,000 (Rs. 24,300) (USD 546)

pertaining to the previous financial year] ........................ 10,250 124,538 2,801 2,500 30,375 683

Repairs and Maintenance .............................................. 26,698 324,381 7,295 11,562 140,478 3,159

Rent ............................................................................... 273,834 3,327,083 74,818 21,570 262,076 5,893

Rates and Taxes ............................................................. 9,704 117,904 2,651 30,808 374,317 8,417

Insurance ....................................................................... 17,436 211,847 4,764 218 2,649 60

Bank Charges ................................................................. 136,068 1,653,226 37,177 22,530 273,740 6,156

Exchange (Gain)/Loss (Net) ............................................ (266,054) (3,232,556) (72,692) 110,209 1,339,039 30,112

General Expenses .......................................................... 69,891 849,176 19,096 27,362 332,449 7,476

398,354 4,840,002 108,841 290,112 3,524,862 79,266

13. SECURED LOAN:

Foreign currency loan from a Bank is secured by hypothecation of assets – allraw materials, semi-finished goods and finished goods, products and moveableproperty of any kind. This charge in prescribed form is yet to be registered withthe concerned authorities.

14. NUMBER OF EMPLOYEES:

As of 31 March 2006, the Company had 5 (2005: 3) employees.

15. STATUTORY RESERVE:

According to the articles of association of the Company, 10% of the annual netprofit is allocated to a statutory reserve until such reserve equals 50% of thepaid-up share capital. This reserve is not available for distribution.

16. LEASES:

The Company has entered into operating lease arrangements for the custombuilt warehouse, the significant terms and conditions of which are as under:

— The tenure of the lease agreement is generally for a period of 7 to 25 years,renewable thereafter for another equal term.

— The lease may be terminated at any time by giving a notice in writing.

— Lease rentals are charged to the statement of profit and loss and retainedearnings –Dhs. 273,834 [(Rs. 3,327,083) (USD 74,818)] [2005: Dhs. 21,570(Rs. 262,076) (USD 5,893)].

17. DIVIDEND:

The Board of Directors has declared the dividend at the rate of USD 44.75(Dhs. 163.79) (Rs. 1,989.99) per share aggregating USD 44,750 (Dhs. 163,785)(Rs. 1,989,988) at it's meeting held on 12th May, 2006 which has not beenrecognised as a distribution to it's shareholders during the year ended31st March, 2006.

18. PREVIOUS YEAR’S FIGURES:

The current year’s figures are not comparable with those of the previousfinancial year, since the previous financial year was for the period 8 August 2004to 31 March 2005, and the previous financial year’s figures are all for FZE, whichhas been converted to FZC. The previous financial year’s figures have beenregrouped/rearranged, wherever necessary.


51

MAHINDRA STEEL SERVICE CENTRE LIMITED

DIRECTORS’ REPORT TO THE SHAREHOLDERS

Your Directors have pleasure in presenting their Thirteenth Report together with the audited accounts of your Company for the yearended 31st March, 2006.

Rs. in Lakhs

Financial Results

Year ended Year ended31st March, 31st March,

2006 2005

Income .......................................................................................... 1714.70 2120.67

Less: Excise duty .......................................................................... 47.01 127.80

Income (Net) ................................................................................. 1667.69 1992.87

Less: Expenses ............................................................................. 893.13 1356.73

Profit before interest, depreciation & taxation .............................. 774.56 636.14

Less: Depreciation ........................................................................ 198.67 177.60

Profit before interest & taxation .................................................... 575.89 458.54

Less: Interest ................................................................................ 18.32 36.79

Profit before taxation .................................................................... 557.57 421.75

Less: Provision for taxation:

– Current (Including Fringe Benefit Tax) ........................... 212.00 149.13

– Deferred ......................................................................... (53.90) 13.55

Profit for the year after taxation .................................................... 399.47 259.07

Add: Balance of profit for earlier years.......................................... 427.18 277.84

Profit available for appropriation .................................................... 826.65 536.91

Less: Transfer to General Reserve ............................................. 40.00 20.00

Proposed dividend ............................................................ 105.31 79.36

Dividend tax on proposed dividend

[Including Rs. 0.76 lakhs (2005: Nil) pertaining to

the previous year] ............................................................. 15.80 10.37

Balance carried forward ................................................................ 665.54 427.18

Dividend

Your Directors recommend a dividend of 17.25% on 61,04,706equity shares of Rs. 10 each for the year ended 31st March, 2006,payable to those members whose names appear on the Registerof Members of the Company as on 25th July, 2006, being theRecord Date fixed for this purpose. The dividend, including taxon distributed profits, will absorb a sum of Rs.120.35 lakhs(previous year Rs. 89.73 lakhs).

Operations

Your Company continued its focus on improving operationalefficiencies at its integrated steel service centre and as suchcould provide superior service at low operating costs to itscustomers. During the year under review, Lamination II lineinstalled in the previous year became fully functional enablingthe Company to make significant inroads in the transformersegment. Utilization of the CR slitting and shearing lines alsoincreased over the previous year. Your Company could leverage

its strengths to capitalize on the opportunities provided by asignificant pick up in demand across the industry segments inwhich it operates. As a result, the quantity of steel processedduring the year increased significantly to 78,209 tonnesfrom 72,576 tonnes in the previous year representing an increaseof 7.76%.

Processing income was higher at Rs.1,283.49 lakhs as comparedto Rs. 1,084.81 lakhs for the previous year registering an increaseof 18.31%. This was achieved mainly on account ofa sizeable increase in quantity processed and improved productmix. Higher revenue, improved margins and stringent costcontainment measures have helped your Company achieve ahigher profit before tax of Rs. 557.57 lakhs for the year againstRs. 421.75 lakhs in the previous year representing an increaseof 32.20%.

After providing for income tax of Rs. 212.00 lakhs (including FringeBenefit Tax of Rs. 2.00 lakhs) and write back of provision for

52


deferred tax of Rs. 53.90 lakhs, profit after tax for the year hasrisen to Rs. 399.47 lakhs from Rs. 259.07 lakhs in the previousyear registering a growth of 54%.


Pursuant to section 217 (2AA) of the Companies Act, 1956, yourDirectors, based on the representation received from theOperating Management, and after due enquiry, confirm that:

i) in the preparation of the annual accounts, the applicableaccounting standards have been followed;

ii) they have, in the selection of the accounting policies, consultedthe Statutory Auditors and these have been applied consistentlyand reasonable and prudent judgements and estimates havebeen made so as to give a true and fair view of the state ofaffairs of the Company as at 31st March, 2006 and of the profitof the Company for the year ended on that date;

iii) proper and sufficient care has been taken for the maintenanceof adequate accounting records in accordance with theprovisions of the Companies Act, 1956 for safeguarding theassets of the Company and for preventing and detecting fraudand other irregularities;

iv) the annual accounts have been prepared on a going concernbasis.

Corporate Governance

Constitution of the BoardThe Board presently has six Directors and all of them representthe joint venture partners. One of the Directors Mr. KatsuhikoShimada has an Alternate Director to represent him on the Board.

Board MeetingsThe Meetings of the Board of Directors are generally held at theRegistered Office of the Company in Mumbai. Four BoardMeetings were held during the year at which the financial results,matters relating to the operations of the Company and generalindustrial scenario were reviewed. Senior executives of theCompany also attended the Board Meetings as invitees.

ShareholdingYour Company is a subsidiary of Mahindra & Mahindra Limited(M&M), which holds 61% of the paid up equity share capital ofthe Company. The balance 39% is held by Metal One Corporation,Japan.

Directors

Mr. Alan Durante resigned as Director of the Company with effectfrom 25th September, 2005.

Mr. Tadashi Sawada resigned as Director of the Company witheffect from 13th October, 2005. Consequently, Mr. TakanoriHigashino ceased to be the Alternate Director to Mr. Sawadawith effect from the said date.

Your Board has placed on record its sincere and deep appreciationof the valuable services rendered by Mr. Durante and Mr. Sawadaduring their tenure as the Directors of the Company.

The Board, on 28th October, 2005, appointed Mr. Prabal Banerjiand Mr. Katsuhiko Shimada as Directors of the Company in placeof Mr. Alan Durante and Mr. Tadashi Sawada, respectively. TheBoard, on the same day, also appointed Mr.Takanori Higashinoas the Alternate Director to Mr. Shimada.

Members will recall that the Joint Venture Agreement (JVA) andthe Assignment Agreement (AA) subsisting between Mahindra& Mahindra Limited (M&M), Metal One Corporation (MOC), theexisting JV partners, and the Company, were amended on 19th

January, 2006, giving M&M and MOC both, a right to nominateone additional Director each on the Board of your Company.Pursuant to this and with a view to broad base the compositionof the present Board, your Company, on a nomination from M&M,appointed Mr. Harsh Kumar as an additional Director of theCompany with effect from 28th March, 2006. Mr. Kumar holdsoffice up to the date of the forthcoming Annual General Meetingof the Company. Your Company has received a notice from amember signifying his intention to propose the candidature ofMr. Kumar for the office of Director.

Mr. Yoshiaki Kakehi retires by rotation and, being eligible, offershimself for re-appointment.

Audit Committee

The Audit Committee of the Board presently comprises of thefollowing Directors of the Company: -

Mr. Raghunath Murti,

Mr. Bharat Doshi, and

Mr. Yoshiaki Kakehi or his Alternate Director, if any.

Mr. Raghunath Murti is the Chairman of the Audit Committee.Two Meetings of the Audit Committee were held during the year.

Public Deposits and Loans/Advances

The Company has not accepted any deposits from the public orits employees during the year under review.

The Company has not made any loans/advances, which arerequired to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with the parentcompany, Mahindra & Mahindra Limited.

Corporate Social Responsibility Initiatives (CSR)

As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced their socialwell being. Since inception, the Mahindra Group has engaged inactivities which add value to the communities around it. A stepforward in this direction was taken by the announcement madeon the occasion of the 60th anniversary of the holding company,Mahindra & Mahindra Limited, that the Group would support arange of CSR initiatives by committing up to 1% of Profit AfterTax (PAT) every year, on a continuing basis to largely benefit theeconomically disadvantaged and socially weaker sections of thesociety. Accordingly, the Board of your Company has resolvedto contribute towards Corporate Social Responsibility of theCompany, up to 1% of the Company’s estimated PAT for theyear, on a continuing basis, until further reviewed by the Board.

53


Current Year

Your Company expects that buoyancy in the Automobile, HomeAppliance and Transformer segments will be sustained duringthe current year and will enable your Company to further optimizeits resources by increasing its throughput and by enriching itsproduct mix. Your Company is continuously evaluatingopportunities to meet higher demand by further capacity additionat its existing location, and is also exploring the feasibility ofexpansion at certain other locations proximate to its customers.

Auditors

M/s. A. F. Ferguson Associates, Chartered Accountants, retireas auditors of the Company at the forthcoming Annual GeneralMeeting and have given their consent for re-appointment. Theshareholders will be required to appoint auditors for the currentyear and to fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromthe auditors to the effect that their re-appointment, if made, wouldbe in conformity with the limits specified in the said section.

Safety, Health and Environmental Performance

Your Company’s commitment towards safety, health andenvironment is being continuously enhanced by its variousinitiatives on safety awareness, health surveys of employees,recycling of wastes, etc. The health survey of employees isconducted once in every two years. Your Company maintainsgreen surrounding at the factory and has started recyclingwooden pallets and packing paper to save on fast depletingnatural resources. The requirements relating to various

environmental legislations and environment protection have beenduly complied by your Company.

Conservation of Energy

Processing of materials at the factory at Kanhe is not powerintensive. However, normal precautions are taken by theCompany to minimize power consumption.

Technology Absorption

The Company has not entered into any technical collaborationwith any party in the last five years.

Foreign Exchange Earnings and Outgo

The information on foreign exchange earnings and outgo isfurnished in the Notes on Accounts.

Particulars of Employees as required under section 217(2A)

of the Companies Act, 1956 and rules made thereunder

The Company had no employee who was in receipt of aremuneration of not less than Rs. 24,00,000 during the year ended31st March, 2006 or not less than Rs. 2,00,000 per month duringany part of the said year.

For and on behalf of the Board of Directors ofMahindra Steel Service Centre Limited

Bharat Doshi


54


1. We have audited the attached balance sheet of MahindraSteel Service Centre Limited as at 31st March, 2006, theprofit and loss account and the cash flow statement for theyear ended on that date, annexed thereto. These financialstatements are the responsibility of the company’smanagement. Our responsibility is to express an opinionon these financial statements based on our audit.

2. We conducted our audit in accordance with the auditingstandards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements.An audit also includes assessing the accounting principlesused and significant estimates made by management, aswell as evaluating the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order,2003, issued by the Central Government in terms of sub-section (4A) of section 227 of the Companies Act, 1956,we enclose in the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the Order.

4. Further to our comments in the Annexure referred to inparagraph (3) above, we report that:

(i) We have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purposes of our audit;

(ii) In our opinion, proper books of account as required bylaw have been kept by the company so far as appearsfrom our examination of those books;

(iii) The balance sheet, profit and loss account and cashflow statement dealt with by this report are inagreement with the books of account;

(iv) In our opinion, the balance sheet, profit and lossaccount and cash flow statement dealt with by thisreport comply with the accounting standards referredto in sub-section (3C) of section 211 of the CompaniesAct, 1956;

(v) On the basis of written representations received fromthe directors, as on 31st March, 2006 and taken onrecord by the Board of Directors, we report that noneof the directors is disqualified as on 31st March, 2006from being appointed as a director in terms of clause(g) of sub-section (1) of section 274 of the CompaniesAct, 1956;

(vi) In our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts give the information required by theCompanies Act, 1956, in the manner so required andgive a true and fair view in conformity with theaccounting principles generally accepted in India:

(a) in the case of balance sheet, of the state of affairsof the company as at 31st March, 2006;

(b) in the case of profit and loss account, of the profitfor the year ended on that date; and

(c) in the case of cash flow statement, of the cashflows for the year ended on that date.



Neeta S. Potnis

PartnerMembership Number: 42463


AUDITORS’ REPORT

To the Members of Mahindra Steel Service Centre Limited

55


Annexure to the Auditors’ Report[Referred to in Paragraph (3) thereof]

(i) (a) The company has maintained proper records showingfull particulars, including quantitative details andsituation of fixed assets.

(b) No physical verification of fixed assets was carriedout by the management during the year in accordancewith its programme for physical verification of fixedassets once in every three years. In our opinion, thefrequency of verification of fixed assets is atreasonable intervals.

(c) During the year, in our opinion, a substantial part offixed assets has not been disposed off by thecompany.

(ii) (a) The inventory of the company has been physicallyverified by the management at the year end. In ouropinion, the frequency of verification is reasonable.

(b) In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventory followed by the managementwere found reasonable and adequate in relation tothe size of the company and the nature of its business.

(c) In our opinion, the Company has maintained properrecords of inventory. The discrepancies noticed onphysical verification between the physical stocks andthe book records were not material in relation to theoperations of the company.

(iii) (a) In our opinion and according to the information andexplanations given to us, the company has notgranted any secured or unsecured loans tocompanies, firm or other parties covered in theregister maintained under section 301 of theCompanies Act, 1956, and therefore sub-paragraphs(iii)(b), (iii)(c) and (iii)(d) are not applicable.

(b) In our opinion and according to the information andexplanations given to us, the company had taken anunsecured loan, from a company covered in theregister maintained under section 301 of theCompanies Act, 1956. The maximum amountoutstanding during the year in respect of such loantaken was Rs.160 lakhs and the loan amount wasrepaid during the year.

(c) According to the information and explanations givento us, the company has not taken any loans, securedor unsecured from companies, firms or other partiescovered in the register maintained under section 301of the Companies Act, 1956, where the rate ofinterest and other terms and conditions are, in ouropinion, prima facie prejudicial to the interest of theCompany.

(d) As explained to us, the company is regular in repayingthe principal amounts as stipulated, wherestipulations have been made, and has been regularin the payment of interest.

(iv) In our opinion and according to the information andexplanations given to us, having regard to the explanationsthat some of the items are of a special nature for whichalternative quotations are not available, there is an adequateinternal control system commensurate with the size of thecompany and the nature of its business for the purchaseof inventory, fixed assets and for the sale of goods andservices. Further, on the basis of our examination andaccording to information and explanations given to us, wehave neither come across nor have we been informed ofany instance of major weakness in the aforesaid internalcontrol system.

(v) (a) In our opinion and according to the information andexplanations given to us, the particulars of contractsor arrangements referred to in section 301 of theCompanies Act, 1956 have been entered in theregister required to be maintained under that section;and

(b) In our opinion and according to the information andexplanations given to us, having regard to commentin (iv) above, the transactions exceeding Rs. five lakhsmade in pursuance of such contracts or arrangementshave been made at prices which are reasonablehaving regard to the prevailing market prices at therelevant time.

(vi) The Company has not accepted any deposits from public,to which the provisions of the directives issued by theReserve Bank of India and the provisions of section 58A,58AA or any other relevant provisions of the CompaniesAct, 1956, and the rules framed thereunder are applicable.


(viii) According to the information and explanations given to usand to the best of our knowledge, the Central Governmenthas not prescribed maintenance of cost records undersection 209(1)(d) of the Companies Act, 1956.

(ix) (a) According to the information and explanations givento us and according to the books and records asproduced and examined by us, in our opinion, theundisputed statutory dues in respect of providentfund, income-tax, fringe benefit tax, sales-tax, wealthtax, service tax, customs duty, excise duty, cess andother material statutory dues applicable to it, havebeen regularly deposited by the Company during theyear with the appropriate authorities. According tothe information and explanations given to us, no

56


undisputed amount payable in respect of aforesaidstatutory dues were in arrears as at 31st March, 2006for a period of more than six months from the datethey became payable.

Further, since the Central Government has till datenot prescribed the amount of cess payable undersection 441A of the Companies Act, 1956, we arenot in a position to comment upon the regulatory orotherwise of the Company in depositing the same.

(b) As at 31st March, 2006 according to the records ofthe Company and the information and explanationsgiven to us, there are no disputed dues of income-tax, fringe benefit tax, sales-tax, wealth tax, servicetax, custom duty, excise duty and cess matters thathave not been deposited on account of any disputeand therefore Clause 4(ix) (b) of the Order is notapplicable to the Company.

(x) The Company has neither accumulated losses as at 31st

March, 2006 nor has it incurred any cash losses during thefinancial year ended on that date or in the immediatelypreceding financial year.

(xi) In our opinion and based on the information andexplanations given by the management, we are of theopinion that the Company has not defaulted in repaymentof its dues to any financial institution, bank or to debentureholders during the year.

(xii) In our opinion and according to the information andexplanations given to us, the Company has not grantedany loans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

(xiii) The provisions of any special statute as specified underparagraph 4(xiii) of the Order are not applicable to theCompany.

(xiv) In our opinion and according to the information andexplanations given to us, the Company is not dealing in ortrading in shares, securities, debentures and otherinvestments. Accordingly, the provisions of paragraph 4(xiv)of the Order are not applicable to the Company.

(xv) The Company has not given any guarantees for loans takenby others from banks or financial institutions, the termsand conditions, whereof, in our opinion, are prima facie,prejudicial to the interest of the company.

(xvi) The Company has not obtained any term loans that werenot applied for the purpose for which these were raised.

(xvii) Based on the information and explanations given to us andon an overall examination of the balance sheet of theCompany, in our opinion, there are no funds raised on shortterm basis which have been used for long terminvestments.

(xviii) During the year, the Company has not made any preferentialallotment of shares to parties and companies covered inthe register maintained under section 301 of the CompaniesAct, 1956.

(xix) As the Company has not issued any debentures, paragraph4(xix) of the Order is not applicable to the company.


(xxi) According to the information and explanations given to us,no fraud on or by the Company has been noticed or reportedduring the year.



Neeta S. Potnis



57



31st March, 31st March,2006 2005

Schedule Rupees Rupees RupeesLakhs Lakhs Lakhs

I. SOURCES OF FUNDS

SHAREHOLDERS’ FUNDS

Capital .......................................................................... I 610.47 610.47Reserves and Surplus .................................................. II 1181.59 903.23

1792.06 1513.70LOAN FUNDS ................................................................. III 593.15 662.75DEFERRED TAX LIABILITY ............................................ 322.61 376.51[Refer Note 1(J) and Note 6 on Schedule XII]

Total ................... 2707.82 2552.96

II. APPLICATION OF FUNDS

FIXED ASSETS IVGross Block ............................................................... 3557.02 3556.08Less : Depreciation .................................................... 1281.93 1083.42

2275.09 2472.66Capital work in progress and advances ..................... — 3.82

Net Block ................................................................... 2275.09 2476.48

CURRENT ASSETS, LOANS AND ADVANCES VInventories .................................................................. 30.86 49.41Sundry Debtors ........................................................... 232.28 564.67Cash and Bank Balances ............................................ 464.70 48.40

Loans and Advances ................................................... 129.25 132.07

857.09 794.55

Less : CURRENT LIABILITIES AND PROVISIONS VILiabilities .................................................................... 272.91 558.21

Provisions .................................................................. 151.45 159.86

424.36 718.07

NET CURRENT ASSETS 432.73 76.48

Total ................... 2707.82 2552.96

NOTES TO THE ACCOUNTS XII


ForForForForFor A F Ferguson Associates


Neeta S. Potnis Bakul Sheth

Partner Company Secretary


Bharat Doshi Chairman


Harsh Kumar

Prabal Banerji

Yoshiaki KakehiDirectors

Takanori Higashino

Mumbai, 26th April 2006

}

58



2006 2005Schedule Rupees Rupees

Lakhs LakhsINCOME :

Gross Sales ........................................................................... 336.11 950.60

Less : Excise Duty 47.01 127.80

Net Sales ................................................................................ 289.10 822.80

Income from Services Rendered (Gross) ............................... 1283.49 1084.81

[Tax Deducted at Source Rs.41.63 Lakhs(2005 : Rs.50.36 Lakhs)]

Other Income ........................................................................ VII 95.10 85.26

1667.69 1992.87

EXPENDITURE :

Raw Material, Finished and Semi-Finished Products ............ VIII 238.97 736.51

Personnel .............................................................................. IX 108.96 91.85

Interest .................................................................................. X 18.32 36.79

Depreciation .......................................................................... 198.67 177.60

Other Expenses .................................................................... XI 545.20 528.37

1110.12 1571.12

Profit before Tax ................................................................... 557.57 421.75

Less : Provision for Fringe Benefit Tax .................................. 2.00 —

Provision for Deferred Tax .......................................... (53.90) 13.55

Provision for Current Income Tax ............................... 210.00 149.13

Profit for the year after Tax .................................................. 399.47 259.07

Profit and Loss Account Balance broughtforward from last year ............................................................ 427.18 277.84

Less : Proposed Dividend...................................................... 105.31 79.36

Dividend Tax on Proposed Dividend ........................... 15.80 10.37[includes Rs.0.76 lakhs (2005: Rs. Nil) pertaining tothe previous year]

Less : Transfer to General Reserve ....................................... 40.00 20.00

Balance carried to the Balance Sheet ................................... 665.54 427.18

Earning per Share Basic [(Rupees) Refer note 11 on Schedule XII] 6.54 4.24

NOTES TO THE ACCOUNTS ............................................... XII









Harsh Kumar

Prabal Banerji


Takanori Higashino


}

59


Cash Flow Statement for the Year Ended 31st March, 2006

31st March, 2006 31st March, 2005Rupees lakhs Rupees lakhs Rupees lakhs Rupees lakhs

A. CASH FLOW FROM OPERATING ACTIVITIESProfit before tax for the year 557.57 421.75Adjustments for: ....................................................................Depreciation .......................................................................... 198.67 177.60Amortisation of Preliminary Expenses .................................. — 0.23Fixed Assets Written Off ....................................................... — 1.57Foreign Exchange Gain.......................................................... (0.27) —Interest received ................................................................... (11.80) (3.90)Interest expense ................................................................... 18.32 36.79

204.92 212.29

Operating Profit before Working Capital Changes 762.49 634.04Changes in:Trade and Other Receivables ................................................ 340.28 (178.72)Inventories ............................................................................. 18.55 15.51Trade and Other Payables ..................................................... (285.14) 96.84

73.69 (66.37)Cash Generated from Operations ......................................... 836.18 567.67Income Taxes Paid (net of refund) ......................................... (254.26) (79.58)

Net Cash from Operating Activities .................................. 581.92 488.09

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of fixed Assets and capital advances .................... (26.39) (176.13)Interest Received .................................................................. 9.57 3.67

Net Cash used Investing Activities .................................... (16.82) (172.46)

C. CASH FLOW FROM FINANCING ACTIVITIESDividends paid (including Income Tax on dividends) (90.49) (61.98)Interest free sales tax loan .................................................... 114.75 4.00Repayment of Inter Corporate Deposit ................................. (160.00) (215.00)Interest Paid .......................................................................... (13.06) (34.59)

Net Cash used in Financing Activities ............................... (148.80) (307.57)Net Increase in Cash and Cash Equivalents ...................... 416.30 8.06CASH AND CASH EQUIVALENTS(Refer Schedule V)Opening Balance as at 1st April, 2005 .................................. 48.40 40.34Closing Balance as at 31st March, 2006 ............................... 464.70 48.40

416.30 8.06


Balance with Scheduled Bank in :

— Current Accounts ............................................................. 21.10 44.94— Fixed Deposit Account * .................................................. 443.60 3.46

* lien marked for SOD limit 464.70 48.40









Harsh Kumar

Prabal Banerji


Takanori Higashino


}

60


Schedules to the Balance Sheet

SCHEDULE I 31st March, 31st March,SHARE CAPITAL 2006 2005

Rupees RupeesLakhs Lakhs

Authorised :1,00,00,000 Equity Shares of Rs.10 each 1000.00 1000.00

Total ..... 1000.00 1000.00

Issued, Subscribed and Paid up :61,04,706 Equity Shares of Rs.10 each 610.47 610.47

Total ..... 610.47 610.47

Of the above, 37,23,874 Equity Shares areheld by Mahindra & Mahindra Limited, theholding company, [including 7 EquityShares held jointly with its nominees]

SCHEDULE II 31st March, 31st March,RESERVES AND SURPLUS 2006 2005


Capital Reserve :Opening Balance ..................................... 20.00 20.00Share Premium :Opening Balance ..................................... 436.05 436.05General Reserve :Opening Balance : 20.00 —Transfer from Profit and Loss Account 40.00 20.00Closing Balance : 60.00 20.00Profit and Loss Account Balance ............. 665.54 427.18

Total ...... 1181.59 903.23

SCHEDULE III 31st March, 31st March,LOAN FUNDS 2006 2005


SecurSecurSecurSecurSecuredededededForeign Currency Loan from Bank (secured by 474.40 498.75hypothecation of lamination line II)UnsecurUnsecurUnsecurUnsecurUnsecuredededededInterest free sales tax loan from SICOM 118.75 4.00[Repayable with, in one year Rs. Nil (2005: Rs.Nil)]Short Term Loan from a Limited Company — 160.00[Repayable within one year Rs. Nil(2005 : Rs. 160 Lakhs)]

Total ...... 593.15 662.75

SCHEDULE V 31st March, 31st March,CURRENT ASSETS, LOANS 2006 2005AND ADVANCES Rupees Rupees Rupees

Lakhs Lakhs Lakhs

(A) CURRENT ASSETS

InventoriesStores and Spares ........................... 30.86 31.90Raw Materials ................................. — 1.55Work-in-Progress ............................ — 15.96

30.86 49.41

Sundry Debtors(Unsecured, unless otherwise stated)Debts outstanding for a periodexceeding six months :

– Considered good ...................... 8.12 40.38[including Rs.1.24 Lakhs due from theholding company(2005 : Rs.1.24 Lakhs)] & fellowsubsidiary Rs.1.00 lakhs(2005: Rs.Nil)]

– Considered doubtful ................. 19.73 18.70

27.85 59.08Other debts, considered good 224.16 524.29

[including Rs.Nil due fromthe holding company(2005 : Rs. 65.87 Lakhs) & fellowsubsidiary Rs. 147.92 lakhs(2005: Rs. 0.44 Lakhs)] ................... 252.01 583.37Less : Provision for doubtful debts . 19.73 18.70

232.28 564.67

Cash and Bank BalancesBalances with Scheduled Banks in :– Current Accounts ........................ 21.10 44.94– Fixed Deposit Account* ............. 443.60 3.46

* Rs.3.60 Lakhs - lien marked forBank overdraft 464.70 48.40

(B) LOANS AND ADVANCES(Unsecured, considered good)Advances recoverable in cash orin kind or for value to be received .... 58.82 55.91Payments towards Current IncomeTax ................................................... 11.52 8.91Balances with Customs andExcise authorities ............................ 58.91 67.25

129.25 132.07

Total ..... 857.09 794.55

SCHEDULE IV

FIXED ASSETS:

(Rupees Lakhs)

Cost Depreciation/Amortisation Net Block

Description As at Additions Adjustments Deductions As at As at For the Adjustment/ Upto As at As atof Assets 1st during during during 31st 1st Year Deductions 31st 31st 31st

April, the the the March, April, March, March, March,2005 year year year 2006 2005 2006 2006 2005

Leasehold Land 10.86 — — — 10.86 2.70 0.25 — 2.95 7.91 8.16Buildings 603.67 — — — 603.67 163.29 19.86 — 183.15 420.52 440.38Plant and Machinery 2917.67 (3.44) # — 0.16 2914.07 908.09 177.11 0.16 1085.04 1829.03 2009.58Furniture andFittings 15.76 — — — 15.76 8.87 0.64 — 9.51 6.25 6.89Vehicles 8.12 4.54 — — 12.66 0.47 0.81 — 1.28 11.38 7.65

Total 3556.08 1.10 — 0.16 3557.02 1083.42 198.67 0.16 1281.93 2275.09 2472.662005 2799.72 742.41 17.40 3.45 3556.08 907.70 177.60 1.88 1083.42 2472.66

# Net of Exchange Gain (Net) of Rs.25.30 lakhs (2005:Rs.1.72 lakhs)

61


SCHEDULE VI 31st March, 31st March,CURRENT LIABILITIES AND PROVISIONS: 2006 2005


(A) CURRENT LIABILITIES

Sundry Creditors:- Total outstanding dues of Small Scale

Industrial Undertakings (Note 7) ......... — —- Total outstanding due of creditors other

than Small Scale Industrial Undertakings[including Rs.0.08 Lakhs due to theholding company (2005: Rs. 3.33 Lakhs)] 95.37 413.57

Sales Tax Deferral ........................... 170.08 137.43[Refer Note 5 on Schedule XII][Payable within one year Rs.Nil (2005 : Rs.Nil)]Interest Accrued but not due on loan 7.46 7.21

272.91 558.21

(B) PROVISIONS:

Gratuity ................................................... 10.04 7.99Leave Encashment ................................. 2.93 2.36Provision for Current Income Tax ............ 18.07 59.78Provision for fringe benefit tax ................ 0.06 —Proposed Dividend .................................. 105.31 79.36Dividend Tax on Proposed Dividend ........ 15.04 10.37

151.45 159.86

Total ....... 424.36 718.07

Schedules to the Profit and Loss Account

SCHEDULE VII 2006 2005OTHER INCOME: Rupees Rupees

Lakhs LakhsInterest from Banks (Gross) ................... 7.14 0.12[Tax Deducted at Source Rs.1.05 Lakhs(2005: Rs.0.01 Lakhs)]Interest from Others (Gross) .................. 4.66 3.78[(Tax Deducated at Source Rs. Nil(2005: Rs. Nil)]Steel Scrap Sales ................................... 6.32 13.29Sundry creditors balances no longerrequired Written Back ............................ 0.20 7.46Provision for doubtful debts no longerrequired written back ............................. 5.91 —Miscellaneous Income ........................... 70.87 60.61

Total ...... 95.10 85.26

SCHEDULE VIII 2006 2005RAW MATERIALS, FINISHED AND Rupees Rupees RupeesSEMI-FINISHED PRODUCTS: Lakhs Lakhs Lakhs(A)(A)(A)(A)(A) Consumption of Raw Materials :Consumption of Raw Materials :Consumption of Raw Materials :Consumption of Raw Materials :Consumption of Raw Materials :

Opening Stock 1.55 4.40Add: Purchases [including outside

processing charges 221.46 749.14Rs.0.42 Lakhs,

(2005 : Rs. 1.07 Lakhs)] ............. 223.01 753.54Less : Closing Stock ...................... — 1.55

223.01 751.99

(B)(B)(B)(B)(B) DecrDecrDecrDecrDecrease/(Increase/(Increase/(Increase/(Increase/(Increase) in Stock of Finishedease) in Stock of Finishedease) in Stock of Finishedease) in Stock of Finishedease) in Stock of FinishedGoods and WGoods and WGoods and WGoods and WGoods and Work-in-Prork-in-Prork-in-Prork-in-Prork-in-Progrogrogrogrogress :ess :ess :ess :ess :Opening Stock(i) Finished Goods ...................... — —(ii) Work-in-Progress .................... 15.96 0.48

15.96 0.48

Less : Closing Stock :(i) Finished Goods ...................... — —(ii) Work-in-Progress .................... — — 15.96

15.96 (15.48)

Total ..... 238.97 736.51

SCHEDULE IX 2006 2005PERSONNEL: Rupees Rupees

Lakhs LakhsSalaries, Wages, Bonus, etc. .................... 92.97 79.05Staff Welfare Expenses ............................ 8.16 7.31Contribution to Provident and Other Funds 5.09 4.47Gratuity ...................................................... 2.74 1.02

Total ......... 108.96 91.85

SCHEDULE X 2006 2005INTEREST: Rupees Rupees

Lakhs LakhsOthers* .................................................. 18.32 36.79* Net of Interest Capitalised Rs. Nil Lakhs(2005 : Rs.5.01 Lakhs)

Total ..... 18.32 36.79

SCHEDULE XI 2006 2005OTHER EXPENSES: Rupees Rupees Rupees

Lakhs Lakhs LakhsStores Consumed .................................. 29.05 18.77Packing Material Consumed ................... 158.63 157.77Power and Fuel ...................................... 45.34 44.07Rates and Taxes ..................................... 6.23 8.19Freight Outward ..................................... 68.20 72.55Insurance ................................................ 11.11 17.53Provision for doubtful debts .................... 6.93 5.92Repairs and Maintenance

Buildings ......................................... 1.26 0.95Machinery ....................................... 12.69 10.51Others ............................................. 18.79 18.64

32.74 30.10Marketing and Support Service Charges 119.70 110.27Bank Charges ......................................... 7.52 5.68Amortisation of Preliminary Expenses[Refer Note 1(E) on Schedule XII] ........... — 0.23Fixed Assets Written Off ........................ — 1.57Miscellaneous Expenses (Refer Note 3on Schedule XII) ..................................... 59.75 55.72

Total ..... 545.20 528.37

Schedules to the Balance Sheet

62


NOTES ANNEXED TO BALANCE SHEET AND

PROFIT AND LOSS ACCOUNT

SCHEDULE XIINotes on Accounts

1. Significant Accounting Policies :(A) Basis of Accounting :

The financial statements are prepared under the historical cost conventionand on accrual basis. The financial statement comply with the AccountingStandards referred to in sub-section (3C) of Section 211 of the CompaniesAct, 1956 (The Act)

(B) Fixed Assets :(a) Fixed Assets are stated at cost less depreciation. Financing cost that

are attributable to the acquisition, construction or production of aqualifying asset are included in the cost of asset upto the date theasset is ready for use.

(b) (i) Leasehold land is amortised over the period of the lease.

(ii) Depreciation on the other fixed assets is calculated on Straight LineMethod at the rates and in the manner prescribed in Schedule XIVto the Act.

(C) Inventories :Inventories are stated at the lower of cost and net realisable value. Costsare ascertained on Moving Weighted Average Method and includes,wherever applicable, manufacturing overheads and excise duty.

(D) Revenue Recognition :(i) Sale of product is recognised on despatch and is inclusive of excise

duty recovered but net of sales tax.

(ii) Processing Income is recognised when the processed products aredespatched.

(E) Miscellaneous Expenditure (to the extent not written off or adjusted) :This represents unamortised portion of expenses incurred on formation ofthe Company, and increase in the authorised capital, which is beingamortised over a period of ten years.

(F) Retirement Benefit :Gratuity & Leave Encashment :Gratuity Provision is determined considering the number of years of serviceof the employees in the Company in accordance with the policies of theCompany. Leave Encashment is determined considering accumulatednumber of leave of the employee in the company in accordance with thepolicies of the company.

(G) Excise Duty :Liability for Excise Duty is recognised on production of Finished Goods

(H) Foreign Currency Transactions :All foreign currency monetary items are translated at the relevant rates ofexchange preavailling at the year end. In respect of forward exchangecontract the premium or discount arising at the inception of such a contractis amortilised as expense or income over the life of the contract. In case ofmonetary items (other that those for acquisition of fixed assets from acountry outside India) the exchange difference are recognised in the Profitand Loss Account.

In the case of monetary items incurred for the acquisition of fixed assets acountry outside India, the exchange differences are adjusted to the cost ofsuch assets.

(I) Borrowing Costs :Borrowing Costs directly attributable to the acquisition of an asset areapportioned to the cost of Fixed Asset upto the date on which the asset isput to use/commissioned.

(J) Tax on Income :Current tax is accounted at the amount expected to be paid to / recoveredfrom the taxation authroites using the applicable tax rates and tax laws.

Deferred Tax is recognised subject to the consideration of prudence, ontiming difference, being the differences between taxable income andaccounting income that originate in one period and are capable of reversalin one or more subsequent periods. Deffered tax assets are not recognisedon unabsorbed depreciation and carry forward of losses unless there isvirtual certainty that sufficient future taxable income will be available againstwhich such defferred tax assets can be realised.

2. Contingent liabilities at year end not provided for in respect of:2006 2005


(i) Claims against the company notacknowledged as debts:Sales Tax (Demand raised by Salestax authorities for Rs.4.76 lakhs contestedby the company in the appeal at Sales TaxTribunal) ...................................................... 4.26 4.26

Income Tax ................................................. 0.89 2.17

3. Miscellaneous Expenses include auditors’ remuneration as follows:2006 2005


(i) As Auditors ................................................. 2.20 1.70

(ii) Other Capacity

- Other services ......................................... 0.12 1.82

(iii) Reimbursement of expenses ...................... 0.27 0.01

4. Repairs and Maintenance includes machinery spares consumed Rs.6.07 Lakhs(2005 : Rs.3.79 Lakhs)

5. The Company has received the Certificate of Entitlement from the DeputyCommissioner of Sales Tax, Maharashtra State, in terms of the Package Schemeof Incentives, 1993 of the Government of Maharashtra, consequent to whichthe company has deferred the sales tax liability with effect from 1st May, 2002.Accordingly, the sales tax liability so deferred amounting to Rs.170.08 Lakhsas at 31 st March, 2006 (2005 : Rs. 137.43 Lakhs) has been disclosed underthe head “ Current Liabilities and Provisions”.

6. Deferred Taxation

(A) The components of Deferred Tax liability and assets of the company areas under :

Particulars 31st March, 2006 31st March, 2005Rupees Lakhs Rupees Lakhs

Deferred Tax Liability : On Depreciation ................................................ 390.86 437.42

390.86 437.42Less - Deferred Tax Assets :(i) On Retirement Benefits - Gratuity ................ 3.38 2.92(ii) On Retirement Benefits - Leave Encashment .. 0.99 0.86(iii) On Provision for Doubtful Debts .................. 6.64 6.84(iv) On Sales Tax Deferral ................................... 57.24 50.29

68.25 60.91

Deferred Tax Liability (Net) ................................. 322.61 376.51

7. The identification of suppliers as Small Scale Industrial Undertaking (SSIs) hasbeen done on the basis of the information to the extent provided by the supplierto the company. There is no SSI to whom the company owes as on 31st March,2006.

8. Pursuant to Accounting Standard Interpretation (ASI - 2) issued by The Instituteof Chartered Accountants of India, during the previous year the companycapitalised insurance spares aggregating Rs. 17.40 lakhs from stores and sparesinventory and charged depreciation at rates applicable to fixed assets to whichthe spares belong. Accordingly depreciation for previous year includes a chargepertaining to earlier years of Rs.7.84 lakhs.

9. The Company is engaged exclusively in the business of manufacturing,processing, sale, etc of Flat Rolled Products. These, in context of AccountingStandard 17 - “Segment Reporting,” issued by The Institute of CharteredAccountants of India, are considered to constitute one single primary segment.Therefore, the disclosure requirements of the said Standard are not applicable.

10. As per Accounting Standard 18 - “Related Party”, issued by The Institute ofChartered Accountants of India which is mandatory, the company has identifiedall the related parties having transactions during the period as per details givenbelow:

1. In respect of the outstanding balances recoverable as at 31st March, 2006no provision for doubtful debts has been made in respect of these parties.

2. During the period there were no amounts written off and written back fromsuch parties.

63


(B) (a) Disclosure of transactions between the company and related parties during the year ended as at 31st March, 2006 :(Rupees Lakhs)

(Receipts / income) / Expenditure / payment

Holding Company Fellow Subsidiary Fellow Subsidiary Fellow Subsidiary A Company havingSignificant influence

M&M MIL MMESS MUSCO MO31st March, 2006 31st March, 2006 31st March, 2006 31st March, 2006 31st March, 2006

(31st March, 2005) (31st March, 2005) (31st March, 2005) (31st March, 2005) (31st March, 2005)

Purchase of Finished Goods — 250.63 — — —

708.23 — — —

Purchase of Machinery — — — — 3.60

83.74

Purchase of Vehicle — — — — —

4.06 — — — —

Processing Income (36.09) (937.46) — (0.39) —

(219.17) (665.13) — — —

Interest Paid — 0.96 — — —

— 34.59 — — —

Transport Charges paid 13.29 — — — —

58.92 — — — —

Other Expenses 0.67 — — — —

0.68 — — — —

Other Income (0.16) (6.85) — — —

— (5.09) — — —

Marketing and Support service charges — 116.82 — — —

— 109.06 — — —

Dividend on Equity Shares paid during the period 48.41 — — — 30.95

33.51 — — — 21.43Reimbursement received from Parties — (5.41) (0.93) — —

— (2.67) (0.44) — —

Reimbursement made to Parties — 0.08 — — —

0.07 0.07 — — —

Deputation of Personnel from related parties — 1.28 — — —

— 1.47 — — —

Deputation of Personnel to related parties — 31.80 — — —

— 24.57 — — —

Intercorporate Deposits refunded to parties — 160.00 — — —

— 215.00 — — —

(b) Outstanding receivable

31st March, 2006 31st March, 2005Rupees Lakhs Rupees Lakhs

From Holding company 1.24 67.11

From Fellow Subsidiary 148.92 0.44

(c) Outstanding payable

31st March, 2006 31st March, 2005Rupees Lakhs Rupees Lakhs

To Holding company # — 3.33

To Fellow Subsidiary [(including short term loan of Rs. Nil (2005:, Rs. 160 lakhs)] — 389.70

To Company having significant influence — 83.74

# excludes equity share capital

Previous year’s figures are in Italics

(A) Related parties where control exists :Holding Company : Mahindra & Mahindra Limited (M&M)

Other related parties with whom the company has transaction, etc:Fellow Subsidiary : Mahindra Intertrade Limited (MIL)

: Mahindra Middle-East ElectricalSteel Service Centre FZC(MMESS)Mahindera Ugine Steel CompanyLimited (MUSCO)

A Company having Significant influence : Metal One Corporation (MO)Key Managerial Personnel : Mr. Raghunath Murti

64


11. Earning per Share :

Year ended Year ended31st March, 2006 31st March, 2005

Profit for the period after tax (Rs. in lakhs) (A) 399.47 259.07

Weighted average number of shares (B) 6104706 6104706

Earning per Share Basic (Rupees) (A/B) 6.54 4.24

12. Additional information pursuant to the provision of paragraphs 3(i)(a) and (ii)(a), 4C and 4D of Part II of Schedule VI to the Act

(A) Particulars in respect of goods manufactured:

Class of Goods Unit of Installed Processing Acutal Opening Stock Closing Stock SalesMeasurement Year Capacity Per annum Quantity Qty. Value Qty. Value Qty. Value

(on single shift basis) Processed Rupees Rupees RupeesLakhs Lakhs Lakhs

Steel Blanks/Slit coils MT 2006 54,400 * 78209 — — — — 131 336.11#MT 2005 54,400 * 72576 — — — — 813 943.02#

* Includes 131 Metric Tonnes (2005 : 813 Metric Tonnes) processed for own consumption# Includes sale of cuts and slits materials Rs. 76.75 Lakhs (2005 : Rs. 47.65 Lakhs)Notes :

(1) Installed Processing Capacity and actual quantity processed are in respect of slitting, shearing and levelling of steel coils.(2) The Installed Processing Capacity varies in accordance with the product mix and is as certified by Managing Director.

(B) Particulars in respect of Traded Goods(Rupees Lakhs)

Class of Unit of Purchase SalesGoods Measurement Year Qty Value Qty Value

Steel Metric Tonnes 2006 — — — —2005 7 6.56 7 7.58

(C) Particulars of Raw Materials Consumed (entirely indigenous):

Description Unit of 2006 2005Measurement Quantity Value Quantity Value


Steel Metric Tonnes 140 223.01 838 751.99

Notes : 1. The consumption in value has been ascertained on the basis of the opening stock plus purchases less closing stocks and includes the adjustment of excesses andshortages as ascertained on physical count and write-offs of obsolete and unserviceable raw materials.

2. In giving the above information the Company has taken the view that spares as referred to in paragraph 4(D)(c) of Part II of Schedule VI covers only such items asgo directly into production and not spares used for repairs and maintenance of Machinery.

(D) Expenditure in Foreign Currency

2006 2005Rupees Lakhs Rupees Lakhs

(i) CIF Value of Imported Spares 9.85 4.90(ii) CIF Value of Imported Machinery 8.21 585.70(iii) Interest Paid 17.17 7.21

(E) Earnings in Foreign Exchange

2006 2005Rupees Lakhs Rupees Lakhs

Exchange gain/(loss) - net (including not gain capitalised Rs.25.30 lakhs (2005: 1.72 lakhs) 20.00 1.68

(F) Remittance in Foreign Currency on account of Dividends to Non-Resident Shareholders

Number of Amount Remitted Dividend relating to

Year Shareholders Shares Rupees Lakhs

2005-2006 1 23,80,832 30.95 2004-2005

2004-2005 1 23,80,832 21.43 2003-2004

13. Derivative Instruments :

The Company has entered into Forward Exchnage Contracts (being a derivative instrument), which are not intended for trading or speculative purposes, but for hedgepurposes, to establish the amount of reporting currency required or available at the settlement date of certain payables or receivables.

The following are the outstanding forward Exchange Contracts entered into by the Company as on 31st March, 2006:

Currency Amount Buy / Sell Cross CurrencyEUR 877,000 Buy Rupees

The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are nill,

The above disclosure have been made consequent to an announcement by the Institute of Chartered Accountants of India in December, 2005, which is applicable tofinancial periods ending on or after 31st March, 2006.

Therefore, figures for the previous year have not been disclosed.

14. Previous year’s figures have been regrouped/rearranged, wherever necessary.

65



Registration No. 1 1 - 7 0 4 1 6 State Code 1 1

Balance Sheet Date 3 1 0 3 0 6

II. Capital Raised during the Year (Amount in Rs. Thousands)

Public Issue Rights Issue

N I L N I L


N I L N I L


Total Liabilities including Shareholders’ Funds Total Assets

3 1 3 2 1 8 3 1 3 2 1 8

Sources of Funds Application of Funds

Paid-up Capital Net Fixed Assets

6 1 0 4 7 2 2 7 5 0 9

Reserve and Surplus Investments

1 1 8 1 5 9 N I L

Secured Loans + – Net Current Assets

4 7 4 4 0 ✓ 4 3 2 7 3

Unsecured Loans (Please tick appropriate box + for Positive, – for Negative)

1 1 8 7 5 Miscellaneous Expenditure

Deferred Tax Liability (net) N I L

3 2 2 6 1 Accumulated Losses

N I L

IV. Performance of Company (Amount in Rs. Thousands)

Turnover (including other income) Total Expenditure

1 6 6 7 6 9 1 1 1 0 1 2

+ — Profit/Loss Before Tax + – Profit/Loss After Tax

✓ 5 5 7 5 7 ✓ 3 9 9 4 7

(Please tick appropriate box + for Profit, – for Loss) (Please tick appropriate box + for Profit, – for Loss)+ – Earning per Share* in Rs. Dividend Rate %

✓ 6 . 5 4 1 7 . 2 5

(Please tick appropriate box + for Positive, – for Negative)

# Profit for the Year: Rs. 399.47 Lakhs, Weighted Average Number of Equity Shares: 6,104,706, Nominal Value of an Equity Share: Rs. 10

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

Item Code No. (ITC Code) 7 2 0 9 . 2 0

Product Description F L A T R O L L E D P R O D U C T C O L D

R O L L E D

Item Code No. (ITC Code) 7 2 0 8 . 2 9

Product Description F L A T R O L L E D P R O D U C T H O T

R O L L E D

Signatures to Schedules I to XII

15.15.15.15.15. Additional Information as required under Part IV of Schedule VI to the Act.Additional Information as required under Part IV of Schedule VI to the Act.Additional Information as required under Part IV of Schedule VI to the Act.Additional Information as required under Part IV of Schedule VI to the Act.Additional Information as required under Part IV of Schedule VI to the Act.Balance Sheet Abstract and Company's General Business ProfileBalance Sheet Abstract and Company's General Business ProfileBalance Sheet Abstract and Company's General Business ProfileBalance Sheet Abstract and Company's General Business ProfileBalance Sheet Abstract and Company's General Business Profile








Harsh Kumar

Prabal Banerji


Takanori Higashino


}

66

MAHINDRA HOLDINGS & FINANCE LIMITED


Your Directors present the Twenty-first Annual Report together with the audited accounts of your Company for the year ended31st March, 2006.

Financial Results

Rs. in lakhs

2006 2005

Income ................................................................................................... 10,012.04 7,382.18

Profit before interest and tax ................................................................. 9,974.41 6,348.34

Less : Interest ........................................................................................ 66.90 89.76

Profit before taxation ............................................................................. 9,907.51 6,258.58

Less : Provision for taxation ...................................................................

Current Tax .................................................................................. 86.50 60.00

Deferred Tax ................................................................................ (1.30) (6.71)

Profit after Tax ........................................................................................ 9,822.31 6,205.29

Add : Balance brought forward from Earlier years ................................ 2,109.20 158.60

Balance Profit available for appropriation ............................................... 11,931.51 6,363.89

Less: Special Reserve ............................................................................ 1,964.46 1,241.06

General Reserve .......................................................................... — 470.00

Interim Dividend : equity shares .................................................. — 2,249.61

Income-tax on interim dividend .................................................... — 294.02

Balance carried forward ......................................................................... 9,967.05 2,109.20......................................................................................................................................................................................................

Operations

During the year under review, your Company divested part of itsinvestment in Tube Investments of India Limited and madestrategic investments in Mahindra Ugine Steel Company Ltd.and Siro Plast Ltd.

During the year, 1,00,00,000 - 9% Cumulative RedeemablePreference Shares of Rs.10 each of Mahindra Holidays & ResortsIndia Limited (MHRIL), held by the Company were convertedinto 1,00,00,000 equity shares of the face value of Rs.10each at par.

Subsidiaries

During the year, Mahindra Ugine Steel Company Limited(MUSCO) along with its subsidiary Console Estate andInvestments Limited (Console) became a subsidiary of yourCompany. By order of the High Court of judicature at Bombay,dated 20th March, 2006, Console merged with MUSCO effectivefrom 1st April, 2005 and ceased to be a subsidiary of MUSCOand consequently of the Company.

The audited statement of accounts for the year ended 31st March,2006 of the Company’s subsidiaries together with reports of theirDirectors and Auditors, and statement pursuant to section 212of the Companies Act, 1956 are attached.

Shifting of Registered Office

During the year under review, your Company shifted itsRegistered Office from Gateway Building, Apollo Bunder, Mumbai- 400 001 to Mahindra Towers, P. K. Kurne Chowk, Worli, Mumbai- 400 018 for operational convenience.


Pursuant to section 217(2AA) of the Companies Act, 1956, yourDirectors, based on the representation received from theOperating Management, and after due enquiry, confirm that :-


(ii) they have, in the selection of the accounting policies,consulted the Statutory Auditors and these have beenapplied consistently and reasonable and prudent judgmentsand estimates have been made so as to give a true and fairview of the state of affairs of the Company as at 31st March,2006 and of the profit of the Company for the year endedon that date;

(iii) proper and sufficient care has been taken for themaintenance of adequate accounting records in accordancewith the provisions of the CompaniesAct, 1956 for safeguarding the assets of the Company and

67


for preventing and detecting fraud and other irregularities;


Corporate Social Responsibility Initiatives

As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced their socialwell being. Since its inception, the Mahindra Group has alwaysbeen engaged in activities which add value to the communityaround us. A step forward was taken in this direction by theannouncement made on the occasion of the 60th Anniversary,of Mahindra & Mahindra Ltd., the holding company that the Groupwould support a range of Corporate Social Responsibilityinitiatives by committing 1% of Profit After Tax (PAT) on acontinuing basis. The 1% PAT would specifically benefit theeconomically disadvantaged and socially weaker sections of thesociety. Accordingly, the Board of your Company has resolvedto contribute to recognised charitable and/or other Institutions,including K. C. Mahindra Education Trust and/or MahindraFoundation, not related to the business of the Company or thewelfare of the employees, towards Corporate SocialResponsibilities of the Company, such amounts which in theaggregate in any financial year will not exceed 1% of theCompany’s estimated PAT for the year on a continuing basis untilfurther review by the Board.

A beginning in this direction was made by your Company duringthe current year by making a contribution of Rs. 25 lakhs to variouscharitable institutions.

Directors

Mr. Bharat Doshi and Mr. Anand G. Mahindra retire by rotationand, being eligible, offer themselves for re-election at theforthcoming Annual General Meeting.

Mr. M. A. Nazareth was appointed by the Board as an AdditionalDirector at its meeting held on 26th July, 2005.

Mr. Nazareth holds office upto the date of the forthcoming AnnualGeneral Meeting of the Company. The Company has received anotice from a member signifying his intention to propose Mr.Nazareth as a Director of the Company at the forthcoming AnnualGeneral Meeting.

Audit Committee

Mr. M. A. Nazareth was also appointed as a Member of the AuditCommittee in place of Late R. K. Pitamber effective 26th July, 2005.

Mr. A. K. Nanda was elected Chairman of the Audit Committeeat the Audit Committee Meeting held on 16th November, 2005.

Presently, the Audit Committee comprises Mr. A. K. Nanda(Chairman), Mr.U. Y. Phadke and Mr. M. A. Nazareth. The AuditCommittee met twice during the year.

Auditors

Messrs. A. F. Ferguson & Co., Chartered Accountants, retire asAuditors of the Company at the forthcoming Annual GeneralMeeting and have given their consent for re-appointment. Theshareholders will be required to elect Auditors for the currentyear and fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromMessrs. A. F. Ferguson & Co., Chartered Accountants, to the effectthat their re-appointment, if made, would be in conformity withthe limits specified in the said section.

Public Deposits and Loans /Advances


The particulars of loans/advances and investment in its ownshares by listed companies, their subsidiaries, associates, etc.,required to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with the parentcompany, Mahindra & Mahindra Ltd., are furnished separately.

Conservation of Energy, Technology Absorption and Foreign

Exchange Earnings and Outgo

In view of the nature of activities which are being carried on bythe Company, Rules 2A and 2B of the Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988,concerning conservation of energy and technology absorptionrespectively are not applicable to the Company.

There were no foreign exchange earnings or outgo during theyear under review.

Particulars of employees as required under section 217(2A)

of the Companies Act, 1956 and the Rules made thereunder

The Company had no employee who was in receipt ofremuneration of not less than Rs.24,00,000 during the year ended31st March, 2006 or not less than Rs.2,00,000 per month duringany part thereof.


Keshub Mahindra

Chairman

Mumbai, 29th May, 2006

68


Particulars of loans/advances and investment in its own shares by listed companies, their subsidiaries, associates, etc.,

required to be disclosed in the annual accounts of the Company pursuant to Clause 32 of the Listing Agreement with the

parent company, Mahindra & Mahindra Limited

Rs. in lakhsBalance as on Maximum outstanding

Name of the Company 31st March, 2006 during the year ended31st March, 2006

Loans and advances in the nature of loans to Subsidiary: ... NIL NIL

Loans and advances in the nature of loans to Associates: ... NIL NIL

Loans and advances in the nature of loans to firms/companiesin which directors are interested:

Balance as on Maximum outstandingName of the Company 31st March, 2006 during the year ended

31st March, 2006

Mahindra & Mahindra Financial Services Limited ................. NIL 89.00

The Company has not given any loans or advances in the nature of loans to any other related parties as defined in Accounting Standard18- Related Party Disclosures where there is no repayment schedule or repayment beyond seven years or no interest or interest belowsection 372A of the Companies Act, 1956.

69


Auditors’ Report to the Members of Mahindra Holdings & Finance Limited

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70


Annexure to the Auditors’ Report of Mahindra Holdings & Finance Limited for the year ended

31st March, 2006 (Referred to in paragraph (3) thereof)

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.�0 -�� %�� $� �� $�� "�� "�� #�� "�� ?�� '��"��$� �� %�� =�� "�� #��

.�0 -�� %"�� %��$�� $�� '��"��$� �� "�� $��%��

.��0 -�� '��"��$�� $�� $��"��"��1.��0.�0� ��1.��0.�0��1.�0� �� % �� "�� $��"��"��1.��0�� )�� ""��

.��0 .�0 -�� %"�� '��"�� -� �� 56!�� '��"��$� �� "�� $��"�� #�� %�� /��>5��8�� !� ��/��=*��

.�0 *��"�� #�� "�� "�� '��"��-� ��56!�� "��"��@�� '��"��$�

.�0 &�� "�� $� �� "�� "��"�� "�� "�$��

.�0 &�� /��)��8�� "�� "�� '��"��-� ��56!�

.�0 -�� %"�� '��"��-� ��56!�� '��"��$�� 8�� "�� $� �� "�� #�� %�� /�� 8�� !��/��=*��

.�0 *��"�� #�� 8��

��"�� "�� '��"��-� ��56!�� "��"��@�� '��"��$�

.�0 &��'��"��$� �� "�$�� "��"�� "�� "�$��

.�0 *�� "�� %"�� ,� �� "�� #� �� ?�� '��"��$�� #� �� %��

.0 .�0 ;�� "��""��$�� %"�� "��$� �� #�� "��

.�0 *��"�� %"�� "�� '��"��-� ��56!�� "��#�� "��8� �"��

.�0 &��'��"��$�� " �� $� ��"�� "�� #�� $� ��/��;��8�� *��"�� 6>-��6>--��$� �� "�� -� �� '��"��.-��" ��<�"�� 0�/��546��""�� "��$� ��'��"��$��#�;�� =� ��'��"��$��#&��/��;��8��*��$�� $�� &�� '��"��$�

.��0 *��"�� '��"��$�� $� �� #� �� ?��

.�%0 .�0 -�� '��"��$�� '��"��$��"�� #� ��""��"�� " �� $� �� %�� %�� $�� ""�� %"�� " �� "�$��"�� %�� %�� $��""�� #�� !��"�� %�� $��"�$��

.�0 -�� '��"��$�� %�� %�� $��#�� "�� $��" ��

71


.%0 &��'��"��$�� !�� $�� $"��$��

.%�0 &�� '��"��$� �� 8�� $� �� 8�� "�$��

.%��0 ;��%�� '��"��$�� $��$�#�$�"�� "��"��"��1.%��0�� )�� ""��

.%��0 *��"�� '��"��$�� A�� $�� &�� "�� "��"�� 1.%��0� �� )�� ""�� '��"��$�

.%�0 *��"�� '��"��$�� -��$�� "��"��"��1.%�0�� )�� ""�� '��"��$�

.%0 -�� %"�� '��"��$�� $�� 8�� $� � �� 8� �� &�� "��"��"��1.%0�� )�� ""�� '��"��$�

.%�0 -�� '��"��$� �� 8�� $� �� "�� "��"�� 1.%�0� �� )�� ""��

.%��0 -�� %"�� %�� ;��+�� '��"��$��#�� "�� : ��

.%��0 &��'��"��$�� $�"�� "�� "�� +�� '��"��-� ��56!�� $��&�� "��"��"��1.%��0�� )�� ""�� '��"��$�

.%�%0 <�� "��$�� '��"��$�� $��

.%%0 &�� '��"��$� �� $� "�� $��

.%%�0 ;�� "�� "�� "�� %"�� $� �� #��"�� $� ��'��"��$�� "��

��

��

� �� "�=��616>

72




lakhs lakhs lakhs

I. SOURCES OF FUNDS :

Shareholders’ Funds :

Equity Share Capital .......................................................... I 121,60.16 ��! ��!

Reserves and Surplus ....................................................... II 174,71.73 4!�15�1�

Loan Funds ............................................................................. III 25,00.00 �4��

Total .......... 321,31.89 ��6��5�6>

II. APPLICATION OF FUNDS :

Fixed Assets : ......................................................................... IV

Gross block ....................................................................... 4,54.91 1�61�5�

Less : Depreciation .......................................................... 25.05 � ��6

Net block .......................................................................... 4,29.86 1��1�!!

Investments ............................................................................ V 210,96.72 �5��!��>

Deferred Tax Assets ............................................................... VI 21.14 �5�>1

Current Assets, Loans and Advances: .................................. VII

Sundry Debtors ........................................................................ 99,02.08 4�1��4

Cash and Bank balances .......................................................... 30,29.79 1��4�14

Loans and Advances ................................................................ 69.58 6� 4��4

130,01.45 6��4>��

Less: Current Liabilities and Provisions : ............................. VIII

Liabilities ........................................................................... 7,04.70 >�5��6>

Provisions ......................................................................... 17,12.58 �4��5��

24,17.28 �!��!5

Net Current Assets ................................................................. 105,84.17 �4�1!�1�

Miscellaneous Expenditure (to the extent not written off oradjusted) .................................................................................. — ��1>

Total .......... 321,31.89 ��6��5�6>


For A. F. Ferguson & Co.


A. S. Varma

Partner


Keshub Mahindra Chairman

Anand G. Mahindra

Bharat DoshiDirectors

A. K. Nanda

U. Y. Phadke

M. A. Nazareth

Angarika Achwal Baviskar Company Secretary


}

73




lakhs lakhs

INCOME ......................................................................................... IX 100,12.04 4��>��>

Total .......... 100,12.04 4��>��>

EXPENDITURE :

Interest (Note 5) ............................................................................. 66.90 >5�4!

Depreciation .................................................................................... IV 4.80 1�>

Other expenses .............................................................................. X 32.83 � ��5� 1

Total .......... 1,04.53 ��!

Profit for the year before taxation ................................................... 99,07.51 !��6>�6>

Provision for taxation :

Current Tax .......................................................................... 86.50 ! �

Deferred Tax ........................................................................ (1.30) .!�4�0

Profit for the year after tax .............................................................. 98,22.31 !�� 6��5

Add: Balance brought forward from earlier years ........................... 21,09.20 ��6>�!

Profit available for appropriations .................................................... 119,31.51 !��!��>5

APPROPRIATIONS :

Special Reserve .............................................................................. 19,64.46 ��1�� !

General Reserve ............................................................................. — 1�4 �

Interim Dividend Paid ...................................................................... — ��15�!�

Income Tax on Interim Dividend ..................................................... — ��51� �

Balance carried to Balance Sheet ................................................... 99,67.05 �� 5��

Earning per share (Note 13):(Face Value Rs. 10/- per share) (Rupees)Basic ............................................................................................... 8.08 6�� Diluted ............................................................................................. 6.70 1��

NOTES ON ACCOUNTS ................................................................ XII




A. S. Varma

Partner



Anand G. Mahindra


A. K. Nanda

U. Y. Phadke

M. A. Nazareth



}

74


Cash Flow Statement for the year ended 31st March, 20062006 � 6

Rupees Rupees /"��lakhs lakhs ��8��

A. Cash Flow from Operating Activities:=� �B�� %��" �� %� ��@� �� "�� "��$�� 99,07.51 !��6>�6>-�@� �� 7<�"�� 4.80 1�> -�� %"�� 2.48 �1��6��A�.B�� 0��*�� .=� 0 �� (87,32.39) .!5��>!0B�� 0.73 � � �

(87,24.38) .65� ��>�0

)"�� B�� 8��"� �� 11,83.13 ��61�44'��7&�� (1,92.78) .��4!� 10&�� "�$�� 1,06.14 ��4��1

(86.64) .��1>�> 0��C%"�� . �� % �� #�� @� ��0�� $�� — . � �0

'�� "�� 10,96.49 �� 6�5!*�� %��"��.�� 0 �� (77.07) .1!�410

NET CASH FROM OPERATING ACTIVITIES ....................................... 10,19.42 ��65��

B. Cash Flow from Investing Activities :B�� (61,75.12) .�1� 1��>0+�� 40,82.54 >1�16�4!*� ��'��"�� <�"�� .=� 0 �� 4,79.50 � �64��

NET CASH (USED IN) / FROM INVESTING ACTIVITIES .................... (16,13.08) 4 �5>�>�

C . Cash Flow from Financing Activities :B��#�� — �4�� /�"�$�� #�� (2,10.00) .�!��6 0*��&�%��<��"�� (2,94.02) .��15�!�0

NET CASH USED IN FINANCING ACTIVITIES .................................... (5,04.02) .��1 ��0

NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS (10,97.68) 1��4�5�

'-+��-=<�'-+��CDE*F-�C=&+�7)"��;�� 41,27.47 5�66'��;�� 30,29.79 1��4�14

'��,�� 7;�� +��;��8�7)�� 8.16 ��14)��%��"�� 30,21.63 1��1�

30,29.79 1��4�14




A. S. Varma

Partner



Anand G. Mahindra


A. K. Nanda

U. Y. Phadke

M. A. Nazareth



}

75


SCHEDULE I 2006 2005SHARE CAPITAL : Rupees Rupees

lakhs lakhsAuthorised :14,00,00,000 Equity Shares of Rs. 10 each .............. 140,00.00 140,00.00

Total ...... 140,00.00 140,00.00

Issued :12,16,00,693 Equity Shares of Rs. 10 each ............. 121,60.07 121,60.07

Subscribed :12,16,00,693 Equity Shares of Rs. 10 each ............. 121,60.07 121,60.07

Of the above :(a) 12,16,00,593 shares are held by Mahindra

& Mahindra Limited, the holding company.(b) 1,00,00,000 shares of Rs. 10 each fully

paid-up were issued pursuant to acontract to discharge part of theconsideration for acquisition of certainshares.

(c) 5,53,29,710 shares of Rs. 10 each fullypaid-up were issued with effect from 1stFebruary, 2000 against the redemption of55,32,971 4% Non-CumulativeRedeemable Preference Shares of Rs.100 each fully paid-up.

Add: Forfeited shares ........................ 0.09 0.09

Total ...... 121,60.16 121,60.16

SCHEDULE II 2006 2005RESERVES AND SURPLUS : Rupees Rupees Rupees

lakhs lakhs lakhsSpecial Reserve (in terms of Section 45-ICof the Reserve Bank of India Act, 1934) :

Balance as per last Balance Sheet ......... 38,66.20 26,25.14Add: Transferred from Profit and Loss

Account ......................................... 19,64.46 12,41.06

58,30.66 38,66.20General Reserve :

Balance as per last Balance Sheet ......... 16,74.02 12,04.02Add: Transfer from Profit and Loss

Account ......................................... — 470.00

16,74.02 16,74.02Profit and Loss Account Balance .................. 99,67.05 21,09.20

Total ...... 174,71.73 76,49.42

SCHEDULE III 2006 2005LOAN FUNDS : Rupees Rupees

lakhs lakhsUnsecured :Other Loans and Advances

Zero Coupon Optionally Convertible Debentures(2010) issued to the holding company (Note 7) ..... 25,00.00 25,00.00

Short term loans and advances from Companies ........ — 2,10.00

Total ...... 25,00.00 27,10.00

SCHEDULE V

INVESTMENTS (Non-trade, Fully paid-up) :

Face Value 2006 2005Per Unit Rupees Rupees Rupees

Number Rupees lakhs lakhs lakhs

(A) Long Term Investments (at cost,unless otherwise stated):

Unquoted :

a) In Subsidiary Companies :i) Equity Shares :

5,10,000 10 Mahindra Acres ConsultingEngineers Limited .............. 64.02 64.02

2,84,00,199 10 (1,84,00,199) MahindraHolidays & Resorts IndiaLimited $ ............................ 31,27.16 21,22.16

50,500 10 NBS International Limited .... 5,07.30 5,07.30

36,98.48 26,93.48ii) Preference Shares :

a) 7% Cumulative RedeemablePreference Shares

5,46,000 100 Mahindra Ugine SteelCompany Limited £ ..... 5,46.00 —

b) 9% Cumulative RedeemablePreference Shares

— — (1,00,00,000) MahindraHolidays & ResortsIndia Limited $ .............. — 10,05.00

5,46.00 10,05.00b) In Other Companies :

i) Equity Shares :9,00,000 10 (12,00,000) Mahindra

ConstructionCompany Limited ............... 96.88 1,29.17

54,99,999 10 Mahindra AshtechLimited* ............................. 5,50.00 5,50.00

39,71,428 10 Mahindra World CityDevelopers Limited (formerlyknown as Mahindra IndustrialPark Limited) ...................... 3,97.14 3,97.14

13,10,000 10 Mahindra SonaLimited * ............................ 1,63.83 1,63.83

75,00,000 10 New Tirupur Area DevelopmentCorporation Limited. * ....... 7,50.00 7,50.00

2,81,24,794 10 Owens Coming (India)Limited ............................... 28,12.48 28,12.48

5,00,000 10 Business Standard Limited 8.81 8.8125,000 10 Gateway Housing Finance

Corporation Limited ........... 2.50 2.50— — (1,20,000) Integrated Property

Management & ServicesLimited ............................... — 15.11

29,000 10 Mahindra Air ServicesLimited ............................... 2.90 2.90

10 10 (4,050) Mahindra AutomotiveSteels Private Limited (Rs.100) 0.41

20,237 10 Mahindra Engineering &Chemical Products Limited 18.34 18.34

1 10 Mahindra IntertradeLimited (Rs. 10) ..................

— — (4,80,000) Mahindra LogisoftBusiness Solutions Limited(2005: Re. 1) ...................... —

19,750 5 PSL Erickson Limited ......... 0.59 0.594,98,000 10 Triton Overwater Transport

Agency Limited .................. 58.09 58.0915.9% Ownership TC Enterprises LLC, Delaware,

interest USA ................................... 15.23 —

48,76.79 49,09.37

SCHEDULE IV

FIXED ASSETS : (Rupees lakhs)COST DEPRECIATION NET BLOCK

Description ............................................ Cost as at Additions Deductions Cost as at Depreciation Depreciation Adjustments Depreciation As at As at1st April, during during 31st March, upto 31st for the during upto 31st 31st March, 31st March,

2005 the year the year 2006 March, 2005 year the year March, 2006 2006 2005

Freehold Land* ...................................... 3,07.06 — — — — — — — — — — 3,07.06 — — — — — — — — — — — — 3,07.06 3,07.06Factory Building* ................................... 1,39.58 — — — — — — — — — — 1,39.58 19.18 4.67 — — — — — 23.85 1,15.73 1,20.40Residential Building ............................... 8.27 — — — — — — — — — — 8.27 1.07 0.13 — — — — — 1.20 7.07 7.20

Total ............................... 4,54.91 — — — — — — — — — — 4,54.91 20.25 4.80 — — — — — 25.05 4,29.86 4,34.66

As at 31st March, 2005 ......................... 4,54.91 — — 4,54.91 15.45 4.80 — 20.25 4,34.66

* Represent assets leased out for a period of nine years w.e.f. 7th November, 2003. (Note 12)

76


SCHEDULE VI 2006 2005DEFERRED TAXES : Rupees Rupees

lakhs lakhs

Deferred Tax AssetsOn Section 43B disallowances ............... 21.14 19.84

Total ...... 21.14 19.84

SCHEDULE VII 2006 2005CURRENT ASSETS, Rupees Rupees RupeesLOANS AND ADVANCES : lakhs lakhs lakhs(A) Current Assets:

Sundry Debtors – unsecured, consideredgood (Note 2)– Outstanding over six months .............. 8,44.11 6,10.48– Other debts ......................................... 90,57.97 1,32.89

99,02.08 7,43.37Cash and Bank Balances:Balance with Scheduled Banks:– On current account .............................. 8.16 13.47– On fixed deposit account .................... 30,21.63 41,14.00

3,029.79 41,27.47(B) Loans and Advances:

(Unsecured, considered good unlessotherwise stated)Advances recoverable in cash or in kindor for value to be received (Note 3):– Considered good ................................. 57.56 4,90.85– Considered doubtful ............................ 5,36.26 5,36.26

5,93.82 10,27.11Less: Provision for doubtful advances .... 5,36.26 5,36.26

57.56 4,90.85Payment towards Income-tax ................ 12.02 16.42

69.58 5,07.27

Total ...... 130,01.45 53,78.11

SCHEDULE VIII 2006 2005CURRENT LIABILITIES AND PROVISIONS : Rupees Rupees

lakhs lakhs(A) Liabilities :

Sundry CreditorsTotal outstanding dues of creditors otherthan small scale industrial undertakings 5,99.66 5,37.87Interest accrued but not due .................. 1,05.04 60.69Interim Dividend Tax Payable ................. — 2,94.02

7,04.70 8,92.58

(B) Provisions :Provision for diminution in value of longterm investments ................................... 16,95.70 17,27.26Provision for Taxation ............................. 16.88 11.85

17,12.58 17,39.11

Total ...... 24,17.28 26,31.69

Face Value 2006 2005Per Unit Rupees Rupees Rupees

Number Rupees lakhs lakhs lakhs

ii) Preference Shares :a) 10% Non-Cumulative

Redeemable ParticipatingPreference Shares

5,40,000 100 Mahindra ConstructionCompany Limited ......... 5,40.00 5,40.00

b) 10.5% Non-CumulativeRedeemable PreferenceShares

10,00,000 100 Mahindra GescoDevelopers Limited ...... 10,00.00 10,00.00

c) 8.5% CumulativeRedeemable PreferenceShares

4,50,000 100 Mahindra AshtechLimited ......................... 4,50.00 4,50.00

d) 7% CumulativeRedeemable PreferenceShares(5,46,000) Mahindra Ugine

— — Steel Company Limited £ — 5,46.00e) 7% Non-Cumulative

Redeemable PreferenceShares

1,71,000 100 Gateway Housing FinanceCorporation Limited ...... 1,71.00 1,71.00

21,61.00 27,07.00c) In Trust Securities (units)

4.998 10,00,000 (6.537) India Auto AncillaryTrust ................................... 49.98 65.37

d) Investment in the Capitalof PartnershipChaseCom LimitedPartnership, Delaware,USA-Limited Partner(Note 8) .............................. 4,21.41 —

Quoted :a) In Subsidiary Companies :

Equity Shares :1,64,66,789 10 Mahindra Ugines Steel

Company Limited *£ 49,25.53 —

49,25.53 —b) In Other Companies :

Equity Shares :1,00,000 10 Hindustan Oil Exploration

Company Limited ............... 19.70 19.7045,00,000 10 Mahindra Gesco Developers

Limited* ............................. 10,90.39 10,90.39— — (1,52,41,885) Mahindra Ugine

Steel Company Limited *£ . — 36,88.7413,41,203 10 (12,83,480) Siro Plast Limited 2,90.13 2,56.51

4,16,911 10 (19,74,284) Tube Investmentsof India Limited .................. 1,47.80 6,99.92

25 100 Jardine Henderson Limited 0.14 0.145,000 10 Punjab Tractors Limited ..... 8.41 8.412,090 10 Trade Wings Limited .......... 0.59 0.59

15,57.16 57,64.40(B) Current Investments

(at cost or fair valuewhichever is lower)Unquoted:

Units :83,56,546 10 (84,66,757) Prudential

ICICI Mutual Fund-LiquidInstitutional Plan DailyDividend ....................... 9,90.38 10,03.44

51,68,961 10 (64,01,090) Principal MutualFund-Liquid InstitutionalPlan Daily Dividend ....... 5,17.01 6,40.23

57,679 1,000 (45,018) Tata MutualFund-Liquid SuperInstitutional Plan DailyDividend ....................... 6,42.84 5,01.72

35,00,000 10 (Nil) Tata Mutual Fund-Fixed Horizon Fund ....... 3,50.00 —

36,00,000 10 (Nil) Chola Mutual Fund-Fixed Maturity Plan ...... 3,60.00 —

28,60.23 21,45.39Quoted:

Equity Shares:— — (2,890) Gail (India) Limited — 5.64— — (2,719) Oil & Natural Gas

Corporation Limited ...... — 20.39900 10 PTC India Limited (formerly

known as Power TradingCorporation of IndiaLimited) ........................ 0.14 0.14

0.14 26.17

Total........ 210,96.72 193,16.18

2006 2005Rupees Rupees

lakhs lakhs

Book Value of UnquotedInvestments ................. 146,13.89 135,25.61Book Value of QuotedInvestments ................. 64,82.83 57,90.57Market Value of QuotedInvestments ................. 464,68.29 274,26.57

Notes:$ During the year preference shares were converted into equity shares at par.£ Became a subsidiary w.e.f. 21st June, 2005.* The Compnay or the holding company or both, as the case may be, have agreed not to divest

these holdings without the prior approval of certain financial institution/financial corporation/bankswhich have subscribed to the shares or granted financial assistance/credit facililties to the respectiveinvestee companies.

77


Assets side:

Amount Amountoutstanding outstanding

(3) Break-up of Loans and Advancesincluding bills receivables [other thanthose included in (4) below ]:

(a) Secured ............................................... — —

(b) Unsecured ........................................... 69.58 5,07.27

(4) Break up of Leased Assets and stock onhire and hypothecation loans countingtowards EL/HP activities:

(i) Lease assets including lease rentalsunder sundry debtors :

(a) Financial lease ............................... — —

(b) Operating lease ............................. 4,22.79 4,27.46

(ii) Stock on hire including hire chargesunder sundry debtors :

(a) Assets on hire ................................ — —

(b) Repossessed Assets ..................... — —

(iii) Hypothecation loans counting towardsEL/HP activities:

(a) Loans where assets have beenrepossessed .................................. — —

(b) Loans other than (a) above ............ — —

(5) Break-up of Investments :

Current Investments :

1. Quoted :

(i) Shares: (a) Equity ......................... 0.14 26.17

(b) Preference ................. — —

(ii) Debentures and Bonds .................. — —

(iii) Units of Mutual Funds ................... — —

(iv) Government Securities .................. — —

2. Unquoted :

(i) Shares: (a) Equity ......................... — —

(b) Preference ................. — —

(ii) Debentures and Bonds .................. — —

(iii) Units of Mutual Funds ................... 28,60.23 21,45.39

(iv) Government Securities .................. — —

Long Term Investments :1. Quoted :

(i) Shares : (a) Equity ........................ 64,82.69 57,64.40(b) Preference ................ — —

(ii) Debentures and Bonds .................. — —(iii) Units of Mutual Funds ................... — —(iv) Government Securities .................. — —

2. Unquoted :

(i) Shares : (a) Equity ........................ 85,75.27 76,02.85(b) Preference ................ 27,07.00 37,12.00

(ii) Debentures and Bonds .................. — —(iii) Units of Mutual Funds ................... — —(iv) Government Securities .................. — —(v) Units of Trust Securities ................ 49.98 65.37(vi) Other .............................................. 4,21.41 —

(6) Borrower group-wise classification of all leased assets, stock- on-hire and loans andadvances :

(Rs. lakhs)

2006 2005Category Amount net of provisions Amount net of provisions

Secured Unsecured Total Secured Unsecured Total

1. Related Parties

(a) Subsidiaries ................... — — — — — —

(b) Companies in thesame group ................... — — — — 3,92.82 3,92.82

(c) Other related parties ..... — 4,22.79 4,22.79 — 4,27.51 4,27.51

2. Other than related parties ... — 69.58 69.58 — 1,14.40 1,14.40

Total — 4,92.37 4,92.37 — 9,34.73 9,34.73

SCHEDULE IX 2006 2005INCOME : Rupees Rupees Rupees

lakhs lakhs lakhs

*� �� 8�� .��0G&�%� �� /��!6�6 � ��8��.� 67�/��6�11��8��0H �� 2,94.41 ��!5�>1

<�� .��0�� .=� ��10 �� 5,78.48 ��6�

<�� .��0�� .=� ��10 �� 3,64.87 ��55�>�

B�� "��&��*�� .=� ��!0 �� 87,22.68 !5��>!

B�� "��'�� *�� 9.71 � �

*�� 84.23 ��!>

��7+""�� +��'�� 63.17 ��41�6�21.06 6>��4

�� ) ��*�� 20.83 �>�51&� �� 100,12.04 4��>��>

SCHEDULE X 2006 2005OTHER EXPENSES : Rupees Rupees

lakhs lakhs-�� (�/��

-�� 1.50 ��>

) ��+�� 0.10 I

/�� %"�� 0.02 I

/� �� %�� 2.18 6�5!

��%"�� 0.82 4�11

-�� %"�� 2.48 �1��6

<�� 25.00 I

B��

�� 0.73 � � �

��"�� *�� — � �

&� �� 32.83 � ��5� 1

SCHEDULE XI

Schedule to the Balance Sheet of a Non-Banking Financial Company [as required in terms ofParagraph 9BB of Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions,1998]

(Rs. lakhs) (Rs. lakhs)Particulars 20062005

Liabilities side:

(1) Loans and advances availed by the Amount Amount Amount AmountNBFCs inclusive of interest accrued out- overdue out- overduethereon but not paid standing standing

(a) Debentures : Secured ......................... — — — —

: Unsecured ..................... 25,00.00 — 25,00.00 —(other than falling withinthe meaning of publicdeposits)

(b) Deferred Credits .................................. — — — —

(c) Term Loans .......................................... — — — —

(d) Inter-corporate loans and borrowing ... — — 2,15.95 —

(e) Commercial Paper ............................... — — — —

(f) Public Deposits .................................... — — — —

(2) Break-up of (1)(f) above (Outstandingpublic deposits inclusive of interestaccrued thereon but not paid):

(a) In the form of Unsecured debentures . NA NA NA NA

(b) In the form of partly secureddebentures i.e. debentures wherethere is a shortfall in the value ofsecurity ................................................ NA NA NA NA

(c) Other public deposits .......................... NA NA NA NA

(Rs. lakhs) (Rs. lakhs)Particulars 2006 2005

78


SCHEDULE XII

NOTES ON ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 2006

1. Significant accounting policies:

(a) Fixed Assets:

.�0 ��%�� "��

.��0 <�"�� "�� +�� J*F� �� '��"��-� ��56!�

(b) Investments:

.�0 -�� #��#�� #��"��

.��0 '�� #�� $�� $��

(c) Revenue Recognition:

.�0 <�� B�� -�� #�� "�$��

.��0 *� ��

.��0 *��#��

.�0 *�� :"�� #��

(d) ��C%"�� . �� % �� #�� @� ��07

/�� "�� $�� "� �� ,��$� �� "�� $�� $��#�� %"��

(e) Income Taxes:

'�� %� �� %� "�$�� %� �� "�� %�� $��

<�� %��@�� "�� #�� %�� "��"��,�� "��

�� &�� $�� "��%�� Rs. 8,44.11 lakhs� .� 67�/��!� �1>� ��8��0��Rs.45.83lakhs�.� 67�/��>5��8��0��"�� $��#��#� �� #�� "�$�� !�

�� -��8�� 7

��%��A'��"�� #� �A�� '��"��GRs.NIL�.�� Rs.NIL0H� G� 67� /��5 ��4� ��8�� .�� /��4��8��0H�

(7) Investor group-wise classification of all investments (current and long term) in sharesand securities (both quoted and unquoted ) :

(Rs. lakhs)

2006 2005Category Market Value/ Book Value Market Value/ Book Value

Break up (Net of Break up (Net ofor Fair Value Provision) or Fair Value Provision)

or NAV or NAV

1. Related Parties

(a) Subsidiaries .................................. 264,43.37 91,70.01 21,79.19 36,98.48

(b) Companies in the same group ..... 218,07.60 25,05.87 65,16.68 21,08.73

(c) Other related parties .................... 63,73.24 32,66.44 214,78.68 74,67.56

2. Other than related parties .................. 69,31.16 44,58.70 89,21.35 43,14.15

Total 615,55.37 194,01.02 390,95.90 175,88.92

(8) Other information:

Particulars

1. Gross Non-Performing Assets

(a) Related parties ......................... — —

(b) Other than related parties ....... 5,36.26 5,36.26

2. Net Non-Performing Assets

(a) Related parties ......................... — —

(b) Other than related parties ....... — —

3. Assets acquired in satisfaction of debt — —

1� <�� .��0� ��Rs. 1,07.02 lakhs� .� 67�/��5��6��8��0��Rs. 8,36.33 lakhs�.� 67�/�� 8��0�� "�� $�

6� *� �� "��Rs. NIL�.� 67�/�� 8��0��%��"��

!� B�� "�� %"�� Rs. 21.76 lakhs�.� 67�/��>� ��8��0�� "��

4� K��"��)" ��$�'�� <�� "�� $�� .�� 1 ��)� �� /��1��> ��<�� /�� 0�#� �� " �� '��"��$A�� $� �� #�� $�� &�� " �� "��$ �� %��

>� <�� $�� '��"��$�� /��1��1�� 8�� '��'�� B�� "�

&� ��'�"� ��'��'�� B�� "�� <�� 6��/��4��1��!4��8��#�� /��16��E+�L�#��"�� "�� ;$��+�� ,� ��$��;��+ � ��;��8��*�� <�� 6�

��#�� "�� "�� !�Name of Partners Sharing Ratio&'�C� ��"��' �� M'��*� �� B !�� M/��<�� !�! M+;'�)"�� *�� 1�5!M�� 6�11M

9. Segment Information:&��'��"��$��"�� $�� $�� "�"�� -�� + �� 4� �� "�� &�� ,��

10 Related PartyTransactions:(a) List of Related Parties:

��'��"��$ 7 �� +��$�'��"��$ 7 ��-��'�� C��

��$��/�� *�� $��/�� E+-�*��=;+�*� �� E��+ ��'��"��$�� .#�� N�� 60

��#�+��$ 7 ��-�� .�-�0��C��'��B�� .�C'B�0��*� �� .�*�0��+ ��+��'�� +�� .��+�0&�� &��.-��0�*��&��3��&��.+��"��0�B �� ;�� *�� ;�� 3��;�� .+��"��0�B �� ;��+�� - �� E+-�*��;�� .EO0�� 3@�� &�� +��+�� *�� <��"�� 3��<��"�� .3C+')0;�� ;�� *��C��<��<��"�� '��"��$�� .�C<<'�0��*��;��8�� '� $�<��"�� C�� + ��+��'�� .�K'0��+� ��-��.B $0�� )��*�� '��"��$.�� 0��

79


(b) Related Party Transaction are as under*: (Rs. in lakhs)

Sr. Nature of Transaction Holding Subsidiaries Fellow AssociatesNo. Subsidiaries

� *=FC+&�C=&+� +�� I I I

.��6 0 .I0 .I0 .I0� B�� I I I P

.I0 .I0 .I0 .I0�� I I I P

.I0 .I0 .I0 .I0� �*=-='C� *� ��'��"�� <�"�� 3�� I I !� � I

.I0 .I0 .>�6 � 0 .I0�� I I �� I

!"# !"# !"# !"#��$�� I I " I

!"# !"# !%�&� ��# !"#�� I I " I

!"# !"# !'�'� ��# !"#� *� ��'��"�� <�"��

/��;$�B�� I I 5�>5� I.I0 .I0 .�>�!��4�0 .I0

�(�� I I '�� I!"# !"# !��)% )�# !"#

��$�� I I �* �� I!"# !"# !%�%� ��# !"#

�� I I �� I!"# !"# !"# !"#

�(++�� I I " "!"# !"# !&�� # !"#

�� I I " I!"# !"# !'�'� ��# !"#

� *� �� /�� I I >� � >!�14.I0 .I0 .4!� �0 .64��!0

�(�� I I ' &' I!"# !"# !%* )�# !"#

�(++�� I I " I!"# !"# !� ��# !"#

�� " " , &, "!"# !"# !"# !"#

��-� I I " �� ,)!"# !"# !"# !%) &�#

� *� �� B�� 6 I !1�>6 I.�� 40 .I0 !%� �*# .I0

.(�� I I " I!"# !"# !&% ��# !"#

�-� I I �, �% I!"# !"# !,� �)# !"#

� <��/�� I 6�4>�1> I �� 56.I0 .��6�0 .I0 .>1�460

/0�-�� I ) �' I I!"# !&� %'# !"# !"#

�� I %�)� �% I I!"# !"# !"# !"#

�� I I I *& )�!"# !"# !"# !�% %�#

�� I I I &* �%!"# !"# !"# !&* �%#

� <��<�� I I I I.��15�!�0 .I0 .I0 .I0

� *� ��'��"�� <�"�� &�8�� I I I I

.�4�� 0 .I0 .I0 .I0� *� ��'��"��

<�"�� /��&��B�� I I I

.��>>�6 0 .I0 .��41� 0 .I0.(�� I I " "

!"# !"# !'�), ��# !"#� )&�C/�&/-=+-'&*)=+� ) ��*��$ I I I �� 6� !

.I0 .I0 .I0 .��6��6�0�� I I I �� '

!"# !"# !"# !&� �'#��-� I I I �, �'

!"# !"# !"# !��'� ��#� ) ��C%"��$ I I !��4 I

.I0 .I0 .��41�6�0 .I0�-� I I �' &) I

!"# !"# !&�), %&# !"#� /�� /��

��B�� I I I I.��!60 .I0 .I0 .I0

� /�� &��B�� 1� I I I

. ��60 .I0 .I0 .I01 )E&+&-=<*=3+

.��;��+�� 0� B�$�� I I !�� I

.6�560 .I0 .6��!�>�0 .I0�-� I I �� '� I

!"# !"# !%�&� ��# !"#� /�� I I I >�>5�51

.��!60 .I0 .��40 .4�1��1�0

��+-/�&��B �� &��./��<�+��0�� .#��> ��=�� 60&��./��<�+��0�*��.#��> ��=�� 60&��./��<�+��0�B �� .#��> ��=�� 60N�� .#��N��$�� !0��.'��0�&�� '��"��$�� .#�� $�� 60��- �� + ��B �� .�-+B�0.#��4 ��$�� 60��C��"��.#�� $�� 60��*� �� .#�� =�� 60��/�� $�� .#�� +�" �� 60��/�� B �� .#��6 ��-�� 60��'� $�.N��"�0�� .#��! ��-�� 60��:;&�*�� '��"��$�.�� 0� ��.#��5 ��$�� 60B��%��&��.*��0�B �� .#��6 ��$�� !0B��%��&��.EO0�� .#��6 ��$�� !0B��%��&��3��.#��6 ��$�� !0B��%��&��*��.#��6 ��$�� !0+ �8��<��$�� .#��N��$�� !0+ �8�� .#��N��$�� !0+ �8��3��"�� .#��N��$�� !0&��.&��0�� .#�� $�� !0&�� .#�� !0

-�� 7 ��'�� '��"��$�� +�� )#��'��.*��0�� .)'*�0��E��+ ��'��"��$�� .�E+')0.E" �� N�� 60+��B��


��#�+��$�!�� #

80


��$�� I I " I.I0 .I0 !& &)# !"#

��-� I I I ��* *,!"# !"# !"# !)�,' ')#

� *� ��'��"�� <�"�� 3�� I I I I

.I0 .I0 .��>5� 0 .I0�(�� I I " I

!"# !"# !'�� # !"#��$�� I I " I

!"# !"# !�* ��# !"#� *� ��'��"��

<�"�� &�8�� I I I I.�� 0 .I0 .I0 .I0

� <�� 6� � I I I.�6� � 0 .I0 .I0 .I0

P�/�� Q�+�� B��R��8� ��


11. '�� $�� "��"�� %� �� Rs.12.23lakhs�.� 67�/��>� >��8��0��"�� #�� '��"��$��""�� ""��"��

12. &�� "�$�� $� �� '��"��$� ��"�� "��-"�� !� ��)� �� !��Rs.12.83 lakhs�� ,�� "�� #�� $� �""�� $��

13. Earning per share:

2006 � 6=� �B�� -� �� %��"��$��@� �� :�/��*��8�� 98,22.31 !�� 6��5.-�� 0�� -��,� $��;��C��B�� 12,16,00,693 ��!� �!5�� -��,� $��<�� C��B�� 14,66,00,693 �1�!!� �!5�

Rs. /��=��F��"��C,� $�+�� 10.00 � � ;��C��"��C,� $�+�� 8.08 6�� <�� C��"��C,� $�+�� 6.70 1��

14. B��$��(��"��#��$�� $��

81


SCHEDULE XIII

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE



Balance Sheet Date 3 1 0 3 0 6Date Month Year

II. Capital Raised during the year (Amount in Rs. Thousands) :


N I L N I L


N I L N I L

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

Total Liabilities Total Assets

3 4 5 4 9 1 7 3 4 5 4 9 1 7

Sources of Funds :


1 2 1 6 0 1 6 1 7 4 7 1 7 3


N I L 2 5 0 0 0 0

Application of Funds :

Net Fixed Assets Investments

4 2 9 8 6 2 1 0 9 6 7 2

Net Current Assets Miscellaneous Expenditure

1 0 5 8 4 1 7 N I L

Accumulated Losses Deferred Tax Asset

N I L 2 1 1 4

IV. Performance of Company (Amount in Rs. Thousands) :

Turnover (Total Income) Total Expenditure

1 0 0 1 2 0 4 1 0 4 5 3

+ - Profit/Loss Before Tax + - Profit/Loss After Tax

✔ 9 9 0 7 5 1 ✔ 9 8 2 2 3 1

Earning per Share in Rs. Dividend

Basic 8. 0 8 Diluted 6. 7 0 –

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

Item Code No. (ITC Code) N O T A P P L I C A B L E

Product Description

Signature to Schedules I to XIII

R. K. Pitamber

Anand G. Mahindra

Bharat Doshi DirectorsA. K. Nanda

U. Y. Phadke



�Keshub Mahindra Chairman

Anand G. Mahindra


A. K. Nanda

U. Y. Phadke

M. A. Nazareth



}

82


(Rs. in Lakhs)

Name of the Subsidiary Companies

Mahindra Mahindra NBS Mahindra Ugine Mahindra HolidaysAcres Holidays International Steel Company and Resorts USA

Consulting & Resorts Limited Limited Inc.Particulars Engineers India Limited (subsidiary of

Limited Mahindra Holidays& Resorts

India Limited)

The Financial Year of the Subsidiary Companyended on ........................................................ 31st March, 2006 31st March, 2006 31st March, 2006 31st March, 2006 31st March, 2006

Number of Shares in the Subsidiary Companyheld by Mahindra Holdings & Finance Limitedat the above date:

Equity ................................................ [Nos.] 5,10,000 2,84,00,199 50,500 1,64,66,789 —

Extent of holding .................................. [%] 51% 99.99% 100% 50.69% 99.99%

The net aggregate of profit/(loss) of theSubsidiary Company for its financial year sofar as they concern the members ofMahindra Holdings & Finance Limited:

(a) Dealt with in the accounts of MahindraHoldings & Finance Limited for the yearended 31st March, 2006 ........................ — — — — —

(b) Not dealt with in the accountsof Mahindra Holdings & FinanceLimited for the year ended31st March, 2006 ................................ 0.59 20,83.32 11.92 42,37.13 (2.14)

The net aggregate of profits/(loss) of theSubsidiary Company for its previous financialyears so far as they concern the members ofMahindra Holdings & Finance Limited:

(a) Dealt with in the accounts of MahindraHoldings & Finance Limited forthe year ended 31 st March, 2006 — — 7.83 4,94.00 —

(b) Not dealt with in the accountsof Mahindra Holdings & FinanceLimited for the year ended31st March, 2006 .................................. 3.93 12,71.09 70.89 20,45.36 —

Statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary CompaniesStatement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary Companies


Anand G. Mahindra

Bharat Doshi

A. K. Nanda DirectorsU. Y. Phadke

M.A. Nazareth


Mumbai, 29th May, 2006

�

83

MAHINDRA ACRES CONSULTING ENGINEERS LIMITED


Your Directors present the Thirteenth Annual Report along with the audited accounts of the Company for the year ended31st March, 2006.

FINANCIAL RESULTS

��

2006 2005

Gross Income ............................................................................................................ 303.49 250.32

Total Expenditure ...................................................................................................... 294.90 245.07

Profit before depreciation and taxation ..................................................................... 14.34 11.38

Depreciation .............................................................................................................. 5.75 6.13

Profit before taxation ................................................................................................ 8.59 5.25

Provision for taxation

Current tax ................................................................................................................ 4.00 2.00

Deferred tax Asset/(Liability) (net) ............................................................................. (0.14) —

Fringe benefit tax ...................................................................................................... 3.58 —

Current tax for an earlier year ................................................................................... — 0.21

Profit after taxation ................................................................................................... 1.15 3.04

Balance of profit brought forward ............................................................................. 72.47 69.43

Profit and Loss Account balance carried forward ..................................................... 73.62 72.47

Dividend

With a view to conserve the cash resources of your Company,the Directors deem it prudent not to recommend a Dividend forthe year.

Operations

During the year under review, your Company consolidated itsoperations through its Office at Chennai and stabilised itspresence in high value growth areas of operation. The ProfitBefore Taxation for the year was Rs. 8.59 lakhs as comparedto Rs.5.25 lakhs for the previous year. Your Company hassuccessfully completed assignments received from theMinistry of Statistics and Programme Implementation,Government of India in various infrastructure fields viz.Railways, Highways and Power sectors as well as those fromthe Government of Pondicherry - Arts & Crafts Village, theWorld Bank aided Government of Maharashtra Hospital Projectand various other projects.

Your Company has secured new orders in thrust areas like theIntra-city bus terminus cum commercial developments atBangalore and Dewas Water Supply Project, and has also baggedone such prestigious order for another World Bank aided watersupply project in Kerala.

The Company has adopted the strategy of associating with megaprojects in the initial stages like rendering pre-bid services toenable the Company secure detailed engineering and projectmanagement assignments. The Company has laid a strongfoundation and created a favourable environment to secure majorassignments in selected sectors in the years to come.

Directors

Dr. D. C. Kantawala and Mr. S. Venkatraman retire by rotationand, being eligible, offer themselves for re-appointment.

Directors' Responsibility Statement



(ii) they have, in the selection of the accounting policies,consulted the Statutory Auditors and these have been appliedconsistently and reasonable and prudent judgments andestimates have been made so as to give a true and fair viewof the state of affairs of the Company as at 31st March, 2006

84


and of the profit of the Company for the year ended on thatdate;




As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced their socialwell being. Since its inception, the Mahindra Group has alwaysbeen engaged in activities which add value to the communityaround us. A step forward was taken in this direction by theannouncement made on the occasion of the 60th Anniversary ofMahindra & Mahindra Limited, the ultimate holding company,that the Group would support a range of Corporate SocialResponsibility (CSR) initiatives by committing 1% of Profit AfterTax (PAT) on a continuing basis. The 1% PAT would specificallybenefit the economically disadvantaged and socially weakersections of the society. Accordingly, the Board of your Companyhas resolved to contribute to recognised charitable and/or otherInstitutions, including K. C. Mahindra Education Trust and/orMahindra Foundation, not related to the business of the Companyor the welfare of the employees, towards Corporate SocialResponsibilities of the Company, such amounts which in theaggregate in any financial year will not exceed 1% of theCompany's estimated PAT for the year on a continuing basis untilfurther review by the Board.

Auditors

Messrs. A. F. Ferguson Associates, Chartered Accountants, retireas Auditors of the Company and have given their consent for re-appointment. The shareholders will be required to appointauditors for the current year and fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromthe above Auditors to the effect that their re-appointment, if made,would be in conformity with the limits specified in the said section.

Deposits and Loans/Advances


The Company has not made any loans/advances which arerequired to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with the parentcompany, Mahindra & Mahindra Limited.




The information on foreign exchange earnings and outgo isfurnished in the Notes to the Accounts.

Particulars of Employees as required under section 217(2A)

of the Companies Act, 1956 and Rules thereunder

The Company had no employee who was in receipt ofremuneration of not less than Rs. 24,00,000 during the year ended31st March, 2006 or not less than Rs. 2,00,000 per month duringany part thereof.

Certificate under section 383A of the Companies Act, 1956

from a Company Secretary in Whole-time Practice.

In accordance with the provisions of section 383A of theCompanies Act, 1956, a certificate issued by Mr. J. P. Fernandes,Company Secretary in Whole-time Practice, certifying that theCompany has complied with all the provisions of the CompaniesAct, 1956 is given in the Annexure and forms a part of this Report.


A. K. NANDA

Chairman

Mumbai, 29th May, 2006.

85


Compliance Certificate

Reg. No. : 11-74723

Authorised Capital : Rs. 1 crore

Paid up Capital : Rs. 1 crore

To,Members,Mahindra Acres Consulting Engineers Limited.

I have examined the registers, records, books and papers ofMahindra Acres Consulting Engineers Limited (the Company) asrequired to be maintained under the Companies Act, 1956, (theAct) and the rules made thereunder and also the provisionscontained in the Memorandum and Articles of Association of theCompany for the financial year ended on 31

st March, 2006. In my

opinion and to the best of my information and according to theexaminations carried out by me and explanations furnished to meby the Company, its officers and agents, I certify that in respectof the aforesaid financial year:

1. the Company has kept and maintained all registers asstated in Annexure ‘A’ to this certificate, as per the provisionsof the Act and the rules made thereunder and all entriestherein have been duly recorded.

2. the Company has duly filed the forms and returns as statedin Annexure ‘B’ to this Certificate, with the Registrar ofCompanies, Regional Director, Central Government,Company Law Board or other authorities within the timeprescribed under the Act and the rules made thereunder,unless otherwise indicated in the said Annexure.

3. the Company is a public company under section 3(i)(iv) ofthe Act. The paid-up share capital is Rs.1 crore.

4. the Board of Directors duly met four times on 25th April,

2005, 26th September, 2005, 22

nd December, 2005 and

22nd

March, 2006, in respect of which meetings propernotices were given and the proceedings were properlyrecorded and signed in the Minutes Book maintained forthe purpose.

5. the Company has not closed its Register of Members,and/ or Debenture-holders during the financial year ended31

stMarch, 2006.

6. The Annual General Meeting for the financial year ended on31

st March, 2005 was held on 26

th September, 2005 after

giving due notice to the members of the Company and theresolutions passed thereat were duly recorded in MinutesBook maintained for the purpose.

7. No Extra-ordinary General Meeting was held during thefinancial year ended 31

stMarch, 2006.

8. The Company has not advanced any loan to its Directorsand/or persons or firms or Companies referred to in thesection 295 of the Act.

9. The Company has wherever required duly complied withthe provisions of section 297 of the Act in respect ofcontracts specified in that section.

10. The Company has made necessary entries in the registermaintained under section 301 of the Act.

11. No Director or his relative or any firm or private companyhas been appointed to any office of profit in the Companyattracting the provisions of section 314 of the Act whereverapplicable.

12. The Company has not issued any duplicate share certificates.

13. The Company has:

(i) delivered all the certificates on allotment of securitiesand on lodgment thereof for transfer/transmission orany other purpose in accordance with the provisionsof the Act;

(ii) not declared any dividend including interim dividendduring the year under review.

(iii) duly complied with the requirements of section 217of the Act.

14. The Board of Directors of the Company is duly constitutedand the appointment of Directors, Additional Directors,Alternate Directors and Directors to fill casual vacancieshave been duly made.

15. The Company is managed by the Board and it has noManaging Director/ Whole-time Director/Manager.

16. The Company has no sole selling agents requiring complianceof the provisions of the Act.

17. The Company has wherever required, obtained all necessaryapprovals of the Central Government, Company Law Board,Regional Director, Registrar or such other authorities asmay be prescribed under the various provisions of the Act.

18. The Directors have disclosed their interest in other firms/companies to the Board of Directors pursuant to theprovisions of the Act and the Rules made thereunder.

19. The Company has not issued any shares /debentures/ othersecurities during the financial year.

20. The Company has not bought back any shares during thefinancial year under review.

21. The Company has no preference shares/ debentures andhence no redemption of such shares/ debentures.

22. The Company did not have to keep in abeyance rights tothe dividend, right shares and bonus shares pendingregistration of transfer of shares in compliance with theprovisions of the Act as the Company had declared nodividend nor did it issue any rights or bonus shares duringthe year under scrutiny.

86


23. The Company has not accepted any deposits or unsecuredloans requiring compliance with the provisions of sections58A and 58AA of the Act read with the Companies(Acceptance of Deposits) Rules, 1975/ the applicabledirections issued by the Reserve Bank of India/ any otherauthority in respect of such deposits or unsecured loans.

24. No amount was borrowed by the Company from Directors,members, public, financial institutions, banks and othersduring the financial year under review.

25. The Company has not made loans and investment, orgiven guarantees or provided securities to the otherbodies corporate requiring compliance with the provisionsof the Act.

26. The Company has not altered the provisions of theMemorandum with respect to the situation of the Company’sregistered office from one State to another during the yearunder scrutiny.

27. The Company has not altered the provisions of theMemorandum in respect of the Objects of the Companyduring the year under scrutiny.

28. The Company has not altered the provisions of theMemorandum with respect to the name of the Companyduring the year under scrutiny.

29. The Company has not altered the provisions of theMemorandum with respect to the share capital of theCompany during the year under scrutiny.

30. The Company has not altered its Articles of Associationduring the Financial Year ended 31

st March, 2006.

31. No prosecution was initiated against or no show causenotice was received by the Company for alleged offencesunder the Act and also no fine and penalty or any otherpunishment was imposed on the Company.

32. The Company did not receive any security / deposit from itsemployees during the year under certification and hencedeposit of any security from them as per the provisions ofsection 417(1) of the Act did not arise.

33. The Company has regularly deposited both Provident Fundand Employees State Insurance Dues with the prescribedauthorities except in some cases where there were slightdelays in depositing Provident Fund Dues.

J. P. FernandesCompany Secretary

Mumbai, 19th May, 2006. FCS - 711 : C. P. No. : 2923

Annexure ‘A’Annexure ‘A’Annexure ‘A’Annexure ‘A’Annexure ‘A’

1. Register of Members u/s.150.

2. Minutes Book of Board Meetings u/s.193.

3. Minutes Book of General Meetings u/s.193.

4. Register of Charges u/s.143.

5. Books of Accounts u/s.209.

6. Register of particulars of contracts in which Directors are interested u/s.301.

7. Register of Directors u/s.303.

8. Register of Directors' shareholding u/s.307.

9. Register of Transfers.

10. Register of Directors’ attendance at Board Meetings (Regulation 71 of Table A).

11. Register of Investments or loans made, guarantees given or securities provided u/s 372A.

87


Annexure ‘ B’Annexure ‘ B’Annexure ‘ B’Annexure ‘ B’Annexure ‘ B’

Forms and returns as filed by the Company with the Registrar of Companies, Regional Director, Central Government or other authoritiesduring the financial year ended on 31st March, 2006 :-

Sr. Form No./ Filed under For Date of filing Whether filed If delay in filingNo. Return Section within the whether requisite

prescribed date additional fee paid

1. Audited Sec. 220 Audited Accounts duly adopted by the 5th October, 2005 Yes Not Applicable

Accounts members at their Annual GeneralMeeting held on 26

th September, 2005.

2. Secretarial Sec.383A Secretarial Compliance Certificate 5th October,2005 Yes Not Applicable

Compliance adopted by Members at theirCertificate Annual General Meeting held on

26th September, 2005.

3. Annual Sec. 159 Annual Return made as on 11th November, 2005 Yes Not Applicable

Return 26th

September 2005, being the dateof the last Annual General Meeting.

88


Auditors' Report to the Members of Mahindra Acres Consulting Engineers Limited

We have audited the attached Balance Sheet of Mahindra AcresConsulting Engineers Limited as at 31st March, 2006, the Profitand Loss Account and also the Cash Flow Statement of theCompany for the year ended on that date annexed thereto. Thesefinancial statements are the responsibility of the Company’sManagement. Our responsibility is to express an opinion on thesefinancial statements based on our audit.

We conducted our audit in accordance with auditing standardsgenerally accepted in India. Those standards require that we planand perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accountingprinciples used and significant estimates made by management,as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for ouropinion.

As required by the Companies (Auditor’s Report) Order, 2003,amended by the Companies (Auditor’s Report) (Amendment)Order, 2004 (hereinafter referred to as “the Order”) issued by theCentral Government of India in terms of Section 227(4A) of theCompanies Act, 1956, we enclose in the Annexure a statementon the matters specified in paragraphs 4 and 5 of the said Order.

Further to our comments in the annexure referred to above, wereport that:

(a) we have obtained all the information and explanations,which to the best of our knowledge and belief were necessaryfor the purposes of our audit;

(b) in our opinion, proper books of account as required by lawhave been kept by the Company so far as appears from ourexamination of those books;

(c) the Balance Sheet, Profit and Loss Account, and Cash Flow

Statement dealt with by this report are in agreement withthe books of account;

(d) in our opinion, the Balance Sheet, Profit and Loss Accountand Cash Flow Statement dealt with by this report complywith the accounting standards referred to in sub-section (3C)of Section 211 of the Companies Act, 1956;

(e) on the basis of the written representations received fromthe directors, as on 31st March, 2006, and taken on recordby the Board of Directors, we report that none of thedirectors is disqualified as on 31st March, 2006, from beingappointed as a director in terms of Clause (g) of sub-section(1) of section 274 of the Companies Act, 1956;

(f) in our opinion and to the best of information and accordingto the explanations given to us, the said accounts give theinformation required by the Companies Act, 1956, in themanner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India;

(i) in the case of the Balance Sheet, of the state of affairsof the Company as at 31st March, 2006;

(ii) in the case of the Profit and Loss Account, of the profitfor the year ended on that date;

(iii) in the case of the Cash Flow Statement, of the cashflows for the year ended on that date.

For A.F. Ferguson Associates


H.L. Shah

PartnerPlace: Bangalore Membership No. 33590Date: 24th May, 2006

89


Annexure referred to in paragraph (3) of the Auditors’ Report tothe Members of Mahindra Acres Consulting Engineers Limitedon the accounts for the year ended 31st March, 2006.

(i) (a) The Company has maintained proper records showingfull particulars including quantitative details and situationof fixed assets.

(b) According to the information and explanations given tous, all fixed assets of the Company have been physicallyverified during the year and no material discrepancieswere noticed on such verification. In our opinion, thefrequency of verification is reasonable.

(c) The Company has not disposed off a substantial partof fixed assets during the year and therefore paragraph4(i)(c) of the Companies (Auditor's Report) Order, 2003(hereinafter referred to as "the Order") is not applicable.

(ii) As the Company is engaged in rendering services withrespect to construction contracts, paragraphs 4(ii)(a), 4(ii)(b),4(ii)(c) of the Order are not applicable.

(iii) The Company has neither granted nor taken any loans,secured or unsecured, to/from companies, firms or otherparties listed in the register maintained under Section 301of the Companies Act, 1956, and therefore paragraph 4(iii)of the Order is not applicable.

(iv) In our opinion and according to the information andexplanations given to us, there are adequate internalcontrol procedures commensurate with the size of theCompany and the nature of its business with regard topurchase of fixed assets and for the sale of services. Wehave neither come across nor have we been informed ofany major weaknesses in internal control procedures.

(v) According to the information and explanations given to us,there are no transactions with parties that need to beentered in the register maintained under Section 301 ofthe Companies Act, 1956, and therefore paragraph 4(v)(b)of the Order is not applicable.

(vi) In our opinion and according to the information andexplanations given to us, as the Company has not accepteddeposits from the public, paragraph 4(vi) of the Order isnot applicable.

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

(viii) As the Company is engaged in rendering services withrespect to construction contracts, paragraph 4(viii) of theOrder is not applicable.

(ix) (a) According to the information and explanations given tous and according to the books and records examinedby us, in our opinion, the undisputed statutory dues inrespect of provident fund, employees state insurance,income tax, service tax and other material statutorydues as applicable have been generally regularlydeposited by the Company during the year with theappropriate authorities. According to the informationand explanations given to us, there are no arrears ofoutstanding statutory dues as mentioned above as at

31st March, 2006, for a period of more than six monthsfrom the date they became payable.

(b) As at 31st March, 2006, according to the records of theCompany, the following dispute due on account ofincome tax has not been deposited with the appropriateauthorities.

Nature of Dues Amount Forum where dispute is pending(Rs. Lakhs)

Income Tax 27 Income Tax Appellate Tribunal

(x) The Company has neither accumulated losses nor has itincurred any cash losses during the financial year or in theimmediately preceding financial year.

(xi) As the Company has no borrowings provisions of paragraph4(ix) of the Order are not applicable.

(xii) The Company has not granted any loans or advances onthe basis of security by way of pledge of shares, debenturesand other securities, and, therefore, provisions of paragraph4(xii) of the Order are not applicable.

(xiii) The provisions of any special statute applicable to chitfund and nidhi/mutual benefit fund/society are notapplicable to the Company, and, therefore, paragraph4(xiii) of the Order is not applicable.

(xiv) The Company is not dealing or trading in shares, securities,debentures and other investments, and, therefore,paragraph 4(xiv) of the Order is not applicable.

(xv) According to the information and explanations given to us,during the year the Company has not given any guaranteefor loans taken by others from banks or financial institutions,and, therefore, paragraph 4(xv) of the Order is not applicable.

(xvi) The Company has not taken any term loans during theyear, and, therefore, the paragraph 4(xvi) of the Order isnot applicable.

(xvii) No funds has been raised on short term basis during theyear, and, therefore, paragraph 4(xvii) of the Order is notapplicable.

(xviii) The Company has not made any preferential allotment ofshares during the year, and, therefore, paragraph 4(xviii) ofthe Order is not applicable.

(xix) The Company has not issued any debentures during theyear, and, therefore, paragraph 4(xix) of the Order is notapplicable.

(xx) The Company has not raised any money by way of publicissue during the year, and, therefore, provision of paragraph4(xx) of the Order is not applicable.

(xxi) To the best of our knowledge and belief and according tothe information and explanations given to us by themanagement, we report that no fraud on or by the Companyhas been noticed during the year.



H.L. Shah

Place: Bangalore Membership No. 33590Date: 24th May, 2006

Annexure to the Auditors' Report

90



As at 31-03-06 As at 31-03-05Schedule Rs. Lakhs Rs. Lakhs Rs. Lakhs Rs. Lakhs

I. SOURCES OF FUNDS:


(a) Share Capital ............................................................... A 100.00 100.00

(b) Reserves and Surplus ................................................. B 89.90 88.75

189.90 188.75

II. APPLICATION OF FUNDS:

FIXED ASSETS: .................................................................. C

(a) Gross Block ................................................................. 120.65 116.29

(b) Less: Depreciation ...................................................... 95.56 90.75

(c) Net Block ..................................................................... 25.09 25.54

Deferred Tax Assets (Net) .................................................. 0.14 —

CURRENT ASSETS, LOANS AND ADVANCES

(a) Inventories .................................................................. D — 3.92

(b) Sundry Debtors ........................................................... E 260.23 285.16

(c) Cash and Bank Balances ............................................. F 12.86 4.37

(d) Loans and Advances ................................................... G 62.11 48.23

335.20 341.68

Less: Current Liabilities and Provisions

(a) Current Liabilities ........................................................ H 164.11 173.58

(b) Provisions .................................................................... I 6.42 4.89

170.53 178.47

Net Current Assets ............................................................. 164.67 163.21

189.90 188.75

NOTES TO THE ACCOUNTS .................................................... N

As per our report attached



H.L. Shah

Partner

Bangalore, Dated: 24th May, 2006


A. K. Nanda Chairman

S. Venkatraman Director

B. Suresh Chief Operating Officer

Mumbai, Dated: 23rd May, 2006

91



2005–06 2004–05Schedule Rs. Lakhs Rs. Lakhs

INCOME:

Income from Consultancy Services ............................................ 305.43 247.29

Increase/(Decrease) in contract Work-in-Progress ...................... J (3.92) 0.50

Other Income .............................................................................. K 1.98 2.53

303.49 250.32

EXPENDITURE:

Personnel Expenses ................................................................... L 92.93 81.35

Other Expenses .......................................................................... M 196.22 157.59

Depreciation ................................................................................ 5.75 6.13

294.90 245.07

Profit for the year Before Taxation .......................................... 8.59 5.25

Provision for Taxation

— Current Tax.......................................................................... 4.00 2.00

— Deferred Tax ....................................................................... (0.14) —

— Fringe Benefit Tax ............................................................... 3.58 —

— Prior Year ............................................................................. — 0.21

Profit for the year After Taxation ............................................. 1.15 3.04

Balance of Profit Brought Forward .............................................. 72.47 69.43

Balance Carried to Balance Sheet ............................................... 73.62 72.47

Earnings Per Share (Rs.) ............................................................. 0.12 0.30

NOTES TO THE ACCOUNTS .................................................... N




H.L. Shah

Partner







92


Cash Flow Statement for the year ended 31st March, 2006

2005–06 2004–05Rs. Lakhs Rs. Lakhs

A. Cash Flow from Operating Activities

Net Profit Before Taxation .................................................................................... 8.59 5.25

Adjustments for:

Depreciation .................................................................................................. 5.75 6.13

(Profit)/Loss on Fixed Assets (Net) ............................................................... (0.03) 1.03

Interest Income ............................................................................................. (0.18) (0.17)

Unrealised Exchange Loss ............................................................................ 2.28 2.16

Opening Profit before Working Capital Changes .................................................. 16.41 14.40

Changes in:

Trade and Other Receivables ........................................................................ 22.70 (28.61)

Inventories .................................................................................................... 3.92 (0.50)

Trade and Other Payables ............................................................................. (10.28) 22.43

Cash Generated from Operations ......................................................................... 16.34 (6.68)

Income-tax Paid .................................................................................................... (19.11) (10.90)

Net Cash From/(Used) in Operating Activities .................................................. 13.64 (3.18)

B. Cash Flow from Investing Activities

Purchase of Fixed Assets ..................................................................................... (5.53) (3.05)

Sale of Fixed Assets ............................................................................................. 0.26 0.70

Interest Received .................................................................................................. 0.12 0.03

Net Cash used in Investing Activities ................................................................ (5.15) (2.32)

C. Cash Flow from Financing Activities ................................................................. — —

Net Cash Flows during the year (A+B+C) .......................................................... 8.49 (5.50)

Cash and Cash Equivalents

Opening Balance ................................................................................................... 4.37 9.87

Closing Balance ..................................................................................................... 12.86 4.37

8.49 (5.50)




H.L. Shah

Partner







93



SCHEDULE C

FIXED ASSETS: Rs. Lakhs

GROSS BLOCK DEPRECIATION NET BLOCKDescription of Assets

Cost as at Additions Deduc- Cost as at As at For the Deduc- As at As at As at31-3-2005 tions 31-3-2006 31-3-2005 year tions 31-3-2006 31-3-2006 31-3-2005

Tangible Assets:Furniture and Fittings ............................... 8.77 2.13 0.01 10.89 6.99 0.65 0.01 7.63 3.26 1.78Vehicles .................................................... 16.12 — — 16.12 10.62 1.52 — 12.14 3.98 5.50Office and Other Equipment .................... 21.20 0.62 0.57 21.25 7.54 1.33 0.34 8.53 12.72 13.66Computers ............................................... 29.51 2.78 0.59 31.70 24.91 2.25 0.59 26.57 5.13 4.60

75.60 5.53 1.17 79.96 50.06 5.75 0.94 54.87 25.09 25.54Intangible Asset:Technical know-how ................................ 40.69 — — 40.69 40.69 — — 40.69 — —

40.69 — — 40.69 40.69 — — 40.69 — —Total ......................................................... 116.29 5.53 1.17 120.65 90.75 5.75 0.94 95.56 25.09Previous Year ........................................... 124.78 3.05 11.54 116.29 94.43 6.13 9.81 90.75 25.54

SCHEDULE A As at As atSHARE CAPITAL: 31-03-06 31-03-05

Rs. Lakhs Rs. LakhsAuthorised:

10,00,000 Equity Shares of Rs. 10 each . 100.00 100.00

Issued, Subscribed and Paid-up:

10,00,000 Equity Shares of Rs. 10 eachfully paid-up ............................ 100.00 100.00

(Of the above, 5,10,000 EquityShares are held by MahindraHoldings & Finance Limited, theHolding Company, including 7shares held jointly with itsnominees.)

100.00 100.00

SCHEDULE B As at As atRESERVES AND SURPLUS: 31-03-06 31-03-05

Rs. Lakhs Rs. Lakhs

Capital Reserve ......................................... 16.28 16.28

Profit and Loss Account ............................ 73.62 72.47

89.90 88.75

SCHEDULE D As at As atINVENTORIES: 31-03-06 31-03-05

Rs. Lakhs Rs. Lakhs

Contract Work-in-Progress (at lower of costand net realizable value) ............................ — 3.92

— 3.92

SCHEDULE E As at As atSUNDRY DEBTORS (Unsecured): 31-03-06 31-03-05

Rs. Lakhs Rs. Lakhs

Outstanding over six months

— Considered Good .................................. 52.68 48.89

— Considered Doubtful ............................. — 10.14

52.68 59.03

Less: Provision for Doubtful Debts ........... — 10.14

52.68 48.89

Other Debts .............................................. 54.86 53.83

Unbilled Revenue ...................................... 152.69 182.44

260.23 285.16

SCHEDULE F As at As atCASH AND BANK BALANCES: 31-03-06 31-03-05

Rs. Lakhs Rs. Lakhs

Cash and Cheques on Hand ...................... 5.73 0.62

Balances with Scheduled Banks

— On Current Account .............................. 5.35 0.84

— On Deposit Account ............................. 1.78 2.91

12.86 4.37

SCHEDULE G As at As atLOANS AND ADVANCES : 31-03-06 31-03-05(Unsecured, Considered Good) Rs. Lakhs Rs. LakhsAdvances recoverable in Cash or in Kind orfor Value to be received ............................ 9.97 7.62

Taxation (Net) ............................................ 52.14 40.61

62.11 48.23

SCHEDULE H As at As atCURRENT LIABILITIES: 31-03-06 31-03-05

Rs. Lakhs Rs. Lakhs

Sundry Creditors

— Due to Small Scale IndustrialUndertakings ...................................... — —

— Others ................................................ 124.35 136.78

Advances from Customers ........................ 39.76 36.80

164.11 173.58

SCHEDULE I As at As atPROVISIONS: 31-03-06 31-03-05

Rs. Lakhs Rs. Lakhs

Leave Salary .............................................. 6.42 4.89

6.42 4.89

Schedules forming part of the Profit and Loss

Account for the year ended 31st March, 2006

SCHEDULE J 2005–06 2004–05INCREASE/(DECREASE) IN CONTRACT: Rs. Lakhs Rs. LakhsWORK-IN-PROGRESS

Closing Work-in-Progress .......................... — 3.92

Opening Work-in-Progress ........................ 3.92 3.42

(3.92) 0.50

94


SCHEDULE K 2005–06 2004–05OTHER INCOME: Rs. Lakhs Rs. Lakhs

Interest on Deposits (Tax deducted at source:Rs. 0.04 lakhs; previous year Rs.0.01 lakhs) ......................................... 0.18 0.17

Miscellaneous Income .............................. 0.13 1.32

Profit on Sale of Fixed Assets (Net) .......... 0.03 —

Bad Debts Recovered ............................... 1.64 1.04

1.98 2.53

SCHEDULE L 2005–06 2004–05PERSONNEL EXPENSES: Rs. Lakhs Rs. Lakhs

Salaries, Wages and Bonus ....................... 83.10 72.04

Contribution to Provident and other Funds 7.52 7.27

Staff Welfare Expenses ............................. 2.31 2.04

92.93 81.35

SCHEDULE M 2005–06 2004–05OTHER EXPENSES: Rs. Lakhs Rs. Lakhs

Rent .......................................................... 9.97 21.68

Rates and Taxes ........................................ 0.06 0.16

Repairs and Maintenance — Others ......... 1.64 4.30

Power and Fuel ......................................... 2.10 3.07

Professional Charges ................................ 50.60 32.53

Postage, Telephone and Fax ..................... 5.93 7.72

Insurance ................................................... 1.29 0.97

Conveyance ............................................... 8.60 6.90

Printing and Stationery .............................. 7.44 7.67

Travelling Expenses .................................. 26.15 21.13

Vehicle Expenses ...................................... 7.28 6.17

Office Expenses ........................................ 6.77 4.74

Loss on Fixed Assets Sold/Scrapped (Net) .. — 1.03

Unbilled Revenue accrued in earlier yearswritten off ................................................. 39.79 —

Bad Debts (net of provision for doubtfuldebts written back Rs. 10.14 lakhs,previous year — Rs. Nil) ............................ 16.65 26.90

Exchange Loss (Net) ................................. 2.28 2.16

Miscellaneous Expenses ........................... 9.67 10.46

196.22 157.59

SCHEDULE N



(a) Basis for Preparation of Accounts:

The accounts have been prepared to comply in all material aspects withapplicable accounting principles in India, the Accounting Standards issuedby the Institute of Chartered Accountants of India and the relevant provisionsof the Indian Companies Act, 1956.

(b) Fixed Assets and Depreciation:

i) Tangible Assets:

Fixed assets are stated at cost less depreciation. Cost comprises ofpurchase price and any attributable cost (including financing cost) of bringingthe assets to its working condition for its intended use. When an asset isscrapped, or otherwise disposed off, the cost and related depreciation areremoved from the books of account and resultant profit (including capitalprofit) or loss, if any, is reflected in the profit and loss account.

Depreciation is provided on the straight line method at the rates and in themanner specified in Schedule XIV to the Companies Act, 1956, except forcertain items of Computers, Office Equipment and Furniture and Fixtures,costing more than Rs. 5,000, which are depreciated at the rate of 19.8%per annum to coincide with the expected useful life of such assets.

ii) Intangible Asset:

Technical know-how has been amortised over a period of five years.

(c) Revenue Recognition:

The Company recognises revenue on the percentage of completion method,which involves technical estimates with respect to costs to completion, ofeach contract/activity. Such estimates, made by the Company and certifiedto the auditors, have been relied upon by them, as these are of a technicalnature.

(d) Foreign Currency Transactions:

Foreign currency transactions are recorded at the exchange rate prevailingon the date of transaction.

Foreign currency assets and liabilities are translated at the contracted/closing exchange rate prevailing on the last day of the accounting year andthe resultant exchange differences are dealt with within the profit and lossaccount except in case of those pertaining to fixed assets acquired outsideIndia, which are added to the carrying cost of such assets.

(e) Retirement Benefits:

Annual contributions are made to gratuity and superannuation schemes withLife Insurance Corporation of India. Provision is made for leave encashmenton the basis of an actuarial valuation, as at the balance sheet date, by anindependent actuary.

(f) Taxes on Income:

In accordance with the provisions of the Income Tax Act, 1961, current taxis determined as the amount of tax payable to the taxation authorities inrespect of taxable income for the year.

Deferred tax is accounted for under the liability method, subject to theconsideration of prudence for deferred tax assets on timing differences, beingthe difference between taxable and accounting income that originate in oneperiod and are capable of or reversal in one or more subsequent periods.

(g) Segment Reporting:

The Company has a single reportable segment, viz., income from consultancyfees for the purpose of Accounting Standard 17 on Segment Reporting.

2. (a) In respect of contracts entered into by the Company, the Company hasrecognised revenue on the percentage of completion method, which ismeasured with reference to the proportion of personnel costs incurred to thetotal estimated personnel costs for each contract.

(b) In respect of the contracts in progress as at the year end:

Particulars 2005–2006 2004–2005Rs. Lakhs Rs. Lakhs

i) The aggregate costs incurred andrecognised profits (net)upto the year end ................... 816.89 853.30

ii) Retentions .............................. 7.75 6.63

3. The identification of a supplier as Small Scale Industrial Undertaking has beendone on the basis of information available with the Company. On this basis thereare no Small Scale Industrial Undertakings to whom the Company owes anyamount as at the balance sheet date.

4. Earnings Per Share: 2005–2006 2004–2005Rs. Lakhs Rs. Lakhs

i) Net Profit After Tax ...................... 1.15 3.04

ii) Weighted Average Number ofEquity Shares (Nos.) ..................... 10,00,000 10,00,000

iii) Basic and Diluted Earnings PerShare (Rs.) .................................... 0.12 0.30

iv) Face Value of Equity Share (Rs.) .. 10.00 10.00

5. Miscellaneous Expenses include:

Auditors’ Remuneration:

Audit Fees .................................... 2.60 1.75

Other Services ............................. — 1.20

Reimbursement of Expenses/Levies 0.32 0.33

Directors’ Sitting Fees ....................... 0.02 0.12

95


6. Expenditure in Foreign Currency: 2005–2006 2004–2005Rs. Lakhs Rs. Lakhs

Consultancy Fees ............................... 19.16 —

Others ............................................... 0.95 —

7. Earnings in Foreign Exchange:

Consultancy Fees ............................... 10.66 —

8. Related Party Transactions:

(a) Names of related parties and nature of relationship where control exists:

Name of Related Party Nature of Relationship

Mahindra & Mahindra Limited Ultimate Controlling Company

Mahindra Holdings & Finance Holding Company with 51%Limited Shareholding — Controlling Interest

Acres International Limited Company with 49% Shareholding— Substantial Interest

Fellow Subsidiaries:

Tech Mahindra Limited (formerly known as Mahindra-British TelecomLimited)Mahindra Logisoft Business Solutions LimitedAutomartindia LimitedMahindra USA Inc.Bristlecone (UK) LimitedMahindra Gujarat Tractor LimitedMahindra Shubhlabh Services LimitedMahindra Insurance Brokers LimitedMahindra World City Developers Limited (formerly known as MahindraIndustrial Park Limited)Mahindra World City (Jaipur) Ltd., (w.e.f. 26th August 2005)Bristlecone Limited, Cayman IslandsBristlecone Inc.Mahindra MiddleEast Electrical Steel Service Centre (FZE)Mahindra & Mahindra South Africa (Pty.) LimitedMahindra International Limited (with effect from 1st November, 2005)Stokes Group Limited (with effect from 3rd January, 2006)Plexion Technology (India) Private Limited (with effect from 15th February, 2006)Jensand Limited (with effect from 3rd January, 2006)Stokes Forgings Limited (with effect from 3rd January, 2006)Stokes Forgings Dudley Limited (with effect from 3rd January, 2006)Plexion Technologies (UK) Ltd. (with effect from 15th February, 2006)Plexion Technologies GmbH, Germany (with effect from 15th February,2006)Plexion Technologies Incorporated — USA (with effect from 15th February,2006)Mahindra Engineering Design & Development Company LimitedMahindra SAR Transmission Private LimitedMahindra Overseas Investment Company (Mauritius) LimitedMahindra Europe s.r.l. (with effect from 30th May, 2005)Mahindra (China) Tractor Company Limited (with effect from 13th May,2005)Mahindra-BT Investment Company (Mauritius) Limited (with effect from 9thMay, 2005)Mahindra Engineering & Chemical Products LimitedMahindra & Mahindra Financial Services LimitedMahindra Intertrade LimitedMahindra Steel Service Centre LimitedMahindra Gesco Developers LimitedMahindra Infrastructure Developers LimitedMahindra Ashtech LimitedMahindra Holidays & Resorts India LimitedNBS International LimitedMahindra Realty Limited (with effect from 21st September, 2005)Mahindra Automotive Steels Private Limited (with effect from 2nd June,2005)Mahindra Renault Private Limited (with effect from 5th August, 2005)Mahindra Holidays & Resorts U.S.A. Inc.Tech Mahindra (Americas) Inc. (formerly known as MBT International Inc.)Tech Mahindra GmbH (formerly known as MBT GmbH)Tech Mahindra Singapore (Pte.) Limited (formerly known as MBT SoftwareTechnologies Pte. Ltd.)Tech Mahindra (R&D Services) Limited (with effect from 28th November,2005)

Tech Mahindra (R&D Services) Inc. (with effect from 28th November, 2005)Tech Mahindra (R&D Services) Pte. Limited (with effect from 28th November,2005)Tech Mahindra (Thailand) Limited (with effect from 21st February, 2006)Tech Mahindra Foundation (with effect from 22nd March, 2006)Bristlecone India LimitedBristlecone (Singapore) Pte. Ltd.Bristlecone GmbHMahindra Ugine Steel Company Ltd. (with effect from 21st June, 2005)Console Estate & Investment Limited (Ceased with effect from 20th March,2006)

(b) Related party transactions are as under:Rs. Lakhs

Sl. Nature of Transactions Controlling Fellow SubstantialNo. Company Subsidiaries Interest

1. Income from ConsultancyServices 1.86 57.35 —

(9.90) (34.36) (—)

2. Reimbursements Received — 1.26 —(0.58) (0.12) (—)

3. Advance Received — 0.75 —(—) (—) (—)

4. Outstanding as at year end

Payables 52.22 3.18 —(58.90) (0.11) (33.80)

Receivables 0.67 — —(9.77) (0.75) (—)

(c) Significant related party transactions are as under:

Rs. Lakhs

Sl. Nature of Controlling Fellow SubsidiariesNo. Transactions Company

Mahindra & Mahindra Mahindra MahindraMahindra World City Infrastructure Gesco

Ltd. Developers Developers DevelopersLtd. Ltd. Ltd.

1. Income fromConsultancyFees 1.86 40.53 — 14.82

(9.90) (18.11) (—) (14.40)

2. Reimburse-mentsReceived — 1.14 — —

(0.58) (—) (—) (—)

3. Advances — — 0.75 —(—) (—) (—) (—)

Previous year’s figures are in brackets.

9. Deferred Tax Assets/(Liabilities) Rs. Lakhs

Description As at Tax Effect As at31-03-2005 for the year 31-03-06

Deferred Tax Liabilities

Fixed Assets (2.50) (0.48) (2.02)

Deferred Tax Assets

Provision from Leave Encashment — (2.16) 2.16

Provision for Doubtful Debts 2.50 2.50 —

Net Deferred Tax Asset/(Liability) — (0.14) 0.14

10. Contingent Liabilities:

Income Tax: Rs. 20.15 lakhs (2004–05: Rs. 20.15 lakhs)

The above amount is based on a demand raised by the income tax authoritieswhich the Company is contesting. Outflows, if any, arising out of this claimwould depend on the outcome of the decision of the appellate authorities andthe Company’s right for future appeals.

11. Previous year’s figures have been regrouped, wherever necessary, to conformto this year’s classification.

96




Balance Sheet Date 3 1 - 0 3 - 2 0 0 6

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


N I L N I L


N I L N I L



3 6 0 4 3 3 6 0 4 3

Sources of Funds


1 0 0 0 0 8 9 9 0


N I L N I L



2 5 0 9 N I L


1 6 4 6 7 N I L


N I L 1 4


Turnover(Represents Total Income) Total Expenditure

3 0 3 4 9 2 9 4 9 0

Profit/Loss Before Tax Profit/Loss After Tax

+ 8 5 9 + 1 1 5

Earnings per Share in Rupees(Basic and Diluted) Dividend Rate %

0 . 1 2 N I L

V. Generic names of three Principal Products/Services of the Company (As per Monetary Terms)

Item Code No. (ITC Code) - -

Product Description Engineering ConsultancyProject Consultancy

12. The information relating to the Balance Sheet abstract and the Company's general business profile as per Part IV of Schedule VIto the Companies Act, 1956, is as under:

Signature to Schedule A to N For and on behalf of the Board





97

MAHINDRA HOLIDAYS AND RESORTS INDIA LIMITED


Your Directors present their Tenth Report together with the audited accounts of your Company for the year ended 31st March, 2006.

Financial Results

Rs. in lakhs

2006 2005

Income:Income:Income:Income:Income:

Income from Operations ........................................................................ 15,673 10,615

ExpenditureExpenditureExpenditureExpenditureExpenditure

Profit before Depreciation, Interest and Taxation .................................. 4,458 2,729

Depreciation ........................................................................................... (775) (647)

Interest & Financial Charges .................................................................. (332) (431)

Profit for the year before tax .................................................................. 3,351 1,651

Provision for Tax

– Current Tax ............................................................................ (282) (130)

– MAT credit Entitlement ......................................................... 282 —————

– Deferred tax (net) ................................................................... (1,131) (598)

– Fringe Benefit tax .................................................................. (137) —————

Net Profit for the year after tax .............................................................. 2,083 922

Balance brought forward from earlier years ........................................... (308) (1,231)

Balance carried forward ......................................................................... 1,775 (308)

Operations

The aggressive pace of growth of the economy catalysed changesin lifestyle and holidaying habits. Our brand “Club Mahindra” hasbuilt up great salience in the holiday segment and enjoys a top ofmind recall.

Your Company was able to leverage the Brand Equity and thechange in the lifestyle habits to add 10,200 Timeshare Membersduring the year as against 7,955 Timeshare Members addedduring the previous year.

Your Company further strengthened its network and availabilityof roomnights for holidaying by its Members by creating additionalaccomodation in Goa, Coorg, Corbett and Poovar. Your Companyhas added a new Resort at Dharamshala thereby increasing itspresence in the State of Himachal Pradesh. In addition, yourCompany has acquired lands for setting up of new resorts atTungi Village (near Lonavala) at Undi and Chaferi Villages inRatnagiri District of Maharashtra, and at Manapet Village,Pondicherry. Both Ratnagiri and Pondicherry are beach resorts.

Your Company’s income grew by 48% from Rs.10,615 lakhs toRs.15,673 lakhs and Profit Before Tax increased by 103% fromRs.1651 lakhs to Rs.3351 lakhs during the year under review.

Your Company continues to maintain and deliver exemplarylevels of service to its Members. This is confirmed by the fact thatfour of the Company’s Resorts at Goa, Munnar, Binsar and Coorgreceived the Gold Crown Certification from RCI based onindependent member feedbacks, facilities and amenities. It ispertinent to note that Goa and Munnar Resorts have retained the

Gold Crown Certification since inception and Coorg received itwithin 6 months of starting operations.

Your Company continues with its emphasis on Quality Standards.During the year, the Company’s Resorts at Goa, Ooty andKodaikanal received Food Hygiene Certification of InternationalStandard from BHC of Netherlands.

The Economy is poised for aggressive growth. With increasingdisposable incomes, your Company expects changes in lifestyleto accelerate. Your Company is well poised to take advantage ofthese changes and continue its aggressive momentum both interms of acquisition of members and increasing network ofresorts.

Deposits and Loans / advances


Your Company has not made any loans / advances which requireto be disclosed in the Annual Accounts of the Company pursuantto Clause 32 of the Listing Agreement with the parent company,Mahindra & Mahindra Limited.

Conservation of Energy and Technology Absorption

In view of the nature of activities which are being carried on by theCompany, Rules 2A and 2B of the Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988,concerning conservation of energy and technology absorptionrespectively are not applicable to the Company.

98



The information on Foreign Exchange earnings and outgo isfurnished in the Notes on Accounts.

Particulars of Employees

As required under section 217(2A) of the Companies Act, 1956,and Rules thereunder, a statement containing particulars of theCompany’s employee who was in receipt of remuneration of notless than Rs.24,00,000 during the year ended 31st March, 2006 ornot less than Rs.2,00,000 per month during any part of the saidyear, is given in the Annexure to this Report.

Directors

Mr. Cyrus J. Guzder and Mr. Rohit Khattar retire by rotation and,being eligible, offer themselves for re-election at the forthcomingAnnual General Meeting of the Company.

Audit Committee

The Audit Committee presently comprises of Mr. Cyrus J. Guzder(Chairman of the Committee), Mr. A. K. Nanda and Mr. U. Y.Phadke.

Subsidiary Company

The statement pursuant to section 212 of the Companies Act,1956, containing details of your Company’s subsidiary, MahindraHolidays and Resorts (USA) Inc. is attached.

Auditors

Messrs A. F. Ferguson & Co., Chartered Accountants, retire asAuditors of the Company at the conclusion of the forthcomingAnnual General Meeting, and have given their consent for re-appointment. The shareholders will be required to appoint Auditorsfor the current year and fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromthe above Auditors to the effect that their re-appointment, ifmade, would be in conformity with the limits specified in thesaid section.


Pursuant to section 217 (2AA) of the Companies Act, 1956, yourDirectors, based on the representations received from theOperating Management, and after due enquiry, confirm that:


(ii) they have, in the selection of the accounting policies, consulted

the Statutory Auditors and these have been appliedconsistently and reasonable and prudent judgements andestimates have been made so as to give a true and fair viewof the state of affairs of the Company as at 31st March, 2006and of the profit of the Company for the year ended on thatdate;

(iii) proper and sufficient care has been taken for the maintenanceof adequate accounting records in accordance with theprovisions of the Companies Act, 1956, for safeguarding theassets of the Company and for preventing and detecting fraudand other irregularities;



As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of the communitiesit interacts with, but has also enhanced their social well being.Since its inception, the Mahindra Group has always been engagedin activities which add value to the community around us. A stepforward was taken in this direction by the announcement madeon the occasion of the 60

th Anniversary of Mahindra & Mahindra

Limited, the ultimate holding company, that the Group wouldsupport a range of Corporate Social responsibility (CSR) initiativesby committing 1% of Profit After Tax (PAT) on a continuingbasis. The 1% PAT would specifically benefit the economicallydisadvantaged and socially weaker sections of the society.Accordingly, the Board of your Company has resolved tocontribute to recognised charitable and/or other Institutions,including K. C. Mahindra Education Trust and/or MahindraFoundation, not related to the business of the Company or thewelfare of the employees towards Corporate SocialResponsibilities of the Company, such amounts which in theaggregate in any financial year will not exceed 1% of theCompany’s estimated PAT for the year on a continuing basisuntil further review by the Board.

A beginning in this direction was made by your Company duringthe current year by making a contribution of Rs.9.20 lakhsto various charitable institutions.


A. K. Nanda

ChairmanGoa: 22nd April, 2006.

99



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

Name of the Employee Designation / Qualification Remuneration Age Experience Date of Last employmentNature of duties (subject to tax) (years) (years) commencement held (Designation /

(Rs.) of employment Organisation)

1. Mr. Ramesh Ramanathan Managing Director B.A. PGDBM 84,46,953 51 28 09/06/2004 President –(IIM, Kolkata) Food World Super

Market Ltd.

2. Mr. Amar Korde Chief Financial ACA, ACS 28,76,441 49 22 26/08/2001 CEOOfficer (Entrepreneur)

3. Mr. Santosh Nair Head – Marketing PDGDM (XLRI) 28,35,813 40 15 01/03/2005 General Manager Ford India

4. Mr. R. Radhakrishna Chief Sales Officer B.A. 33,00,624 54 31 05/02/2001 General Manager Arvind Brands

5. Mr. Navarun Sen * Business B.E M.B.A. (IIML) 2,57,141 38 15 17/01/2006 Asst. Vice PresidentHead (Zest) Satyam Computers

* part of the year

NotesNotesNotesNotesNotes:

1. Nature of employment is contractual subject to termination on three months notice on either side.

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

3. No employee holds by himself or alongwith his spouse and dependent children 2% or more of the equity shares of the Company.

4. Terms and Conditions of employment are as per Company’s Rules / contract.

5. Gross remuneration received as shown in the statement includes Salary, Performance Pay, House Rent Allowance, perquisites value / allowancesapplicable, employer’s contribution to Provident Fund and Superannuation Scheme including reimbursement of medical expenses and allallowances / perquisites and terminal benefits as applicable.


A. K. Nanda

ChairmanGoa: 22nd April, 2006.

100


We have audited the attached Balance Sheet of Mahindra Holidaysand Resorts India Limited, as at 31st March, 2006 and also theprofit and loss account and the cash flow statement for the yearended on that date annexed thereto. These financial statementsare the responsibility of the company’s management. Ourresponsibility is to express an opinion on these financial statementsbased on our audit.

We conducted our audit in accordance with the auditing standardsgenerally accepted in India. Those standards require that we planand perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes examining, on a test basis,evidence supporting the amounts and the disclosures in thefinancial statements. An audit also includes assessing theaccounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonablebasis for our opinion.

As required by the Companies (Auditor’s Report) Order, 2003,issued by the Central Government of India in terms of sub-section(4A) of Section 227 of the Companies Act, 1956, we enclose inthe Annexure a statement on the matters specified in paragraphs4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, wereport that:

(i) we have obtained all the information and explanations, whichto the best of our knowledge and belief were necessary forthe purposes of our audit;

(ii) in our opinion, proper books of account as required by lawhave been kept by the company so far as appears from ourexamination of those books;

(iii) the balance sheet, profit and loss account and cash flowstatement dealt with by this report are in agreement with thebooks of account;

(iv) in our opinion, the balance sheet, profit and loss account andcash flow statement dealt with by this report comply with theaccounting standards referred to in sub-section (3C) of Section211 of the Companies Act, 1956;

(v) on the basis of the written representations received from thedirectors, as on 31st March, 2006 and taken on record by theBoard of Directors, we report that none of the directors isdisqualified as on 31st March, 2006, from being appointed asa director in terms of clause (g) of sub-section (1) of section274 of the Companies Act, 1956;

(vi) in our opinion and to the best of our information and accordingto the explanations given to us, the said accounts give theinformation required by the Companies Act, 1956, in themanner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India:

(a) in the case of the balance sheet, of the state of affairs ofthe company as at 31st March, 2006;

(b) in the case of profit and loss account, of the profit for theyear ended on that date; and

(c) in the case of the cash flow statement, of the cash flowsfor the year ended on that date.



H.L. Shah

Place: Goa PartnerDate: 22nd April, 2006 Membership No.: 33590

Report of the Auditors’ to the Members of Mahindra Holidays and Resorts India Limited

101


i. a) The company has maintained proper records showingfull particulars, including quantitative details andsituation of fixed assets.

b) The management has a programme of physicalverification of fixed assets over a period of threeyears which, in our opinion, is reasonable havingregard to the size of the company and nature of itsassets. In accordance with this programme, themanagement has conducted physical verification ofcertain fixed assets during the year and is in theprocess of reconciling the same with the fixed assetsregister.

c) The company has not disposed off a substantial partof fixed assets during the year and therefore paragraph4(i) (c) of the Companies (Auditor's Report) Order,2003 (hereinafter referred to as the Order) is notapplicable.

ii. a) Physical verification of inventory has been conductedby the management during the year and, in ouropinion, the frequency of verification is reasonable.

b) Procedures of physical verification of inventoriesfollowed by the management are reasonable,adequate and commensurate to the size of thecompany and the nature of it business.

c) The company is maintaining proper records ofinventories and no material discrepancies have beennoticed on physical verification of inventories ascompared to the book records.

iii. The company has neither granted nor taken any loans,secured or unsecured, to/from companies, firms or otherparties listed in the register maintained under section 301of the Companies Act, 1956, and therefore paragraph 4(iii)of the Order is not applicable.

iv. In our opinion and according to information and explanationsgiven to us, there are adequate internal control procedurescommensurate with size of the company and the nature ofits business with regard to purchase of inventory and fixedassets and for the sale of goods and there are no majorinternal control weakness in regard thereto.

v. According to the information and explanations given to us,there are no transactions that need to be entered in theregister maintained under section 301 of the CompaniesAct, 1956 and therefore paragraph 4(v) of the Order is notapplicable.

vi. In our opinion and according to the information andexplanations given to us, as the company has not accepteddeposits from the public, paragraph 4(vi) of the Order is notapplicable.

Annexure referred to in paragraph 3 of the report of even date of the auditors to the members of Mahindra Holidays and

Resorts India Limited on the accounts for the year ended 31st March, 2006

vii. In our opinion the company has an internal auditsystem that is commensurate with its size and nature ofbusiness.

viii. We are informed that maintenance of cost records has notbeen prescribed by the Central Government under section209 (1)(d) of the Companies Act, 1956, in respect of theactivities of the company and therefore paragraph 4 (viii) ofthe Order is not applicable.

ix. (a) In our opinion and according to the information andexplanations given to us, the company is generallyregular in depositing undisputed statutory duesincluding provident fund, employees state insurance,income tax, sales tax, service tax, custom duty,excise duty and cess and other statutory dues, if any,with the appropriate authorities. There are no arrearsof outstanding statutory dues as at 31st March 2006for a period of more than six months from the datethey became payable.

(b) As explained to us, there are no disputed dues ofsales tax, income tax, customs duty, wealth tax,service tax, excise duty and cess that have not beendeposited on account of any dispute and thereforeparagraph 4 (ix) (b) of the Order is not applicable.

x. The company does not have accumulated losses at the endof the financial year and the company has not incurred cashlosses in the financial year as well as in the immediatelypreceding financial year.

xi. In our opinion and according to the information andexplanations given to us, the company has not defaulted inrepayment of dues to banks and financial institutions.

xii. The company has not granted any loans or advances on thebasis of security by way of pledge of shares, debenturesand other securities and therefore paragraph 4(xii) of theOrder is not applicable.

xiii. The provisions of any special statute applicable to chit fundand nidhi/mutual benefit fund/society are not applicable tothe company and therefore paragraph 4(xiii) of the Order isnot applicable.

xiv. The company is not dealing or trading in shares, securities,debentures and other investments and therefore paragraph4(xiv) of the Order is not applicable.

xv. According to the information and explanations given to us,the company has given guarantee to a financial institution,in respect of finance availed by the time share members,the terms and conditions of which are not prejudicial to theinterest of the company.

102


xvi. The company has not availed any term loans during the yearand therefore paragraph 4(xvi) of the Order is not applicable.

xvii. Funds raised on short term basis have not been used forlong term investments.

xviii. The company has not made any preferential allotment ofshares during the year and therefore paragraph 4(xviii) ofthe Order is not applicable.

xix. The company has not issued any debentures during theyear and therefore paragraph 4(xix) of the Order is notapplicable.

xx. The company has not raised any money by way of publicissues during the year and therefore paragraph 4(xx) of theOrder is not applicable.

xxi. Based upon the audit procedures performed and as per theinformation and explanations given to us by themanagement, we report that no fraud on or by the companyhas been noticed or reported during the course ofour audit.



H.L. Shah

Place: Goa PartnerDate: 22nd April, 2006 Membership No.: 33590

103


Balance Sheet as at March 31, 2006

As at As atSchedule March 31, 2006 March 31, 2005

Rs. Rs.SOURCES OF FUNDS

Shareholders’ FundsShare Capital .................................................................... 1 284,002,000 284,002,000Reserve and Surplus ........................................................ 2 177,622,936 113,841

Deferred IncomeAdvance towards members’ facilities (see Note 1(vii)(a)) .. 2,222,432,500 1,604,561,254

Loan FundsSecured Loans ................................................................. 3 268,060,588 220,262,532Unsecured Loans ............................................................. 4 — 12,500,000Deferred tax liability (net) ................................................. 102,914,447 —

Total ............. 3,055,032,471 2,121,439,627

APPLICATION OF FUNDS

Fixed Assets .................................................................... 5Gross Block ...................................................................... 1,907,375,373 1,482,995,474Less: Depreciation ........................................................... 297,047,089 224,750,604

Net Block ......................................................................... 1,610,328,284 1,258,244,870Capital Work-in-Progress/Advances ................................. 13,827,881 14,391,391Expenditure during construction pending allocation ........ 6 8,230,020 3,168,717

1,632,386,185 1,275,804,978

Investments .................................................................... 7 295,513 45,295,513Deferred Tax Asset (Net) ............................................... — 10,138,595Current Assets, Loans and Advances ........................... 8Inventories ....................................................................... 8,722,986 6,195,163Sundry Debtors ................................................................ 1,428,154,970 774,898,993Cash and Bank Balances .................................................. 77,434,156 39,146,695Loans and Advances ........................................................ 260,855,333 186,961,478

1,775,167,445 1,007,202,329

Less: Current Liabilities and Provisions ....................... 9Current Liabilities ............................................................. 350,302,262 243,476,895Provisions ......................................................................... 2,514,410 4,368,664

352,816,672 247,845,559

Net Current Assets ......................................................... 1,422,350,773 759,356,770Miscellaneous Expenditure (to the extent not written offor adjusted) ...................................................................... 10 — —Profit and Loss Account ................................................. — 30,843,771

Total ............. 3,055,032,471 2,121,439,627

NOTES ON ACCOUNTS ................................................. 17

As per our report of even date attached

For A.F. Ferguson & Co. For and on behalf of the Board of DirectorsChartered Accountants

H.L. Shah A.K. Nanda Ramesh Ramanathan Amar Korde Rajiv Balakrishnan

Partner Chairman Managing Director Chief Financial Officer Company Secretary

Place: GoaDate: 22nd April, 2006

104


Profit and Loss Account for the year ended March 31, 2006

For the For theyear ended year ended

Schedule March 31, March 31,2006 2005

Rs. Rs. Rs. Rs.

INCOME

Timeshare and Resort Income ............................. 11 1,527,225,509 1,017,088,383Other Income ....................................................... 12 44,078,664 44,408,782

Total ............. 1,567,304,173 1,061,497,165

EXPENDITURE

Employee Cost ..................................................... 13 199,207,274 146,815,345

Marketing Expenses ............................................ 14 465,692,054 280,942,362

Depreciation ......................................................... 77,475,161 64,753,465

Other Expenses ................................................... 15 456,584,201 360,807,867

Interest and Financial Charges ............................. 16 33,236,000 43,121,553

Total ............. 1,232,194,690 896,440,592

Profit for the year before Tax ............................... 335,109,483 165,056,573

Provision for Taxation:

Current tax ................................................ 28,200,000 13,000,000

Less: MAT credit entitlement ................... (28,200,000) —

Deferred tax .............................................. 113,053,042 59,841,022

Fringe benefit tax ...................................... 13,703,575 —

126,756,617 72,841,022

Profit for the year after Tax .................................. 208,352,866 92,215,551

Balance (loss) brought forward ............................ (30,843,771) (123,059,322)

Balance carried forward ....................................... 177,509,095 (30,843,771)

Basic and diluted Earnings Per Share .................. 11.24 4.46

NOTES ON ACCOUNTS ...................................... 17



H.L. Shah A.K. Nanda Ramesh Ramanathan Amar Korde Rajiv Balakrishnan

Partner Chairman Managing Director Chief Financial Officer Company Secretary


105


Cash Flow Statement for the year ended March 31, 2006

Year ending Year ending31-03-2006 31-03-2005

Rs. Rs.A. CASH FLOW FROM OPERATING ACTIVITIES:

Profit before taxation ....................................................................... 335,109,483 165,056,573Adjustments for:

Depreciation ............................................................................. 77,475,161 64,753,465Interest and Financial Charges ................................................. 33,236,000 43,121,553Interest on Deposits ................................................................. (128,230) (24,602)Interest on Instalment Sales .................................................... (33,924,316) (28,377,257)Miscellaneous Expenditure written off .................................... — 2,472,232Income from Securitisation ...................................................... (4,462,981) (15,743,932)Unrealised Exchange Gain/ Loss .............................................. (28,694) —Loss on Fixed Assets Sold/Scrapped ....................................... 3,279,295 444,296

75,446,235 66,645,755

Operating Profit before Working Capital Changes .......................... 410,555,718 231,702,328Changes in:

Deferred Income — Advance towards members’ facilities ..... 617,871,246 392,035,432Trade and other receivables ..................................................... (698,433,728) (317,635,635)Inventories ................................................................................ (2,527,823) (1,948,027)Trade and other payables ......................................................... 104,971,113 78,850,099

21,880,808 151,301,869Income Taxes paid ................................................................... (42,419,679) (13,679,289)

NET CASH FROM OPERATING ACTIVITIES ................................ 390,016,847 369,324,908

B. CASH FLOW FROM INVESTING ACTIVITIES:Purchase of Fixed Assets................................................................ (439,004,676) (220,204,382)Proceeds from Sale of Fixed Assets ............................................... 1,669,013 1,033,783Redemption of Investments ........................................................... 45,000,000 —Interest on Deposits ........................................................................ 128,230 24,602Interest on Instalment Sales ........................................................... 33,924,316 28,377,257Income from Securitisation ............................................................. 4,462,981 15,743,932

NET CASH USED IN INVESTING ACTIVITIES ................................. (353,820,136) (175,024,808)

C. CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from borrowings .............................................................. 97,798,056 —Repayments of borrowings ............................................................. (62,500,000) (159,957,166)Interest and Financial Charges paid [including interest capitalisedRs. Nil; Previous Year Rs. 441,056] ................................................. (33,236,000) (43,121,553)

NET CASH (USED IN)/FROM FINANCING ACTIVITIES ............... 2,062,056 (203,078,719)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 38,258,767 (8,778,619)

CASH AND CASH EQUIVALENTS:Opening Balance ...................................................................... 39,146,695 47,925,314

Closing Balance ........................................................................ 77,405,462 39,146,695

Cash and cash equivalents excludes unrealised exchange gain of Rs. 28694 (previous year Rs. nil).

As per our report of even date attached


H.L. Shah A.K. Nanda Ramesh Ramanathan Amar Korde Rajiv BalakrishnanPartner Chairman Managing Director Chief Financial Officer Company Secretary


106


SCHEDULE 2 As at As atRESERVES AND SURPLUS March 31, March 31,

2006 2005Rs. Rs.

Capital reserve ..................... 113,841 113,841Surplus in profit and loss account 177,509,095 —.........................................

............................................. 177,622,936 113,841.........................................

SCHEDULE 3 As at As atSECURED LOANS (see Note 2): March 31, March 31,

2006 2005Rs. Rs. Rs. Rs.

Loans and Advances from a Bank— Cash Credit ....................... 135,865,786 43,954,577Other Loans and Advances— Term loan

(Repayable within one yearRs. 50,000,000; PreviousYear Rs. 50,000,000) ......... 125,000,000 170,000,000

Deferred payment under hirepurchase ................................ 8,000,245 6,982,684Less: Future Interest ............. 805,443 674,729

7,194,802 6,307,955

268,060,588 220,262,532

SCHEDULE 4 As at As atUNSECURED LOANS March 31, March 31,

2006 2005Rs. Rs.

Short term loans and advancesfrom other than banks(Inter-Corporate Deposits) — 12,500,000

— 12,500,000

SCHEDULE 1 As at As atSHARE CAPITAL: March 31, March 31,

2006 2005Rs. Rs.

Authorised:50,000,000 (previous year 25,000,000)

equity shares of Rs. 10 each .. 500,000,000 250,000,00010,000,000 Preference Shares of Rs. 10

each ........................................ 100,000,000 100,000,000

Issued:35,000,000 (previous year 25,000,000)

Equity Shares of Rs. 10 each ... 350,000,000 250,000,00010,000,000 Preference Shares of Rs. 10

each ........................................ — 100,000,000

Subscribed and Paid-up:28,400,200 (previous year 18,400,200) Equity

Shares of Rs. 10 eachfully paid ................................. 284,002,000 184,002,000(of the above 28,400,199(Previous Year 18,400,199)Equity Shares are held by theHolding Company, MahindraHoldings and Finance Limited)

10,000,000 9% cumulative redeemablePreference Shares of Rs. 10each fully paid ......................... — 100,000,000

284,002,000 284,002,000

Note:Preference Shares are redeemable at par at the expiry of seven years from the date of allotment, 13th July,2000. The Company also has the option to redeem the Preference Shares at any time after the end of threeyears from the date of allotment and also vary or modify the terms and conditions governing the issue asper the conditions of issue. THe above preference shares were converted into 10,000,000 fully paid upequity shares of Rs. 10 each on 27th March, 2006. (Refer note 18)

SCHEDULE 5

FIXED ASSETS: Rupees

Gross Block Depreciation / Amortisation Net Block

Description As at 31st Additions Transfers Deduc- As at 31st As at 31st For the Transfers Deduc- As at 31st As at 31st As at 31stMarch, tions March, March, year tion March, March, March,

2005 2006 2005 2006 2006 2005

(A) Tangible Assets

(i) Assets on lease/hire purchase

Leasehold Land .......... 864,000 — — — 864,000 43,633 8,726 — — 52,359 811,641 820,367

Leasehold buildings ... 28,745,205 13,210,097 — — 41,955,302 2,121,588 1,355,681 — — 3,477,269 38,478,033 26,623,617

Vehicles ...................... 11,401,954 — (1,579,074) (2,665,274) 7,157,606 4,588,646 1,490,040 (1,040,484) (2,037,691) 3,000,511 4,157,095 6,813,308

41,011,159 13,210,097 (1,579,074) (2,665,274) 49,976,908 6,753,867 2,854,447 (1,040,484) (2,037,691) 6,530,139 43,446,769 34,257,292

(ii) Owned Assets

Freehold Land ............ 92,868,511 68,125,198 — — 160,993,709 — — — — — 160,993,709 92,868,511

Buildings ..................... 817,734,081 182,941,544 — — 1,000,675,625 51,652,520 14,846,035 — — 66,498,555 934,177,070 766,081,561

Plant & Machinery ..... 280,569,079 90,419,378 — (1,515,168) 369,473,289 69,847,233 22,286,877 — (501,586) 91,632,524 277,840,765 210,721,846

Furniture and Fixtures 228,880,298 52,009,068 — (4,746,970) 276,142,396 87,072,646 29,942,912 — (2,216,377) 114,799,181 161,343,215 141,807,652

Vehicles ...................... 10,581,605 6,892,186 1,579,074 (1,199,572) 17,853,293 4,519,913 2,664,242 1,040,484 (423,022) 7,801,617 10,051,676 6,061,692

1,430,633,574 400,387,374 1,579,074 (7,461,710) 1,825,138,312 213,092,312 69,740,066 1,040,484 (3,140,985) 280,731,877 1,544,406,434 1,217,541,262

(B) Intangible Assets

Timeshare Weeks ............. 6,226,938 — — — 6,226,938 1,868,082 622,694 — — 2,490,776 3,736,162 4,358,856

Software ............................ 5,123,803 20,909,412 — — 26,033,215 3,036,343 4,257,954 — — 7,294,296 18,738,919 2,087,460

11,350,741 20,909,412 — — 32,260,153 4,904,425 4,880,648 — — 9,785,072 22,475,081 6,446,316

Total 1,482,995,474 434,506,883 — (10,126,984) 1,907,375,373 224,750,604 77,475,161 — (5,178,676) 297,047,089 1,610,328,284

Previous Year 1,252,259,106 234,004,093 — (3,267,725) 1,482,995,474 161,786,785 64,753,465 — (1,789,646) 224,750,604 1,258,244,870

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SCHEDULE 6

EXPENDITURE DURING CONSTRUCTION PENDING ALLOCATION

As at Additions Capitalised As atApril 01, during the March 31,

2005 year 2006Rs. Rs. Rs. Rs.

Salaries, Wages and Bonus ... 357,381 3,351,517 3,584,071 124,827

Staff Welfare Expenses ......... 67,621 429,346 476,551 20,416

Power and Fuel ..................... 399,989 316,667 703,447 13,209

Rent ...................................... — 23,316 22,932 384

Rates and Taxes .................... 32,156 2,061,089 1,951,042 142,203

Repairs — Others .................. 186,276 3,373,487 3,460,945 98,818

Travelling ............................... 601,602 4,420,569 4,847,565 174,606

Communication ..................... 93,116 1,254,540 1,283,610 64,046

Printing and Stationery .......... 97,692 648,960 719,860 26,792

Insurance ............................... 4,959 — 4,959 —

Consultancy Charges ............ 773,657 18,287,268 11,555,259 7,505,666

Freight ................................... 264,616 1,062,471 1,304,861 22,226

Miscellaneous ....................... 289,652 1,109,337 1,362,162 36,827

Total ...................................... 3,168,717 36,338,567 31,277,264 8,230,020

SCHEDULE 7 As at As atINVESTMENTS: Long Term March 31, March 31,Unquoted (at cost) 2006 2005

Rs. Rs.Subsidiary Company: TradeMahindra Holidays and Resorts USA Inc. ..... 45,503 45,503100 Equity Shares of US $10 each fully paid-upOthers: Non-TradeGuestline Hospitality Managementand Development Services Limited25,000 7% non-cumulative redeemableparticipating optionally Convertible PreferenceShares of Rs. 10 each fully paid-up. ............. 250,000 250,000Mahindra Logisoft Business Solutions Limited4,500,000 5% redeemable cumulativePreference Shares of Rs. 10 each fullypaid-up (redeemed during the year) .............. — 45,000,000Mahindra World City Developers Limited1 Equity Share of Rs. 10 each fully paid-up. . 10 10

295,513 45,295,513

Notes:(a) The Preference Shares of Guestline

Hospitality Management andDevelopment Services Limited will beredeemed at par at the option of theinvestee at any time after five years butbefore twenty years from the date ofallotment, viz., 14.01.2003.

(b) The Preference Shares of GuestlineHospitality Management andDevelopment Services Limited shall atthe option of the holder be convertible intofully paid Equity Shares of the face valueof Rs. 10 each anytime after thirtysixmonths from the date of allotments.

SCHEDULE 8 As at As atCURRENT ASSETS, LOANS March 31, March 31,AND ADVANCES: 2006 2005

Rs. Rs.A. Current Assets:

InventoriesFood, Beverages and Smokes .............. 960,337 1,331,274Operating Supplies ................................ 7,762,649 4,863,889

8,722,986 6,195,163

Sundry Debtors(Unsecured)Outstanding over six months

: Considered Good ......................... 109,073,267 61,184,614: Considered Doubtful .................... 1,462,671 4,778,934

110,535,938 65,963,548Other Debts, Considered Good ............. 1,437,472,302 755,290,578

1,548,008,240 821,254,126Less: Provision for Doubtful Debts ....... 1,462,671 4,778,934

1,546,545,569 816,475,192Less: Unmatured Finance Charges ....... 118,390,599 41,576,199

1,428,154,970 774,898,993

Cash and Bank BalancesCash on Hand ....................................... 462,574 761,602Balances with Scheduled Banks:

in Current Accounts ....................... 66,309,187 32,450,928in Deposit Accounts ....................... 10,662,395 5,934,165

77,434,156 39,146,695

(B) Loans and Advances:(Unsecured, Considered Good,unless otherwise stated)Advances recoverable in Cash or in Kindor for value to be received .................... 41,942,707 41,609,602Deposits ................................................ 188,902,054 144,057,408Payments towards Income-tax (Net ofProvisions) ............................................ 1,810,572 1,294,468MAT Credit entitlement ........................ 28,200,000 —

260,855,333 186,961,478

SCHEDULE 9 As at As atCURRENT LIABILITIES AND PROVISIONS: March 31, March 31,

2006 2005Rs. Rs.

(A) Current Liabilities:Sundry Creditors:Due to small scaleindustrial undertakings .......................... — —Others ................................................... 350,302,262 243,476,895

350,302,262 243,476,895

(B) Provisions:Leave Salary .......................................... 2,514,410 4,368,664

2,514,410 4,368,664

SCHEDULE 10 As at As atMISCELLANEOUS EXPENDITURE: March 31, March 31,(To the extent not written off or 2006 2005adjusted) Rs. Rs. Rs. Rs.Specialised Software ExpenditureOpening Balance ................... — — 1,582,277 —Additions during the year ...... — —

— 1,582,277Less: Written off ................... — 1,582,277

— —Operating Supplies ExpenditureOpening Balance ................... — 889,955Additions during the year ...... — —

— 889,955Less: Written off ................... — 889,955

— —

— —

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SCHEDULE 11 For the year For the yearTimeshare and Resort Income ended ended

March 31, March 31,2006 2005

Rs. Rs. Rs. Rs.Timeshare Income ............................ 1,134,936,692 739,448,777Income from Resorts

— Room Rentals ..................... 63,722,957 50,635,686— Food and Beverages ........... 93,223,398 73,063,024— Wine and Liquor ................. 2,127,591 1,774,190— Telex and Telephone .......... 1,751,411 1,774,188— Others 32,030,169 23,082,940

........................................... 192,855,526 150,330,028Annual Subscription Fee ................... 199,433,291 127,309,578

1,527,225,509 1,017,088,383

SCHEDULE 12 For the year For the yearOther Income ended ended

March 31, March 31,2006 2005

Rs. Rs.Interest

On Instalment Sales ................. 33,924,316 28,377,257Others — Gross ....................... 128,230 24,602(Tax deducted at source Rs.10,873; Previous Year Rs. 3,995)

Income from Securitisation (refer Note 3) 4,462,981 15,743,932Miscellaneous Income ...................... 1,563,137 262,991

40,078,664 44,408,782

SCHEDULE 13 For the year For the yearEmployee Cost ended ended

March 31, March 31,2006 2005

Rs. Rs.Salaries, Wages and Bonus ............... 175,879,191 132,641,452Contribution to Provident and Other

Funds ....................................... 7,668,447 4,674,672Staff Welfare Expenses ..................... 6,774,369 4,819,101Training and Recruitment .................. 8,885,267 4,680,120

199,207,274 146,815,345

SCHEDULE 14 For the year For the yearMarketing Expenses ended ended

March 31, March 31,2006 2005

Rs. Rs.Advertisement and Direct Mailers ..... 98,790,851 49,179,948Marketing Development Expenses ... 202,666,046 120,628,723Sales Commission ............................ 147,477,537 97,173,521Discount ........................................... 16,757,620 13,960,170

465,692,054 280,942,362

SCHEDULE 15 For the year For the yearOther Expenses ended ended

March 31, March 31,2006 2005

Rs. Rs. Rs. Rs.Food, Beverages and Smokes consumed

Opening Stock ......................... 1,331,274 970,082Add: Purchases ........................ 28,585,203 24,352,112

29,916,477 25,322,194Less: Closing Stock .................. 960,337 1,331,274

........................................... 28,956,140 23,990,920

Operating Supplies ............................ 17,387,675 12,471,913Power and Fuel ................................. 49,899,922 36,873,464Rent (including lease rent) ................. 57,019,991 39,370,679Rates and Taxes ................................ 6,656,602 5,867,776Repairs and Maintenance

Buildings .................................. 2,394,979 1,456,175Resort Renovations .................. 26,981,928 16,927,621Office Equipment ..................... 1,041,702 544,442

SCHEDULE 15 (Contd.) For the year For the yearOther Expenses ended ended

March 31, March 31,2006 2005

Rs. Rs. Rs. Rs.Others ............................................... 19,347,267 15,120,469Travelling ........................................... 44,307,122 36,354,787Communication ................................. 25,496,515 23,152,999Printing and Stationery ...................... 10,082,917 8,618,993Insurance .......................................... 4,024,654 4,110,767Security Charges ............................... 5,088,783 3,815,080Consultancy Charges ........................ 46,227,380 49,292,621Miscellaneous ................................... 38,340,437 30,329,126Service Charges ................................ 70,050,892 49,593,507Bad debts written off ........................ 3,316,263Less: Provision for doubtfulDebts Written back ........................... (3,316,263) — —Loss on Fixed Assets Sold/Scrapped (net) 3,279,295 444,296Miscellaneous Expenditure Written off — 2,472,232

456,584,201 360,807,867

SCHEDULE 16 For the yer For the yearInterest and Financial Charges ended ended

March 31, March 31,2006 2005

Rs. Rs.Interest — Loans for fixed period .............. 18,727,144 23,816,988

— Others ...................................... 537,033 8,043,248Discounting Charges .................................... — 187,843Bank Charges ............................................... 13,971,823 11,073,474

33,236,000 43,121,553

SCHEDULE 17

NOTES ON ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

1. Accounting Policies:

(i) Basis for Preparation of Accounts:

The accounts have been prepared to comply in all material aspects withapplicable accounting principles in India, the mandatory AccountingStandards issued by the Institute of Chartered Accountants of India andrelevant provisions of the Indian Companies Act, 1956.

(ii) Fixed Assets:

Fixed Assets are stated at cost less depreciation. Cost comprises ofpurchase price and other directly attributable costs of bringing the assetto its working condition for its intended use and includes interest onmoneys borrowed for construction/acquisition of fixed assets up to theperiod the assets are ready for use. Depreciation is calculated on straightline method at the rates and in the manner prescribed in Schedule XIV ofthe Companies Act, 1956, except for the following:

(a) Leasehold land and buildings are amortised over the period of lease.

(b) Furniture and fixtures in ‘Club Mahindra Holiday World’ are amortisedover a period of 36 months from the date of capitalisation.

(c) Motor vehicles provided to employees are depreciated over aperiod of 48 months. Other assets provided to employees aredepreciated over a period of 60 months

(d) Intangible assets representing ‘timeshare’ is amortised over aperiod of ten years.

(e) Expenditure incurred towards software is amortised over 36 months.

(iii) Assets taken on Lease and Hire Purchase:

Assets taken on Lease and Hire Purchase arrangements, wherein theCompany has an option to acquire the assets are accounted for as fixedassets in accordance with Accounting Standard 19 on Leases. (refer NoteNo. 11)

(iv) Inventories:

Inventories are stated at cost or net realisable value, whichever is lower.The cost is arrived at on first in first out method.

109


(v) Investments:

Investments (long term) are stated at acquisition cost less provision forpermanent diminution in value, if any.

(vi) Revenue Recognition:(a) The Company’s business is to sell Timeshare and provide holiday

facilities to members for a specified period each year, over a numberof years, for which membership fee is collected either in full upfront, or on a deferred payment basis. Upto 30th September, 2005out of the total membership fee, relevant portion reasonablyattributable towards cost required to market Timeshare, which isassessed and revised periodically is recognised as Timeshareincome in the year in which the purchaser of Timeshare becomesa member and the balance representing ‘Advance towards members’facilities’ is being recognised as Timeshare income equally over aperiod for which holiday facilities are provided commencing fromthe year in which the member is entitled to benefits of membershipunder the scheme.With effect from 1st October 2005, in accordance with the newmembership rules, admission fee, which in non-refundable, isrecognized as income on admission of a member . Entitlement fee,which entitles the timeshare member for the timeshare facilitiesover the membership usage period, is recognized as income equallyover the usage period.

(b) Annual subscription fee dues from members is recognised asincome on an accrual basis.

(c) Interest on instalment sales is recognised as income on an accrualbasis.

(d) Income from resorts includes income from room rentals, food andbeverages, etc., and is recognised when services are rendered.

(e) Securitised assets are de-recognised as the contractual rightstherein are transferred to the third party. On de-recognition, thedifference between book value of the securitised asset andconsideration received is recognised as gain or loss arising onsecuritisation.

(vii) Foreign Exchange Transactions:Foreign exchange transactions are recorded at exchange rates prevailingon the date of the transactions. Foreign currency receivables/payablesare translated at exchange rates prevailing on the date of settlement oras at the year end, as applicable, and gain or loss arising out of suchtransaction is adjusted to the Profit and Loss Account.

Foreign currency liabilities incurred for the acquisition of fixed assets fromoutside india are translated at exchange rates prevailing on the last dayof the accounting year. The loss or gain arising out of the said translationis adjusted to the carrying cost of the asset.

(viii) Retirement Benefits:Contribution to provident fund is made monthly, at a predetermined rate,to the provident fund authorities and debited to the Profit and LossAccount on an accrual basis. The Company has an arrangement with LifeInsurance Corporation of India (LIC) to administer its superannuation andgratuity schemes. The premium paid/payable is debited to the Profit andLoss Account on an accrual basis. Provision for leave encashment onretirement which was hitherto made on an arithmetical basis has beenmade on an actuarial valuation in the current year. This has resulted inwrite back of provision amounting to Rs. 1,849,254

(ix) Taxes on Income:Income taxes are accounted for in accordance with Accounting Standard22 on Accounting for Taxes on Income (AS 22) issued by the Institute ofChartered Accountants of India. Tax expense comprises both current anddeferred tax. Current tax is determined as the amount of tax payable inrespect of taxable income for the period using the applicable tax rates andtax laws. Deferred tax assets and liabilities are recognised, subject toconsideration of prudence, on timing differences, being the differencebetween taxable income and accounting income, that originate in oneperiod and are capable of reversal in one or more subsequent periods andare measured using tax rates enacted or substantively enacted as at theBalance Sheet date. The carrying amount of deferred tax assets andliabilities are reviewed at each Balance Sheet date.

(x) Segment Reporting:The Company has a single reportable segment namely sale of timesharefor the purpose of Accounting Standard 17 on Segment Reporting.

2. Secured LoansLoans and advances from a bank and other loans and advances are secured bya first mortgage and charge on specified properties of the Company. Deferredpayment under hire purchase is secured by hypothecation of assets financed.

3. Securitisation:

During the year the Company has securitised amounts receivables ofRs. 156,581,350 (Previous Year: Rs. 268,784,600) (including future interestreceivable Rs. 18,492,752 (Previous Year Rs. 44,444,922) for a consideration ofRs. 145,000,000 (Previous Year Rs. 245,000,000). The excess of considerationreceived over the principal amount of receivable from members (net of reversalsin respect of cancelled members Rs. 2,448,421 (Previous Year Rs. 4,916,390)is recognised as income from Securitisation. (refer Schedule 12)

As at As atMarch 31, March 31,

2006 2005Rs. Rs.

4. Contingent Liabilities:

(a) Receivables securitised, withrecourse ......................................... 236,931,553 318,915,810Certain specified receivables havebeen securitised with a bank foravailing finance. In case a memberdefaults in payment to the bank thebank would have recourse to theCompany. In such cases the Companyhas recourse to the customer.

(b) Arrears of dividend and dividend taxon 9% redeemable cumulativepreference shares outstanding for theperiod from 13-07-2000 to 31-03-2005. — 48,009,301

(c) Guarantee given to financialinstitution for timeshare financing. 10,185,802 34,235,855The Company has given a guaranteeto a Financial Institution for Time ShareFinancing to third parties. In case ofdefault by the parties, the financialinstitution would have recourse tothe company. In such cases, thecompany has recourse to thecustomer.

(d) Claims against the Company notacknowledged as debts ................. 1,785,666 1,785,666Claims not acknowledged as debtsrepresent luxury tax claimed on roomrevenue by the Government anddisputed by the Company in the Highcourt. The amount has been paid tothe Government and possibility ofreimbursement depends on theoutcome of the case pending beforethe High Court.

(e) Income tax matters under appealThe Income-tax Department has filedappeals against the orders of the CIT(A) for the assessment years 1998–99 to 2002–03 which were decidedduring the year in favour of theCompany. Amount involved withrespect to this matter (includingdemand for the assessment year2003-04 for which assessment wascompleted during the year in respectof which the company intends to goin appeal and exclusive ofconsequential effect of similar matterin respect of the assessmentsremaining to be completed) is Rs.200,618,279 (including interest of Rs.58,051,475); previous year - Rs.116,013,707 (including interest of Rs.58,051,475). However, even if thisliability crystallises, there would befuture tax benefits available onaccount of timing differences, exceptfor interest and income tax ratedifferences. Cash outflows woulddepend on the outcome of the appeals

5 Estimated value of contracts remaining tobe executed on capital account and notprovided for (net of advances) 54,184,433 24,723,752

110


% of total Value % of total ValueCon- Rs. Con- Rs.

sumption sumption10. Particulars of Consumption

Provisions, Beverages (excludingwine, liquor and smokes) ......... 93 26,846,053 93 22,217,973Wine, liquor and smokes ......... 7 2,110,087 7 1,772,947

100 28,956,140 100 23,990,920

Indigenous ............................... 100 28,956,140 100 23,990,920Imported .................................. — — — —

100 28,956,140 100 23,990,920

11. In respect of hire purchase transactions, the details of instalments payable infuture are as follows:

Not later than Later than 1 year1 year not later than 5 years

Rs. Rs.

Minimum Instalment payable .. 3,066,169 4,934,076(2,779,894) (3,528,061)

Present value of instalmentspayable ..................................... 2,645,108 4,549,694

(3,184,325) (3,798,359)Previous year's figures are givenin brackets

Year ended Year endedMarch 31, March 31,

2006 2005Rs. Rs.

6. Auditors’ RemunerationAudit Fees ............................................. 1,700,000 1,250,000Taxation Services .................................. — 30,000Other Services ...................................... — 50,000Reimbursement of Expenses ................ 163,360 128,791

7. CIF Value of ImportsCapital Goods ........................................ 14,036,662 7,595,360

8. Expenditure in Foreign CurrencySalary .................................................... 9,805,938 9,065,529Travel .................................................... 2,582,081 696,052Consultancy .......................................... 11,075,947 12,107,935Marketing Expenses ............................. — 410,477Others ................................................... 40,595,151 13,117,742

9. Earnings in Foreign ExchangeRoom Rentals and Restaurant Sales ..... 44,614,018 48,434,662Sales of Timeshare ............................... 52,914,591 51,377,589

The company has been exempted from certain disclosures of quantitive detailsrequired under para 3(i)(a) of Part II of Schedule VI to the Companies Act, 1956 asper order No. 46/26/2005-CL-III dated 23rd June, 2005 issued by the Ministry ofCompany Affairs. The said order requires the company to disclose certaininformation which have been disclosed under appropriate heads.

13. Segment reporting

The Company has a single reportable segment namely sale of timeshare for thepurpose of Accounting Standard 17 on Segment Reporting.

Geographical segment information is given Reporting.......................... Within India Outside India Rs........................... Total

Revenue ................... 1,461,686,250 65,539,259 1,527,225,509.......................... (940,096,737) (76,991,646) (1,017,088,383)

Total assets .............. 3,387,975,725 19,873,417 3,407,849,142.......................... (2,306,080,668) (22,222,153) (2,328,302,821)

Additions to .............. 421,296,786 13,210,097 434,506,883fixed assets .............. (234,004,093) (Nil) (234,004,093)

Figures in bracket are in respect of the previous year.

14. Deferred Taxation:

As at Movement As atParticulars 31st March, during the 31st March,

2005 year 2006Deferred Tax AssetsProvision for Doubtful Debts .. 1,748,731 1,256,396 492,335Provision for Leave Encash-ment ..................................... 1,598,604 752,254 846,349Preliminary Expenditure ........ 48,173 3,863 44,308Business Loss broughtforward ................................. 76,804,116 76,804,116 —Unabsorbed Depreciationbrought forward .................... 106,344,293 29,116,292 77,228,004

186,543,917 107,932,921 78,610,996

Deferred Tax LiabilityDifference between bookand tax depreciation .............. 176,405,322 (5,120,121) 181,525,443Net deferred tax(liability) / asset ..................... 10,138,595 (113,053,042) (102,914,447)

12. Additional information pursuant to the provisions of paragraphs 3(i)(a) and (ii) of Part II of Schedule VI of the Companies Act, 1956.

Sl. Class of Unit of Opening Stock Purchase Closing StockNo. goods measurement Qty. Value (Rs.) Qty. Value (Rs.) Qty. Value (Rs.)

1. Beverages Litres 8,618 66,520 118,006 1,228,991 5,956 77,465(4,375) (45,427) (87,140) (876,235) (8,618) (66,520)

2. Wine and Liquor Litres 2,197 414,070 26,116 2,184,923 2,555 488,905(1,343) (243,211) (20,456) (1,865,846) (2,197) (414,070)

3. Smokes Nos. 326 14,408 2,625 143,747 376 18,221(86) (4,747) (1,568) (84,500) (326) (14,408)

Figures in brackets are in respect of the previous year.


(i) Names of related parties and nature of relationship where controlexists:

Name of the Related Party Name of the Relationship

Mahindra & Mahindra Limited Controlling CompanyMahindra Holdings & Finance Ltd. Holding CompanyMahindra Holidays & Resorts (USA) Inc. SubsidiaryAutomartindia Ltd. Fellow SubsidiaryBristlecone Ltd. Fellow SubsidiaryBristlecone Inc. Fellow SubsidiaryMahindra Acres Consulting Engineers Ltd. Fellow SubsidiaryMahindra Astech Ltd. Fellow SubsidiaryMahindra Automotive Steels Pvt. Ltd.(w.e.f. 27th May, 2005) Fellow SubsidiaryTech Mahindra Ltd. Fellow SubsidiaryTech Mahindra GmbH Fellow SubsidiaryTech Mahindra (Americas) Inc. Fellow SubsidiaryMahindra BT Investment Company(Mauritius) Ltd. (w.e.f. 9th May, 2005) Fellow SubsidiaryTech Mahindra (Singapore) Pte. Ltd. Fellow SubsidiaryTech Mahindra (Thailand) Ltd.(w.e.f. 21st February, 2006) Fellow SubsidiaryBristlecone India Ltd. Fellow SubsidiaryBristlecone GmbH Fellow SubsidiaryBristlecone Singapore Pte Ltd. Fellow SubsidiaryMahindra (China) Tractor Company Ltd.(w.e.f. 13th May 2005) Fellow SubsidiaryMahindra Engg. & Chem Products Ltd. Fellow SubsidiaryMahindra Engineering Design &Development Company Ltd. Fellow SubsidiaryMahindra Europe s.r.l. (w.e.f. 30th May, 2005) Fellow SubsidiaryMahindra Gesco Developers Ltd. Fellow Subsidiary

111


(ii) The related party transactions are as under:

Controlling Company Holding Company Fellow Subsidiary Key ManagerialSl. Personnel

No. Nature of Transactions 2006 2005 2006 2005 2006 2005 2006 2005

1. Finance:Conversion of preferenceshare into fullypaid equity shares 100,000,000 —Interest paid on inter-corporate deposit — 185,177Mahindra World CityDevelopers Ltd.Inter-corporate deposit repaid — 34,000,000Mahindra World CityDevelopers Ltd.Inter-corporate deposit received — 34,000,000Mahindra World CityDevelopers Ltd.Redemption of preference sharesMahindra LogisoftBusiness Solution Ltd. 45,000,000 —

2. Purchases:Fixed Assets — 448,000ServicesMahindra Logisoft BusinessSolution Ltd. 13,511,325 9,600,000

3. Other Transactions:Reimbursements receivedfrom partiesMahindra World CityDevelopers Ltd. 6,355,080 5,250,881Reimbursements made 2,008,582 1,180,983 14,201 —Lease RentMahindra LogisoftBusiness Solution Ltd. — 18,000

4. Outstandings:Payable 1,562,942 34,730Mahindra Engg. & ChamProducts Ltd. — 189,080ReceivableMahindra GescoDevlopers Ltd. 3,181 301,135Mahindra World CityDevelopers Ltd. 1,816,650 —

5. Managerial Remuneration 8,446,953 6,226,4826. Payment to Relative of

KMP – Rent Deposit 500,0007. Payment to Relative of

KMP – Rent — 490,5608. Receipts from Relative of

KMP – Rent Deposit 500,000 —

16. Managerial Remuneration to the Managing DirectorYear ended Year ended

March 31, March 31,2006 2005

Rs. Rs.

Salaries and Allowances 8,077,593 5,839,828

Contributions to Provident and Super-annuation Funds 369,360 309,410

Perquisites 77,244 77,244

8,446,953 6,226,482

Rs. 3,646,953 is subject to Central Government approval.

17. Earnings Per Share:2006 2005

Rs. Rs.

Profit after tax ( after preference dividendand tax theron for previous year) (A) 208,352,866 82,039,362Weighted Average Number of Share(Nos.) (B) 18,537,186 18,400,200Earnings Per Share (Basic/Diluted)(A/B) 11.24 4.46Nominal value of Equity Share 10 10

18. As approved at the Extraordinary General Meeting held on 18th March, 2006,10,000,000 9% Cumulative redemable Preference Shares of Rs. 10/- each wereconverted in to 10,000,000 fully paid equity shares of Rs. 10 each and issued tothe holding Company on 27th March, 2006. Preference dividend upto the dateof allotment of equity shares amounting to Rs. 51,336,986 has been waived bythe holding company.

Mahindra Gujarat Tractor Ltd. Fellow SubsidiaryMahindra Insurance Brokers Ltd. Fellow SubsidiaryMahindra Infrastructure Developers Ltd. Fellow SubsidiaryMahindra Intertrade Ltd. Fellow SubsidiaryBristlecone UK Ltd. Fellow SubsidiaryMahindra International Ltd.(w.e.f. 1st November 2005) Fellow SubsidiaryMahindra WorldCity Developers Ltd. Fellow SubsidiaryMahindra Logisoft Business Solutions Ltd. Fellow SubsidiaryMahindra Middleeast Electrical SteelService Centre (FZE) Fellow SubsidiaryMahindra & Mahindra Financial Services Ltd. Fellow SubsidiaryMahindra & Mahindra South Africa (Pty) Ltd. Fellow SubsidiaryMahindra Overses Investment Company(Mauritius) Ltd. Fellow SubsidiaryMahindra Realty Ltd.(w.e.f. 21st September 2005 Fellow SubsidiaryMahindra Renault Pvt. Ltd.(w.e.f. 5th August 2005) Fellow SubsidiaryMahindra Steel Service Centre Ltd. Fellow SubsidiaryMahindra Shublabh Services Ltd. Fellow SubsidiaryMahindra SAR Transmission Pvt. Ltd. Fellow SubsidiaryMahindra USA Inc. Fellow SubsidiaryMahindra Ugine Steel Company Ltd.(upto 21st June 2005) Fellow SubsidiaryMahindra WorldCity (Jaipur) Ltd.(w.e.f. 26th August, 2005) Fellow SubsidiaryNBS International Ltd. Fellow SubsidiaryTech Mahindra (R&D Services) Ltd.(w.e.f. 28th November, 2005) Fellow SubsidiaryTech Mahindra (R&D Services) Inc.(w.e.f. 28th November, 2005) Fellow SubsidiaryTech Mahindra (R&D) Services) Pte. Ltd.(w.e.f. 28th November, 2005) Fellow SubsidiaryStokes Group Limited (w.e.f. 3rd January, 2006) Fellow SubsidiaryJensand Limited (w.e.f. 3rd January, 2006) Fellow SubsidiaryStockes Forgings Dudley Limited(w.e.f. 3rd Janury, 2006) Fellow SubsidiaryStokes Forgings Limited(w.e.f. 3rd January, 2006) Fellow SubsidiaryPlexion Technologies (India) Private Limited

(w.e.f. 15th February, 2006) Fellow Subsidiary

Plexion Technologies (UK) Limited


Plexion Technologies GmbH


Plexion Technologies Incorporated


Tech Mahindra Foundation

(w.e.f. 22nd March 2006) Fellow Subsidiary

Console Estate & Investments

Limited (ceased w.e.f. 20th March, 2006) Fellow Subsidiary

Ramesh Ramanathan Key Managerial Personnel

112


19. Additional Information pursuant to the provisions of Part IV of Schedule VI to the Companies Act, 1956.

Balance Sheet Abstract and Company’s General Business Profile:




II. Capital raised during the year (Amount in Rs. Thousands):


N I L N I L



Total Liabilities Total Assets3 4 0 7 8 4 9 3 4 0 7 8 4 9

Sources of Funds:

Paid-up Capital Reserves and Surplus2 8 4 0 0 2 1 7 7 6 2 3

Deferred Tax Liability Secured Loans1 0 2 9 1 4 2 6 8 0 6 1

Application of Funds:


Net Current Assets# Deferred Tax Asset (Net)( – ) 8 0 0 0 8 2 N I L

(# Includes Advance towardsmembers’ facilites 2222432)

IV. Performance of Company (Amount in Rs. Thousands):

Turnover (including other income) Total Expenditure1 5 6 7 3 0 4 1 2 3 2 1 9 5

+ – Profit/Loss Before Tax + – Profit/Loss After Tax3 3 5 1 0 9 2 0 8 3 5 3

(Please tick appropriate box + for Profit – for Loss)

Earning Per Share in Rs. Dividend Rate %+ 1 1 . 2 4 N I L

Item Code No.(ITC Code) N A

Product: T I M E S H A R E

Description: A N D H O T E L

20. Previous year's figures have been regrouped/recasted, wherever necessary, to conform to the current year's classification.

Signatures to Schedules 1 to 17For and on behalf of the Board of Driectors

A.K. Nanda Ramesh Ramanathan Amar Korde Rajiv Balakrishnan

Chairman Managing Director Chief Financial Officer Company Secretary

Place: Goa,Date: 22nd April, 2006

✓ ✓

113


STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956,

RELATING TO SUBSIDIARY COMPANY

Name of the Subsidiary CompaniesParticulars Mahindra Holidays and Resorts USA Inc.

The Financial Year of the Subsidiary Company ended on 31st March, 2006

Number of shares in the subsidiary company held byMahindra Holidays & Resorts India Limited at the above date:

Equity (Nos.) 100

Extent of holding (%) 100%

The net aggregate of profits of the Subsidiary Company forits financial year so far as they concern the members ofMahindra Holidays and Resorts India Limited :

(a) Dealt with in the accounts of Mahindra Holidays &Resorts India Limited for the year ended 31st March, 2006 NIL

(b) Not dealt with in the accounts of Mahindra Holidays &Resorts India Limited for the year ended 31st March, 2006 (213564)

The net aggregate of profits of the Subsidiary Company forits previous financial years so far as they concern the membersof Mahindra Holidays and Resorts India Limited :

(a) Dealt with in the accounts of Mahindra Holidays &Resorts India Limited for the year ended 31st March, 2006 NIL

(b) Not dealt with in the accounts of Mahindra Holidays &Resorts India Limited for the year ended 31st March, 2006 NIL

NOTE: Mahindra Holidays and Resorts USA Inc. has been incorporated on 24-10-2003 and became a subsidiaryof Mahindra Holidays and Resorts India Limited on 04-11-2003.

A.K. Nanda Ramesh Ramanathan Amar Korde Rajiv Balakrishnan

Chairman Managing Director Chief Financial Officer Company Secretary

Place : GoaDate : 22nd April, 2006

114

MAHINDRA HOLIDAYS & RESORTS USA INC.

Directors’ Report

The following will constitute a report of the Board of Directors relating tothe activities of the Corporation for the financial year 2005-06.

During the year, the Corporation undertook consultations with leadingconsultants in the areas of tax, legal issues governing timeshareoperations, and financing issues. The corporation also consulted sales,marketing and servicing agents in the U.S.A.

A detailed market research was also conducted in January, 2006 to testthe product concept.

It was earlier anticipated that final conclusions and arrangements willbe completed by the end of September, 2005 but due to various legal,tax and other issues brought up by the consultations, the Corporationdecided to take time to further fine-tune its strategy before launchingoperations.

At a meeting of the Board of Directors of the holding company,Mahindra Holidays & Resorts (India) Limited held on 16th January, 2006,it was decided to make an investment of USD 100,000 by subscribing to

equity shares of the corporation. It is expected that this subscription willhappen in the month of June 2006.

The Corporation will utilize these funds to purchase inventory in the USAto form underlying inventory for its club; along with Indian inventory thatit will acquire from Mahindra Holidays & Resorts (India) Limited.

The Directors anticipate that the first sales shall take place in the FinancialYear 2006 – 2007 and expect a gradual expansion in the operationscommencing in the following year.

Mr. A.K. Nanda, Mr. Ramesh Ramanathan and Mr. Amar Korde continueto be the Directors of the corporation.


A.K. Nanda Ramesh Ramanathan

19th April, 2006 Director Director

115


Independent Auditor’s Report of Mahindra Holidays and Resorts USA Inc.

I have audited the accompanying balance sheet of Mahindra Holidaysand Resorts USA Inc., a wholly owned subsidiary of Mahindra Holidaysand Resorts India Limited, an India Corporation, as of March 31, 2006and the related statements of operations and accumulated deficit andcash flows for the year then ended. These financial statements are theresponsibility of the Company's management. My responsibility is toexpress an opinion on these financial statements based on my audit.

I conducted my audit in accordance with auditing standards generallyaccepted in the United States of America. Those standards require thatI plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overallfinancial statement presentation. I believe that my audit provides areasonable basis for my opinion.

In my opinion, the financial statements referred to above presentsfairly, in all material respects, the financial position of Mahindra Holidaysand Resorts USA Inc., a wholly owned subsidiary of Mahindra Holidaysand Resorts India Limited, an India Corporation, as of March 31, 2006,and the results of its operations and its cash flows for the year thenended in conformity with accounting principles generally accepted inthe United States of America.

For Mel Crystal

Certified Public Accountant

116


2006 2005

U.S. $ INR U.S. $ INRASSETS

Currents assets:

Cash and cash equivalents (monies held in attorney

escrow account - unrestricted) ................................... $ 1,000 44,660 $ 1,000 44,660

Total assets ...................................................................... $ 1,000 44,660 $ 1,000 44,660

LIABILITIES AND STOCKHOLDER’S DEFICIENCY

Current liabilities:

Accrued expenses ...................................................... $ 4,144 185,071 – –

Corporation business and franchise taxes payable .... 638 28,493 – –

Total current liabilities ................................................. 4,782 213,564 – –

Stockholder’s deficiency :

Common stock ($ 0.10 par value; 10,000 sharesauthorized 100 shares issued and outstanding .......... 10 447 10 447

Paid-in capital .............................................................. 990 44,213 990 44,213

Accumulated deficit .................................................... (4,782) (213,564) – –

Total stockholder’s deficiency .......................................... (3,782) (168,904) 1,000 44,660

Total liabilities and stockholder’s deficiency ..................... $ 1,000 44,660 1,000 44,660

See accompanying notes to the financial statements.

Balance Sheet as at March 31, 2006

117


2006

U.S. $ INR

Revenue ........................................................................... $ – –

Expenses

Corporation business and franchise taxes ................. 638 28,493

Legal fees ................................................................... 644 28,761

Accounting and auditing fees ..................................... 3,500 156,310

Total expenses ...................................................... 4,782 213,564

Net Loss ........................................................................... (4,782) (213,564)

Accumulated deficit - April 1, 2005 .................................. – –

Accumulated deficit - March 31, 2006 ............................. $ (4,782) (213,564)

The accompanying notes to the financial statements.

Statements of Operations and Accumulated Deficit For the Year Ended March 31, 2006

118


Statements of Cash Flows for the years ended March 31, 2006

2006

U.S. $ INR

Cash flows from operating activities:

Net loss ...................................................................... $ (4,782) (213,564)

Adjustments to reconcile net loss to cashprovided by operating activities:

Increase in operating assets and liabilities :

Accrued expenses ......................................... 4,144 185,071

Corporation business and franchise taxespayable ........................................................... 638 28,493

Net cash provided by operating activities .................. – –

Net change in cash and cash equivalents ........................ – –

Cash and cash equivalents - April 1, 2005 ....................... 1,000 44,660

Cash and cash equivalents - March 31, 2006 .................. $ 1,000 44,660

The accompanying notes to the financial statements.

119


NOTES TO FINANCIAL STATEMENTS MARCH 31, 2006

Nature of Organization :

Mahindra Holidays and Resorts USA Inc. (MHRUSA) is a wholly owned subsidiaryof Mahindra Holidays and Resorts India Limited (MHR), which is incorporated inthe country of India. MHRUSA was incorporated in the State of Delaware inOctober 2003 and will build, rent, manage and promote holiday resorts and sellholiday timeshare memberships. Operations have not commenced as of thebalance sheet date.

Use of Estimates :

The financial statements of MHRUSA have been prepared on the accrual basis ofaccounting. The preparation of financial statements in conformity with U.S. generallyaccepted accounting principles requires management to make estimates andassumptions that affect certain reported amounts and disclosures. Accordingly,actual results could differ from those estimates.

Summary of Significant Accounting Policies:

Cash and cash equivalents consist of an amount deposited in MHRUSA's attorney'sescrow account. It is available for use by MHRUSA. Any unused funds will betransferred to a MHRUSA checking account as soon as it is opened. The accountwhere the fund is on deposit may, at times, exceed federally insured limits. MHRUSAand MHRUSA's attorney have not experienced any losses on such accounts andbelieve they are not exposed to any significant credit risk on cash and cashequivalents. The attorney for MHRUSA was nominated and elected Secretary ofthe Corporation January 2, 2004.

The financial statements are presented in US dollars.

Transactions with Related Parties:

MHR contracted with various tax, legal and marketing consultants to ascertainfinancial and legal obligations regarding the operations they plan to commence inthe United States. All of these activities were contracted and paid by MHR andexpensed on the books of MHR accordingly, and not reflected on this Company'sfinancial statements.

MHRUSA incurred legal fees from its attorney who is also an officer of the Companyin the amount of $644 for th fiscal year ended March 31, 2006. At a meeting ofthe Board of Directors held on January 16, 2006, the Board decided to make acapital investment of $100,000 in MHRUSA. The investment is scheduled to occurin June 2006.

Commitments :

There are no commitments as of the date of this report.

Amounts Reported in Indian Rupees have been given for convenience by translatingthe figures reported in US Dollars above, at the exchange rate of Rs. 44.66 = 1USDwhich is the average of telegraphic transfer buying and selling rates.

120

NBS INTERNATIONAL LIMITED

Directors’ Report to the Members

Dividend

Your Directors recommend a dividend of 75% (Rupees 7.50 pershare) [previous year Rs.15.50 per share] payable to thoseshareholders whose names stand registered in the books of yourCompany as on the date of the Annual General Meeting. Thedividend, inclusive of tax on distributed profits, will absorb a sumof Rs. 4.32 lakhs.

Operations

Your Company's sales during the year under review were 613vehicles as compared to 791 vehicles in the previous year. Agood demand for Scorpio Vehicles ensured good walk-ins at theshow room throughout the year. Genuine accessories were indemand as usual.

During the year under review your Company put in efforts toimprove the Sales Satisfaction Process and achieved goodresults. Treating the Prospect and the Customer asRISHTEDAARS was the Guiding Mantra for the Show RoomOperations.

The vehicle delivery process was spearheaded by your Companyand was a huge success.

Your Company took lot of efforts in training its employees, tokeep them abreast with the best practices, which helped, in

improving the overall Sales Satisfaction of customers. Systematicapproach to prospect generation, conversion, test-drives helpedin bringing the referrals to the Company. The promotional activitieswere in line with this approach as well.

The Auditors in the Annexure to their Report [Sr. Nos. ii(c) and iv]have drawn the attention of the members of the Company asregards internal control procedures which require to bestrengthened in the areas of invoicing for sale of accessoriesand maintenance of inventory records of accessories. Actionshave been initiated towards strengthening the internal controlsin these areas.

With regard to the fraud reported by the Auditors in Sr. No. xxi ofthe Annexure to their Report, the Company has initiatedproceeding for recovery of the amount of Rs.1.18 lakhs.

Directors

Mr. A. M. Choksey and Mr. Rajesh Jejurikar retire by rotationand, being eligible, offer themselves for re-appointment.



Your Directors present their Tenth Report together with the audited Accounts of your Company for the year ended 31st March, 2006.

Financial Results:

Rupees

2006 2005

Income ............................................................................................................... 36,70,55,621 47,22,02,532

Profit before Depreciation and Taxation ............................................................. 20,90,856 41,05,961

Depreciation ....................................................................................................... (1,39,073) (1,20,363)

Profit before Taxation ......................................................................................... 19,51,783 39,85,598

Less: Provision for Taxation ...............................................................................

- Current Tax ........................................................................................... (7,10,820) (14,36,983)

- Deferred Tax ......................................................................................... 65,864 (20,800)

- Fringe Benefit Tax ................................................................................. (1,15,289) —

Profit for the year after Tax ................................................................................ 11,91,538 25,27,815

Profit brought forward from earlier years ........................................................... 57,01,083 43,18,580

Profit available for appropriation ......................................................................... 68,92,621 68,46,395

Less: Transfer to General Reserve ..................................................................... (1,19,153) (2,52,781)

Proposed Dividend ............................................................................................. (3,78,750) (7,82,750)

Tax on Proposed Dividend.................................................................................. (53,120) (1,09,781)

Balance carried forward ..................................................................................... 63,41,598 57,01,083

121







As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced their socialwell being. Since its inception, the Mahindra Group has alwaysbeen engaged in activities which add value to the communityaround us. A step forward was taken in this direction by theannouncement made on the occasion of the 60th Anniversary ofMahindra & Mahindra Limited (M&M), the ultimate holdingcompany, that the Group would support a range of CorporateSocial Responsibility (CSR) initiatives by committing 1% of ProfitAfter Tax (PAT) on a continuing basis. The 1% PAT wouldspecifically benefit the economically disadvantaged and sociallyweaker sections of the society. Accordingly, the Board of yourCompany has resolved to contribute to recognised charitable and/or other Institutions, including K. C. Mahindra Education Trustand/or Mahindra Foundation, not related to the business of theCompany or the welfare of the employees, towards CorporateSocial Responsibilities of the Company, such amounts which inthe aggregate in any financial year will not exceed 1% of theCompany's estimated PAT for the year on a continuing basis untilfurther review by the Board.

A beginning in this direction was made by your Company duringthe current year by making a contribution of Rs.13,000 to K.C.Mahindra Education Trust.

Auditors

Messrs B. K. Khare & Co., Chartered Accountants, retire asAuditors of the Company and have given their consent forre-appointment. The members will be required to appoint Auditorsfor the current year and fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromthe above Auditors proposed to be re-appointed to the effectthat their re-appointment, if made, would be in conformity withthe limits specified in the said section.



The Company has not made any loans/advances which arerequired to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with the parentcompany, Mahindra & Mahindra Limited.

Conservation of Energy and Technology Absorption and


In view of the nature of activities that are being carried on by theCompany, Rules 2A and 2B of the Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988,concerning conservation of energy and technology absorptionrespectively, are not applicable to the Company.

There was no inflow or outflow of foreign exchange involvedduring the year under review.


of the Companies Act, 1956 and Rules framed thereunder

The Company had no employee who was in receipt ofremuneration of not less than Rs. 24,00,000 during the year ended31st March, 2006 or not less than Rs.2,00,000 per month duringany part thereof.


Rajeev Dubey


122


AUDITOR’S REPORT

To the members of NBS International Limited

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As at As atSchedule 31-03-2006 31-03-2005

Rupees Rupees Rupees

SOURCES OF FUNDS


Capital ......................................................................................... I 505,000 505,000

Reserves and Surplus ................................................................. II 7,672,142 6,912,474

Deferred Tax Liability (Net) (Ref. Note: 7) ............................... 109,971 175,834

Total ............. 8,287,113 7,593,308


FIXED ASSETS .......................................................................... III 1,077,059 932,629

Capital Work-in-Progress .......................................................... 29,290 —

Net Current Assets:

Current Assets, Loans and Advances ......................................... IV 88,257,058 65,166,061

Less: Current Liabilities and Provisions ...................................... V 81,076,294 58,505,382

7,180,764 6,660,679

Total ............. 8,287,113 7,593,308

Notes to the Accounts .............................................................. X


For B.K. KHARE & CO.


H.P. MAHAJANI

Partner


for and on behalf of the Board

Rajeev Dubey

Rajesh Jejurikar Directors

A.M. Choksey

G. Seshadri


}

126




SALES AND OTHER INCOME ................................................... VI 367,055,621 472,202,532EXPENDITURETraded Goods .............................................................................. VII 345,405,099 449,729,609Personnel .................................................................................... VIII 2,779,821 3,360,591Interest ........................................................................................ 144,435 —Depreciation ................................................................................ 139,073 120,363Other Expenses .......................................................................... IX 16,635,410 15,006,371

365,103,838 468,216,933

Profit before Taxation .................................................................. 1,951,783 3,985,598Less: Provision for:Income Tax ................................................................................. 710,820 1,436,983Deferred Tax ............................................................................... (65,864) 20,800Fringe Benefit Tax ....................................................................... 115,289 —

Profit/(Loss) After Taxation ......................................................... 1,191,538 2,527,815Add: Balance Brought forward from earlier years ....................... 5,701,083 4,318,580

6,892,621 6,846,395

APPROPRIATIONS:General Reserve ......................................................................... (119,153) (252,781)Proposed Dividend ...................................................................... (378,750) (782,750)Income Tax on Proposed Dividend ............................................. (53,120) (109,781)

Balance carried to balance sheet ............................................. 6,341,598 5,701,083

EARNINGS PER SHARE (Note 8)(Face Value Rs. 10/- per share) (Rupees)Basic ........................................................................................... 23.59 50.06Diluted ......................................................................................... 23.59 50.06

Notes to the Accounts .............................................................. X




H.P. MAHAJANI

Partner



Rajeev Dubey


A.M. Choksey

G. Seshadri


}

127


Cash Flow Statement for the Year ended 31st March, 2006

2006 2005Rupees Rupees Rupees

Lakhs Lakhs LakhsA. CASH FLOW OPERATING ACTIVITIES:

Net Profit before exceptional item, taxation and adjustmentspertaining to previous years ........................................................... 19.52 39.86Adjustments for:

Depreciation ........................................................................... 1.39 1.20Interest ................................................................................... (1.22) (0.66)

0.17 0.54Operating Profit before Working Capital Changes ......................... 19.69 40.40Changes in:

Trade and Other Receivables ................................................. (61.63) 12.82Inventories ............................................................................. (188.70) 23.02Trade and Other Payables ...................................................... 230.32 (167.34)

(20.01) (131.50)

Cash generated from operations ................................................... (0.32) (91.11)Income-taxes paid (net of refunds) ................................................ (6.70) (17.50)Fringe Benefit Tax Paid .................................................................. (1.15) —

NET CASH FROM OPERATING ACTIVITIES.................................. (8.17) (108.61)

B. CASH FLOW FROM INVESTING ACTIVITIES:Purchase of fixed assets ................................................................ (3.13) (2.13)Interest Received ........................................................................... 1.22 0.66

NET CASH USED IN INVESTING ACTIVITIES ................................ (1.91) (1.47)

C. CASH FLOW FROM FINANCING ACTIVITIES ............................... (8.92) (14.14)

NET CASH USED IN FINANCING ACTIVITIES ............................... (8.92) (14.14)

NET INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C) ... (19.00) (124.22)

CASH AND CASH EQUIVALENTS (Note 1):Opening Balance .................................................................... 112.59 236.80

Closing Balance ...................................................................... 93.59 112.58

Notes to the Cash Flow Statement for the Year ended 31st March, 20062006 2005


1. Cash and cash equivalents include:Cash, cheques and stamps on hand .............................................. 0.28 59.30Balances with Scheduled Banks:

On current account ................................................................ 69.96 30.92On Fixed Deposit account ...................................................... 23.34 22.37

93.58 112.59

As per our report attached to the Balance Sheet



H.P. MAHAJANI

Partner



Rajeev Dubey


A.M. Choksey

G. Seshadri


}

128


SCHEDULE I: As at As atSHARE CAPITAL: 31-03-2006 31-032005

Rupees Rupees

Authorised:5,00,000 Equity Shares of Rs. 10 each ............. 5,000,000 5,000,000

Issued, Subscribed and Paid-up:50,500 Equity Shares (2004–2005: 50,500), of

Rs. 10 each fully paid (The entire ShareCapital is held by the Holding Company,Mahindra Holdings and Finance Ltd.,including 100 shares held together withits nominees) ...................................... 505,000 505,000

Total ............ 505,000 505,000


SCHEDULE III

FIXED ASSETS (In Rupees)

Description of Assets Cost as at Additions Deductions Cost as at Depreciation Deductions of Depreciation Depreciation Net Balance Net Balance31.03.2006 during the year during the year 31.03.2006 to 31.03.2005 Depreciation for 2005-06 to 31.03.2006 as on 31.3.2006 as at 31.03.2005

Plant and Machinery 1,318,427 90,589 — 1,409,016 385,798 — 128,123 513,921 895,095 932,629

Furniture & Fixtures 16,175 192,913 — 209,088 16,175 — 10,949 27,124 181,964 —

Total 1,334,602 283,502 — 1,618,104 401,973 — 139,073 541,046 1,077,059 932,629

31st March, 2005 1,121,459 213,143 — 1,334,602 281,610 — 120,363 401,973 932,629 839,849

SCHEDULE II: As at As atRESERVES AND SURPLUS: 31-03-2006 31-032005

Rupees Rupees RupeesGeneral Reserve:Balance as per last Balance Sheet 1,211,391 958,610Add: Transferred from Profit andLoss Account ............................... 119,153 252,781

1,330,544 1,211,391Profit and Loss Account:Balance as per account annexed .. 6,341,598 5,701,083

Total ..... 7,672,142 6,912,474

SCHEDULE IV: As at As atCURRENT ASSETS, LOANS 31-03-2006 31-03-2005 AND ADVANCES: Rupees Rupees Rupees

(A) Current Assets:Stock-in-Trade:(at cost or net realisable valuewhichever is lowerTraded Goods ........................ 56,907,986 38,038,074Sundry Debtors:Unsecured unless otherwise stated:Outstanding over six months:

Considered good ............. 877,921 304,592Considered doubtful ........ 168,556 —

1,046,477 304,592Other Debts:

Considered good ............. 18,457,309 15,103,659Considered doubtful ........ 11,849 —

18,469,158 15,103,659

19,515,635 15,408,251

Less: Provision for DoubtfulDebts .................................... 180,405 —

19,335,230 15,408,251Cash and Bank Balances:

Cash Cheques and Stamps on hand 28,056 5,929,678Balances with Scheduled Banks:(i) On Current Accounts ...... 6,996,032 3,092,031(ii) On Fixed Deposit Accounts 2,334,235 2,236,814

9,330,267 5,328,845

9,358,323 11,258,523

(B) Loans and Advances:(Unsecured, considered goodunless otherwise stated):Advance recoverable in cashor in kind for value to bereceived ................................ 2,500,010 265,088Balance with GovernmentAuthorities:Payments towards Income Tax(Net of Provisions) ................. 155,509 196,125

2,655,520 461,213

Total ..... 88,257,058 65,166,061

SCHEDULE V: As at As atCURRENT LIABILITIES 31-03-2006 31-03-2005AND PROVISIONS: Rupees Rupees Rupees(A) Current Liabilities:

Sundry Creditors:

(i) Total outstanding Dues ofsmall scale industrial —undertakings.................... — —

(ii) Total outstanding Dues ofcreditors other than smallscale industrial under-takings [including Rs.2,923,069 (2005: Rs.2,308,625) being advancepayments for which valuehas still to be given] ........ 80,540,273 80,540,273 56,828,194

Other Current Liabilities ........ 104,151 784,657

80,644,425 57,612,851(B) Provisions:

For Income Tax (Net) ............ — —For Proposed Dividend (Gross) 378,750 782,750For tax on proposed dividend .. 53,120 109,781

431,870 892,531

Total ..... 81,076,294 58,505,382

Schedules forming part of the Profit and LossAccount for the Year ended 31st March, 2006

SCHEDULE VI: 31-03-2006 31-03-2005SALES AND OTHER INCOME: Rupees Rupees Rupees

Sales — Traded Goods ................. 360,167,515 466,984,211

Other Operating Income (Ref.Note.: 5) ....................................... 6,718,115 5,151,916

Interest Income (Gross) [includestax deducted at source Rs.22,857 (2005: Rs. 9,925)] ............. 121,755 66,405

Prior Year Adjustments (Net) ........ 48,236 —

367,055,621 472,202,532

Total ..... 367,055,621 472,202,532

129


(G) Taxes on Income:

Current tax is determined as the amount of tax payable in respect of taxableincome for the year. Deferred tax is recognised, subject to consideration ofprudence, on timing differences, being the difference between taxableincome and accounting income that originate in one period and are capableof reversal in one or more subsequent periods.

(H) Segment Reporting:

The Company has single reportable segment namely Automotive for thepurpose of Accounting Standard 17 on Segment Reporting.

2. There are no dues payable to small scale industrial undertakings.

3. Other operating income includes net margin earned for liaisoning of vehiclefinancing, registration, insurance, etc., for the customers.

4. (a) Selling and Distribution expenses include Brokerage & discount on SalesRs. 62,75,046 (2005: Rs. 35,49,509)

(b) Prior Year Adjustments (credit) Rs. 48,236 (2005: Nil) is on account of sales,personnel expenses and other miscellaneous expenses.

(c) Interest paid Rs. 1,44,435 (2005: Nil) is on completion of sales taxassessment and interest received is on fixed deposit with Bank.

5. Miscellaneous expenses include:


Statutory Audit Fees ...................................... 55,000 55,000Tax Audit Fees ............................................... 10,000 10,000Service Tax .................................................... 6,630 6,630

Total ..... 71,630 71,630

6. Contingent Liability:

Claims against the Company not acknowledged as debts comprise of legalcases Rs. 282,064 (2005: Nil).

7. The components of Deferred tax liability and assets as at 31st March, 2006, areas under:


Deferred tax liability:On Depreciation ............................................. 170,695 175,834Deferred tax assets:On Provision for Doubtful Debts .................... 60,724 —

Net Deferred tax liability ................................ 109,971 175,834

8. Earnings Per Share:2006 2005

Rupees RupeesAmount used as the numerator — Balance ofprofit for 2005–2006 ....................................... 1,191,538 2,527,815Weighted Average number of equity sharesused in computing basic earnings per share .. 50,500 50,500Basic Earnings per share ................................ 23.59 50.06Diluted Earnings per share ............................. 23.59 50.06

9. Related Party Transactions:(a) List of Related Parties:

Holding Company Mahindra & Mahindra LimitedMahindra Holdings & Finance Ltd.

Fellow Subsidiary Companies:1. Tech Mahindra Limited (formerly known as Mahindra-British Telecom

Limited)2. Mahindra Engineering & Chemical Products Limited3. Mahindra Infrastructure Developers Limited4. Mahindra & Mahindra Financial Services Limited5. Automartindia Limited6. Mahindra Intertrade Limited7. Mahindra USA Inc.8. Mahindra Steel Service Centre Limited9. Bristlecone (UK) Limited

10. Mahindra Gujarat Tractor Limited

SCHEDULE VII: 31-03-2006 31-032005TRADED GOODS: Rupees Rupees Rupees(A) Decrease/(Increase) in Stock

of Finished Goods:

Opening Stock ...................... 34,187,706 40,339,584

Less: Closing Stock ............... 56,907,986 38,038,074

Decrease/(Increase) in Stock (22,720,280) 2,301,510

(B) Purchase of Trade Goods ...... 368,125,379 447,428,099

Total ..... 345,405,099 449,729,609

Note: Opening Stock is after adjusting credit for VAT Rs./ 38.30 lakhs.

SCHEDULE VIII: 31-03-2006 31-032005PERSONNEL: Rupees RupeesSalaries, Wages and Bonus .......... 2,440,166 2,943,245

Provident Fund ............................. 88,875 117,318

Welfare ......................................... 250,780 300,028

Total ..... 2,779,821 3,360,591

SCHEDULE IX: 31-03-2006 31-032005OTHER EXPENSES: Rupees Rupees

Rent ...................................................................... 314,000 330,000

Rates and Taxes .................................................... 1,909,819 1,213,032

Insurance ............................................................... 213,126 153,227

Repairs and Maintenance ...................................... 131,307 257,936

Advertisement ....................................................... 364,894 749,143

Sales Incentives and Promotion Expenses ............ 7,137,362 4,407,686

Selling and Distribution Expenses ......................... 482,996 1,124,287

Power Charges — Electricity ................................. 1,013,165 460,795

Trvelling and Conveyance ...................................... 240,194 118,539

Hire and Service Charges ...................................... 3,406,391 4,471,610

Postage and Telephone ......................................... 406,225 582,374

Printing and Stationery .......................................... 273,292 299,080

Donation ................................................................ 13,000 —

Provision for Doubtful Debts ................................. 180,405 —

Miscellaneous Expenses (Ref. Note: 5) ................ 549,234 838,663

Total ..... 16,635,410 15,006,371

SCHEDULE X:

NOTES ON ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 20061. Significant Accounting Policies:

(A) Basis for Preparation of Accounts:The accounts have been prepared to comply in all material aspects with allapplicable accounting principles in India, the Accounting Standards issuedby the Institute of Chartered Accountants of India and relevant provisions ofthe Indian Companies Act, 1956.

(B) Fixed Assets:Fixed Assets are stated at cost less depreciation.

(C) Depreciation:Depreciation on Fixed Assets has been charged using Straight Line Methodat rates specified in Schedule XIV to the Companies Act, 1956. Assetscosting less than Rs. 5,000/- are depreciated at the rate of 100% per annum.

(D) Inventories:Inventories are stated at cost (this year onwards net of VAT) or net realisablevalue whichever is lower.

(E) Revenue Recognition:The Company follows the accrual method of accounting for its income andexpenditure. Sales for products is recognised when products are delivered.Income from other services like insurance/registration of vehicles isrecognised once the registration/insurance is completed in favour of thecustomer.

(F) Retirement Benefits:Provident Fund contributions being the only retirement benefit to which theemployees are presently eligible, are made to the Provident FundCommissioner.

130


11. Mahindra Acres Consulting Engineers Limited12. Mahindra Holidays & Resorts India Limited13. Mahindra Logisoft Business Solutions Limited14. Mahindra Shubhlabh Services Limited15. Mahindra Ashtech Limited16. Mahindra Insurance Brokers Limited17. Mahindra Gesco Developers Limited18. Mahindra World City (Jaipur) Ltd. (with effect from 26th August, 2005)19. Bristlecone Limited, Cayman Islands20. Bristlecone Inc.21. Mahindra Engineering Design & Development Company Limited22. Mahindra Realty Limited (with effect from 21st September, 2005)23. Mahindra Automotive Steels Private Limited (with effect from 2nd June,

2005)24. Mahindra Renault Private Limited (with effect from 5th August, 2005)25. Mahindra Middleeast Electrical Steel Service Centre (FZE)26. Mahindra World City Developers Limited27. Mahindra & Mahindra South Africa (Pty.) Limited28. Tech Mahindra (Americas) Inc. (formerly known as MBT International Inc.)29. Mahindra International Limited (with effect from 1st November, 2005)30. Tech Mahindra GmbH (formerly known as MBT GmbH)31. Stokes Group Limited (with effect from 3rd January, 2006)32. Plexion Technology (India) Private Limited (with effect from 15th February,

2006)33. Jensand Limited (with effect from 3rd January, 2006)34. Stokes Forgings Limited (with effect from 3rd January, 2006)35. Stokes Forgings Dudley Limited (with effect from 3rd January, 2006)36. Plexion Technologies (UK) Ltd. (with effect from 15th February, 2006)37. Plexion Technologies GmbH, Germany (with effect from 15th February,

2006)38. Plexion Technologies Incorporated-USA (with effect from 15th February,

2006)39. Tech Mahindra Singapore (Pte.) Limited (formerly known as MBT Software

Technologies Pte. Ltd.)40. Tech Mahindra (R&D Services) Limited (with effect from 28th November,

2005)41. Tech Mahindra (R&D Services) Inc. (with effect from 28th November, 2005)42. Tech Mahindra (R&D Services) Pte. Limited (with effect from 28th November,

2005)43. Tech Mahindra (Thailand) Limited (with effect from 21st February, 2006)44. Tech Mahindra Foundation (with effect from 22nd March, 2006)45. Bristlecone India Limited46. Bristlecone (Singapore) Pte. Ltd.

47. Bristlecone GmbH48. Mahindra Ugine Steel Company Ltd. (with effect from 21st June, 2005)49. Mahindra BT Investment Company (Mauritius) Limited (with effect from 9th

May, 2005)50. Mahindra Holidays & Resorts U.S.A. Inc.51. Mahindra SAR Transmission Private Limited52. Mahindra Overseas Investment Company (Mauritius) Limited53. Mahindra Europe s.r.l. (with effect from 30th May, 2005)54. Mahindra (China) Tractor Company Limited (with effect from 13th May,

2005)55. Console Estate & Investment Limited (Ceased with effect from 20th March,

2006)

10. Related Party Transactions are as under:(Rs. Lacs)

Nature of Transactions Holding Holding FellowCompany Company Subsidiary

Companies

• Purchases

Goods ........................... 3,555.77(3,889.29)

• SalesGoods ........................... 3.05 5.87

(3.12) (17.39)• Finance

Dividend Distributed ..... 7.83(12.53)

• Other TransactionsOther Income ............... 21.11 3.04

(46.23) (2.28)Other ExpensesR e i m b u r s e m e n t sreceived from parties ... 1.92

(1.15)Reimbursements madeto parties ...................... — — —

• OutstandingPayable ......................... 756.02

(528.32)Receivable .................... 0.07 2.11

(2.52) (0.12)

11. For additional information pursuant to the provisions of Part IV of Schedule VI tothe Companies Act, 1956 — see Schedule XII.

12. Previous year’s figures have been regrouped wherever necessary.

SCHEDULE - XI

Additional information persuant to the provisions of paragraphs 3(i) (a), of part II of Schedule VI to the Companies Act, 1956.Particulars in respect of Traded Goods:

Sr. Class of Goods Units of Purchases Opening Stock Closing Stock Sales

No. Measure Quantity Value Quantity Value Quantity Value Quantity Value

1 Vehicles Nos. 648 365,586,133 66 32,655,576 101 55,989,488 613 356,506,7762005 789 444,708,956 68 39,444,451 66 36,505,944 791 462,049,286

2 Accessories @ 2,539,246 1,532,130 918,498 3,660,7392005 2,719,143 895,133 1,532,130 4,934,925

368,125,379 34,187,706 56,907,986 360,167,515

447,428,099 40,339,584 38,038,074 466,984,211

@ Includes numerous items of diverse nature therefore it is neither practical nor meaningful to give the quantities

131


SCHEDULE XII :

ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956

BALANCE SHEET ABSTRACT AND COMPANY'S GENERAL BUSINESS PROFILE:

I. Registration Details:Registration No. 1 1 - 9 5 4 8 2 State Code 1 1Balance Sheet Date 3 1 0 3 2 0 0 6

Date Month Year

II. Capital Raised during the year (Amount in Rs. Thousands):

Public Issue Rights IssueN I L N I L


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

Total Liabilities Total Assets8 9 1 8 8 8 9 1 8 8

Sources of Funds:Paid-up Capital Reserves and Surplus

5 0 5 7 6 7 2Secured Loans Unsecured Loans

N I L N I LApplication of Funds:

Net Fixed Assets Investments1 1 0 6 N I L

Net Current Assets Miscellaneous Expenditure1 8 1 N I L

Accumulated Losses Deferred Tax Liability (Net)N I L ( 1 1 0 )

IV. Performance of the Company (Amount in Rs. Thousands):

Turnover (Income) Total Expenditure3 6 7 0 5 6 3 6 5 1 0 4

+ – Profit Before Tax + – Profit After Tax1 9 5 2 1 1 9 2

Earnings per Share in Rupees Dividend %2 3 . 5 9 7 5 %

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


Product Description Motor Vehicle for the transport of more than six persons, excluding the driver


Product Description Other motor vehicles principally designed for the transport of persons


Product Description Accessories

✔


Rajeev Dubey


A.M. Choksey

G. Seshadri


}

✔

132

MAHINDRA UGINE STEEL COMPANY LIMITED

DIRECTORS’ REPORT

The Directors present their Forty-third Report together with the audited accounts of your Company for the yearended 31st March, 2006.

FINANCIAL RESULFINANCIAL RESULFINANCIAL RESULFINANCIAL RESULFINANCIAL RESULTSTSTSTSTS(Rupees in Lakhs)

2006 2005

Gross Income ........................................................................................... 62476 52304

Profit before Interest and Depreciation ................................................... 12361 8638

Less: Interest ............................................................................................ 1115 1138

Less: Depreciation .................................................................................... 1308 962

Profit before Tax and Exceptional item ................................................... 9938 6538


- Current Tax .................................................................................. 3240 513

- Deferred Tax (including Fringe Benefit Tax) ............................... (213) 1209

Profit after tax and before exceptional items ......................................... 6911 4816

Less: Exceptional items - Redemption premium on Preference Shares 405 —

Profit after Tax .......................................................................................... 6506 4816

Balance of profit/(loss) brought forward from earlier years .................. 1461 (779)

Balance of profit and loss account acquired on accountof amalgamation ....................................................................................... 2047 —

Profit available for Appropriation .............................................................. 10014 4037

Proposed Dividend on Equity Shares ...................................................... 1462 928

Proposed Dividend on Preference Shares .............................................. 16 191

Interim Dividend paid onPreference Shares .................................................................................... 85 —

Tax on Dividend ........................................................................................ 219 157

Transfer to General Reserves .................................................................. 4500 1300

Balance Carried Forward .......................................................................... 3732 1461

PERFORMANCE REVIEW

Your Company’s operations continued to be profitable, withcontinued efforts to reduce costs and improve yield as alsobettering the productivity levels. During the period underreview, the gross income has grown by about 19% fromRs.52,304 lakhs to Rs.62,476 lakhs. The Profit after Tax forthe year was Rs.6,506 lakhs as against Rs.4,816 lakhs in theprevious year registering a growth of 35%.

SCHEME OF AMALGAMATION

In February, 2006, a Scheme of Amalgamation (Scheme)consisting of merger of Pranay Sheetmetal Stampings Limited(Pranay), Valueline Hotels & Resorts Limited (Valueline) andConsole Estate & Investments Limited (Console) with yourCompany was approved by the Hon’ble High Court of Bombay.Console was a wholly owned subsidiary of your Company.Pranay was an Associate of your Company and your Companyheld significant shareholding in Valueline. With this merger

and the consolidation of stampings operations with yourCompany, management control system are made moreefficient and cost effective, enabling harnessing of synergiesand in addition resulting in simplification of the group structure.

The operations of Pranay include manufacture and sale ofpressed metal components. Valueline had not commencedoperations. The operations of Console include activities mainlyrelated to investments and dealing in shares.

The assets and liabilities of the erstwhile Pranay, Valuelineand Console were transferred to and vested in the Companywith retrospective effect from 1st April, 2005. The Schemehas, accordingly, been given effect to in these accounts.

Pursuant to the Scheme, 150,000 fully paid up equity sharesof Rs. 10 each have been allotted by the Company to theshareholders of Pranay in the ratio of 15 shares of the Companyfor every 2 equity shares of Re.1 each fully paid up held inPranay and 1,400,840 fully paid up equity shares of Rs.10

133


each have been allotted by the Company to the shareholdersof Valueline in the ratio of 14 shares of the Company forevery 1 equity share of Rs. 10 each fully paid up held inValueline.

STEEL BUSINESS

The total sales during the year increased from 106,012 tonnesfor the year ended March, 2005 to 110,627 tonnes for theyear ended March, 2006 – registering a marginal growth of4.35%.

The industry continues to benefit from a high economic growthcoupled with a robust demand. Recently, there has been someindication of softening of prices but demand continues to bebuoyant and is expected to remain so for the near to midterm. The Company’s capital expenditure scheme which itembarked on last year, has taken further shape this year andis expected to enhance production and sales volume of Steelto 240,000 tonnes by F-08.

STAMPINGS BUSINESS

As mentioned earlier in this report during the financial year,Pranay having a capacity of 13,000 tonnes of pressed metalsheets and components merged with the Company with effectfrom April 1, 2005. This has augmented the overall capacityof the stampings business of the Company to 31,000 tones.This stampings division mainly caters to the requirement ofthe Nashik unit of the holding company, Mahindra & MahindraLimited. The expansion of stampings business at Rudrapur isalso taking shape.

The production and sales of the stampings business were asunder:

In TIn TIn TIn TIn Tonnesonnesonnesonnesonnes Rs. lacsRs. lacsRs. lacsRs. lacsRs. lacs

Production Sales Sales value

24,382 24,427 6,876.17

A detailed analysis of the Company’s performance is containedin the Management Discussion and Analysis Report, whichforms part of this Annual Report.

DIVIDEND

Interim dividend on Preference Shares

Your Directors have paid an interim dividend on PreferenceShares as follows:

a) 4.08% on 7% 546,000 Cumulative RedeemablePreference Shares of Rs.100/- each amounting toRs.22.41 lakhs.

b) 5.67% on 9.72% 1,100,000 Cumulative RedeemablePreference Shares of Rs.100/- each amounting to Rs.62.39lakhs. The 9.72% Preference Shares were redeemed on31st October, 2005 at a Premium of Rs.404.56 Lacs.

Final dividend on Preference Shares

Your Directors have recommended a final dividend of 2.92%on 7% 546,000 Cumulative Redeemable Preference Sharesof Rs.100 each @ 2.92% amounting to Rs.15.81 lakhs.

Dividend on Equity Shares

Your directors have recommended a dividend of 45% (Rs.4.50 per share) as against 30% (Rs.3 per share) for theprevious year. The dividend, together with the tax ondistributed profit, will absorb a sum of Rs.1,666.71 lakhs(previous year Rs.1,058.09 lakhs) and will be paid to thoseshareholders whose names stand registered in the books ofthe Company as on the book closure date.

The total preference and equity dividend together with thetax on distributed profits (including interim dividend paid andtax thereon) will absorb Rs.1,781.44 lakhs.

FINANCE

During the year under review, the liquidity position of yourCompany improved significantly. Your Company has alwaysbeen prompt in meeting the obligations towards banks andfinancial institutions. The Company successfully tied up itsentire requirement of funding for the Capital Expenditureenvisaged.

INDUSTRIAL RELATIONS

The relationship with the workers and their respective unionsduring the year has been by and large cordial. However, anillegal strike for eight days at the Khopoli plant disruptedproduction, sales and movement of materials. The disputewas amicably settled. The Labour agreement with the Labourunion that is due for revision is expected to be signed in thenext few months. In respect of the Kanhe unit, the laboursettlement agreement was signed for a period of 3 yearswhich provides for improved productivity by 33%.

SAFETY, HEALTH AND ENVIRONMENTAL PERFORMANCE

The Company has a policy on the general health, safety andenvironmental conservation through which every employee isresponsible for the observance of the measures designed toprevent accidents, damage to health and to avoidenvironmental pollution.

Safety committee members comprising representatives fromworkers and executives from various departments meetperiodically to review the situation.

DIRECTORS

Mr. S. Ravi who was appointed as an Additional Director atthe Board Meeting held on 29th July, 2005 holds office uptothe date of the Annual General Meeting. The Company hasreceived a notice from a member signifying his intention topropose Mr.S.Ravi as candidate for office of Director.

Mr. Anand G. Mahindra, Dr. H.N. Sethna and Mr. C.S. MadhavRao retire by rotation and, being eligible, offer themselves forreappointment


Pursuant to Section 217(2AA) of the Companies Act, 1956your Directors, based on the representations received fromthe Operating Management and after due enquiry, confirmthat:

134


(i) In the preparation of the annual accounts, the applicableaccounting standards have been followed;

(ii) They have, in the selection of the accounting policies,consulted the Statutory Auditors and these have beenapplied consistently and reasonable and prudentjudgments and estimates have been made so as to givea true and fair view of the state of affairs of the Companyas at 31st March, 2006 and of the profit of the Companyfor the year ended on that date;

(iii) Proper and sufficient care has been taken for themaintenance of adequate accounting records inaccordance with the provisions of the Companies Act forsafeguarding the assets of the Company and forpreventing and detecting fraud and other irregularities;

(iv) The annual accounts have been prepared on a goingconcern basis.

SUBSIDIARIES

As mentioned elsewhere in this Report, M/s. Console Estateand Investments Limited got merged with the Companyeffective from 20th March, 2006. The appointed date of Mergerwas 1st April, 2005.

M/s. Mahindra Automotive Steel Ltd. (MASL) (formerlyMahindra Automotive Steels Private Limited) ceased to be asubsidiary of your Company as your Company‘s shareholdingin MASL was transferred to Mahindra Holdings & FinanceLimited.

The Company has no subsidiary as on 31st March, 2006.

AUDITORS

M/s. A.F.Ferguson & Co., Chartered Accountants, retire asauditors of the Company and have given their consent for re-appointment.

As required pursuant to the provisions of Section 224 (1B) ofthe Companies Act, 1956, the Company has obtained a writtencertificate from the above auditors proposed to be re-appointedto the effect that their re-appointment, if made, would be inconformity with the limits specified in the said section.

PUBLIC DEPOSITS AND LOANS/ADVANCES

An aggregate amount of Rs. 7.71 lakhs representing 94 fixeddeposits had matured but remained unpaid/unclaimed as at31st March, 2006 pending instruction from the depositorsconcerned. Since then 11 fixed deposits aggregating Rs.1.19lakhs have been repaid.

The Company has discontinued acceptance of fresh depositsand renewal of existing deposits from public and shareholderswith effect from 1st May, 2005.

The particulars of loans/advances and investments in its ownshares by listed companies, their subsidiaries, associates etc.required to be disclosed in the annual accounts of thecompanies pursuant to Clause 32 of the Listing Agreementare furnished separately.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES (CSR)

As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced theirsocial well being. Since inception, the Mahindra Group hasengaged in activities which add value to the communitiesaround it. A step forward in this direction was taken by theannouncement made on the occasion of the 60th anniversaryof the holding company, Mahindra & Mahindra Limited, thatthe Group would support a range of CSR initiatives bycommitting up to 1% of Profit after Tax (PAT) every year, on acontinuing basis to largely benefit the economicallydisadvantaged and socially weaker sections of the society.

Accordingly, the Board of your Company has, subject to theapproval of the shareholders, resolved to contribute towardsCorporate Social Responsibility of the Company, upto 1% ofthe Company’s estimated PAT for the year, on a continuingbasis, until further review by the Board.

PARTICULARS OF EMPLOYEES

As required pursuant to Section 217(2A) of the CompaniesAct, 1956 and rules thereunder, a statement containingparticulars of the company’s employees who were in receiptof remuneration of not less than Rs. 24,00,000/- during theyear ended 31st March, 2006 or of not less than Rs. 2,00,000/-per month during any part of the said period is given in theAnnexure to this Report.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTIONAND FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars required to be disclosed under the Companies(Disclosure of Particulars in the Report of Board of Directors)Rules, 1988 are set out in the Annexure to this Report.

ACKNOWLEDGEMENTS

Your Directors record their gratitude to the Banks, FinancialInstitutions, Government Departments, Vendors and customersfor their continued support and co-operation during the year.

Your Directors also wish to place on record their appreciationof the services of the Employees of the Company.


KESHUB MAHINDRAChairman

Mumbai: 24th April, 2006.

135


ANNEXURE FORMING PART OF THE DIRECTORS’ REPORT

ADDITIONAL INFORMATION PURSUANT TO SECTION 217(2A) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES(PARTICULARS OF EMPLOYEES) RULES, 1975 AND FORMING PART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED31st MARCH, 2006.

Name ofName ofName ofName ofName of DesignationDesignationDesignationDesignationDesignation QualificationQualificationQualificationQualificationQualification Date ofDate ofDate ofDate ofDate of Age /Age /Age /Age /Age / GrGrGrGrGrossossossossoss Last EmploymentLast EmploymentLast EmploymentLast EmploymentLast EmploymentEmployeesEmployeesEmployeesEmployeesEmployees EmploymentEmploymentEmploymentEmploymentEmployment (Experience)(Experience)(Experience)(Experience)(Experience) RemunerationRemunerationRemunerationRemunerationRemuneration held (Orheld (Orheld (Orheld (Orheld (Organisation/ganisation/ganisation/ganisation/ganisation/

Designation)Designation)Designation)Designation)Designation)

Mr. K. V. Managing B.E. (Mech) 5-5-2003 58/(36) 30,04,227* SBU HeadRamarathnam Director (Steel Division)

PerkasaIndobaja,Indonesia

Notes:

1. Nature of employment is contractual, subject to termination on 3 (three) month’s notice from either side.

2. The above employee is not related to any Director of the Company.

3. *Remuneration received as shown in the statement includes Salary, House Rent Allowance or value of perquisites foraccommodation, car perquisite value, reimbursement of medical expenses, employer’s contribution to Provident Fund andGratuity Fund, premium for Mediclaim and all other allowances/perquisites as applicable but does not include Commission ofRs. 25,00,000/- for the year 2004-05 approved by the Central Government. This will be paid by the Company after approvalby the members in the ensuing Annual General Meeting.

4. No employee holds by himself alongwith his spouse and dependent children 2% or more of the equity shares of theCompany.

5. Employment terms and conditions are as per the Company’s rules.


KESHUB MAHINDRAChairman


136


STATEMENT PURSUANT TO SECTION 217(1)(e) OF THE COMPANIES ACT, 1956 READ WITH THE COMPANIES (DISCLOSURE

OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988 AND FORMING PART OF THE DIRECTORS'

REPORT FOR THE YEAR ENDED 31ST MARCH, 2006

ELECTRICAL ENERGY:

FORM A

(Form for disclosure of particulars with respect to conservation of energy)

CurCurCurCurCurrrrrrent Yent Yent Yent Yent Year 2005-2006ear 2005-2006ear 2005-2006ear 2005-2006ear 2005-2006 Previous Year 2004-2005

SteelSteelSteelSteelSteel StampingsStampingsStampingsStampingsStampings TTTTTotalotalotalotalotal Steel Stampings Total

A)A)A)A)A) Power & Fuel ConsumptionPower & Fuel ConsumptionPower & Fuel ConsumptionPower & Fuel ConsumptionPower & Fuel Consumption

1) ElectricityElectricityElectricityElectricityElectricity

a) Purchased

Units (KWH) 137,918,679 4,463,142 142,381,821 129,863,542 1,365,896 131,229,438

Total Amount (Rs.) 507,566,918 19,655,154 527,222,072 462,260,891 6,980,808 469,241,699

Rate/Unit (Rs.) 3.68 4.40 3.70 3.56 5.11 3.58

b) Own Generation (KWH) 56,296 263,688 319,984 37,248 262,224 299,472

2) CoalCoalCoalCoalCoal N.A N.A N.A N.A. N.A. N.A.

3) FurFurFurFurFurnace Oilnace Oilnace Oilnace Oilnace Oil

(K.Litres) 18,781 N.A 18,781 17,932 N.A 17,932

Total Amount (Rs.) 268,713,037 N.A 268,713,037 194,097,305 N.A 194,097,305

Rate/Unit (Rs.) 14,308 N.A 14,308 10,824 N.A 10,824

4) OTHER FUEL OIL (L.D.O.)OTHER FUEL OIL (L.D.O.)OTHER FUEL OIL (L.D.O.)OTHER FUEL OIL (L.D.O.)OTHER FUEL OIL (L.D.O.)

Quantity (K.Litres) 5 N.A 5 4 N.A 4

Total Amount (Rs.) 85,065 N.A 85,065 61,714 N.A 61,714

Rate/Unit (Rs.) 16,679 N.A 16,679 16,679 N.A 16,679

B)B)B)B)B) Consumption Per Unit of PrConsumption Per Unit of PrConsumption Per Unit of PrConsumption Per Unit of PrConsumption Per Unit of Productionoductionoductionoductionoduction

1) Products *Unit - MT 111,188 24,458 135,646 106,009 8,449 114,458

2) Electricity (KWH/MT) 1,240 361 1,050 1,225 162 1,147Total for the Plant

3) Furnace Oil (K.Litres/MT) 0.169 N.A 0.138 0.169 N.A 0.157Total for the Plant

4) Coal N.A N.A N.A N.A. N.A. N.A.

5) Other Fuel Oil (K.Litres/MT) 0.00005 N.A 0.00004 0.00003 N.A 0.00003Total for the Plant

6) Total Fuel Oil (Furnace Oil+L.D.O.) (K.Litres/MT) 0.169 N.A 0.138 0.169 N.A 0.157

* Indicates in house production only.

137


FORM B

(Form of disclosure of particulars with respect to Technology Absorption)

RESEARCH & DEVELOPMENT

Specific areas in which R & D activities have been successfully completed during 2005-06.

Process Improvement

1. 16 new grades of steel have been developed.

2. Heat Treatment cycles of nine grades of steel have been successfully developed and implemented.

3. Cleanliness of bearing steel has been improved through special casting process.

4. 4.8 MT ingot products have been successfully developed for TIMKEN application.

5. Hardenability of three forging grade steels has been improved for customer satisfaction.

Benefits derived as a result of R & D activities.

• Continuous improvement in the process and products.

• There has been improvement in the quality of steel.

Future Plan of Action

• Propose to install a continuous rolling mill.

• Augment the infrastructure within the plant to achieve the enhanced capacity.

Expenditure on R&D

(Rupees in lakhs)

2005-062005-062005-062005-062005-06 2004-05

a] Capital 53.3553.3553.3553.3553.35 1.60

b] Recurring 42.0442.0442.0442.0442.04 35.35

c] Total 95.3995.3995.3995.3995.39 36.95

d] Total R&D expenditure as percentage of total turnover 0.1550.1550.1550.1550.155 0.07

138


ParParParParParticulars of loans / advances and investment in its own sharticulars of loans / advances and investment in its own sharticulars of loans / advances and investment in its own sharticulars of loans / advances and investment in its own sharticulars of loans / advances and investment in its own shares by listed companies, their subsidiaries, associates etc.es by listed companies, their subsidiaries, associates etc.es by listed companies, their subsidiaries, associates etc.es by listed companies, their subsidiaries, associates etc.es by listed companies, their subsidiaries, associates etc.rrrrrequirequirequirequirequired to be disclosed in the Annual Accounts of the Company pursuant to Clause 32 of the Listing Agred to be disclosed in the Annual Accounts of the Company pursuant to Clause 32 of the Listing Agred to be disclosed in the Annual Accounts of the Company pursuant to Clause 32 of the Listing Agred to be disclosed in the Annual Accounts of the Company pursuant to Clause 32 of the Listing Agred to be disclosed in the Annual Accounts of the Company pursuant to Clause 32 of the Listing Agreement.eement.eement.eement.eement.

Name of Company Outstanding Maximum amount Loan Amount Without Outstanding in Investment byAmount as on Outstanding during respect of firms / Loanee in the

31st March, 2006 the year 2005-06 Repayment Interest or Interest companies in shares of ParentSchedule below Section which Directors and Subsidiary

372A of the are interested Company whenCompanies the Company has

Act,1956 made a Loan or Advancethe nature of

Loan

Mahindra Automotive (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Steels Pvt. Ltd.(A subsidiary ofConsole Estate &Investments Ltd.)till 20/04/2005* 2,165,483* 2,165,483 2,165,483 2,165,483 2,165,483 Nil

Note : The Company ceased to be a subsidiary of Console Estate & Investments Ltd. w.e.f. April 20, 2005.

TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

Efforts in brief made towards technology absorption

1. Installation of new walking beam furnace in place of an old furnace which had lost the accuracy.

Benefits derived as a result of the above effort -

• Cost reduction

• Improvement in quality

• Increased productivity

2. In case of imported technology (imported during the last five years reckoned from the beginning of the year) the followinginformation may be furnished.

• Technology imported - Nil

• Has the technology been fully absorbed - N.A.

• If not fully absorbed, areas where this has not taken place - N.A.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The information of foreign exchange earnings and outgo is furnished in the notes to the accounts.


KESHUB MAHINDRA

Chairman

Mumbai : 24th April, 2006.

139


A)A)A)A)A) IndustrIndustrIndustrIndustrIndustry stry stry stry stry structuructuructuructuructure and developmentse and developmentse and developmentse and developmentse and developments

Steel Business:Steel Business:Steel Business:Steel Business:Steel Business:

Your Company is engaged in the manufacture of alloy andspecial steel through Electric Arc Furnace (EAF) route andcaters to the automotive, engineering, bearings and otherindustries. All these segments are witnessing significantgrowth. The Company services an impressive list ofcustomers including Bharat Forge, SKF, Cummins, Timkenand TISCO which bears testimony to its leadership.

Your Company is in the process of creating cost and qualityleadership. The operating results will show that yourCompany has benefitted from focussing on a strategicframework. The steel that is produced is of world quality,import substitutive and the Company has been qualifiedby leading bearing manufacturers as an international sourceof supply. Quality has achieved consistency. TheCompany‘s operations continue to show consistentimprovement.

An experienced management team that has delivered theabove results is being strengthened and knowledgemanagement systems have been instituted so that thewealth of experience can be captured for future.

While domestic demand has outstripped supplies, theCompany has continued to evaluate options that create ahedge against possible reversal of the market dynamicsand has been making progress in identifying export optionsfor value added products.

Stampings Business:Stampings Business:Stampings Business:Stampings Business:Stampings Business:

As a result of the remarkable growth in the Automotiveindustry, the stampings division at Kanhe has increasedits throughput significantly and is expected to furtherimprove upon the capacity utilization. Like many otherbusinesses, the stampings industry too has been a victimof over investment in small sub-optimal units which havetraditionally been incapable of producing a quality product.The Kanhe stampings division has been able to move upthe value chain and with group support, developed thecapabilities to produce sub assemblies for Mahindra &Mahindra (M&M), Tata Motors and Ashok Leyland.

The recent joint venture announced between M&M andRenault is expected to create greater opportunities for thestampings business. Further, business opportunities arealso arising on account of M&M’s foray into a joint venturewith International Trucks for the manufacture of Light andHeavy Commercial vehicles. These business activitiestogether with the consolidation of stampings businessconsequent to merger of Pranay Sheetmetal StampingsLimited (Pranay) into the Company is expected to addvalue to the business.

B)B)B)B)B) Segment-wise perSegment-wise perSegment-wise perSegment-wise perSegment-wise perforforforforformance:mance:mance:mance:mance:

(i)(i)(i)(i)(i) Physical PerPhysical PerPhysical PerPhysical PerPhysical Perforforforforformancemancemancemancemance

(a)(a)(a)(a)(a) Steel Division:Steel Division:Steel Division:Steel Division:Steel Division:Class of Installed Actual Sales Sales Valuegoods capacity production (MT) (Rs. in lakhs)(MT) (MT)

Tool, alloy and 90,000 111,188 110,627 522,221Special steels (90,000) (106,009) (106,012) (47,915)

(Figures in brackets relate to the previous financial year).

The Company’s products continue to be received well in themarket. An effort for keeping up the quality and customersatisfaction has been constantly appreciated by the customers.Continuous growth in market share is in progress.

(b) Stampings Division :

(Kanhe & Nashik Division)

Class of Installed Actual Sales Sales Valuegoods capacity production (MT) (Rs. in lakhs)(MT) (MT)

Pressed sheet 31,000 24,382 24,427 6,876metal components (18,000) (8,782) (8,720) (2,665)& assemblies

(Figures in brackets relate to the previous financial year).

As may be seen from the above, the operations of thestampings division have increased during the year ended March31, 2006, mainly due to the merger of Pranay into the Company.

c)c)c)c)c) Others:Others:Others:Others:Others:

The Hon’ble High Court, Bombay approved the Scheme ofAmalgamation of Pranay, Console Estate and InvestmentsLimited (Console) and Valueline Hotels and Resorts Limited(Valueline) with your Company vide its order dated February24, 2006. The business of Pranay has already beendiscussed at the appropriate section. Console was a Non-Banking Financial Company (NBFC) and was engaged ininvestment activities. As regards Valueline, the Companywhich was promoted with the object of setting up hotelsand providing hotel management services, had not startedany business. However, this Company was holding about49% shares in Pranay. With the merger of Pranay, Consoleand Valueline, the respective companies have beendissolved without being wound up.

(ii)(ii)(ii)(ii)(ii) Financial PerFinancial PerFinancial PerFinancial PerFinancial Perforforforforformance:mance:mance:mance:mance:(Rs. In Lakhs)(Rs. In Lakhs)(Rs. In Lakhs)(Rs. In Lakhs)(Rs. In Lakhs)

SteelSteelSteelSteelSteel StampingsStampingsStampingsStampingsStampings TTTTTotalotalotalotalotal

Sale of Products & 54,014 8,462 62,476Other Income (48,777) (3,528) (52,305)

Total Variable Cost 39,506 2,419 41,925(35,643) (1,513) (37,156)

Total Overheads 6,301 1,844 8,145(5,228) (790) (6,418)

MANAGEMENT DISCUSSION AND ANALYSIS (MDA)

140


EBIDTA 8,206 4,200 12,406(7,506) (1,225) (8,731)

Depreciation 497 856 1,353and DRE (511) (544) (1,055)

EBIT 7,709 3,344 11,053(6,995) (681) (7,676)

Interest 1,002 113 1,115(1,130) (8) (1,138)

EBT 6,707 3,231 9,938(5,867) (671) (6,538)

Exceptional item 405of expenditure (—)

Tax

- Current Tax 3,240(513)

- Deferred Tax (213)(1,209)

Profit after Tax 6,506(4,816)

@ Figures in brackets represent for previous year.

C)C)C)C)C) GrGrGrGrGrowth Potential:owth Potential:owth Potential:owth Potential:owth Potential:

SteelSteelSteelSteelSteel BBBBBusiness:usiness:usiness:usiness:usiness:

The engineering industry and the auto component businessin particular are expected to grow at a CAGR in excess of15% per annum for the next five years. In order to servicedemand, your Company is in the process of enhancing itscapacity and production to 240,000 tonnes. The first phaseof expansion has already been completed with theinstallation of the oxygen lancing facilities, the second ladlefurnace and the walking beam furnace. The Scheme alsotakes into account technology up-gradation and setting upcertain infrastructure facilities, improvement of lay-out thatoptimizes process flow for achieving greater efficiencies.The scheme is on schedule and will be ready in the secondquarter of F-08. The Company is also in the process ofexploring various forward and backward integration projects,which will take shape as we go forward.

StampingsStampingsStampingsStampingsStampings BBBBBusiness:usiness:usiness:usiness:usiness:

The Company continues to remain optimistic about thegrowth of the stampings business which is closely linkedto the fortunes of the automotive industry. In order tocapitalize on and de-risk itself from the cyclicality of anyone segment of the automotive industry, the stampingsbusiness has been broad basing its customer base, whichnow ranges from tractors and two wheelers to cars andtrucks. The improvement in the financial performance ofthe Company has encouraged large customers to treatyour company’s stampings operations as partners in thedevelopment process-a confidence that will encouragefurther capital investments.

The Company is also setting up a unit to manufacture4,800 Metric Tonnes of painted pressed sheetmetal atRudrapur, Uttaranchal at a cost of Rs. 50 crores to cater tothe requirement of the tractors division of M&M at thesame location.

D)D)D)D)D) Risk Management:Risk Management:Risk Management:Risk Management:Risk Management:


The year F-06 has seen further growth for the industry.In order to maintain and increase the share in the market,the Company has been looking for opportunities indiverse affiliated segments and more value addedproducts.

Your Company continues its efforts in setting up ring rollingfacilities for manufacturing bearing races. Exports, as apossible avenue, are being pursued.

The major risks of the Company can be classified in thefollowing three categories:

Raw materials availability:Raw materials availability:Raw materials availability:Raw materials availability:Raw materials availability:

The year F-06 continued to be volatile both in prices andavailability of raw materials including restrictions onimports of heavy melting scrap. The Company is gearingto ensure continuous availability of raw materials andhave built adequate expertise to procure them at themost competitive prices. The Company has beenconstantly on the look-out for long term contractstowards this.

ImporImporImporImporImports:ts:ts:ts:ts:

Import of high quality steel products particularly fromChina can pose a threat. The reduction of import duty onalloy steel in the last Finance Act is a deterrent. However,the Company is taking various steps to improve theprocesses and manufacturing costs so as to remaincompetitive.

Prices of finished prPrices of finished prPrices of finished prPrices of finished prPrices of finished product :oduct :oduct :oduct :oduct :

During the year F-06, the market and the prices have beenfavourable although the indications towards softening ofprices have been surfacing from time to time. Withfocussed attention to the process improvements, theCompany expects to increase the market share and alsobe preferred suppliers of steel to some of the keycustomers.


The business is distributed among large and small pressshops and captive press shops of the vehiclemanufacturers. Traditionally business was done in-house.Growth in business and increasing demand for qualitystampings is making it necessary to out source this facility.Capabilities of the units in the stampings business willensure continuous business. The Company is in the processof refining the cost control measures to sustain itself inthe market.

141


E)E)E)E)E) Cost ContrCost ContrCost ContrCost ContrCost Control:ol:ol:ol:ol:

Steel Division:Steel Division:Steel Division:Steel Division:Steel Division:

The Steel division has been making continuous efforts toreduce costs on various operational inputs besidesimproving yield and reduction in cycle time.

StampingsStampingsStampingsStampingsStampings DDDDDivision:ivision:ivision:ivision:ivision:

Your Company has an on-going project of multi-skilling. Inaddition, your Company is also considering the introductionof robotic hands for a part of the operations in order toincrease the productivity. This way it will be possible torationalise labour. Any attrition due to retirement,resignation etc. will not be replaced. That position iseliminated from the organisation chart and the job isdistributed amongst existing people. We review each costevery quarter and take corrective actions. Employees areencouraged to cut cost through innovation and applicationof mind.

All these actions mentioned above have helped us tosurvive in this acute competitive environment.

F)F)F)F)F) Adequacy of interAdequacy of interAdequacy of interAdequacy of interAdequacy of internal contrnal contrnal contrnal contrnal control system:ol system:ol system:ol system:ol system:

The Company at all the divisions has established internalcontrol systems commensurate with the size of itsoperations with a view to ensure that all the assets aresafeguarded and protected against losses and that all thetransactions are appropriately authorised, correctly recordedand disclosed in the financial statements. Based on theseduly authorised documentations, the financial statementsare prepared. The steel division and the Nashik stampingsdivision are on SAP which incorporates the necessarycontrols, checks and balances. The stampings division atKanhe is being brought under SAP shortly.

G)G)G)G)G) Personnel:Personnel:Personnel:Personnel:Personnel:

Total number of permanent employees of Steel businessand Stampings business as on 31st March, 2006 were 868and 359 respectively. Regular Training Programmes invarious areas of Corporate Interest are being held atdifferent levels in the organization which are consideredessential

The relations between the Management and the workershave been generally cordial during the year excepting foran eight days illegal strike by the workers at the Khopoliplant which affected production, dispatches and the

material movement. The labour wage settlement at Khopoliwhich is due will be entered into in the next few months.At Kanhe unit the labour agreement was signed with thelabour union for a period of 3 years, with an improvementin productivity by 33%. At the Pranay stampings divisionat Nashik, the concept of factory within factory which wasexisting is being progressively replaced by the workersdirectly being taken on the company rolls instead of throughthe contractors.

H) OpporH) OpporH) OpporH) OpporH) Opportunities & Thrtunities & Thrtunities & Thrtunities & Thrtunities & Threats:eats:eats:eats:eats:

(a) Oppor(a) Oppor(a) Oppor(a) Oppor(a) Opportunities:tunities:tunities:tunities:tunities:


Your Company has potential opportunities for makingstainless steel and spring steel, wire rods.Opportunities in respect of forward integration arebeing explored by your Company.


The growing opportunities in Auto Sector will in turnprovide more business opportunities.

(b)(b)(b)(b)(b) ThrThrThrThrThreats:eats:eats:eats:eats:


The capacity buildup by competitors may pose a threat.However, your Company is geared up to meet thecompetition.


Low cost stampings by the un-organised sector mayresult in competition for your Company’s product.However, the quality standards of your Company willtake care of these threats.

Certain statements in the Management Discussion & Analysisdescribing the Company‘s objectives, projections, estimates,expectations or predictions may be “forward lookingstatements” within the meaning of applicable securities lawsand regulations. Actual results could differ from those expressor implied. Important factors that could make a difference tothe Company‘s operations include raw material availability andprices, cyclical demand and pricing in the Company‘s principalmarkets, changes in Government regulations, tax regimes,economic developments within India and the countries in whichthe Company conducts business and other incidental factors.

142


CORPORATE GOVERNANCE

Good corporate governance has always been an integral part of theCompany’s business philosophy. The Company attaches significantimportance to issues of Corporate Governance. In line with theMahindra Group philosophy, your Company believes in attainmentof highest levels of transparency in all facets of its operations andhas always focussed on Good Corporate Governance. YourCompany has consistently made efforts in ensuring transparency,accountability and responsibility in dealing with its employees,stakeholders, customers and the community at large.

Your Company fundamentally believes that good corporategovernance should be an internally driven need and is not to belooked upon as an issue of compliance dictated by statutoryrequirements. Your Company has systems and procedures inplace to ensure that it remains fully compliant with all mandatedregulations. The stipulations mandated by Clause 49 of the ListingAgreement have been fully complied. This chapter, along withthe chapters on Management Discussion and Analysis reportsyour Company’s compliance with the revised Clause 49.

I. BOARD OF DIRECTORS:

The Company has a Non-Executive Chairman and the number ofIndependent Directors is more than 1/3rd of the total number ofDirectors. The number of Non-Executive Directors is more than50% of the total number of Directors. The composition of theBoard is in conformity with Clause 49 of the Listing Agreement.

The management of the Company is entrusted in the hands ofthe Key Management Personnel of the Company and is headedby the Managing Director who operates under the supervisionand control of the Board. The Board reviews and approvesstrategy and oversees the actions and results of managementto ensure that the long term objectives of enhancing stakeholdervalue are met.

The Chairman and the Vice-Chairman of the Company, thoughprofessional Directors in their own individual capacity, belong tothe Company’s promoter group. Mr. Hemant Luthra, a Non-Executive Director of the Company, is in the whole timeemployment of the Holding Company, Mahindra & MahindraLimited (M&M) and draws remuneration from it. BesidesMr. R.R. Krishnan, a Non–Executive Director of your Company,is a consultant with M&M and draws remuneration from it.

Apart from the above and apart from the reimbursement ofexpenses incurred in the discharge of their duties, the sittingfees that these Directors would be entitled to under theCompanies Act, 1956 as Non-Executive Directors and theremuneration that some of the Directors may receive forprofessional services as an advisor or an employee of its HoldingCompany, none of these Directors has any other materialpecuniary relationships or transactions with the Company, itsPromoters, its Directors, its Senior Management or itssubsidiaries and Associates, its Holding Company which in theirjudgement would affect their independence.

The Senior Management have made disclosures to the Boardconfirming that there are no material, financial and/or commercialtransactions between them and the Company which could havepotential conflict of interest with the Company at large.

A. Composition of Board

The Company presently has ten Directors and out of which oneis the Managing Director. There are four Non-Independent Non-Executive Directors. Life Insurance Corporation of India, as anequity investor, has nominated one Non-Executive Director onthe Board. The remaining five Non-Executive Directors (includingthe Nominee Director) are Independent Directors andprofessionals with expertise and experience in general corporatemanagement, finance, banking and other allied fields.

The names and categories of Directors, the number ofDirectorships and Committee positions held by them in theCompanies are given below. None of the Directors on the Boardis a member on more than 10 Committees and Chairman of morethan 5 Committees (as specified in Clause 49 of the ListingAgreement), across all the companies in which he is a Director.

❖ The Constitution of the Board as on 31st March, 2006 is as under:

DDDDDirectors Category Total number of Total number of Total number

Committee Chairmanships of Directorships*

Memberships+ of Committees of Public

of Public of Public Companies

Companies as Companies as as on 31st

on 31st March, on 31st March, March, 2006.

2006. 2006.

Non-ExecutiveMr. KeshubMahindra Promoter 1 1 6ChairmanMr.AnandG. Mahindra Promoter 1 None 12Vice-ChairmanMr.N.V.Khote Independent 1 1 2Dr.H.N.Sethna Independent 5 2 5Mr.Hemant NonLuthra Independent 5 1 9Mr.M.R.Ramachandran Independent 2 None 1Mr.R.R. Krishnan Non

Independent 1 None 2Mr.C.S.MadhavRao Independent 1 None 1(Nominee of LIC)Mr.S. Ravi@ Independent 7 4 10ExecutiveMr. K.V. NonRamarathnam Independent 1 None 1ManagingDirector

* Excludes Directorships in Private Companies, ForeignCompanies, Section 25 Companies and Government Bodies butincludes Directorships in Mahindra Ugine Steel Company Limited.

+ Committees considered are Audit Committee and Investors’Grievance Committee, including in Mahindra Ugine SteelCompany Limited.

@ Appointed w.e.f 29th July, 2005.

143


B. Board Procedure

A detailed Agenda folder is sent to each Director in advance ofBoard and Committee meetings. To enable the Board to dischargeits responsibilities effectively, the Managing Director briefs theBoard at every meeting on the overall performance of theCompany, followed by presentations by the other SeniorExecutives of the Company. A detailed functional report is alsoplaced at Board meetings. The Board also reviews strategy andbusiness plans, annual operating and capital expenditure budgets,investment and exposure limits, compliance reports of all lawsapplicable to the Company, as well as steps taken by theCompany to rectify instances of non-compliances, review ofmajor legal issues, adoption of quarterly/half-yearly/annual results,significant labour issues, transactions pertaining to purchase/disposal of property, major accounting provisions and write-offs,corporate restructuring, minutes of meetings of the Audit andother Committees of the Board, information on recruitment ofOfficers just below the Board level, including the ComplianceOfficer.

C. Number of Board Meetings, attendance record of the

Directors at Meetings of the Board and at the last Annual

General Meeting.

Six board meetings were held during the period from 1st April,2005 to 31st March, 2006 on the following dates:

21st April, 2005 28th October, 2005

29th July, 2005 27th January, 2006

5th September, 2005 29th March, 2006

The Forty Second Annual General Meeting was held on 29thJuly, 2005.

The attendance of the Directors at these meetings is as under:

Director No. of Board Attendance

Meeting(s) at the AGM

Attended

Mr. Keshub Mahindra 6 Yes

Mr. Anand G. Mahindra 4 Yes

Mr.K.V.Ramarathnam 6 Yes

Mr. N.V.Khote 3 No

Dr.H.N.Sethna 4 No

Mr. M.R.Ramachandran 4 No

Mr.Hemant Luthra 4 Yes

Mr.C.S.Madhav Rao 4 No

Mr.R.R.Krishnan 5 Yes

Mr.S.Ravi* 1 N.A.

* Appointed as an Additional Director of the Company with effectfrom 29th July, 2005.

D. Directors seeking appointment / re-appointment

Mr. Anand G. Mahindra, Dr.H.N.Sethna and Mr.C.S. Madhav Raoretire by rotation and being eligible have offered themselves forre-appointment.

Mr.S.Ravi, who has been appointed as an Additional Director ofthe Company on 29th July, 2005, holds office upto the date ofthe Annual General Meeting. A notice has been duly receivedfrom a member proposing the candidature of Mr.S. Ravi for theoffice of the Director at the said meeting.

Mr. Anand G. Mahindra

Mr. Anand Mahindra is the Vice Chairman of the Company. He isthe Vice Chairman and Managaing Director of Mahindra &Mahindra Limited (M&M). He was member of the HarvardCollege Cambridge, class of 1977, from where he graduated witha Magna cum Laude. In 1981, he obtained an MBA from theHarvard Business School. He later joined your Company, wherehe was appointed President and Deputy Managing Director in1989. He was appointed Deputy Managing Director of M&M in1991. Mr.Anand Mahindra became Managing Director ofMahindra & Mahindra Limited in 1997. In Janaury 2001, he wasappointed Vice-Chairman of M&M.

He is Past President 2003-04 of the Confederation of IndianIndustry and has also been President of the prestigiousAutomotive Research Association of India (ARAI). He is a memberof the Advisory Council of the Initiative on Corporate Governanceof Harvard Business School, the Asia Pacific Advisory Board ofthe Harvard Business School, the Executive Committee of theNehru Centre and the Governing Body of the National Instituteof Bank Management and is the Co-Chairman of the internationalCouncil of the Asia Society in New York. He is also a Trustee ofthe K.C.Mahindra Education Trust and on the Board of Governorsof the Mahindra United World College of India .

Mr.Mahindra is on the Boards of Mahindra Gesco DevelopersLimited, Mahindra & Mahindra Limited, National Stock Exchangeof India Limited, Mahindra Ugine Steel Co. Limited, MahindraIntertrade Limited, Mahindra & Mahindra Financial ServicesLimited, Kotak Mahindra Bank Limited, Automartindia Limited,Tech Mahindra Limited, Avion Aerosols Private Limited, MW.ComIndia Limited, M.A.R.K. Hotels Private Limited, AngularConstructions Limited, Bristlecone Limited, Cayman Islands,Mahindra International Limited, Mahindra (China) Tractor Co.Limited, Tech Mahindra (Americas) Inc.

Mr.Anand Mahindra is on the Committees of the Board mentionedhereunder:

Name of the Name of the Position held

Company Committee

Mahindra & Share Transfer & Shareholders/ MemberMahindra Ltd. Investors Grievance Committee

Research & Development MemberLoan & Investment Member

Mahindra Ugine Remuneration Committee MemberSteel Co. Ltd.Mahindra & Mahindra Remuneration/ Compensaton MemberFinancial Services Ltd.Kotak Mahindra Bank Remuneration/ MemberLimited CompensatonMahindra International Remuneration ChairmanLimited

Mr. Anand Mahindra does not hold any shares in the Company.

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Dr. H.N. Sethna

Dr. H. N. Sethna is B.Sc. (Tech), M.S.E (Michigan); F.A.Sc., F.N.A.,F.I.E., M.I.E. and has been conferred Honorary Doctorate byvarious esteemed Universities from all over India.

Dr. H.N. Sethna began his career in the year 1947 as a traineewith I.C.I., Manchester under the Tata – ICI Scheme. In 1949 hejoined Indian Rare Earths Limited, where he was given the fulltechnical responsibility for setting the Rare Earths Plant at Alwayein Kerala which marked the beginning of exploitation of nuclearmaterial in India.

In 1959 he joined the Atomic Energy Establishment at Trombay(now Bhabha Atomic Research Centre) as Chief Scientific Officerand later became the Director of the Engineering Group with theresponsibility for designing and construction of the PlutoniumPlant at Trombay in 1964 and Uranium Mill at Jaduguda in Biharin 1967.

Dr. H.N. Sethna was the Director of the Bhabha Atomic ResearchCentre for the period 1966 to 1972. He was appointed asSecretary/Principal Secretary to the Government of India andChairman of the Atomic Energy Commission for the period 1972-83. In the year 1974 he led a team responsible for India’s firstpeaceful Nuclear Experiment.

During the period 1998-2001 Dr. Sethna was appointed as themember of the research Advisory Committee of the PlanningCommission, Member of the Court of the Indian Institute ofScience, Bangalore, Member of Court of University of Hyderabadand Member of Board of Trade, Directorate General of ForeignTrade, Government of India.

Dr. H.N.Sethna has been bestowed with various Honors andAwards at various junctures of his career.

Dr. H.N. Sethna, during the span of his career, has chaired variouseminent organisations and corporate bodies namely FertilizerCorpn. of India, Board of Governors of IIT Bombay and Delhi,Tata Memorial Centre, Indian Rare Earths Limited, Tata ElectricCompanies.

Dr. H.N. Sethna has been conferred with memberships of variouslearned societies viz. Royal Swedish Academy of EngineeringSciences, Indian Academy of Sciences, The Institution of Engineers(India), Indian National Science Academy, Indian Institute ofChemical Engineers, Aeronautical Society of India etc.

Dr. H.N.Sethna is also a Trustee for various charitable trust viz.Sir Ratan Tata Trust, Bai Hirabai J.N. Tata Navsari CharitableInstitution, Sarvajanik Seva Trust, Ness Wadia Foundation,Member of the Board of Management of Bai Jerbai WadiaHospital for Children, Institute of Child Health Research Society,Council of Nowrosjee Wadia Maternity Hospital, Ness WadiaResearch Society.

Dr. H.N. Sethna is the Chairman of Cabot India Limited, WIMCOLimited and also holds Directorships of The Bombay Dyeing &Manufacturing Co. Limited, Jost’s Engineering Co. Limited, ProtosEngineering Company Private Limited and The Mahindra UnitedWorld College of India.

Dr. H.N. Sethna holds 1,200 shares in the Company.

Dr. H.N. Sethna is a member of the following BoardCommittees :

Sr. Name of the Name of the PositionNo. Company Committee held

1. Mahindra Ugine Audit Committee MemberSteel Co. Ltd.

2. Mahindra Ugine Remuneration Committee ChairmanSteel Co. Ltd.

3. The Bombay Dyeing Audit Committee Member & Mfg. Co. Ltd. Share Transfer Committee Member

Shareholders’ GrievanceCommittee Member

4. Josts Engg. Co. Ltd. ShareTransfer Committee Member5. Cabot India Ltd. Audit Committee Chairman6. Wimco Ltd. ShareTransfer Committee Chairman

Audit Committee Chairman

Mr. C.S. Madhav Rao

Mr. C. S.Madhav Rao is a Chartered Accountant and has workedwith Life Insurance Corporation of India (L.I.C.) in variouscapacities. Mr.Madhav Rao retired as Executive Director (Audit)from L.I.C.

Presently he is a partner of Prema Gopal & Co. CharteredAccountants, Hyderabad.

Mr. C.S.Madhav Rao is a member of the following BoardCommittee :

Sr. Name of the Name of the Position

No. Company Committee held

1. Mahindra Ugine Audit Committee MemberSteel Company Ltd.

Mr. Madhav Rao does not hold any shares in the Company.

Mr.S.Ravi

Mr. S. Ravi is a Post Graduate in Commerce and F.C.A. He is apracticing Chartered Accountant and the Senior Partner of RaviRajan & Co.

During the course of practice, he has handled assignments inthe field of Restructuring & Rehabilitation of companies, Takeover,Mergers & Acquisitions and Business and Brand valuation. He isalso a member on the Board of Voluntary Health Association ofIndia (VHAI).

His experience in the banking sector includes tenure asGovernment Nominated Director of UCO Bank, wherein as amember of the Strategic Revival Group, was instrumental in theformulation of the revival plan and its subsequent implementation.He was also a member of the strategic Revival Committee ofDena Bank apart from Asset Liability Management Committee,Risk Management Committee and Committee for MonitoringNPAs and Chairman of Audit Committee during his tenure asshareholder director of the Bank. He is a Trustee of PNB MutualFund .

Mr. S. Ravi holds the Directorships of the following bodycorporates viz. IFCI Limited, Corporation Bank, IDBI Capital

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Market Services Limited, Batliboi Limited, Spectrum PowerGeneration Limited, Principal Trustee Company Private Limited,Gujarat Pipavav Port Limited, LIC Housing Finance Limited, IDBIHome Finance Limited, Garware Chemicals Limited,

Mr. Ravi is a member of the following Board Committees:

Sr. Name of the Name of the Position

No. Company/Bank Committee held

1 Mahindra Ugine Investors’ GrievanceSteel Co. Ltd. Committee Chairman

2 Corporation Bank Audit Committee Chairman

3 IDBI Capital Market Audit Committee ChairmanServices Ltd.

4 Garware Audit Committee MemberChemicals Ltd.

5 LIC Housing Audit Committee ChairmanFinance Ltd.

6 IFCI Ltd. Audit Committee MemberRemuneration Committee MemberInvestors’ Grievances Committee Member

Mr. S. Ravi does not hold any shares in the Company.

E. Codes of ConductE. Codes of ConductE. Codes of ConductE. Codes of ConductE. Codes of Conduct

The Board has laid down two separate Codes of Conduct-onefor Board members and other for senior management andemployees of the Company. These Codes have been posted onthe Company’s website www.muscoindia.com. All BoardMembers and Senior Management Personnel have affirmedcompliance with the Codes of Conduct. A declaration signed bythe Managing Director to this effect is enclosed at the end ofthis report.

II REMUNERATION TO DIRECTORS

A. Remuneration Policy

While deciding on the remuneration for Directors, the Board,Remuneration Committee (Committee) considers theperformance of the Company, the current trends in the industry,the qualification of the appointee(s), their experience, pastperformance and other relevant factors. The Board / Committeeregularly keeps track of the market trends in terms ofcompensation levels and practices in relevant industries throughparticipation in structured surveys. This information is used toreview the Company’s remuneration policies.

B. Remuneration to Non-Executive Directors for the year

ended 31st March, 2006.

Non-Executive Directors are paid sitting fee of Rs.7,500/- for everymeeting of the Board or Audit Committee attended. Sitting feeshave been revised from Rs.3,500/- to Rs.7,500/- per meeting,effective from Board/Committee meeting held on 5th September,2005 and a revised sitting fees of Rs.3,750/- is paid per meetingin case of Investors’ Grievance/Remuneration Committeemeetings with effect from 5th September, 2005. The fees paidto Non-Executive Directors for the year ended 31st March, 2006is as under:

Sitting fees paid during the year (Rupees)

Director Board Committee Total

Mr. Keshub Mahindra 37,000 — 37,000

Mr. Anand G. Mahindra 22,000 3,750 25,750

Dr. Homi N. Sethna 30,000 33,750 63,750

Mr. N.V. Khote 18,500 26,000 44,500

Mr. M.R. Ramachandran 30,000 62,500 92,500

Mr. Hemant Luthra 22,000 — 22,000

Mr. R.R.Krishnan 33,500 26,000 59,500

Mr. C.S. Madhav Rao 30,000 22,500 52,500

Mr. S. Ravi 7,500 — 7,500

C. Remuneration to the Managing Director for the year ended

31st March, 2006.

Remuneration payable to the Managing Director is fixed by theRemuneration Committee and thereafter approved by theshareholders at a General meeting.

Following is the Remuneration paid/payable to the ManagingDirector during the year ended 31st March, 2006.

Director Salary Company’s Perquisites Total Contract(Rs.) contribution and (Rs.) Period

to funds* allowances(Rs.) (Rs.)

Mr. K.V. Ramarathnam 13,20,000 3,56,400 13,27,827 30,04,227* 5th May, 2003Managing Director to 4th May,

2008.

Note:

* The above does not include Commission of Rs.25,00,000/-payable to Mr.Ramarathnam, Managing Director of the Companyfor the year 2004-05 for which the Central Government’s approvalhas already been obtained and payable after approval by membersat the ensuing Annual General Meeting. The RemunerationCommittee and the Board of Directors at their meeting held on29th March, 2006 and on 24th April, 2006 respectively, haveapproved the payment of Commission of Rs.30,00,000/- for theyear 2005-2006, subject to the approval by members of theCompany. (The above Remuneration paid to the ManagingDirector does not include the accrual for Gratuity and Leaveencashment as it is funded / provided on the basis of actuarialvaluation for the Company as a whole).

$ Notice period applicable to Managing Director is three months.

III. RISK MANAGEMENT

Your Company has a well-defined risk management frameworkin place. The risk management framework adopted by theCompany is discussed in detail in the Management Discussionand Analysis chapter of this Annual Report. Your Company hasestablished procedures to periodically place before the Boardthe risk assessment and minimisation procedures being followedby the Company and steps taken by it to mitigate these risks.

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IV. COMMITTEES OF BOARD

A. Audit Committee

The Audit Committee was constituted by the Board of Directorsat its meeting held on 14th February, 2001 and presently itcomprises of Mr. N.V. Khote, Dr. Homi N. Sethna, Mr. M.R.Ramachandran and Mr. C.S. Madhav Rao all being independentNon-Executive Directors and Mr. R.R. Krishnan, a Non-ExecutiveDirector, who has been appointed as member of the Committeeeffective from 25th July, 2005.

Mr. N.V.Khote is the Chairman of the Committee.

The terms of reference of this Committee are very wide.

Besides having access to all the required information from withinthe Company, the Committee can obtain external professionaladvice whenever required. The Committee acts as a link betweenthe Statutory and the Internal Auditors and the Board of Directorsof the Company. It is authorised to select and establish accountingpolicies, review reports of the Statutory and the Internal Auditorsand meet with them to discuss their findings, suggestions andother related matters. The Committee is empowered to reviewthe remuneration payable to the Statutory Auditors and torecommend a change in Auditors, if felt necessary. It is alsoempowered to review Financial Statements, ManagementDiscussion & Analysis, material individual transactions withrelated parties not in normal course of business or which are noton an arm’s length basis. Generally all items listed in Clause 49 IID of the Listing Agreement are covered in the terms of reference.The Audit Committee has been granted powers as prescribedunder Clause 49 II C.

The meetings of the Audit Committee were also attended bythe Managing Director, Executive Vice-President (Finance) & MIS,Company Secretary, the Statutory Auditors and the InternalAuditors.

The Committee held 5 meetings during the year 2005-06. Theattendance at the meetings was as under:

Sr. Members Meetings Remarks

No. Attended

1 Mr. N.V. Khote 3 —(Chairman)

2 Mr. M.R. Ramachandran 5 —

3 Mr. C.S.Madhav Rao 3 —

4 Dr.H.N.Sethna 3 (appointed as a member ofAudit Committeew.e. f. 21st April, 2005 )

5 Mr.R.R.Krishnan 4 (appointed as a member ofAudit Committeew. e. f. 25th July, 2005)

B. Investors’ Grievance Committee

The Investors’ Grievance Committee was constituted by theBoard of Directors at its meeting held on 27th July, 2001 andpresently it comprises of Mr. K.V. Ramarathnam, ManagingDirector, Mr. M.R. Ramachandran and Mr.S. Ravi whowas appointed as member of the Committee w.e.f. 29thJuly, 2005.

The Committee meets as and when required, to deal with mattersrelating to transfer/transmission of shares and monitors redressalof complaints from shareholders relating to transfers, non-receiptof balance-sheet, non-receipt of dividends declared, etc.

The Committee held 6 meetings during the year 2005-06. Theattendance at these meetings was as under:

Sr. Members Meetings Remarks

No. Attended

1 Mr. S. Ravi - (appointed as member on28th October, 2005)

2 Mr. M.R. Ramachandran 6 -

3 Mr. K. V. Ramarathnam 6 -

The Company also has Share Transfer Sub-Committee consistingof the following members:

Mr. K.V. Ramarathnam . . Managing Director

Mr. R. Sundaresan . . Executive Vice President(Finance) & MIS

Normally Share Transfer Committee meetings are held twice ina month to approve share transfers and other related mattersand are attended by the Managing Director, Executive VicePresident (Finance) & MIS and Company Secretary of theCompany. Share Transfer Committee meetings are chaired bythe Managing Director of the Company.

During the year, 38 letters/complaints were received from theshareholders, all of which were attended to / resolved to date.

As on 31st March, 2006, there were no pending share transferspertaining to the year under review.

C. Remuneration Committee.

The role of the Remuneration Committee is to review marketpractices and to decide on remuneration packages applicable tothe Managing Director . During the course of its review, theCommittee also decides on the Commission and/or otherincentives payable, taking into account the individual’sperformance as well as that of the Company.

The Remuneration Committee was constituted by the Board ofDirectors at its meeting held on 30th July, 2002 and presently itcomprises of Dr. H. N. Sethna, Mr. Anand G. Mahindra, Mr. N. V.Khote and Mr. M. R. Ramachandran.

Dr. H. N. Sethna is the Chairman of the Committee.

The Committee held 3 meetings during 2005-06. The attendanceat the meetings was as under:

Sr. Members Meeting

No. Attended

1. Dr.H.N.Sethna 3

2. Mr.Anand G. Mahindra 1

3. Mr.N.V.Khote 2

4. Mr.M.R.Ramachandran 3

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V. MANAGEMENT

A. Disclosures

During the financial year 2005-06, there were no materiallysignificant transactions entered into between the Company andits promoters, Directors or the management, relatives, etc. thatmay have potential conflict with the interests of the Company atlarge. Further, details of related party transactions are presentedin note no. “25” in Schedule “L “ to Annual Accounts of theAnnual Report.

B. Disclosure of Accounting Treatment in Preparation of

Financial Statements

The Company has followed the Guidelines of AccountingStandards laid down by The Institute of Chartered Accountantsof India (ICAI) in preparation of its financial statements.

C. Code for Prevention of Insider-Trading Practices

In compliance with SEBI’s regulation on prevention of insidertrading, the Company has instituted a comprehensive Code ofConduct for prevention of Insider Trading for its designatedemployees. The Code lays down Guidelines, which advises themon procedures to be followed and disclosures to be made, whiledealing with shares of Company, and cautioning them of theconsequences of violations.

VI. SHAREHOLDER INFORMATION

(i) Annual General Meeting

The Forty Third Annual General Meeting of theCompany will be held on Monday, 24th July, 2006 at3.45 p.m. at Amar Gian Grover Auditorium, Lala LajpatRai Memorial Trust, Lala Lajpat Rai Marg, Haji Ali,Mumbai – 400 034 to transact such business as statedin the Notice of the Meeting.

(ii) Financial Year of the Company

The financial year covers the period 1st April to 31stMarch.

Reporting of Unaudited Financial Results with LimitedReview for quarter ended:

— 30.06.2006 - by end of July, 2006.

— 30.09.2006 - by end of October, 2006.

— 31.12.2006 - by end of January, 2007.

— Audited financial results for the year ended31.03.2007 - by end of April, 2007.

— AGM for the year ended 31.03.2007 - by end ofJuly, 2007.

Note : The above dates are indicative.

(iii) Date of Book Closure

14th July, 2006 to 24th July, 2006 (both days inclusive).

(iv) Dividend Payment date

On or after 24th July, 2006.

(v) Listing of Equity Shares on Stock Exchanges

1. Bombay Stock Exchange Limited.

2. National Stock Exchange of India Limited

3. Calcutta Stock Exchange Association Limited*

(*Applied for delisting on 14th September, 2004 and approvalis still awaited).

The Company has paid the Listing Fees to Bombay StockExchange Limited and National Stock Exchange of IndiaLimited in full.

(vi) Stock Codes:

(a) Bombay Stock Exchange Limited (BSE)

— 504823

(b) National Stock Exchange of India Limited (NSE)— MAHINDUGIN EQ

(c) Demat International Securities IdentificationNumber (ISIN) in NSDL and CDSL for E q u i t yShares — INE 850A01010

(vii) Stock Market price data:

High/low prices during each month in last financial yearon Bombay Stock Exchange Limited / National StockExchange of India Limited.

Month Bombay National

Stock Exchange Stock Exchange

High (Rs.) Low (Rs.) High (Rs.) Low (Rs.)

April 2005 116.80 94.10 116.90 96.00

May 2005 107.30 94.50 113.80 95.00

June 2005 118.50 96.25 118.45 96.00

July 2005 112.00 98.30 111.25 97.65

August 2005 117.90 102.00 117.50 86.25

September 2005 139.50 106.05 139.45 106.05

October 2005 129.90 85.00 129.95 84.25

November 2005 121.00 90.50 122.00 91.05

December 2005 141.00 111.00 141.25 112.00

January 2006 160.95 130.75 161.40 130.00

February 2006 137.00 112.60 138.90 112.00

March 2006 139.25 119.00 138.80 118.45

(viii) Stock Performance in comparison to BSE Sensitive Index

MU

SC

O P

rice

Val

ue in

Rs.

BS

E S

ense

x P

oint

s

BSE Sensex PointsMUSCO Price Mont s

Mar e an ec o OctSe u ul un Ma r

ast tra in ate o t e ont

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(ix) Registrar and Transfer Agents-

M/s. Sharepro Services (India) Private LimitedUnit: Mahindra Ugine Steel Co. LimitedSatam Estate, 3rd floor,Above Bank of Baroda,Cardinal Gracious Road, Chakala,Andheri (East), Mumbai - 400 099.Tel. No.: 022-28215168/28329828Fax No.: 022-28375646E-mail : [email protected]

(x) Share Transfer System

All the Transfers received are processed and approved bythe Share Transfer Sub-Committee, which normally meetstwice in a month or more depending on the volume ofTransfers and reports to the Investors’ GrievanceCommittee.

(xi) Pattern of shareholding as on 31st March, 2006

Sr. Description Number % to

No. of Shares capital

1 Promoters 16,483,792 50.74

2 Public Financial Institutions 2,783,006 8.57

3 Banks 1,330 0.01

4 Mutual Funds 332,401 1.02

5 Foreign Institutional Investors 3,978,908 12.25

6 Non Resident Indian /Foreigner 181,079 0.55

7 Bodies Corporate 1,560,744 4.81

8 Persons Acting in Concert 1,606,016 4.94

9 Public 5,555,253 17.11

TOTAL 32,482,529 100.00

(xii) Distribution of shareholding as on 31st March, 2006

Shares No. of % to No. of % to

Held Share Share Shares Capital

holders holders

Up to-500 19,326 90.89 2,141,433 6.59501-1000 1,038 4.88 851,872 2.621001-2000 430 2.02 668,463 2.062001-3000 159 0.75 410,675 1.273001-4000 75 0.35 273,685 0.844001-5000 69 0.33 327,765 1.015001-10000 91 0.43 699,552 2.1510001-and above 75 0.35 27,109,084 83.46TOTAL 21,263 100.00 32,482,529 100.00

(xiii)Dematerialization of Shares and Liquidity as on 31st

March, 2006.

Physical Form : 7.65%

Dematerialized Form : 92.35%

Trading in equity shares of the Company is permitted indematerialized form only as per the notification issued bySecurities and Exchange Board of India (SEBI).

(xiv)Outstanding ADRs / GDRs / Warrants or any convertible

instruments, conversion date and likely impact on

Equity.

The Company has not issued any ADRs /GDRs / Warrantsor any convertible instruments.

(xv) Plant Locations :

1. Steel Division

Jagdish Nagar,Khopoli- 410 216,District-Raigad, Maharashtra.

2. Stampings Divisions

a) 371, Takwe Road,At & Post-Kanhe, Tal. Maval,Dist. Pune- 412 106.

b) D-2, MIDC, Ambad, Nashik- 422 010.

(xvi)Address for correspondence

Registered Office:-74, Ganesh Apartment,Opp. Sitaladevi Temple,L. J. Road,Mahim(W),Mumbai - 400 016.Tel.: 022-24444287Telefax: 022-24458196E-mail: [email protected]

VII. OTHER DISCLOSURES

Annual General Meetings held during the past three years:

Year Date Time

2002-03 31.07.2003 3.45 p.m.

2003-04 29.07.2004 3.45 p.m.

2004-05 29.07.2005 11.30 a.m.

All the meetings were held at Amar Gian Grover Auditorium,Lala Lajpatrai Memorial Trust, Lala Lajpatrai Marg, Haji Ali,Mumbai-400 034.

No postal ballots were used/invited for voting at thesemeetings.

In addition to the Annual General Meeting, the Companyhad also held a Court Convened Extra Ordinary GeneralMeeting on 11th January, 2006 for approval of Scheme ofAmalgamation of Pranay Sheetmetal Stampings Limited,Console Estate & Investments Limited and Valueline Hotels& Resorts Limited with the Company.

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The following Special Resolutions were passed in theprevious 3 Annual General Meetings:

Financial Date of Special Resolutions passed

Year Meeting

2002-2003 31.07.2003 1. Approval for increase in theremuneration of Mr. P.G. Chitaleas Managing Director of theCompany for the period from 1stNovember, 2002 to 31st March,2004 and

2. Approval for appointment andterms of remuneration of Mr. K.V.Ramarathnam as ExecutiveDirector of the Company for fiveyears with effect from 5th May,2003.

2003-2004 29.07.2004 1. Consent accorded to the Board todelist the Company’s EquityShares from stock exchanges atAhmedabad, Kolkata, New Delhiand Chennai and

2. Approval for new Registrarand Share Transfer Agents,M/s. Sharepro Services, to beappointed with effect from1st August, 2004.

2004-2005 29.07.2005 Approval for revision inremuneration payable toMr.K.V.Ramarathnam as theManaging Director of theCompany with effect from 1stApril, 2004 for the remainder of histerm of office.

The Company has not proposed any special resolution tobe conducted through postal ballot for this Annual GeneralMeeting.

2. Details of non-compliance etc.

The Company has complied with all the requirements ofregulatory authorities. During the last three years, there wereno instances of non-compliance by the Company and nopenalty or strictures were imposed on the Company by theStock Exchanges or SEBI or any statutory authority, on anymatter related to the capital markets.

3. Means of Communication

The quarterly, half yearly & yearly results are published inThe Economic Times, The Free Press Journal, MaharashtraTimes and Navashakti which are national and local dailies.These are not sent individually to the Shareholders. TheCompany results and official news releases are displayedon the Company’s website http://www.muscoindia.com

4. The Management Discussion and Analysis Report (MDA)has been attached to the Directors’ Report and forms partof this Annual Report.

5. Compliance with mandatory & non-mandatory

requirements

The Company has complied with all the mandatoryrequirements of Clause 49 of the Listing Agreement relatingto Corporate Governance. Further, the Company hasadopted the following non-mandatory requirements of theClause:

• The Company has set up the RemunerationCommittee.

• The financial statements of the Company areunqualified.

The Company has not adopted the other non-mandatory requirements as specified in Annexure IDof Clause 49.


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DECLARATION BY THE MANAGING DIRECTOR PURSUANT TO CLAUSE 49 OF THE LISTING AGREEMENT

To

The members of Mahindra Ugine Steel Company Limited

I, K. V. Ramarathnam, Managing Director of Mahindra Ugine Steel Company Limited, declare that all the members of the Boardof Directors and Senior Management Personnel have affirmed compliance with the Codes of Conduct.

K. V. Ramarathnam

Managing Director

Place : MumbaiDate : 24th April, 2006.

CERTIFICATE

To the members of Mahindra Ugine Steel Company Limited.

We have examined the compliance of conditions of Corporate Governance by Mahindra Ugine Steel Company Limited, for theyear ended 31st March, 2006, as stipulated in Clause 49 of the Listing Agreement of the said Company with stock exchanges inIndia.

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

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

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



R. A. Banga

PartnerPlace : Mumbai Membership Number : 37915Date : 24th April, 2006.

151


AUDITORS’ REPORT TO THE MEMBERS OF


1. We have audited the attached balance sheet of MahindraUgine Steel Company Limited as at 31st March 2006 andalso the profit and loss account and the cash flow statementfor the year ended on that date annexed thereto. Thesefinancial statements are the responsibility of the company’smanagement. Our responsibility is to express an opinionon these financial statements based on our audit.

2. We conducted our audit in accordance with the auditingstandards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements.An audit also includes assessing the accounting principlesused and significant estimates made by management, aswell as evaluating the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order,2003, issued by the Central Government of India in termsof sub-section (4A) of section 227 of the Companies Act,1956, we enclose in the Annexure a statement on thematters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to inparagraph 3 above, we report that:

(a) We have obtained all the information and explanationswhich to the best of our knowledge and belief werenecessary for the purposes of our audit;

(b) In our opinion, proper books of account as required bylaw have been kept by the company so far as appearsfrom our examination of those books;

(c) the balance sheet, profit and loss account and cashflow statement dealt with by this report are inagreement with the books of account;

(d) In our opinion, the balance sheet, profit and lossaccount and cash flow statement dealt with by thisreport comply with the accounting standards referredto in sub-section (3C) of Section 211 of the CompaniesAct, 1956;

(e) On the basis of written representations received fromthe directors, as on 31st March, 2006 and taken onrecord by the Board of Directors, we report that noneof the directors is disqualified as on 31st March, 2006from being appointed as a director in terms of clause(g) of sub-section (1) of section 274 of the CompaniesAct, 1956;

(f) In our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts give the information required by theCompanies Act, 1956, in the manner so required andgive a true and fair view in conformity with theaccounting principles generally accepted in India:

(i) in the case of balance sheet, of the state of affairsof the company as at 31st March, 2006;

(ii) in the case of profit and loss account, of the profitfor the year ended on that date; and

(iii) in the case of cash flow statement, of the cashflows for the year ended on that date.



R. A. Banga



152


(i) (a) The company is maintaining proper records showingfull particulars, including quantitative details andsituation of fixed assets. In respect of furniture,fixtures and office equipment, location is broadlyindicated unit-wise.

(b) As explained to us, the company has a phasedprogramme designed to verify all fixed assets over aperiod of three years. Accordingly, certain class ofassets at Khopoli, Kanhe and Nashik were verifiedby the management during the year. No materialdiscrepancies between the book records and thephysical inventory were noticed in respect of theassets physically verified.

(c) During the year, in our opinion, a substantial part offixed assets has not been disposed off by the company.

(ii) (a) The inventory of the company has been physicallyverified by the management during the year and atthe year end or after the year end. The stock of scrap,having regard to its nature and manner of storage,was verified at the year end by the management byvisual estimation (relied upon by us). In respect ofmaterials lying with third parties, these have beenconfirmed by them. In our opinion, the frequency ofverification is reasonable.

(b) In our opinion and according to the information andexplanations given to us, having regard to thecomment in respect of scrap in (ii) (a) above, theprocedure of physical verification of stocks arereasonable and adequate in relation to the size of thecompany and the nature of its business.

(c) On the basis of our examination of records of inventory,in our opinion, the company has maintained properrecords of inventory. As stock of scrap is verified byvisual estimation (relied upon by us), no adjustmentshave been made for the difference between the stocksso determined and the book records as it has beenexplained to us by the management that such anadjustment would not be proper having regard to themethod of verification and the quantum of discrepancynoticed. The discrepancies noticed on physicalverification between the physical stocks and bookrecords were not material in relation to the operationsof the company.

(iii) (a) The Company has not granted any loans secured orunsecured to companies, firm or other parties coveredin the register maintained under Section 301 of theCompanies Act, 1956, and accordingly paragraphs(iii)(b), (c) and (d) of the Order are not applicable.

(b) In our opinion and according to the information andexplanations given to us, the company has taken overunder a scheme of amalgamation an unsecured loan

from a company covered in the register maintainedunder Section 301 of the Companies Act, 1956. Themaximum amount of the loan involved during the yearwas Rs. 900.00 lakhs and the year end balance ofloan taken was Rs. 200.00 lakhs.

(c) In our opinion and according to the information andexplanations given to us, the rate of interest and otherterms and conditions on which such loan has beentaken are not, prima facie prejudicial to the interestsof the Company.

(g) As explained to us, in respect of the loan taken therewas no stipulation as to repayment.

(iv) In our opinion and according to the information andexplanations given to us, having regard to the explanationsthat some of the items are of a special nature or are atnegotiated prices and therefore alternative quotations arenot available. there are adequate internal control procedurescommensurate with the size of the company and the natureof its business for the purchase of inventory, fixed assetsand for the sale of goods and services. Further, on the basisof our examination and according to the information andexplanations given to us, we have neither come acrossnor have we been informed of any instance of majorweaknesses in the aforesaid internal control system.

(v) (a) In our opinion and according to the information andexplanations given to us, the particulars of contractsor arrangements referred to in Section 301 of theCompanies Act, 1956 have been entered in theregister required to be maintained under that section;

(b) In our opinion and according to the information andexplanations given to us, having regard to commentsin (iv) above, where there have been transactions withother parties, the transactions made in pursuance ofcontracts or arrangements entered in the registermaintained under Section 301 of the Companies Act,1956 during the year have been made at prices, whichare reasonable having regard to the prevailing marketprices for such goods, materials or services at therelevant time.

(vi) In our opinion, and according to the information andexplanations given to us, the Company has complied withthe provisions of Sections 58A, 58AA and other relevantprovisions of the Companies Act, 1956, and the Companies(Acceptance of Deposits) Rules, 1975 as applicable, withregard to the deposits accepted from the public. Accordingto the information and explanations given to us, no order underthe aforesaid Sections has been passed by the Company LawBoard or National Company Law Tribunal or Reserve Bank ofIndia or any Court or any other Tribunal, on the Company.


Annexure to the Auditors’ Report to the Members of

Mahindra Ugine Steel Company Limited

[Referred to in Paragraph 3 thereof]

153


(viii) We have broadly reviewed the books of account maintainedby the company relating to the manufacture of steel andautomotive parts and accessories pursuant to the rulesmade by the Central Government for the maintenance ofcost records under Section 209(1)(d) of the Companies Act,1956. and we are of the opinion that prima facie theprescribed accounts and records have been maintained andare being made up. We have not, however, made a detailedexamination of the records with a view of determiningwhether they are accurate or complete.

(ix) (a) According to the information and explanations givento us and according to the books and records asproduced and examined by us, in our opinion, theundisputed statutory dues including provident fund,investor education and protection fund, employeesstate insurance, income-tax, sales-tax, wealth tax,service tax, customs duty, excise duty, cess and othermaterial statutory dues as applicable have generallybeen regularly deposited by the Company during theyear with the appropriate authorities. According to theinformation and explanations given to us, there arearrears of outstanding statutory dues as mentionedabove as at 31st March, 2006 for a period of morethan six months from the date they became payable.

(b) As at 31st March, 2006 according to the records ofthe Company and the information and explanationgiven to us, the following are the particulars ofdisputed dues on account of income-tax, sales-tax,wealth tax, service tax, custom duty, excise duty andcess matters that have not been deposited onaccount of any dispute:

Name Nature Amount Period to Forum whereof the of dues disputed which the pending [somestatute Rs. amount of these can

relates be clubbed]

Sales Tax Laws Sales tax 4,285,246 1995-96 Tribunal

Income Tax Laws Income Tax 861,316 F.Y. Income Tax1989-90 Appellate

Tribunal

Income Tax 2,638,286 F.Y. Dy. Commissioner2000-01 (Appeals)

Income Tax 862,135 F.Y. Commissioner2002-03 of Income-Tax

(Appeals)

Customs Duty Customs duty 41,519,887 Feb-1994 Custom, Excise@ & Service Tax

AppellateTribunal

Excise Duty Excise 20,667,042 July 2001 Dy. CommissionerLaws to May 2005

Excise 3,206,434 Sept 1998 Commissionerto Mar 2003 (Appeals)

@ The amount has been stayed for recovery by the relevantauthority.

(x) The Company does not have accumulated losses as at 31st

March, 2006 and has not incurred cash losses during thefinancial year ended on that date or in the immediatelypreceeding financial year.

(xi) In our opinion and according to the information andexplanations given to us, the Company has not defaultedin repayment of its dues to a financial institution, bank orto debenture holders during the year.

(xii) In our opinion and according to the information andexplanations given to us, the Company has not grantedany loans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

(xiii) The provisions of any special statute as specified underclause (xiii) of the Order are not applicable to the Company.

(xiv) In our opinion and according to the information andexplanations given to us, the Company has maintainedproper records of transactions and contracts in respect oftrading in shares and timely entries have been made therein.The shares are held by the company in its own name.

(xv) According to the information and explanations given to us,the Company has not given any guarantees for loans takenby others from banks or financial institutions, the termsand conditions, whereof, in our opinion, are prejudicial tothe interest of the company.

(xvi) In our opinion and according to the information andexplanations given to us, the term loans were applied forthe purpose for which the loans were obtained.

(xvii) Based on the information and explanations given to us andon an overall examination of the balance sheet of theCompany, in our opinion, there are no funds raised on ashort term basis which have been used for long terminvestment.

(xviii) The Company has not made any preferential allotment ofshares to parties and companies covered in the registermaintained under Section 301 of the Companies Act, 1956.during the year.

(xix) As the Company has no debentures outstanding at anytime during the year, clause 4 (xix) of the Order is notapplicable to the company.


(xxi) According to the information and explanations given to us,during the year, no fraud on or by the Company has beennoticed or reported.



R.A. Banga



154




Schedule Rupees Rupees Rupees

SOURCES OF FUNDS

SHAREHOLDERS’ FUNDSSHARE CAPITAL .............................................................. A 379,425,290 473,916,890RESERVES AND SURPLUS ............................................. B 1,107,716,103 439,244,035

................................................................................ 1,487,141,393 913,160,925LOAN FUNDSSECURED LOANS ........................................................... C 443,839,812 374,098,322UNSECURED LOANS ...................................................... D 551,680,218 270,051,000

995,520,030 644,149,322Deferred Tax Liability [Net] (see note 23) ......................... 150,410,940 120,900,000

2,633,072,363 1,678,210,247


FIXED ASSETS ............................................................... EGross Block ...................................................................... 2,696,250,154 2,000,962,048Less : Depreciation .......................................................... 1,674,967,328 1,384,848,672

Net Block ......................................................................... 1,021,282,826 616,113,376Capital Work-in-progress .................................................. 136,890,690 70,031,870

1,158,173,516 686,145,246INVESTMENTS ................................................................ F 8,686,393 30,860,870CURRENT ASSETS, LOANS AND ADVANCES ............ GInventories ....................................................................... 1,005,340,499 972,765,293Sundry Debtors ................................................................ 1,452,348,945 1,029,642,900Cash and Bank Balances .................................................. 153,591,786 90,965,081Loans and Advances ........................................................ 256,352,601 110,000,521

2,867,633,831 2,203,373,795LESS : CURRENT LIABILITIES AND PROVISIONS ....... HCurrent Liabilities ............................................................. 1,172,106,810 1,101,065,742Provisions ......................................................................... 235,171,830 151,505,780

1,407,278,640 1,252,571,522

Net Current Assets .......................................................... 1,460,355,191 950,802,273MISCELLANEOUS EXPENDITURE (See note 25) .........(to the extent not written off or adjusted)Building renovation and repairs expenses ....................... 2,474 66,772Special payments under Voluntary Retirement Scheme.. 5,854,789 10,335,086

5,857,263 10,401,858

2,633,072,363 1,678,210,247

Notes to the Accounts ................................................... LSignificant Accounting Policies ........................................ M

}The Schedules referred to herein form anintegral part of the Balance Sheet

As per our report of even date attachedFor A. F. Ferguson & Co.Chartered AccountantsR. A. BANGA R. Sundaresan V.K. GuptePartner Executive Vice President Company Secretary

– Finance & MIS

Mumbai : 24th April, 2006

Keshub Mahindra ChairmanAnand G. Mahindra Vice ChairmanK. V. Ramarathnam Managing Director

Hemant Luthra

R. R. Krishnan

N. V. Khote DirectorsM. R. Ramachandran

C. S. Madhav Rao


155




Schedule Rupees RupeesINCOMESALE OF PRODUCTS/OTHER INCOME FROM OPERATIONSSale of products (Gross) (see note 12) ..................................... 6,331,805,949 5,565,392,581Less : Excise Duty ................................................................... 875,681,182 574,100,259

5,456,124,767 4,991,292,322Income from processing (Gross) (see note 12) ........................ 764,674,031 154,038,533Less : Excise Duty ................................................................... 309,590,027 62,958,822

........................................................................................ 455,084,004 91,079,711Arising and other sales(Gross) ................................................. 245,575,263 115,321,736Less : Excise Duty ................................................................... 52,981,625 12,919,943

192,593,638 102,401,793Miscellaneous Receipts(see note 13) ...................................... 46,566,280 35,227,393

6,150,368,689 5,220,001,219Other Income ........................................................................... I 97,279,006 10,491,049Increase / (decrease) in stocks ................................................ J 249,209,546 67,851,955

6,496,857,241 5,298,344,223EXPENDITUREManufacturing and other expenses ......................................... K 5,260,729,483 4,434,556,774Depreciation ............................................................................. E 130,849,059 96,215,732Interest (see note 8) ................................................................. 111,478,716 113,759,216

........................................................................................ 5,503,057,258 4,644,531,722PROFIT BEFORE TAX AND EXCEPTIONAL ITEM ................ 993,799,983 653,812,501Provision for tax (see note 23)– Current Tax (including Fringe Benefit Tax) .......................... 324,000,000 51,300,000– Deferred Tax ....................................................................... (21,300,000) 120,900,000

302,700,000 172,200,000PROFIT AFTER TAX AND BEFORE EXCEPTIONAL ITEM .... 691,099,983 481,612,501Less : Exceptional itemsPremium On Redemption Of Preference Shares(Net of tax)(Refer note 14 ) ........................................................................ 40,456,673 —PROFIT AFTER TAX ................................................................ 650,643,310 481,612,501Balance of profit / (loss )for earlier year ................................... 146,118,451 (77,891,270)Balance of profit and loss account acquired on account ofamalgamation (Refer Note 2 to the notes to accounts) ........... 204,660,780 —PROFIT AVAILABLE FOR APPROPRIATION .......................... 1,001,422,541 403,721,231Proposed Dividend on Equity Shares ....................................... 146,171,381 92,795,067Proposed Dividend on Preference Shares ............................... 1,581,156 19,112,655Interim Dividend Paid on Preference Shares ........................... 8,480,285 —Tax on Dividend ........................................................................ 21,911,653 15,695,058Transfer to General Reserve Account ...................................... 450,000,000 130,000,000BALANCE IN PROFIT AND LOSS CARRIED FORWARD ...... 373,278,066 146,118,451Earning per share (basic and diluted) before exceptional item(face value Rs.10) ..................................................................... 20.92 15.03Earning per share (basic and diluted) after exceptional item(face value Rs.10) (see note 24 ) .............................................. 19.68 15.03Notes to the Accounts ........................................................... LSignificant Accounting Policies ................................................ M

}The Schedules referred to herein form anintegral part of the Balance Sheet

As per our report of even date attached to the Balance SheetFor A. F. Ferguson & Co.Chartered AccountantsR. A. BANGA R. Sundaresan V.K. GuptePartner Executive Vice President Company Secretary

– Finance & MIS



Hemant Luthra

R. R. Krishnan

N. V. Khote DirectorsM. R. Ramachandran

C. S. Madhav Rao


156


Cash Flow Statement for the Year Ended 31st March, 200631st March, 2006 31st March, 2005

Rupees Rupees RupeesA. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit before tax and exceptional items ..................................... 993,799,983 653,812,501Adjustment forDepreciation ...................................................................................... 130,849,059 96,215,732Dividend Income ............................................................................... (361,786) (494,524)Interest and commitment charges .................................................... 111,478,716 113,759,216Amortisation of expenses ................................................................. 4,544,595 9,361,401Foreign Exchange Difference (Gain) ................................................. — (127,207)Profit on sale of investment .............................................................. (82,289,148) (56,982)Profit on sale of fixed assets (net) .................................................... (259,199) (1,426,139)Interest income ................................................................................. (5,450,283) (4,812,456)Provision for premium payable on redemption ofcumulative preference shares ........................................................... 3,500,000 899,268Income towards use of fixed assets ................................................. — (3,172,000)Provision for Diminution in value of investment (written back) ........ (1,010,000) —

161,001,954 210,146,309Operating Profit before Working Capital changes ............................. 1,154,801,937 863,958,810Changes inTrade and other receivables .............................................................. (435,378,072) (225,531,324)Inventories ........................................................................................ (21,131,635) (249,911,305)Trade and other Payables .................................................................. (1,835,161) 81,884,582

(458,344,868) (393,558,047)Miscellaneous expenditure(to the extent not written off)incurred during the year .................................................................... — (1,532,228)Cash generated from operations ................................................... 696,457,069 468,868,535Income-tax paid ................................................................................. (302,917,669) (53,397,614)NET CASH FROM OPERATING ACTIVITIES .................................. 393,539,400 415,470,921

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of fixed assets ................................................................... (279,105,403) (84,762,264)Sale of fixed assets ........................................................................... 909,045 9,928,136Sale of investments .......................................................................... 93,693,447 246,922Dividends received ............................................................................ 361,786 494,524Interest received ............................................................................... 3,828,299 5,809,825NET CASH (USED IN)/FROM INVESTING ACTIVITIES ................ (180,312,826) (68,282,857)

C. CASH FLOW FROM FINANCING ACTIVITIESRedemption of Preference Shares .................................................... (110,000,000) —Premium on redemption of Preference Shares ................................ (40,456,673) —Proceeds from borrowings ............................................................... 930,702,981 169,193,974Repayment of borrowings ................................................................ (703,999,899) (446,888,738)Dividends paid ................................................................................... (136,571,388) (235,692)Interest and commitment charges paid ............................................ (98,888,155) (113,361,903)NET CASH (USED IN) / FROM FINANCING ACTIVITIES .............. (159,213,134) (391,292,359)NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 54,013,440 (44,104,295)CASH AND CASH EQUIVALENTS :Opening Balance ............................................................................... 90,965,081 135,069,376Opening Balance on amalgamation (see note 2 below) ................... 8,613,265 —Closing Balance ................................................................................. 153,591,786 90,965,081See notes attachedNOTES TO CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2006

31st March, 2006 31st March, 2005Rupees Rupees

1 Cash and cash equivalents include:Cash and cheques on hand 7,398,375 3,787,863Balance with scheduled banks:In Current Accounts 136,931,639 70,377,868In Deposit Accounts 9,261,772 16,799,350Total cash and cash equivalents 153,591,786 90,965,081

2 Cash and cash equivalents as on 1st April, 2005 of erstwhile Pranay, Valueline and Console taken over on amalgamation (See note 3 below).3 The amalgmation of erstwhile Pranay, Valueline and Console with the Company is a non-cash transaction (Refer Note 2 of notes to accounts).4 Previous year’s figures have been regrouped wherever necessary to conform to this year’s classifications.

}As per our report of even date attachedFor A. F. Ferguson & Co.Chartered AccountantsR. A. BANGA R. Sundaresan V.K. GuptePartner Executive Vice President Company Secretary

– Finance & MIS



N. V. Khote

M. R. Ramachandran

Hemant Luthra DirectorsR. R. Krishnan

C. S. Madhav Rao


157


Schedules Annexed to and forming part of the Balance Sheet

SCHEDULE ‘A’ - 31st March, 31st March,SHARE CAPITAL 2006 2005

Rupees Rupees RupeesAuthorised:34,000,000 Equity Shares of Rs.10 each 340,000,000 340,000,000

100,000 11% Redeemable CumulativePreference Shares ofRs. 100 each ..................... 10,000,000 10,000,000

3,000,000 Redeemable CumulativePreference Shares ofRs. 100 each ..................... 300,000,000 300,000,000

Total ..... 650,000,000 650,000,000

Issued, Subscribed and paid-up(see note 1)32,482,529 Equity Shares of Rs.10 each,

fully paid-up ....................... 324,825,290 309,316,890(2004-05: 30,931,689)Nil (2004-05: 9.72% Redeemable Cumulative1,100,000) Preference Shares of Rs. 100

each .................................. — 110,000,000546,000 7% Redeemable Cumulative

Preference Shares ofRs. 100 each ..................... 54,600,000 54,600,000

Total ..... 379,425,290 473,916,890

{16,466,789 (2004-05 : 15,241,885) equity shares and 546000 7% RedeemableCumulative Preference shares are held by Mahindra Holdings & Finance Ltd, theholding company; 2004-05: not the holding company }

SCHEDULE ‘B’ -RESERVES AND SURPLUSCapital Reserve (on redemption of preference shares, being the amount originallypaid-up on shares forfeited) :- As per last Balance Sheet .................... 375 375Capital Redemption Reserve AccountAs per last Balance Sheet ...................... – –Add: Transferred from GeneralReserve Account .................................... 110,000,000 –On amalgamation * ................................ 2,000 –

110,002,000 –Share Premium Account- As per last Balance Sheet .................. – 2,600,732

Less : Provision for premium payableon redemption of RedeemableCumulative Preference Shares .......... – 2,600,732

— —Special Reserve (in terms of Section 45ICof the Reserve Bank of India Act,1934) (on amalgamation) * ..................... 1,705,695 –General Reserve

SCHEDULE ‘C’ - 31st March, 31st March,SECURED LOANS 2006 2005(see note 9) Rupees Rupees Rupees

Term loan from Banks (repayablewithin one year Rs.137,729,6602004-05 : Rs.81,199,159) ................ 316,020,552 174,526,306Advances from banks ...................... 127,819,260 199,095,550Interest accrued and dueon above .......................................... – 476,466

127,819,260 199,572,016

443,839,812 374,098,322

SCHEDULE ‘D’ -UNSECURED LOANS

Fixed Deposits (repayable within ayear Rs.15,982,0002004-05 - Rs. 15,146,000) ............... 49,496,000 58,051,000Short Term Advances- from Banks .................................... 326,184,218 –- from Others ................................... 20,000,000 –

........................................................ 346,184,218 –Other Loans- from Banks .................................... 100,000,000 100,000,000- from Others ................................... 56,000,000 112,000,000

156,000,000 212,000,000

551,680,218 270,051,000

As per last Balance Sheet ...................... 293,125,209 163,125,209Add : Transfer from Profit andLoss Account ..................................... 450,000,000 130,000,000

Less : Transferred to Capital RedemptionReserve Account .................................... 110,000,000 –On amalgamation * ................................ 10,395,242 –

622,729,967 293,125,209Balance as per profit and loss account ... 373,278,066 146,118,451

Total ..... 1,107,716,103 439,244,035

* Reserves (net of adjustments) taken over consequent to the Scheme ofAmalgamation of Pranay, ValueLine and Console with the Company (Refer note 2to the notes to accounts)

SCHEDULE ‘E’ — FIXED ASSETS

COST DEPRECIATION WRITTEN DOWN VALUEASSETS As On #As on Additions Deductions As On Up To #As on For the Adjust- Upto As on As on

1-4-2005 1.4.2005 and and 31.3.2006 31-3-2005 1.4.2005 year ments 31-3-2006 31-3-2006 31-3-2005taken over adjust- adjust- taken over

consequent ments ments consequentto amalgamation to amalgamation

Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees

Freehold land 10,008,217 632,671 500,000 — 11,140,888 — — — — — 11,140,888 10,008,217Leasehold land — 6,164,084 — — 6,164,084 — 451,032 75,172 — 526,204 5,637,880 —Buildings 260,032,321 106,998,646 433,030 — 367,463,997 109,968,979 18,100,569 11,257,594 — 139,327,142 228,136,855 150,063,342Plant and Machinery 1,668,719,236 408,433,953 141,045,879 — 2,218,199,068 1,227,874,688 142,927,115 111,746,641 — 1,482,548,444 735,650,624 440,844,548Furniture,fixtures andoffice equipments 46,333,507 10,271,051 13,441,201 4,851,313 65,194,446 35,853,544 3,089,199 4,983,970 4,415,005 39,511,708 25,682,738 10,479,963Vehicles 15,868,767 4,455,932 6,659,641 1,693,771 25,290,569 11,151,461 596,920 2,480,522 1,480,233 12,748,670 12,541,899 4,717,306Software Expenditure — — 2,797,102 — 2,797,102 — — 305,160 — 305,160 2,491,942 —

2,000,962,048 536,956,337 164,876,853 6,545,084 2,696,250,154 1,384,848,672 165,164,835 130,849,059 5,895,238 1,674,967,328 1,021,282,826 —

Previous year 2,008,546,771 — 11,607,041 19,191,764 2,000,962,048 1,305,646,851 — 96,215,732 17,013,911 1,384,848,672 616,113,376

Capital work-in-progress 136,890,690 70,031,870

1,158,173,516 686,145,246

Notes :# Taken over on amalgamation consequent to Scheme of Amalgamation of Pranay, Valueline and Console with the Company(refer note 2 to the notes to accounts)

158


SCHEDULE ‘F’ - 31st March, 31st March,INVESTMENTS 2006 2005(at cost- Long term) Rupees Rupees

(Unquoted, unless otherwise stated)Trade :– Shares (fully paid up)– Orissa Sponge Iron Ltd.

21,739 equity shares ofRs. 10 each, (quoted) ...................... 296,445 296,445

– Dena Bank34,500 equity shares ofRs. 10 each, (quoted) ...................... 1,035,000 1,035,000

– Pranay Sheetmetal Stampings Ltd. . — 26,000NIL (2004-05 ; 260) equity shares ofRs. 100 each (720 shares ofRs. 100 each acquired on amalgamation;980 shares of Rs. 100 eachsubdivided into 98,000 shares of Re. 1each; 882,000 bonus shares receivedduring the year; 980,000 sharesextinguished on amalgamation)Pranay Sheetmetal Stampings Ltd. . — —NIL (2004-05 ; Nil) (4,000 8% CumulativeRedeemable Preference shares ofRs.100 each acquired on amalgamation;extinguished on amalgamation)

– Debentures : (fully paid-up)– Pranay Sheetmetal Stampings Ltd.

NIL (2004-05: 125,000 ) non convertibledebentures of Rs. 100 each(extinguished on amalgamation) ..... — 12,500,000

Non-Trade :– Shares : (fully paid-up)In Subsidiary Companies :– Console Estate and Investments Ltd.

NIL (2004-05: 98,000) equity sharesof Rs. 10 each (extinguished onamalgamation) ................................ — 980,000

– Mahindra Automotive SteelsPvt.Ltd. ........................................... — 100NIL (2004-05: 10) equity sharesof Rs. 10 each (6000 shares acquiredon amalgamation and 6010 shares soldduring the year)

In other companies :– Mahindra Hotels and Resorts Ltd.

49,990 equity shares of Rs. 10 each 499,900 499,900– Valueline Hotels and Resorts Pvt. Ltd.

NIL (2004-05: 10,001) equity sharesof Rs. 100 each ............................... — 1,000,100(10001 shares of Rs. 100 eachsubdivided into 100010 shares ofRs. 10 each; 100,010 sharesextinguished on amalgamation)

– Mahindra & Mahindra Contech Ltd.35,000 equity shares of Rs. 10 each 350,000 350,000

– Window of the World Motels Pvt. Ltd.2 equity shares of Rs. 100 each ...... 200 200

– Mahindra Construction Co. Ltd.300,000 equity shares of Rs. 10 each 3,000,000 3,000,000

– Kotak Mahindra Bank3,000 (2004-05: Nil ) equity shares ofRs. 10 each (quoted) ....................... 31,723 —(1200 shares of Rs.10 eachacquired on amalgmation and1800 bonus shares receivedduring the year)

– Mahindra & Mahindra Ltd.NIL (2004-05: 25,000) equity sharesof Rs. 10 each, (quoted) .................. — 7,700,000(111,034 shares acquired onamalgamation and 136,034shares sold during the year)

– The Indian and Eastern Engineer Co. Ltd.3 ordinary shares of Rs. 10 each ..... 45 4510,000 equity shares of Rs.10 each 150,000 150,000

Other Investments :– Unit Trust of India -

33,230 6.75% Tax free Bonds ofRs.100 each (quoted) ...................... 3,323,080 3,323,080

– National Saving Certificate(Rs. 9,779 acquired on amalgamation — —and redeemed during the year)

8,686,393 30,860,870

Notes :(1) Aggregate of quoted investments :– Cost ................................................ 4,686,248 12,354,525– Market Value ................................... 6,078,738 18,108,283(2) Aggregate of unquoted investments :– Cost ................................................ 4,000,145 18,506,345

SCHEDULE ‘G’ 31st March, 31st March,CURRENT ASSETS, LOANS 2006 2005AND ADVANCES Rupees Rupees RupeesInventories:

Stores and spare parts .............. 232,677,383 185,593,933Loose tools ................................ 1,323,904 1,307,897Raw materials ........................... 266,777,738 536,093,776Semi-finished goods .................. 468,401,955 243,031,162Finished goods .......................... 36,159,519 6,738,525Equity Shares (Refer Note 2 ) .... — —

1,005,340,499 972,765,293Sundry Debtors : (unsecured)Over six months— considered good ................... 104,310,058 48,393,910— considered doubtful .............. 38,250,453 79,539,234Others— Considered good .................. 1,348,038,887 981,248,990

1,490,599,398 1,109,182,134Less : Provision fordoubtful debts ................................ 38,250,453 79,539,234

1,452,348,945 1,029,642,900Cash and Bank Balances :

Cash on hand ............................ 869,518 701,101Cheques on hand ...................... 6,528,857 3,086,762Balances with Scheduled Banks— in Current accounts .............. 136,931,639 70,377,868— in Fixed Deposit accounts .... 2,975,972 2,852,955— in Deposit accounts as margin money ...................... 6,285,800 13,946,395

146,193,411 87,177,218

153,591,786 90,965,081Loans and Advances : ..........(unsecured)Advances and loans to subsidiaries –

— considered good ................... — 108,000— considered doubtful .............. — 2,113,483

— 2,221,483Less : Provision for doubtfuladvances ........................................ — 2,113,483

— 108,000Advances recoverable in cash or inkind or for value to be received –

— considered good ................... 253,229,779 86,526,163— considered doubtful .............. 32,453,064 31,749,066

* 285,682,843 118,275,229Less : Provision for doubtfuladvances ........................................ 32,453,064 31,749,066

253,229,779 86,526,163Taxation – advance paymentsless provision ................................. 1,441,657 22,358,031Balances – Excise,Port Trust, etc ................................. 1,681,165 1,008,327

256,352,601 110,000,521

2,867,633,831 2,203,373,795

* including capital advance of ........ 80,668,771 7,063,991

SCHEDULE ‘H’CURRENT LIABILITIES AND PROVISIONSCURRENT LIABILITIES : *Acceptances ....................... 386,337,181 265,471,974Sundry Creditors (see note 20)Total outstanding dues of :— small scale industrial ..... 7,894,165 20,074,036

undertakings (see note 21)— creditors other than

small scale industrialundertakings .................. 773,502,678 812,706,131

781,396,843 832,780,167Dividend warrants postedbut not encashed ................ 701,037 —Interest warrants posted butnot encashed ...................... 2,614,751 2,639,564Interest accrued but notdue on loans ........................ 1,056,998 174,037

1,172,106,810 1,101,065,742

159


SCHEDULE ‘H’

CURRENT LIABILITIES AND PROVISIONS (Contd...)31st March, 31st March,

2006 2005Rupees Rupees Rupees

PROVISIONS :Provision for diminution invalue of investments 3,500,000 4,510,000Provision for leave encashableat retirement/cessation 18,209,000 14,435,000Provision for contingencies(Refer note 22 ) 36,530,000 —Provision for premium payableon redemption of CumulativePreference Shares ** 8,458,000 4,958,000Provision for dividend onequity shares 146,171,381 92,795,067Provision for dividend onpreference shares 1,581,156 19,112,655Provision for tax on dividend 20,722,293 15,695,058

235,171,830 151,505,780

1,407,278,640 1,252,571,522

* There is no amount due and outstanding to be credited to the Investor Education and ProtectionFund.

** Includes provision created during the year Rs. 3,500,000 (2004 – 05 Rs. 3,500,000)

SCHEDULE ‘I’ 31st March, 31st March,OTHER INCOME 2006 2005

Rupees Rupees RupeesOTHER INCOMEProfit/(Loss) on sale, etc.of stock in trade - net * 3,031,644 —Dividends on shares heldin stock in trade 1,513,347 —Dividends from long terminvestments:— Trade 36,786 24,524— Non Trade

— From subsidiary company — 245,000— Others 325,000 225,000

361,786 494,524Interest :— On long term investments— Trade — 1,875,000— Non Trade 336,454 224,383

336,454 2,099,383— Others [including tax deducted/deductible at sourceRs.576,941 (2004-05:Rs.647,093)] 5,113,829 2,713,073Rent 304,770 314,169Profit on sale of assets (net) 259,199 1,426,139Profit on sale of long term -Non trade investment 82,289,148 56,982Miscellaneous Income 4,068,829 3,386,779

97,279,006 10,491,049*Profit/(Loss) on sale, etc.of stock in trade - netSales 3,855,352Less: Purchase —

3,855,352Inc/(dec) stock in trade (823,708)Profit on stock in trade 3,031,644

SCHEDULE ‘J’INCREASE / (DECREASE) IN STOCKSIncrease / (Decrease) in stock ofFinished goods and Semi-finished goodsOpening stock:Semi-finished goods 243,031,162 173,704,084Finished goods 6,738,525 8,213,648

Total 249,769,687 181,917,732Add :Stock taken over onamalgamation (Refer Note 2 )Semi-finished goods 1,889,240 —Finished goods 3,693,001 —

Total 5,582,241 255,351,928 181,917,732Less:Closing stock :Semi-finished goods 468,401,955 243,031,162Finished goods 36,159,519 6,738,525

504,561,474 249,769,687

(Decrease)/Increase in Stock 249,209,546 67,851,955

SCHEDULE ‘K’MANUFACTURING ANDOTHER EXPENSES1. Raw materials and bought

out components consumed[including outside processingcosts Rs. 60,567,8022004-05 - Rs.35,956,946(see note 10(a))] 3,297,057,453 2,842,742,645

2. Goods purchased for resale[ see note 12(B)] 1,454,550 18,265,916

3. Payment to and provisionfor employees :(a) salaries,wages,bonus,etc. 258,759,638 190,210,438(b) company’s contribution to

provident and other funds 18,146,890 14,996,252(c) staff welfare expenses 39,034,599 29,713,937(d) gratuity 594,875 1,797,701

316,536,002 236,718,328(including provision for contingenciesof Rs.36,530,000 : 2004-05: Rs.Nil)4. Operating and other expenses:

(a) stores consumed 439,918,142 379,220,812(b) repairs and maintenance

to buildings(including stores consumedRs.13,745,131;2004-05 - Rs.10,081,182) 47,223,332 21,696,752

(c) repairs and maintenanceto machinery(including stores andspare parts consumedRs.77,317,424; 2004-05:**Rs.50,486,911) 115,280,351 71,401,815

(d) repairs and maintenanceto others 22,549,818 17,559,726

(e) power and fuel 800,113,814 667,608,537*(f) rent including lease

rentals (net) 981,704 1,253,139(g) rates and taxes (net) 5,515,677 3,472,251(h) insurance charges 6,070,705 5,241,682(i) bad debts/advances

written off 9,373,842 28,584,350Less : provisionwritten back 6,960,561 19,892,883

2,413,281 8,691,467(j) provision for doubtful

debts/advances (net) (35,737,705) 9,391,733(k) provision for diminution

in value of long terminvestments (net) (1,010,000) —

(l) other expenses(see note 5) 220,183,808 138,507,851

(m)amortisation ofdeferred revenueexpenditure :Building renovationand repairs expenses 64,298 498,175Special payments underVoluntary RetirementScheme 4,480,297 6,784,830Computer softwareimplementation expenses — 2,078,396

1,628,047,522 1,333,407,1665. Excise duty 14,133,956 2,523,4516. Provision for premium

payable on redemption ofcumulative preference shares 3,500,000 899,268

5,260,729,483 4,434,556,774

* Includes payments in respect of finance leases — 130,200** Includes stores and spare parts written off — 3,763,329


Rupees Rupees Rupees

160


SCHEDULE ‘L’

NOTES TO ACCOUNTS1. The Subscribed Capital includes:

a) 30,000 Equity shares allotted as fully paid-up pursuant to contracts withoutpayment having been received in cash;

b) 600,000 Equity shares allotted consequent to the Scheme of Amalgamationwith Bank of Baroda Ltd.;

c) 821,319 Equity shares allotted on conversion of 10% Convertible Series ‘G’Debentures of the face value of Rs. 20,532,975 at a premium of Rs.15 pershare. These debentures were originally issued consequent to the Schemeof Amalgamation with Bank of Baroda Ltd.;

d) 11,000,000 Equity shares allotted as fully paid-up (at a premium of Rs. 35per share) pursuant to a contract to discharge part of the consideration foracquisition of the Company’s Stampings Unit at Kanhe;

e) 3,650,866 Equity shares allotted as fully paid-up Bonus shares by way ofcapitalisation of share premium account and accumulated profits;

f) 546,000 7% Cumulative Redeemable Preference Shares are redeemableon October 30, 2006 at a redemption premium of Rs. 105 lacs;

g) 1,550,840 Equity shares allotted consequent to the Scheme of Amalgamationwith Pranay, Valueline and Console (Refer Note 2 below).

2. Scheme of Amalgamation of Pranay Sheetmetal Stampings Limited (Pranay),Valueline Hotels and Resorts Limited (Valueline) and Console Estate andInvestments Limited (Console) with the Company :a) Pursuant to the Scheme of Amalgamation of the erstwhile Pranay, Valueline

and Console with the Company as approved by the shareholders in thecourt convened meeting held on 11th January 2006 and subsequentlysanctioned by the Hon’ble High Court of Bombay on 24th February 2006, theassets and liabilities of erstwhile Pranay, Valueline and Console weretransferred to and vested in the Company with retrospective effect from 1st

April 2005. The Scheme has, accordingly, been given effect to in theseaccounts.

b) The operations of Pranay include manufacture and sale of pressed metalcomponents.Valueline has not yet commenced operations.The operations of Console include activities related to investments anddealing in shares.

c) The Amalgamation has been accounted for under the ‘pooling of interestsmethod’ as prescribed by Accounting Standard 14 (AS-14) issued by TheInstitute of Chartered Accountants of India. Accordingly, the assets, liabilitiesand other reserves of erstwhile Pranay, Valueline and Console, as at 1stApril 2005 have been taken over at their book values subject to adjustmentsas specified in the Scheme of Amalgamation. Accordingly, Rs. 10,395,242has been debited to the general reserves taken over.

d) Pursuant to the Scheme of Amalgamation refer to in (a) above, and afterconsidering the extinguishment of shares held by the Company in Pranay,Valueline and Console and Console’s and Valueline’s holding in Pranay,150,000 fully paid up equity shares of Rs. 10 each have been allotted by theCompany to the shareholders of Pranay in the ratio of 15 shares of theCompany for every 2 equity shares of Rs. 1 each fully paid up in Pranay and1,400,840 fully paid up equity shares of Rs. 10 each have been allotted bythe Company to the shareholders of Valueline in the ratio of 14 shares of theCompany for every 1 equity share of Rs. 10 each fully paid up in Valueline.

e) The figures for the current year include figures for erstwhile Pranay, Valuelineand Console for the period 1st April 2005 to 31st March 2006 and accordingly,not comparable to those of the previous year.

3. Estimated amount of contracts remaining to be executed on capital accountand not provided for as on 31st March, 2006 Rs. 656,956,354 (2004-2005 –Rs. 31,468,086).

4. Invoices raised during the period for price differences/interest on delayedpayments, which are under negotiation, are accounted for if and when realised.

5. Other expenses in Schedule ‘K’ include :3131313131ststststst Mar Mar Mar Mar March 2006ch 2006ch 2006ch 2006ch 2006 31st March,2005

RupeesRupeesRupeesRupeesRupees Rupees(a) Remuneration of auditors

Audit fees 1,571,3601,571,3601,571,3601,571,3601,571,360 1,212,200Company Law Matters 121,220121,220121,220121,220121,220 10,800Other services 631,100631,100631,100631,100631,100 432,559Reimbursement of out of pocket expenses 42,54042,54042,54042,54042,540 30,365

(b) (i) Cash discount on sales 6,423,1656,423,1656,423,1656,423,1656,423,165 4,056,143(ii) Commission to other selling agents 1,878,2531,878,2531,878,2531,878,2531,878,253 1,732,611

(c) Donation to NCP National Relief Fund 1,000,0001,000,0001,000,0001,000,0001,000,000 —(d) Pre-operative expenditure taken over

on amalgamation 763,861763,861763,861763,861763,861 —6. Managerial remuneration for directors included in the Profit and Loss Account

is Rs. 8,913,227 (2004-2005 – Rs. 3,161,306) including contribution to providentfund and other funds Rs.356,400 (2004-2005 – Rs. 356,400), perquisitesRs. 1,327,827 (2004-2005 — Rs. 1,229,407), and commission Rs. 5,500,000(including in respect of earlier year Rs. 2,500,000 being commission payable tothe Managing Director approved by the Central Government and pending approvalof shareholders; 2004-2005 Rs. Nil) and sitting fees payable to non-whole-timedirectors Rs. 409,000 (2004-05 – Rs. 255,500).

Computation of Net PrComputation of Net PrComputation of Net PrComputation of Net PrComputation of Net Profit in accorofit in accorofit in accorofit in accorofit in accordance with Section 309(5) of thedance with Section 309(5) of thedance with Section 309(5) of thedance with Section 309(5) of thedance with Section 309(5) of theCompanies Act, 1956 for the year ended 31Companies Act, 1956 for the year ended 31Companies Act, 1956 for the year ended 31Companies Act, 1956 for the year ended 31Companies Act, 1956 for the year ended 31ststststst Mar Mar Mar Mar March, 2006ch, 2006ch, 2006ch, 2006ch, 2006

2005-062005-062005-062005-062005-06RupeesRupeesRupeesRupeesRupees

Profit before taxation and after exceptional item as perProfit & Loss Account 953,343,310953,343,310953,343,310953,343,310953,343,310

Add : Directors’ Remuneration including Directors’ Fees 8,913,227*8,913,227*8,913,227*8,913,227*8,913,227*

962,256,537962,256,537962,256,537962,256,537962,256,537Less : Excess of expenditure over income carried

forward from previous year 66,179,16566,179,16566,179,16566,179,16566,179,165Profit on sale of Investments (net) 82,289,14882,289,14882,289,14882,289,14882,289,148Provision for diminution in value of long terminvestment written back 1,010,0001,010,0001,010,0001,010,0001,010,000

149,478,313149,478,313149,478,313149,478,313149,478,313

Profit for the purpose of Director’s commission : 812,778,224812,778,224812,778,224812,778,224812,778,224

Commission payable to wholetime directors 3,000,000

* (including Rs. 2,500,000 in respect of the previous year, in respect of whichthe approval of the Central Government has been obtained, however, pendingshareholders approval.)

7. Contingent Liabilities not provided for in respect of :a) Bills discounted but not matured Rs. 121,923,706 (2004-2005—

Rs. 2,080,432 ).— Represents customers’ bills discounted.

b) Excise duty:i) Claims against the Company not acknowledged as debts Rs. 3,206,434

(2004-2005 – Rs. 223,947).ii) Other Excise matters for which the company is contingently liable Rs.

63,999,857 (2004—2005 – Rs. 58,536,326). These are in respect ofmatters which have been successfully defended by the company andwhere the Department has further gone in appeal. This includes:a) Rs. 6,223,476 (2004-2005 – Rs. 6,223,476) – relating to the method of

valuation of customer processed finished goods for the purpose ofdischarge of excise duty, where the customer supplies raw material.This matter has been settled by CESTAT in favour of the company.In the above case the Department has gone in further appeal in theSupreme Court.

b) Rs. 36,508,710 (2004-2005 – Rs. 36,508,710) — relating to inclusionof scrap credit in the assessable value for the purpose of payment ofExcise Duty. This matter has been settled by CESTAT in favour ofthe company. The Supreme Court has remanded the case back tothe authorities.

c) Rs. 600,629 (2004-2005 – Rs. 1,303,110) being other matters.Further in respect of (b)(ii)(a) above, the Department has continuedto issue show cause cum demand notices for subsequent periodsaggregating to Rs. 20,667,042 (2004-2005 – Rs. 14,501,030).

c) Taxation demands against which the Company is in appeal Rs. 19,738,817(2004-2005 —Rs. 16,238,396) and, decisions in favour of the Companyagainst which the Department is in appeal Rs. 15,041,926 (2004-2005 —Rs. 15,041,926).

d) Other claims against the Company not acknowledged as debtsRs. 43,472,887 (2004-2005 — Rs. 43,472,887). These include:i) Rs. 41,519,887 pertaining to show cause notice for payment of custom

duty in respect of the Value Based Advance Licenses (VBAL) purchasedby the company and used for import of goods. As the export obligationagainst the above VBAL was already fulfilled by the seller of the license,the company appealed against the said notice with CESTAT who hasgranted a stay.

ii) Rs. 1,953,000 (2004-2005 – Rs. 1,953,000) being other matters.e) Other matter for which the company is contingently liable is Rs. 146,346,951

(2004-2005 – Rs. 117,687,428). This represents the dispute in the rate ofwater charges demanded by the Irrigation Department based on an unilateralincrease in rates and the amount which the company has been paying. Theabove amount includes an initial demand raised by the Irrigation Departmentof Rs. 5,673,638 up to 31st March 1995 which was decided in favour of thecompany in the court of the Civil Judge, Senior Division Panvel. The balanceof Rs. 140,673,313 (2004-2005 – Rs. 112,013,790) represents differentialdemands raised by the Irrigation Department for subsequent periods.

8. Interest:3131313131ststststst Mar Mar Mar Mar March,2006ch,2006ch,2006ch,2006ch,2006 31st March,2005

RupeesRupeesRupeesRupeesRupees RupeesOn debentures and fixed loans 40,761,66040,761,66040,761,66040,761,66040,761,660 47,959,914On others 70,717,05670,717,05670,717,05670,717,05670,717,056 65,799,302

111,478,716111,478,716111,478,716111,478,716111,478,716 113,759,216

9. (a) Term loans from Banks are secured by a first equitable mortgage on allimmovable property and plant and machinery attached to the earth, bothpresent and future, ranking pari-passu.

161


(b) Advances for working capital from banks are secured by hypothecation ofraw materials, finished goods, goods in process, stores, book debts, specifiedmovable assets, etc. These advances are also secured by a joint equitablemortgage on the immovable properties of the Company situated at Khopoliand Kanhe, the mortgage to rank second and subservient to the mortgagecreated in respect of (a) above.

10. Raw materials and bought out components consumed.3131313131ststststst Mar Mar Mar Mar March, 2006ch, 2006ch, 2006ch, 2006ch, 2006 31st March, 2005

QtyQtyQtyQtyQty VVVVValuealuealuealuealue Qty ValueM/T RupeesRupeesRupeesRupeesRupees M/T Rupees

a) 1) Ferrous scrap 131,892131,892131,892131,892131,892 1,911,830,3661,911,830,3661,911,830,3661,911,830,3661,911,830,366 121,790 1,811,098,4202) Ferro alloys 5,6855,6855,6855,6855,685 1,052,054,6131,052,054,6131,052,054,6131,052,054,6131,052,054,613 5,178 797,023,0803) Other metals 1,6431,6431,6431,6431,643 63,737,30763,737,30763,737,30763,737,30763,737,307 1,520 52,170,9094) Slag making materials 11,47711,47711,47711,47711,477 43,471,83643,471,83643,471,83643,471,83643,471,836 11,385 39,706,6015) Metal Sheets 3,4843,4843,4843,4843,484 110,269,690110,269,690110,269,690110,269,690110,269,690 2,907 81,267,6766) Components 55,125,83955,125,83955,125,83955,125,83955,125,839 25,519,0147) Processing charges 60,567,80260,567,80260,567,80260,567,80260,567,802 35,956,945

3,297,057,4533,297,057,4533,297,057,4533,297,057,4533,297,057,453 2,842,742,645

3131313131ststststst Mar Mar Mar Mar March, 2006ch, 2006ch, 2006ch, 2006ch, 2006 31st March, 2005RupeesRupeesRupeesRupeesRupees %%%%% Rupees %

b) Imported – at landed cost 1,451,943,9951,451,943,9951,451,943,9951,451,943,9951,451,943,995 4444444444 1,128,854,535 40Indigenously obtained 1,845,113,4581,845,113,4581,845,113,4581,845,113,4581,845,113,458 5656565656 1,713,888,110 60

3,297,057,4533,297,057,4533,297,057,4533,297,057,4533,297,057,453 100100100100100 2,842,742,645 100

11. Stores and spares consumed :RupeesRupeesRupeesRupeesRupees %%%%% Rupees %

Imported – at landed cost 48,822,82848,822,82848,822,82848,822,82848,822,828 9 45,876,119 10Indigenously obtained 482,157,869482,157,869482,157,869482,157,869482,157,869 91 393,912,786 90

530,980,697530,980,697530,980,697530,980,697530,980,697 100100100100100 439,788,905 100

Consumption in value is after adjusting excesses and shortages ascertained onphysical verification and write off for deterioration, unserviceable items etc.During the current financial year stores consumed includes write off of Rs. Nil(2004-05 : Rs. 3,763,329).

12. Information for class of goods manufactured, traded in :A.A.A.A.A. Particulars in respect of goods manufactured :

Class of Goods Unit Of Licensed Installed Actual Opening Stock Closing Stock Sales (see note iv)Measure- Capacity Capacity production Qty Value Qty Value Qty Value

ment Per Annum Per Annum [see note (iv)] Rupees Rupees Rupees[see note (ii)] [see note (iii)]

Tool,alloy and M/T 150,000 90,000 111,188 — — 561 26,040,519 110,627 5,222,111,644Special steel M/T (150,000) (90,000) (106,009) (2) (200,628) ( — ) ( — ) (106,012) (4,791,516,397)Pressed Sheet metalcomponents and M/T 31,000 31,000 24,382 452* 10,431,526* 407 10,119,000 24,427 687,617,387assemblies M/T (18,000) (18,000) (8,782) (122) (4,244,828) (184) (6,738,525) (8,720) (266,530,094)* Includes stocks as on 1st April 2005 of Pranay Sheetmetal Stampings Limited taken over consequent to Scheme of Amalgamation; Pressed sheet metal components and assemblies –268 MT; Rs. 3,693,001.

Notes :Notes :Notes :Notes :Notes :(i) In respect of Tool, alloy and Special Steel, the industrial licence permits manufacture of castings and forgings up to 2000 M/T within the above overall licensed capacity.(ii) In respect of Pressed Sheet metal components and assemblies, the licensed capacity is as per the Memorandum filed with, and duly acknowledged by the Secretariat for Industrial

Assistance.(iii) Installed capacity on an integrated basis is certified by the Managing Director and not verified by the auditors since this is a technical matter.(iv) Production and sales in respect of Pressed Sheet metal components and assemblies includes customer’s materials processed.B.B.B.B.B. Particulars in respect of goods traded in :

Class of Goods Unit of Opening Stock Purchase Closing Stock SalesMeasur- Qty. Value Qty. Value Qty. Value Qty. Value

ment Rupees Rupees Rupees Rupees(i) Heavy Melting Scrap M/T — — — — — — — —

M/T (—) (—) (358) (4,534,636) (—) (—) (358) (4,739,062)(ii) Stainless Steel Scrap M/T — — — — — — — —

M/T (—) (—) (104) (4,343,617) (—) (—) (104) (6,182,995)(iii) Non-Alloy Steel Billets M/T — — — — — — — —

MT (196) (3,768,192) (—) (—) (—) (—) (196) (3,989,673)(iv) Steel Sheet M/T — — — — — — — —

M/T (—) (—) (224) (7,225,188) (—) (—) (224) (7,385,173)(v) Others Mix — — — 1,454,550 — — — 1,479,740

Mix — — — (2,162,475) — — — (2,028,739)TTTTTotalotalotalotalotal — 1,454,550 — 1,479,740

(3,768,192) (18,265,916) (—) (24,325,642)

Previous year’s figures have been enclosed in parenthesis.C.C.C.C.C. Details of stock in trade – shares

Name of the Company Acquired onAmalgamation Purchases Closing Stock Sales

Qty. Value Rupees Qty. Value Rupees Qty. Value Rupees Qty. Value RupeesMahindra & Mahindra Ltd. 4,800 513,268 — — — — 4,800 3,377,579Reliance Industries Ltd. 22 12,011 — — — — 22 19,559Hindustan Petroleum Corp. Ltd. 330 100,965 — — — — 330 107,286Indian Oil Corp. Ltd. 100 36,749 — — — — 100 55,195Infosys Technologies Ltd. 70 104,456 — — — — 70 207,006TCS Ltd. 50 50,775 — — — — 50 83,840Orchid Pharma and Chemicals Ltd. 20 5,484 10 * — 10 — 20 4,887Total 823,708 3,855,352

* Bonus shares received.

162


13. Miscellaneous receipts include :3131313131ststststst Mar Mar Mar Mar March, 2006ch, 2006ch, 2006ch, 2006ch, 2006 31st March, 2005

RupeesRupeesRupeesRupeesRupees Rupees

Income from services rendered 38,302,85138,302,85138,302,85138,302,85138,302,851 27,655,173

14. The Company has redeemed 1,100,000 – 9.72% Redeemable CumulativePreference Shares of Rs. 100/- each issued in December 2003, on the redemptiondate i.e. 31st October, 2005. In order to incorporate the understanding always existingbetween the Company and its preference shareholders, a premium of Rs. 40,456,673payable on redemption has been provided for and paid.

15. C.I.F. Value of Imports3131313131ststststst Mar Mar Mar Mar March, 2006ch, 2006ch, 2006ch, 2006ch, 2006 31st March, 2005

RupeesRupeesRupeesRupeesRupees Rupees(a) Raw materials 1,169,946,8361,169,946,8361,169,946,8361,169,946,8361,169,946,836 1,351,573,601(b) Stores and spares 50,842,54550,842,54550,842,54550,842,54550,842,545 43,561,295(c) Capital goods 29,635,48529,635,48529,635,48529,635,48529,635,485 2,582,211

These include imports on :Raw Materials Stores & Spares Capital

i) C & F Basis 78,320,30378,320,30378,320,30378,320,30378,320,303 176,713176,713176,713176,713176,713 11,426,02411,426,02411,426,02411,426,02411,426,024(35,264,970) (6,714,693) (—)

ii) FOB Basis ————— 410,014410,014410,014410,014410,014 —(—) (429,552) (—)

iii) High Seas 1,041,936,0531,041,936,0531,041,936,0531,041,936,0531,041,936,053 ————— —(358,427,482) (—) (—)

Total 1,120,256,3561,120,256,3561,120,256,3561,120,256,3561,120,256,356 586,727586,727586,727586,727586,727 11,426,02411,426,02411,426,02411,426,02411,426,024(393,692,452) (7,144,245) (—)

Previous year’s figures have been enclosed in parenthesis.

16. Expenditure in foreign currency (on payment basis)

3131313131ststststst Mar Mar Mar Mar March, 2006ch, 2006ch, 2006ch, 2006ch, 2006 31st March, 2005RupeesRupeesRupeesRupeesRupees Rupees

Interest 2,275,5422,275,5422,275,5422,275,5422,275,542 405,485Others 1,971,9311,971,9311,971,9311,971,9311,971,931 771,631

17. Earnings in foreign exchange


(a) F.O.B. Value of exports NilNilNilNilNil 4,713,973(b) Freight and insurance NilNilNilNilNil 456,352

18. Research and Development expenditure debited to Profit and Loss Accountaggregates Rs.4,203,653 (2004-2005 – Rs. 3,535,308) consisting of salaries andpower, based on allocations made by the Company, and materials.

19. The net difference in foreign exchange (i.e. the differences between the spotrates on the date of the transactions and the actual rates at which the transactionsare settled/appropriate rates applicable at the year end) debited to the Profit andLoss Account is Rs. 3,791,718 (2004-2005 – Credit of Rs. 645,436).

20. Sundry creditors include credit balances in current accounts with directorsRs. 2,403 (2004-2005 Rs. 2,403).

21. The identification of suppliers as Small Scale Industrial undertakings (SSIs) hasbeen done on the basis of the information provided by the suppliers to theCompany. On this basis, the total outstanding dues of SSIs have been disclosedin Schedule ‘H’ and the names of SSIs, to whom the Company owes any sumand which are outstanding for more than 30 days are given below :

1 Maruti Bahu-Udheshiya A.G.V Sanstha 19 Emdet Engineering

2 Metaflux Co.Pvt. Ltd. 20 Kanda Motors

3 Shinde Engineering Works 21 Mak Glit Chem

4 Vidarbha Ceramics Pvt. Ltd. 22 Precision Forgings

5 Paramount Abrasives Pvt. Ltd. 23 Press Tech Engg.

6 Premier Alloys & Chemicals 24 R.R. Metal Pressing Co.

7 Ranchi Refractories 25 Rane Enterprises

8 Precision Engineering Products 26 Sanghi Gases

9 Shrishanti Engineers 27 Share Pressings

10 Shetty Chem. & Engg. Works Pvt. Ltd. 28 Suraj Auto Parts

11 Swastik Lime Industries 29 Swapnil Auto Engg. Pvt. Ltd.

12 Joglekar Refra. & Ceramics P. Ltd. 30 Techno Ventures

13 Refra Industries 31 TMC Measuring Instruments Pvt. Ltd.

14 Shiv Casting & Fabricators 32 Vaibhav Screen Plast P. Ltd.

15 Ameya Engineering 33 Vardhini Udyog

16 Arkay Industries 34 Vijay Trading Corporation

17 Bhagyoday Engg. 35 Toe Industries

18 Carline Pressings 36 Zodiac Powder Coaters

22. (a) Provision for contingencies Rs. 36,530,000 is in respect of employees. Labourdemands are under negotiations at certain locations of the Company. Theultimate settlement is contingent on the conclusion of negotiations.

(b) The movement in above provision is as follows:

PrPrPrPrProvisionsovisionsovisionsovisionsovisions RupeesRupeesRupeesRupeesRupees

Balance as at 1st April 2005 —————

Add : Provision made during the year 36,530,00036,530,00036,530,00036,530,00036,530,000

Less : Utilisation during the year —————

Balance as at 31st March 2006 36,530,00036,530,00036,530,00036,530,00036,530,000

23. The components of Deferred tax liability and assets as at 31st March, 2006 areas under:

3131313131ststststst Mar Mar Mar Mar March, 2006ch, 2006ch, 2006ch, 2006ch, 2006 31st March, 2005

Deferred tax liability: RupeesRupeesRupeesRupeesRupees Rupees

— On fiscal allowances onfixed assets 176,370,648176,370,648176,370,648176,370,648176,370,648 139,447,829

— On other timing differences 21,64321,64321,64321,64321,643 24,434

176,392,291176,392,291176,392,291176,392,291176,392,291 139,472,263

Less: Deferred tax assets *(See note (a) below)

— On employee separation andretirement 2,836,1922,836,1922,836,1922,836,1922,836,192 1,702,283

— On provision for doubtful debts 10,345,93810,345,93810,345,93810,345,93810,345,938 16,869,980

— On provision for Contingencies 12,295,99812,295,99812,295,99812,295,99812,295,998 —

— On other timing differences 503,223503,223503,223503,223503,223 —

25,981,35125,981,35125,981,35125,981,35125,981,351 18,572,263

Net 150,410,940150,410,940150,410,940150,410,940150,410,940 120,900,000

Note:Note:Note:Note:Note:

In 2004-2005, the company has recognised deferred tax asset arising fromunabsorbed depreciation under tax laws, etc. up to 31st March, 2004 aggregatingRs. 77,800,000 in view of favourable operating performance.

24. Earnings per share have been computed as under:


a) Net Profit for the year after taxand before exceptional item 691,099,983691,099,983691,099,983691,099,983691,099,983 481,612,501

Less: Preference Dividend forthe year 2005-06 (2004-05)including tax there on 11,472,55811,472,55811,472,55811,472,55811,472,558 16,605,347

Adjusted profit beforeexceptional item (A) 679,627,425679,627,425679,627,425679,627,425679,627,425 465,007,154

Less: Exceptional item 40,456,67340,456,67340,456,67340,456,67340,456,673 —

Adjusted profit after exceptionalitem (B) 639,170,752639,170,752639,170,752639,170,752639,170,752 465,007,154

b) Weighted average equityshares (Nos.) 32,482,52932,482,52932,482,52932,482,52932,482,529 30,931,689

c) i) Earnings per share beforeexceptional item (Rs.) (A)/(b) 20.9220.9220.9220.9220.92 15.03

ii) Earnings per share afterexceptional item (Rs.) (B)/(b) 19.6819.6819.6819.6819.68 15.03

163


c) T

rans

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arrie

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(a) a

nd (b

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Key

No.

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Key

Man

agem

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Mr.

K. V

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arat

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agin

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irect

or

164

MAHINDRA UGINE STEEL COMPANY LIMITEDc)

Tra

nsac

tions

car

ried

out w

ith th

e re

late

d pa

rtie

s re

ferr

ed to

in (a

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(b) a

bove

in th

e or

dina

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ont.

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.U

ltim

ate

Key

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165


28. SEGMENT REPORTINGa) PRIMARY SEGMENT INFORMATION

(BUSINESS SEGMENT)

F-2006F-2006F-2006F-2006F-2006 F-2005 F-2006F-2006F-2006F-2006F-2006 F-2005 F-2006 F-2005External Sales Inter-segment Sales Total

1 Segment Revenue (Net)– Steel 5,310,667,882 4,868,326,273 — — 5,310,667,882 4,868,326,273– Stamping 839,700,807 351,674,946 — — 839,700,807 351,674,946– Others 4,544,991 — — — 4,544,991 —– Segment Total 6,154,913,680 5,220,001,219 — — 6,154,913,680 5,220,001,219– Elimination — — — — — —– Total 6,154,913,680 5,220,001,219 — — 6,154,913,680 5,220,001,219

2 Segment Result– Steel — — — — 702,246,796 721,941,822– Stamping — — — — 334,425,217 68,215,336– Others — — — — 4,160,597 —– Segment Total — — — — 1,040,832,610 790,157,158Unallocated corporateexpenses net ofunallocated income — — — — (58,995,806) (27,397,897)Profit before interest& taxation — — — — 1,099,828,416 762,759,261Interest expenditure — — — — (111,478,716) (113,759,216)Interest income — — — — 5,450,283 4,812,456Provision for Taxation — — — — (302,700,000) (172,200,000)

3 Profit / (loss) After Taxationand before exceptional item — — — — 691,099,983 481,612,501Other Information1 Segment Assets– Steel — — — — 3,021,179,408 2,411,872,665– Stamping — — — — 980,227,982 429,924,403– Others — — — — 31,723 —– Segment Total — — — — 4,001,439,113 2,841,797,068Unallocated corporate assets — — — — 59,035,978 97,155,106Total Assets — — — — 4,060,475,091 2,938,952,1742 Segment Liabilities– Steel — — — — 1,104,099,137 1,042,175,512– Stamping — — — — 105,078,305 45,273,519– Others — — — — 26,707 —– Segment Total — — — — 1,209,204,149 1,087,449,031Unallocated corporate liabilities — — — — 1,369,986,812 948,744,076Total Liabilities — — — — 2,579,190,961 2,036,193,1073 Capital Expenditure– Steel — — — — 203,904,019 80,626,482– Stamping — — — — 27,831,657 544,929– Others — — — — — —– Segment Total — — — — 231,735,676 81,171,4114 Depreciation– Steel — — — — 46,287,617 42,935,283– Stamping — — — — 84,472,028 53,182,419– Others — — — — — —– Segment Total — — — — 130,759,645 96,117,7025 Non cash expenditure other than depreciation– Steel — — — — 15,785,755 47,337,434– Stamping — — — — — —– Others — — — — — —– Segment Total — — — — 15,785,755 47,337,434

26. Miscellaneous Expenditure(to the extent not written off or adjusted)

Sr. Particulars Opening Incurred Amortisation ClosingNo. Balance During Balance

the year

1 Building Renovation and 66,772 — 64,298 2,474repair expenses (564,947) — (498,175) (66,772)

2 Special payments under 10,335,086 — 4,480,297 5,854,789Voluntary Retirement Scheme (15,587,688) (1,532,228) (6,784,830) (10,335,086)

3 Computer Software — — — —implementation expenses (2,078,396) — (2,078,396) —

Total 10,401,858 — 4,544,595 5,857,263(18,231,031) (1,532,228) (9,361,401) (10,401,858)

Previous year’s figures have been enclosed in parenthesis.

27. Derivative Instruments :The company has entered into Forward Exchange Contracts (being a derivative

instrument), which are not intended for trading or speculative purposes, but forhedge purposes, to establish the amount of reporting currency required oravailable at the settlement date of certain payables and receivables,. The followingare the outstanding Forward Exchange Contracts entered into by the companyas on 31st March, 2006

Currency Amount Buy/Sell Cross CurrencyUS Dollar 31,728.10 Buy Rupees

The year end foreign currency exposures that have not been hedged by aderivative instrument or otherwise are given below:

a. Amounts payable in foreign currency on account of the following:

Import of goods & services Rs. 33,798,685 US$757,464.14Rs. 1,639,044 Euro 30,200

Capital Imports (including intangibles) Rs. 2,930,850 Euro 54,000The above disclosures have been made consequent to an announcement bythe Institute of Chartered Accountant of India in December, 2005, which isapplicable to the financial periods ending on or after 31st March, 2006. Therefore,figures for the previous year have not been disclosed

166


b) SECONDARY SEGMENT INFORMATION(GEOGRAPHICAL SEGMENT)

F-2006F-2006F-2006F-2006F-2006 F-2005

11111 Segment Revenue

– Within India 6,154,913,6806,154,913,6806,154,913,6806,154,913,6806,154,913,680 5,214,830,894

– Outside India ————— 5,170,325

– Total Revenue 6,154,913,6806,154,913,6806,154,913,6806,154,913,6806,154,913,680 5,220,001,219

22222 Segment Assets

– Within India 4,001,439,1134,001,439,1134,001,439,1134,001,439,1134,001,439,113 2,841,797,068

– Outside India ————— —

33333 Capital Expenditure

– Within India 231,735,676231,735,676231,735,676231,735,676231,735,676 81,171,411

– Outside India ————— —

SCHEDULE ‘M’

SIGNIFICANT ACCOUNTING POLICIES

�� !"�

��

#�$�� %� ��$�� #��$�� %� ��$�� & ��

#�$�� %�� '��

(�� )

�* �� + �� ,�� -��.� �/�� '��0�� 1�2�� !"��$�� 3��*��

�* �� 4�� )�* �� '��0��

�� %�� $�� %�� 1�2� �� !"��$�� 3��*�

��* �� %��5!6��576��886��

��* �� $�� /�� $��

9�� / �� 3��*��

�� :�� (��

��

��

�� !�� $�� $�� 3�� %� ��$�� %�� *��$�� :��' �� %� �� $�� %�� $�� & ��

"� #��$$�� 3��$��& ��*�� 2��;��

��

�� <$��&�� $��

�� $�� 8"�� $�� 8� ��0��5778�� 0� �� <$��$�� 5778��

%� &��&��

'� &� �� ;��=�� 4�� =��

(� !��$�� $�� $��(��$�� &�� $�� %�� (��$� �� $�� $�� $�� $�� (��$� �� $��

�)� *�� &�� / �� ;�� $�� <$�� $��

NOTES:1. The Company has considered business segment as primary segment for dis-

closure.The segments have been identified taking into account the organisational struc-ture as well as the deferring risk and returns of the segments.Steel segment comprises of sale of alloy steel.Stamping segment comprises of sale of pressed metal components.Other segment comprises of activities related to dealing in shares.Inter segment revenue is market led.

2. The geographical segments considered for disclosure are– Sales within India– Sales outside India

3. Segment Revenue comprises of : 2005-06Sales including income from processing, arisingand other sales and Miscellaneous receipts Rs. 6,150,368,689Profit/(Loss) on sale, etc. of stock in trade – net Rs. 3,031,644Dividend on shares held in stock in trade Rs. 1,513,347

4. Additional information pursuant to the provisions of Part IV of Schedule VI to theCompanies Act , 1956 (See Schedule ‘N’)5. Previous year’s figures have been regrouped wherever necessary to conform tothis year’s classification.

167


SCHEDULE ‘N’BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE



Balance Sheet Date 3 1 0 3 0 6Date Month Year

II. Capital Raised during the year (Amount in Rs. Thousands) :


N I L 1 5 5 0 8 *


N I L N I L

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

Total Liabilities (including Shareholders’ Funds) Total Assets (including Miscellaneous Expenditurenot written-off and adverse balance of profit and loss account

4 0 6 6 3 3 2 4 0 6 6 3 3 2

Sources of Funds :


3 7 9 4 2 5 1 1 0 7 7 1 6


4 4 3 8 4 0 5 5 1 6 8 0



1 1 5 8 1 7 4 8 6 8 6


1 4 6 0 3 5 5 5 8 5 7

Accumulated Losses

N I L


Turnover (Sales and Other Income) Total Expenditure[Including decrease/(increase) in Stocks]

6 2 4 7 6 4 7 5 2 5 3 8 4 7

+ / - Profit/Loss Before Tax + - Profit/Loss After Tax (after exceptional item)

✔ 9 9 3 8 0 0 ✔ 6 5 0 6 4 3

Earning per Share in Rupees (after exceptional item) Dividend Rate %

1 9 . 6 8 45



Product Description Other bars and rods of other alloy steel


Product Description Other bars and rods of iron or non-alloy steel


Product Description Parts and accessories of motor vehicles

�

* Issued pursuant to Scheme of Amalgamation. Refer Note 2.

}Signature to Schedules ‘A’ to ‘N’

R. Sundaresan V.K. GupteExecutive Vice President Company Secretary– Finance & MIS


N. V. Khote

M. R. Ramachandran

Hemant Luthra DirectorsR. R. Krishnan

C. S. Madhav Rao

168

MAHINDRA ASHTECH LIMITED

Review of Operations

During the year, your Company went through a major BusinessProcess Re-engineering by shifting the Design & EngineeringDepartment from Kolkata to Pune. This has made your Companymore responsive at the market place.

Right sizing of manpower has made your Company more costcompetitive. Orders on hand are at Rs. 140 crores as againstRs. 28 crores for the previous year.

Your Company has also achieved an all time high income ofRs. 62.96 crores (Gross) (an increase of 123.82% over the lastyear) and has posted a marginal profit for the year.

The scenario of Power Sector has taken dramatic steps towards“Power for All by 2012” as stated by the Central Government inits manifesto and this augurs very well for the Company’s futureplans.

Potential Sick Company

As mentioned in the previous year’s report, the Companycontinues to be a Potential Sick Company within the meaningof the Sick Industrial Companies (Special Provisions) Act, 1985.

Finance

During the year, your Company issued and allotted 1,00,000 –8.50% Cumulative Redeemable Preference Shares of the facevalue of Rs. 100 each aggregating Rs. 1 crore on a rights basis toMahindra & Mahindra Limited, the holding company.

Directors

Mr. David Hataria, Executive Director resigned with effect from15th September, 2005. The Board has placed on record itsappreciation of the services rendered by Mr. Hataria during histenure of office.


Your Directors present their Eleventh Report together with the audited accounts of your Company for the year ended 31st March, 2006.

Financial Results

(Rs. in lakhs)

2006 2005

Income ................................................................................................................................ 6,172.43 2,734.39

Profit/ (Loss) before Interest, Depreciation & Taxation ....................................................... 203.68 (688.64)

Interest ................................................................................................................................ (96.99) (110.93)

Depreciation ........................................................................................................................ (52.60) (38.24)

Profit / (Loss) before Taxation ............................................................................................. 54.09 (837.81)

Provision for Taxation

Fringe Benefit Tax ......................................................................................................... 9.29 –

Deferred Tax .................................................................................................................. – (43.28)

Profit / (Loss) after Taxation for the year ............................................................................. 44.80 (794.53)

Balance of Loss for earlier years ......................................................................................... (2,733.08) (1,938.55)

Balance carried to Balance Sheet ....................................................................................... (2,688.28) (2,733.08)

Mr. Amar Banerjee was appointed as an Additional Director bythe Board from 15th September, 2005. Mr. Banerjee was alsoappointed as Managing Director of the Company with effect from15th September, 2005. Mr. Banerjee holds office upto the date ofthe forthcoming Annual General Meeting.

The Company has received a notice from a member signifying hisintention to propose Mr. Banerjee as candidate for the office ofDirector of the Company.

Mr. S. Venkatraman retires by rotation and, being eligible, offershimself for re-appointment.


Pursuant to section 217(2AA) of the Companies Act, 1956, yourDirectors, based on the representation received from the OperatingManagement, and after due enquiry, confirm that:


(ii) they have, in the selection of the accounting policies, consultedthe Statutory Auditors and these have been appliedconsistently and reasonable and prudent judgements andestimates have been made so as to give a true and fair viewof the state of affairs of the Company as at 31st March, 2006and of the loss of the Company for the year ended on thatdate;

(iii) proper and sufficient care has been taken for the maintenanceof adequate accounting records in accordance with theprovisions of the Companies Act, 1956 for safeguarding theassets of the Company and for preventing and detectingfraud and other irregularities;


169


Audit Committee

The Audit Committee presently comprises Mr. Hemant Luthra(Chairman of the Committee), Mr. Raghunath Murti and Mr. S.Venkatraman. The Committee met once during the year.

Remuneration Committee

The Remuneration Committee presently comprises Mr. S.Venkatraman (Chairman of the Committee), Mr. Hemant Luthraand Mr. Raghunath Murti. The Committee met once during theyear.

Auditors

Messrs A. F. Ferguson & Co., Chartered Accountants, retire asAuditors of the Company at the forthcoming Annual GeneralMeeting and have given their consent for re-appointment. Themembers will be required to appoint Auditors for the current yearand fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromthe above Auditors proposed to be re-appointed to the effect thattheir re-appointment, if made, would be in conformity with thelimits specified in the said section.



The Company has not made any loans/advances which require tobe disclosed in the annual accounts of the Company pursuant toClause 32 of the Listing Agreement with the parent company,Mahindra & Mahindra Limited.

Industrial Relations

Industrial Relations remained satisfactory during the year underreview.

Conservation of Energy

The expenditure on power and fuel is not significant in relation tothe total expenses of the Company. However, the Company isconscious about the consumption of electricity and rationalizationthereof.

Technology Absorption

The Company has not entered into any technical collaborationwith any party in the last five years.

Foreign Exchange Earnings & Outgo

The Company has not incurred any foreign exchange expenditureduring the year. The particulars of foreign exchange earnings aregiven in the Notes to Accounts.

Particulars of employees as required under section 217(2A)of the Companies Act, 1956 and Rules framed thereunder

The Company had no employee who was in receipt of remunerationof not less than Rs. 24,00,000 during the year ended 31st March,2006 or not less than Rs. 2,00,000 per month during any part ofthe said year.


Raghunath Murti


170


Report of Auditors to the Members of Mahindra AshTech Limited

1. We have audited the attached Balance Sheet of MahindraAshTech Limited, as at 31st March, 2006 together with theProfit and Loss Account and the Cash Flow Statement forthe year ended on that date annexed thereto. Thesefinancial statements are the responsibility of the Company’sManagement. Our responsibility is to express an opinionon these financial statements based on our audit.

2. We conducted our audit in accordance with the auditingstandards generally accepted in India. These Standardsrequire that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are freeof material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessingthe accounting principles used and significant estimatesmade by the Management, as well as evaluating the overallfinancial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order,2003, issued by the Central Government of India in terms ofsub-section (4A) of Section 227 of the Companies Act, 1956,we give in the Annexure, a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.

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

a) We have obtained all the information and explanationswhich to the best of our knowledge and belief werenecessary for the purpose of our audit;

b) In our opinion, proper books of account as required bylaw have been kept by the Company, so far as appearsfrom our examination of the books;

c) The Balance Sheet, Profit and Loss Account and CashFlow Statement dealt with by this Report are inagreement with the books of account;

d) In our opinion, the Balance Sheet, Profit and LossAccount and the Cash Flow Statement dealt with by

this Report comply with the Accounting Standardsreferred to in sub-section (3C) of Section 211 of theCompanies Act, 1956;

e) On the basis of the written representations receivedfrom the directors as on 31st March, 2006 and taken onrecord by the Board of Directors, we report that noneof the directors is disqualified as on 31st March, 2006from being appointed as a director in terms of Clause(g) of sub-section (1) of Section 274 of the CompaniesAct, 1956;

f) In our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts give the information required by theCompanies Act, 1956 in the manner so required andsubject to our reliance, because they are technicalmatters, on certificate by a Director in respect ofpercentage of completion and cost to completion, inrespect of construction contracts [Schedule O-Note1F] on the basis of which the profits have beenaccounted, give a true and fair view in conformity withthe accounting principles generally accepted in India:

i) in the case of the Balance Sheet, of the state ofaffairs of the Company as at 31st March, 2006;

ii) in the case of the Profit and Loss Account, of theprofit for the year ended on that date; and

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



G. Shankar

PartnerPune: 27th April, 2006 Membership No: 27023

171


(i) (a) The Company has maintained proper records showingfull particulars including quantitative details andsituation of fixed assets.

(b) The Company has a system of verifying the fixedassets once every three years. The fixed assets werephysically verified by the Management during theprevious year, and, accordingly, no physical verificationof the fixed assets was carried out by the Managementduring the year. In our opinion, the frequency ofverification is at reasonable intervals. No materialdiscrepancies were noticed on such verification.

(c) During the year, in our opinion, the Company has notdisposed off a substantial part of fixed assets.

(ii) (a) The inventory of the Company has been physicallyverified by the Management at the year end. In respectof stocks lying with third parties, some of these havebeen confirmed by them. In our opinion, the frequencyof verification is reasonable.

(b) In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventories followed by the Managementwere found to be reasonable and adequate in relationto the size of the Company and the nature of itsbusiness.

(c) In our opinion, the Company is maintaining properrecords of inventory. The discrepancies noticed onphysical verification between the physical stocks andthe book records were not material in relation to theoperations of the Company.

(iii) According to the information and explanations given to us,the Company has not taken/granted any loans, secured orunsecured, from/to companies, firms or other partieslisted in the register maintained under Section 301 of theCompanies Act, 1956. Therefore, provisions of Clause4(iii)(a), (b), (c), (d), (f) and (g) of the Companies (Auditor’sReport) Order, 2003 are not applicable to the Company.

(iv) In our opinion and according to the information andexplanations given to us, there are adequate internalcontrol systems commensurate with the size of theCompany and the nature of its business with regard topurchase of inventory, fixed assets and with regard to saleof goods and services. There is no continuing failure tocorrect major weakness, if any, in internal control system.

(v) Based on the audit procedures applied by us and accordingto the information and explanations give to us, the contractsor arrangements that need to be entered into the registermaintained under Section 301 of the Companies Act,1956 have been so entered. In our opinion and accordingto the information and explanations given to us, thetransactions made in pursuance of such contracts orarrangements have been made at prices, which are

reasonable having regard to the prevailing market pricesat the relevant time.

(vi) The Company has not accepted any deposits from thepublic to which the provision of Sections 58A, 58AA or anyother relevant provisions of the Companies Act, 1956 andthe rules framed thereunder apply.


(viii) To the best of our knowledge and according to theinformation and explanations given to us, the CentralGovernment has not prescribed the maintenance ofcost records under Section 209(1)(d) of the CompaniesAct, 1956.

(ix) (a) According to the records of the Company, apart fromcertain instances of delays in depositing undisputedsales tax, custom duty, labour welfare fund dues andincome tax deduction/collected at source, the Companyhas been regular in depositing undisputed statutorydues including Provident Fund, Employees’ StateInsurance, Investor Education and Protection Fund,Income tax, Sales tax, Wealth tax, Service tax, Customduty, Excise duty, Cess and other statutory dues withthe appropriate authorities. Based on our auditprocedures and according to the information andexplanations given to us, there are no statutory dueswhich has remained outstanding as at 31st March,2006 for a period of more than six months from thedate they became payable.

(b) According to the records of the Company and theinformation and explanations given to us, the dues ofincome tax/sales tax/excise duty/custom duty/wealthtax/service tax/cess, which have not been depositedon account of any dispute, are given below:

Nature of Amounts involved Forum whereDues (Dues to the extent dispute is

not deposited) pending(Rs. Lacs)

Sales tax 3.75 Assistant(1999–2000) Commissioner of

Sales Tax

(x) In our opinion, the accumulated losses of the Companyare more than fifty per cent of its net worth. The Companyhas not incurred any cash losses during the financial yearcovered by our audit but has incurred cash losses in theimmediately preceding financial year.

(xi) In our opinion and according to the information andexplanations given to us, the Company has not defaultedin repayment of dues to any financial institution, debentureholder or bank during the year.

Annexure to the Auditor’s ReportAnnexure referred to in paragraph (3) of the Auditor’s Report of even date on the accounts of Mahindra AshTech Limited

for the year ended 31st March, 2006.

172


(xii) The Company has not granted any loans and advances onthe basis of security by way of pledge of shares, debenturesand other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society and therefore the requirementspertaining to such class of companies are not applicable.

(xiv) In our opinion and according to the information andexplanations given to us, the Company is not dealing ortrading in shares, securities, debentures and otherinvestments.

(xv) The Company has not given any guarantee for loans takenby others from banks or financial institutions.

(xvi) The Company has not obtained any term loans duringthe year.

(xvii) According to the information and explanations given to usand in our opinion, funds raised on short term basis havenot been used for long term investment.

(xviii) During the year, the Company has not made any preferentialallotment of shares to parties and companies covered in

the register maintained under Section 301 of theCompanies Act, 1956.

(xix) The Company has not issued any debentures during theperiod and therefore the question of creating security orcharge in respect thereof does not arise.

(xx) The Company has not raised any money by public issueand therefore the question of disclosing the end use ofmoney does not arise.

(xxi) According to the information and explanations given to us,no fraud on or by the Company has been noticed orreported during the year.



G. Shankar

PartnerPune: 27th April, 2006 Membership No: 27023

173




Lacs Lacs Lacs

I. SOURCES OF FUNDS:


(a) Share Capital ................................................................. A 3,100.00 3,000.00

(b) Reserves and Surplus.................................................... B 388.56 388.56

LOAN FUNDS ..................................................................... C 178.27 681.34

DEFERRED TAX LIABILITY (Net) ....................................... D — —

Total ....... 3,666.83 4,069.90

II. APPLICATION OF FUNDS:

FIXED ASSETS .................................................................... E

(a) Gross Block ................................................................... 427.81 434.36

(b) Less: Depreciation ......................................................... 211.26 182.69

(c) Net Block ....................................................................... 216.55 251.67

INVESTMENTS ................................................................... F 0.20 0.20

CURRENT ASSETS, LOANS AND ADVANCES: ............... G

(a) Inventories ..................................................................... 190.20 124.82

(b) Sundry Debtors ............................................................. 4,273.81 2,023.07

(c) Cash and Bank Balances ............................................... 207.65 108.00

(d) Loans and Advances ..................................................... 645.40 572.74

5,317.06 2,828.63

Less: CURRENT LIABILITIES AND PROVISIONS: H

(a) Current Liabilities ........................................................... 4,597.54 1,812.98

(b) Provisions ...................................................................... 70.55 116.30

4,668.09 1,929.28

NET CURRENT ASSETS ..................................................... 648.97 899.35

MISCELLANEOUS EXPENDITURE (To the extent notwritten off) .......................................................................... I 112.83 185.60

Profit and Loss Account — Adverse Balance ...................... 2,688.28 2,733.08

Total ....... 3,666.83 4,069.90

NOTES ON ACCOUNTS ..................................................... O




G. Shankar

Partner

Pune: 27th April, 2006

R. S. Kotian

Company Secretary

Amar Banerjee Managing Director

Raghunath Murti

Hemant Luthra DirectorsS. Venkatraman


}

174




Lacs Lacs Lacs

SALES AND OTHER INCOME:

Gross Sales ................................................................................. 730.14 632.85

Less: Excise Duty ...................................................................... 70.35 58.23

659.79 574.62

Income from Long Term Contracts (Note 4) ............................... 5,440.38 2,038.80

Less: Excise Duty ...................................................................... 53.43 20.37

5,386.95 2,018.43

Income from Services Rendered ................................................ 36.71 61.76

Other Income .............................................................................. J 88.98 79.58

6,172.43 2,734.39

EXPENDITURE:

Raw Materials, Finished and Semi-Finished Products ................ K 4,540.56 2,046.98

Excise Duty ................................................................................. 12.83 13.84

Personnel Expenses ................................................................... L 467.25 523.73

Interest ........................................................................................ M 96.99 110.93

Depreciation/Amortisation .......................................................... 52.60 38.24

Estimated Losses on Incomplete Contracts ............................... (53.26) (18.76)

Other Expenses .......................................................................... N 1,001.37 857.24

Total ....... 6,118.34 3,572.20

Profit/(Loss) Before Taxation ....................................................... 54.09 (837.81)


Current Tax ................................................................................. — —

Deferred Tax ............................................................................... — (43.28)

Fringe Benefit Tax ....................................................................... 9.29 —

Profit/(Loss) for the year ............................................................. 44.80 (794.53)

Balance of (Loss)/Profit for earlier years ..................................... (2,733.08) (1,938.55)

Balance of Loss carried to Balance Sheet .................................. (2,688.28) (2,733.08)

Earning Per Share ....................................................................... 0.29 (8.13)

NOTES ON ACCOUNTS .............................................................................................................................................................................................................................................................................. O




G. Shankar

Partner


R. S. Kotian

Company Secretary


Raghunath Murti



}

175



2006 2005Rupees Rupees Rupees Rupees

Lacs Lacs Lacs LacsA. CASH FLOW FROM OPERATING ACTIVITIESNet Profit (loss) Before Tax .......................................................................... 54.09 (837.81)Adjustments for:Depreciation ................................................................................................. 52.60 38.24Interest Expenses ........................................................................................ 96.99 110.93Amortisation of Expenses ............................................................................ 75.17 37.80(Profit) (–) (Loss) (+) on Sale of Fixed Assets/Scrapped/written off (Net) .... 1.37 12.88

226.13 199.85

Operating Profit before Working Capital Changes ....................................... 280.22 (637.96)Miscellaneous Expenditure (to the extent not written off or adjusted)incurred during the year ............................................................................... (2.40) (223.40)Adjustments for Changes in Working CapitalTrade and Other Receivables ....................................................................... (2,250.74) (297.51)Loans and Advances .................................................................................... (65.49) 44.52Inventories ................................................................................................... (65.38) 210.50Current Liabilities ......................................................................................... 2,783.58 30.32Provisions ..................................................................................................... (45.75) (40.81)

356.22 (52.98)

Cash Generated from/(Utilised in) Operations ............................................. 634.04 (914.34)Direct Taxes Paid ......................................................................................... (4.42) —

NET CASH FLOW FROM OPERATING ACTIVITIES ................................. 629.62 (914.34)B. CASH FLOW FROM INVESTING ACTIVITIESFixed Assets:Purchase ...................................................................................................... (70.48) (32.33)Sale .......................................................................................................... 51.62 1.12NET CASH USED IN INVESTING ACTIVITIES .......................................... (18.86) (31.21)C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from Borrowings .......................................................................... 102.13 140.08Repayment of Borrowings ........................................................................... (605.20) —Interest Paid ................................................................................................. (108.04) (110.73)Issue of Share Capital .................................................................................. 100.00 1,000.00NET CASH USED IN FINANCING ACTIVITIES ......................................... (511.11) 1,029.35NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ...... 99.65 83.80CASH AND CASH EQUIVALENTSOpening Balance .......................................................................................... 108.00 24.20

Closing Balance 207.65 108.00

Notes:1. Figures in brackets represent outflows of cash and cash equivalents.2. Cash and Cash equivalents comprise of:

2006 2005 2004Rupees Rupees Rupees

Lacs Lacs LacsCash in Hand and Cheques on Hand ........................................................... 150.96 45.54 19.08Balance with Scheduled Banks:On Current Account ..................................................................................... 56.32 62.36 5.02On Deposit Account (includes Rs. 0.37 lacs (2005: Rs. 0.10 lacs) under lien) 0.37 0.10 0.10

207.65 108.00 24.20




G. Shankar

Partner


R. S. Kotian

Company Secretary


Raghunath Murti



}

176


(c) 1,00,000 — 8.50% CumulativeRedeemable Preference Shares of Rs.100 each issued to Mahindra &Mahindra Limited, the holdingcompany, on 31st March, 2006, andare redeemable at par at the end of oneyear from the date of allotment ofshares, i.e., 31st March, 2006.

(d) If dividend on the 8.5% CumulativeRedeemable Preference Shares is notpaid for any year or years a premiumwill be payable on redemption of theshares at such rates so that theshareholder earns a post tax yield of8.50% per annum for the total period ofholding the shares.

(e) Arrears of fixed cumulative dividendRs. 340.72 lacs.

SCHEDULE: B 2006 2005RESERVES AND SURPLUS: Rupees Rupees

Lacs Lacs

Capital Reserve .............................................. 388.56 388.56

Total ............ 388.56 388.56

SCHEDULE: C 2006 2005LOAN FUNDS Rupees Rupees

Lacs Lacs(A) Secured Loans:

Loans and Advances from banks (securedby a pari passu charge on the Company’spresent and future goods, book debts, allother moveable assets, outstandingmonies, claims, investments, etc., in termsof the deed of hypothecation) ................. 76.95 619.34Loans and Advances from others (securedby hypothecation of vehicle purchasedout of said loan) ....................................... 6.32 —

(B) Unsecured Loans:Short-term Loans and Advances:From other than Banks [repayable withinone year – Rs. 95 lacs (2005: Rs. 62 lacs)] 95.00 62.00

Total ............ 178.27 681.34

SCHEDULE: D 2006 2005DEFERRED TAX: Rupees Rupees

Lacs Lacs(A) Deferred Tax Assets:

Timing Difference on Account of:Carried Forward Tax Losses .................... 30.12 42.35Other Items ............................................ — —

(B) Deferred Tax Liabilities:Timing Difference on Account of:

Depreciation ............................................ 30.12 42.35

Net Deferred Tax Liabilities: .................... — —

SCHEDULE: A 2006 2005SHARE CAPITAL Rupees Rupees

Lacs LacsAuthorised:

1,55,00,000 (2005: 1,55,00,000) Equity Sharesof Rs. 10 each .......................... 1,550.00 1,550.00

15,50,000 (2005: 14,50,000) PreferenceShares of Rs. 100 each ............ 1,550.00 1,450.00

Total ............ 3,100.00 3,000.00

Issued and Subscribed:

1,55,00,000 (2005: 1,55,00,000) Equity Sharesof Rs. 10 each, fully paid-up ..... 1,550.00 1,550.00

15,50,000 8.50% (2005: 14,50,000)Cumulative RedeemablePreference Shares of Rs. 100each, fully paid-up ..................... 1,550.00 1,450.00

Total ............ 3,100.00 3,000.00

Of the above:

1. 1,00,00,000 Equity Shares are held by theHolding Company, Mahindra & MahindraLimited.

2. 54,99,999 Equity Shares are held byMahindra Holding & Finance Limited, aSubsidiary of Mahindra & Mahindra Limited,including 5 shares held jointly with itsnominees.

3. 1 Equity Share is held by Mahindra GescoDevelopers Limited, a Subsidiary ofMahindra & Mahindra Limited.

4. (a) 4,50,000 — 8.50% CumulativeRedeemable Preference Shares ofRs. 100 each are held by the MahindraHoldings & Finance Limited, a Subsidiaryof Mahindra & Mahindra Limited.The aforesaid Preference Shares wereissued on 9th June, 2000. The terms ofthe Preference Issue was amended witheffect from 1st March, 2004, to reducecumulative dividend rate from 10.50%to 8.50% p.a. The Preference Sharesare now redeemable at the expiry of fouryears from 1st March, 2004.

(b) 10,00,000 — 8.50% CumulativeRedeemable Preference Shares of Rs.100 each are held by Mahindra &Mahindra Limited, the holdingcompany. These Preference Shares areredeemable at par as under:5,00,000 Preference Shares at the endof the 5th year from the date of allotmentof the shares. Balance 5,00,000Preference Shares at the end of the 6thyear from the date of allotment of theshares. The Company has the option toredeem the shares any time after theexpiry of one year from the date ofallotment, i.e., 30th March, 2004.

SCHEDULE: EFIXED ASSETS: (Rupees in Lacs)

GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCKDescription of Assets Additions Deductions Cost Deductions/

Cost as at during during as at Upto For Adjust- As at As at As at31-3-2005 the year the year 31-3-2006 31-3-2005 the year ments 31-3-2006 31-3-2006 31-3-2005

Tangible Assets:Buildings ................................................... 62.38 9.24 52.69 18.93 27.40 3.37 18.03 12.74 6.19 34.98Plant and Machinery ................................. 310.32 28.73 22.73 316.32 133.01 30.79 5.69 158.11 158.21 177.31Furniture and Fittings ............................... 21.67 17.08 0.13 38.62 8.95 10.86 0.04 19.77 18.85 12.72Vehicles (Note 1 below) ........................... 17.33 10.18 1.48 26.03 9.77 2.71 0.27 12.21 13.82 7.56Improvement to Leased Premises ........... 22.66 3.64 — 26.30 3.56 4.74 — 8.30 18.00 19.10Intangible Assets:(Other than internally generated):Software ................................................... — 1.61 — 1.61 — 0.13 — 0.13 1.48 —

Total ......................................................... 434.36 70.48 77.03 427.81 182.69 52.60 24.03 211.26 216.55 251.67Previous Year ........................................... 431.83 32.33 29.80 434.36 160.25 38.24 15.80 182.69 251.67

Note:1. Vehicles includes Rs. 8.62 lacs at cost (2005: Rs. 12.95 lacs) yet to be registered in the Company’s name pending completion of transfer formalities.2. Fixed Assets held for disposal Rs. 9.17 lacs (2005: 54.42 lacs) (Net Book Value) - Plant & Machinery.

177


SCHEDULE: F 2006 2005INVESTMENTS: Rupees Rupees

Lacs LacsLong Term, Non-Trade, At Cost

— Government Securities (Unquoted)

Face ValuePer Unit

Number (Rupees)

2 10,000 National Savings Certificate@ 0.20 0.20

Total ............... 0.20 0.20

@ Lodged as Security Deposit, with the Sales Tax authorities.

SCHEDULE: G 2006 2005CURRENT ASSETS, LOANS Rupees RupeesAND ADVANCES: Lacs Lacs

(A) Current Assets:

Stores and Spares .................... 3.50 3.60Tools and Patterns ................... 9.90 9.45

Stock-in-Trade and Work-in-Progress:

(i) Work-in-Progress ................ 59.84 30.35

(ii) Manufactured Components 0.23 1.72

(iii) Raw Materials and Bought-out-Components ................ 116.73 79.70

190.20 124.82

Sundry Debtors (Note 2)

Unsecured:

Outstanding for a period exceeding six months:

Considered Good ..................... 1,532.90 1,199.94

Considered Doubtful ................ 43.21 12.12

1,576.11 1,212.06

Others — Considered Good ..... 2,478.59 634.07

4,054.70 1,846.13

Less: Provision for Doubtful Debts 43.21 12.12

4,011.49 1,834.01Short Billing/Claims consideredas income on incomplete longterm contracts .......................... 262.32 189.06

4,273.81 2,023.07Cash and Bank Balances:

Cash on Hand .......................... 1.58 1.29

Cheques on Hand .................... 149.38 44.25

Balances with Scheduled Banks:

(i) On Current Account ........... 56.32 62.36

(ii) On Fixed Deposit Account . 0.37 0.10

207.65 108.00(B) Loans and Advances:

(Unsecured, considered goodunless otherwise stated):

Advances recoverable in cash orin kind or for value to be received(net of provision for doubtfuladvances Rs. 52.67 lacs, previousyear Rs. 29.68 lacs) .................. 598.01 549.34

Payments towards Income-tax

— Current (net provisions) ....... 10.30 15.17

Balances with Customs, PortTrust, Excise, etc. .................... 37.09 8.23

645.40 572.74

Total ............ 5,317.06 2,828.63

SCHEDULE: H 2006 2005CURRENT LIABILITIES AND Rupees RupeesPROVISIONS: Lacs Lacs

(A) Current Liabilities:

Acceptances ........................................... 1,360.68 561.56

Sundry Creditors(i) Total Outstanding Dues of Small Scale

Industrial Undertakings (Note 9and Schedule Q) ................................ 50.98 45.38

(ii) Total Outstanding Dues of Creditorsother than Small Scale IndustrialUndertakings (Note 3) ....................... 1,977.96 1,085.50

(iii) Billing/Claims in excess of amountsconsidered as income on incompletelong term contracts ........................... 241.13 119.63

(iv) Advances from Customers ............... 965.60 —(v) Interest Accrued but not Due on Loans 1.19 0.91

4,597.54 1,812.98(B) Provisions:

Provision for Leave Encashable .............. 40.86 33.35Provision for Estimated Losses onIncomplete Contracts .............................. 29.69 82.95

70.55 116.30

Total ............ 4,668.09 1,929.28

SCHEDULE: I 2006 2005MISCELLANEOUS EXPENDITURE: Rupees Rupees

Lacs LacsMiscellaneous Expenditure (To the extent notwritten off or adjusted)Voluntary Retirement Scheme Compensation 112.83 185.60

Total ............ 112.83 185.60

SCHEDULE: J 2006 2005OTHER INCOME: Rupees Rupees

Lacs Lacs

Interest - Others - Gross ................................ 1.55 0.33Sundry Creditors Balances written back ......... 57.66 0.85Scrap Sales..................................................... 6.53 59.30Miscellaneous Income ................................... 23.24 19.10

Total ............ 88.98 79.58

SCHEDULE: K 2006 2005RAW MATERIALS, FINISHED AND Rupees Rupees RupeesSEMI-FINISHED PRODUCTS Lacs Lacs Lacs(A) (Increase)/Decrease in Stock of

Finished Goods, Work-in-Progress and ManufacturedComponents:

Opening Stock:(i) Work-in-Progress ............. 30.35 108.65(ii) Manufactured Components 1.72 4.15

32.07 112.80Less: Closing Stock:(i) Work-in-Progress ............. 59.84 30.35(ii) Manufactured Components 0.23 1.72

60.07 32.07

(Increase)/Decrease in Stock (28.00) 80.73

(B) Consumption of RawMaterials and Bought-out-Components:Opening Stock ...................... 79.70 205.62Add: Purchases [including outsideprocessing charges Rs. 90.29lacs (2005: Rs. 35.87 lacs)] ... 4,605.59 1,840.33Less: Closing Stock ............... 116.73 79.70

4,568.56 1,966.25

Total ............ 4,540.56 2,046.98

178


SCHEDULE: L 2006 2005PERSONNEL: Rupees Rupees

Lacs Lacs

Salaries, Wages, Bonus, etc. .......................... 376.59 344.01Contribution to Provident and Other Funds .... 33.21 36.49Gratuity .......................................................... 11.35 100.16Welfare ........................................................... 46.10 43.07

Total ............ 467.25 523.73

SCHEDULE: M 2006 2005INTEREST: Rupees Rupees

Lacs LacsInterest on Fixed Period Loans ....................... 0.19 —Others ............................................................ 96.80 110.93

Total ............ 96.99 110.93

SCHEDULE: N 2006 2005OTHER EXPENSES: Rupees Rupees

Lacs LacsStores Consumed ........................ 22.53 13.79Tools and Patterns Consumed ..... 3.07 7.74Power and Fuel ............................ 12.80 14.91Rent (including Lease Rent) ......... 22.82 30.12Bank Charges ............................... 128.75 83.01Carriage and Delivery ................... 99.25 23.98Rates and Taxes ........................... 10.64 3.96Insurance ...................................... 17.76 11.78Repairs and Maintenance:

Buildings ......................... 15.24 13.44Machinery ....................... 3.54 5.99Others ............................. 4.53 3.57

23.31 23.00Advertisement .............................. 1.40 0.48Commission on Sales/Contracts .. 76.25 29.76Professional Charges ................... 55.57 66.77Travelling Expenses ..................... 33.74 29.18Net Difference in Foreign Exchange .. — 0.08Provision for Doubtful Debts andAdvances ..................................... 54.08 41.80Liquidated Damages .................... 3.15 5.75Miscellaneous Expenses (Note 8) 141.32 152.63Erection and Commissioning Sub-contract Expenses ........................ 218.39 267.82Miscellaneous Expenditure WrittenOff - Voluntary Retirement SchemeCompensation .............................. 75.17 37.80Loss on Fixed Assets Sold/Scrapped/Written Off (Net) .......................... 1.37 12.88

Total ............ 1,001.37 857.24

SCHEDULE: O



A. Basis of Preparation of Accounts:

The accounts have been prepared to comply in all material aspects withapplicable accounting principles in India, the Accounting Standards issuedby the Institute of Chartered Accountants of India and relevant provisions ofthe Indian Companies Act, 1956.

B. Fixed Assets:

(a) Fixed Assets are stated at cost less depreciation/amortisation.

(b) Depreciation on assets is calculated on Straight Line Method at the ratesand in the manner prescribed in Schedule XIV to the Companies Act,1956, except for:(i) Buildings at project sites — over 1 to 4 years, to coincide with the

project period; and(ii) Vehicles — over 2 to 10 years to coincide with the useful life.

(c) Improvement to leasehold premises are amortised over the lease period(5 years).

(d) Intangible assets (Software) is amortised on the straight line methodover a period of three years.

C. Inventories:

Inventories are stated at cost or net realisable value whichever is lower. Costis arrived at on a weighted average method and includes, where appropriate,manufacturing overheads and Excise and Customs duties.

D. Foreign Exchange Transactions (Other than for Fixed Assets):

Transactions in foreign currencies are recorded at the exchange rateprevailing on the date of the transaction. Current Assets and CurrentLiabilities outstanding at the year end are translated at year end andexchange rates and the profit/loss so determined and also the realisedexchange gains/losses are recognised in the Profit and Loss Account.

E. Revenue Recognition:

Sales of products and services are recognised when the products areshipped or services rendered. In respect of construction contracts, theCompany accounts for the income on the percentage of completion basis.(Refer Paragraph (F) below).

F. Construction Contracts:

In respect of construction contracts, contract revenue and contract costs arerecognised as revenue and expense respectively in the Profit and LossAccount in the year in which the work is performed. Provision for foreseeablelosses is recognised when the total contract costs exceeds the totalestimated contract revenue.

The Company accounts for income on the percentage of completion basis,which necessarily involves technical estimates of the percentage ofcompletion, and costs to completion of each contract, on the basis of whichprofits/losses are accounted. Such estimates, made by the Company andcertified to the Auditors, have been relied upon by them, as these are of atechnical nature.

G. Retirement Benefits:

Retirement Benefits in respect of Gratuity and Leave Encashment benefitsare provided for based on actuarial valuations, as at Balance Sheet date.

H. Miscellaneous Expenditure (to the extent not written off or adjusted):

Voluntary Retirement Scheme Compensation paid to employees who haveretired under the voluntary retirement scheme is amortised over thepayback period (36 months).

I. Income Tax:

Tax expense for the year, comprising of current tax and deferred tax, isincluded in the determination of net profit for the year. Deferred tax isrecognised on all timing differences, subject to consideration of prudence inrespect of deferred tax assets.

2. Sundry Debtors outstanding includes Rs. 1,073.34 lacs (2005: Rs. 844.09 lacs),which in accordance with the terms of the contracts were not due for paymentas at 31st March, 2006.

3. Sundry Creditors includes accrued interest of Rs. 63.54 lacs (2005: Rs. 63.54lacs) payable to Mahindra & Mahindra Limited for acquisition of its MSL Division.

4. Income from long-term contracts includes Export Benefits Rs. 0.38 lacs (2005:Rs. 13.72 lacs).

5. Contingent Liabilities not provided for:

(a) In respect of contracts for design, manufacture, supply, erection andcommissioning of plant and equipment placed with the Company by variouscustomers, the committed dates of completion had expired, and, hence,strictly in terms with the relative contracts, the Company could be liable forliquidated damages/penalties the amount of which is estimated at a ceilingof Rs. 946.71 lacs (2005: Rs. 769.53 lacs). However, the Company expectsto have the liquidated damages/penalties waived.

(b) Claims against the Company not acknowledged as debts:

31-03-2006 31-03-2005Rupees Rupees

Particulars Lacs Lacs

Sales Tax: Gross 3.75 3.75

Income Tax: Gross 73.77 73.77

Labour Matters: Gross 10.00 —

179


6. Estimated amount of contracts remaining to be executed on capital account andnot provided for Rs. 0.50 lacs (2005: Rs. Nil).

7. The Company had in an earlier year executed a contract in respect of which thecustomer had withheld its dues against claims for rectification aggregatingRs. 210 lacs. In addition, the Company has given bank guarantees aggregatingRs. 477 lacs as security towards liquidated damages. Whilst, the Company doesnot acknowledge these claims as debts, the Company in turn has counter claimsaggregating Rs. 130 lacs for extra works done by the Company outside thepurview of the original contract. The matters are under negotiation and theCompany is confident that no liability would devolve on it on this account.

8. Miscellaneous Expenses include:

(a) Amounts payable to the Auditors in respect of Audit Fees (including ServiceTax) Rs. 4.41 lacs (2005: Rs. 4.41 lacs) and out-of-pocket expenses ofRs. 0.07 lacs (2005: Rs. 0.01 lacs).

(b) Amounts payable as Professional Fees and out-of-pocket expenses toauditor/associate firm of the statutory auditors Rs. Nil (2005: Rs. 0.77 lacs).

9. The identification of suppliers as Small Scale Industrial Undertakings (SSIs) hasbeen done on the basis of the information provided by the suppliers to theCompany. On this basis, the disclosure of total outstanding dues of SSIs hasbeen made in Schedules H and Q.

10. Managerial remuneration included in the Profit and Loss Account is Rs. 6.43 lacs(2005: Rs. 19.35 lacs) including perquisites Rs. 0.73 lacs (2005: Rs. 1.40 lacs).The said remuneration of Rs. 6.43 lacs is subject to the approval of theshareholders, by way of a special resolution, in the general meeting.

11. Additional information pursuant to the provisions of paragraphs 3(i)(a) and (ii), 4Cand 4D of Part II of Schedule VI to the Companies Act, 1956 — see Schedule P.

12. As required by the Sick Industrial Companies Act, 1985, the Company has filedan application (Form C) with the Board for Industrial and Financial Reconstructionon 8th September, 2004, since the accumulated losses of the Company aremore than fifty per cent of its net worth and also the Company has incurred cashlosses during the two immediately preceding financial years.

13. Having regard to the support from the Holding Company, Mahindra & MahindraLtd., towards achieving its business plan, including providing necessary supporttowards procurement of financial resources, the accounts have been preparedon a ‘going concern basis’.

14. Earning Per Share:

2005-06 2004-05

Profit After Tax (Rs. in lacs) ..................... 44.80 (794.53)

Weighted Average Number of Shares .... 15,500,000 9,767,671

Earning Per Share (Basic/Diluted) (Rs.) ... 0.29 (8.13)

Nominal Value Per Equity Share .............. 10.00 10.00

15. Related Party Disclosure:

(A) Name of the related party and nature of relationship where controlexists:

Name of the Related Party Nature of RelationshipMahindra & Mahindra Ltd. Holding Company

(B) Related Party Transactions:

Name of the Related Party Description Nature of Transactions Amount of Transactions Amount Outstandingof Relationship at the end of year

Debit/(Credit)Rs. Lacs Rs. Lacs

2005–06 2004–05 2005–06 2004–05

Mahindra & Mahindra Ltd. Holding Company Expenses incurred by M&M for OfficeEstablishment 19.50 17.54 (12.24) (67.95)

Expenses incurred by company on behalf ofMahindra & Mahindra Ltd. 22.42 7.22

Cumulative Redeemable Preference SharesSubscribed 100.00 —

Equity Share Subscribed — 1000.00

Rent Paid 1.81 —

Sale of Office Building at Sewree 34.67 —

Sale of Plant and Machinery at Sewree 18.14 —

Interest on ICD Paid — 0.68

ICD Received — 130.00

ICD Repaid — 130.00

Mahindra Engineering & Fellow Subsidiary Rent Paid 12.00 9.72 — (8.23)Chemical Products Limited Reimbursement of Expenses 0.85 0.93

Payment made towards Purchase of Goods 5.13 —

Mahindra & Mahindra Financial Fellow Subsidiary Loan Availed 7.13 — (6.32) —Services Ltd. Repayment of Loan 0.81 —

Interest Paid 0.19 —Purchase of Car — 1.48

Mahindra Acres Consulting Fellow Subsidiary Professional Charges — 0.61 — (0.16)Engineering Ltd.

Mahindra Holding & Fellow Subsidiary Interest on ICD Paid — 2.74 — —Finance Ltd. ICD Received — 332.00 — —

ICD Repaid — 332.00 — —

Mr. Amar Banerjee Key Management Remuneration 6.43 19.35 — —Personnel

180


16. Details of provisions and movements in each class of provisions as required bythe Accounting Standard on Provisions, Contingent Liabilities and ContingentAssets (Accounting Standard-29)

Rs. in Lacs

Nature of Provision Leave Encashment31st March, 31 March,

2006 2005

Carrying Amount at the beginning of theyear .................................................... 33.35 55.40

Additional Provision made during the year 19.75 1.64

Amount Used during the year ................. 12.24 23.69

Carrying Amount at the end of the year .. 40.86 33.35

Brief description of the nature of the obligation and the expected timing of anyresulting outflows of economic benefits.

Leave Encashment:

Leave Encashment is a benefit to an employee in respect of encashment ofaccumulated leave to the credit of the employees either during employment oron separation as per the rules of the Company.

17. The Company is engaged in manufacturing/erection of Capital Goods (includingparts thereof) and services in respect thereof, which constitutes one BusinessSegment. During the year, the Company has not made any material direct ExportSales. Accordingly, there is only one Geographical Segment. Hence, therequirement of disclosures of segment information is not applicable.

18. The disclosures as required by AS-7 (Revised) on Construction Contracts are asfollows:

(a) Contract revenue recognised as revenue during the year Rs. 5,386.95 lacs(Net) (2005: Rs. 2,018.43 lacs).

(b) For method used to determine the contract revenue during the year refer thesignificant accounting policy (Note 1F).

(c) Method used to determine the stage of completion of contracts in progressis by comparing actual costs incurred as percentage of total estimated costsfor the contract.

(d) Aggregate amount of costs incurred upto reporting date is Rs. 15,497.48 lacs(2005: Rs. 11,175.73 lacs) in respect of contract in progress.

(e) Recognised losses upto reporting date is Rs. 29.69 lacs (2005: Rs. 82.95lacs).

(f) Advances received are Rs. 956.28 lacs (2005: Rs. 123.30 lacs).

(g) Retention money is Rs. 1,060.03 lacs (2005: Rs. 831.26 lacs).

(h) Gross amount due from customer for contract work is Rs. 262.32 lacs (2005:Rs. 189.06 lacs).

(i) Gross amount due to customers for contract work as a liability is Rs. 241.13lacs (2005: Rs. 119.63 lacs).

(j) Aggregate amount of cost incurred and recognised profits (less recognisedlosses) upto reporting date Rs. 16,096.95 lacs (2005: Rs. 11,111.43 lacs).

19. (A) Details of Derivative Instruments (for hedging)

None

(B) Details of foreign currency exposures that are not hedged by a derivativeinstrument or otherwise:

Particulars Amount in EquivalentForeign Amount in

Currency Rupees

Sundry Creditors (Liability) ................ CHF 116,380 40,31,403USD 56,000 25,07,680

20. Previous year’s figures have been regrouped wherever necessary to conform toclassification of the current year.

SCHEDULE: P (I)

ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PARAGRAPHS 3(i)(a) AND (ii) 4C AND 4D OF PART II OF SCHEDULE VI TO THE COMPANIES ACT,1956.

(I) PARTICULARS IN RESPECT OF GOODS MANUFACTURED:

Sl. Class of Goods Unit of Licensed Installed Actual Opening Stock Closing Stock SalesNo. Measure- Capacity Capacity Production

ment per Annum per Annum [Note (B) Quantity Value Quantity Value Quantity Value[Note (A)] [Note (A)] and (D)] Rs. Lacs Rs. Lacs Rs. Lacs

1. Vibroscreens Nos. 120 120 — — — — — — —

2. Separation Equipment:

(a) Centrifuges Nos. 87 87 — — — — — — —

(b) Mineral Oil Purifiers Nos. 100 100 — — — — — — —

(c) Continuous VegetableOil Refining Plants Nos. 10 10 — — — — — — —

(d) Spares Nos. — — — — — — —

3. Spares:

(a) Ash Handling Plant Nos. — — — — — — 453.74[See Note (C) below] Sets — — — — — — (293.78)

(b) Travelling Water Screens, Nos. 2,558 — — — — — —Trash Cleaning Machines (2,074)(Mechanical Cleaning 276.40Rakes) allied equipment Sets 462 — — — — — (339.07)and accessories (462)

4. Income from Long TermContracts:

(a) Ash Handling Plants[See Note (D) below] Nos. 2 to 7* 7 3,982 18 $1.72 15 $0.23 67,086

(1,481) (22) (4.15) (18) $(1.72) (56,946)

Sets 89 — — — — 7,780(322) — — — — (382)

Mtrs. — — — — — 198,761— — — — — (73,065)

Carried forward:

}

}

}

181


Sl. Class of Goods Unit of Licensed Installed Actual Opening Stock Closing Stock SalesNo. Measure- Capacity Capacity Production

ment per Annum per Annum [Note (B) Quantity Value Quantity Value Quantity Value[Note (A)] [Note (A)] and (D)] Rs. Lacs Rs. Lacs Rs. Lacs

Brought forward:

Kgs. — — — — — 543,361 5,279.92(559,662) (1,966.09)

Ft. — — — — — 155(314)

Sq.Ft. — — — — — 1,124(0)

(b) Travelling Water Screens,Trash Cleaning Machines(Mechanical CleaningRakes) allied equipmentand accessories Nos. 20 20** 0 0 0 0 0 0 160.46[See Note (E) below] (72.71)

6,170.52(2,671.65)

* Depending on the size of the plant according to Customer's Specification.$ These amounts are included under the head “Manufactured Components” in Schedules G and K.** Depending on the size as per Customer's specification and application.

NOTES TO SCHEDULE P (I):A. (a) The installed capacity has been certified by the Management, which the Auditors have relied on without verification, as this is a technical matter.

(b) The licensed and installed capacity indicated above relate to the products for which the Company has been granted industrial licenses and does not include capacityavailable for undertaking jobs according to customer’s specific requirements, as it is not possible to quantify the same.

B. Actual production includes production for captive consumption.C. Sales of manufactured component are out of production and opening stock from item 4(a).D. The manufacture, supply, erection and commissioning of a complete Ash Handling Plant as per customers’ specification is spread over several years. The Company

simultaneously manufactures individual component parts and equipment for several plants. The manufactured as well as bought-out components and equipment areinvoiced on delivery and are reflected in the turnover/income of the year in which they are delivered. Hence, it is not possible to state in which accounting year a completeplant is manufactured. Therefore, the Company has given quantitative details of manufactured components and equipment only under actual production, opening stockand closing stock and similar details of both manufactured and bought out components and equipment in respect of turnover/income. The Company did not have in stockas on 31st March, 2006 components and equipment for a complete Ash Handling Plant.The sale/income of Ash Handling Plants represents the quantity and value of manufactured and bought-out components equipment supplied against Six Orders (2005: Six)for the aforesaid plants.

E. In respect of Travelling Water Screen, as per item 4(b), whilst the components are invoiced on delivery and the value is reflected in the turnover of the year of delivery,for the purpose of quantitative information, a travelling water screen is treated as having been produced/sold during the year in which all the critical components requiredfor such assembly are produced/sold respectively.

SCHEDULE: P(II)

PARTICULARS OF RAW MATERIALS AND COMPONENTS CONSUMED:

Sl. Description Unit of Quantity ValueNo. Measurement Rs. Lacs

1. Steel Items (Sheets, Tubes, etc.) Nos. 4,767(25,902)

Kgs. 456,839(402,213)

Mtrs. 5,505(7,142) 650.02

Sq. Feets — (264.39)

(102)Set 43

(169)

2. Other Metals (Steel Shots,Lead, Tins, etc.) Nos. 1,189

(459)

Mtrs. 1,001 5.98(8) (4.57)

Kgs. 856` (1)

Sq. Feets 42(—)

3. Other Components (includingprocessing charges) 3,912.56

(1,697.29)

Total 4,568.56(1,966.25)

Notes: 1. The consumption in value has been ascertained on the basis of openingstock plus purchases less closing stock and includes adjustment ofexcesses and shortages as ascertained on physical count and write offof obsolete and unserviceable raw materials and components.

2. The consumption in value shown agaisnt item 3 is a balancing figurebased on the total consumption shown in the Profit and Loss Account.

P (III) Value of imports on C.I.F. Basis accounted for during the year:



Components, Spare Parts, etc. (importson ‘cost and insurance’ basis) ........... 92.34 345.65

P (IV) Expenditure in Foreign Currencies (subject to deduction of tax whereapplicable):



Technical Fees .................................. — 10.36

Others ............................................... — 0.49

Total ............ — 10.85

P (V) Earnings in Foreign Exchange:Particulars 2006 2005

Rupees RupeesLacs Lacs

Export of Goods on F.O.B. Basis ...... 2,327.48 43.53

Note: F.O.B. value of exports includes local sales and income from long termcontracts, which qualify for export benefits and for which payment isreceivable in foreign currency and local/export sales under rupee credit,which qualify for export benefits.

}}

}

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P. (VI) Value of Imported and Indigenous Consumption:

Raw Material and Components*


Particulars Lacs % Lacs %

Imported ......................... 105.79 2.32 5.96 0.30

Indigenously Obtained .... 4,462.77 97.68 1,960.29 99.70

Total ................................ 4,568.56 100.00 1,966.25 100.00

*Includes items used otherwise than for production, amount not ascertained.

Notes: 1. See Note (i) on Schedule P (ii).

2. In giving the above information the Company has taken the view thatspares and components as referred to Paragraph 4(D)(c) of Part II ofSchedule VI covers only such items as go directly into production.

P (VII) Previous year’s figures have been regrouped to conform with thecurrent year.

SCHEDULE: Q

Following are the names of Small Scale Industrial Undertakings (SSIs) to whomthe Company owes sums which are outstanding for more than 30 days as on31st March, 2006,

1. Aparna Enterprises

2. Accurate Springs

3. Alfa Heat Tech

4. The Allied Founders (P) Ltd.

5. Alloy Steels

6. Chandimata Iron Industries

7. Exponential Engineering Pvt. Ltd.

8. Indian Pneumatic & Hydraulic Co.

9. Jenco Industrial Corporation

10. Jwala Industries

11. Mayura Steel Pvt. Ltd.

12. Menon Metalliks Pvt. Ltd.

13. Neven Textile Engineers

14. Quality Patterns

15. Switzer Instruments Ltd.

16. Shah Industries & Commercial Corpn.

17. Salins Engineering works

18. Vidyut Green Bank (India) P. Ltd.

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Balance Sheet Abstract and Company's General Business Profile:



Date Month Year

Balance Sheet Date 3 1 - 0 3 - 2 0 0 6II. Capital Raised During the Year (Amount in Rs. Thousands)


N I L N I L


N I L 1 0 0 0 0


Total Liabilitiesincluding Shareholders' Funds Total Assets

5 6 4 6 6 4 5 6 4 6 6 4

Sources of Funds


3 1 0 0 0 0 3 8 8 5 6


8 3 2 7 9 5 0 0



2 1 6 5 5 2 0

Net Current Assets Deferred Tax Liability (Net)

6 4 8 9 7 N I L

Miscellaneous Expenditure Accumulated Losses

1 1 2 8 3 2 6 8 8 2 3


Turnover(Sales and Other Income) Total Expenditure

6 1 7 2 4 3 6 1 1 8 3 4

Profit/(Loss) Before Tax Profit/(Loss) after Tax

5 4 0 9 4 4 8 0

Earnings per Share in Rupees Dividend Rate %

0 . 2 9 N I L

V. Generic names of three Principal Products/Services of the Company (As per Monetary Terms)

*Item Code No. (ITC Code) 8 4 2 8 9 0 2 0

Product Description A S H H A N D L I N G S Y S T E M

*Item Code No. (ITC Code) 8 4 2 8 9 0 9 0

Product Description T R A V E L L I N G W A T E R S C R E E N

SCHEDULE: R

Additional information pursuant to the Provisions of Part IV of Schedule VI to the Companies Act, 1956:

Signatures to Schedules A to R

R. S. Kotian

Company Secretary


Raghunath Murti


Mumbai: 27th April, 2006

}

184

MAHINDRA GESCO DEVELOPERS LIMITED


Your Directors present their Seventh Report together with the audited accounts of your Company for the year ended31st March, 2006.

FINANCIAL HIGHLIGHTS

(Rs. in lacs)

2006 2005

Operating Income ........................................................................................................ 12,113 9,146

Other Income............................................................................................................... 300 349

Total Income ................................................................................................................ 12,413 9,495

Profit Before Depreciation, Interest and Taxation ...................................................... 2,413 2,189

Less : Depreciation..................................................................................................... 228 241

Profit Before Interest and Taxation ............................................................................. 2,185 1,948

Less : Interest ............................................................................................................ 436 614

Profit Before Taxation .................................................................................................. 1,749 1,334

Less : Provision for Taxation ......................................................................................

Current Tax ...................................................................................................... 167 105

Deferred Tax (including MAT Credit) ............................................................... 482 444

Profit for the year after Taxation ................................................................................. 1,100 785

Add : Balance of Profit for earlier years .................................................................... 2,190 1,405

Profit available for appropriation .................................................................................. 3,290 2,190

Less : Proposed Dividend (including tax on distributed profits) ................................ 1,295 —

Less : Transfer to General Reserve ........................................................................... 27 —

Balance carried forward............................................................................................... 1,968 2,190

Operations

The overall economic environment in the country continues toremain buoyant and business confidence is high. This is equallytrue for the infrastructure and real estate sectors. The realisationthat impetus to the infrastructure sector, including of course realestate, an important component of this vital sector, can catalyseeconomic development in the country in an all pervasive mannercould not have come at a better time. The buoyancy in real estatecan be seen across the length and breadth of the country.

The promulgation of the SEZ Act has induced developers andindustrial houses to establish SEZ’s across industries and regions.Your Company is a pioneer in the field and has promotedMahindra World City Developers Limited, which has establishedthe first private sector SEZ at Chennai. It has three sectorspecific SEZs - IT, Auto Ancillary and Apparel. The Industrial Parkof the SEZ is almost sold out. The Company is now planning toexpand this into a fully integrated SEZ. Based on the success ofMahindra World City, Chennai, the Company has entered into anunderstanding with the State Governments of Rajasthan andMaharashtra to set up two multi-product SEZs at Jaipur andKarla, near Pune.

During the year, your Company expanded its project activities.

While the residential project at Wakad (approximately 5.3 lacs sq.ft.of saleable area) near Pune called “the Woods” is heading towardscompletion having earlier been sold off in record time, two newprojects aggregating approximately 8.0 lacs sq.ft. of saleable areawere launched during the third quarter of the year under review.

“Sylvan County”, spread over a sprawling campus ofapproximately 22 acres became your Company’s first housingproject in Chennai located in the Mahindra World City complex,now renowned for being the first private sector SEZ. This projecthas been virtually sold out even before start of construction.

“Mahindra Eminente”, a premium residential complex, waslaunched in Goregaon, Mumbai. This is a high-rise develop mentcovering approximately 2.7 lacs sq.ft. of saleable area, comprisingpremium flats intended for consumers who value space andbetter quality living.

Your Company has acquired land in Faridabad for a residentialproject, which is expected to be launched in the current financialyear, as soon as it receives the approvals. Your Company isexpected to commence operations at Nasik during the later partof the current financial year. Efforts are continuing to expand theland bank and as indicated in the previous year’s report, movesare afoot to increase our footprint to some newer locations.

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Various organization development initiatives were undertakenduring the year. These are expected to help create a robustorganization based on strong values, uniform and systematicbusiness processes and people empowerment. Your Companywill shortly be undertaking major marketing initiatives to createa differentiated brand identity which will provide customers therequisite value and comfort that they seek and which they havecome to very profoundly associate with the ‘Mahindra’ brand.

Project revenues were significantly higher than the previousyear having grown by over 36%. Current occupancy at thecommercial complex and at business centres is near 100%.

During the year, revenues have increased by around 32% andProfit Before Tax has increased from Rs.1334 lacs to Rs.1749lacs registering a growth of 31%. Profit after Tax has increasedfrom Rs.785 lacs to Rs.1100 lacs, showing a growth of 40%.

The sharp increase in the capital employed represents theadditions to the land bank. To achieve the aspirational growthtargets set by the management, your Company will have tocontinuously add to its inventory, specially, since the land buyingprocess is tedious and takes a long time. The resources requiredfor acheiving this growth will be mobilised at an appropriatetime.

The Management Discussion and Analysis Report deals withthe operations of your Company in detail and forms part of thisAnnual Report.

Dividend

Your directors have recommended dividend for the year on 55,00,000– 13.10% Non-Cumulative Redeemable Preference shares ofRs.100 each and on 10,00,000 – 10.50% Non-CumulativeRedeemable Preference shares of Rs.100 each and a dividend of10% on the paid-up equity capital of the Company. The totaldividend payment including tax on distributed profits amounts toRs.1295 lacs. The dividend, if approved, shall be subject to tax andshall be paid out of profits of the current and previous years.

Corporate Governance

A report on the Corporate Governance along with a Certificatefrom the Auditors of the Company regarding the compliance ofconditions of Corporate Governance as also the ManagementDiscussion and Analysis Report as stipulated under Clause 49 ofthe Listing Agreement are annexed to this Report.

Directors

Mr. Anand Mahindra, Mr. Uday Phadke and Mr. Sanjiv Kapoorretire by rotation and being eligible offer themselves forre-appointment.

The Board at the Meeting held on 18th January, 2006, appointedMr. Pranab Kumar Datta as an Additional Director. At the samemeeting, the Board appointed Mr. Pranab Kumar Datta as theManaging Director, designating him as ‘Managing Director &Chief Executive Officer’ for a period of five years with effectfrom 18th January, 2006, subject to the approvals of the Membersof the Company and the Central Government.

Mr. Pranab Kumar Datta holds office upto the date of theforthcoming Annual General Meeting. The Company has receivednotice from a member signifying his intention to proposeMr.Pranab Kumar Datta as candidate for the office of Director.Your directors recommend his appointment as director of theCompany.


Pursuant to Section 217(2AA) of the Companies Act, 1956, yourDirectors, based on the representations received from the operatingmanagement and after due enquiry, confirm that :


ii) they have, in the selection of the accounting policies,consulted the statutory auditors and these have beenapplied consistently and reasonable and prudent judgmentsand estimates have been made so as to give a true and fairview of the state of affairs of the Company as at 31st March,2006 and of the profit of the Company for the year ended onthat date;

iii) proper and sufficient care has been taken for themaintenance of adequate accounting records in accordancewith the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventingand detecting fraud and other irregularities;

iv) the annual accounts have been prepared on a going concernbasis.

Corporate Social Responsibility Initiatives (CSR)

As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced their socialwell being. Since its inception, the Mahindra Group has alwaysbeen engaged in activities which add value to the communityaround us. A step forward was taken in this direction by theannouncement made on the occasion of the 60th Anniversary ofMahindra & Mahindra Limited, that the Group would support arange of CSR initiatives by committing 1% of Profit after Tax(PAT) on a continuing basis. The 1% PAT would specificallybenefit the economically disadvantaged and socially weakersections of the society. Accordingly, the Board of your Companyhas resolved to contribute to recognised charitable and/or otherInstitutions, including K. C. Mahindra Education Trust and/orMahindra Foundation, not related to the business of the Companyor the welfare of the employees towards Corporate SocialResponsibilities of the Company, such amounts which in theaggregate in any financial year will not exceed 1% of theCompany’s estimated PAT for the year on a continuing basisuntil further review by the Board.

A beginning in this direction was made by your Company duringthe current year by making a contribution of Rs. 5 lacs to aregistered public charitable trust engaged in educational, trainingand research activities and socially pertinent issues for backwardclasses and rural communities.

186


Subsidiaries

During the year, Mahindra World City (Maharashtra) Limited(formerly Mahindra Realty Limited) and Mahindra World City(Jaipur) Limited became subsidiaries of your Company. Boththese companies will be developing Special Economic Zones(SEZs) near Pune and Jaipur, respectively.

The other subsidiary company, Mahindra World City DevelopersLimited (formerly known as Mahindra Industrial Park Limited)has successfully implemented India’s first private sector SEZnear Chennai. Your Company, as a Co-Developer is doing a partof the residential development in that SEZ spread overapproximately 22 acres.

The Tirupur Water Supply & Sewerage project is beingimplemented by a consortium led by your Company. A subsidiarycompany, Mahindra Infrastructure Developers Limited is anequity participant in the project company. The project hassuccessfully completed commissioning and has now enteredthe operations phase.

The Statement pursuant to Section 212 of the Companies Act,1956, containing details of the Company’s subsidiaries, MahindraInfrastructure Developers Limited, Mahindra World CityDevelopers Limited, Mahindra World City (Maharashtra) Limitedand Mahindra World City (Jaipur) Limited, is attached.

The Consolidated Financial Statements of the Company and itssubsidiary companies, prepared in accordance with AccountingStandard 21 prescribed by The Institute of Chartered Accountantsof India, form part of the Annual Report and Accounts.

Your Company has made an application to the CentralGovernment seeking exemption from attaching the accounts,etc., of its subsidiaries, Mahindra Infrastructure DevelopersLimited, Mahindra World City Developers Limited, MahindraWorld City (Maharashtra) Limited and Mahindra World City(Jaipur) Limited with the Balance Sheet of the Company. If interms of approval granted by the Central Government underSection 212 (8) of the Companies Act, 1956, copy of the BalanceSheet, Profit and Loss Account, Report of the Board of Directorsand Auditors of the subsidiaries are not required to be attachedwith the Balance Sheet of the Company, the Company Secretarywill make these documents available upon receipt of requestfrom any Member of the Company interested in obtaining thesame. The financial data of the subsidiaries have been separatelyfurnished forming part of the Annual Report. These documentswill also be available for inspection at the Registered Office ofthe Company during working hours upto the date of the AnnualGeneral Meeting. Further, pursuant to Accounting Standard AS–21 issued by The Institute of Chartered Accountants of India,Consolidated Financial Statements presented by the Companyinclude financial information of its subsidiaries.

Auditors

M/s. Kalyaniwalla & Mistry, Chartered Accountants andM/s. B. K. Khare & Co., Chartered Accountants, retire as JointAuditors at the forthcoming Annual General Meeting and havegiven their consent for re-appointment. The members will be

required to appoint Auditors for the current year and fix theirremuneration.As required under the provisions of Section 224 of the CompaniesAct, 1956, the Company has obtained written certificates fromthe above Auditors proposed to be re-appointed to the effectthat their re-appointment, if made, would be in conformity withthe limits specified in the said section.


Your Company has not accepted any deposits from the public orits employees during the year under review.

The Company has not made any loans/advances which arerequired to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with theCompany.



In view of the nature of activities which are being carried on bythe Company, Rules 2A and 2B of the Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988,concerning conservation of energy and technology absorptionrespectively, are not applicable to the Company.

Details of foreign exchange earnings and outgo during the yearunder review are furnished in the Notes to Accounts.

Particulars of Employees as required under Section 217(2A)

of the Companies Act, 1956 and Rules made there under:

The Company had three employees who were in receipt ofremuneration of not less than Rs. 24,00,000 during the year 31st

March, 2006 or not less than Rs. 2,00,000 per month during anypart of the said year. However, as per the provisions of Section219 (1) (b) (iv) of the Companies Act, 1956, the Directors’ Reportbeing sent to the shareholders does not include this Annexure.Any shareholder interested in obtaining a copy of the Annexuremay write to the Company Secretary at the Registered Office ofthe Company.

Acknowledgments

The Directors would like to thank all clients and suppliers/associates of your Company for the unstinted support receivedfrom them during the year.The Directors would also like to place on record their appreciationfor the dedicated efforts and services put in by the employeesof the Company.


Anand G. MahindraAnand G. MahindraAnand G. MahindraAnand G. MahindraAnand G. MahindraChairman

Mumbai, April 25, 2006

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Management Discussion & Analysis Report

The Management of the Company is pleased to present thisreport covering the activities of the Company during the year2005-2006.

I. The Overall Review

The Company’s focus on the residential segment continuedas demand for housing remains buoyant and is expected toremain so at least for the near medium term. To expand theCompany’s operations it is inevitable that concerted effortsbe made to increase land bank, all the more so since landbuying is a tedious and tortuous process and thereforecertain minimum pipeline inventory has to be maintained, toensure continuity in operations. Consequently, the Companymade further purchases of land parcels at Pimpri near Pune,Mumbai, Faridabad and Nasik.

Land acquisition is an ongoing exercise and as already speltout in the previous year’s report, the Company is planningto augment its presence in the industry by venturing intonewer locations, which offer potential for the kind ofdevelopment the Company is reputed for.

New projects were launched at Chennai and Mumbai. TheChennai project located at Mahindra World City, reputed asthe first private sector SEZ, marks the Company’s foray intothe residential market in Chennai. It may be noted that in theprevious year the Company began its operation in Chennaithrough a commercial project undertaken for a very reputedprivate sector bank.

The housing project is spread over approximately 22 acresinvolving construction of over approximately 5 lacs sq. ft ofsaleable area. This is a unique development comprising ofpremium semi-detached houses, luxurious fully detachedbungalows and three bedroom apartments set in verypleasant and sylvan surroundings adjacent to the famousChengelpet Lake. To reflect its eye-catching ambience andsurroundings, the complex has been aptly christened as“Sylvan County”. The project was marketed uniquelythrough the use of direct marketing techniques, privatepresentations and effective use of the web as acommunication medium. However, the attractiveness ofthe project can be gauged by the fact that it was verballysold out upon its launch with minimal marketing efforts.Construction began towards the third quarter of the financialyear and the project is expected to be completed within 2years.

The Company also launched a prestigious exclusive multi-storeyed residential project at Goregaon, Mumbai. Thehousing units have been designed to meet the needs of theupwardly mobile consumers who value good living andluxuriant space. This project called “Mahindra Eminente”involving a saleable area of approximately 2.7 lacs sq ft wasalso launched in December and is expected to be ready inaround two years.

Architectural plans have been kept ready for theproposed new projects at Faridabad, Pimpri and Mumbai.

These will be launched as soon as the approvals arereceived.

The commercial complexes at Delhi, Pune and Mumbai areall fully occupied. Business Centre activity continues tooperate at an optimum level.

The Company closed the year with a total income ofRs.12413 lacs, Profit before Tax of Rs.1749 lacs and Profitafter Tax of Rs.1100 lacs.

Since the Company is the flagship of the InfrastructureSector, and carries its business directly and through itsvarious subsidiary companies, it is only natural to expand itspresence in the Sector not only directly but also through itsvarious operating units.

With the extremely fruitful and successful experience ofthe first SEZ project at Chennai, the Company responded tothe invitations from the Governments of Rajasthan andMaharashtra to partner them in SEZ projects in theirrespective states. Towards this objective, Memorandum ofUnderstandings have been signed by the Company withthese two State Governments for establishing SEZs ofapproximately 3000 acres each at Jaipur and near Punethrough its subsidiary companies. These SEZs are expectedto further augment the Company’s presence in the ever-expanding infrastructure and real estate industry in thecountry. “Mahindra World City”, the brand name for SEZbusiness, has already established itself and the brandequity is only expected to enhance with the commencementof the newer SEZs.

II. Business Environment

The industry continued to experience buoyant conditionsthroughout the year. This was backed by a very healthygrowth in the economy. The rising disposable incomes,changing mindsets and availability of easy finance are thesignificant contributors for consumers wanting to buy theirhousing units at an early age.

With tightening liquidity conditions, interest rates haveshown a rising trend. Land prices also continued to risethroughout the country, but notwithstanding this sustainedrise, there has been no let up in demand as evidenced by theauctions of lands at Mumbai and some other places thatreceived record response. IT and IT Enabled Services,which are the major drivers of growth for the real estateindustry continue to experience buoyancy and as such thedemand for commercial and housing space is unlikely toabate in the near future. Recently, the Government alsoannounced a relaxation of FDI norms in retail, allowingsingle brand companies to commence operations. Perhapsit is a matter of time when the retail sector would be openedup fully for FDI. This would result in a further escalation indemand thereby allowing real estate developers theopportunity to exploit the resulting buoyant conditions.However, rising land prices is a cause of concern andtogether with the increase in interest and inputs costs suchas cement and steel, it is inevitable that the increasing endproduct prices may begin to have an impact on demand.

188


III. Operations Review

The new residential project covering over 5.3 lacs sq.ft ofsaleable area launched at Wakad near Pune in the previousyear is satisfactorily heading towards completion. Thisproject was sold out in record time. Themulti-storeyed building projects at Goregaon (MahindraGardens) and Kanjur Marg (GE Gardens) have also beencompleted having earlier been sold through very innovativemarketing strategies.

As stated elsewhere in the report, a new housing project hasbeen launched at Mahindra World City, Chennai. This projectencompasses approximately 22 acres and is almost sold out.The project envisages development of 3 bedroom apartments,semi-detached houses, and fully detached bungalows in asprawling campus, which provides contemporary and enviableamenities. This project too was marketed through use ofinnovative tools, the efficacy of which was demonstrated bythe fact that with minimal marketing, it has been virtually soldout. Construction began in December and is expected to becompleted in two years.

The Company launched a premium residential complexcovering a saleable area of 2.7 lacs sq. ft. at Goregaon,Mumbai, comprising of dwelling units in 3 BHK and 3BHK+study configuration in two multi-storey towers. Space is atpremium in this project and is targeted at the upwardly mobilebusinessmen and professionals who value space and areeager to provide corresponding comforts to their family thatcan induce healthy living and emotional well-being.

The Company has further procured land at Faridabad, Pimpriand Mumbai aggregating to over 15 lacs sq.ft of saleablearea. These projects are expected to be launched, as soonas the building approval plans are approved by the concernedauthorities.

The Company is also considering a new commercialdevelopment at Pimpri, near Pune. The land is already inpossession of the Company and the development will bespread over 3 lacs sq. ft of saleable area.

To increase its spread of operations, the Company has acquiredland at Nasik and hopes to begin operations during thecurrent year. It is exploring a few more locations in variousparts of the country for expanding its portfolio of locations.

The organization building initiatives continue relentlessly.The overhauling of the business processes for which arenowned consulting firm was engaged, was completed andnew processes are under implementation. The Companyhas also engaged the Mahindra Institute of Quality forimproving quality culture and initiating 6-Sigma programme.

In order to further enhance its brand equity and closely alignwith its customers, major development initiatives havebeen undertaken in improving customer-centricity andescalating this vital value across all functions.

IV. Other Activities

During the year Mahindra Industrial Park Limited which

developed the country’s first Special Economic Zone (SEZ) inthe private sector as a joint venture with the Government ofTamil Nadu was rechristened as Mahindra World CityDevelopers Limited. The new name more aptly describes thenature of the operations of the company.

Since SEZs are expected to be the harbinger for catalyzingeconomic growth at a much faster pace, as demonstratedby the Chinese example, and buoyed with the experience ofthe first SEZ at Chennai, the Company has promoted 2 newsubsidiaries viz., Mahindra World City (Jaipur) Limited andMahindra World City (Maharashtra) Limited which will bedeveloping the SEZs at Jaipur and at Karla (near Pune) inpartnerships with the Government of Rajasthan andMaharashtra respectively.

These SEZs will be spread over approximately 3000 acreseach. Memorandums of Understanding have been reachedwith the respective State Governments and the usualformalities are being complied with before the respectivecompanies commence business operations.

V. Financial Review

During the year the Company reported a Profit before Taxof Rs.1749 lacs, an increase of 31% compared to theprevious year, on top of the 73% growth recorded in theearlier year. Profit after Tax increased by 40% from Rs.785lacs to Rs.1100 lacs.

The capital employed by the Company has increased to Rs.32008 lacs reflecting the investments in land acquisition.The increase in capital employed has largely been fundedfrom debt and the Company’s debt equity ratio, whilehaving moved up from 0.27:1 to 0.66:1 is still very healthy.

VI. Internal Controls

The Company has an adequate system of internal controlscommensurate with its nature of business and scale ofoperations. However, to contemporise the businessprocesses, services of a renowned internationalmanagement consultancy firm were engaged to re-craftbusiness processes. Implementation of these processesare expected to further enhance the internal control systems.

The internal audit activity is carried out by a firm whichspecialises in internal audit. They undertake the auditprogramme in accordance with the guidance of the AuditCommittee of the Board. These reports are discussed withthe management and are placed before the audit committeeperiodically.

VII. Human Resources

Organizational development is a continuing exercise and inthis respect major initiatives in the area of Human Resourcesdevelopment have been taken including :

a. Crafting of a ’Values Document’ by a multi functionaltask force

b. Constitution of a Shadow Board of bright youngmanagers to constantly critique the Company’s strategy

189


so as to bring about greater ownership, and alignmentand mid course correction if things are deviating fromthe intended plans.

c. Comprehensive review of the ’Quality Journey’ so asto make it an integral part of the Company’s values andculture. The Company in partnership with the MahindraInstitute of Quality has embarked on the 6-Sigmajourney. Various development projects have beenundertaken as a part of this journey. The world renownedProf. Kume from Japan (a Freelance Consultant &Principal Advisor of Mahindra Institute of Quality) wasinvited to share his thoughts with the managementteam on his interpretation of quality and therecommended way forward for the Company,contextual to its nature of business and the status ofthe industry.

d. Increasing employee engagement through variousimpactful initiatives on special occasions such as annualfestivals, etc.

e. Implementation of the Corporate Social Responsibility(CSR) in sync with the Mahindra Group philosophy.Organization members as a part of the EmployeeSocial Option Programme (Esops), have spontaneouslyand willingly participated in various social causes suchas cleaning & painting of a municipal school at Kandivali(East), contributing to Home for the Destitutes, ShantiBhagini, Don Bosco’s, etc.

f. Deputation of managers to various competencydevelopment programmes to broaden their perspective.

As of 31st March, 2006 the Company had 154 employees.

VIII.Opportunities and Threats

The Real Estate market is humungous in its size. Theindustry has only recently started receiving focus and it hasswiftly responded to the stimulus. Both housing andcommercial developments have escalated sharply,particularly during the last two years. The buoyancy in theeconomy and rising income levels can only propel thegrowth of the industry. This provides a tremendousopportunity to a Company whose values and reputationstand out prominently in the industry. The effort that theCompany is making towards a holistically professionalapproach and all round development based on competencyand people empowerment will enable it to exploit thegrowing opportunity in the industry and increase its share inthe market place. Towards this end, the Company is planningforays into medium and smaller cities.

Land prices during the year spiralled upwards. The hecticspeculative activity is resulting in land grabbing at any costand this is an area of concern. To mitigate any adverse fallout, the Company is consciously employing a hedgingstrategy in a manner that will mitigate risk. Venturing intonewer cities and expanding the footprint in the SEZ domainare an outcome of this approach.

IX. Risks and Concerns

Apart from the increase in land prices, inputs costs havealso been constantly increasing. This is likely to squeezemargins if end product prices do not go up correspondingly.Increase in end product prices coupled with tight liquiditymay impact demand.

The Company is combating these risks by way of qualitativemarket research, quicker decision making, reducing its timeto market for projects and by taking a fresh look at its entireset of processes, apart from undertaking a proactiveapproach towards problem resolution. The Company has aRisk Management Policy, which is being periodicallyreviewed.

Project delays are likely because of a new regulation thatrequires environment clearance for residential projectsinvolving capital outlay of more than Rs.50 crores.

X. Business Outlook

In our view, the real estate markets would continue to bebuoyant in the coming year with growth coming frominnovative products both in commercial and residentialsegments.

During 2006-2007, your Company’s focus wouldremain in the residential segment. It would endeavoura series of new launches to expand its presence andfootprint.

Certain statements in the Management Discussion andAnalysis describing the Company’s objectives, projections,estimates, expectations or predictions may be forward-looking statements within the meaning of applicablesecurities laws and regulations. Actual results could differfrom those expressed or implied. Important factors thatcould make a difference to the Company’s operationsinclude material availability and prices, cyclical demandand pricing in the Company’s principal markets,changes in government regulations, tax regimes,economic developments within India and other incidentalfactors.

190


Corporate Governance Report

1. Corporate Governance Philosophy

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2. Board of Directors

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a) Number of Board Meetings

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b) Composition, Status, Attendance at the Board

Meetings and at the last AGM�

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Re-Appointment

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Mr. Anand G. Mahindra

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192


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Mr. Pranab Kumar Datta

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193


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4. Remuneration Policy

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Remuneration paid to Directors

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Shares and Convertible Instruments held by Directors

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5. Committees of the Board

Audit Committee

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194


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6. GENERAL SHAREHOLDER INFORMATION

• Seventh Annual General Meeting

"��7�"�� ; 8� ��=��94��9%%5

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A�� ; ��'��=��'��*��1�#��6�� *�� (%%�%94�

M Details of Annual/Extraordinary General Meetings held

during past three years

�� Date Time Venue

9%%: :4��=��9%%: :�%%�� '��*��

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• Details of special resolutions passed in Annual/

Extraordinary General Meetings held during past three

years

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M Dates of Book Closure

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M Dividend Payment Date /��=��94��9%%5

M Financial Calendar of the Company

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M Financial reporting for 2006 – 07 (Tentative):

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M Listing on Stock Exchanges

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195


M MGDL’s stock exchange codes

'6. $:9:4:

16. �.6�/�/H,�.P

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M BSE – Monthly Highs / Lows and Volumes

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9%%5 8�� (45�%% :$%�%% 4�(<�$4(

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M Performance in comparison to BSE – 500 Index

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9%%5 *�� (59�9% ($45�<:

• Registrar and Share Transfer Agents

Sharepro Services (India) Pvt Ltd.

Registered Office

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� Share Transfer System

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• Distribution of Shareholding as on 31st March, 2006

No. of No. of % of No. of shares % of

Equity shares share- share- held share-

holders holders holding

4�Q�4%% <9�$)9 )9�44( 4(�$9�5($ (�5>9

4%4�Q�9%% :�4:5 :�)<) (�5%�9:% 4�(>:

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Total 78,807 100.00 3,10,28,350 100.00

0

50

100

150

200

250

300

350

400

450

500

MGDL Close on BSE (Rs)

MGDL Close on BSE

Mar-06

Feb-06

Jan-06

Dec-05

Nov-05

Oct-05

Sep-05

Aug-05

Jul-05

Jun-05

May-05

Apr-05

0

1000

2000

3000

4000

5000

6000

196


• Shareholding Pattern as on 31st March, 2006

Category No. of Equity % of

shares held shareholding

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M Dematerialisation of Shares

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M Outstanding GDRs/ ADRs /Warrants or any convertible

instruments, conversion date and likely impact on

equity.

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M Offices of the Company

Registered Office

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M Shareholders may correspond with the Company at its

registered office and / or with the Registrars and Share

Transfer Agents, Sharepro Services (I) Pvt. Ltd.

M Compliance Officer

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M Status of Investors Complaints / Share transfers received

during the period 1st April, 2005 to 31st March, 2006

4� 1�� 99 �� 1�� " � ��1�� 6��1��H�� !��H��

9� 1�� 99

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7� Disclosure of Accounting Treatment

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8. Materially Significant Related Party Transactions

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9. Compliance with clause 49

M Mandatory Requirements

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M Non-Mandatory Requirements

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M �� G� ��

10. Other Disclosures

M Details of Non-compliance Relating to Capital Markets

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197


M Code of Conduct

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M Code for Prevention of Insider-Trading Practices

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• Risk Assessment and Minimisation�� # ��

• Material Non-listed Indian SubsidiaryCompany

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M Means of Communication

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Managing Director & CEO’s Declaration on Code of Conduct

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For Mahindra Gesco Developers Limited

Pranab Kumar Datta

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198


�� *�� *� �� "�� *��

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Auditors’ Certificate on Corporate Governance

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Kalyaniwalla & Mistry B. K. Khare & Co.

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Viraf R. Mehta Padmini Khare Kaicker

Partner Partner�!��!��"� �!��!�##$"#

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199


AUDITOR’S REPORT

To the Members of Mahindra Gesco Developers Limited

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Kalyaniwalla and Mistry B.K.Khare and Co.

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200


ANNEXURE TO THE AUDITOR’S REPORTReferred to in Paragraph (3) of our report even on the accounts of Mahindra Gesco Developers Limited for the year ended

31st March, 2006.

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202



Current Year Previous YearSchedule Rupees Rupees

SOURCES OF FUNDS

Shareholders’ Funds:

Share Capital .............................................................. 1 960,283,500 960,280,800

Reserves and Surplus ................................................ 2 967,584,705 987,086,572

1,927,868,205 1,947,367,372

Loan Funds:

Secured Loans ........................................................... 3 183,221,486 24,319,903

Unsecured Loans ....................................................... 4 1,089,700,000 506,000,000

1,272,921,486 530,319,903

Deferred Tax Liability/(Asset) (Net) ........................ 5 14,510 (62,869,159)

TOTAL .... 3,200,804,201 2,414,818,116


Fixed Assets .............................................................. 6

Gross Block ................................................................ 567,885,080 589,528,833

Less: Depreciation ..................................................... 225,239,386 213,725,606

Net Block ................................................................... 342,645,694 375,803,227

Investments .............................................................. 7 957,748,690 936,378,690

Current Assets, Loans and Advances:

Inventories ................................................................. 8 1,661,436,766 665,070,602

Sundry Debtors .......................................................... 9 189,195,919 124,817,794

Cash and Bank Balances ............................................ 10 161,121,356 238,683,289

Other Current Assets ................................................. 11 256,239,735 256,636,292

Loans and Advances .................................................. 12 933,188,231 1,079,420,940

3,201,182,007 2,364,628,917

Less: Current Liabilities and Provisions:

Current Liabilities ....................................................... 13 985,830,577 1,091,698,734

Provisions ................................................................... 14 314,941,613 170,293,984

1,300,772,190 1,261,992,718

Net Current Assets .................................................... 1,900,409,817 1,102,636,199

TOTAL .... 3,200,804,201 2,414,818,116

Notes to Accounts ..................................................... 21

The Schedules referred to above form an integral part of the Balance SheetAs per our Report attached hereto Signatures to the Balance Sheet and Schedules 1 to 14 and 21

For and on behalf of For and on behalf of For and on behalf of the BoardKalyaniwalla & Mistry B.K. Khare & Co. Pranab Datta Anand G. Mahindra

Chartered Accountants Chartered Accountants Managing Director & C.E.O. Chairman

Viraf R. Mehta Padmini Khare Kaicker S. Krishnan Suhas Kulkarni Arun Nanda

Partner Partner Chief Financial Officer Company Secretary Vice-Chairman


203



Current Year Previous YearSchedule Rupees Rupees

INCOME

Operating Income ...................................................... 15 1,211,260,486 914,594,454

Other Income ............................................................. 16 30,037,321 34,880,885

1,241,297,807 949,475,339

EXPENDITURE

Operating Expenses ................................................... 17 865,979,535 621,155,730

Employee Remuneration and Benefits ...................... 18 63,907,893 43,860,190

Administration and Other Expenses .......................... 19 70,094,897 65,551,113

Interest and Finance Charges .................................... 20 43,673,239 61,365,339

Depreciation ............................................................... 22,782,727 24,139,477

1,066,438,291 816,071,849

Profit Before Taxation .............................................. 174,859,516 133,403,490

Less: Provision for Current Taxation .......................... 16,684,428 10,510,000

Add: MAT Credit eligible for set off ........................... (14,714,428) —

Less: Provision for Deferred Taxation ........................ 62,883,669 44,344,350

Profit for the Year After Tax .................................... 110,005,847 78,549,140

Add: Balance brought forward from previous year .... 219,024,389 140,475,249

Amount Available for Appropriation ........................... 329,030,236 219,024,389

APPROPRIATIONS

Proposed Dividend

– On Equity Shares ................................................ 31,028,350 —

– On Preference Shares ......................................... 82,550,000 —

Tax on Distributed Profit ............................................ 15,929,364 —

Transfer to General Reserve ...................................... 2,750,146 —

Balance Carried to Balance Sheet .............................. 196,772,376 219,024,389

329,030,236 219,024,389

Basic and Diluted Earnings Per Share (Refer Note 20,

Schedule 21) .............................................................. 3.55 2.53

Notes to Accounts ..................................................... 21

The Schedules referred to above form an integral part of the Profit and Loss AccountAs per our Report attached hereto Signatures to the Profit and Loss Account and Schedules 15 to 21






204



Current Year Previous YearRupees Rupees

A. Cash flow from Operating ActivitiesNet Profit Before Tax ....................................................................................... 174,859,516 133,403,490Adjustments for:

Depreciation ............................................................................................... 22,782,727 24,139,477Provision for Diminution in value of investments written back .................. — (4,593,750)Loss on Sale of Investments ...................................................................... — 4,954,030

Considered Separately:Interest Income .......................................................................................... (11,590,702) (17,855,319)Interest Expenses ...................................................................................... 43,673,239 61,365,339Dividend Income ........................................................................................ (1,200,000) (800,000)Profit on Sale of Fixed Assets .................................................................... (7,108,498) (4,993,085)

Operating Profit Before Working Capital Changes ............................... 221,416,282 195,260,182Adjustments for:

Trade and Other Receivables ..................................................................... 148,396,134 (17,593,200)Inventories .................................................................................................. (991,366,164) 44,617,976Trade Payables and Other Liabilities .......................................................... (111,329,788) 156,556,966

Cash Generated from Operations .............................................................. (732,883,536) 378,841,924Income Taxes (Paid)/Received ................................................................... (55,353,428) (20,175,582)

Net Cash (used in)/from Operating Activities ............................................. (788,236,964) 358,666,342

B. Cash Flow from Investing ActivitiesPurchase of Fixed Assets .................................................................................. (7,047,107) (9,065,731)Proceeds from Sale of Fixed Assets ................................................................. 24,530,410 40,005,622Proceeds from Sale of Investments .................................................................. — 4,155,970Investment in Subsidiary ................................................................................... (21,370,000) (24,381,430)Interest Received .............................................................................................. 11,987,259 22,573,660Dividend Received ............................................................................................. 1,200,000 800,000Income Taxes Paid ............................................................................................ (1,473,692) (365,626)Deposits/Advances with Companies ................................................................. — 37,400,000

Net Cash from Investing Activities .................................................................... 7,826,870 71,122,465

C. Cash Flow from Financing ActivitiesIncrease in Borrowings ...................................................................................... 1,236,101,583 645,518,771Repayment of Borrowings ................................................................................ (493,500,000) (811,100,000)Interest Paid ...................................................................................................... (39,756,122) (63,889,787)Redemption of Preference Shares .................................................................... — (256,075,080)Issue of Share Capital ........................................................................................ 2,700 14,400

Net Cash used in Financing Activities ............................................................... 702,848,161 (485,531,696)

Net Increase/(Decrease) in Cash and Cash Equivalents .................................... (77,561,933) (55,742,889)

Cash and Cash Equivalents (Opening) ............................................................... 238,683,289 294,426,178Cash and Cash Equivalents (Closing) ................................................................ 161,121,356 238,683,289

Notes:1. Sale of fixed assets excludes profit/loss on sale of properties, which is considered as operating income/expense.2. To finance working capital requirements, the Company’s bankers have sanctioned a total fund based limit of Rs. 400,000,000 (Previous Year

Rs. 400,000,000). Of these, limits utilised as on March 31, 2006 is Rs. 183,221,486 (Previous Year Rs. 24,319,903).3. The figures for the previous year have been regrouped wherever necessary to conform to current year’s classification.

As per our Report attached hereto






205


Schedules annexed to and forming part of the Balance Sheet as at 31st March, 2006

SCHEDULE “6”

FIXED ASSETS (In Rupees)

COST DEPRECIATION NET BLOCKParticulars Additions Deductions As at Upto Deductions For the Upto As at As at

April 1, March 31, March 31, during year March 31, March 31, March 31,2005 2006 2005 the year 2006 2006 2005

Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees

Land 18,473,758 — — 18,473,758 — — — — 18,473,758 18,473,758

Building 510,105,372 — 21,922,592 488,182,780 176,580,101 6,259,723 15,893,120 186,213,498 301,969,282 333,525,271

Furniture and Fixtures 13,776,368 413,797 282,642 13,907,523 7,338,078 179,840 1,385,777 8,544,015 5,363,508 6,438,290

Plant and Machinery 23,183,159 508,000 239,863 23,451,296 12,026,152 134,056 1,631,364 13,523,460 9,927,836 11,157,007

Computers 12,888,581 4,412,445 629,178 16,671,848 11,171,747 564,754 2,650,736 13,257,729 3,414,119 1,716,834

Vehicles 11,101,595 1,712,865 5,616,585 7,197,875 6,609,528 4,130,574 1,221,730 3,700,684 3,497,191 4,492,067

Total 589,528,833 7,047,107 28,690,860 567,885,080 213,725,606 11,268,947 22,782,727 225,239,386 342,645,694 375,803,227

Previous Year Total 626,101,983 9,065,739 45,638,889 589,528,833 200,212,481 10,626,352 24,139,477 213,725,606 375,803,227

SCHEDULE “1” Current Year Previous YearSHARE CAPITAL Rupees RupeesAuthorised:41,000,000 Equity Shares of Rs. 10 each 410,000,000 410,000,000

6,500,000 Preference Shares of Rs. 100 each 650,000,000 650,000,0009,000,000 Preference Shares of Rs. 10 each 90,000,000 90,000,0006,000,000 Unclassified Shares of Rs. 10 each 60,000,000 60,000,000

1,210,000,000 1,210,000,000

Issued:31,074,501 Equity Shares of Rs. 10 each 310,745,010 310,745,010

5,500,000 13.10% Non-CumulativeRedeemable Preference Sharesof Rs. 100 each(Refer Note 3a) 550,000,000 550,000,000

1,000,000 10.50% Non-CumulativeRedeemable Preference Sharesof Rs. 100 each(Refer Note 3b) 100,000,000 100,000,000

960,745,010 960,745,010

Subscribed and Paid-up:31,028,350 Equity Shares of Rs. 10 each

fully paid-up 310,283,500 310,280,8005,500,000 13.10% Non-Cumulative

Redeemable Preference Sharesof Rs. 100 each fully paid-up(Refer Note 3a) 550,000,000 550,000,000

1,000,000 10.50% Non-CumulativeRedeemable Preference Sharesof Rs. 100 each fully paid-up(Refer Note 3b) 100,000,000 100,000,000

960,283,500 960,280,800

Of the above:a) 31,074,501 Equity Shares of Rs. 10 each

5,500,000 13.10% Non-Cumulative Redeemable Preference Shares of Rs. 100each

1,000,000 10.50% Non-Cumulative Redeemable Preference Shares of Rs. 100each have been issued for consideration other than cash, pursuant tothe two Schemes of Arrangements

b) 12,566,126 Equity Shares are held by Mahindra & Mahindra Ltd. the ultimateHolding Company

4,500,000 Equity Shares are held by Mahindra Holdings and Finance Limited asubsidiary of Mahindra & Mahindra Ltd., the ultimate Holding Company

5,500,000 13.10% Non-Cumulative Redeemable Preference Shares are held byMahindra & Mahindra Ltd., the ultimate Holding Company

1,000,000 10.50% Non-Cumulative Redeemable Preference Shares are held byMahindra Holdings and Finance Limited, a subsidiary of Mahindra &Mahindra Ltd., the ultimate Holding CompanyMahindra & Mahindra Limited and Mahindra Holdings & FinanceLimited are constituents of the Mahindra & Mahindra group as definedin Section 2(ef) of the Monopolies and Restrictive Traded PracticesAct, 1969, in relation to the Company.

SCHEDULE “2” Current Year Previous YearRESERVES AND SURPLUS Rupees Rupees

Capital Redemption Reserve:

Balance as per last Balance Sheet 85,358,360 —

Add: Transfer from General Reserve — 85,358,360

85,358,360 85,358,360Share Premium Account:

Balance as per last Balance Sheet 175,336,123 175,336,123

General Reserve:

Balance as per last Balance Sheet 507,367,700 763,442,780

Add: Transfer from Profit and Loss Account 2,750,146 —

Less: Transfer to Capital Redemption Reserve — (85,358,360)

Less: Premium on Redemption of PreferenceShares — (170,716,720)

510,117,846 507,367,700

Profit and Loss Account 196,722,376 219,024,389

967,584,705 987,086,572

SCHEDULE “3”

SECURED LOANS (Refer Note 4)

Overdrafts from Banks 183,221,486 24,319,903

183,221,486 24,319,903

SCHEDULE “4”

UNSECURED LOANS (Refer Note 5)

Short Term Loans

— From Banks 700,000,000 400,000,000

— From Companies 3,700,000 —

Other Loans 386,000,000 106,000,000

1,089,700,000 506,000,000

SCHEDULE “5”

DEFERRED TAX LIABILITY (NET):

Deferred Tax Liability

Relating to:Difference between book and Tax Depreciation 51,252,363 52,752,996

Deferred Tax Asset

Relating to:Business loss carried forward 48,978,245 110,468,919

Demerger Expenses — 2,680,557

Expenses allowable on Actual Payment 2,259,608 2,472,679

51,237,853 115,622,155

14,510 (62,869,159)

206


SCHEDULE “7” Face Number of Current Year Previous YearINVESTMENTS (Refer Note 6) Value Shares/

Rupees Units Rupees RupeesLong Term Investments(At Cost) Unquoted, Trade

Equity Shares:In Subsidiary Companies:

Mahindra Infrastructure Developers Limited(16,00,000 Shares acquired during the year) 10 14,400,000 144,000,000 128,000,000

Mahindra World City Developers Ltd.(formerly Mahindra Industrial Park Ltd.) 10 12,553,565 125,917,080 125,917,080

Mahindra World City (Jaipur) Ltd. (50,000 Sharesacquired during the year (Refer Note 6(b)) 10 500,000 5,000,000 —

Mahindra World City (Maharashtra) Ltd.(Formerly Mahindra Realty Ltd.(37,000 Shares acquiredduring the year) (Refer Note 6(b)) 10 37,000 370,000 —

In Others:

Deepmangal Developers Private Ltd. 100 177 28,461,600 28,461,600

Knight Frank (I) Pvt. Ltd. 10 400,000 4,000,000 4,000,000

Mahindra Ashtech Limited 10 1 10 10

Mahindra Knowledge Park (Mohali) Limited 10 6 60 60

Preference Shares:In Subsidiary Company:

Mahindra World City Developers Ltd. (formerlyMahindra Industrial Park Ltd.) (6% CumulativeRedeemable Preference Shares) 100 6,500,000 650,000,000 650,000,000

In Others:

Mahindra Knowledge Park (Mohali) Limited(7% Non-Cumulative Redeemable ParticipatingOptionally Convertible Preference Shares) 10 50,000 500,000 500,000

958,248,750 936,878,750

Less: Provision for Diminution in Value ofInvestment (500,060) (500,060)

957,748,690 936,378,690

SCHEDULE “8” Current Year Previous YearINVENTORIES Rupees Rupees(At lower of cost and net realisable value)

Stock-in-Trade: 38,751,089 63,632,487

Construction Work-in-Progress(Refer Notes 7a and 7c) 1,622,685,677 601,438,115

1,661,436,766 665,070,602

SCHEDULE “9”

SUNDRY DEBTORS(Unsecured, Considered Good)

Outstanding over six months 29,704,894 37,279,800

Other Debts 159,491,025 87,537,994

189,195,919 124,817,794

SCHEDULE “10”

CASH AND BANK BALANCES

Cash on Hand 218,729 212,706

Balances with Scheduled Banks:

— On Current Accounts 40,639,938 19,738,682

— On Deposit Accounts 120,262,689 218,731,901

161,121,356 238,683,289

SCHEDULE “11” Current Year Previous YearOTHER CURRENT ASSETS Rupees Rupees

Interest accrued on Project Advances(Refer Note 7b) 407,225,551 407,547,177

Less: Provision for Impairment in Asset Value (155,015,000) (155,015,000)

252,210,551 252,532,177

Interest Accrued on Deposits 4,029,184 4,104,115

256,239,735 256,636,292

SCHEDULE “12”

LOANS AND ADVANCES(Unsecured, Considered Good,unless otherwise stated)

Advances recoverable in Cash or in Kind orfor value to be received 51,902,256 49,844,716

Project Advances (Refer Notes 7b and 7c)

Considered Good 667,502,710 867,157,938

Considered Doubtful 12,124,652 12,124,652

679,627,362 879,282,590

Less: Provision for Doubtful Advances (12,124,652) (12,124,652)

667,502,710 867,157,938

Inter-corporate Deposits 17,404,000 22,404,000

Advance Payment of Income Tax 171,708,306 114,881,186

Staff Loans/Advances 6,338,831 7,247,827

Deposits 18,332,128 17,885,273

933,188,231 1,079,420,940

SCHEDULE “13”

CURRENT LIABILITIES

Sundry Creditors (Refer Note 8a) 362,715,195 383,666,083

Due to Subsidiary Co. 3,400,000 28,688,795

Advances and Deposits 411,615,545 490,454,951

Unclaimed Dividends (Refer Note 8b) 1,458,611 1,514,766

Other Liabilities 200,982,518 185,632,548

Interest Accrued on Loans but not Due 5,658,708 1,741,591

985,830,577 1,091,698,734

SCHEDULE “14”

PROVISIONS

Provision for Taxation 58,218,440 41,760,010

Proposed Dividend 129,507,714 —

Provision for Losses to project completion(Refer Note 8c) 124,103,371 124,103,371

Provision for Retirement Leave EncashmentBenefits 2,458,124 2,642,783

Provision for Gratuity 653,964 1,787,820

314,941,613 170,293,984

Schedules annexed to and forming part of the

Profit and Loss Account for the year ended

31st March, 2006SCHEDULE “15” Current year Previous yearOPERATING INCOME Rupees Rupees

Income from Operation of CommercialComplexes* (gross) 114,272,278 88,045,062

Income from Projects 1,006,408,212 718,817,056

Project Management Fees* (gross) 48,192,094 54,930,637

Business Centre Revenues* (gross) 42,387,902 40,146,193

Profit on Sale of Properties — 12,655,506

1,211,260,486 914,594,454

* (Income Tax deducted at source — Rs. 18,921,615; Previous Year Rs. 12,821,638)

207


SCHEDULE “16” Current Year Previous YearOTHER INCOME Rupees Rupees

Interest Income (Gross)*

— On Inter Corporate Deposits 2,485,075 1,581,559

— On Bank Deposits 6,088,807 7,392,130

— Others 3,016,820 8,881,630

Dividend on Long Term Trade Investments 1,200,000 800,000

Profit on Sale of Fixed Assets (Net) 7,108,498 4,993,085

Provision for Loss on Sale of Investment written back — 4,593,750

Miscellaneous Income 10,138,121 6,638,731

30,037,321 34,880,885

*(Income Tax deducted at source — Rs. 1,473,692; Previous Year Rs. 365,626)

SCHEDULE “17” Current Year Previous YearOPERATING EXPENSES Rupees Rupees

Cost of Projects:Opening Stock:

— Stock-in-Trade 63,632,487 74,696,592

— Work-in-Progress 601,438,115 634,991,986

665,070,602 709,688,578

Add: Expenses incurred during the year:

Land Cost/Premium forDevelopment Rights 1,081,167,695 88,000,000

Architect Fees 25,554,570 16,180,343

Preliminaries and Site Expenses 4,809,745 13,229,972

Civil, Electrical Contracting, etc. 550,166,996 302,314,840

Interest (Net) 40,585,126 3,292,035

Overheads Allocated 19,009,891 14,443,940

Payment to Local Agencies 3,089,887 12,414,881

Insurance 1,860,305 827,009

Legal and Professional Fees 272,180 1,965,340

1,726,516,395 452,668,360

2,391,586,997 1,162,356,938

Less: Closing Stock:

— Stock-in-Trade (38,751,089) (63,632,487)

— Work-in-Progress (1,622,685,677) (601,438,115)

(1,661,436,766) (665,070,602)

730,150,231 497,286,336

Project Management Fees 1,356,916 1,440,000

Rent 17,341,450 17,648,208

Ground Rent 2,218,081 2,218,083

Property Tax 2,224,693 2,607,390

Insurance 164,166 64,960

Repairs and Maintenance —Commercial Properties 22,052,541 18,018,185

Communication 2,097,742 2,033,959

Professional Fees — 319,270

Brokerage 2,753,527 5,157,302

Advertisement, Marketing and BusinessDevelopment 29,269,310 35,654,466

Electricity 35,938,964 28,189,744

Other Operating Expenses 20,411,914 10,517,827

865,979,535 621,155,730

SCHEDULE “18” Current Year Previous YearEMPLOYMENT REMUNERATION Rupees RupeesAND BENEFITS

Salaries, Allowance and Bonus 72,357,741 49,372,070

Contribution to Provident and Other Funds 4,867,419 4,456,294

Staff Welfare Expenses 5,692,624 4,475,766

82,917,784 58,304,130

Less: Allocated to Projects (19,009,891) (14,443,940)

63,907,893 43,860,190

SCHEDULE “19”

ADMINISTRATION AND OTHER EXPENSES

Rent, Rates and Taxes 16,157,580 16,888,818

Insurance 405,278 378,363

Repairs and Maintenance:

— Building 3,035,531 3,896,292

— Others 3,344,305 3,391,500

Electricity Charges 520,620 685,235

Travelling and Conveyance 11,116,425 7,538,355

Legal and Professional Fees 16,902,134 11,274,916

Printing and Stationery 3,609,458 3,584,797

Telephone, Postage and Courier 4,110,896 3,388,054

Sales Promotion and Entertainment 2,816,876 830,617

Auditors’ Remuneration 2,416,250 1,655,560

Loss on Sale of Investment — 4,594,030

Miscellaneous Expenses 5,659,544 7,444,576

70,094,897 65,551,113

SCHEDULE “20”

INTEREST

On Fixed Loans 25,269,339 36,061,001

On Other Deposits/Loans 58,989,026 28,596,373

84,258,365 64,657,374

Less: Allocated to Projects (40,585,126) (3,292,035)

43,673,239 61,365,339

208


Schedules annexed to and forming part of the

Balance Sheet as at 31st March, 2006, and the

Profit and Loss Account for the year ended

31st March, 2006

SCHEDULE “21”

NOTES TO ACCOUNTS

1. SIGNIFICANT ACCOUNTING POLICIES:

a) Accounting Convention:

The financial statements are prepared under the historical cost conventionin accordance with the Generally Accepted Accounting Principles in India,the Accounting Standards issued by The Institute of Chartered Accountantsof India and the provisions of the Companies Act, 1956.

b) Fixed Assets:

Fixed assets are stated at cost of acquisition or construction less accumulateddepreciation. Cost includes all incidental expenses related to acquisition andinstallation, other pre-operation expenses and interest in case of construction.

The carrying amount of cash generating units/assets is reviewed at thebalance sheet date to determine whether there is any indication of impairment.If such indication exists, the recoverable amount is estimated as the netselling price or value in use, whichever is higher. Impairment loss, if any, isrecognised whenever carrying amount exceeds the recoverable amount.

Depreciation on fixed assets is provided on the written down value methodat the rates prescribed in Schedule XIV to the Companies Act, 1956.Depreciation on assets acquired during the year is provided for the full yearand no depreciation is provided in the year of disposal.

c) Investments:

Investments are classified into long term and current investments.

Long-term investments are carried at cost, provision for diminution, if any,in the value of each long-term investment is made to recognise a decline,other than of a temporary nature.

Current investments are carried individually at lower of cost and fair valueand the resultant decline, if any, is charged to revenue.

d) Inventories:

Inventories are valued at lower of cost and net realisable value. ConstructionWork-in-Progress includes cost of land, premium for development rights,construction costs and allocated interest and expenses incidental to theprojects undertaken by the Company.

e) Revenue Recognition:

Income from real estate sales is recognised on the transfer of all significantrisks and rewards of ownership to the buyers and it is not unreasonable toexpect ultimate collection and no significant uncertainty exists regarding theamount of consideration. However if, at the time of transfer substantial actsare yet to the performed under the contract, revenue is recognised onproportionate basis as the acts are performed, i.e., on the percentage ofcompletion basis. Income from long term contracting assignments is alsorecognised on the percentage on completion basis. As the long-termcontracts necessarily extend beyond one year, revision in costs and revenuesestimated during the course of the contract are reflected in the accountingperiod in which the facts requiring the revision become known. Unbilledcosts are carried as construction work-in-progress.

Determination of revenues under the percentage of completion methodnecessarily involves making estimates by the Company, some of which areof a technical nature, concerning, where relevant, the percentages ofcompletion, costs to completion, the expected revenues from the project/activity and the foreseeable losses to completion. Such estimates havebeen relied upon by the auditors.

Project Management Fees receivable on fixed period contracts is accountedover the tenure of the contract/agreement. Where the management fee islinked to the input costs, revenue is recognised as a proportion of the workcompleted based on progress claims submitted. Where the managementfee is linked to the revenue generation from the project, revenue isrecognised on the percentage of completion basis.

Income from operation of commercial complexes is recognised over thetenure of the lease/service agreement.

Income from services rendered in respect of project is inclusive of servicetax recoverable from the clients.Interest income is accounted on an accrual basis at contracted rates exceptwhere there is uncertainty of ultimate collection.Dividend income is recognised when the right to receive the same isestablished.

f) Retirement Benefits:

Retirement benefits to the employees comprising of payments underdefined contribution plans like provident fund, family pension andsuperannuation are charged to profit and loss account. The liability in respectof defined benefit schemes like gratuity and leave encashment benefits onretirement is provided on the basis of actuarial valuation as at the year end.The liabilities for gratuity and superannuation are funded through schemesof the Life Insurance Corporation of India.

g) Borrowing Costs:

Borrowing costs that are directly attributable to long-term project managementand development activities are capitalised as part of project cost. Otherborrowing costs are recognised as expense in the period in which they areincurred.Borrowing costs are capitalised as part of project cost when the activitiesthat are necessary to prepare the asset for its intended use or sale are inprogress. Borrowing costs are suspended from capitalisation on the projectwhen development work on the project is interrupted for extended periods.

h) Provision for Taxation:

The expense comprises both current and deferred tax.

Current tax is measured at the amount expected to be paid to the taxauthorities using the applicable tax rates and tax laws.

Deferred tax assets and liabilities are recognised for future tax consequencesattributable to the timing differences between taxable income and accountingincome that are capable of reversal in one or more subsequent periods andare measured using tax rates enacted or substantively enacted as at theBalance Sheet date. Deferred Tax assets are not recognised unless, in themanagement judgement, there is virtual certainty that sufficient futuretaxable income will be available against which deferred tax assets can berealised. The carrying amount of deferred tax is reviewed at each balancesheet date.

i) Segment Information:The Company operates in two main segments; namely, Operating ofcommercial complexes and Projects, Project Management and Developmentactivities. The segments have been identified and reported taking intoaccount the differing risks and returns and the internal business reportingsystems. Revenues and expenses have been identified to the segmentsbased on their relationship to the business activity of the segment. Income/expenses relating to the enterprise as a whole and not allocable on areasonable basis to business segments are reflected as unallocated corporateincome/expenses.

j) Provisions and Contingent Liabilities:

Provisions are recognised in the accounts in respect of present probableobligations, the amount of which can be reliably estimated.

Contingent liabilities are disclosed in respect of possible obligations thatarise from past events but their existence is confirmed by the occurrence ornon-occurrence of one or more uncertain future events not wholly within thecontrol of the Company.

2. Equity Share Capital:The allotment of 46,151 (Previous Year 46,421) equity shares of the Companyhas been kept in abeyance in accordance with Section 206A of the CompaniesAct, 1956, till such time as the title of the bonafide owner of the shares iscertified by the concerned Stock Exchange or the Special Court (Trial ofOffences relating to Transactions in Securities). 270 (Previous Year 1,440) equityshares of Rs. 10 each have been allotted during the year out of the shares keptin abeyance.

3. Preference Share Capital:a) The 13.10% Non-Cumulative Redeemable Preference Shares are redeemable

at par on 30th September, 2006.b) The 10.50% Non-Cumulative Redeemable Preference Shares are redeemable

at par at the option of the Company at any time between 23rd March 2004and 22nd March, 2011.

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4. Secured Loans:

Overdrafts from banks are secured by hypothecation of the entire current assetsof the Company and mortgage of immovable properties of the Company and thatof a third party.

5. Unsecured Loans:

Unsecured loans of Rs. 703,700,000 (Previous Year Rs. 403,000,000) arerepayable on call or by 31st March, 2007.

6. Investments:

a) In the opinion of the Management, no loss is expected to arise in respect ofInvestments for which an additional provision is required to be made in theaccounts.

b) During the year, the Company has invested in 37,000 Equity Shares (74%stake) of Mahindra World City (Maharashtra) Ltd. (MWCML) (formerlyMahindra Realty Ltd.) and 500,000 Equity Shares (100% stake) of MahindraWorld City (Jaipur) Ltd. (MWCJL). Thus, MRL and MWCJL have becomesubsidiaries of the Company w.e.f. 21st September, 2005 and 26th August,2005, respectively.

7. Inventories, Current Assets, Loans and Advances:

a) Construction Work-in-Progress represents materials at site and unbilledcosts on the projects. Based on projections and estimates by the Companyof the expected revenues and costs to completion, provision for losses tocompletion and/or write off of costs carried to inventory have been made onprojects where the expected revenues are lower than the estimated coststo completion. In the opinion of the management, the net realisable value ofthe construction work in progress will not be lower than the costs soincluded therein.

b) Project advances and interest accrued thereon represent the amountsrecoverable from the proceeds of projects undertaken/financed by theCompany as per the contracted terms. The advances as well as the interestthereon are considered good and fully recoverable based on inter-alia theestimates and projections by the Company of the project costs and revenues.

c) Construction Work-in-Progress, Project Advances and Interest accruedthereon referred to in 7(a) and 7(b) above, include Rs. 865,850,770 (Previousyear Rs. 865,850,770) on account of certain projects, the commencementof which has been delayed pending resolution of certain matters includingreceipt of approvals and outcome of court cases.

8. Sundry Creditors and Provisions:

a) The Company did not owe any amounts to Small Scale Industrial Undertakingsas on the Balance Sheet date.

b) There are no amounts due and outstanding to be credited to InvestorEducation and Protection Fund.

c) The Company has, in case of certain projects, provided for Rs. 124,103,371(Previous year 124,103,371) as provision for losses to project completion.The amount has been determined using best estimates with regard topercentage of completion, foreseeable costs to completion and revenuesfrom the project activity. However, considering future business scenario,inflation in construction costs and market movement causing changes inrealisation, which cannot be presently quantified, the final outcome maydiffer from that presently estimated.

9. Leases:

The Company’s significant leasing arrangements are in respect of operatingleases for Commercial and Residential premises.

a) Lease income from operating leases is recognised on a straight-line basisover the period of lease. The particulars of the premises given underoperating leases are as under:


Gross Carrying Amount of Premises 359,523,790 321,334,826Accumulated Depreciation 140,402,285 106,918,735Depreciation for the year 11,532,711 11,285,057Future minimum lease payments undernon-cancellable operating leases— Not later than 1 year 25,845,814 23,634,886— Later than 1 year and not later than 5 years 8,378,440 —— Later than 5 years — —

b) Lease expenditure for operating leases is recognised on a straight-line basisover the period of lease. The particulars of the premises taken on operatingleases are as under:


Future minimum lease payments undernon-cancellable operating leases— Not later than 1 year 33,609,228 31,087,832— Later than 1 year and not later than 5 years — —— Later than 5 years — —

10. Contingent Liabilities:Matter As at 31st As at 31st

March, 2006 March, 2005Rupees Rupees

a) Claims against the Company notacknowledged as debts representA suit filed by a party in the Delhi HighCourt, and disputed by the Company,for recovery of brokerage in respect ofa transaction relating to operating ofcommercial complexes. In the opinionof the management the above claim isnot sustainable. 4,266,771 4,266,771

b) GuaranteesGuarantees issued by a bank are onbehalf of third parties and counterguaranteed by the Company, againstwhich the Company has receivedcounter guarantees from the respective parties — 32,062,500

c) Income tax matters under appealThe Income tax Department has sought tore-classify certain business income asincome from house property, in respect ofwhich the Company has partiallysucceeded in appeal and would pursuethe matter further 145,157,597 105,989,749

11. The Company has filed its detailed refuting a claim by a land-owner against theCompany amounting to Rs. 304,052,300 in respect of a project managementagreement pending arbitration. The Company has been legally advised that theclaim invoked by the land-owner is unsustainable.

12. Managerial Remuneration:Current Year Previous Year

Rupees Rupees

Salaries and Allowances 998,677 —Contribution to Provident andSuperannuation Funds 116,598 —Perquisites (estimated monetary value) 130,942 —

Total 1,246,217 —

Remuneration to the Managing Director and Chief Executive Office is for theperiod 18th January, 2006 to March 31st March, 2006, and is subject to theapproval of the members at the ensuing Annual General Meeting and theapproval of the Central Government. There was no managerial person employedin the previous year.

13. Computation of Net Profit in accordance with Section 349 of the CompaniesAct, 1956:

Current Year Previous YearRupees Rupees Rupees

Profit before Tax 174,859,516 133,403,490

Add:Depreciation as per Accounts 22,782,727 24,139,477Managerial Remuneration 1,246,217 —Directors’ Fees 280,000 60,000Profit on disposal of fixed assetsallowable as per proviso toSection 349 5,440,887 29,749,831 4,454,139

2,046,09,347 162,057,106

Less:Depreciation under Section 350 22,782,727 24,139,477

Profit on disposal of fixed assetsnot allowable as per proviso toSection 349 7,108,498 29,891,225 17,648.592

Net Profit as per Section 349 ofthe Companies Act, 1956 174,718,122 120,269,037

5% of Net Profit as computed above 8,735,906 6,013,452

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14. Auditors' Remuneration Current Year Previous Year(including service tax): Rupees Rupees

Audit Fees 1,033,125 826,500Tax Audit Fees 137,750 84,900Tax Matters 515,300 55,100Certification and Other Services 730,075 689,060

2,416,250 1,655,560

15. Earnings in Foreign Currency:

Consideration received on Sale ofResidential Units 2,180,878 —

Total 2,180,878 —

16. Expenditure in Foreign Currency:

On Foreign Travel 81,034 182,785For Other Matters:Professional Fees 3,741,638 264,336Others — —

Total 3,822,672 447,121

17. Segmental Reporting:

Operating of Projects, Others ConsolidatedCommercial ProjectComplexes Management

andDevelopment

REVENUEExternal Revenue 115,194,920 1,055,489,988 42,410,203 1,213,094,111Previous Year 103,853,017 778,528,577 40,146,193 922,527,788Inter-segment Revenues — — — —Previous Year — — — —

TOTAL REVENUE 115,194,920 1,055,488,988 42,410,203 1,213,094,111Previous Year 103,853,017 778,528,577 40,146,193 922,527,788

SEGMENT RESULT 47,200,213 275,544,921 6,987,770 329,732,904Previous Year 45,296,395 228,309,310 5,454,154 279,059,860

Unallocated Corporate ExpensesNet of Unallocated Income — — — (122,790,850)

Previous Year — — — (102,146,350)Operating Profit — — — 206,942,054

Previous Year 176,913,510Interest Expense (43,673,239)Previous Year (61,365,339)Interest Income 11,590,702Previous Year 17,855,319Income Taxes (64,853,669)Previous Year (54,854,350)

NET PROFIT 110,005,847Previous Year 78,549,140

OTHER INFORMATIONSegment Assets 287,342,914 3,657,202,883 25,526,549 3,970,072,346Previous Year 315,554,751 2,843,454,893 14,871,482 3,173,881,126Unallocated Corporate Assets 531,518,555Previous Year 565,798,867

TOTAL ASSETS 287,342,914 3,657,202,883 25,526,549 4,501,590,901Previous Year 315,554,751 2,843,454,893 14,871,482 3,739,679,993

Segment Liabilities 72,043,673 1,583,286,573 9,986,264 1,665,316,510Previous Year 65,188,482 950,521,189 13,665,100 1,029,374,771Unallocated Corporate Liabilities 778,869,453Previous Year 762,937,850

TOTAL LIABILITIES 72,043,673 1,583,286,573 9,986,264 2,444,185,963Previous Year 65,188,482 950,521,189 13,665,100 1,792,312,621

Capital Expenditure — 1,020,037 361,720 7,047,107Previous Year — 803,057 518,276 9,065,739Depreciation 13,351,146 652,067 1,637,290 22,782,727Previous Year 14,174,645 375,041 671,363 24,139,477Non-Cash Expenses other thanDepreciation — — —Previous Year — — —

Note: The segment result for Projects, Project Management and Developmentactivity is arrived at after considering an interest of Rs. 1,065,006 (PreviousYear Rs. 3,292,035), as it formed part of the cost of projects according to themethod of accounting followed by the Company.

18. Related Parties:List of Related Parties:Enterprises Controlling the CompanyMahindra & Mahindra Limited Ultimate Holding CompanyMahindra Holdings & Finance Limited a subsidiary of the UltimateHolding CompanyEnterprises under the control of the Mahindra InfrastructureCompany Developers Limited

Mahindra World City DevelopersLimited (formerly known asMahindra Industrial Park Limited)

Mahindra World City (Jaipur)Limited (with effect from26th August, 2005)

Mahindra World City MaharashtraLtd. (Formerly Mahindra RealtyLimited with effect from 21stSeptember, 2005)

Fellow Subsidiaries:

Tech Mahindra Limited (formerly known Mahindra MiddleEast Electricalas Mahindra-British Telecom Limited) Steel Service Centre (FZC)

Mahindra Logisoft Business Solutions Mahindra & MahindraLimited Financial Services Limited

Automartindia Limited Mahindra Intertrade Limited

Mahindra (USA) Inc. Mahindra Steel Service CentreLimited

Bristlecone (UK) Limited NBS International Limited

Mahindra Gujarat Tractor Limited Mahindra Acres ConsultingEngineers Limited

Mahindra Shubhlabh Service Limited Mahindra Ashtech Limited

Mahindra Insurance Brokers Limited Mahindra Holidays & ResortsIndia Limited

Mahindra (China) Tractor Company Mahindra Automotive SteelsLimited (with effect from 13th May, 2005) Private Limited (with effect from

2nd June, 2005)

Mahindra Europe s.r.l. (with effect from Mahindra Engineering & Chemical30th May, 2005) Products Limited

Bristlecone Limited, Cayman Islands Mahindra Holidays & Resorts(USA) Inc.

Bristlecone Inc. Bristlecone India Limited

Mahindra & Mahindra South Africa (Pty.) Tech Mahindra GmbH (formerlyLimited known as MBT GmbH)

Tech Mahindra (Thailand) Limited (with Tech Mahindra Singapore (Pte.)effect from 21st February, 2006) Limited (formerly known as MBT

Software Technologies Pte. Ltd.)

Mahindra International Limited (with Tech Mahindra (R&D Services)effect from 1st November, 2005) Limited (with effect from 28th

November, 2005)

Stokes Group Limited (with effect from Tech Mahindra (R&D Services)3rd January, 2006) Inc. (with effect from 28th

November, 2005)

Plexion Technology (India) Private Limited Tech Mahindra (R&D Services)(with effect from 15th February, 2006) Pte. Limited (with effect from

28th November, 2005)

Jensand Limited (with effect from Mahindra SAR Transmission3rd January, 2006) Private Limited

Stokes Forgings Limited (with effect Tech Mahindra Foundation (withfrom 3rd January, 2006) effect from 22nd March, 2006)

211


Bristlecone GmbH Bristlecone (Singapore) Pte. Ltd.

Plexion Technologies (UK) Ltd. (with Stokes Forgings Dudley Limitedeffect from 15th February, 2006) (with effect from 3rd January,

2006)

Plexion Technologies GmbH, Germany Mahindra Ugine Steel Company(with effect from 15th February, 2006) Ltd. (with effect from 21st June,

2005)

Mahindra Engineering Design & Console Estate & InvestmentDevelopment Company Limited Limited (Ceased with effect from

20th March, 2006)

Plexion Technologies Incorporated USA Tech Mahindra (Americas) Inc.(with effect from 15th February, 2006) (formerly known as MBT

International Inc.)

Mahindra Overseas Investment Company Mahindra BT Investment Company(Mauritius) Limited (Mauritius) Limited (with effect

from 9th May, 2005)

Key Management Personnel Mr. Pranab Datta —Managing Director &Chief Executive Officer

Enterprises over which key managementpersonnel are able to exercise significantinfluence Nil

Nature of Transactions Enterprises Amount Enterprises under Amount Companies under Amountcontrolling the Rupees the control of Rupees common control (Rupees)

Company the Company including FellowSubsidiaries

Rendering of services Mahindra & 36,223,264 — —Mahindra Ltd.

Receiving of services Mahindra & 13,425,641 — — Mahindra Acres 1,356,916Mahindra Ltd. Consulting Engineers Ltd.

Purchase of Goods Mahindra & 130,000,000 — — — —Mahindra Ltd.

Purchase of Fixed Assets Mahindra & 891,241 — — — —Mahindra Ltd.

Expense Reimbursement Mahindra & 1,550,479 Mahindra World City 1,196,436 — —Mahindra Ltd. (Jaipur) Ltd.

Finance given during the year — — Mahindra World City 5,000,000 — —(Jaipur) Ltd.

— — Mahindra Infrastructure 16,000,000 — —Developers Ltd.

Receivables Mahindra & 5,457,981 Mahindra Infrastructure 2,509,782 Mahindra Acres 246,000Mahindra Ltd. Developers Ltd. Consulting Engineers Ltd.

— — Mahindra World City 1,196,436 — —(Jaipur) Ltd.

Payables Mahindra & 191,937,000 — — Mahindra Holidays & 279,859Mahindra Ltd. Resorts India Ltd.

Transactions with related parties during the year and balance as on 31st March, 2006

(Rupees)

Nature of Enterprise Enterprise Companies Joint KeyTransactions controlling under the under common Ventures/ Management

the control of the control Associates PersonnelCompany Company including

FellowSubsidiaries

Rendering ofServices 36,223,264 3,678061 — — —Previous Year 23,954,662 1,634486 — — —Purchase of Goods 130,000,000 — — — —Previous Year — 88,000,000 — — —Receiving of Services 13,425,641 — 1,356,916 — —Previous Year 13,195,440 — 1,440,000 — —Purchase of FixedAssets 891,241 — — — —Previous Year — — 890,600 — —Remuneration — — — — 5,967,726Previous Year — — — — 3,276,139ExpenseReimbursement 1,550,479 1,458,069 279,653 — —Previous Year 1,188,064 — — — —Finance Given — 21,370,000 — — —Previous Year — 24,000,000 — — —ICD Refunded bythem — — — — —Previous Year 37,400,000 — — — —Interest Paid 1,574,795 — — — —Previous Year 8,360,000 — — — —Interest Received — — — — —Previous Year 1,581,559 — — — —Corporate Guarantees — — — — —Previous Year — — 6,937,500 — —Receivables 5,457,981 3,706,218 2,46,000 — —Previous Year 2,499,159 51,548 — — —Payables 191,937,000 3,459,197 279,859 — —Previous Year 354,690,139 28,688,795 293,577 — —

The significant related party transactions are as under:

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19. Information in respect of Jointly Controlled Operations:

i) Development of the following residential projects:

Mahindra Park, MumbaiG.E. Links, MumbaiG.E. Gardens, MumbaiProject at Byculla, MumbaiCentral Park, Gurgaon

ii) Project for providing potable drinking water and sewerage facilities atTirupur, Tamil Nadu.

20. Earnings per Share:

Calculation of Net Profit available for Equity Shareholders.


A. Profit available for Equity Shareholders 110,005,847 78,549,140

B. Weighted average number ofEquity Shares of Rs. 10/- each 31,028,350 31,027,840

C. Basic and Diluted Earnings per Share 3.55 2.53

21. Additional information pursuant to the provisions of Part IV of Schedule VI to theCompanies Act, 1956, is annexed to the “Notes to Accounts”.

22. The figures for the previous year have been regrouped wherever necessary toconform to current year’s classification.

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23. ADDITIONAL INFORMATION AS REQUIRED UNDER PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956

BALANCE SHEET ABSTRACT AND COMPANY'S GENERAL BUSINESS PROFILE:


Registration No. 1 1 8 9 4 9 o f 1 9 9 9

State Code 1 1

Balance Sheet Date 3 1 - 0 3 - 2 0 0 6

II. Capital Raised during the year:

Public Issue N I L

Rights Issue N I L

Bonus Issue N I L

Private Placement N I L

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

Total Liabilities 4 5 0 1 5 7 6

Total Assets 4 5 0 1 5 7 6

Sources of Funds:

Paid-up Capital 9 6 0 2 8 4

Reserves and Surplus 9 6 7 5 8 5

Secured Loans 1 8 3 2 2 1

Unsecured Loans 1 0 8 9 7 0 0

Deferred Tax Liability (Net) 1 5


Net Fixed Assets 3 4 2 6 4 6

Investments 9 5 7 7 4 9

Net Current Assets 1 9 0 0 4 1 0

Miscellaneous Expenditure N I L

Accumulated Losses N I L

IV. Performance of Company: Amount (Rs. in Thousands)

Turnover 1 2 4 1 2 9 7

Total Expenditure 1 0 6 6 4 3 8

Profit/(Loss) Before Tax + 1 7 4 8 6 0

Profit/(Loss) After Tax + 1 1 0 0 0 6

Earning Per Share (Rs.) 3 . 5 5

Dividend Rate 1 0 %

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

Description Item Code No.

i. Commercial Complexes N . A .

ii. Projects, Project Management/Development N . A .

iii. Business Centre N . A .

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Statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary companies:

Name of the Subsidiary Name of the Subsidiary Name of the Subsidiary Name of the SubsidiaryCompany Company Company Company

Mahindra Infrastructure Mahindra World City Mahindra World City Mahindra World CityDevelopers Limited Developers Limited (Jaipur) Limited (Maharashtra) Limited

Particulars (formerly Mahindra (Formerly MahindraIndustrial Park Limited) Realty Ltd.)

The Financial Year of the SubsidiaryCompany ended on ......................... 31st March, 2006 31st March, 2006 31st March, 2006 31st March, 2006

Number of Shares in the SubsidiaryCompany held by Mahindra GescoDevelopers Limited at the above date:

Equity .............................................. 14,400,000 12,553,565 500,000 37,000

Extent of Holding ............................ 80% 62.77% 100% 74%

The net aggregate of profits/(losses)of the Subsidiary Company for itsfinancial year so far as they concernthe members of Mahindra GescoDevelopers Limited:

1. Dealt with in the Accounts ofMahindra Gesco DevelopersLimited for the year ended 31stMarch, 2006 ............................. Nil Nil Nil Nil

2. Not dealt with in the Accounts ofMahindra Gesco DevelopersLimited for the year ended 31stMarch, 2006 ............................. 3,451,756 13,432,146 (23,465) (28,856)

The net aggregate of profits/(losses)of the Subsidiary Company for itsprevious financial year so far as theyconcern the members of MahindraGesco Developers Limited:

1. Dealt with in the Accounts ofMahindra Gesco DevelopersLimited for the year ended 31stMarch, 2005 ............................. Not Applicable Not Applicable Not Applicable Not Applicable

2. Not dealt with in the Accountsof Mahindra Gesco DevelopersLimited for the year ended 31stMarch, 2005 ............................. (1,624,927) (4,708,346) Not Applicable Not Applicable

Suhas Kulkarni S. Krishnan Pranab Datta Arun Nanda Anand G. Mahindra

Company Secretary Chief Financial Officer Managing Director & C.E.O. Vice-Chairman Chairman


215


Summary of Financial Performance of the Subsidiaries for the year April 2005–March 2006

Information in Compliance with Letter No. 47/62/2006-CL-III issued by Ministry of Company Affairs,

Government of India u/s 212(8) of the Companies Act, 1956

Subsidiary Mahindra World City Mahindra World City Mahindra World City Mahindra Infrastructure(Jaipur) Ltd. (Maharashtra) Ltd. Developers Ltd. Developers Ltd.

(formerly Mahindra (formerly MahindraRealty Ltd.) Industrial Park Ltd.

MWCJL MWCML MWCDL MIDL

Particulars Rupees Rupees Rupees Rupees

Capital 5,000,000 500,000 850,000,000 180,000,000

Reserves/(Debit balance as perProfit and Loss Account) (23,465) (38,994) (333,509,294) 2,848,447

Total Assets 4,932,894 505,510 1,550,890,201 188,879,282

Total Liabilities 4,932,894 505,510 1,550,890,201 188,879,282

Investments (except in case ofinvestment in subsidiaries)* — — 2,600,000 153,139,990

Turnover 6,055 7,915 882,464,178 9,771,697

Profit Before Taxation (10,465) (38,994) 21,839,025 6,326,735

Provision for Taxation (13,000) — (439,293) (1,967,040)

Profit after Taxation (23,465) (38,994) 21,399,732 4,359,695

Proposed Dividend — — — —

* Investments of MWCDL of Rs. 2,600,000 shown above do not include investment in MWCML of Rs. 130,000 as MWCML is a subsidiary of MahindraGesco Developers Ltd.

216

MAHINDRA INFRASTRUCTURE DEVELOPERS LIMITED


Your Directors present their Fifth Report together with the audited Accounts of your Company for the year ended 31st March, 2006.

Financial Results

Rupees

2006 2005

Income ................................................................................................... 97,71,697 39,27,559

Profit before Depreciation and Taxation ................................................. 63,34,840 4,25,489

Depreciation ........................................................................................... 8,105 8,318

Profit before Taxation ............................................................................. 63,26,735 4,17,171

Less: Provision for Taxation ...................................................................

Current Tax ................................................................................ 19,25,000 34,000

Fringe Benefit Tax ...................................................................... 25,440 —

Deferred Tax .............................................................................. 16,600 25,972

Profit after Taxation ................................................................................ 43,59,695 3,57,199

Loss brought forward from previous year .............................................. (15,10,248) (18,67,447)

Balance carried forward ......................................................................... 28,49,447 (15,10,248)

Operations and Outlook for the current year

During the year under the review your Company’s Income hasincreased from Rs. 39.27 lakhs to Rs.97.72 lakhs mainly due toincrease in the management support services to its joint venture.Consequently, the Profit before tax has also risen significantlyfrom Rs. 4.17 lakhs to Rs. 63.27 lakhs.

During the year, Mahindra Water Utilities Ltd., the Company’sjoint venture has successfully commenced the Operations andMaintenance services for the Tirupur Water and SewerageProject. Your Company’s solid waste management project atTirumala is nearing completion and the focus would be tooperationalise the project during the current year.

Considering the experience gained in implementing projects inthe Water and Sanitation Sector and also the thrust given by theLocal Authorities in this Sector, your Company anticipates lot ofopportunities in the sector.

Capital

During the year under review, the capital of your Company wasincreased from Rs. 1600 lakhs to Rs. 1800 lakhs by issue of20,00,000 equity shares of Rs. 10 each for cash at par, on arights basis to the existing members of the Company.

Directors

Ms. Anita George retires by rotation and, being eligible, offersherself for re-appointment.

Mr. D. K. Tandon who retires by rotation, does not wish to seekre-appointment at the forthcoming Annual General Meeting ofthe Company. The Board has placed on record its sincereappreciation of the services rendered by Mr. D. K. Tandon duringhis tenure as Director of the Company.








As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced their socialwell being. Since its inception, the Mahindra Group has alwaysbeen engaged in activities which add value to the communityaround us. A step forward was taken in this direction by theannouncement made on the occasion of the 60th Anniversary ofMahindra & Mahindra Limited, the holding company, that the

217


Group would support a range of Corporate Social Responsibilityinitiatives by committing 1% of Profit After Tax (PAT) on acontinuing basis. The 1% PAT would specifically benefit theeconomically disadvantaged and socially weaker sections of thesociety. Accordingly, the Board of your Company has resolvedto contribute to recognised charitable and/or other Institutions,including K. C. Mahindra Education Trust and/or MahindraFoundation, not related to the business of the Company or thewelfare of the employees towards Corporate SocialResponsibilities of the Company, such amounts which in theaggregate in any financial year will not exceed 1% of theCompany’s estimated PAT for the year on a continuing basis untilfurther review by the Board.

Audit Committee

The Audit Committee presently comprises Mr. Pranab Datta(Chairman of the Committee), Mr. D. K. Tandon and Mr. S.Venkatraman. The Audit Committee met twice during the yearunder review.


The Remuneration Committee presently comprises Mr. PranabDatta (Chairman of the Committee), Ms. Anita George and Mr.S. Venkatraman.

Auditors

Messrs. A. F. Ferguson & Co., Chartered Accountants, retire asAuditors of the Company at the forthcoming Annual GeneralMeeting and have given their consent for re-appointment. Themembers will be required to appoint Auditors for the currentyear and fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromthe above Auditors proposed to be re-appointed to the effectthat their re-appointment, if made, would be in conformity withthe limits specified in the said section.


The Company has not accepted any deposits from the public oremployees during the year under review.

The Company has not made any loans/advances which arerequired to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with the parentcompanies – Mahindra Gesco Developers Limited and Mahindra& Mahindra Limited.

Conservation of Energy and Technology Absorption and



There were no foreign exchange earnings or outgo during theyear under review.


of the Companies Act, 1956 and Rules framed thereunder

The Company had no employee who was in receipt ofremuneration of not less than Rs. 24,00,000 during the year ended31st March, 2006 or not less than Rs.2,00,000 per month duringany part thereof.


A. K. Nanda

Chairman


218


Report of Auditor’s to the Shareholders

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219


Annexure to the Auditor's Report

[Annexure referred in paragraph (3) of the Auditor's Report ofeven date on the Accounts of Mahindra InfrastructureDevelopers Limited for the year ended 31

st March, 2006]

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

b) All the Fixed assets have been verfied by the managementat the year end in pursuance of a regular program ofverification which, in our opinion, is reasonable havingregard to the size of the company and the nature of itsfixed assets. No material discrepancies were noticed onsuch verification.

c) In our opinion and according to the information andexplanations given to us, the company has not disposedof a substantial part of the fixed assets during the year.

ii. As the company does not have any inventory clause 4 (ii)(a) to(ii)(c), (iv) to the extent relatable to purchase of inventory andsale of goods, and clause 4(viii) relating to maintenance ofcost records are not applicable to the company.

iii. a) In our opinion and according to the information andexplanations given to us, the Company has not grantedany loans, secured or unsecured to the companies, firmsor other parties covered in the register maintained underSection 301 of the Companies Act, 1956. As the Companyhas not granted any loans, secured or unsecured to theCompanies, firms or other parties covered in the registermaintained under Section 301 of the Companies Act,1956, paragraph 4 (iii)(b), 4(iii)(c), 4(iii)(d) of the Order arenot applicable.

(b) In our opinion and according to the information andexplanations given to us, the Company has not taken anyloans, secured or unsecured from companies, firms orother parties covered in the register maintained underSection 301 of the Companies Act, 1956. As the Companyhas not taken any loans, secured or unsecured to thecompanies, firms or other parties covered in the registermaintained under Section 301 of the Companies Act,1956, paragraphs 4(iii)(f) and 4(iii)(g) of the Order are notapplicable.

iv. In our opinion and according to the information and explanationsgiven to us, there is adequate internal control systemcommensurate with the size of the company and the nature ofits business for the purchase of fixed assets and for the sale ofservices, Further, on the basis of our examination and accordingto the information and explanations given to us, we have neithercome across nor have we been informed of any instance ofmajor weakness in the aforesaid internal control system.

v. a) According to the information and explanations providedby the management, we are of the opinion that theparticulars of contracts or arrangement referred to insection 301 of the Companies Act, 1956, have beenentered in the register required to be maintained underthat section; and

b) In our opinion and according to the information andexplanations given to us, the transactions made inpursuance of such contracts or arrangements andexceeding the value of five lakhs rupees in respect of anyparty during the year have been made at prices which arereasonable having regard to the prevailing market priceswhere applicable, at the relevant time.

vi. In our opinion and according to the information and explanationsgiven to us, the Company has not accepted any deposit frompublic to which the provision of sections 58A, 58AA, or anyother relevant provisions of the Companies Act, 1956 and theCompanies (Acceptance of Deposits) Rules, 1975.

vii. According to the information and explanations given to us, thecompany has an internal audit system, which is in our opinion,commensurate with the size of the company and the natureof its business.

viii.a) According to the records of the company, the Company isgenerally regular in depositing with appropriate authoritiesundisputed statutory dues including income-tax, service-tax, and other statutory dues applicable to it. Furtheraccording to the information and explanations given to us,no undisputed amount payable in respect of aforesaidstatutory dues were in arrears, as at 31st March, 2006 fora period of more than six months from the date theybecome payable.

b) According to the records of the Company, there are nodues of income-tax, sales tax, wealth-tax, service-tax, /custom duty / excise duty, and cess which have not beendeposited on account of any dispute.

ix. According to the information and explanations given to us, inour opinion, as the Company has been registered for a periodless than five years, the requirements of clause 4(x) concerningwhether the accumulated losses at the end of the financialyear are not less than of its net worth or the company hasincurred cash losses in the previous financial year are notapplicable.

x. The Company has neither taken any loan from financialinstitution or bank nor has it issued any debentures, thereof,the requirement of clause 4(xi) of the Order concerningdefault in repayments of dues are not applicable.

xi. Based on our examination of documents and records, theCompany has not granted any loans and advances on thebasis of security by way of pledge of shares, debentures andother securities and therefore, the requirements of clause 4(xii) of the Order are not applicable.

xii. In our opinion, the company is not a chit fund or a nidhi mutualbenefit/society. Therefore the requirements of clause 4 (xiii)of the Order are not applicable to the company.

xiii. In our opinion, the company is not dealing in or trading inshares, securities, debentures and other investments.Accordingly, requirements of clause 4 (xiv) of the Order arenot applicable to the company.

220


xiv. According to the information and explanations given to us,the company has not given any guarantee for loans taken byothers from banks or financial institutions. Therefore therequirements of clause 4 (xv) of the Order are not applicableto the company.

xv. As the company has not taken any term loan, therequirements whether the term loan were applied for thepurpose of which loans were obtained, of clause 4 (xvi) ofthe Order are not applicable.

xvi. Based on our information and explanations, given to us andon an overall examination of the balance sheet of thecompany, in our opinion, there are no funds raised on shortterm basis which have been used for long term investment.

xvii. The Company has not made any preferential allotment ofshares to parties and companies covered in the registermaintained under section 301 of the Companies Act, 1956,during the year. Therefore, the requirement of clause 4(xviii)of the Order whether at the price at which shares have beenissued is prejudicial to the interest of the company, is notapplicable to the company.

xviii. During the period covered by our audit report, the companyhas not issued any debentures. Consequently, the questionof creating any security or charge in respect of debenturesdoes not arise.

xiv. The company has not made any public issue and thereforethe requirements to disclose the end use of money raised bypublic issue in the financial statements does not arise.

xv. Based upon the audit procedures performed and informationand explanations given by the management, we report thatno fraud on or by the company has been noticed or reportedduring the course of our audit.

For A.F.Ferguson & CoChartered Accountants

A.S. VarmaPartner

Place: Mumbai Membership No. 15458Dated: 14th April 2006

221


BALANCE SHEET AS AT 31ST MARCH, 2006As at 31st As at 31st

March, 2006 March, 2005Schedule Rupees Rupees Rupees

I SOURCES OF FUNDS :

SHAREHOLDERS’ FUNDSCapital ....................................................................... I 180,000,000 160,000,000Reserves and SurplusProfit & Loss Account Balance ................................. 2,849,447 —

Deferred Tax Liability ................................................. 22,755 19,465TOTAL............. 182,872,202 160,019,465

II APPLICATION OF FUNDS :

Fixed Capital Expenditure ................................................. IIGross Block ............................................................... 173,959 173,959Less: Depreciation .................................................... 63,867 46,642..................................................................................Net Block .................................................................. 110,092 127,317

Incidental Expenditure during construction

Pending allocation ..................................................... III 2,340,998 1,619,392Construction Work-in-progress ................................. 6,912,157 1,154,389..................................................................................

Net Block .......................................................................... 9,363,247 2,901,098

INVESTMENTS ............................................................... IV 153,139,990 153,139,990

Deferred Tax Asset ........................................................... — 13,310

CURRENT ASSETS, LOANS AND ADVANCES ............. VSundry Debtors ......................................................... 6,116,245 708,561Cash and Bank Balances ........................................... 19,811,381 2,174,430

Loans and Advances ................................................. 448,419 247,772.................................................................................................................................................................... 26,376,045 3,130,763..................................................................................

Less: CURRENT LIABILITIES AND PROVISIONS.......... VI

Current Liabilities ...................................................... (4,795,870) (675,944)

Provisions .................................................................. (1,211,210) —.................................................................................................................................................................... (6,007,080) (675,944)..................................................................................

NET CURRENT ASSETS ................................................. 20,368,965 2,454,819

Profit and Loss Account ...................................................

Debit Balance per account annexed ......................... — 1,510,248TOTAL............. 182,872,202 160,019,465

NOTES ON ACCOUNTS X


Pranab DattaS. Venkatraman

Directors

Mumbai, dated: 14th April, 2006

}As per our attached report of even date

For A.F.FERGUSON & Co.


A. S. Varma

Partner


222


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


INCOME �� VII 9,771,697 3,927,559

EXPENDITURE

Personnel expenses .............................................................. VIII 1,141,413 2,244,025

Other expenses ..................................................................... IX 2,295,444 1,258,045

Depreciation [net of Rs. 9120 (2005: Rs. 24,045) transferred toincidental expenditure during construction pending allocation] 8,105 8,318

TOTAL............. 3,444,962 3,510,388

PROFIT FOR THE YEAR BEFORE TAXATION �� 6,326,735 417,171

Less: Provision for taxation :

Current Tax ............................................................................ 1,925,000 34,000

Fringe Benefit tax .................................................................. 25,440 —

Deferred tax [Note 7 (a)] ........................................................ 16,600 25,972

1,967,040 59,972

PROFIT AFTER TAXATION �� 4,359,695 357,199

Loss brought forward from previous year ............................. (1,510,248) (1,867,447)

BALANCE CARRIED TO BALANCE SHEET 2,849,447 (1,510,248)

Earnings Per Share

Basic ...................................................................................... 0.26 0.02Diluted ................................................................................... 0.26 0.02

NOTES ON ACCOUNTS �� X



Directors


}As per our attached report of even date attached to the Balance Sheet



A. S. Varma

Partner


223


SCHEDULE VI As at 31st As at 31stMarch, March,

CURRENT LIABILITIES AND PROVISIONS: 2006 2005Rupees Rupees

CurCurCurCurCurrrrrrent Liabilitiesent Liabilitiesent Liabilitiesent Liabilitiesent LiabilitiesSundry Creditors - other tha due to small scaleindustrial undertakings 4,259,323 610,997Other Liabilities 536,547 64,947

4,795,870 675,944PrPrPrPrProvisions :ovisions :ovisions :ovisions :ovisions :Provision for tax 1,210,570 —Provision for Fringe Benefit tax 640 —

1,211,210 —

6,007,080 675,944

SCHEDULE VII As at 31st As at 31stMarch, March,


IncomeIncomeIncomeIncomeIncomeManagement fees 9,030,000 3,708,000Interest on Bank deposits [Tax dedcuted atat source: Rs 1.66.123 (2005: Rs. 38,020) 741,697 181,678Interest-other [Tax deducted at Source :Rs. Nil (2005: Rs. 5,293)] — 37,881

9,771,697 3,927,559

SCHEDULE VIII

PersonnelPersonnelPersonnelPersonnelPersonnelSalaries and Allowances [Note 9] 1,109,112 2,207,723Welfare 32,301 36,302

1,141,413 2,244,025

SCHEDULES FORMING PART OF THE ACCOUNT AS AT 31ST MARCH, 2006.

SCHEDULE I As at 31st As at 31stSHARE CAPITAL: March, 2006 March, 2005

Rupees RupeesAuthorised

20,000,000 Equity shares of Rs.10/- each ............ 200,000,000 200,000,000

Issued18,000,000 Equity Shares of Rs. 10/- each ........ 180,000,000 180,000,000

Subscribed and Paid-up18,000,000 (2005: 16,000,000) Equity shares ofRs.10/- each fully paid-up. ..................................... 180,000,000 160,000,000[Of the above, 14,400,000 (2005:12,800,000) shares areheld by Mahindra Gesco Developers Limited, theholding company, including 6 shares jointly held .with its nominees]

.............................................................. 180,000,000 160,000,000

SCHEDULE IIFixed Capital Expenditure : (In Rupees)(In Rupees)(In Rupees)(In Rupees)(In Rupees)

Description of GROSS BLOCK DEPRECIATION NET BLOCKCompleted Assets As at Additions Deductions As at As at For the Deductions Upto As at As at

01/04/2005 31/03/2006 31/03/2005 year 31/03/200631/03/200631/03/200631/03/200631/03/2006 31/03/2006 31/03/2006 31/03/2006 31/03/2006 31/03/2006 31/03/20031/03/20031/03/20031/03/20031/03/20055555Furniture and Fixtures 16,034 — — 16,034 16,034 — — 16,034 — —Computers 52,425 — — 52,425 11,216 8,105 — 19,321 33,104 41,209Vehicles 96,000 — — 96,000 9,892 9,120 — 19,012 76,988 86,108Plant & Machinery and Office Equipments 9,500 — — 9,500 9,500 — — 9,500 —Total 173,959 — — 173,959 46,642 17,225 — 63,867 110,092 127,317Previous year 159,034 23,925 9,000 173,959 14,492 32,363 213 46,642 127,317

SCHEDULE III

As at 31st As at 31stMarch, 2006 March, 2005

Rupees Rupees

Incidental Expenditure During ConstructionPending Allocation :

Salaries and Allowances. ................. 1,221,954 777,451Travelling expenses. ......................... 63,859 22,285Vehicle expenses. ............................ 258,189 142,653Telephone expenses. ....................... 16,283 7,955Project development. ....................... 465,000 465,000Depreciation. .................................... 38,437 29,317Rent expenses. ................................ 147,314 84,914Miscellaneous expenses. ................. 129,962 89,817

2,340,998 1,619,392

SCHEDULE IV As at 31st As at 31stMarch, March,

INVESTMENTS : (Unquoted) 2006 2005Rupees Rupees

Face Value per unit Long term, Trade, At cost :Number Rupees Equity Shares :.

500 10 Rathna Boomi Enterprises Pvt. Ltd. 5,000 5,00050,000 10 Mahindra Water Utilities Ltd. 500,000 500,000

15,000,000 10 New Tirupur Area Development Corporation Ltd. 150,000,000 150,000,00024,999 10 Mahindra Inframan Water Utilities Pvt. Ltd. 249,990 249,990

150,754,990 150,754,990Preference Shares :

238500 10 Rathna Bhoomi Enterprises Pvt. Ltd. 2,385,000 2,385,00010% Non-cumulative redeemable participatingoptionally covertible preference shares

153,139,990 153,139,990

SCHEDULE V As at 31st Ast at 31stCURRENT ASSETS, LOANS AND ADVANCES: March, 2006 March, 2005

Rupees Rupees RupeesSundry Debtors - Unseccured, considered good :Other debts upto six months ............ 6,116,245 708,561

6,116,245 708,561Cash and Bank Balance :Cash on hand ..................................... — 12,160Balance with Scheduled Bank :

on Current Account ..................... 1,662,193 397,579on Fixed Deposit Account ........... 18,149,188 1,572,691on Margin Account ...................... — 192,000

TOTAL ..... 19,811,381 2,174,430

Loan and Advances - Unsecured,considered good :Advances recoverable in cashor in kind or for value to bereceived ............................................. 242,033 41,895

Advance tax-tax deducted at source 206,386 448,419 205,877

26,376,045 3,130,763

224


SCHEDULE XNOTES FORMING PNOTES FORMING PNOTES FORMING PNOTES FORMING PNOTES FORMING PARARARARART OF THE ACCOUNTS FOR THE YEAR ENDED 31T OF THE ACCOUNTS FOR THE YEAR ENDED 31T OF THE ACCOUNTS FOR THE YEAR ENDED 31T OF THE ACCOUNTS FOR THE YEAR ENDED 31T OF THE ACCOUNTS FOR THE YEAR ENDED 31ststststst

MARCH 2006MARCH 2006MARCH 2006MARCH 2006MARCH 2006

1. Significant accounting policies :a) Basis of preparation of accounts :

The accounts have been prepared to comply, in all material aspects, with theapplicable accounting principles in India, the Accounting Standards issued by theInstitute of Chartered Accountants of India and relevant provisions of the CompaniesAct 1956.

b) Fixed Assets:

i) All Fixed Assets are carried at cost less depreciation. Cost includes financingcost relating to borrowed funds attributable to the construction or acquisitionof fixed assets upto the date the asset is ready for use.

When an asset is scrapped or otherwise disposed off, the cost and relateddepreciation are removed from the books of account and resultant profit(including capital profit) or loss, if any, is reflected in the Profit and Loss Account.

ii) Depreciation on assets is calculated on Straight Line Method at the rates andin the manner prescribed in Schedule XIV to the Companies Act, 1956.

c) Investments :All long-term investments are valued at cost or lower, if written down.

d) Miscellaneous Expenditure - to the extent not written off or adjusted :

Preliminary expenses comprise registration fees, Stamp duty and expenditure onformation of the Company which are amortised equally over a period of three financialyears commencing from the period ended 31st March 2002.

e) Revenue Recognition

Management fees arising from projects developed by the Company, is accountedin the year in which such income is established as receivable and is disclosed net ofservice tax charged to the Client which in turn is paid/payable to the Government.

Dividend income will be recognised in the Profit and Loss Account when the rightto receive payment is established.

Interest Income is accounted for on time proportion basis.f) Income Taxes:

Current tax is determined as the amount of tax payable in respect of taxable incomefor the year. Deferred tax is recognised, subject to consideration of prudence, ontiming differences, being the difference between taxable income and accountingincome that originate in one period and are capable of reversal in one or moresubsequent periods. Deferred tax assets are recognised only to the extent thatthere is virtual certainty or reasonable certainty, as the case may be, supported byconvincing evidence that sufficient future tax income will be available against whichsuch deferred tax assets can be realised.

g) Expenditure during construction period :

i) Expenditure of a capital nature incurred during construction period in repect ofa project being executed by the Company is grouped under Construction work-in-progress. Such expenditure would be capitalised upon the commencementof commercial operations of the project.

ii) Incidental expenditure during construction pending allocation representsexpenditure incurred in connection with the project which is intended to becapitalised to the project.


h) Segment reporting :

The Company has a single reportable segment namely development of infrastructureprojects for the purpose of Accounting Standard 17 on Segment Reporting.

2.2.2.2.2. The estimated amount of the contracts entered into and remaining to be executedon Capital account and not provided for (net of advances) as at 31st March, 2006 isRs. 1,791,638 (2005: Rs. 7,473,078)

3. Managerial remuneration:Rupees

2006 2005

Salary ............................................................................. — 600,000Perquisites ..................................................................... — 446,500

— 1,046,500

4. Contingent liability not provided for:(a) Guarantee/Counter Guarantee given by the company:

Rs. in lakhsAmount of Amount Maximum liabilityGuarantee outstanding of the Company

2006 2005 2006 2005 2006 2005

For Joint VentureCompanies 1,800 1,802 1,800 1,802 900 901

5. Information pertaining to Joint Ventures:Rupees

2006 2005 2006 2005

Name of Joint Venture Mahindra Water Mahindra InfraMan Utilities Limited Water Utilities Pvt Ltd.

Equity Interest 50% 50% 50% 50%Incorporated India India India IndiaShare in Assets &Liabilities 28,509,757 8,226,532 379,629 383,555Share in Income 75,288,865 23,293,985 36,767 2,250,884Share in Expenditure 44,290,782 14,114,426 36,943 1,937,104

6. Earnings Per Share:::::The computation of the “Earnings per share” in line with Accounting Standard20 issued by the Institute of Chartered Accountants of India is as under:

Rupees

2006 2005

A. Net Profit after tax available forequity shareholders (Rs.) 4,359,695 357,199

B. Nominal value per Share 10 10C. Weighted Average number of

Equity Shares(No.) 17,084,932 15,383,562D. Basic Earnings per share (Rs.) 0.26 0.02E. Total Weighted Average number of

Equity Shares 17,084,932 15,383,562F. Diluted Earnings per share (Rs.) 0.26 0.02

7. a) The components of Deferred Tax Liabilities (DTL)/Deferred Tax Assets(DTA)as at 31st March, 2006 are as follows:

Rupees

Particulars 2006 2005

Difference between Tax and Book depreciation – DTL (22,755) (19,465)Difference on account of allowance of preliminaryexpenses as per book and tax – DTA NIL 13,310Net Deferred Tax Asset/(Liability) (22,755) (6,155)

b) In line with Accounting Standard 22 “Accounting for taxes on income”, theCompany on principles of prudence has not recognised in the accounts, aDeferred Tax Asset of Rs.NIL as at 31st March, 2006 (Rs.533,431 as at31st March, 2005).

SCHEDULE IX As at 31st Ast at 31stMarch, 2006 March, 2005

Rupees Rupees RupeesOther Expenses :Other Expenses :Other Expenses :Other Expenses :Other Expenses :Bidding expenses — 32,700Travelling expenses 82,619 135,578Vehicle expenses 15,088 120,979Telephone expenses 59,608 80,363Rent expenses — 400,000Rates & Taxes 668 —Publicity and Business promotion expenses — 13,278Printing and Stationery 16,063 41,654Stamp and Filing fees 24,000 315,500Auditors' remuneration

for Statutory audit 60,000 40,000for Out of pocket expenses 902 263

60,902 40,263Professional Charges 1,961,920 24,000Loss on sale of fixed assets — 5,287General and miscellaneous expenses 74,576 48,443

2,295,444 1,258,045

225


8. The following disclosures are made as required in pursuance of the AccountingStandard 18 “Related Party Disclosures” issued by the Institute of CharteredAccountants of India and which became effective from 1st April, 2004:

List of related parties:Enterprises controlling the Company : Mahindra & Mahindra Limited

(Controlling Company)Mahindra Gesco Developers Limited(Holding Company)

Fellow Subsidiaries:Fellow Subsidiaries:Fellow Subsidiaries:Fellow Subsidiaries:Fellow Subsidiaries:Tech Mahindra Limited (formerly Mahindra Engineering & Chemicalknown as Mahindra-British Products LimitedTelecom Limited)Mahindra Logisoft Business Mahindra & Mahindra FinancialSolutions Limited Services LimitedAutomartindia Limited Mahindra Intertrade LimitedMahindra USA Inc. Mahindra Steel Service Centre LimitedBristlecone (UK) Limited Mahindra Holdings & Finance LimitedMahindra Gujarat Tractor Limited Mahindra Acres Consulting Engineers

LimitedMahindra Shubhlabh Services Mahindra Ashtech LimitedLimitedMahindra Insurance Brokers Limited Mahindra Holidays & Resorts India

LimitedMahindra World City Developer Ltd. NBS International Limited(formerly known as MahindraIndustrial Park LimitedMahindra World City (Jaipur) Ltd Mahindra Realty Limited(w.e.f. 26th August, 2005) (w.e.f. 21st Sep. 2005)Brislecone Limited, Cayman Islands Mahindra Automotive Steels Pvt. Ltd.

(w.e.f. 2nd June, 2005)Bristlecone Inc., Mahindra Renault Pvt. Ltd.

(w.e.f. 5th August, 2005)Mahindra Middleeast Electrical Mahindra Holidays & Resorts U.S.A.

Inc.Steel Service Centre (FZE)Mahindra & Mahindra South Africa Tech Mahindra (Americas) Inc. [formerly(Pty.) Limited known as MBT International Inc.]Mahindra International Limited Tech Mahindra GmbH (formerly known(w.e.f. 1st Nov. 2005) as MBT GmbH)Stokes Group Limited Tech Mahindra Singapore (Pte.) Ltd.(w.e.f. 3rd Jan. 2006) (formerly known as MBT Software

Technologies Pte. Ltd)Plexion Technology (India) Private Tech Mahindra (R&D Services) LimitedLimited (w.e.f. 15th Feb. 2006) (w.e.f. 28th Nov. 2005)Jensand Limited Tech Mahindra (R&D Services) Inc.(w.e.f. 3rd Jan. 2006) (w.e.f. 28th Nov. 2005)Stokes Forgings Dudley Limited Tech Mahindra (R&D Services) Pte. Ltd.(w.e.f. 3rd Jan. 2006) (w.e.f. 28th Nov. 2005)Stokes Forgings Dudley Limited Tech Mahindra (Thailand) Limited(w.e.f. 3rd Jan. 2006) (w.e.f. 21st Feb. 2006)Plexion Technologies (UK) Ltd Tech Mahindra Foundation(w.e.f. 15th Feb. 2006) (w.e.f. 22nd March 2006)Plexion Technologies GmbH, Bristlecone India LimitedGermany (w.e.f. 15th Feb. 2006)Plexion Technology Incorporated - Bristlecone (Singapore) Pte. Ltd.USA (w.e.f. 15th Feb. 2006)Mahindra Engineering Design & Bristlecone GmbHDevelopment Company Ltd.Mahindra SAR Transmission Mahindra Ugine Steel Company Ltd.Private Limited (w.e.f. 21st June. 2005)Mahindra Overseas Investment Console Estate & Investment Ltd.Company (Mauritius) Limited (Ceased with effect from 20th Mar. 06)Mahindra Europe s.r.l. Mahindra (China) Tractor Company Ltd.(w.e.f. 30th May. 2005) (w.e.f. 13th May. 2005)Mahindra BT Investment Company(Mauritius) Limited(w.e.f. 9th May. 2005)

Joint Ventures of the Company : Mahindra Water Utilities LimitedMahindra Inframan Water UtilitiesPrivate Limited

Associates of the Company : Rathna Bhoomi Enterprises PrivateLimited

Key Management Personnel : NilEnterprises over which key : Nilmanagement personnel are able toexercise significant influence

Transactions with related parties during the year and balance as on 31st March2006

Nature of Enterprise Fellow Joint Key Enterprisestransactions controlling Subsidiaries Ventures/ Manage- over

the Company Associates ment which keypersonnel manage-

mentpersonnel

are able toexercise

significantinfluence

Rendering of — — 9,030,000 — —services — — (3,708,000) — —Purchase ofFixed Assets — 175,000 — — —CWIP/Capitaladvances — — (14,925) — —Remuneration — — — — —

— — — (1,046,500) —Expenses 3,411,971 — 279,600 — —

(1,468,135) (2,871) (280,100) — —Reimbursement 281,137 15,330 17,841 — —received (51,404) (11,567) (18,010) — —Loan / advance — — — — —given — — (300,000) — —Loan refunded — — — — —

— — (500,000) — —Interest received — — — — —

— (4,890) (20,521) — —Guarantees out- — — 90,000,000 — —standing — — (90,192,000) — —Receivables — 72,129 6,116,245 — —

— — (708,561) — —Payables 2,756,055 — — — —

(61,739) (55,357) (62,953) — —

Previous year's figures are in brackets and italics

The Significant related party transactions are as under:Nature of Enterprise Amount Joint Ventures/ Amounttransactions controlling the Associates

Company

Rendering of — — Mahindra Water 9,030,000services Utilities Ltd (3,058,000)

(Joint Venture)— — Mahindra Inframan —

Water UtilitiesPvt. Ltd.(Joint Venture) 650,000

Purchase of — — Rathna Bhoomi —Fixed Assets Enterprises

Pvt. Ltd. (14,925)(Associates)

Expenses Mahindra & Mahindra @@ Rathna Bhoomi 279,600Ltd. (Controlling 871,259) Enterprises Pvt.Company) Ltd. (Associates) (279,600)Mahindra Gesco 3,097,189Developers Ltd.(Holding Company) (596,876)

Loan given — — Mahindra Inframan —Water UtilitiesPvt. Ltd.(Joint Venture) (300,000)

Loan refunded — — Mahindra Inframan —by party Water Utilities

Pvt. Ltd.(Joint Venture) (500,000)

Guarantees — — Mahindra Water —given Utilities Ltd.

(Joint Venture) (90,000,000)— — Mahindra Inframan —

Water UtilitiesPvt. Ltd.(Joint Venture) 192,000

@@ Previous year's figures are in brackets and italicsCurrent year not significant

9. Salary and Allowances includes expenditure incurred in respect of employeesof other companies seconded to the Company.

10. Previous year’s figures have been regrouped whereever necessary to conformto this year's classification.

11. Additional information pursuant to the provisions of Part IV of Schedule VI tothe Companies Act 1956 - see Schedule XI.

226


ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956.

Balance Sheet Abstract & Company’s General Business Profile :


Registration No. 1 1 - 1 3 1 9 4 2 State Code 1 1

Balance Sheet Date 3 1 – 0 3 – 2 0 0 6Date Month Year

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

N I L 2 0 0 0 0


N I L N I L

III. Position of Mobilisation & Deployment of Funds (Amount in Rs. Thousands)

Total Liabilities (including Shareholders’ Funds) Total Assets

1 8 8 8 7 9 1 8 8 8 7 9

Sources of Funds :

Paid-up Capital Reserves & Surplus

1 8 0 0 0 0 2 8 4 9


N I L N I L


2 3



9 3 6 3 1 5 3 1 4 0


2 0 3 6 9 N I L


N I L N I L


Turnover (Total Income) Total Expenditure

9 7 7 2 3 4 4 5

+/(–) Profit/Loss before Tax +/(–) Profit/Loss after Tax

+ 6 3 2 7 + 4 3 6 0

Earning per Share Rupees Dividend Rate %

Basic - Rs. 0.26 Diluted - Rs. 0.26 N I L



Product Description

SCHEDULE XI

}Signatures to Schedules I to XI



Directors


}

227


Cash Flow for the year ended March 31, 2006Current Year Previous Year

Rupees RupeesA. Cash Flow from Operating Activities

Profit before taxation .......................................................................................... 6,326,735 417,171Adjustments for :Depreciation ....................................................................................................... 8,105 8,318Interest Income .................................................................................................. (741,697) (207,089)Amortisation of Expenses .................................................................................. — —Loss on sale of fixed asset ................................................................................. — 5,287

(733,592) (193,484)

Operating Profit before Working capital changes .............................................. 5,593,143 223,687

Changes in: .........................................................................................................Trade and other receivables ............................................................................... (5,465,185) 239,875Trade and other payables ................................................................................... 4,119,926 (44,155)

(1,345,259) 195,720

Cash Generated from operations ....................................................................... 4,247,884 419,407Income taxes refund/(paid) ................................................................................. (739,739) 36,749

NET CASH FROM OPERATING ACTIVITIES ................................................... 3,508,145 456,156

B. Cash Flow from Investing Activities

Capital expenditure ............................................................................................. (6,470,254) (1,824,375)Sale of fixed assets ............................................................................................ — 3,500Purchase of investments ................................................................................... — (37,700,010)Intercorporate Deposits given ............................................................................ — (6,000,000)Intercorporate Deposits refunded ...................................................................... — 6,000,000Interest received ................................................................................................ 599,060 281,913

Net Cash Used in investing activities ............................................................. (5,871,194) (39,238,972)

C. Cash Flow from Financing Activities

Proceeds from Share Capital .............................................................................. 20,000,000 30,000,000............................................................................................................................Net cash used in Financing Activities ............................................................. 20,000,000 30,000,000NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ................ 17,636,951 (8,782,816)

Cash and cash equivalents (see Note below)Opening Balance ................................................................................................ 2,174,430 10,957,246Closing Balance .................................................................................................. 19,811,381 2,174,430

Note:Cash and cash equivalents includes :Cash on hand ...................................................................................................... — 12,160Balances with Scheduled Bank :i) on Current Account ......................................................................................... 1,662,193 397,579ii) on Fixed Deposit Account ............................................................................... 18,149,188 1,572,691iii) on Margin Account ......................................................................................... — 192,000............................................................................................................................

19,811,381 2,174,430........................................................................................................................................................................................................................................................



Directors


}As per our attached report of even date attached to the Balance Sheet



A. S. Varma

Partner


228

MAHINDRA WORLD CITY DEVELOPERS LIMITED(Formerly Mahindra Industrial Park Limited)

OPERATIONS

Your Company has turned around and has made a profit duringthe year.

Your Company’s offer of space in all the three sector-specificSEZ’s and the Domestic Tariff Area has received a goodresponse. The processing area of the SEZ has been fullycommitted. In the non-processing area, the first residentialdevelopment has commenced. Well known international brandshave chosen Mahindra World City for setting up theirmanufacturing facilities.

FINANCE

During the year under review, your Company generatedsubstantial cash flows enabling early repayment of Rs 30 croresecured loan availed from M/s. Infrastructure Leasing & FinancialServices Limited.

INVESTMENTS

During the year the Company made investments out of its surplusfunds in the equity of Mahindra World City (Maharashtra) Limited(formerly known as Mahindra Realty Limited) and AscendasMahindra IT Park Ltd.

CHANGE OF NAME

Your Company’s name has been changed to Mahindra World CityDevelopers Limited with effect from 30th August, 2005 to reflectthe current nature of activities.

DIRECTORS

Mr. N. Vaghul and Mr. S. Durgashankar, Directors, retire byrotation and being eligible, offer themselves for re-election at theforthcoming Annual General Meeting.

Mr.Rameshram Mishra, IAS resigned from the Board with effectfrom 22.12.2005

Your Directors place on record their sincere appreciation of thevaluable services rendered by Mr.Rameshram Mishra, IAS duringhis tenure as Director of the Company.

DIRECTORS’ REPORT TO THE SHARE HOLDERS

Your Directors present their Ninth Annual Report together with the audited accounts of the Company for the financial year endedMarch 31st, 2006.

FINANCIAL RESULTS:(Rs. in lakhs)

2006 2005

Profit / (Loss) before Depreciation, Interest and Taxation......................................................... 1,186.58 (408.84)

Depreciation .............................................................................................................................. (16.81) (15.81)

Interest ...................................................................................................................................... (951.38) (1,006.46)

Taxation ..................................................................................................................................... (4.39) –

Profit / (Loss) for the year ......................................................................................................... 214.00 (1,431.11)

Balance brought forward from earlier years.............................................................................. (3,549.09) (2,117.98)

Balance carried forward ............................................................................................................ (3,335.09) (3,549.09)

Mr. D. Rajendran, IAS was appointed as Director of the Companywith effect from 22.12.2005 in the Casual vacancy caused by theresignation of Mr.Rameshram Mishra, IAS.

Mr. Sanjiv Kapoor was appointed by the Board as AdditionalDirector of the Company with effect from 22.12.2005. He holdsoffice upto the date of the forthcoming Annual General Meeting.The Company has received a Notice from a member proposingthe appointment of Mr. Sanjiv Kapoor as a Director.

AUDIT COMMITTEE

The Audit Committee comprises of the following Non- ExecutiveDirectors:

1 Mr. Sanjiv Kapoor – Chairman

2 Mr. D. Rajendran, IAS and

3 Mr.V. Balaraman


Pursuant to section 217(2AA) of the Companies Act, 1956, yourDirectors, based on the representation received from the OperatingManagement, and after due enquiry, confirm that:


(ii) they have, in the selection of the accounting policies,consulted the Statutory Auditors and these have beenapplied consistently and reasonable and prudent judgmentsand estimates have been made so as to give a true and fairview of the state of affairs of the Company as at 31st March,2006 and of the profit of the Company for the year ended onthat date.

(iii) proper and sufficient care has been taken for the maintenanceof adequate accounting records in accordance with theprovisions of the Companies Act, 1956 for safeguarding theassets of the Company and for preventing and detectingfraud and other irregularities;


229


AUDITORS

Messrs. A.F. Ferguson & Co., Chartered Accountants, retire asAuditors of the Company at the forthcoming Annual GeneralMeeting and have given their consent for re-appointment. Theshareholders will be required to elect Auditors for the current yearand fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromMessrs. A.F.Ferguson & Co., Chartered Accountants, to theeffect that their re-appointment, if made, would be in conformitywith the limits specified in the said section.

DEPOSITS AND LOANS/ADVANCES


The Company has not made any loans/advances which arerequired to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with the parentcompanies Mahindra Gesco Developers Limited and Mahindra &Mahindra Limited.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTIONAND FOREIGN EXCHANGE EARNINGS AND OUTGO


There were no foreign exchange earnings during the year underreview. The information on foreign exchange outgo is furnishedin the Notes on Accounts.

PARTICULARS OF EMPLOYEES AS REQUIRED UNDERSECTION 217(2A) OF THE COMPANIES ACT, 1956 AND THERULES MADE THERE UNDER

The Company has one employee who was in receipt ofremuneration of not less than Rs.24,00,000 during the yearended 31st March, 2006 or not less than Rs.2,00,000 per monthduring any part of the said year. The particulars are given in theannexure to the Report.

ACKNOWLEDGEMENT

Your Directors wish to place on record their sincere thanks to theTamil Nadu Government, Housing Development FinanceCorporation Limited and Employees for their support andco-operation extended during the period under review.

For and On Behalf of the Board

N. Vaghul

Chairman



Additional information as required under section 217 (2A) of the Companies Act, 1956 read with Companies (Particulars of Employees)Rules, 1975 and forming part of the Directors’ Report for the year ended 31st March, 2006

Name of Designation / Qualification(s) Remuneration Age Experience Date of Last employmentthe Employee Nature of Duties (Subject to tax) (yrs) (yrs) Commencement held (Designation /

(Rs.) of employment Organisation)

Mr.B. G.Menon Chief Operating B.Tech., PGDM 4,358,145 48 24 1st July, 2003 Chief ExecutiveOfficer & Manager Officer/ SSI Education.

Notes:1. Mr.B. G. Menon was appointed as Chief Operating Officer with effect from 1st July, 2003 and as Manager with effect from

18th March, 2004.2. Nature of employment is contractual, subject to termination at three months’ notice from either side.3. The above employee is not related to any other Director of the Company.4. The employee does not hold by himself or along with his spouse and dependent children 2% or more of the equity shares of the Company.5. Terms and Conditions of employment are as per Company’s rules/contract.6. Gross remuneration received as shown in the statement includes Salary, Bonus, House Rent Allowance or value of perquisites for

accommodation, car perquisites value/allowances applicable, employer’s contribution to Provident fund and Superannuationscheme including group insurance premium, leave travel facility, reimbursement of medical expenses and all allowances/perquisites and terminal benefits as applicable.


N.Vaghul

Mumbai, 25th April, 2006 Chairman

230


Auditors’ Report to the Members of Mahindra World City Developers Limited

(Formerly Mahindra Industrial Park Limited)

We have audited the attached Balance Sheet of Mahindra World City Developers Limited (formerly Mahindra Industrial Park Limited)as at 31st March, 2006, the Profit and Loss Account, and also the Cash Flow Statement of the Company for the year ended on that dateannexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basis for our opinion.

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

Further to our comments in the annexure referred to above, we report that:

(a) we have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for thepurposes of our audit;

(b) in our opinion, proper books of account, as required by law, have been kept by the Company so far as appears from our examinationof the books;

(c) the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the booksof account;

(d) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with theaccounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956;

(e) on the basis of the written representations received from the directors, as on 31st March, 2006, and taken on record by the Boardof Directors, we report that none of the directors is disqualified as on 31st March, 2006, from being appointed as a director in termsof Clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;

(f) in our opinion and to the best of our information and according to the explanations given to us, the accounts give the informationrequired by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accountingprinciples generally accepted in India:

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

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

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



H.L. Shah

PartnerBangalore, 25th April, 2006 Membership No. 33590

231


Annexure referred to in paragraph (4) of the Auditors’ Report to the members of Mahindra

World City Developers Limited on the accounts for the year ended 31st March, 2006.

1. (a) The Company has maintained proper records to show full particulars including quantitative details and situation of FixedAssets.

(b) The management has physically verified the assets during the year and no material discrepancies were noticed on suchverification. In our opinion, the frequency of verification is reasonable.

(c) The Company has not disposed off a substantial part of fixed assets during the year, and, therefore, paragraph 4(i)(c) of theCompanies (Auditor’s Report) Order, 2003 (hereinafter referred to as the Order) is not applicable.

2. (a) The Company has carried out physical verification of saleable inventory during the year and no material discrepancies werenoticed on such verification.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relationto the size of the Company and the nature of its business.

(c) The Company is maintaining proper records of inventory and no material discrepancies have been noticed on physicalverification of inventories as compared to the book records.

3. The Company has neither granted nor taken any loans, secured or unsecured, to/from companies, firms or other parties listed inthe register maintained under Section 301 of the Companies Act, 1956, and, therefore, paragraph 4(iii) of the Order is not applicable.

4. In our opinion and according to the information and explanations given to us, there are adequate internal control procedurescommensurate with the size of the Company and the nature of its business with regard to purchase of inventory and fixed assetsand for the sale of inventory. We have neither come across nor have we been informed of any major weaknesses in internal controlsystem.

5. According to the information and explanations given to us, there are no transactions with parties that need to be entered in theregister maintained under Section 301 of the Companies Act, 1956, and, therefore, paragraph 4(v) of the Order is not applicable.

6. In our opinion and according to the information and explanations given to us, as the Company has not accepted deposits from thepublic, paragraph 4(vi) of the Order is not applicable.

7. The Company has an internal audit system which is commensurate with its size and nature of business.

8. We are informed that maintenance of cost records has not been prescribed by the Central Government under Section 209(1)(d)of the Companies Act, 1956, in respect of the activities of the Company, and, therefore, paragraph 4(viii) of the Order is notapplicable.

9 (a) In our opinion and according to the information and explanations given to us, the Company is regular in depositing undisputedstatutory dues including income tax and any other statutory dues with the appropriate authorities. There are no arrears ofoutstanding statutory dues as at 31st March, 2006, for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, there are no dues of sales tax, income tax, customs duty, wealthtax, service tax, excise duty and cess, which have not been deposited on account of any dispute.

10. The accumulated losses at the end of the financial year are less than fifty per cent of its net worth and the Company has not incurredcash losses in the financial year but incurred cash losses in the immediately preceding financial year.

11. The Company has not defaulted in repayment of dues to banks/financial institutions.

12. The Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and othersecurities, and, therefore, paragraph 4(xii) of the Order is not applicable.

232


13. The provisions of any special statute applicable to chit fund & nidhi/mutual benefit fund/society are not applicable to the Company,and, therefore, paragraph 4(xiii) of the Order is not applicable.

14. The Company is not dealing or trading in shares, securities, debentures and other investments, and, therefore, paragraph 4(xiv) ofthe Order is not applicable.

15. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others frombanks or financial institutions, and, therefore, paragraph 4(xv) of the Order is not applicable.

16. The Company has applied term loans for the purpose for which the loans were obtained.

17. The Company has not raised funds on short-term basis, and, therefore, paragraph 4(xvii) of the Order is not applicable.

18. The Company has not made any preferential allotment of shares during the year to parties and companies covered in the registermaintained under Section 301 of the Companies Act, 1956, and, therefore, paragraph 4(xviii) of the Order is not applicable.

19. The Company has not issued any debentures during the year, and, therefore, paragraph 4(xix) of the Order is not applicable.

20. The Company has not raised any money by way of public issue during the year, and, therefore, paragraph 4(xx) of the Order is notapplicable.

21. Based upon the audit procedures performed and as per the information and explanations given to us by the management, we reportthat no fraud on or by the Company has been noticed or reported during the course of our audit.



H.L. Shah

PartnerBangalore, 25th April, 2006 Membership No. 33590

233



As at As atSchedule 31st March, 31st March,


SOURCES OF FUNDS:

Shareholders’ Funds:

Share Capital ............................................................................... 1 850,000,000 850,000,000

Loan Funds:

Secured Loans ............................................................................ 2 535,000,000 1,132,500,000

Total ............. 1,385,000,000 1,982,500,000


Fixed Assets ............................................................................... 3

Gross Block ................................................................................. 55,516,128 48,926,155

Less: Depreciation..................................................................... 6,071,088 4,994,823

Net Block .................................................................................... 49,445,040 43,931,332

Capital Work-in-Progress/Advances ............................................ 52,165,077 42,962,315

101,610,117 86,893,647

Investments ................................................................................ 4 2,730,000 —

Current Assets, Loans and Advances:

Inventories .................................................................................. 5 1,037,983,335 1,488,027,931

Sundry Debtors ........................................................................... 6 3,903,560 70,342,634

Cash and Bank Balances ............................................................. 7 1,399,454 30,888,301

Loans and Advances ................................................................... 8 69,754,441 67,353,320

1,113,040,790 1,656,612,186

Less: Current Liabilities and Provisions ................................ 9

Current Liabilities ............................................................. 165,434,695 115,551,413

Provisions ........................................................................ 455,506 363,446

165,890,201 115,914,859

Net Current Assets .................................................................... 947,150,589 1,540,697,327

Profit and Loss Account ............................................................ 333,509,294 354,909,026

Total ............. 1,385,000,000 1,982,500,000

Notes to the Accounts .............................................................. 13

As per our Report of even date attached



H.L. Shah

Partner

Bangalore, 25th April, 2006

For and on behalf of the Board of Directors

N. Vaghul ChairmanA. K. Nanda Vice-ChairmanSanjiv Kapoor

T. Rajendran (IAS) DirectorsS. Durgashankar

B. G. Menon Chief Operating Officer & ManagerS. Chandru Chief Financial Officer


}

234




Schedule 2006 2005Rupees Rupees

INCOME:

Land Lease Premium ........................................... 868,932,950 366,969,000

Operation and Maintenance Income .................... 13,403,305 867,450

Other Income ....................................................... 10 127,923 251,677

882,464,178 368,088,127

EXPENDITURE:

Project Development Costs ................................. 252,648,293 120,289,348

Interest and Finance Charges .............................. 95,138,150 100,646,209

Legal and Professional Charges ........................... 13,258,694 6,417,020

Depreciation ......................................................... 1,681,460 1,581,280

Other Expenses ................................................... 11 47,853,960 101,003,039

Decrease/(Increase) in Work-in-Progress ............. 12 450,044,596 181,261,867

860,625,153 511,198,763

Profit before Taxation ........................................ 21,839,025 (143,110,636)

Provision for Taxes

— Income Tax........................................... — —

— Fringe benefit Tax ................................ 439,293 —

Profit after Taxation ........................................... 21,399,732 (143,110,636)

(Loss) brought forward ......................................... (354,909,026) (211,798,390)

(Loss) carried to Balance Sheet ........................... (333,509,294) (354,909,026)

Basic and Diluted Earnings Per Share .................. (1.13) (9.36)

Notes to the Accounts ....................................... 13






}

As per our Report of even date attached to the Balance Sheet



H.L. Shah

Partner


235


Schedules forming part of Accounts for the year ended 31st March, 2006

SCHEDULE 3

Fixed Assets: Rupees

Particulars Gross Block Depreciation Net Block

As at As at As at For the As at As at As at31-03-2005 Additions Deletions 31-03-2006 31-03-2005 year Deletions 31-03-2006 31-03-2006 31-03-2005

Land ............................ 10,779,777 — — 10,779,777 — — — — 10,779,777 10,779,777

Building ....................... 30,468,484 5,293,621 — 35,762,105 1,836,053 1,008,854 — 2,844,907 32,917,198 28,632,431

Plant and Machinery .... — 853,767 — 853,767 — 10,111 — 10,111 843,656 —

Office Equipment ........ 1,546,452 130,828 — 1,677,280 408,291 78,750 — 487,041 1,190,239 1,138,161

Furniture and Fixtures . 1,744,488 19,940 261,766 1,502,662 659,226 94,683 87,549 666,360 836,302 1,085,262

Computers .................. 2,476,460 482,200 — 2,958,660 1,622,945 304,255 — 1,927,200 1,031,460 853,515

Vehicles ....................... 1,910,494 798,842 727,459 1,981,877 468,308 184,807 517,646 135,469 1,846,408 1,442,186

Total ............................ 48,926,155 7,579,198 989,225 55,516,128 4,994,823 1,681,460 605,195 6,071,088 49,445,040 —

Previous Year .............. 47,219,254 1,706,901 — 48,926,155 3,413,543 1,581,280 — 4,994,823 — 43,931,332

SCHEDULE 1 As at As atShare Capital: 31st March, 31st March,


Authorised:25,000,000 Equity Shares of Rs. 10/- each ......... 250,000,000 250,000,000

6,500,000 Redeemable Cumulative PreferenceShares of Rs. 100/- each ................. 650,000,000 650,000,000

5,000,000 Unclassified Shares of Rs. 10/- each .. 50,000,000 50,000,000

950,000,000 950,000,000

Issued, Subscribed and Paid-up:

20,000,000 Equity Shares of Rs. 10/- each fullypaid-up ............................................. 200,000,000 200,000,000(of the above 12,553,565 EquityShares of Rs. 10/- each fully paid-upare held by Mahindra GescoDevelopers Limited, the HoldingCompany)

6,500,000 6% Cumulative RedeemablePreference Shares of Rs. 100/- eachfully paid-up ..................................... 650,000,000 650,000,000

i. The Cumulative RedeemablePreference Shares are redeemableat par after the principal amountand interest has been fully paid onthe “Term Loan from others”.

ii. The Preference Dividend shall bepaid after repayment of at least75% of the “Term Loan fromothers” under a line of credit of Rs.128 crores.

850,000,000 850,000,000

SCHEDULE 2

Secured Loans:Term Loan from others ......................................... 535,000,000 1,132,500,000(Secured/to be secured by equitable mortgage onland, disclosed as inventories, near MaraimalaiNagar, Chennai)

535,000,000 1,132,500,000

SCHEDULE 4 As at As atInvestments: 31st March, 31st March,


Long Term, Unquoted (at cost)Others — Non-tradeMahindra Realty Limited (13,000 Equity Shares ofRs. 10/- each fully paid-up) (acquired during theyear) ...................................................................... 130,000 —Ascendas Mahindra IT Park Private Limited (260,000Equity Shares of Rs. 10/- each fully paid-up)(acquired during the year) ...................................... 2,600,000 —

2,730,000 —

SCHEDULE 5

Inventories (refer Note 1(e) and Note 8):— Work-in-Progress (representing cost of land

and related development expenditure) ........... 1,037,983,335 1,488,027,931

1,037,983,335 1,488,027,931

SCHEDULE 6

Sundry Debtors:(Unsecured, Considered Good)Outstanding for more than six months .................. 3,428,020 —Outstanding for less than six months ................... 475,540 70,342,634

3,903,560 70,342,634

SCHEDULE 7

Cash and Bank Balances:Cash on Hand ........................................................ 16,997 89,134Cheques on Hand .................................................. — 28,644,718Balances with Scheduled Banks— on Current Account ........................................ 348,251 2,154,449— on Fixed Deposit Account .............................. 1,034,206 —

1,399,454 30,888,301

SCHEDULE 8

Loans and Advances:(Unsecured, Considered Good)Advances recoverable in Cash or in Kind or forvalue to be received .............................................. 67,093,808 64,837,440Deposits ................................................................ 1,326,111 1,396,491Tax deducted at Source ......................................... 1,334,522 1,119,389

69,754,441 67,353,320

236


SCHEDULE 9 As at As atCurrent Liabilities and Provisions: 31st March, 31st March,


Current Liabilities:

Sundry Creditors

— Due to Small Scale Industrial Undertakings ... — —

— Others ............................................................ 135,561,335 92,207,428

Advance received from Customers ....................... 25,216,785 14,348,300

Interest accrued but not due on Loans .................. 4,656,575 8,995,685

165,434,695 115,551,413

Provisions:

Leave Salary .......................................................... 227,280 197,321

Gratuity ................................................................. 228,226 166,125

455,506 363,446

165,890,201 115,914,859

SCHEDULE 10 Year ended Year endedOther Income: 31-03-2006 31-03-2005

Rupees RupeesInterest on Deposits (Tax deducted at sourceRs. 9,897, previous year Rs. 38,721) ..................... 44,323 185,177

Miscellaneous Income .......................................... 83,600 66,500

127,923 251,677

SCHEDULE 11

Other Expenses:

Salaries, Wages and Bonus ................................... 12,748,437 12,379,034

Staff Welfare ......................................................... 697,616 528,574

Electricity ............................................................... 1,730,599 1,421,472

Rent ...................................................................... 1,232,747 911,157

Rates and Taxes .................................................... 66,029 128,636

Insurance ............................................................... 210,499 130,884

Repairs and Maintenance — others ...................... 1,171,859 700,482

Advertisement and Business Promotion ............... 11,420,881 17,540,731

Travelling ............................................................... 3,265,472 2,933,098

Printing and Stationery .......................................... 556,182 416,417

Communication ..................................................... 909,774 776,046

Directors’ Sitting Fees ........................................... 38,000 44,000

Preliminary Expenses Written Off ......................... — 234,066

Deferred Revenue Expenses ................................ — 59,424,245

Exchange Fluctuation ............................................ 21,161 14,910

Bank Charges ........................................................ 116,442 36,721

Security Charges ................................................... 906,848 820,884

Miscellaneous ....................................................... 1,189,516 855,741

Loss on Sale of Fixed Assets ................................ 52,348 —

Site Maintenance .................................................. 11,512,850 1,699,652

Filing Fees ............................................................. 6,700 6,289

47,853,960 101,003,039

SCHEDULE 12

Decrease/(Increase) in Work-in-Progress:

Opening Work-in-Progress .................................... 1,488,027,931 1,669,289,798

Closing Work-in-Progress ...................................... 1,037,983,335 1,488,027,931

450,044,596 181,261,867

SCHEDULE 13

Notes to the Accounts for the year ended 31st March, 2006


(a) Basis of Accounting:

The accounts have been prepared to comply in all material aspects inaccordance with applicable accounting principles in India, the AccountingStandards issued by the Institute of Chartered Accountants of India andrelevant provisions of the Indian Companies Act, 1956.

(b) Revenue Recognition:

i) Land lease premium is recognised as income upon creation of leaseholdrights in favour of the lessee or upon an agreement to create leaseholdrights with handing over possession.

ii) Income from operation and maintenance charges and water charges arerecognised on an accrual basis as per terms of the agreement with thelessees.

(c) Fixed Assets:

Fixed Assets are stated at cost less accumulated depreciation. Cost ofacquisition is inclusive of purchase price, levies and any directly attributablecost of bringing the assets to its working condition for the intended use. Whenan asset is scrapped, or otherwise disposed of, the cost and related depreciationare removed from the books of accounts and resultant profit (including capitalprofit) or loss, if any, is reflected in the Profit and Loss Account.

(d) Depreciation:

Depreciation is provided on straight line method basis from the date assetsare put to use in accordance with Schedule XIV to the Companies Act, 1956.

(e) Inventories:

Inventories are valued at lower of cost and net realisable value. Costrepresents cost of land and all expenditure incurred in connection with, orattributable to the project, and, being a long-term project, includes interest.

(f) Retirement Benefits:

The provisions of the Employees Provident Fund Act and Employees StateInsurance Act are not applicable to the Company. Provisions for leave salaryand gratuity are made on an arithmetical basis.

(g) Taxes on Income:

Income taxes are accounted for in accordance with Accounting Standard 22on Accounting for Taxes on Income (AS 22) issued by the Institute ofChartered Accountants of India. Tax expense comprises both current anddeferred tax. Current tax is determined as the amount of tax payable inrespect of taxable income for the period using the applicable tax rates andtax laws. Deferred tax assets and liabilities are recognised, subject toconsideration of prudence, on timing differences, being the differencebetween taxable income and accounting income, that originate in one periodand are capable of reversal in one or more subsequent periods and aremeasured using tax rates enacted or substantively enacted as at the BalanceSheet date. The carrying amount of deferred tax assets and liabilities arereviewed at each Balance Sheet date.

(h) Segment Reporting:

The Company has a single reportable segment, namely, lease of land.



2. Estimated Value of contracts remaining to beexecuted on capital account and not providedfor (net of advances) ...................................... 60,050,746 12,227,984

3. Managerial Remuneration:

• Manager* Salaries, Allowances and Perquisites . 4,001,492 30,81,000* Contribution to Provident, Gratuity and

Superannuation Fund ......................... 356,653 259,200

4,358,145 3,340,200

Remuneration Rs. 621,791 is subject to shareholders’ approval.

237


4. Auditors' Remuneration: Year ended Year ended31st March, 31st March,


Audit Fees ...................................................... 400,000 200,000

Other Services ............................................... — 100,000

Reimbursement Expenses/Levies ................. 86,359 26,119

5. Expenditure in Foreign Currency:

Travel ........................................................... 175,842 265,062

Other Expenses ............................................. 1,531,420 777,832

6. Loans and Advances include an amount of Rs. 63,570,058 (previous year Rs.63,570,058), outstanding for more than five years, paid to the land procuringagent towards procurement of land. As there are certain matters that requireresolution, the parties have referred the same to a mutually agreed mediator.The management is of the opinion that the matter is expected to be resolvedsatisfactorily and also considering that the Company has recourse against theagent, it is expected that the amount would be recovered and therefore noprovision for loss, if any, is required to be made.

7. Arrears of dividend and dividend tax on 6% Cumulative Redeemable PreferenceShares outstanding for the period from 01-10-2003 to 31-03-2006 is Rs.110,242,031 (previous year Rs. 66,145,219).

8. The cost of land and related development expenditure is disclosed as work-in-progress as the Company expects to incur further costs on land and infrastructuredevelopment.

9. The Company is in the business of land development for industrial, commercialand residential use. The Company acquires land and incurs expenditure on itsdevelopment and related infrastructure facilities for lease/sale. During the year,the Company has leased 290 (previous year 161) acres of land on long-termbasis.

10. Earnings Per Share:


Profit/(Loss) after preference dividendincluding tax thereon ...................................... (22,697,080) (187,207,449)

Equity Shares (Nos.) ....................................... 20,000,000 20,000,000

Earnings Per Share (Basic/Diluted) ................. (1.13) (9.36)

Nominal Value of Equity Share ....................... 10 10


(a) Names of related parties and nature of relationship where control exists:

Name of theName of the Related Party Relationships

Mahindra & Mahindra Limited Controlling Company

Mahindra Gesco Developers Ltd. Holding Company

Automartindia Ltd. Fellow Subsidiary

Bristlecone Ltd. Fellow Subsidiary

Bristlecone Inc. Fellow Subsidiary

Mahindra Acres Consulting Engineers Ltd. Fellow Subsidiary

Mahindra Ashtech Ltd. Fellow Subsidiary

Mahindra Automotive Steels Pvt. Ltd.(w.e.f. 27th May, 2005) Fellow Subsidiary

Tech Mahindra Ltd. Fellow Subsidiary

Tech Mahindra GmbH Fellow Subsidiary

Tech Mahindra (Americas) Inc. Fellow Subsidiary

Mahindra-BT Investment Company (Mauritius) Ltd.(w.e.f. 9th May, 2005) Fellow Subsidiary

Tech Mahindra (Singapore) Pte. Ltd. Fellow Subsidiary

Tech Mahindra (Thailand) Ltd.(w.e.f. 21st February, 2006) Fellow Subsidiary

Bristlecone India Ltd. Fellow Subsidiary

Bristlecone GmbH Fellow Subsidiary

Bristlecone Singapore Pte. Ltd. Fellow Subsidiary

Mahindra (China) Tractor Company Ltd.(w.e.f. 13th May, 2005) Fellow Subsidiary

Mahindra Engg. & Chem. Products Ltd. Fellow Subsidiary

Mahindra Engineering Design & DevelopmentCompany Ltd. Fellow Subsidiary

Mahindra Europe s.r.l. (w.e.f. 30th May, 2005) Fellow Subsidiary

Mahindra Gujarat Tractor Ltd. Fellow Subsidiary

Mahindra Holdings & Finance Ltd. Fellow Subsidiary

Mahindra Holidays & Resorts India Ltd. Fellow Subsidiary

Mahindra Holidays & Resorts (USA) Inc. Fellow Subsidiary

Mahindra Insurance Brokers Ltd. Fellow Subsidiary

Mahindra Infrastructure Developers Ltd. Fellow Subsidiary

Mahindra Intertrade Ltd. Fellow Subsidiary

Bristlecone UK Ltd. Fellow Subsidiary

Mahindra International Ltd.(w.e.f. 1st November, 2005) Fellow Subsidiary

Mahindra Logisoft Business Solutions Ltd. Fellow Subsidiary

Mahindra Middleeast Electrical SteelService Centre (FZE) Fellow Subsidiary

Mahindra & Mahindra Financial Services Ltd. Fellow Subsidiary

Mahindra & Mahindra South Africa (Pty) Ltd. Fellow Subsidiary

Mahindra Overseas Investment Company(Mauritius) Ltd. Fellow Subsidiary

Mahindra Realty Ltd. (w.e.f. 21st September, 2005) Fellow Subsidiary

Mahindra Renault Pvt. Ltd. (w.e.f. 5th August, 2005) Fellow Subsidiary

Mahindra Steel Service Centre Ltd. Fellow Subsidiary

Mahindra Shubhlabh Services Ltd. Fellow Subsidiary

Mahindra SAR Transmission Pvt. Ltd. Fellow Subsidiary

Mahindra USA Inc. Fellow Subsidiary

Mahindra Ugine Steel Company Ltd.(w.e.f. 21st June, 2005) Fellow Subsidiary

Mahindra World City (Jaipur) Ltd.(w.e.f. 26th August, 2005) Fellow Subsidiary

NBS International Ltd. Fellow Subsidiary

Tech Mahindra (R & D Services) Ltd.(w.e.f. 28th November, 2005) Fellow Subsidiary

Tech Mahindra (R & D Services) Inc.(w.e.f. 28th November, 2005) Fellow Subsidiary

Tech Mahindra (R & D Services) Pte. Ltd.(w.e.f. 28th November, 2005) Fellow Subsidiary

Stokes Group Limited (w.e.f. 3rd January, 2006) Fellow Subsidiary

Jensand Limited (w.e.f. 3rd January, 2006) Fellow Subsidiary

Stokes Forgings Dudley Limited(w.e.f. 3rd January, 2006) Fellow Subsidiary

Stokes Forgings Limited (w.e.f. 3rd January, 2006) Fellow Subsidiary

Plexion Technologies (India) Private Limited(w.e.f. 15th February, 2006) Fellow Subsidiary

Plexion Technologies (UK) Limited(w.e.f. 15th February, 2006) Fellow Subsidiary

Plexion Technologies GmbH(w.e.f. 15th February, 2006) Fellow Subsidiary

Plexion Technologies Incorporated(w.e.f. 15th February, 2006) Fellow Subsidiary

Console Estate & Investment Limited(upto 20th March, 2006) Fellow Subsidiary

Ascendas Mahindra IT Park Private Limited Joint Venture

B.G. Menon Key ManagerialPersonnel

Name of theName of the Related Party Relationships

238


(b) The related party transactions are as under:

Nature of Controlling Holding Fellow Joint KeyTransactions Company Company Subsidiary Venture Managerial

Personnel

1. Income:

— Land Lease Premium 405,622,000 —(—) (88,000,000)

— Water Charges 111,280(—)

2. Deposit Received 3,057,570(—)

3. Investment:

— Mahindra Realty Limited 130,000(—)

— Ascendas Mahindra IT Park Private Limited 2,600,000(—)

4. Other Transactions:

— Professional Charges paid 1,464,664(1,634,486)

— Mahindra Acres Consulting Engineers Limited 3,796,544(1,665,034)

5. Other Expenses 49,205 15,107(51,655) (181,688)

— Mahindra Holidays & Resorts (India) Limited 6,355,080(5,250,881)

— Mahindra Acres Consulting Engineers Limited 676,817(316,324)

— Mahindra Logisoft Business Solutions Limited 76,143(109,397)

— Reimbursement Received 70,885 1,497,958(45,400) (—)

— Mahindra Logisoft Business Solution Limited 43,243(184,601)

6. Outstandings:

— Receivables 25,165 3,418,187(3,485) (28,688,795)

— Payables — Mahindra Holidays & Resorts ((India) Limited 1,816,650(—)

7. Managerial Remuneration 4,358,145(3,340,200)

12. Joint Venture Disclosure:

i) Interest in Joint Venture:

Name of the Company Country of Incorporation Proportion of Ownership Interest

Ascendas Mahindra IT Park Private Limited India 26%

ii) Interest in the assets, liabilities, income and expenses with respect to the Joint Venture.

Year ended31-03-2006

Particulars Rupees

I. a. Net Fixed Assets ................................................................................................................................................... 3,632,143

b. Pre-operative Expenditure ..................................................................................................................................... 127,891

c. Cash and Bank Balances ....................................................................................................................................... 3,105,076

d. Loans and Advances .............................................................................................................................................. 30,420

II. Current Liabilities and Provisions ................................................................................................................................. 4,436,860

III. Expenses ..................................................................................................................................................................... 141,330

13. The name of the Company was changed to Mahindra World City Developers Limited from Mahindra Industrial Park Limited on 30th August, 2005.

239


14. INFORMATION PURSUANT TO PART IV, SCHEDULE VI OF THE COMPANIES ACT, 1956.

BALANCE SHEET ABSTRACT AND COMPANY'S GENERAL BUSINESS PROFILE


Registration No. 1 8 – 3 7 5 5 1 State Code 1 8

Balance Sheet Date 3 1 0 3 2 0 0 6Date Month Year

II. Capital Raised during the year (Amount in Rs. Thousands):

Public Issue Rights IssueN I L N I L



Total Liabilities Total Assets1 5 5 0 8 9 0 1 5 5 0 8 9 0

Sources of Funds:

Paid-up Capital Reserves and Surplus8 5 0 0 0 0 N I L

Secured Loans Unsecured Loans5 3 5 0 0 0 N I L



Net Current Assets Miscellaneous Expenditure9 4 7 1 5 1 N I L

Accumulated Losses3 3 3 5 0 9

IV. Performance of the Company (Amount in Rs. Thousands):

Turnover (including other Income) Total Expenditure8 8 2 4 6 4 8 6 0 6 2 5

Profit/(Loss) before Tax Profit/Loss after Tax2 1 8 3 9 2 1 4 0 0

Earnings Per Share in Rupees Dividend Rate %( 1 . 1 3 ) N I L

L V. Generic Name of Principal Product/Services of the Company (as per Monetary Terms):

Product Description D E V E L O P M E N T O F I N D U S T R I A L P A R K S

ITC Code N I L

15. Previous year's figures have been regrouped/recast, wherever necessary to conform to this year's classification.






}

240



Year ended Year ended31-03-2006 31-03-2005

A. CASH FLOW FROM OPERATING ACTIVITIES:Profit/(Loss) for the year ....................................................................................... 21,839,025 (143,110,636)Adjustments for:Depreciation .......................................................................................................... 1,681,460 1,581,280Interest and Finance Charges ............................................................................... 95,138,150 100,646,209Profit/(Loss) on Sale of Fixed Assets .................................................................... 52,348 —Deferred Revenue Expenditure............................................................................. — 59,424,245Miscellaneous Expenses Written Off ................................................................... — 234,066Interest Income ..................................................................................................... (44,323) (185,177)

Operating Profit before Working Capital Changes ................................................ 118,666,660 18,589,987Changes in:Sundry Debtors ..................................................................................................... 66,439,074 (70,342,634)Loans and Advances ............................................................................................. (2,185,988) 504,470Inventories ............................................................................................................ 450,044,596 181,261,867Current Liabilities .................................................................................................. 54,314,452 (1,831,191)

568,612,134 109,592,512Cash Generated from Operations ......................................................................... 687,278,794 128,182,499Taxes Paid ............................................................................................................. (654,426) (1,110,101)

Net Cash from Operating Activities ...................................................................... 686,624,368 127,072,398

B. CASH FLOW FROM INVESTING ACTIVITIES:Purchase of Fixed Assets ..................................................................................... (16,781,960) (9,256,555)Sale of Fixed Assets ............................................................................................. 331,682 —Purchase of Investments ...................................................................................... (2,730,000) —Interest Received .................................................................................................. 44,323 185,177

Net Cash used in Investing Activities ................................................................... (19,135,955) (9,071,378)

C. CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from Borrowings ................................................................................... 150,000,000 322,500,000Repayment of Borrowings .................................................................................... (747,500,000) (299,310,960)Interest and Finance Charges Paid ....................................................................... (99,477,260) (110,680,835)

NET CASH USED IN FINANCE ACTIVITIES ....................................................... (696,977,260) (87,491,795)

NET INCREASE IN CASH AND CASH EQUIVALENTS (A + B +C) .................... (29,488,847) 30,509,225Opening Balance ................................................................................................... 30,888,301 379,076Closing Balance ..................................................................................................... 1,399,454 30,888,301

As per our Report of even date attached to the Balance Sheet



H.L. Shah

Partner







}

241

MAHINDRA WORLD CITY (JAIPUR) LIMITED

DIRECTORS' REPORT TO THE MEMBERS

Your Directors present their first Report together with theaudited Accounts of the Company for the year ended31st March, 2006.

Operations

During the year under review, your Company has taken preliminarysteps for setting up a Special Economic Zone (SEZ) at Jaipur. TheGovernment of Rajasthan through Rajasthan IndustrialDevelopment and Investment Corporation Limited (RIICO) shallparticipate in the equity of the Company.

The Company has received approval from Ministry of Commerce,Govt. of India, for the development of SEZ for IT and ITES sectorand an in-principle approval for expansion of the same to a multi-product SEZ. The Company is currently in talks with theGovernment of Rajasthan for finalizing various agreements inthis regard.

As the activities of the Company including acquisition of land inSEZ are expected to be step-up in near future, the Companyproposes to increase its capital in tranches at appropriate times,to fund the activities.


Pursuant to Section 217(2AA) of the Companies Act, 1956,your Directors, based on the representations receivedfrom the operating management and after due enquiry,confirm that:


ii) they have, in the selection of the accounting policies,consulted the statutory auditors and these have been appliedconsistently and reasonable and prudent judgments andestimates have been made so as to give a true and fair viewof the state of affairs of the Company as at 31st March, 2006and of the loss of the Company for the year ended onthat date;


iv) the annual accounts have been prepared on a goingconcern basis.

Directors

Mr. Arun Nanda, Mr. Sanjiv Tyagi and Mr. Basant Kumar Jainbeing the first Directors of the Company hold office upto the dateof the forthcoming Annual General Meeting of the Company.

The Company has received notices from a member signifying hisintention to propose Mr. Arun Nanda, Mr. Sanjiv Tyagi andMr. Basant Kumar Jain as candidates for the office of Director.

Auditors

M/s. S. C. Kabra & Co., Chartered Accountants, retire as Auditorsof the Company at the forthcoming Annual General Meeting andhave given their consent for re-appointment. The shareholderswill be required to elect Auditors for the current year and fix theirremuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromM/s. S. C. Kabra & Co., Chartered Accountants, to the effect thattheir re-appointment if made, would be in conformity with thelimits specified in the said section.

Certificate under Section 383 A of the Companies Act, 1956from a Company Secretary in Whole-time Practice

In accordance with the provisions of Section 383A of theCompanies Act, 1956, a certificate issued by M/s. Deepak Arora& Associates, Company Secretary in Whole-time Practice,certifying that the Company has complied with all the provisionsof the Companies Act, 1956 is given in the Annexure and formsa part of this Report.

Public Deposits and Loans/ Advances


The Company has not made any loans/advances, which arerequired to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with theparent companies Mahindra Gesco Developers Limited andMahindra & Mahindra Limited.

Conservation of Energy, Technology Absorption and ForeignExchange Earnings and Outgo

Rules 2A and 2B of the Companies (Disclosure of Particulars inthe Report of Board of Directors) Rules, 1988, concerningconservation of energy and technology absorption respectively,are not applicable to the Company.


Particulars of Employees as required under section 217(2A)of the Companies Act, 1956 and rules made there under

The Company had no employee who was in receipt of remunerationof not less than Rs.24,00,000 during the year ended 31st March,2006 or not less than Rs. 2,00,000 per month during any part ofthe said year.


Arun Nanda


242


COMPLIANCE CERTIFICATE

FORM (SEE RULE – 3)COMPANIES (COMPLIANCE CERTIFICATE) RULE, 2001Registration No. of the Company : 17-021207Nominal Capital : Rs. 2.00 CRORE

To,The MembersMAHINDRA WORLD CITY (JAIPUR) LIMITED, Jaipur.

We have examined the registers, records, books and papers ofMAHINDRA WORLD CITY (JAIPUR) LIMITED (the company), asrequired to be maintained under the Companies Act, 1956 (theAct), and the rules made thereunder and also the provisionscontained in the Memorandum and Articles of Association of theCompany for the financial year ended on 31st March, 2006(financial year). In our opinion and to the best of our informationand according to the examinations carried out by us andexplanations furnished to us by the company, its officers andagents, we certify that in respect of the aforesaid financial year :

1. The company has kept and maintained all registers as statedin ANNEXURE ‘A’ to this certificate, as per the provisions ofthe Act and the rules made there under and all entries thereinhave been duly recorded.

2. The company has duly filed the forms and returns as statedin ANNEXURE ‘B’ to this certificate, with the Registrar ofCompanies.

3. The Company being a public limited company commentsare not required.

4. The Board of Directors duly met 4 times respectively on02.09.2005, 19.12.2005, 06.01.2006, and 07.03.2006 inrespect of which meeting proper notices were given andthe proceeding were properly recorded and signed in theMinutes Books maintained for the purpose.

5. The company has not closed its Register of Members duringthe financial year.

6. The company was incorporated on 26th August 2005 and inthe financial year 2005-2006 no Annual General Meeting washeld.

7. No extra ordinary general meeting was held during thefinancial year.

8. The company has not given any loans and advances to anydirectors or persons or firms or companies referred to undersection 295 of the Act.

9. The company has not entered into any contracts falling withinthe purview of section 297 of the Act.

10. The company has made necessary entries in the registermaintained under section 301 of The Act.

11. The Company has not obtained the necessary approval undersection 314 of the companies act, 1956 as no instances werefalling during the financial year under this section.

12. The company has not issued any duplicate share certificatesduring the financial year.

13. The company has:

i. Not allotted /transmits any security during the financialyear and delivered all the certificate on transfer of sharesduring the financial year.

ii. Not deposited any amount in a separate Bank Accountas no dividend was declared during the financial year.

iii. Not required to post warrants to any member of thecompany as no dividend was declared during thefinancial year.

iv. Not required to transfer any amounts to InvestorEducation and Protection Fund during the financial year.

v. During the financial year company was not required tocomply with the requirements of section 217 of the Act.

14. The Board of directors of the company is duly constituted.And there was no change in Board of Director during thefinancial year.

15. The company has not appointed any Managing Director/Manager/Whole Time Director during the financial year.

16. The company has not appointed any sole selling agentsduring the financial year.

17. The company was not required to obtain any approvals ofthe Central Government, Company Law Board, RegionalDirector, Registrar or such authorities prescribed under thevarious provisions of the Act during the financial year.

18. The directors have disclosed their interest in other firms/companies to the Board of Directors pursuant to theprovisions of the Act and rules made thereunder.

19. The company has not issued any security during the financialyear.

20. The company has not bought back any shares during thefinancial year.

21. Since Incorporation Company has not issued any preferenceshare/debenture, hence para is not applicable.

22. There were no transactions necessitating the company tokeep in abeyance rights to dividend, rights shares and bonusshares pending registration of transfer of shares.

23. The company has not invited/accepted any deposits includingany unsecured loans falling within the purview of section58A during the financial year.

24. The company has not made any borrowings during thefinancial year.

25. The company has not made any investment/loan/guaranteeas per Section 372A of the act during the financial year.

26. The company has not altered the provisions of theMemorandum with respect to situation of the company’sregistered office from one state to another during the yearunder scrutiny.

27. The company has not altered the provisions of theMemorandum with respect to the object of the companyduring the year under scrutiny.

243


28. The company has not altered the provisions of theMemorandum with respect to name of the company duringthe year under scrutiny.

29. The company has not altered the provisions of theMemorandum with respect to share capital of the companyduring the year under scrutiny.

30. The company has not altered its Articles of Association duringthe financial year.

31. There was no prosecution initiated against or show causenotices received by the company and no fines or penaltiesor any other punishment was imposed on the companyduring the financial year, for offences under the Act.

32. The company has not received any money as security fromits employees during the financial year.

33. The provision of section 418 of the act is not applicable oncompany.

For DEEPAK ARORA & ASSOCIATESPracticing Company Secretaries

Date : 12th April, 2006Place : JAIPUR

DEEPAK ARORAPROPRIETORC.P.No. 3641

ANNEXURE ‘A’

Registers as maintained by the Company:Statutory Registers

1. Register of Members u/s 150

2. Minutes Book of Board and General Meetings u/s 193

3. Register of Contracts in which Directors are interested u/s 301

4. Register of Directors/Managing Director/Whole time director/Secretaries u/s 303

5. Register of Director’s Shareholding u/s 307

6. Register of Share Transfer

ANNEXURE ‘B’

Forms and Returns as filed by the Company with Registrar of Companies during the financial year ending 31st March 2006

S.No. Form No. Filed under For Date of Filling Whether filed If delay in filing whetherReturns section within prescribed requisite additional

time fee paid

1. Memorandumof Association 33 25.08.2005 25.08.2005 Yes NA

2. Articles ofAssociation 33 25.08.2005 25.08.2005 Yes NA

3. Form No 1 33 25.08.2005 25.08.2005 Yes NA

4. Form No 32 303 25.08.2005 25.08.2005 Yes NA

5. Form No 18 146 25.08.2005 25.08.2005 Yes NA

6. Form No 29 264 25.08.2005 25.08.2005 Yes NA

7. Form No 29 264 25.08.2005 25.08.2005 Yes NA

8. Form No 29 264 25.08.2005 25.08.2005 Yes NA

9. Form No 20 149 14.11.2005 14.11.2005 Yes NA

10. Schedule III 149 14.11.2005 14.11.2005 Yes NA

11. Form No 22 165 06.01.2006 06.01.2006 Yes NA

244


1. We have audited the attached Balance Sheet of M/s Mahindra World City(Jaipur) Limited., as at 31st March, 2006 and also the Profit & Loss Account forthe year ended on that date annexed thereto. These financial statements are theresposibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on out audit.

2. We conducted our audit in accordance with auditing standards generallyaccepted in India. Those Standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statement. An audit alsoincludes assessing the accounting priciples used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for ouropinion.

3. As required by the Companies (Auditor's Report Order, 2003 (as amended)issued by the Central Government of India in terms of sub-section (4A) ofSection 227 of the Companies Act, 1956, and on the basis of such checks as weconsidered appropriate and according to the information and explanations givento us, we enclose in the Annexure a statement on the matters specified inparagraphs 4 and 5 of the said Order.

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

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

ii. In our opinion, proper books of accounts as required by law have been keptby the Company so far as appears from our examination of those books andproper returns adequate for the purpose of our audit, have been receivedfrom the branches/depots not visited by us. The report on the account ofbrach audited by other auditor has been forwarded to us and has beenappropriately dealt by us in preparing our report.

AUDITORS REPORTToTHE MEMBERS OF M/S. MAHINDRA WORLD CITY (JAIPUR) LIMITED

iii. The Balance Sheet and Profit and Loss account dealt with by this report arein agreement with the books of account and with the returns from thebranches/depots.

iv. In our opinion, the Balance Sheet and Profit and Loss Account dealt withby this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

v. On the basis of written representations received from the directors as on31st March, 2006 and taken on record by the Board of Directors, we reportthat none of the directors is disqualified as on 31st March 2006, from beingappointed as directors in terms of clause (g) of Sub-section (1) of Section274 of the Companies Act, 1956.

vi. In our opinion and to the best of our information and according to theexplanations given to us, the said accounts read together with notesthereon give the information required by the Companies Act, 1956, in themanner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India;

a) In the case of the Balance Sheet, of the state of affairs of the Companyas at 31st March, 2006.

b) In the case of the Profit and Loss account, of the loss of the Companyfor the period ended on that date; and

c) In the case of Cash Flow Statement, of the cash flows of the Companyfor the period ended on that date.

For S.C. KABRA & CO.Chartered Accountants

NILESH CHOUDHARYPartnerMembership No. - 116144

Place: MumbaiDated: 12th April, 2006

245


ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATEOF THE SHAREHOLDERS

i a. The Company has maintained proper records showing full particulars,including quantitative details and situation of fixed assets..

b. We are informed that the Company has formulated a regular program ofphysical verification of all fixed assets, which in our opinion is reasonablehaving regard to the size of the Company and nature of its assets.Accordingly, the physical verification of the fixed assets has been carriedout by management during the year and no material discrepancies werenoticed on such verification.

c. There was no substantial disposal of fixed assets during the year.

ii. a. As explained to us inventories (except stock lying with third parties,confirmation for which has been obtained and in transit were physicallyverified during the year by the management at reasonable intervals.

b. In our opinion and according to the information and explanations given tous, the procedures of physical verification of inventory followed by themanagement are reasonable and adequate in relation to the size of theCompany and the nature of its business.

c. In our opinion and according to the information and explanation given to us,the Company is maintaining proper records of inventory and no materialdiscrepancies were noticed on physical verification.

iii. a. The company has not granted any loan, secured or unsecured to companiesfirms or other parties covered in the register maintained under section 301of the Companies Act, 1956 Accordingly, sub-clause (b), (c) and (d) are notapplicable.

b. The company has not taken any loan, secured or unsecured from companies,firms or other parties covered in the register maintained under section 301of the Companies Act, 1956. Accordingly, sub-clause (f) and (g) are notapplicable.

iv. In our opinion and according to the information and explanation given to us, thereis adequate internal control system commensurate with the size of the Companyand the nature of its business, for the purchase of inventory and fixed assets andfor the sale of goods and services. During the course of our audit, no majorweakness has been noticed in internal control system.

v. In our opinion and according to the information and explanations provided by themanagement, we are of the opinion that the particulars of contract orarrangements that need to be entered into the register maintained under section301 of the Companies Act' 1956 have been so entered.

vi. In our opinion and according to the information and explanations given to us, theCompany has complied with the directives issued by the Reserve Bank of Indiaand provisions of section 58A and 58AA of the Companies Act, 1956 and rulesframed there under with regard to the deposits accepted from the public.

vii. In our opinion, the Company has an internal audit system commensurate withthe size and nature of its business.

viii. We have broadly reviewed the books of accounts maintained by the Companypursuant to the rules made by the Central Government for the maintenance ofcost records under section 209(1) (d) of the Companies Act, 1956 and are of theopinion that prime facie the prescribed accounts and records have been madeand maintained.

ix. According to the records of the Company, the Company is generally regular indepositing undisputed statutory dues including provident fund, investor educationand protection fund, employees state insurance, income tax, sales tax, service

tax wealth tax, custom duty, excise duty, cess and other statutory duesapplicable to it with appropriate authorities. There is no undisputed outstandingstatutory dues as at the year end for a period of more than six months from thedate they become payable.

x. The Company has accumulated losses at the end of the financial year and it hasincurred cash losses in the current financial year.

xi. Based on our audit procedures and on the information and explanations givenby the management we are of the opinion that the company has not defaultedin repayment of dues to financial institutions and banks. We have been informedthat the Company has not issued any debenture during the year.

xii. According to the information and explanations given to us and based on thedocuments and records produced to us, the Company has not granted loans andadvances on the basis of security by way of pledge of shares, debentures andother securities.

xiii. In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society, therefore, the provisions of clause 4 (xiii) of the Companies (Auditor'sReport) order, 2003 (as amended), are not applicable to the Company.

xiv. The Company does not deal or trade in shares, securities, debentures and othersecurities except that it has investments of long term nature in shares/bondsand these are held in the name of the Company.

xv. According to the information and explanations given to us, the Company has notgiven corporate guarantees for loans taken by others from banks of financialinstitutions. Accordingly, clause 4 (xv) of the order is not applicable.

xvi. To the best of our knowledge and belief and according to the information andexplanations given to us, term loans availed by the Company were, prima facie,applied by the Company during the year for the purpose for which loans wereobtained.

xvii. According to the information and explanation given to us, on an overall basis,funds raised on short term basis have, prima facie, not been used during the yearfor long term investments.

xviii The Company has not made any preferential allotment of shares to parties orcompanies covered in the register maintained under section 301 of theCompanies Act, 1956.

xix. The Company did not have any outstanding debentures during the year. Hence,question of creation of security or charge does not arise.

xx. The Company has not raised any money through a public issue during the year.

xxi. Based on our examination of the books and records of the Company, carried outin accordance with the generally accepted auditing practices in India andaccording to the information and explanations given to us, no fraud on or by theCompany, noticed or reported during the year.

For S.C. KABRA & CO.Chartered Accountants

NILESH CHOUDHARYPartnerMembership No. - 116144

Place: MumbaiDated: 12th April, 2006

246


BALANCE SHEET AS AT 31ST MARCH, 2006

Schedule Rupees Rupees


Shareholders’ Funds

Capital ............................................................................... 1 5,000,000

TOTAL............. 5,000,0000


Fixed Assets ..................................................................... 2

Gross Block ...................................................................... 54,000

Less: Depreciation ............................................................ 473 53,527

Deferred Tax Asset (note 5) ........................................... —

Current Assets, Loans And Advances ...........................

Inventories ........................................................................ 3 7,495,208

Cash and Bank Balances .................................................. 4 1,716,180

Loans and Advances ........................................................ 5 1,3599,212,747

Less: Current Liabilities And Provisions

Liabilities ........................................................................... 6 4,419,894

Provisions ......................................................................... 7 13,000

4,432,894

Net Current Assets ......................................................... 4,779,853

Miscellaneous Expenditure .............................................. 8 143,155

(to the extent not written off or adjusted) ........................

Profit and Loss Account ................................................. 23,465TOTAL............. 5,000,000

Notes on Accounts 9

For and on behalf of the board

Basant Jain Arun NandaDirector Chairman



For S. C. Kabra & Co.


Nilesh Choudhary

Partner


247


PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 26TH AUGUST 2005 TO 31ST MARCH 2006


INCOME 6,055Interest - gross (includes tax deducted at source: Rs. 1359) .....

.............................................................................................. 6,055

EXPENDITURE

Salaries and Allowances ........................................................ 163,050

Travelling Expenses ............................................................... 154,498

Professional Fees .................................................................. 6,960,494

Advertisement ....................................................................... 150,000

Telephone Expenses ............................................................. 8,600

Miscellaneous Expenses....................................................... 17,192

Depreciation .......................................................................... 473

Preliminary Expenses written off during the period .............. 40,901............................................................................................................................................................................................ 7,495,208

Less: 7,495,208

Transferred tp Work in Progress (note 1 (e) .......................... —

Auditor's Remuneration ..........................................................Audit Fees (inclusive of Service Tax) ..................................... 11,020other services ........................................................................ 5,500

...................................................................................... Total 16,520

(Loss) before taxation ............................................................ (10,465)

Less: Provision for taxation

Current Tax ............................................................................ —Deferred Tax (note 5) ............................................................. —Fringe Benefit Tax ................................................................. (13,000) (13,000)

Balance carried to Balance Sheet ........................................... (23,465)

Earnings per share - Basic and Diluted .................................. (0.05)

Notes to Accounts ..................................................................... 9







Nilesh Choudhary

Partner


248


CASH FLOW FOR THE PERIOD ENDED MARCH 31, 2006

RupeesA. Cash Flow from Operating Activities

Net Profit / (Loss) before Tax .............................................................................. (10,465)

Adjustments for :

Depreciation ....................................................................................................... 473

Interest Income .................................................................................................. (6,055)

Preliminary Expenditure ..................................................................................... (143,155)

Operating Loss before working capital changes ................................................ (159,202)

Adjustments for :

Trade and other Receivables .............................................................................. (1,359)

Inventories .......................................................................................................... (7,495,208)

Trade Payables and Other Liabilities ................................................................... 4,419,894

Net Cash from operating activities ................................................................. (3,235,875)

B. Cash Flow from investing activities

Purchase of Fixed Assets ................................................................................... (54,000)

Interest recieved ................................................................................................ 6,055

Net Cash (Used in) / from investing activities ............................................... (47,945)

C. Cash Flow from financing activities

Issue of share capital ......................................................................................... 5,000,000

Net cash used in Financing activities ............................................................. 5,000,000

Net Increase / (Decrease) in cash and cash equivalents ............................... 1,716,180

Cash and Cash equivalents (Opening) .......................................................... —

Cash and Cash equivalents (Closing) ............................................................. 1,716,180




Nilesh Choudhary

Partner





249


SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31ST MARCH 2006 AND

PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 26TH AUGUST 2005 TO 31ST MARCH, 2006.SCHEDULE 1

SHARE CAPITAL:Rupees

Authorised500,000 Equity shares of Rs.10/- each ................. 5,000,000

Issued, Subscribed and Paid-up500,000 equity shares of Rs. 10 each fully paid up. 5,000,0000(The entire share capital is held by Mahindra GescoDevelopers Ltd., the holding company)

TOTAL ..... 5,000,000

SCHEDULE 3:

INVENTORIES Rupees

Work in ProgressProject-related Expenditure inventorised during the period 7,495,208

TOTAL ..... 7,495,208

SCHEDULE 4:

CASH & BANK BALANCESBalance with a scheduled bank on current account 1,716,180

TOTAL ..... 1,716,180

SCHEDULE 5: LOANS AND ADVANCES Rupees

(Unsecured, considered good)Tax Deducted at Source ........................................ 1,359

TOTAL ..... 1,359

SCHEDULE 6: CURRENT LIABILITIESSundry Creditors 4,138,688Other Liabilities 281,206

TOTAL ..... 4,419,894

SCHEDULE 7: PROVISIONS Rupees

Provision for Fringe Benefit Tax 13,000

TOTAL ..... 13,000

SCHEDULE 8: MISCELLANOUS EXPENDITURE(to the extent not written off or adjusted)Preliminary expenses 184,056Less : Written off during the period 40,901

TOTAL ..... 143,155

SCHEDULE 2Fixed Assets : (In Rupees)(In Rupees)(In Rupees)(In Rupees)(In Rupees)

GROSS BLOCK DEPRECIATION NET BLOCKDescription of Assets As at Addition Deductions As at Upto For the Adjustments Upto As at As at

01/04/2005 during during 31/03/2006 01/04/2005 Period forforforforfor 31/03/200631/03/200631/03/200631/03/200631/03/2006 31/03/2006 31/03/2006 31/03/2006 31/03/2006 31/03/2006 31/03/20031/03/20031/03/20031/03/20031/03/20055555the yearthe yearthe yearthe yearthe year the yearthe yearthe yearthe yearthe year deductionsdeductionsdeductionsdeductionsdeductions

Computers — 54,000 — 54,000 — 473 — 473 53,527 —

Total — 54,000 — 54,000 — 473 — 473 53,527 —

NOTES TO ACCOUNTS FOR THE PERIOD ENDED 31ST MARCH, 2006.SCHEDULE 9

1. Significant accounting policies

a. Basis for Accountings:

The accounts have been prepared to comply in all material aspects relatingto the applicable accounting principles in India, the Accounting Standardsissued by the Institute of Chartered Accountants of India and relevantprovisions of the Companies Act, 1956.

b. Fixed Assets:

Fixed Assets are stated at cost less depreciation. Cost of acquisition isinclusive of purchase price, levies any incidental expenditure and anydirectly attributable costs of bringing the asset to its working condition forits intended use and interest in case of construction.

c. Depreciation

Depreciation is provided on the manner and at rates prescribed in ScheduleXIV of the Companies Act, 1956 on straight-line method.

d. Investments :

The Company is in the bussiness of land development for industrial,commercial and residential use ("the project"). Work in progress is valuedat cost or net realisable value (whichever is lower) and includes the cost ofland and all expenditure incurred in connection with, or attributable to theProject, and being a long-term project includes interest.

e. Miscellaneous Expenditure (to the extent not written off or adjusted)

Preliminary expenses i.e. formation expenses, registration fess, etc.incurred for formation of enterprise are carried forward to be appropriatelywritten off over a period of thirty six months starting from the month inwhich the company was incorporated.

f. Income Taxes :

Current tax is determined as the amount of tax payable in respect of taxableincome for the year. Deferred tax is recognised, subject to considerationof prudence, on timing differences, being the difference between taxableincome and accounting income that originate in one period and are capableof reversal in one or more subsequent periods. Deferred tax assets arerecognised only to the extent that there is virtual certainty or reasonablecertainty, as the case may be supported by convincing evidence thatsufficient future tax income will be available against which such deferredtax assets can be realised.

g. Segment Report :

The Company has a single reportable segment, namely, lease of land.

2. The identification of suppliers as small-scale industrial undertakings has beendone on the basis of information provided by the suppliers to the Company. Onthis basis, there are no small-scale industrial undertakings to whom the Companyowes any amount.

3. The following disclosures are made as required in pursuance of the AccountingStandard 18 "Related Party Disclosures" issued by the Institute of CharteredAccountants of India and which became effective from 1st April, 2004

(a) List of Related Parties & Relationships

Enterprises Controlling the Company

Mahindra & Mahindra Limited Ultimate Controlling CompanyMahindra Gesco Developers Limited Holding Company with

100% share holding -Controlling Interest

250


Fellow Subsidiaries

Tech Mahindra Limited (formerly known as Mahindra-British Telecom Ltd.)Mahindra Logisoft Business Solutions LimitedAutomartindia LimitedMahindra USA Inc.Bristlecone (UK) LimitedMahindra (Gujarat Tractor LimitedMahindra Shublabh Services LimitedMahindra Insurance Brokers LimitedMahindra World City Developers Ltd.(formerly known as Mahindra Industrial Park Limited )Mahindra Infrastructure Developers LimitedMahindra Europe s.r.l. (with effect from 30th May, 2005)Bristlecone Limited, Cayman IslandsBristlecone Inc.Mahindra Middleeast Electrical Steel Service Centre (FZC)Mahindra & Mahindra South Africa (Pty) LimitedMahindra International Ltd. (with effect from 1st November 2005)Stokes Group Limited (with effect from 3rd January 2006)Plexion Technologies (India) Pvt. Ltd (with effect from 15th February 2006)Jensand Limited (with effect from 3rd January 2006)Stokes Forgings Limited (with effect from 3rd January 2006)Stokes Forgings Dudley Limited (with effect from 3rd January 2006)Plexion Technologies (UK) Limited (with effect from 15th February 2006)Plexion Technologies GmbH, Germany (with effect from 15th February 2006)Plexion Technologies Incorporated USA (with effect from 15th February 2006)Mahindra Engineering & Chemical Products LimitedMahindra and Mahindra Financial Services LimitedMahindra Intertrade LimitedMahindra Steel Service Centre LimitedMahindra Holdings & Finance LimitedMahindra Acress Consulting Engineers LimitedMahindra Ashtech LimitedMahindra Holidays & Resorts Inida LimitedNBS International LimitedMahindra World City Maharashtra Limited (with effect from 21st September 2005)(formerly Mahindra Realty Limited)Mahindra Automotives Steels Pvt. Ltd. (with effect from 2nd June 2005)Mahindra Renault Pvt. Ltd. (with effect from 5th August 2005)Mahindra Holidays & Resorts U.S.A. Inc.Bristlecone India LimitedTech Mahindra GmbH (formerly known as MBT GmbH)Mahindra Singapore (Pte.) Limited(formerly known as MBT Software Technologies Pte. Ltd.)Tech Mahindra (R&D Services) Ltd. (with effect from 28th November 2005)Tech Mahindra (R&D Services) Inc. (with effect from 28th November 2005)Tech Mahindra (R&D Services) Pte. Ltd. (with effect from 28th November 2005)Tech Mahindra (Thailand) Limited (with effect from 21st February 2006)

Tech Mahindra Foundation (with effect from 22nd March 2006)Bristlecone (Singapore) Pte. Ltd.Bristlecone GmbHMahindra Ugine Steel Company Ltd. (with effect from 21st June 2005)Console Estate & Investment Limited (Ceased with effect from 20thMarch 06)Tech Mahindra (Americas) Inc. (formerly known as MBT International Inc.)Mahindra Engineering Design & Development Company Ltd.Mahindra Overseas Investment Company (Mauritius) LimitedMahindra (China) Tractor Company Limited (with effect from 13th May 2005)Mahindra SAR Transmission Pvt. LimitedMahindra BT Investment Company (Mauritius) Limited (with effect from 9thMay 2005)

The Significant related party transactions are as under :

Nature of Transaction Enterprises Controlling the CompanyMahindra Gesco Developers Limited

Finance Received - Share Capital 5,000,000Payables 1,196,436

4. The Company was incorporated on 28th August 2005 and this being the firstaccounting period of the company, the requirement for the previous period is notapplicable.

5 The Company recognises deferred tax assets only to the extent of timingdifferences relating to the diffference between the book and tax depreciation.However, In line with the AS 22, the Company has not recognized the deferredtax asset net of deferred tax liability of Rs 3,522 on principles of prudence.

The component of Deferred Tax Assets (DTA) / Deferred Tax Liabilities (DTL)as at 31st March 2006 are as follows :

Deferred Tax Assets Rupees

Relating to unabsorbed losses 3,363Relating to unabsorbed depreciation 5,453

DTA (a) 8,816

Deferred Tax LiabilityRelating to the differences between the taxes on book and tax depreciation DTL (b) 5,294

Deferred Tax Asset (Net) (a-b) 3,522

6. The computation of "Earnings Per Share" in line with the Accounting Standard20 issued by the Institute of Chartered Accountants of India is as under :

Net Profit / (Loss) after tax (Rs.) (23,465)(availbale for equity shareholders)Weighted Average number of Equiry Shares (nos) 500,000Basic and Diluted Earning per Share (Rs) (0.05)

251


SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31ST MARCH, 2006 AND

PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 26TH AUGUST 2005 TO 31ST MARCH, 2006.7 The additional information pursuant to the provisions of Part IV of Schedule VI of the Companies Act, 1956 is as under

Balance Sheet Abstract and Company’s General Business Profile.

I. Registration Details

Registration No. State Code :

Balance Sheet Date

II. Capital raised during the year at Face Value (Amount in Rs. Thousand)

Public Issue Right Issue


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

Total Liabilities including Shareholders Funds Total Assets

Sources of Funds :






Accumulated Losses

IV. Performance of Company (Amount in Rs. Thousand)

Turnover (Sales and Other Income) Total Expenditure

+ – Loss Before Tax + – Loss After Tax

Earning per Share in Rupees Dividend Rate %

1 7 – 0 2 1 2 0 7 1 7

3 1 0 3 0 6

Date Month Year

N I L

N I L

5 0 0 0

5 0 0 0

—

5 4

4 7 8 0

2 3

6

– 1 0

N I L

5 0 0 0

5 0 0 0

—

—

—

1 4 3

1 6

– 2 3

– 0 . 0 5 N I L

252


V. Generic Names of Three Principal / Services of the Company(as per monetary items):

(ITC Code)

Product Description D E V E L O P M E N T O F S E Z S

N. A.

Signatories to Schedules 1 to 9




253

MAHINDRA WORLDCITY (MAHARASHTRA) LIMITED(Formerly Mahindra Realty Limited)

DIRECTORS’ REPORT TO THE MEMBERS

Your Directors present their first Report together with the auditedAccounts of the Company for the year ended 31st March, 2006.

Operations

During the year under review, your Company has initiated thepreliminary steps for setting up Special Economic Zone (SEZ) atKarla, near Pune. The Government of Maharashtra throughMaharashtra Industrial Development Corporation Limited (MIDC)shall participate in the equity of the Company.

The Company has received in principle approval from Ministry ofCommerce, Govt. of India, for the multi-product SEZ. The Companyis currently in talks with the Government of Maharashtra forfinalizing various agreements in this regard.

Change of Name

In line with your Company’s business and activities, the name ofyour Company was changed from Mahindra Realty Limited toMahindra World City (Maharashtra) Limited.


Pursuant to section 217(2AA) of the Companies Act, 1956, yourDirectors, based on the representations received from theOperating Management and after due enquiry, confirm that:


ii) they have, in the selection of the accounting policies,consulted the statutory auditors and these have been appliedconsistently and reasonable and prudent judgments andestimates have been made so as to give a true and fairview of the state of affairs of the Company as at 31st March,2006 and of the loss of the Company for the year ended onthat date;


iv) the annual accounts have been prepared on a goingconcern basis.

Directors

Mr. Pranab Kumar Datta, Mr. S. Krishnan and Mr. B. G. Menonbeing the first Directors of the Company hold office upto thedate of the forthcoming Annual General Meeting of the Company.

Mr. Basant Kumar Jain was appointed as an Additional Directorat the meeting of the Board of Directors of the Company heldon 14th February, 2006. Mr. Basant Kumar Jain holds office onlyupto the date of the forthcoming Annual General Meeting ofthe Company.

The Company has received notices from a member signifyinghis intention to propose Mr. Pranab Kumar Datta, Mr. S. Krishnan,Mr. B. G. Menon and Mr. Basant Kumar Jain as candidates forthe office of Director.

Auditors

M/s. R. Jaitlia & Co., Chartered Accountants, retire as Auditorsof the Company at the forthcoming Annual General Meeting andhave given their consent for re-appointment. The shareholderswill be required to elect Auditors for the current year and fix theirremuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromM/s. R. Jaitlia & Co., Chartered Accountants, to the effect thattheir re-appointment if made, would be in conformity with thelimits specified in the said section.

Public Deposits and Loans/ Advances


The Company has not made any loans/advances, which arerequired to be disclosed in the annual accounts of the Companypursuant to Clause 32 of the Listing Agreement with theparent companies Mahindra Gesco Developers Limited andMahindra & Mahindra Limited.

Conservation of Energy, Technology Absorption and ForeignExchange Earnings and Outgo

Rules 2A and 2B of the Companies (Disclosure of Particulars inthe Report of Board of Directors) Rules, 1988, concerningconservation of energy and technology absorption respectively,are not applicable to the Company.


Particulars of Employees as required under section 217(2A)of the Companies Act, 1956 and rules made there under

The Company had no employee who was in receipt of remunerationof not less than Rs.24,00,000 during the year ended 31st March,2006 or not less than Rs. 2,00,000 per month during any part ofthe said year.


Pranab Kumar Datta

Chairman

Mumbai, 21st April, 2006.

254


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AUDITORS REPORT

To The Members of Mahindra World City Maharashtra Limited

(Formerly Mahindra Realty Limited)

255


Annexure to the Auditor's Report

Annexure referred to the Auditor's Report of even date on theAccounts of Mahidra Realty Limited for the year ended31

st March, 2006

1. The Company has does not have any fixed assets.

2. As the company does not have any inventory clause 4 (ii)(a) to(ii)(c) (iv) to the extent relatable to inventory and sale of goods,and clause 4(viii) are not applicable to the company.

3. The Company has not granted nor taken any loans, securedor unsecured from companies, firms or other parties listed inthe Register maintained under section 301 of the CompaniesAct, 1956. As the company has not grnated/taken any loans,secured or unsecured to/form parties listed in the registermaintained under section 301 of the Companies Act, 1956,paragraph 4(iii)(b), 4(iii)(c), 4(iii)(d) of the Order are not applicable.

4. In our opinion and according to the information and explanationsgiven to us, there are adequate internal control procedurescommensurate with the size of the Company and the natureof its business for the purchases of fixed assets held fordisposal.

5. According to the information and explanations provided bythe management, we are of the opinion that there are notransactions entered into during the year that need to beentered into the register maintained under that section 301ofthe Companies Act, 1956.

6. In our opinion and according to the information and explanationsgiven to us, there are no transactions made during the year inpursuance of contracts or arrangements entered in the Registermaintained under section 301 and exceeding the value of fivelakhs rupees in respect of any party during the year.Accordingly, the requirement of this caluse whethertransactions have been made at a price which are reasonablehaving regard to prevailing market prices at the relevant time,is not applicable.

7. In our opinion and according to the information and explanationsgiven to us, the Company has not accepted any deposits fromthe public to which the provisions of sections 58A and 58AAof the Companies Act, 1956 and the Companies (Acceptanceof Deposits) Rules, 1975 are applicable and no order under theaforesaid section has been passed by the Company LawBoard on the company.

8. According to the information and explanations given to us, inour opinion neither the paid-up capital and reserves of thecompany exceeded Rs. 50 lakhs as at the commencement ofthe financial year nor its average annual turnover exceededRs. 5 Crores for a period of three consecutive financial yearsimmediately preceding the financial year concerned, therefore,the requirements of clause 4(vii) of the Order relating tointernal audit system are not applicable to the Company.

9. According to the information and explanation given to us andthe records of the Company, there are no transactions madeby the company during the year which required it to depositundisputed statutory dues including provident fund, investoreducation and Protection Fund , ESIC, income-tax, sales tax,wealth-tax, custom duty, excise duty, cess and any otherstatutory dues with the appropriate authorities and therefore,the requirements of this clause are not applicable to theCompany.

10. According to the information and expanation given to us andthe records of the company, there are no dues of sales tax,income-tax, custom tax, wealth-tax, excise duty / cess whichhave not been deposited on account of any dispute.

11. The accumulated losses of the Company at the end of thefinancial year are less than fifty percent of its net worth. Thecompany has incurred cash losses in the current financialyear.

12. As the Company has neither taken any loan from financialinstitution or bank nor has it issued debentures, thereof, therequirement of clause 4(xi) of the Order concerning default inrepayments of dues does not applicable.

13. Based on our examination of documents and records, theCompany has not granted any loans and advances on thebasis of security by way of pledge of shares, debentures andother securities and therefore, the requirements of clause 4(xii) of the Order are not applicable.

14. In our opinion, the company is not a chit fund or a nidhi mutualbenefit/society. Therefore, the provisions of clause 4 (xiii) ofthe Order, 2003 are not applicable to the company.

15. In our opinion, the company is not a dealing in or trading inshares, securities, debentures and other investments.Accordingly, the provisions of clause 4 (xiv) of the Order, 2003are not applicable to the company.

16. According to the information and explanations given to us andthe company has not given any gurantee for loans taken byothers company from banks or financial institutions. Thereforethe provisions of clause 4 (xv) of the Order 2003 are notapplicable to the company.

17. As the company has not taken any term loan, the requirementswhether the term loan were applied for the purpose for whichthe loans were obtained, of clause 4 (xvi) of the Order are notapplicable.

18. Based on the information and explanations given to us and onan overall examination of the balance sheet of the company,in our opinion, there are no funds raised on a short term basiswhich have been used for long term investment. and viceversa.

19. The Company has not made any preferential allotment ofshares to parties and companies covered in the Register

256


maintained under section 301 of the Companies Act, 1956during the year. Therefore, the provision of clause 4(xviii) ofthe Order, 2003 relating to the price at which shares havebeen issued is prejudicial to the interest of the company, is notapplicable to the company.

20. During the period covered by our audit report, the companyhas not issued any debentures. Consequently, the questionof creating any security in respect of debentures doesnot arise.

21. The company has not made any public issue and therefore therequirements as to disclose the end use of money raised bypublic issue in the financial statements does not arise.

22. Based upon the audit procedures performed and informationand explanations given by the management, we report that nofraud on or by the company has been noticed or reportedduring the course of our audit.

For R. Jaitlia & Co


Mukesh Maheshwari

PartnerMembership No. 49818

Mumbai, 21st April 2006

257


BALANCE SHEET AS AT 31ST MARCH, 2006



SHAREHOLDERS’ FUNDS

Capital ....................................................................... 1 500,000

TOTAL.TOTAL............. 500,000


Deferred Tax Asset (note 5)CURRENT ASSETS, LOANS AND ADVANCES .............

Cash and Bank Balances ........................................... 2 381,686

Loans and Advances ................................................. 3 44,898.................................................................................................................................................................... 426,584..................................................................................

Less: CURRENT LIABILITIES AND PROVISIONS..........

Liabilities ................................................................... 4 5,510

.................................................................................. 5,510..................................................................................NET CURRENT ASSETS ................................................. 421,074Miscellaneous Expenditure ........................................... 5 39,932(to the extent not written off or adjusted

Profit and Loss Account ...................................................

Debit Balance per account annexed ......................... 38,994TOTAL............. 500,000

NOTES ON ACCOUNTS 6

For and behalf of the Board

S. Krishnan

Basant JainDirectors

Mumbai, 21st April, 2006


R. Jaitlia & Co.


Mukesh Maheshwari

PartnerM. No. 49818


}

258


PROFIT AND LOSS ACCOUNT FOR THE PERIOD 21ST SEPTEMBER 2005 TO 31ST MARCH, 2006


INCOME

Interest – 3��/�� #�� ==0 �� 7,915

TOTAL............. 7,915

EXPENDITURE

Professional Fees .................................................................. 13,700

Printing & Stationery ............................................................. 4,836

Rates and Taxes .................................................................... 5,350

Preliminary Expenses written off during the period .............. 9,639

Auditor's Remuneration

for Audit Fees ........................................................................ 5,510

for other services .................................................................. 5,510 11,020

Other expenses ..................................................................... 2,365

TOTAL............. 46,910

LOSS BEFORE TAXATION �� (38,994)

Less: Provision for taxation :

Current Tax ............................................................................ —

Deferred Tax (note 5) ............................................................. —

Fringe Benefit tax .................................................................. —

—

BALANCE CARRIED TO BALANCE SHEET (38,994)

Earning Per Share-Basic and diluted (0.78)

NOTES ON ACCOUNTS �� 6

For and behalf of the Board

S. Krishnan




R. Jaitlia & Co.


Mukesh Maheshwari

PartnerM. No. 49818


}

259


SCHEDULE 6

NOTES TO ACCOUNTS FOR THE PERIOD ENDED 31NOTES TO ACCOUNTS FOR THE PERIOD ENDED 31NOTES TO ACCOUNTS FOR THE PERIOD ENDED 31NOTES TO ACCOUNTS FOR THE PERIOD ENDED 31NOTES TO ACCOUNTS FOR THE PERIOD ENDED 31ststststst MARCH 2006 MARCH 2006 MARCH 2006 MARCH 2006 MARCH 20061. Significant accounting policies :a) Basis of Accounting :

The accounts have been prepared to comply with all material aspects relating to theapplicable accounting principles in India, the accounting standards issued by theInstitute of Chartered Accountants of India and relevant provisions of the CompaniesAct 1956.

b) Miscellaneous Expenditure (to the extent not written off or adjusted) :

Preliminary expenses i.e. formation expenses, registration fees, etc. incurred forformation of enterprise are carried forward to be appropriately written off over aperiod of thirty six months starting from the month in which the company wasincorporated.

c) Income Taxes:

Current tax is determined as the amount of tax payable in respect of taxable incomefor the year. Deferred tax is recognised, subject to consideration of prudence, ontiming differences, being the difference between taxable income and accountingincome that originate in one period and are capable of reversal in one or moresubsequent periods. Deferred tax assets are recognised only to the extent thatthere is virtual certainty or reasonable certainty, as the case may be, supported byconvincing evidence that sufficient future tax income will be available against whichsuch deferred tax assets can be realised:

d) Segment reporting :The Company has a single reportable segment namely, lease of land.

2.2.2.2.2. The identification of suppliers as small-scale industrial undertakings has been done onthe basis of information provided by the suppliers to the Company. On this basis, thereare no small-scale industrial undertakings to whom the Company owes any amount.

3. The folloing disclosures are made as required in pursuance of the AccountingStandard 18 "Related Party Disclosures" issued by the Institute of CharteredAccountants of India and which became effective from 1st April, 2004:

List of related parties:

Enterprises Controlling the Company

Mahindra & Mahindra Limited Ultimate Controlling CompanyMahindra Gesco Developers Limited Holding Company with 74%

shareholding - Controlling Interest


SCHEDULE 1

SHARE CAPITAL: RupeesAuthorised

50,000 Equity shares of Rs.10/- each .................................. 500,000

Issued,Subscribed and Paid-up50,000 Equity Shares of Rs. 10/- each fully paid up. .......... 500,000

[out of the above 37000 shares are held by MGDL,the holding company]

................................................. Total .................. 500,000

SCHEDULE 2

CASH & BANK BALANCES

Balance with a scheduled bank on current account. ........... 381,686

Total .............. 381,686

SCHEDULE 3

LOANS AND ADVANCES(Unsecured, Considered Good)

Loans and Advances .................................................................. 43,510Tax deducted at source .............................................................. 1,388

Total .............. 44,898

SCHEDULE 4

LIABILITIES

Sundry Creditors ........................................................................ 5,510

Total .............. 5,510

SCHEDULE 5

MISCELLANOUS EXPENDITURE(to the extent not written off or adjusted)

Preliminary expenses ................................................................. 49,571Less: Written off during the period ............................................ 9,639

Total .............. 39,932

Fellow Subsidiaries:Fellow Subsidiaries:Fellow Subsidiaries:Fellow Subsidiaries:Fellow Subsidiaries:Tech Mahindra Limited (formerly Mahindra Engineering & Chemicalknown as Mahindra-British Products LimitedTelecom Limited) Mahindra Gujarat Tractor LimitedMahindra Logisoft Business Mahindra & Mahindra FinancialSolutions Limited Services LimitedAutomartindia Limited Mahindra Intertrade LimitedMahindra USA Inc. Mahindra Steel Service Centre LimitedBristlecone (UK) Limited Mahindra Holdings & Finance LimitedMahindra Shubhlabh Services Mahindra Ashtech LimitedLimitedMahindra World City Developer Ltd. NBS International Limited(formerly known as Mahindra Mahindra World City (Jaipur) LtdIndustrial Park Limited (with effect from 26th August, 2005)Mahindra Infrastructure Developers Mahindra Automotive Steels Private LimitedLimited (with effect from 2nd June, 2005)Mahindra Europe s.r.l Mahindra Renault Private Limited(with effect from 30th May, 2005) (with effect from 5th August, 2005)Brislecone Limited, Cayman Islands Mahindra Holidays & Resorts U.S.A Inc.Bristlecone Inc., Bristlecone India LimitedMahindra Middleeast Electrical Steel Tech Mahindra GmbH (formerly knownService Centre (FZC) as MBT GmbH)Mahindra & Mahindra South Africa Tech Mahindra Singapore (Pte.) Ltd.(Pty.) Limited (formerly known as MBT SoftwareMahindra International Limited Technologies Pte. Ltd)(with effect from 1st Nov. 2005) Tech Mahindra (R&D Services) LimitedStokes Group Limited (with effect from 28th Nov. 2005)(with effect from 3rd Jan. 2006) Tech Mahindra (R&D Services) Inc.Plexion Technology (India) Private (with effect from 28th Nov. 2005)Limited (with effect from 15th Feb. 2006)Jensand Limited Tech Mahindra (Thailand) Limited(with effect from 3rd Jan. 2006) (with effect from 21st Feb. 2006)Stokes Forgings Limited Tech Mahindra Foundation(with effect from 3rd Jan. 2006) (with effect from 22nd March 2006)Stokes Forgings Dudley Limited Bristlecone (Singapore) Pte. Ltd.(with effect from 3rd Jan. 2006) Bristlecone GmbHPlexion Technologies (UK) Ltd Mahindra Ugine Steel Company Ltd.(with effect from 15th Feb. 2006) (with effect from 21st June. 2005)Plexion Technologies GmbH, Console Estate & Investment Ltd.Germany (with effect from 15th Feb. 2006) (Ceased with effect from 20th Mar. 06)Plexion Technology Incorporated - Tech Mahindra (Americas) Inc.[FormerlyUSA (with effect from 15th Feb. 2006) known as MBT International Inc.]Mahindra Engineering Design & Mahindra SAR TransmissionDevelopment Company Ltd. Private LimitedMahindra Overseas Investment Mahindra BT Investment CompanyCompany (Mauritius) Limited (Mauritius) Limited [with effect from from 9thMahindra (Chine) Tractor Company May, 2005]Ltd. (with effect from 13th May. 2005) Mahindra Hoildays & Resorts India Limited.Mahindra Insurance Brokers Limited Mahindra Acres Consulting Engineers

Limited.

Transactions with related parties during the year and balance as on 31stMarch 2006.An amount of Rs. 41,010 is receivable from Mahindra Gesco Developers Ltd,the Holding company towards expenditure incurred on its behalf.

4. The Company was incorporated on 21st September 2005 and this being thefirst accounting period of the company, the requirement for the previous periodis not applicable.

5. The Company recognises deferred tax assets only to the extent of timingdifferences relating to the difference between the book and tax depreciation.However, in line with the AS22, the Company has not recognized the netdeferred tax asset of Rs. 13,126 on principles of prudence.The Component of Deferred Tax Assets (DTA) as at 31st march 2006 is asfollows: RupeesDeferred Tax AssetsRelating to unabsorbed losses 13,126

DTA 13,126

6. The comutation of "Earnings Per Share" in line with the Accounting Standard20 issued by the Institute of Chartered Accountants of India is as under:• Net Profit /(Loss) after tax (Rs) (38,994)

(Available for equity Shareholders)• Weighted Average numebr of equity Shares (nos) 50,000• Basic and Diluted Earnings Per Share (Rs) (0.78)

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7. THE ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956 IS AS UNDER

Balance Sheet Abstract & Company’s General Business Profile :


Registration No. 1 1 - 1 5 6 2 2 5 State Code 1 1

Balance Sheet Date 3 1 – 0 3 – 2 0 0 6Date Month Year

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

N I L N I L


N I L 5 0 0

III. Position of Mobilisation & Deployment of Funds (Amount in Rs. Thousands)

Total Liabilities (including Shareholders’ Funds) Total Assets

5 0 0 5 0 0

Sources of Funds :


5 0 0 N I L


N I L N I L


N I L



N I L N I L


4 2 1 4 0

Accumulated Losses

3 9

IV. Performance of Company (Amount in Rs. Thousands) : Refer Notes 1(d) and (e)Turnover (including other Income)** Total Expenditure**

8 4 7

+/(–) Profit/Loss before Tax +/(–) Profit/Loss after Tax

- 3 9 - 3 9

Earning per Share Rupees Dividend Rate %

(0.78) N I L


ITC Code N O T A P P L I C A B L E

Product Description D E V E L O P M E N T O F S E Zs

Signatures to Schedules 1 to 6For and behalf of the Board

S. Krishnan



}

261


Cash Flow for the period ended March 31, 2006

RupeesA. Cash Flow from Operating Activities

Net profit before tax ........................................................................................... (38,994)

Adjustments for :

Interest Income .................................................................................................. (7,915)

Preliminary Expenditure ..................................................................................... (39,932)

Operating Profit before Working capital changes .............................................. (86,842)

Adjustment for :

Trade and other receivables ............................................................................... (44,898)

Trade payables and other Liabilities .................................................................... 5,510

NET CASH FROM OPERATING ACTIVITIES (126,230)

B. Cash Flow from investing activities

interest received ................................................................................................. 7,915

Net Cash (Used in)/ from investing activities ................................................ 7,915

C. Cash Flow from financing activities

Issue of Share Capital ......................................................................................... 500,000............................................................................................................................Net cash used in Financing activities ............................................................. 500,000

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ................ 381,686

Cash and cash equivalents (Opeing) .................................................................. —

Cash and cash equivalents (Closing) .................................................................. 381,686

Signatures to Schedules 1 to 6For and behalf of the Board

S. Krishnan




R. Jaitlia & Co.


Mukesh Maheshwari

PartnerM. No. 49818


}

262

MAHINDRA & MAHINDRA FINANCIAL SERVICES LIMITED

DIVIDEND

Equity Shares

An interim dividend @ 15% (Rs. 1.50 per Equity Share) has beenpaid to the shareholders whose names appeared in the Registerof Members as on 27th October, 2005, the record date fixed forthis purpose. The amount so distributed, including tax ondistributed profits amounted to Rs.12.00 crores.

Keeping in mind the overall performance during the year andpositive outlook of your Company, the Directors recommend afinal dividend of 20% (Rs.2.00 per Equity Share), payable to thosemembers whose names appear in the Register of Members ason the Book Closure Date. The final dividend, inclusive of tax ondistributed profits, will absorb a sum of Rs.18.64 crores.

The total equity dividend outgo for the financial year 2005-06,inclusive of tax on distributed profits, would be Rs.30.64 crores,as against Rs.24.10 crores paid for the previous year.

Preference SharesA dividend of 6.90% (Rs.6.90 per Preference Share) on 50,00,000Cumulative Redeemable Non-Convertible Preference Shares ofRs.100 each was declared and paid to the shareholders whosenames appeared in the Register of Members as on 27th October,2005, the record date fixed for this purpose. The preferencedividend entailed an outgo of Rs. 3.93 crores including tax ondistributed profits.

OPERATIONSThe Indian automobile industry continued to grow at a healthyrate of 13% in 2005-06. Most of the segments of the industry,like Light Commercial Vehicles (LCVs), Utility Vehicles (UVs),Passenger Cars and Tractors to whom your Company extendsfinance, registered strong growth.

Buoyed by good market conditions, your Company grew its loanassets by 50.3% from Rs.2,753.76 crores in 2004-05 to


Your Directors are pleased to present the Sixteenth Annual Report together with the audited accounts of your Company for the yearended 31st March, 2006. The summarized financial results of the Company are given hereunder:

FINANCIAL RESULTS

(Rs. Crores)2005-06 2004-05

Total income ................................................................................................. 596.41 404.76

Less : Finance costs .................................................................................... 219.44 133.20Expenditure ....................................................................................... 209.65 134.90Depreciation / amortisation ............................................................... 5.17 3.85

434.26 271.95

Profit Before Tax .......................................................................................... 162.15 132.81Less : Provision for tax – current tax(Including fringe benefit tax and wealth tax) 64.27 55.84Add : Provision for tax –deferred tax asset (net) .......................................... 10.39 5.30

Profit after tax for the year ........................................................................... 108.27 82.27Add : Excess provision for tax – earlier years (net) .................................... 0.00 0.01

108.27 82.28Add : Amount brought forward from previous years ................................. 101.64 70.22

Amount available for appropriation .............................................................. 209.91 152.50

Appropriations :General reserve ............................................................................................ 10.90 8.30Statutory reserve ......................................................................................... 21.66 16.46Dividend on preference shares (interim) ...................................................... 3.45 1.77Income –tax on preference dividend (interim) ............................................. 0.48 0.23Dividend on equity shares (interim) ............................................................. 10.52 10.30Income-tax on dividend (interim) .................................................................. 1.48 1.35Proposed dividend on equity shares (final) .................................................. 16.35 10.92Income-tax on proposed dividend (final) ...................................................... 2.29 1.53Surplus carried to balance sheet 142.78 101.64

209.91 152.50

263


Rs.4,138.98 crores in 2005-06. The Company’s pro-activeapproach in floating tailor made finance schemes and deepercoverage of rural areas continued to yield results in the form ofgrowth in disbursement and profitability.

During 2005-06, the Company expanded its product portfolio andcreated separate Heads to monitor financing of each productlike auto, farm equipment, used vehicles and light commercialvehicles. In addition, an Asset Re-construction Division (ARD)was constituted to look after bad debts recovery, sale ofrepossessed vehicles, etc.

The Company continues to be a dominant player in financingfour wheelers in the Non Banking Finance Company (NBFC)Sector and continued to improve its market share fordisbursement of Tractors as compared to 2004-05.

Your Company reported an income of Rs.596.41 crores for 2005-06 as against Rs.404.76 crores in the previous year registering agrowth of 47.3%. Profit Before Tax (PBT) for 2005-06 was Rs.162.15 crores an increase of 22.1% over 2004-05 of Rs. 132.81crores. Profit After Tax (PAT) increased by 31.6% from Rs.82.28crores in 2004-05 to Rs.108.27 crores in 2005-06.

A detailed discussion on the Company’s operations is presentedin the chapter on Management Discussion and Analysis in thisAnnual Report.

SUBSIDIARY COMPANYMahindra Insurance Brokers Limited

The year under review represents the second year of insurancebroking operations of your Company’s subsidiary, MahindraInsurance Brokers Ltd. (MIBL). The primary focus of MIBL wason consolidating the life and non-life business portfoliosdeveloped during its first year of operation.

The customized life insurance product “Mahindra LoanSuraksha” (MLS) introduced by MIBL in the previous year,continued to receive a good response and grew by 27.9% from26,724 lives to 34,171 lives covered with a Sum Assured ofRs.743.45 crores as against a Sum Assured of Rs.601.90 croresin the previous year. A significant proportion of MIBL’s businesscomes from the rural markets. In the non-life retail (Motor)segment, also primarily in the rural market, MIBL achieved agrowth of 125.7% from 12,438 cases in 2004-05 to 28,075 casesin 2005-06.

During the year, MIBL achieved a growth of 94.7% in premiumgenerated, increasing from Rs.21.73 crores in 2004-05 toRs.42.30 crores in 2005-06. The Profit Before Tax (PBT) of MIBLincreased by 61.2% from Rs.2.76 crores to Rs.4.45 crores. ProfitAfter Tax (PAT) increased by 66.0% from Rs.1.73 crores to Rs.2.88crores.

MIBL received the prestigious ISO 9001:2000 certification forQuality Management Systems in September, 2005 for servicesrelated to broking of life and non-life insurance products tocorporate customers. This will go a long-way in establishing MIBLas a Customer-Centric Corporation.

MIBL declared an Interim Dividend of 400% (Rs.40 per equityshare). The dividend entailing an outgo of Rs.2.28 crores, includingtax on distributed profits, was paid to the shareholders whosenames appeared in the Register of Members of MIBL as on 23rdMarch, 2006. In view of the Interim Dividend declared of 400%,no further dividend is recommended for the financial year ended31st March, 2006. The total equity dividend outgo of MIBL for

the financial year 2005-06, inclusive of tax on distributed profits,is Rs.2.28 crores, as against Rs.0.03 crores paid for the previousyear.

The Statement pursuant to section 212 of the Companies Act,1956 containing details of your Company’s subsidiary, MIBL isattached.

The Consolidated Financial Statements of the Company and itssubsidiary, MIBL is prepared in accordance with AccountingStandard 21 prescribed by The Institute of Chartered Accountantsof India and form part of the Annual Report and Accounts.

EMPLOYEES’ STOCK OPTION SCHEME (ESOS)Pursuant to the authority of the Members granted at theExtraordinary General Meeting of your Company held on 24th

October, 2005, the Remuneration/Compensation Committee ofthe Board of Directors of the Company (“the Committee”) hasformulated the Mahindra & Mahindra Financial Services LimitedEmployees’ Stock Option Scheme (“the Scheme”). TheCompany has for the administration and implementation of theScheme constituted a Trust known as ‘Mahindra & MahindraFinancial Services Limited Employees’ Stock Option Trust’ (“theTrust”). The Company allotted 26,86,550 Equity Shares of theface value of Rs.10 each at a premium of Rs.41 per share,making in the aggregate, a total price of Rs.51 per share to theTrust on 6th December, 2005. In furtherance of the Scheme,the Trust , on the recommendation of the Committee, grantsto the Eligible Employees of the Company and/or its holdingcompany and/or its subsidiary company(ies) Options to acquirethe Equity Shares of the Company. The Trust has granted26,86,550 Stock Options at an Exercise Price of Rs.51 per shareon 7th December, 2005.

Details required to be provided under the Securities and ExchangeBoard of India (Employee Stock Option Scheme and EmployeeStock Purchase Scheme) Guidelines, 1999 are set out in AnnexureI to this Report.

PRIVATE PLACEMENTDuring the year, the Company issued 31,57,895 Equity Sharesto a Foreign Institutional Investor (FII) at a price of Rs.190 perEquity Share aggregating around Rs.60 crores amounting to4.16% of the pre-IPO equity capital of the Company on a privateplacement basis.

INITIAL PUBLIC OFFER (IPO)To further augment the capital base for future growth plans,your Company made an Initial Public Offer (IPO) of 20 millionequity shares of Rs.10 each comprising fresh issue of 10million equity shares of Rs.10 each and offer for sale of 10million equity shares of Rs.10 each by the parent company,Mahindra & Mahindra Ltd. and certain other shareholdersof the Company.

The issue constituted 23.3% of the fully diluted post issue paidup share capital of the Company.

Your Directors wish to place on record the fact that the issuereceived an overwhelming response and was subscribed by 26.88times. The issue price was finalized at Rs. 200 per Equity Share,being the upper end of the price band.

The shares were allotted on 9th March, 2006 and were listed onNational Stock Exchange of India Limited and Bombay StockExchange Limited on 17th March, 2006.

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CAPITAL ADEQUACY

Consequent upon the issuance of shares to the Trust, privateplacement and the IPO, the paid up share capital of the Companyhas increased to Rs.136.00 crores as on 31st March, 2006 fromRs.120.16 crores as on 31st March, 2005. The securities premiumaccount has also increased to Rs.354.08 crores from Rs.103.50crores.

As a result of the increased net worth, your Company was ableto enhance the Capital to Risk Assets Ratio (CRAR) to 18.20%as on 31st March, 2006 well above 12% CRAR prescribed by theReserve Bank of India.

RBI GuidelinesThe Company has complied with all the applicable regulations ofthe Reserve Bank of India (RBI). As a prudent practice yourCompany makes additional provisioning for Non PerformingAssets at a faster rate than that prescribed by the RBI.

CREDIT RATING

During the year, CRISIL Ltd. re-affirmed the rating of “AA+/Stable” to your Company’s long-term Non-ConvertibleDebentures. The rating of “AA+/Stable” indicates high degreeof safety with regard to timely payment of interest and principalon the instrument.

Your Company continued to enjoy the highest rating of “P1+”for its short-term borrowing programme in the form ofCommercial Paper and Short-term Debentures.

During the year, CRISIL Ltd. also reaffirmed the rating of “AA+/Stable” assigned to your Company’s Tier-II Sub-ordinated DebtProgramme. It also re-affirmed the rating “pfAA+/Stable” for theCompany’s Redeemable Preference Shares. This rating indicateshigh degree of safety with regard to timely payment of interestand principal on the instrument.

FINANCE

Your Company continued to adopt pro-active methods in sourcingof funds and maintained asset/liability match throughout the year.The Company resorted to borrowings through innovativeinstruments like standalone Commercial Paper, MIBOR linkedDebentures and FCNR (B) loans. Your Company sourced mediumterm loans from consortium banks at attractive rates to the extentof Rs.198 crores against tractor portfolio. Your Company alsoissued sub-ordinated debt amounting to Rs.50 crores at a veryattractive rate.Your Company pro-actively structured various innovative dealslike Inverse Floater, Step-up Inverse Floater and also floatedinstruments linked to 1 year Government of India Securities andreduced interest rate risk and considerably reduced borrowingcost. As a risk management measure, the Company entered intovarious derivative transactions to convert floating rate loan tofixed rate loan and vice versa.The Cash Management Services (CMS) was extended to cover 37more branches taking the total coverage of branches under CMS to147 thereby saving substantial transfer and interest cost.

During the review period, the consortium limit of your Companyhas been enhanced to Rs. 700 crores from Rs. 625 crores byState Bank of India (SBI), which is the lead bank.

Encouraged by the response received for its first offsite investormeet held last year, the Company organized a second annualoffsite investor meet which was well attended by the investors

from Mutual Funds and Banks. CRISIL Ltd. made an exhaustivepresentation to the investors on the ratings assigned to differentborrowing instruments of the Company.

DISTRIBUTION OF MUTUAL FUND PRODUCTS

The Company has received approval of the Reserve Bank of India(RBI) to undertake distribution of Mutual Fund products. TheCompany will leverage the large branch network, especially insemi urban / rural areas, to cross sell mutual fund products to itsexisting customers.

To begin with, your Company proposes to distribute mutual fundproducts in 6 centers on a pilot basis.

SECURITISATION / ASSIGNMENT OF RECEIVABLES

During the year, your Company successfully securitized / assignedreceivables to the extent of Rs.556.31 crores. The pass throughcertificates were rated “AAA(so)” by CRISIL Ltd. indicating thehighest degree of certainty regarding timely payment of financialobligations on the instrument.

ACCOUNTS AND ACCOUNTING STANDARDS

The Company adheres to the prudential guidelines prescribedby the Reserve Bank of India and to the Accounting Standardsissued by the Institute of Chartered Accountants of India inpreparation of its financial statements.

The particulars on related party exposures, non-performing assetsand business levels in lease and hire purchase and other activities,required to be disclosed in the format prescribed by the ReserveBank of India are contained in the schedules forming part of theaccounts.

As a measure of good practice, your Company gets its accountsaudited on a quarterly basis by the Statutory Auditors.

FIXED DEPOSITS AND LOANS/ADVANCES

As reported last year, your Company had, in line with the ReserveBank of India’s suggestion to phase out public deposits,discontinued accepting fresh / renewal of deposits with effectfrom 1st April, 2005.

Fixed Deposits of Rs. 13.04 crores were outstanding as at 31st

March, 2006. In total, 381 deposits amounting to Rs.0.64 croreshad matured but were unclaimed as at the end of the year. Ofthese, 68 deposits of the aggregate value of Rs.0.16 crores havebeen claimed after 31st March, 2006. The holders of unclaimeddeposits are periodically reminded by the Company to send theirclaim for the amount of the matured deposits.

The particulars of loans/advances and investment in its ownshares by listed companies, their subsidiaries, associates, etc.,required to be disclosed in the annual accounts of the companypursuant to Clause 32 of the Listing Agreement with theCompany, are furnished separately.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES (CSR)

As a socially responsible citizen, the Mahindra Group hascontributed not only to the economic well being of thecommunities it interacts with, but has also enhanced their socialwell being. Since the inception, the Mahindra Group has alwaysbeen engaged in activities which add value to the communityaround us. A step forward was taken in this direction by theannouncement made on the occasion of the 60th Anniversary ofthe holding company, Mahindra & Mahindra Limited, that the

265


Group would support a range of CSR initiatives by committing1% of Profit After Tax (PAT) on a continuing basis. The 1% PATwould specifically benefit the economically disadvantaged andsocially weaker sections of the society. Accordingly, the Boardof your Company has resolved to contribute to recognisedcharitable and/or other Institutions, including K. C. MahindraEducation Trust, not related to the business of the Company orthe welfare of the employees towards Corporate SocialResponsibilities of the Company, such amounts which in theaggregate in any financial year will not exceed 1% of theCompany’s estimated PAT for the year on a continuing basis untilfurther review by the Board.

A beginning in this direction was made by your Company duringthe current year by making a contribution of Rs.18.00 lacs tovarious charitable institutions.

DIRECTORSMr. Alan E. Durante resigned as a Director of the Company witheffect from 25th September, 2005. The Board has placed on recordits sincere appreciation of the valuable services rendered by Mr.Alan E. Durante during his tenure as Director.

Dr. Pawan Goenka who was appointed as a Director of theCompany with effect from 27th October, 2005 in the vacancycaused by the resignation of Mr. Alan E. Durante will hold officeupto the date of the next Annual General Meeting. A Notice hasbeen duly received from a Member proposing the candidature ofDr. Goenka for the office of Director at the said Meeting. YourDirectors recommend his appointment as Director of the Company.

Mr. Ramesh Iyer was re-appointed by the Board as the ManagingDirector of the Company for a further period of 5 years with effectfrom 30th April, 2006 subject to the approval of the Members ofthe Company.

Mr. Bharat Doshi, Mr. Nasser Munjee and Mr. M. G. Bhide retireby rotation at the forthcoming Annual General Meeting and beingeligible, offer themselves for re-appointment.

CORPORATE GOVERNANCEA report on the Corporate Governance along with a certificatefrom the Auditors of the Company regarding the compliance ofconditions of Corporate Governance as also the ManagementDiscussion and Analysis Report as stipulated under Clause 49 ofthe Listing Agreement are annexed to this Report.

ASSET LIABILITY COMMITTEE (ALCO)An Asset Liability Committee, constituted by the Board, reviewsthe working of the Asset Liability Operating Committee, inaccordance with the guidelines of the Reserve Bank of India.The details of the Asset Liability Committee and its Meetingsare presented in the Chapter on Corporate Governance in thisAnnual Report.

DIRECTORS’ RESPONSIBILITY STATEMENTPursuant to section 217(2AA) of the Companies Act, 1956, yourDirectors, based on the representation received from theOperating Management, and after due enquiry, confirm that:


(ii) they have, in the selection of the accounting policies,consulted the Statutory Auditors and these have been appliedconsistently and reasonable and prudent judgments andestimates have been made so as to give a true and fair viewof the state of affairs of the Company as at 31st March, 2006and of the profit of the Company for the year ended on thatdate;



AUDITORSMessrs. B. K. Khare & Co., Chartered Accountants, retire asAuditors of the Company at the forthcoming Annual GeneralMeeting and have given their consent for re-appointment. Theshareholders will be required to elect Auditors for the currentyear and fix their remuneration.

As required under the provisions of section 224 of the CompaniesAct, 1956, the Company has obtained a written certificate fromMessrs. B. K. Khare & Co., Chartered Accountants, to the effectthat their re-appointment, if made, would be in conformity withthe limits specified in the said section.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTIONAND FOREIGN EXCHANGE EARNINGS AND OUTGOIn view of the nature of activities which are being carried on bythe Company, Rules 2A and 2B of the Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988,concerning conservation of energy and technology absorptionrespectively, are not applicable to the Company.

The information on foreign exchange outgo is furnished in theNotes to the Accounts. There were no foreign exchange earningsduring the year.

PARTICULARS OF EMPLOYEES AS REQUIRED UNDERSECTION 217(2A) OF THE COMPANIES ACT, 1956 AND THERULES MADE THEREUNDERThe Company had 2 employees who were in receipt ofremuneration of not less than Rs.24,00,000 during the year ended31st March, 2006 or not less than Rs.2,00,000 per month duringany part of the said year. However, as per the provisions of section219(1)(b)(iv) of the Companies Act, 1956, the Directors’ Reportbeing sent to the shareholders does not include this Annexure.Any shareholder interested in obtaining a copy of the Annexuremay write to the Company Secretary at the Registered Office ofthe Company.


ANAND G. MAHINDRAChairman


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Annexure I to the Directors’ Report for the year ended 31st March, 2006

Information to be disclosed under the Securities and Exchange Board of Inda (Employee Stock Option Scheme and EmployeeStock Purchase Scheme) Guidelines, 1999:

(a) Options granted 26,86,550

(b) The pricing formula The first tranche of Stock Options granted during the year underreview were priced at a discount of Rs. 15 on the fair value ofRs. 66 (rounded off) based on the valuation obtained from anindependent valuer based on Net Asset Value/Asset Based Method.

(c) Options vested Nil

(d) Options exercised Not applicable

(e) The total number of shares arising as a result of 26,86,550 equity shares of Rs. 10 each. These will be transferredexercise of option from the Trust to the Eligible Employees.

(f) Options lapsed Nil

(g) Variation of terms of options Nil

(h) Money realised by exercise of options Nil

(i) Total number of options in force 26,86,550

(j) Employee-wise details of options granted to:

(i) Senior managerial personnel As per statement attached

(ii) Any other employee who receives a grant in Nilany one year of option amounting to 5% ormore of option granted during that year

(iii) Identified employees who were granted option, Nilduring any one year, equal to or exceeding 1%of the issued capital (excluding outstandingwarrants and conversions) of the company atthe time of grant

(k) Diluted Earnings Per Share (EPS) pursuant to issue of Rs. 14.41*shares on exercise of option calculated in accordancewith Accounting Standard (AS) 20 ‘Earnings per Share’

(l) Where the company has calculated the employee The Company has calculated the employee compensation costcompensation cost using the intrinsic value of the using the intrinsic value of stock options. Had the fair value methodstock options, the difference between the employee been used, in respect of stock options granted, the employeecompensation cost so computed and the employee compensation cost would have been higher by Rs. 46.05 lakhs,compensation cost that shall have been recognised if Profit After Tax lower by Rs. 46.05 lakhs and the basic and dilutedit had used the fair value of the options, shall be earnings per share would have been lower by Re. 0.07 and Re. 0.07disclosed. The impact of this difference on profits respectively.and on EPS of the company shall also be disclosed.

(m) Weighted-average exercise prices and weighted- Not Applicableaverage fair values of options shall be disclosedseparately for options whose exercise price eitherequals or exceeds or is less than the market priceof the stock.

(n) A description of the method and significantassumptions used during the year to estimate thefair values of options, including the followingweighted-average information:

(i) risk-free interest rate, Ranging from 5.8% to 6.6%

(ii) expected life, 2.5 years to 5 years

(iii) expected volatility, 0.5

(iv) expected dividends, and 5%

(v) the price of the underlying share in market The Company was unlisted as on the date of grant of option.at the time of option grant. However, as per the valuation received from an independent valuer,

the fair value of the underlying share was Rs. 65.53 at the time ofGrant of option.

* Refer Note no. ‘‘4’’ in Schedule ‘‘XX’’ to Annual Accounts of the Annual Report.

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STATEMENT ATTACHED TO ANNEXURE I TO THE DIRECTOR’S REPORT FOR THE YEAR ENDED 31ST MARCH, 2006

Name of Senior Managerial Persons to whom Stock Options have been granted Number of Options granted

Mr. Bharat N. Doshi 200,000

Mr. Uday Y. Phadke 10,000

Mr. Anjanikumar Choudhari 10,000

Dr. Pawan Goenka 10,000

Mr. Manohar G. Bhide 10,000

Mr. Dhananjay Mungale 10,000

Mr. Naseer Munjee 10,000

Mr. Piyush Mankad 10,000

Mr. Ramesh Iyer 100,000

Mr. V. Ravi 60,000

Mr. Apurv Verma 40,000

Mr. Nitin Shah 12,000

Mr. Rajesh Vasudevan 10,000

Mr. Dinesh Prajapati 12,000

Mr. Sankha Bhowmick 3,250

Mr. Rajesh Joshi 12,000

Mr. Suresh Shanmugam 7,500

Mr. Gurdev Mehta 14,000

Mr. Binoj Mathai 7,500

Mr. Richard Clement 7,500

Mr. H. S. Kamath 7,500

Mr. Rajnish Agarwal 7,000

Particulars of loans/advances and investment in its own shares by listed companies, their subsidiaries, associates, etc., requiredto be disclosed in the annual accounts of the company pursuant to Clause 32 of the Listing Agreement with the Company.

Loans and advances in the nature of loans to subsidiaries, associates, and where there is no repayment schedule or repaymentbeyond seven years or no interest or interest below section 327A of the Companies Act, 1956 – Nil.

Loans and advances in the nature of loans to firms/companies in which Directors are interested:

Rs. in Lacs

Name of the Company Balance as on Maximum outstanding31st March, 2006 during the year

Mahindra Shubhlabh Services Limited 0.44 1.65

Mahindra Construction Company Limited 113.38 113.38

Mahindra Ashtech Limited 6.45 7.13

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MANAGEMENT DISCUSSION & ANALYSIS

Industry Structure & Developments

Mahindra & Mahindra Financial Services Limited (‘MMFSL’,‘Mahindra Finance’ or ‘the company’) is a leading non-bankingfinance company (NBFC) that provides finance for utility vehicles,tractors and cars for rural and semi-urban Indian markets. Thesteady rise in incomes and demand in these markets over thelast few years have contributed to MMFSL’s growth in customers,assets, revenue and profitability.

Indian Economy has witnessed strong growth in the last3 financial years. In 2003-04, the country achieved a real GDPgrowth of 8.5%. The next year, despite relatively poor monsoons,India grew at 7.5%. And for 2005-06, estimates suggest thatGDP grew by 8.4%.

This strong overall growth performance has contributed to a sharpincrease in demand for the automobile sector, which has grownby 13.0%. Assisted by a turnaround growth in agriculture of2.3% in 2005-06, and a rapid increase in non-agricultural incomes,rural and semi-urban India also witnessed healthy growth, coupledwith higher levels of spending.

MMFSL leveraged these opportunities to deliver excellent resultsin 2005-06, the highlights of which are given below.

MMFSL’s Financial Highlights, 2005-06

Total assets grew by 59% from Rs.3,115 crore on 31 March,2005 to Rs.4,951 crore on 31 March, 2006.

Cumulative number of customer contracts increased by 39%from 336,819 in 2004-05 to 467,977 in 2005-06.

Total income grew by 47% from Rs.405 crore in 2004-05 toRs.596 crore in 2005-06.

Profit after tax (PAT) grew 32% from Rs.82 crore in 2004-05to Rs.108 crore in 2005-06.

Capital Adequacy Ratio increased from 17.8% to 18.2 %.

The Company’s healthy growth in 2005-06 was another steptowards accomplishing its long term goal of becoming a preferredprovider of retail financial services in rural and semi-urban India.

In the initial phase by financing Mahindra & Mahindra (M&M)Limited’s vehicles, MMFSL gained experience and immenseunderstanding of the prevailing market conditions in semi urbanand rural India. This knowledge, coupled with the personalisedcustomer base that the company has built over the last decade, isthe platform on which MMFSL plans to build its long term strategy.

During 2005-06, in order to raise capital to fund long term growthand to broaden the ownership base, MMFSL made an InitialPublic Offer (IPO) of 20 million equity shares of a face value ofRs.10. This was made up of a fresh issue of 10 million equityshares and a divestment of another 10 million by M&M as wellas some other existing shareholders. The shares were offeredat a price band of Rs.170-Rs.200 per share. The issue wassubscribed by 26.88 times. The issue price was finalized at Rs.200 per Equity Share, being the upper end of the price band.Consequently, over 23.3% of the fully diluted post-issue paid-upcapital of the company was allotted through this IPO.

From being a company solely financing Mahindra products,MMFSL has diversified into financing other automobile productsin the same market space. Today, around 30% of its businessemanates from financing of non M&M vehicles. While thecompany builds on the Mahindra brand value and corporate ethos,all transactions with the promoter company are on arm’s lengthand based on commercial considerations. Going forward, MMFSLwill continue to leverage its relationship with Mahindra, whilepursuing its own distinct business model.

The landscape of rural and semi-urban India is witnessingfundamental and structural changes. According to the NationalSample Survey, per capita rural expenditure has increased fromRs.3,428 in 1993-94 to Rs.6,742 in 2003-04. In addition, thepercentage of rural households having permanent (or “pucca”)houses has risen from 30.6% in 1991 to 41% in 2001 (Census ofIndia 1991 and 2001). Moreover, income growth in rural India isnot limited to agriculture. Data from the Annual Survey of Industriesshows that, in 2000-01, rural India could speak of 36% oforganised manufacturing establishments; 38% of its employees;43% of its output; and 41% of net value added. Indeed, all theevidence suggests that real income in rural and semi-urban Indiahas been growing at over 6% per year since 1993-94, which hasopened up huge prospects for MMFSL’s business.

MMFSL, therefore, believes that there is a large and growingopportunity for providing financial services in this market space,and intends to provide a unique business propositions byaddressing niche segments within this market.

Credit in rural and semi-urban India is generally provided eitherby banks from the organised sector or by local money lenders.There is a large segment of potential borrowers whose creditrequirements are not met because they cannot satisfy the lendingcovenants of the banks or service the high borrowing costs frommoney lenders. Mahindra Finance intends to bridge this gap andposition itself between banks and money lenders in terms ofcompetitive rates and ease of loan sanctions.

This goal will not be restricted to financing automobiles but shallextend to leveraging the large client base by providing a widerange of financial products and services through the company’snationwide distribution network. For instance, MMFSL hasalready started distributing insurance products in rural and semi-urban India through its subsidiary Mahindra Insurance BrokersLimited. It has also recently commenced its mutual funddistribution business and is exploring opportunities of enteringhousing loans and personal loans in rural and semi-urban markets.

Mahindra Finance believes that this is an interactive, people-driven business model, the growth of which depends uponbuilding long term personal relationships. This coupled withsuperior knowledge of rural markets, and the ability to tailorproducts, positions the company well to meet rural and semi-urban credit needs and provide competitive, flexible and speedylending services.

Opportunities

As on 31st March, 2006, the Company’s total assets wasRs.4,951.27 crore up by 59.0% from a year earlier. The cumulativenumber of customer contracts at the end of 2005-06 was

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4,67,977 a growth of 38.9% over the previous year. This growthwas on the basis of two primary drivers:

First, the country witnessed healthy growth in the three majorsectors of the automobile industry in 2005-06. Passenger carsales increased by 7.5% to 8,82,094; utility vehicle salesincreased by 10.3% to 1,94,577; and tractor sales were inexcess of 2,80,000 units.

Second, MMFSL aggressively expanded its sales force acrossIndia. Today, the Company has one of the largest networksof branches among those Non-Banking Financial Companies(NBFCs) covering rural and semi-urban areas. In 2004-05,there were 256 offices. In 2005-06, these had increased by19.1% to 305. These offices play a critical role in that theyare provided full authority to approve loans within prescribedguidelines. Chart A plots the growth of MMFSL’s offices since2000-01.

Mahindra Finance’s distribution network is spread across 25states and 2 Union Territories, and is categorised into five zonesand 16 regions, with branches reporting into their respectiveregional offices. Strong economic conditions and aggressivemarket penetration through increased branch networkscontributed to a 28.4% increase in new contracts from 1,02,142new contracts in 2004-05 to 1,31,158 in 2005-06.

Several developments are helping MMFSL grow its retail financebusiness in rural and semi-urban India. The first has to do withchanges in behavioural patterns. Previously, Indians were averseto the concept of using credit to fund their purchases andpreferred to save and then spend. Today, with a variety ofconsumer credit products being widely available, rural and semi-urban Indian households are willing to acquire assets throughborrowing.

Second, growth in the availability of finance has itself helpedincrease the demand for cars and utility vehicles (UVs). Carmanufacturers have tied up with public sector banks to providefinance to target rural and semi-urban areas. Further, the averageloan to value (or LTV) for cars has also grown over the last fiveyears, thus increasing the amount of credit required for the samenumber of vehicles.

Third, there has been a drop in the average holding period of anew car to 4-5 years. This has resulted in increased demand fornew cars and UVs with faster replacements which, in turn, hasbeen expedited due to the rapid growth of the used car market.This has also opened up opportunities for aspiring car owners toown a cheaper second hand car. Thus, there are now greaterfinancing opportunities for buyers of both new and used cars.

Fourth, the Government of India’s focus on developing rural Indiacontinues to add impetus to the rural economy. Chart B showsthat government outlays on agriculture and rural developmentas a proportion of total outlay has increased in 2005-06 over 2004-05. Long term programmes such as Bharat Nirman, which aimsto develop irrigation, roads, housing, drinking water, electricityand telephone connectivity, have helped in the development ofrural Indian infrastructure. These have increased rural incomes,and are expected to do so even more significantly in the future.As rural households generate higher incomes, there will be arise in their aspirations and propensity to demand credit fordifferent things. Thus, opening up more opportunities for MMFSLin rural financing.

Finally, some specific developments are aiding the growth oftractors sale, which accounts for a sizeable portion of MMFSL’sportfolio. Apart from farming activities, tractors are beingincreasingly used for transporting material to construction andinfrastructure development sites. Increase of road constructionactivity and other infrastructure development have resulted inhigher demand for tractors. Moreover, many Indian farms nowuse equipment such as tillers, harvesters, threshers and bore-well pumps. These are energy intensive. Given the pooravailability of power in many parts of rural India, tractor motorsand alternators are often used as the power source leading tofurther demand. In addition with a reduction in farm labour dueto growing rural-urban migration, many farmers are looking toincrease the use of farm equipment, including tractors.

MMFSL continues to build the Mahindra Finance brand in thesemarkets and develop its retail finance business. During the year,MMFSL started branding operations in Karnataka through mediumslike hoardings and advertisement in television channels, whichgenerated a growth in response and awareness. During 2006-07,the Company will take up branding exercise in other states.

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Some major marketing initiatives undertaken during 2005-06were:

Extending MMFSL’s association with other vehiclemanufacturers including Maruti, Hyundai, Toyota, Tata Motors,General Motors, and Ford and their dealers.

Participation in regional fairs like the Gwalior Mela and thePushkar Mela, where the company provided special financingproducts for the period of the fair. Local governments alsoprovided sales tax concessions and manufacturers oftenoffered incentives such as price discounts, vehicle exchangeprogrammes and free servicing.

A marketing arrangement with HPCL, which currently ownsor franchises over 6,000 petrol stations across India, forMMFSL to distribute products to rural customers through itsproposed outlets at these petrol pumps.

Threats

The financing industry is becoming increasingly competitive andour growth will depend on our ability to compete effectively. Ourmain competitors are banks and NBFCs. Over the last several years,a number of banks have increased their focus on retail loans in ruraland semi-urban areas in India. While they may not have ourknowledge base and operational flexibilities, these competitors mayhave greater resources than we do and access to cheaper funds.

The growth prospects of our business, including the quality of ourassets and our ability to grow our asset portfolio and implementour strategy, are influenced by the growth rate of the agriculturalsector and the development of rural infrastructure. The level ofloans made, recovery of our loans and demand for vehicles andtractors are all affected by these factors. Any slow down in theIndian economy, the growth of vehicle and tractor sales and in theagricultural sector (particularly due to abnormal monsoons), coupledwith inflationary pressures or any change in Government policycould adversely impact our future financial performance.

The agriculture sector is highly seasonal and largely cash-based.Delays in the supply of utility vehicles and tractors at peak timesmay have an adverse effect on our financial performance.

Mahindra Insurance Brokers Limited

The business of distributing life and non-life insurance productsis done through MMFSL’s subsidiary, Mahindra Insurance BrokersLimited (MIBL). 2005-06 is the second year of operations for thissubsidiary. A significant proportion of the MIBL’s business comesfrom the rural markets.

A customised life insurance product, Mahindra Loan Suraksha,was introduced by MIBL in 2004-05 and has continued to receivea good response. As on 31st March, 2006, 34,171 lives werecovered with a sum assured of Rs.743.45 crore. In the non-liferetail (motor) segment, MIBL achieved a growth of 125.7% to28,075 cases in 2005-06.

During 2005-06, MIBL achieved 94.7% growth in premiumgenerated, which increased from Rs.21.73 crore in 2004-05 toRs.42.30 crore in 2005-06. The Profit Before Tax increased by61.2% from Rs.2.76 crores in 2004-05 to Rs.4.45 crores in 2005-06, and the Profit After Tax increased by 66% from Rs.1.73 crores

to Rs.2.88 crores during the same period.

MIBL also received the ISO 9001:2000 certification for QualityManagement Systems for services related to broking of life andnon-life insurance products to corporate customers in September2005. This will go a long-way in firmly establishing MIBL as aCustomer-Centric Corporation.

Operations

MMFSL’s operations have two critical elements.

1. Build on a financing infrastructure that can best customiserisk adjusted products and have simple documentation andprompt loan approval procedures.

2. A strong structure in place that can most efficiently sourcefunds and manage resources.

Customised Products with Simple Documentation and QuickLoan Approvals

This includes a clearly defined set of procedures for evaluatingthe creditworthiness of customers that extends from initialevaluation to loan approval. The funds are advanced after dueprocess of evaluation and upon providing the necessarydocumentation. However, the quantum of documentation is muchless than what is required in banks and lot of emphasis is placedon tailoring finance to customer needs. MMFSL’s objective is toensure appraisal and disbursement within the shortest possibletime, without compromising on asset quality. On an average,loans are approved within two to three days of an applicationbeing received.

Once a loan is made, there is a structured loan monitoring process,which also includes direct visits by loan officers to customers’houses. The entire monitoring process is backed by a strong MISdepartment, which is centralised and monitors compliance withthe terms and conditions of credit facilities. This involves monitoringof aspects like completeness of documentation and creation ofsecurity through regular visits to the branches by the company’sexecutives and internal auditors. Given the nature of the business,an efficient structure for optimal risk adjusted loan evaluation anda strong loan recovery cell are in place.

Efficient Fund Raising and Management of FinancialResources

The distribution of Mahindra Finance’s source of borrowing interms of investors and instruments are given in Charts C and D.

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Mahindra Finance also sourced Rs.198 crore worth of three-yearterm loans from consortium of banks against its tractor portfolioat attractive rates. It also issued subordinated debt amountingto Rs.50 crore for a six year tenure at a very competitive rate.The Company also proactively structured various innovative dealslike the inverse Floater, Step-up Inverse Floater and also floatedinstruments linked to 1 year Government of India Securities, andreduced interest rate risk and borrowing costs. As a riskmanagement measure, the Company entered into variousderivative transactions to convert floating rate loan to fixed rateloan and vice versa.

During 2005-06, the consortium limit of MMFSL was enhancedto Rs.700 crore from Rs.625 crore by the lead bank, namely theState Bank of India. In addition, Cash Management Services(CMS) were extended to cover 37 more branches during theyear, which increased the total coverage of branches under CMSto 147. This has substantially saved on transfer and interest cost.

In 2005-06, MMFSL continued to enjoy excellent credit ratingsfor its borrowing programs. CRISIL’s ratings are:

“AA+/Stable” for the company’s long term Non-convertibledebentures — which indicates high degree of safety withregard to timely payment of interest and principal on theinstrument.

“AA+/Stable” for MMFSL’s Tier-II subordinated debt.

“pfAA+/Stable” for the company’s redeemable preferenceshares — which also indicates high degree of safety withregard to timely payment of interest and principal on theinstrument.

“P1+”, the highest rating, for its short-term borrowingprogramme in the form of Commercial Paper and Short-termDebentures.

The Company’s second off-site investor’s meet was well attendedby mutual funds and banks. CRISIL made an exhaustivepresentation to the investors on the ratings assigned to differentborrowing instruments of the company.

Human Resources

As a financial services company which takes pride in servingand knowing its customers better than most, our people remainour most valuable asset. We believe our past successes havecome as much because of the soundness of our strategies asdue to the quality and determination of all our employees who

turned these strategies into action. Going forward, we not onlyplan to maintain this key source of competitive advantage butalso build on it through well-structured initiatives.

We have empowered our employees by gradually decentralisingthe decision making process within the company. This has beenbacked by running extensive training programmes at variouslevels. In addition, employees have also been offered financialassistance to pursue higher studies.

The Company has a well structured performance based appraisaland remuneration system for its employees. Under thisprogramme, regular feedback is given to employees based on ahalf yearly appraisal process.

During 2005-06, the Company also designed an Employee StockOption Scheme (ESOS). Under the ESOS, stock options havebeen granted to all eligible employees of MMFSL as well ascertain designated employees of the holding company M&M,and the subsidiary MIBL. The ESOS is regulated by a Trust. TheCompany believes that the ESOS will act as an important tooltowards employee retention and motivation.

The company also participates in the M&M Group’s ‘TalentManagement And Retention’ programme which aims to identify,assess and acquire talent. Under this programme, seniormanagement employees of the M&M Group are divided acrosssectors and functions to head functional councils. These councilsin turn serve to identify key talent in the group and provide themavenues for future growth.

As of 31st March, 2006, there were 2,296 employees on therolls of the company.

Information Technology

Leveraging Information Technology (IT) tools to improve overallproductivity and efficiency of the organisation has been a keyfocus area of the company. Its IT initiatives are aimed at enhancingservice levels, increasing customer convenience and improvingloan administration and recovery, while minimising costs.

Over 150 of the company’s 305 offices are connected to theservers at the MMFSL head office in Mumbai. Though thechallenge is enormous, given the problems associated withachieving connectivity in rural areas, we remain steadfast in ourfocus on achieving IT connectivity with all our offices.

While our existing IT system enables us to manage ournationwide operations efficiently and effectively monitor andcontrol risks, going forward, the Company also plans to deploy acustomer relationship management system. We believe this willgo a long way in assisting the company to cross-sell otherproducts and services as well as in improving credit and marketrisk management.

Financial & Operational Performance

The financial statements have been prepared in compliance withthe requirements of the Companies Act, 1956, and GenerallyAccepted Accounting Principles (GAAP) in India.

The abridged financials of MMFSL for 2005-06 including revenue,expenditure and profits, are presented in Table 1.

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Table 1: Abridged profit and loss account (Rs. crore unlessindicated otherwise)

2005-06 2004-05 Growth%

Revenue:

Income from operations 582.32 396.93 46.7

Other income 14.09 7.83 79.9

Total 596.41 404.76 47.3

Expenditure:

Financial Expenses 219.44 133.20 64.7

Employee cost 40.55 27.14 49.4

Provisions & Write Off’s 81.61 56.00 45.7

Depreciation & Amortisation 5.17 3.85 34.3

Other Expenses 87.49 51.76 69.0

Total 434.26 271.95 59.6

PBT 162.15 132.81 22.1

Current tax 64.27 55.84 15.1

Deferred tax (10.39) (5.30) 96.0

Tax - Earlier years 0.00 (0.01) 0.0

PAT 108.27 82.28 31.6

Earnings Per Share - Basic (Rs.) 14.59 13.23 10.3

Earnings Per Share - Diluted (Rs.) 14.41 13.23 8.9

The financial position of MMFSL continues to remain strong. Itsproactive approach towards designing tailor-made financeschemes and extending its reach across rural India has resultedin MMFSL recording a 47.3% growth in total revenues from Rs.404.77 crore in 2004-05 to Rs. 596.41 crore in 2005-06.

During the year, the Company expanded its product portfolio andcreated separate heads to monitor financing of each of itsproducts such as auto, farm equipment, used vehicles, lightcommercial vehicles etc. This translated into even faster growthin income from our core business area of financing activitieswhich increased by 46.7% from Rs.396.94 crore in 2004-05 toRs.582.32 crore in 2005-06.

The rise in income was partly offset by an increase in expenditure,primarily due to a 64.7% growth in financial expenses toRs.219.44 crore in 2005-06. There has been an increase of 58.2%in total borrowings outstanding to finance higher levels ofbusiness from Rs.2,454.15 crore as on 31st March 2005 toRs.3,882.94 crore as on 31st March 2006. Despite the raisinginterest rate scenario, the ratio of interest costs (financialexpenses net of bank charges) to average borrowings hasincreased marginally from 6.4% as on 31st March 2005 to 6.7%as on 31st March 2006. Commission and brokerage expensesincreased by 27.2% to Rs.23.26 crore in 2005-06 principally dueto increase in the volume of lending.

Employee costs increased from Rs. 27.14 crore in 2004-05 toRs. 40.5 crore in 2005-06 on account of a 29.5% rise in thenumber of employees to 2,296 as of 31st March 2006, as wellas general increases in salaries and benefits. While in absolute

terms this looks high as a percentage of revenues, there was amarginal increase from 6.8% in 2004-05 to 7.0% in 2005-06.

The Company recorded a 22.1% growth in Profit before tax (PBT),which grew from Rs.132.8 crore in 2004-05 to Rs.162.2 crore in2005-06. Profit after tax (PAT) grew by 31.6 %, from Rs.82.3crore in 2004-05 to Rs.108.3 crore in 2005-06. Consequently,basic earnings per share issue increased from Rs.13.2 during2004-05 to Rs.14.6 during 2005-06.

Table 2 sets forth information on the key ratios of the company.Table 2: Key Ratios

2005-06 2004-05

PBT/Net income 27.2% 32.8%

PAT/Net income 18.2% 20.3%

PBT/Total Assets 3.3% 4.3%

RONW* 20.1% 26.4%

Debt/Equity** 5.65 7.04

Capital Adequacy 18.2% 17.8%

Tier 1 capital 13.2% 10.5%

Tier 2 capital 5.0% 7.3%

Book Value** (Rs.) 80.89 50.68

* Based on Average Net Worth**After factoring ESOP issue

The decline in the PBT and PAT ratios have much to do with theplanned increase in the number of branches and people as wellas a rise in borrowing costs. The fall in RONW is a result of boththe decline in profitability ratios and the increase in net worth asa result of the IPO. However, subsequent to the IPO, the debt toequity ratio of the company has improved significantly from 7.04as on 31st March, 2005 to 5.65 as on 31st March, 2006. In realterms and relative to other financing companies this is a lowlevel of financial gearing and there is significant scope ofincreasing the borrowings to grow the business in the future.

The Company has also significantly improved its capital adequacyratios. These continue to remain higher than those mandated bythe RBI. MMFSL’s capital adequacy ratio as on 31st March 2006was 18.2% comprising Tier 1 capital adequacy of 13.2% andTier 2 capital adequacy of 5.0%. The book value of the companyhas also increased from Rs. 50.68 as on 31st March, 2005 toRs. 80.89 as on 31st March, 2006.

The ratio of income to average total assets declined from 15.7% forthe year ended 31st March, 2005 to 14.8% for the year ended 31stMarch, 2006. This can be attributed to marginal decline in lendingrates due to competitive pressures, change in the product mix.

Overheads of the company as a percentage of average assetswere maintained at 3.3 % during 2005-06. In absolute terms,write-offs and NPA provisions increased by 45.7% from Rs.56.00crore for the year ended 31st March, 2005 to Rs.81.61 crore forthe year ended 31st March, 2006. This was due to the rise in thevolume of loans as well as a general decrease in the re-sale valueof repossessed vehicles. As a ratio of write-offs and NPAprovisions to Average assets, however, declined from 2.2% in

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2004-05 to 2.0% in 2005-06. Table 3 sets forth detailedinformation on NPA of the company.

Table 3: Non-Performing Asset (NPA) Analysis (Rs. croreunless indicated otherwise)

2005-06 2004-05

Gross Non-Performing Assets 247.21 199.16

Less: NPA provisions 125.87 98.39

Net Non-Performing Assets 121.34 100.77

Total Assets 4,951.27 3,114.65

Net NPA to Total Assets (%) 2.5% 3.2%

Note: The above figures are excluding securitised assets.

In absolute terms gross NPA and net NPA increased from 199.16crore and 100.77 crore as on 31st March, 2005 to 247.21 croreand 121.34 crore respectively as on 31st March, 2006. However,net NPA as a percentage of total assets has declined from 3.2%as of 31st March, 2005 to 2.5% as of 31st March, 2006. It maybe noted that the write-offs due to non-recovery have remainedaround 2% of average total assets.

Risks & Concerns

Our goal in risk management is to ensure that we understand,measure and monitor the various risks that arise and we followpolicies and procedures defined to address these risks.

We are primarily exposed to credit risk, interest rate risk, liquidityrisk and operational risks. Internally, we have constituted an eightmember risk management team, comprising functional heads, tomanage these risks. This team identifies, assesses and monitorsall of our principal risks in accordance with defined policies andprocedures. Our Chief Financial Officer heads this team.

Our Board level Audit Committee oversees risk managementpolicies and procedures. It reviews credit and operational riskswhile the Asset Liability Management Committee review policiesin relation to investment strategy and other risks like interestrate risk and liquidity risk.

Internal Control Systems

In the opinion of the management, the internal control systemsare adequate and provide, among other things, reasonableassurance of recording transactions of operations in all materialrespects and of providing protection against significant misuseor loss of company assets.

A team of auditors conduct internal audits to assess the adequacyof the internal controls procedures and processes of the Company.It has appointed a number of audit firms across the country to reviewand audit branch operations and their reports are reviewed by theAudit Committee of the Board. Policy and process corrections areundertaken based on input from these auditors. Reports of theinternal auditors, as well as the action taken on the matters reportedupon, are discussed at the Audit Committee meetings.

In line with the requirements of becoming a listed company, wehave considerably strengthened our corporate governance processto ensure that we fully comply with new regulatory guidelines.

Even prior to becoming a listed entity, the Company believedthat high degree of accountability and robust internal controlswere critical to its business success. Even though over 96% ofthe Company’s share holding was held by Mahindra & MahindraLimited (parent company), as a good governance, the Companyhad Independent Directors on Board. Also, the Company hadconstituted Audit Committee comprising of these independentdirectors well before it was made mandatory. In addition, theCompany gets its accounts audited on a quarterly basis by itsstatutory auditors.

The recent focus on corporate governance initiatives, asmandated in Clause 49 of the Listing Agreement of the StockExchanges, has helped us quantify and formalise this belief, whichin turn makes our commitment to them even stronger. Thecorporate governance practices instituted by the company arediscussed in detail in the chapter on corporate governance whichforms part of this Annual Report.

Outlook

Rural India offers a great opportunity, and we believe that thegrowth in the rural and semi-urban automobile markets willcontinue. Given the change in consumer pattern and governmentinitiatives for rural infrastructure, there is massive scope for retailfinance in up-country India. MMFSL focuses on creating its nichewithin this large opportunity.

On the costs front, interest rates are expected to rise further. Inan environment of rising crude oil prices, domestic petroleumand diesel prices, too, are expected to increase in India. Thesetwo factors could partially reduce automobile demand growthrates in the future.

Going forward, our biggest challenge will be to build teams thatcan successfully implement the key elements of the company’sstrategy which involve continuously introducing innovativeproducts, risk adjusted pricing, customer focus and convenience,wide distribution, strong processes and prudent riskmanagement.

Overall, we are extremely optimistic about the growth prospectsof rural and semi-urban India. We believe that these markets willcontinue to grow and develop at very rapid pace and that weshall be able to successfully leverage this to grow our businessand profits, and remain a dominant NBFC in financing fourwheelers. The outlook for 2006-07, therefore, is optimistic.

Cautionary Statement

Certain statements in the Management Discussion and Analysisdescribing the Company’s objectives, predictions may be“forward-looking statements” within the meaning of applicablelaws and regulations. Actual results may vary significantly fromthe forward looking statements contained in this document dueto various risks and uncertainties. These risks and uncertaintiesinclude the effect of economic and political conditions in India,volatility in interest rates, new regulations and Governmentpolicies that may impact Company’s business as well as its abilityto implement the strategy. The Company does not undertake toupdate these statements.

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Corporate GovernanceCorporate Governance Philosophy

Mahindra & Mahindra Financial Services Limited (MMFSL) strivesto achieve business excellence and enhance long-termshareholder value while safeguarding the interests of allstakeholders. It is this motivation that has led the Company tomake Corporate Governance intrinsic in all its operations. TheCompany has a professional Board, which provides it strongoversight and strategic counsel in this regard. Even before itbecame a listed entity, MMFSL had been following healthyCorporate Governance practices. In fact, the Company had set-up an Audit Committee, way back in the year 2000. Now thatthe Company is listed, MMFSL has established systems andprocedures to ensure that it remains fully compliant with allmandated regulations.

In India, Corporate Governance standards for listed companiesare regulated by the Securities and Exchange Board of India (SEBI)through Clause 49 of the Listing Agreement of the StockExchanges. The stipulations mandated by Clause 49 becameapplicable to your Company in March 2006 and have been fullycomplied with since then. This chapter, along with the chapterson Management Discussion and Analysis and AdditionalShareholders Information, reports MMFSL’s compliance with therevised Clause 49.

Board of Directors

The Company has a non-executive Chairman and more than 1/3rd of the total number of Directors are independent. The numberof non-executive Directors is more than 50% of the total numberof Directors. The composition of the Board is in conformity withClause 49 of the Listing Agreement. The management of theCompany is entrusted in the hands of the Key ManagementPersonnel of the Company and is headed by the ManagingDirector who operates under the supervision and control of theBoard. The Board reviews and approves strategy and overseesthe actions and results of management to ensure that the longterm objectives of enhancing stakeholder value are met.

Mr. Anand G. Mahindra, Mr. Bharat Doshi, Mr. Uday Y. Phadke,Dr. Pawan Goenka and Mr. Anjanikumar Choudhari, non-executive

Directors of your Company are in the whole-time employmentof the holding company, Mahindra & Mahindra Limited and drawremuneration from it. Apart from the above and apart from thereimbursements of expenses incurred in discharge of their dutiesand the remuneration that some of the non-executive Directorswould be entitled to under the Companies Act, 1956, none ofthe Directors has any other material pecuniary relationships ortransactions with the Company, its Promoters, its Directors, itsManagement, subsidiary and Associates which in their judgementwould affect their independence.

The Senior Management have made disclosures to the Boardconfirming that there are no material, financial and/or commercialtransactions between them and the Company which could havepotential conflict of interest with the Company at large.

Number of Board Meetings

The Board of Directors met five times during 2005-06 on 27thApril, 2005, 27th July, 2005, 27th October, 2005, 27th January,2006 and 6th March, 2006. The maximum gap between any twomeetings was not more than four months. All these meetingswere well attended.

Directors’ Attendance Record and Directorship Held

As mandated by Clause 49, none of the Directors is a memberof more than ten Board level Committees nor is any of them aChairman of more than five Committees in which they aremembers. Table 1 gives the details.

Composition of the Board

As on 31st March, 2006, MMFSL’s Board comprised tenmembers. The Chairman of the Board and four other membersare non-independent non-executive Directors. The ManagingDirector, is an executive of the Company while remaining fourare independent Directors. The names and categories ofDirectors, their attendance at the Board Meetings held duringthe year and at the last Annual General Meeting, as also thenumber of Directorships and Committee positions held by themin companies are given below:

Name of the Directors Category Number of Board Last Directorships Committee CommitteeMeetings AGM Memberships Chairmanships

Held Attended

Mr. Anand G. Mahindra Non-(Chairman) Independent

Non-executive 5 4 No 12 1 —Mr. Ramesh Iyer Executive(Managing Director) 5 5 Yes 3 2 —Mr. Bharat N. Doshi Non-

IndependentNon-executive 5 4 Yes 9 5 1

Table 1: Composition of the Board of Directors

No. of Directorships and Committeememberships / chairmanships #

Attendance Particulars

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Name of the Directors Category Number of Board Last Directorships Committee CommitteeMeetings AGM Memberships Chairmanships

Held Attended

No. of Directorships and Committeememberships / chairmanships #

Attendance Particulars

Information Supplied to the Board

The Company sends a detailed agenda folder to each Director inadvance of Board and Committee meetings. To enable the Boardto discharge its responsibilities effectively, the Managing Directorapprises the Board at every meeting on the overall performanceof the Company, followed by presentations by the Chief FinancialOfficer. A detailed functional report is also placed at BoardMeetings. The Board also reviews strategy and business plans,annual operating and capital expenditure budgets, investmentand exposure limits, review of major legal issues, adoption ofquarterly/half-yearly/annual results, transactions pertaining topurchase/disposal of property, major accounting provisions andwrite-offs, corporate restructuring, minutes of Meetings of theAudit and other Committees of the Board and information onrecruitment of Officers just below the Board level, including theCompliance Officer.

The Board periodically reviews compliance reports of all lawsapplicable to the Company, prepared by the Company as well as

steps taken by the Company to rectify instances of non-compliances. In addition to the above, pursuant to the revisedClause 49, the minutes of the Board meetings of your Company’sunlisted subsidiary company and a statement of all significanttransactions and arrangements entered into by the unlistedsubsidiary company are also placed before the Board.

Remuneration Policy

The success of the organisation in achieving good performanceand good governing practice depends on its ability to attract andretain quality individuals as executive and non-executive Directors.While deciding on the remuneration to directors, the Board,Remuneration/Compensation Committee considers theperformance of the Company, the current trends in the industry,the qualification of the appointee, his experience, pastperformance and other relevant factors.

Remuneration paid to Directors

Detailed information of Directors’ remuneration for the year 2005-

Mr. Alan E. Durante * Non-IndependentNon-executive 2 1 No — — —

Mr. Uday Y. Phadke Non-IndependentNon-executive 5 5 No 8 8 2

Dr. Pawan Goenka** Non-IndependentNon-executive 3 2 No 6 3 —

Mr. Dipak Rudra *** Non-IndependentNon-executive 1 1 No — — —

Mr. Anjanikumar Non-Choudhari@ Independent

Non-executive 5 4 No 3 2 —

Mr. Dhananjay Mungale Independent 5 3 No 9 7 4

Mr. M. G. Bhide Independent 5 5 Yes 9 8 4

Mr. Nasser Munjee Independent 5 3 No 14 9 1

Mr. Piyush Mankad Independent 5 5 No 9 2 —

Notes:

* Resigned with effect from 25th September, 2005** Appointed with effect from 27th October, 2005*** Ceased to be a Director with effect from 10th June, 2005@ Appointed with effect from 27th April, 2005# Excludes Directorships in private limited companies, foreign companies and government bodies but includes Directorships in

MMFSL. Committees considered are Audit Committee and Shareholders Grievance Committee including in MMFSL.

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06 is set forth in Table 2.

The eligible non-executive Directors are paid commission up toa maximum of 1% of the net profits of the Company as specificallycomputed for this purpose. A commission of Rs. 24 lakhs hasbeen provided as payable to the eligible non-executive Directors

in the accounts of 2005-06. In addition, non-executive Directorsare also paid a sitting fee of Rs. 5,000 for every Meeting of theBoard or Committee attended.

Remuneration paid to the Managing Director is fixed by theRemuneration/ Compensation Committee and thereafterapproved by shareholders at a General Meeting.

Table 2: Details of remuneration paid to Directors in 2005-06

Super-

Salary annuation

Sitting and and

Fees Perquisites Provident Commission Total Stock

Name of the Director Category (Rs.) (Rs.) Fund# (Rs.) (Rs.) (Rs.) Options

Mr. Anand G. Mahindra Non-executive N.A. N.A. N.A. Nil Nil N.A. Mr. Ramesh Iyer $ Executive N.A. 40,76,573 3,35,510 20,90,000 65,02,083 1,00,000

Mr. Bharat N. Doshi Non-executive N.A. N.A. N.A. Nil Nil 2,00,000 Mr. Alan E. Durante * Non-executive N.A. N.A. N.A. Nil Nil N.A. Mr. Uday Y. Phadke Non-executive 50,000 N.A. N.A. Nil 50,000 10,000 Dr. Pawan Goenka** Non-executive 10,000 N.A. N.A. Nil 10,000 10,000 Mr. Dipak Rudra *** Non-executive 5,000 N.A. N.A. Nil 5,000 N.A. Mr. Anjanikumar Choudhari@ Non-executive 15,000 N.A. N.A. Nil 15,000 10,000 Mr. Dhananjay Mungale Independent 30,000 N.A. N.A. 6,00,000 6,30,000 10,000

Mr. M. G. Bhide Independent 50,000 N.A. N.A. 6,00,000 6,50,000 10,000 Mr. Nasser Munjee Independent 35,000 N.A. N.A. 6,00,000 6,35,000 10,000 Mr. Piyush Mankad Independent 25,000 N.A. N.A. 1,00,000 1,25,000 10,000

Notes:$ The notice period for Managing Director is three months. Commission is the only component of remuneration that is performance

linked. All other components are fixed. Details regarding the Stock Options granted to the Managing Director are given in theAnnexure I to the Directors’ Report.

* Resigned with effect from 25th September, 2005** Appointed with effect from 27th October, 2005*** Ceased to be a Director with effect from 10th June, 2005@ Appointed with effect from 27th April, 2005# Aggregate of the Company’s contributions to Superannuation Fund and Provident Fund.

During 2005-06, the Company did not advance any loans to anyof its Directors.

A total of 2,70,000 Stock Options have been granted to non-executive Directors under the Company’s Stock Option Schemein the year under review. Details of these are given in theAnnexure I to the Directors’ Report.

Shares and Convertible Instruments Held By Non-Executive

Directors

Apart from Mr. Bharat Doshi who holds 240 shares in theCompany, no other non-executive Director holds any shares and/or convertible instruments in the Company, other than the abovestated Stock Options.

Code of Conduct

The Board has laid down Codes of Conduct for Board membersand for senior management personnel of the Company. TheCodes have been posted on the Company’s websitewww.mahindrafinance.com. All Board members and

senior management personnel have affirmed compliancewith the Code of Conduct. A declaration signed by theManaging Director to this effect is enclosed at the endof this report.

Risk Management

The Company has a well-defined risk management frameworkin place. The risk management framework adopted by theCompany is discussed in detail in the Management Discussionand Analysis chapter of this Annual Report. The Company hasestablished procedures to periodically place before the Boardthe risk assessment and minimisation procedures being followedby the Company and steps taken by it to mitigate these risks.

Committees of the Board

The Company has, interalia, four Board level Committees – AuditCommittee, Remuneration/Compensation Committee, ShareTransfer and Shareholders/Investors Grievance Committee andAsset Liability Committee.

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All decisions pertaining to the constitution of Committees,appointment of members and fixing of terms of service forCommittee members is taken by the Board of Directors. Detailson the role and composition of these Committees, including thenumber of meetings held during the financial year and the relatedattendance, are provided below:

a) Audit Committee

As on 31st March, 2006, the Audit Committee comprisedfour non-executive Directors, of which three are independent.The Committee comprises Mr. M. G. Bhide (Chairman),Mr. Dhananjay Mungale and Mr. Nasser Munjee, all threebeing independent Directors, and Mr. Uday Y. Phadke, a non-executive Director.

The terms of reference of this Committee are very wide.

Besides having access to all the required information fromwithin the Company, the Committee can obtain externalprofessional advice whenever required. The Committee actsas a link between the Statutory and the Internal Auditors andthe Board of Directors of the Company. It is authorised to selectand establish accounting policies, review reports of theStatutory and the Internal Auditors and meet with them todiscuss their findings, suggestions and other related matters.The Committee is empowered to review the remunerationpayable to the Statutory Auditors and to recommend a changein Auditors, if felt necessary. It is also empowered to reviewFinancial Statements and investments of unlisted subsidiarycompany, Management Discussion & Analysis, Materialindividual transactions with related parties not in normal courseof business or which are not on an arm’s length basis. Generallyall items listed in Clause 49 II D of the Listing Agreement arecovered in the terms of reference. The Audit Committee hasbeen granted powers as prescribed under Clause 49 II C.

The Chairman of the Audit Committee, Mr. M.G. Bhide waspresent at the Annual General Meeting of the Company heldon 10th June, 2005.

The Audit Committee met five times during the year on 26thApril, 2005, 27th July, 2005, 27th October, 2005, 27th January,2006 and 6th March, 2006.The time gap between any twomeetings was less than four months. The details of the AuditCommittee are given in Table 3.

Table 3 : Attendance record of MMFSL’s Audit Committee

Name of Category Status No. of MeetingsMembers Held Attended

Mr. M. G. Bhide Independent Chairman 5 5

Mr. Uday Y. Non-executive Member 5 5Phadke

Mr. Dhananjay Independent Member 5 3Mungale

Mr. Nasser Independent Member 5 4Munjee

The Managing Director, the Chief Financial Officer, ChiefInternal Auditor of Mahindra & Mahindra Limited and StatutoryAuditors are regularly invited to attend the Audit Committee

meetings. The Company Secretary is the Secretary to theCommittee.

All the members of the Audit Committee possess strongaccounting and financial management knowledge.

b) Remuneration/Compensation Committee

As on 31st March, 2006, the Remuneration /CompensationCommittee comprised six members Mr. Piyush Mankad(Chairman), Mr. Dhananjay Mungale and Mr. Nasser Munjee, allindependent Directors and Mr. Anand G. Mahindra, Mr. BharatN. Doshi and Mr. Uday Y. Phadke, non-executive Directors.

The role of the Remuneration/Compensation Committee isto look into the entire gamut of remuneration package forthe working director(s) and revise their remuneration suitablywithin the limits prescribed under the Companies Act, 1956,decide on commission payable to the Directors within theprescribed limits and as approved by the shareholders of theCompany, formulate and administer Employees’ Stock OptionScheme and to attend to such other matters and functionsas may be prescribed from time to time.

The Committee met three times during the year under reviewon 21st April, 2005, 27th July, 2005 and 24th October, 2005.The attendance details of the Committee are given in Table 4.

Table 4: Attendance record of MMFSL’s Remuneration /Compensation Committee

Name of Category Status No. of MeetingsMembers Held Attended

Mr. PiyushMankad* Independent Chairman 3 —

Mr. Anand G.Mahindra Non-executive Member 3 2

Mr. Bharat N.Doshi Non-executive Member 3 3

Mr. Dhananjay

Mungale** Independent Member 3 1

Mr. NasserMunjee** Independent Member 3 2

Mr. Uday Y.Phadke Non-executive Member 3 3

* Appointed as Chairman and Member with effect from6th March, 2006.

** Appointed as a Member with effect from 27th July, 2005.

c) Share Transfer and Shareholders/Investors GrievanceCommittee

The Company’s Share Transfer and Shareholders/ InvestorsGrievance Committee comprises four members – Mr. UdayY. Phadke, (Chairman) non-executive Director, Mr. DhananjayMungale, independent Director, Mr. Nasser Munjee,independent Director and Mr. Ramesh Iyer, Managing Director.

The Committee meets as and when required, to deal with

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Mr. Uday Y. Phadke, non-executive Director and Mr. DhananjayMungale, independent Director, are the members of theCommittee. The Committee held two meetings during theyear under review.

Subsidiary CompaniesThe revised Clause 49 defines a “material non-listed Indiansubsidiary” as an unlisted subsidiary, incorporated in India, whoseturnover or net worth (i.e. paid up capital and free reserves)exceeds 20% of the consolidated turnover or net worthrespectively, of the listed holding company and its subsidiariesin the immediately preceding accounting year.Under this definition, the Company does not have a ‘materialnon-listed Indian subsidiary’.

ManagementManagement Discussion and AnalysisAnnual Report has a detailed chapter on Management Discussionand Analysis.

DisclosuresDuring the financial year 2005-06, there were no materiallysignificant transactions entered into between the Company andits promoters, Directors or the management, subsidiaries orrelatives, etc. that may have potential conflict with the interestsof the Company at large. Further details of related partytransactions are presented in note no. “20” in Schedule “XX” toAnnual Accounts of the Annual Report.

Disclosure of Accounting Treatment in Preparation ofFinancial StatementsThe Company has followed the Guidelines of AccountingStandards laid down by the Institute of Chartered Accountantsof India (ICAI) in preparation of its financial statements.

Details of Non-Compliance by the CompanyThe Company has complied with all the requirements ofregulatory authorities. No penalties/strictures were imposed onthe Company by Stock Exchanges or SEBI or any statutoryauthority on any matter related to capital market since the listingof the Company’s equity shares.

Code for Prevention of Insider-Trading PracticesIn compliance with the SEBI regulation on prevention of insider trading,the Company has instituted a comprehensive Code of Conduct forprevention of Insider Trading for its designated employees. The Codelays down Guidelines, which advises them on procedures to befollowed and disclosures to be made, while dealing with shares ofthe Company, and cautioning them of the consequences of violations.ShareholdersRe-appointment/Appointment of DirectorsPursuant to the Articles of Association of the Company, at everyAnnual General Meeting of the Company, one-third of the rotationalDirectors retire by rotation or if their number is not three or amultiple of three, the number nearest to one-third retire from office.Mr. Bharat N. Doshi, Mr. Nasser Munjee and Mr. M.G. Bhide,Directors retire by rotation and being eligible, have offeredthemselves for re-appointment. Dr. Pawan Goenka, who wasappointed in the casual vacancy caused by the resignation of Mr.Alan E. Durante, holds office upto the forthcoming Annual GeneralMeeting. The Company has received a Notice from a Member

matters relating to transfers/transmissions of shares anddebentures and monitors redressal of complaints fromshareholders relating to transfers, non-receipt of balance-sheet, non-receipt of dividends declared, etc.

During the year under review, the Committee held threemeetings.The Committee met on 30th September, 2005, 9thDecember, 2005 and 23rd February, 2006. The attendancedetails of the Committee are given in Table 5.

Table 5: Attendance record of MMFSL’s Share Transfer andShareholders/Investors Grievance Committee

Name of Category Status No. of MeetingsMembers Held AttendedMr. Uday Y.Phadke Non-executive Chairman 3 3Mr. DhananjayMungale Independent Member 3 2Mr. DipakRudra* Non-executive Member 3 —Mr. NasserMunjee ** Independent Member 3 —Mr. Ramesh ManagingIyer** Director Member 3 2

* Ceased to be a Member with effect from 10th June, 2005.** Appointed with effect from 27th October, 2005.

Details of queries and grievances received and attended to bythe Company during the year 2005-06 are given in Table 6.

Table 6: Nature of grievances received and attended to during2005-06

Nature of Pending as Received Answered PendingComplaint on during during as on

1st April, the the 31st March,2005 year year 2006

1.Status of ShareApplication 0 68 45 23 *

2.Non Receipt ofRefund 0 64 37 27 *

3.Non Receipt ofElectronic Credit 0 208 187 21 *

4.Correction ofRefund Orders 0 165 110 55 *

5.DuplicateRefund Order 0 17 17 0TTTTTotalotalotalotalotal 0 522 396 126 *

* Since then all of these have been attended/resolved.

d) Asset Liability CommitteeThe Asset Liability Committee (ALCO) was constituted bythe Board in 2001. It reviews the working of the Asset LiabilityWorking Committee, its findings and reports in accordancewith the guidelines of the Reserve Bank of India.

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The details of Directors seeking appointment/reappointment atthe forthcoming Annual General Meeting is set forth in Table 7.

TTTTTable 7: Detai ls of Dirable 7: Detai ls of Dirable 7: Detai ls of Dirable 7: Detai ls of Dirable 7: Detai ls of Directors seeking appointment/ectors seeking appointment/ectors seeking appointment/ectors seeking appointment/ectors seeking appointment/rrrrreappointment to the Boareappointment to the Boareappointment to the Boareappointment to the Boareappointment to the Boarddddd

Name of DirName of DirName of DirName of DirName of Directorectorectorectorector MrMrMrMrMr. Bharat N. Doshi. Bharat N. Doshi. Bharat N. Doshi. Bharat N. Doshi. Bharat N. DoshiDate of Birth 12th June, 1949Date of Appointmentto the Board 30th March, 1992Expertise in specific Finance and Accounts, Corporatefunctional area Affairs and Information Technology

and Trade and FinanceQualifications B.Com., FCA, FCS, LLM,Participated

in the Programme for ManagementDevelopment at the HarvardBusiness School

Directorship in Mahindra & Mahindra Ltd.Public Limited Mahindra Intertrade Ltd.Companies Mahindra & Mahindra Financial

Services Ltd.Mahindra Steel Service Centre Ltd.Tech Mahindra Ltd.Mahindra Holdings & Finance Ltd.Mahindra International Ltd.NSE.IT Ltd.Godrej Consumer Products Ltd.

Membership of Committees in Public Limited CompaniesAudit Committee Tech Mahindra Ltd.

Mahindra Steel Service Centre Ltd.Godrej Consumer Products Ltd.Mahindra International Ltd.

Shareholders/Investors Mahindra & Mahindra Ltd.Grievance CommitteeRemuneration Mahindra Intertrade Ltd.Committee Mahindra & Mahindra Financial

Services Ltd.

Shareholding of 240Director in theCompany

Name of DirName of DirName of DirName of DirName of Directorectorectorectorector MrMrMrMrMr. Nasser Munjee. Nasser Munjee. Nasser Munjee. Nasser Munjee. Nasser MunjeeDate of Birth 18th November, 1952Date of Appointment 17th March, 2003to the BoardExpertise in specific Monetary economistfunctional areaQualifications M.Sc. (Economics) U.K.Directorship in Public Development Credit Bank Ltd.Limited Companies ABB Ltd.

Cummins India Ltd.Gujarat Ambuja Cements Ltd.

HDFC Ltd.ITD Cementation India Ltd.Maharashtra Airport DevelopmentCompany Ltd.Mahindra & Mahindra FinancialServices Ltd.Repro India Ltd.Securities Trading Corporation ofIndia Ltd.South West Port Ltd., GoaUnichem Laboratories Ltd.Voltas LimitedAXA Bharti Life Insurance Co. Ltd.

Membership of Committees in Public Limited Companies

Audit Committee ABB LimitedCummins LimitedMaharashtra Airport DevelopmentCompany LimitedMahindra & Mahindra FinancialServices LimitedSecurities Trading Corporation ofIndia LimitedSouth West Port Limited, GoaUnichem Laboratories LimitedVoltas Limited

Remuneration Gujarat Ambuja Cements LimitedCommittee ITD Cementation India Limited

Maharashtra Airport DevelopmentCompany LimitedMahindra & Mahindra FinancialServices LimitedSouth West Port Limited, GoaVoltas Limited

Shareholders/Investors Mahindra & Mahindra FinancialGrievance Committee Services LimitedShareholding of NilDirector in the Company

Name of Director Mr. M. G. BhideDate of Birth 14th February, 1939Date of Appointment 24th October, 2000to the BoardExpertise in specific Banking and Financefunctional areaQualifications MA, CAIIBDirectorship in Public CRISIL Ltd.Limited Companies Shipping Corporation of India Ltd.

Finolex Industries Ltd.Mahindra Shubhlabh Services Ltd.Mahindra & Mahindra FinancialServices Ltd.Indian Oiltanking Ltd.Asset Reconstruction Co. (India) Ltd.Global Trade Finance Ltd.CRISIL Research & InformationServices Ltd.

signifying his intention to propose Dr. Pawan Goenka as candidatefor the office of Director of the Company. Mr. Ramesh Iyer wasreappointed by the Board as the Managing Director of the Companyfor a further period of 5 years with effect from 30th April, 2006,subject to the approval of the Members of the Company.

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Audit Committee CRISIL Ltd.Shipping Corporation of India Ltd.Finolex Industries Ltd.Mahindra Shubhlabh Services Ltd.Mahindra & Mahindra FinancialServices Ltd.Global Trade Finance Ltd.

Remuneration Mahindra Shubhlabh Services Ltd.Committee Asset Reconstruction

Co. (India) Ltd.

Shareholders/Investors Shipping Corporation of India Ltd.Grievance Committee Finolex Industries Ltd.

Shareholding of NilDirector in theCompany

Name of Director Dr. Pawan Kumar Goenka

Date of Birth 23rd September, 1954

Date of Appointment 27th October, 2005to the Board

Expertise in specific Automotive Design,functional area Manufacturing and Marketing

Qualifications Mechanical Engineer with B. Techfrom IIT, Kanpur and Ph.D fromCornell University, U.S.A., AdvancedManagement Programme fromHarvard Business School

Directorship in Public Mahindra Engineering Design &Limited Companies Development Company Ltd.

Mahindra & Mahindra FinancialServices Ltd.Mahindra Intertrade Ltd.Mahindra International Ltd.Mahindra Renault Pvt. Ltd.Plexion Technologies (India) Pvt. Ltd.


Audit Committee Mahindra Engineering Design &Development Company Ltd.Mahindra Renault Pvt. Ltd.Mahindra International Ltd.

Remuneration Mahindra International Ltd.Committee Mahindra Renault Pvt. Ltd.


Name of Director Mr. Ramesh G. Iyer

Date of Birth 4th June, 1958

Date of Appointment 30th April, 2001to the Board

Expertise in specific Financefunctional area

Qualifications B.Com., MBA

Directorship in Public Mahindra & Mahindra FinancialLimited Companies Services Ltd.

Mahindra Insurance Brokers LimitedAutomartindia Limited


Audit Committee Mahindra Insurance Brokers Limited

Shareholders/Investors Mahindra & Mahindra FinancialGrievance Committee Services Limited


Means of Communication with Shareholders

The Company has recently got listed at the Stock Exchangesand will publish quarterly, half-yearly and annual results in nationaland local dailies. The Company’s results and official news releasesare displayed on its website:http://www.mahindrafinance.com.The Company also makes presentations to international andnational institutional investors and analysts, which are also putup on its website. The Company also regularly posts informationrelating to its financial results and shareholding pattern onElectronic Data Interpretation, Filing and Retrieval System(EDIFAR) at www.sebiedifar.nic.in.

General Body Meetings

Details of General Meetings held in the last three years

Table 8 : Details of Annual General Meetings and SpecialResolutions passed:

Year Date Time Special Resolutions passed

2003 19th June, 3.00 p.m. 1. Issue of Redeemable2003 Preference Shares

2. Increase in AuthorisedShare Capital of the Company

3. Alteration of Clause V of theMemorandum ofAssociation of the Company

4. Alteration of Article 3 of theArticles of Association of theCompany

2004 2nd 5.00 p.m. NoneAugust,2004

281


2005 10th June, 3.00 p.m. 1. Payment of Commission to2005 Non-wholetime Directors of

the Company

2. Approval for Commencement of new business

Table 9 : Details of Extraordinary General Meetings heldduring the past 3 years:

Year Date Time

2004 8th March, 2004 3.00 p.m.

2004 10th December, 2004 3.00 p.m.

2005 24th October, 2005 5.30 p.m.

2005 14th November, 2005 5.00 p.m.

2005 9th December, 2005 5.00 p.m.

2006 3rd January, 2006 10.00 a.m.

Except for the AGM held in the year 2003 which was convenedat Mahindra Towers, Dr. G. M. Bhosale Marg, P. K. Kurne Chowk,Worli, Mumbai – 400 018, all other Meetings were held atSadhana House, 2nd Floor, Behind Mahindra Towers, P. B. Marg,Worli, Mumbai – 400 018.

Postal Ballot

None of the resolutions was required to be put through postalballot.

Compliance

Mandatory Requirements

The Company is fully compliant with the applicable mandatoryrequirements of the revised Clause 49.

Adoption of Non-Mandatory Requirements

The Company has adopted the following non-mandatoryrequirements of Clause 49 of the Listing Agreement relating toCorporate Governance.

The Company has set up the Remuneration/CompensationCommittee. Details of the Remuneration /CompensationCommittee have been provided under the Section‘Remuneration/Compensation Committee’.

The financial statements of the Company are unqualified.

Additional Shareholder Information

16th Annual General MeetingDate : 10th July, 2006Time : 3.30 p.m.Venue : Y. B. Chavan Centre, Gen. Jagannathrao Bhosale

Marg, Next to Sachivalaya Gymkhana, NarimanPoint, Mumbai – 400 021.

Financial Year of the Company

The financial year covers the period from 1st April, to31st March.

Financial Reporting for :Quarter ending 30th June, 2006 - End July, 2006Half-year ending 30th September, 2006 - End October, 2006Quarter ending 31st December, 2006 - End January, 2007Year ending 31st March, 2007 - End April, 2007Note: The above dates are indicative

Book Closure

From 17th June, 2006 to 10th July, 2006, inclusive of both days.

Dividend Payment

A dividend of Rs. 2.00 per equity share will be paid on or after10th July, 2006 subject to approval by the shareholders at theAnnual General Meeting.

Registered Office

Gateway Building, Apollo Bunder, Mumbai - 400 001.

Listing

The Company’s Shares are listed on National Stock Exchange ofIndia Limited (NSE) and Bombay Stock Exchange Limited(BSE).The requisite listing fees have been paid in full to boththese Stock Exchanges.

The non-convertible Debentures of the Company are listed withthe BSE and the Company has paid the requisite listing fees in full.

Table 1: MMFSL’s stock exchange codes

BSE 532720NSE M&MFINDemat ISIN in NSDL andCDSL for Equity Shares INE774D01016

282


Distribution of Shareholding

Table 3 and 4 list the distribution of the shareholding of the equityshares of the Company by size and by ownership class as on31st March, 2006.

Table 3: Shareholding pattern by size as on 31st March, 2006

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

1 – 5000 94,995 40,24,857 4.685001 – 10000 273 2,07,649 0.2410001 – 20000 194 2,76,607 0.3220001 – 30000 78 1,90,489 0.2230001 – 40000 41 1,42,175 0.1640001 – 50000 42 1,96,618 0.2350001 – 100000 72 5,03,897 0.59100001 & Above 118 8,04,58,233 93.56

Total 95,813 8,60,00,525 100.00

Table 4: Shareholding pattern by ownership as on 31st March,2006

No. of shares held % of shareholding

Promoters 5,82,41,532 67.72Persons acting inconcert 26,86,550 3.13Mutual Funds & UTI 6,77,712 0.79Banks, FinancialInstitutions,Insurance companies 78,890 0.09FIIs 1,63,97,046 19.06Bodies Corporate 14,61,679 1.70Indian Public 59,41,947 6.91NRIs 49,211 0.06Trusts 1,298 0.00HUF 3,09,437 0.36Directors 240 0.00Clearing Members 1,54,983 0.18Total 8,60,00,525 100.00

(BSE) (NSE)

Day and Month High Low Volume High Low Volume(Rs.) (Rs.) (Nos.) (Rs.) (Rs.) (Nos.)

17th March, 2006 250.00 205.20 9567799 243.80 205.15 2006111120th March, 2006 241.80 229.00 1888272 241.70 230.00 345064021st March, 2006 253.90 235.00 3454514 253.70 235.50 520970822nd March, 2006 244.70 231.00 780843 244.60 228.10 191139723rd March, 2006 247.90 234.00 1297343 248.40 233.90 217022424th March, 2006 246.70 238.20 630345 248.70 240.35 109242827th March, 2006 249.00 242.00 380337 248.40 242.10 55783128th March, 2006 257.90 244.85 1139715 258.00 243.50 190137729th March, 2006 254.50 244.00 203496 254.15 245.00 33495130th March, 2006 251.85 241.10 165597 251.65 241.70 25821431st March, 2006 246.20 239.00 128681 246.90 239.40 156175

The Equity Shares of the Company were listed on the Stock Exchanges on 17th March, 2006

Stock Market Data

Table 2 and Chart A give the required details

Table 2: High, lows and volume of Company’s shares for 2005-06 at BSE and NSE

Chart A: MMFSL’s share performance versus BSE Sensex

283


Dematerialisation of Shares

As on 31st March, 2006, 91% of the total equity capital was heldin dematerialised form with National Securities DepositoryLimited and Central Depository Services (India) Limited.Registrar and Transfer AgentKarvy Computershare Private LimitedUnit: Mahindra & Mahindra Financial Services Limited“Karvy House”, 46 Avenue 4,Street No.1, Banjara Hills,Hyderabad - 500 034.Tel: +91-040-23420815 to 820, Fax: + 91-040-23420814/57email: [email protected] Registrars and Transfer Agents also have an office at:Karvy Computershare Private Limited16/22, Bake House,Maharashtra Chamber of Commerce Lane,Opp. MSC Bank, Fort, Mumbai – 400 023.Tel: +91-022-66382666, Fax: +91-022-6633 1135

Share Transfer System

Trading in Equity Shares of the Company is permitted only indematerialised form. Shares sent for transfer in physical formare registered and returned within a period of thirty days fromthe date of receipt of the documents, provided the documentsare valid and complete in all respects. The Share Transfer andShareholders/Investors Grievance Committee meets as and

when required to consider the other transfer proposals and attendto shareholder grievances.

Address for Correspondence

Shareholders may correspond with the Registrars and TransferAgents at:

Karvy Computershare Private Limited

Unit: Mahindra & Mahindra Financial Services Limited

“Karvy House”, 46 Avenue 4,

Street No. 1, Banjara Hills,

Hyderabad - 500 034.

Tel: +91-040-23420815 to 820, Fax: + 91-040-23420814/57

email: [email protected]

on all matters relating to transfer/dematerialisation of shares,payment of dividend and any other queries relating to shares ofthe Company.

Shareholders would have to correspond with the respectiveDepository Participants for shares held in demat mode.

For all investor related matters, the Compliance Officer can becontacted at Sadhana House, 2nd Floor, Behind Mahindra Towers,570, P. B. Marg, Worli, Mumbai – 400 018.

Tel: +91-22-66526000, Fax:+91-22-24972741

email: [email protected]

Company website: http://www.mahindrafinance.com

284


MANAGING DIRECTOR’S DECLARATION ON CODE OF CONDUCT

As required by Clause 49 of the Listing Agreement, the CEO declaration for Code of Conduct is given below:

ToThe Members ofMahindra & Mahindra Financial Services Limited

I, Ramesh Iyer, Managing Director of the Company declare that all Board Members and Senior Management of the Company haveaffirmed compliance with the Code of Conduct.

For Mahindra & Mahindra Financial Services Limited

Mr. Ramesh Iyer

Managing Director


CERTIFICATE

TO THE MEMBERS OF MAHINDRA & MAHINDRA FINANCIAL SERVICES LIMITED

We have examined the compliance of conditions of Corporate Governance by Mahindra & Mahindra Financial Services Limited for theperiod from 17th March, 2006 to 31st March, 2006 as stipulated in clause 49 of the Listing Agreement of the said Company with thestock exchanges.

The compliance of conditions of Corporate Governance is the responsibility of management. Our examination was limited to proceduresand implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It isneither an audit nor an expression of opinion on the financial statements of the Company.

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

We state that in respect of investor complaints received upto 31st March, 2006, 126 investors complaints were pending against theCompany as on 31st March, 2006. We are informed by the Company that the same have since been resolved.

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

For B. K. KHARE & CO.


PADMINI KHARE KAICKER

PartnerMembership No. 44784


285


Auditors’ Report to the Members of

Mahindra and Mahindra Financial Services

Limited

We have audited the attached Balance Sheet ofM/s. MAHINDRA & MAHINDRA FINANCIAL SERM/s. MAHINDRA & MAHINDRA FINANCIAL SERM/s. MAHINDRA & MAHINDRA FINANCIAL SERM/s. MAHINDRA & MAHINDRA FINANCIAL SERM/s. MAHINDRA & MAHINDRA FINANCIAL SERVICESVICESVICESVICESVICESLIMITEDLIMITEDLIMITEDLIMITEDLIMITED, as at 31st March, 2006 and also the Profit and LossAccount for the year ended on that date annexed thereto. Thesefinancial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on thesefinancial statements based on our audit.

We conducted our audit in accordance with auditing standardsgenerally accepted in India. Those Standards require that weplan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accountingprinciples used and significant estimates made by management,as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for ouropinion.

As required by the Companies (Auditor’s Report) Order, 2003issued by the Central Government of India in terms of sub-section(4A) of section 227 of the Companies Act, 1956, as amendedfrom time to time, we enclose in the Annexure a statement onthe matters specified in paragraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, wereport that:

(i) We have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purpose of our audit;

(ii) In our opinion, proper books of account as required by lawhave been kept by the company so far as appears from our

examination of those books;

(iii) The Balance Sheet, Profit and Loss Account and Cash FlowStatement dealt with by this report are in agreement withthe books of account;

(iv) In our opinion, the Balance Sheet, Profit and Loss Accountand Cash Flow Statement dealt with by this report complywith the accounting standards referred to in sub-section(3C) of section 211 of the Companies Act, 1956;

(v) On the basis of written representations received from thedirectors, as on 31st March, 2006, and taken on record bythe Board of Directors, we report that none of the directorsis disqualified as on 31st March, 2006 from being appointedas a director in terms of clause (g) of sub-section (1) ofsection 274 of the Companies Act, 1956;

(vi) In our opinion and to the best of our information andaccording to the explanations given to us, the said accountsgive the information required by the Companies Act, 1956,in the manner so required and give a true and fair view inconformity with the accounting principles generally acceptedin India:

(a) in the case of the Balance Sheet, of the state of affairsof the Company as at 31st March, 2006, and

(b) in the case of the Profit and Loss Account, of the profitfor the year ended on that date.

(c) in the case of Cash Flow Statement, of the cash flowsfor the year ended as on that date.

ForForForForFor B. K. KHARE & CO.B. K. KHARE & CO.B. K. KHARE & CO.B. K. KHARE & CO.B. K. KHARE & CO.Chartered Accountants

PADMINI KHARE KAICKERPADMINI KHARE KAICKERPADMINI KHARE KAICKERPADMINI KHARE KAICKERPADMINI KHARE KAICKERPartner

Membership No. 44784Place : MumbaiDate : 27th April, 2006

286


ANNEXURE TO THE AUDITOR’S REPORANNEXURE TO THE AUDITOR’S REPORANNEXURE TO THE AUDITOR’S REPORANNEXURE TO THE AUDITOR’S REPORANNEXURE TO THE AUDITOR’S REPORTTTTT

AnnexurAnnexurAnnexurAnnexurAnnexure to the Auditor’e to the Auditor’e to the Auditor’e to the Auditor’e to the Auditor’s Repors Repors Repors Repors Report rt rt rt rt referefereferefereferrrrrred to in our red to in our red to in our red to in our red to in our reporeporeporeporeport oft oft oft oft ofeven date:even date:even date:even date:even date:

1. i. The company is maintaining proper records showingfull particulars, including quantitative details andsituation of fixed assets other than those leased bythe company.

ii. Some of the fixed assets have been physically verifiedby the management itself or by internal auditors duringthe year. In our opinion, management’s programme ofverification provides for physical verification of all fixedassets at reasonable intervals. No materialdiscrepancies were noticed on such verification. Thecompany has not verified the assets given by it onlease.

iii. Fixed assets disposed off during the year were notsubstantial and therefore do not affect going concernstatus.

2. Clause 4(ii) of Companies (Auditor’s Report) Order, 2003 isnot applicable to Stock on Hire.

3. i In our opinion and according to the information andexplanations provided to us, during the year, Companyhas granted unsecured loans to parties covered undersection 301 of the Companies Act, 1956 amountingto Rs. 1200.44 (number of parties 1). At the year-end,the outstanding balance of loans granted is Rs. 1300.44lacs (number of parties 2).

ii In our opinion and according to the information andexplanations provided to us, the rate of interest andother terms and conditions of such loans given by thecompany, secured or unsecured, are not prima facieprejudicial to the interest of the company.

iii The receipts of principal amount and interest haveduring the year been regular/as per stipulated termsand conditions, except in the case of a loan of Rs. 100lacs. As a matter of prudence, interest on the same isnot recognised during the year.

iv In our opinion and according to the information andexplanations given to us, except for the case referredto in (iii) above, management has taken reasonablesteps where the overdue amounts of more than Rs.1lac were outstanding at the end of the year.

v During the year, Company has taken unsecured loansaggregating to Rs. 4,320 lacs from 3 parties & securedloan amounting to Rs. 2,000 lacs from 1 party enteredin the register maintained under section 301 of theCompanies Act, 1956. At the year-end, the outstandingbalances of loans taken aggregated, to Rs 4,622.20lacs (number of parties 6).

vi In our opinion and according to the information andexplanations provided to us, the rate of interest andother terms and conditions of such loans, secured or

unsecured, taken by the company, are not prima facieprejudicial to the interest of the company.

vii In our opinion and according to the information andexplanations provided to us, during the year,payments of principal amount and interest have beengenerally regular / as per stipulated terms andconditions.

4. In our opinion and according to the information andexplanations given to us, the company is having an adequateinternal control system commensurate with the size andthe nature of its business, for the purchase fixed assetsand sale of services. The activities of the company do notinvolve purchase of inventory and sale of goods. No majorweaknesses in internal control system were noticed in thecourse of our audit.

5. i. In our opinion and according to the information andexplanations given to us all the particulars of contractsand arrangements referred in section 301 of the Acthave been entered in the register required to bemaintained under that section.

ii. In our opinion and according to the information andexplanations given to us each of these transactions inrespect of any such party during the financial year havebeen made at prices, which are reasonable, havingregard to the prevailing market prices at the relevanttime.

6. In our opinion and according to the information andexplanations given to us, the company has complied withthe directives issued by the Reserve Bank of India and theprovisions of sections 58A, 58AA and any other relevantprovisions of the Act and the rules framed there under, inrespect of deposits accepted from the public.

7. In our opinion and according to the information andexplanations provided to us the company has an internalaudit system, which is generally commensurate with itssize and nature of its business.

8. In respect of the activities of the company, maintenance ofcost records has not been prescribed by the CentralGovernment under clause (d) of sub-section (1) of section209 of the Act.

9. i On the basis of our examination of books of accountand according to the information and explanationsgiven to us the company is generally regular indepositing undisputed statutory dues includingProvident Fund, Investor Education and ProtectionFund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth Tax and Service Tax, cess and otherapplicable statutory dues with the appropriateauthorities.

ii Following are the disputed tax dues that have not beendeposited since the matters are pending before variousforums:

287


* The demands have been fully met partly by payment andpartly adjusted against refunds due to the Company.

** Rs. 200.00 lacs have been paid.

10. The company does not have any accumulated losses atthe end of the financial year and has not incurred cashlosses in the financial year under audit or in the immediatelypreceding financial year.

11. On the basis of our examination of books of account anddocuments and according to the information andexplanations given to us the company has not defaulted inrepayment of dues to any financial institution or bank ordebenture holders.

12. From the examination of books of account and accordingto the information and explanations provided to us, thecompany has not granted any loans or advances on thebasis of security by way of pledge of shares, debenturesand other securities.

13. The company is not a Chit fund, nidhi, mutual benefit fundor a society.

14. The company is not dealing or trading in shares, securities,debentures or any other investments.

15. In our opinion and according to the information andexplanations given to us the company has not given anyguarantee for loans taken by others from bank or financialinstitutions, the terms and conditions whereof areprejudicial to the interest of the company.

16. In our opinion and according to the information andexplanations given to us, during the year, term loans wereapplied for the purpose for which the loans were obtained.

17. On the basis of overall examination of the financialstatements and other financial information furnished,including the statement of Structural Liquidity prepared inaccordance with the Reserve Bank of India Guidelines, wereport that the company has not used short-term funds forlong-term investments.

18. During the year, the Company has made allotment of26,86,550 equity shares of Rs.10 each at a premium of Rs.41each, to Mahindra & Mahindra Financial Services LimitedEmployees’ Stock Option Trust on preferential basis beingentity covered in the register maintained under section 301of the Companies Act, 1956. The difference between issueprice and intrinsic value of shares is being amortised overthe period of vesting of Stock Options. Charge to Profit andLoss Account for the current year is Rs.78.80 lacs and theamount carried forward is Rs.324.18 lacs. (Refer Note 1 ofNotes to the Accounts). The allotment of share has beenmade under the scheme of employee compensation and inour opinion the price at which shares have been allotted onpreferential basis is not prima facie prejudicial to the interestof the company.

19. On the basis of our examination of books of account anddocuments and according to the information andexplanations given to us appropriate securities have beencreated in respect of secured debentures issued by thecompany.

20. During the year, company has made initial public issue ofits equity shares for financing / funding the loandisbursements to customers and for other general corporatepurposes. We have verified the management’s disclosureof end use of money raised through public issue. (ReferNote - 3 of Notes to the Accounts)

21. According to the information and explanations given to usno fraud of material nature, on or by the company has beennoticed or reported during the year.

For B. K. KHARE & CO.


PADMINI KHARE KAICKER

Partner

Membership No. 44784

Place : Mumbai

Date : 27th April, 2006

Governing Nature of Amount Period to Forum whereStatutes Dues (Rs. in lacs) which the dispute is pending

amount relates(Financial Year)

145.14 * 1996 - 1997 Appellate Authority -Tribunal

146.01 * 1999 - 2000 Appellate Authority -Tribunal

Income Income 287.19 * 2001 - 2002 Appellate Authority -Tax Laws Tax Tribunal

609.40 ** 2002 - 2003 Appellate Authority –Commissioner of

Income Tax

Sales Tax Sales tax 98.48 * 2001 - 2002 Appellate Authority -Laws Deputy Commissioner

of Sales Tax

Service Service tax 88.41 2004 - 2005 Appellate Authority -Tax Laws Assistant Commissioner

of Service Tax

288


Balance Sheet As on March 31, 2006

March 2006 March 2005Schedule Rs. in lacs Rs. in lacs

SOURCES OF FUNDS:

Shareholders' Funds:Capital ......................................................................................... I 13,331.40 12,015.61Employee Stock Option Outstanding.......................................... II 78.80 0.00Reserves & Surplus ................................................................... III 59,868.27 28,541.70

73,278.47 40,557.31Loan Funds:Secured Loans ............................................................................ IV 348,368.71 220,357.19Unsecured Loans ........................................................................ V 39,925.61 25,057.38

461,572.79 285,971.88


Fixed Assets:Gross Block ................................................................................. 3,483.01 2,461.62Less: Depreciation ...................................................................... 1,211.65 834.61

Net Block .................................................................................... VI 2,271.36 1,627.01Add: Advance for purchase of Capital Assets ............................. 26.01 54.07

2,297.37 1,681.08Intangible Assets ....................................................................... VII 117.98 56.27Investments ............................................................................... VIII 31,685.15 3,682.82Working Capital Fund: ..............................................................Current Assets, Loans & Advances .........................................Stock on Hire (Net of unmatured finance charges) ..................... 52.46 149.02Sundry Debtors ........................................................................... 212.77 1,314.19Other Current Assets .................................................................. 33.04 75.50Cash & Bank Balances ................................................................ 13,026.41 11,137.07Loans & Advances ...................................................................... 443,027.08 289,733.35

IX 456,351.76 302,409.13Less: Current Liabilities ............................................................ X 28,078.07 21,502.30

Provisions ....................................................................... XI 5,476.03 3,991.00

Net Current Assets .................................................................... 422,797.66 276,915.83Deferred Tax Asset (Refer Notes to the Accounts -21) ........... 4,674.63 3,635.88

461,572.79 285,971.88

The Schedules referred to above form an integral part of the Balance Sheet.

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

For B. K. Khare & Co. Anand G. Mahindra ChairmanChartered Accountants Ramesh Iyer Managing Director

Bharat Doshi

Anjanikumar Choudhari

Uday Y. Phadke

Dhananjay Mungale

M.G. BhideDirectors

Padmini Khare Kaicker V.Ravi Narayan Shankar Nasser Munjee

Partner Chief Financial Officer Company Secretary Piyush Mankad

Pawan Goenka

Mumbai, 27th April, 2006 Mumbai, 27th April, 2006

289


Profit & Loss Account for the year ended March 31, 2006

March 2006 March 2005Schedule Rs. in lacs Rs. in lacs

INCOME:Income from Operations ............................................................. XII 58,231.65 39,693.66Other Income .............................................................................. XIII 1,409.22 782.67

TOTAL INCOME ......................................................................... 59,640.87 40,476.33EXPENDITURE:Financial Expenses ...................................................................... XIV 21,944.16 13,320.02Employee Cost ............................................................................ XV 4,054.66 2,714.27Provisions & Write Offs .............................................................. XVI 8,160.64 5,600.17Depreciation & Amortisation ....................................................... XVII 517.33 384.86Other Expenses .......................................................................... XVIII 8,748.64 5,175.75

TOTAL EXPENDITURE .............................................................. 43,425.43 27,195.07

PROFIT BEFORE TAXATION ..................................................... 16,215.44 13,281.26

Less : Current tax ............................................................... 6,297.00 5,583.00Add/(Less): Deferred tax ............................................................. (1,038.74) (529.51)Less : Provision for Fringe Benefit Tax ............................... 128.50 0.00Less : Provision for Wealth tax ........................................... 1.44 1.10

PROFIT AFTER TAXATION ........................................................ 10,827.24 8226.67

Add/Less : Excess/(Short) Provision for Income Tax - earlier years (net) 0.00 1.53

10,827.24 8,228.20Add: Balance profit for earlier year ...................... 10,164.09 7,022.35

AMOUNT AVAILABLE FOR APPROPRIATION ......................... 20,991.33 15,250.55

APPROPRIATION:General Reserve ......................................................................... 1,090.00 830.00Statutory Reserve ....................................................................... 2,166.00 1,646.00Debenture Redemption Reserve ................................................ 0.00 0.00Dividend on Preference Shares (Interim) .................................... 345.00 176.75Corporate Dividend Tax on Preference Shares (Interim) ............. 48.39 23.10Dividend On Equity Shares (Interim) ........................................... 1,052.34 1,030.60Corporate Dividend Tax on Equity Shares (Interim) .................... 147.59 134.68Proposed Dividend on Equity Shares (Final) ............................... 1,635.08 1,092.16Corporate Dividend Tax on Equity Shares (Final) ........................ 229.32 153.17Balance Profit carried to Balance Sheet ...................................... 14,277.61 10,164.09

20,991.33 15,250.55NOTES ON ACCOUNTS ......................................................................................... XX

The Schedules referred to above and attached notes form an integral part of the Profit and Loss Account.

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


Bharat Doshi


Uday Y. Phadke

Dhananjay Mungale

M.G. BhideDirectors



Pawan Goenka


290


SCHEDULE I March 2006 March 2005SHARE CAPITAL Rs. in lacs Rs. in lacs

Authorised:9,00,00,000 Equity shares of Rs.10/- each

(Previous Year 7,50,00,000 shares) . 9,000.00 7,500.0050,00,000 Redeemable Preference shares of

Rs.100/- each (Previous Year50,00,000 shares) ............................ 5,000.00 5,000.00

Issued :8,60,00,525 Equity shares of Rs.10/- each

(Previous Year 7,01,56,080 shares) . 8,600.05 7,015.6150,00,000 6.90% Cumulative Redeemable

Preference shares of Rs.100/- each(Redeemable at par at the end of 36months from the date of allotmentwith put/call option at the end of 24months from the date of allotment)(Previous Year 50,00,000 shares) .... 5,000.00 5,000.00

Subscribed and Paid-up :8,60,00,525 Equity shares of Rs.10/- each fully

paid up (Previous Year 7,01,56,080shares) ............................................. 8,600.05 7,015.61Less : Shares issued to ESOS Trustbut not alloted by it to employees(26,86,550 shares issued to ESOSTrust) ............................................... 268.66 0.00

(Refer Notes to the accounts 1) ...... 8,331.40 7,015.61

50,00,000 6.90% Cumulative RedeemablePreference shares of Rs.100/- eachfully paid up (Redeemable at par atthe end of 36 months from the dateof allotment with put/call option at theend of 24 months from the date ofallotment) (Previous Year 50,00,000shares) ............................................. 5,000.00 5,000.00

Total .................... 13,331.40 12,015.61

Note : Mahindra & Mahindra Ltd., the Holding Company holds 5,82,41,532shares as on 31st March, 2006.

SCHEDULE II March 2006 March 2005EMPLOYEE STOCK OPTIONS OUTSTANDING . Rs. in lacs Rs. in lacs

Employee Stock Options Outstanding : ................ 402.98 0.00Less : Deferred Employee Compensation Expenses(Refer Notes to the accounts - 1) .................... 324.18 0.00

78.80 0.00

SCHEDULE III March 2006 March 2005RESERVES & SURPLUS Rs. in Lacs Rs. in LacsSecurities Premium AccountAs per last Balance Sheet ..................................... 10,350.34 6,537.23Add : Additions during the year ............................. 25,785.70 3,813.11Less : Shares issued to ESOS Trust but not allotedby it to employees ................................................. 1,101.49 0.00Less : Share issue expenses .................................(Refer Notes to the accounts - 5) .......................... 727.16 0.00

34,307.39 10,350.34Statutory ReserveAs per last Balance Sheet ..................................... 4,956.62 3,310.62Add : Transfer during the year ............................... 2,166.00 1,646.00

7,122.62 4,956.62General ReserveAs per last Balance Sheet ..................................... 3,022.58 2,192.58Add : Transfer during the year ............................... 1,090.00 830.00

4,112.58 3,022.58Debenture Redemption ReserveAs per last Balance Sheet ..................................... 48.07 48.07Add : Transfer during the year ...............................(Refer Notes to the accounts - 23) ........................ 0.00 0.00

48.07 48.07

Balance in Profit & Loss Account ....................... 14,277.61 10,164.09Total 59,868.27 28,541.70

SCHEDULE IV March 2006 March 2005SECURED LOANS Rs. in lacs Rs. in lacsNon-Convertible Debentures # ........................... 260,000.00 169,100.00(Secured by pari passu charge over immovableassets and first charge over Lease/HP/Loanagreements and relative rentals/book debts)(Refer Notes to the Accounts - 25)Loans & Advances from Banksa) Term Loans .................................................... 59,900.00 33,800.00

(Repayable within a year Rs. 8,900 lacs;Previous Year Rs. 8,400 lacs) (Secured byhypothecation over the Company’s currentassets covered by Lease/HP/Loan agreementsand relative rentals/book debts)

b) Cash Credit .................................................... 19,604.60 8,103.08(Repayable fully within a year)(Secured by hypothecation over theCompany’s current assets coveredby Lease/HP/Loan agreements and relativerentals/book debts)

c) Foreign Currency Loans ................................. 4,944.11 4,944.11(against FCNR deposits of Banks, Repayablefully within a year; Previous Year Rs.Nil)(Secured by hypothecation over theCompany’s current assets covered by LeaseHP/Loan agreements and relative rentals/bookdebts)

Loans & Advances from Others ......................... 3,920.00 4,410.008.35% Term Loan from International FinanceCorporation (Repayable within a year Rs. 490lacs ; Previous Year Rs. 490 lacs) (Secured byhypothecation over the Company’s currentassets covered by Lease/HP/Loan agreementsand relative rentals/book debts)

Total ............. 348,368.71 22,0357.19

# Of the above NCD’s issued to Banks Rs. 96,000 lacs and others Rs. 164,000 lacs;(Previous Year NCD’s issued to Banks Rs. 73,600 lacs and others Rs. 95,500 lacs.)

SCHEDULE V March 2006 March 2005UNSECURED LOANS Rs. in lacs Rs. in lacs

Fixed Deposits ..................................................... 1,303.61 2,926.38(Repayable within a year Rs.935.19 lacs; PreviousYear Rs.1728.30 lacs )Non-Convertible Debentures #Non-Convertible Debentures - others (Refer Notesto the Accounts - 26) ............................................. 8,500.00 0.00Unsecured Bonds (Subordinate Debt)a) 11.19% Unsecured Bond - Mahindra &

Mahindra Ltd. (Redeemable after 66 monthsfrom the date of allotment, i.e. 28-03-2002) ... 400.00 400.00

b) 10.165% Unsecured Bond-InternationalFinance Corporation (Redeemable after 66months from the date of allotment, i.e.12-07-2002) .................................................... 3,500.00 3,500.00

c) 7.50% Unsecured Bond - UTI Bank Ltd.(Redeemable after 66 months from the dateof allotment, i.e. 08-03-2004) ......................... 5,000.00 5,000.00

d) 7.50% Unsecured Bond - UTI Bank Ltd.(Redeemable after 68 months from the dateof allotment, i.e. 03-09-2004) ......................... 4,000.00 4,000.00

e) 7.75% Unsecured Bond - UTI Bank Ltd.(Redeemable after 66 months from the dateof allotment, i.e. 26-10-2004) ......................... 4,000.00 4,000.00

f) 7.40% Unsecured Bond - UTI Bank Ltd.(Redeemable after 70 months & 15 days fromthe date of allotment, i.e. 15-06-2005) ............... 5,000.00 0.00

Short Term Loans & Advances from Banks :Commercial Paper (Maximum amount outstandingat any time during the year Rs. 27500 lacs;Previous Year Rs. 6000 lacs) ................................. 8,000.00 5,000.00Short Term Loans & Advances from Others :Inter Corporate Deposits (Repayable fully withina year) ................................................................... 222.00 231.00

Total .................... 39,925.61 25,057.38

# Of the above NCD’s issued to Banks Rs. Nil and others Rs. 8,500 lacs;(Previous Year NCD’s issued to Banks Rs. Nil and others Rs. Nil)

291


SCHEDULE VIFIXED ASSETS Rs. in lacs

GROSS BLOCK AT COST DEPRECIATION LEASE TERMINAL ADJUSTMENT DEPRECIATION NET BLOCKDescription As at Addi- Deduc- As at Upto For the Deduc- Upto Upto For Deduc- Upto Upto Upto As at As atof Assets 01.04.05 tions for tions for 31.03.06 01.04.05 year/ tions/ 31.03.06 01.04.05 the tions/ 31.03.06 01.04.05 31.03.06 01.04.05 31.03.06

Purch/Trf Sale/Trf Trf Trf year TrfA : Assets on Lease:

Computers 9.32 0.00 9.32 0.00 6.48 1.19 7.67 0.00 0.21 0.51 0.72 0.00 6.69 0.00 2.63 0.00Sub Total - A 9.32 0.00 9.32 0.00 6.48 1.19 7.67 0.00 0.21 0.51 0.72 0.00 6.69 0.00 2.63 0.00

B : Owned Assets :

Freehold Land 6.96 0.00 0.00 6.96 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.96 6.96Premises 108.92 0.00 0.00 108.92 1.60 1.78 0.00 3.38 0.00 0.00 0.00 0.00 1.60 3.38 107.32 105.54Office Equipments 263.07 197.29 1.14 459.22 114.83 72.32 0.87 186.28 0.00 0.00 0.00 0.00 114.83 186.28 148.24 272.94Vehicles 881.51 200.73 91.83 990.41 180.61 116.37 34.02 262.96 0.00 0.00 0.00 0.00 180.61 262.96 700.89 727.45Furniture 345.96 288.20 0.00 634.16 138.95 83.91 0.00 222.86 0.00 0.00 0.00 0.00 138.95 222.86 207.00 411.30Computers 831.49 472.23 20.38 1,283.34 391.93 162.59 18.35 536.17 0.00 0.00 0.00 0.00 391.93 536.17 439.58 747.17Sub Total - B 2,437.91 1,158.45 113.35 3,483.01 827.92 436.97 53.24 1,211.65 0.00 0.00 0.00 0.00 827.92 1211.65 1,609.99 2,271.36

C : Repossessed Assets :

Vehicles 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Sub Total - C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Total (A+B+C) 2,447.23 1,158.45 122.67 3,483.01 834.40 438.16 60.91 1,211.65 0.21 0.51 0.72 0.00 834.61 1,211.65 1,612.62 2,271.36

D: Assets held for sale :

Furniture 14.39 0.00 14.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14.39 0.00

Sub Total - D 14.39 0.00 14.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14.39 0.00GRAND TOTAL 2,461.62 1,158.45 137.06 3,483.01 834.40 438.16 60.91 1,211.65 0.21 0.51 0.72 0.00 834.61 1,211.65 1,627.01 2,271.36

As at 31-03-2005 2,284.55 928.67 751.60 2,461.62 775.86 325.07 266.53 834.40 164.54 24.52 188.85 0.21 940.40 834.61 1344.15 1,627.01

SCHEDULE VIIINTANGIBLE ASSETS Rs. in lacsDescription Gross Additions and Retirements Gross carrying Accumulated Amortisation Deduction and Accumulated Net Balance Net Balanceof carrying adjustments and amount amortisation during the adjustments of amortisation as at as atAssets amount as at during the disposals as at to year at amortisation as at 01.04.05 31.03.06

01.04.05 year at cost 31.03.06 01.04.05 cost 31.03.06Software Expenditure 192.69 140.37 0.00 333.06 136.42 78.66 0.00 215.08 56.27 117.98Total 192.69 140.37 0.00 333.06 136.42 78.66 0.00 215.08 56.27 117.98

As at 31-03-2005 119.50 73.19 0.00 192.69 101.15 35.27 0.00 136.42 18.35 56.27

SCHEDULE VIIIINVESTMENTS

Numbers Face value Particulars Note March 2006 March 2005per unit Rs. in lacs Rs. in lacs Rs. in lacs Rs. in lacs

Long Term Current Long Term CurrentI - Government Securities:

– 1,49,75,000 $ (a) 91 Days T-Bills ............................................................................... 147.58– 1,000,000 $ (b) 364 Days T-Bills ............................................................................... 9.48– 10,025,000 $ (c) 91 Days T-Bills ............................................................................... 98.79– 50,000,000 $ (d) 364 Days T-Bills ............................................................................... 479.88– 5,000,000 $ (e) 364 Days T-Bills ............................................................................... 47.81

(a) 0.00 255.85 0.00 527.69II - Shares (Non-trade and fully paid):(a) Investments in Subsidiary Companies:

500,000 10 (i) Mahindra Insurance Brokers Limited ........................................................ 54.76 54.76III-Investments in Mutual Fund units : (Quoted, Non trade, At cost)

34,788,517 10 Prudential ICICI Mutual Fund .................................................................. 3,478.85 2,500.3025,165,076 10 Kotak Mutual Fund .................................................................................. 3,077.21 600.075,000,674 10 ABN Amro Mutual Fund ......................................................................... 500.073,587,871 10 UTI Mutual Fund ..................................................................................... 625.31

17,765,642 10 Birla Mutual Fund .................................................................................... 1,780.0335,781,770 10 HSBC Mutual Fund ................................................................................. 3,580.1819,001,476 10 Reliance Mutual Fund ............................................................................. 1,900.7445,021,918 10 J M Mutual Fund .................................................................................... 4,502.199,975,340 10 Chola Mutual Fund .................................................................................. 1,000.54

38,028,577 10 Principal Mutual Fund ............................................................................. 3,803.12125,398 1,000 DSP Merrill Lynch Mutual Fund .............................................................. 1,254.23

19,224,433 10 HDFC Mutual Fund ................................................................................. 2,004.45200,207 1,000 Templeton India Mutual Fund ................................................................. 2,002.57

(b) 29,509.50 3,100.37

54.76 29,765.35 54.76 3,628.06

IV-Balance of unutilised monies raised by issue of Equity shares .......... 1,865.04

54.76 31,630.39 54.76 3,628.06

31,685.15 3,682.82

Aggregate market value of quoted investments 29,765.70 3,648.49$ - Face ValueNotes: (a) Following are the movements in Government Securities during the period :Treasury Bills of the face value of Rs. 610 lacs (Previous year Rs. 550 lacs) were

purchased and those of the face value of Rs. 900 lacs (Previous Year Rs. 550 lacs) were sold/redeemed/matured during the year

292


(b) Following are the movements in Units during the year:

Acquired SoldSr.No. Name of Mutual Fund Units Rs Lacs Units

1. ABN Amro Mutual Fund ............................................................................... 209153501 20908.45 2041528272. Birla Mutual Fund .......................................................................................... 260927526 26135.72 2431618853. Chola Mutual Fund ........................................................................................ 54488160 5454.33 445128204. Deutsche Mutual Fund ................................................................................. 101880394 10203.44 1018803945. DSP Merrill Lynch Mutual Fund .................................................................... 69352842 15581.78 692274446. Grindlays Mutual Fund .................................................................................. 107615843 10752.91 1076158437. HDFC Mutual Fund ....................................................................................... 47943953 5055.66 287195208. HSBC Mutual Fund ....................................................................................... 330394207 33035.59 2946124379. ING Vyasa Mutual Fund ................................................................................ 112076380 11202.09 112076380

10. JM Mutual Fund ........................................................................................... 263948054 26424.96 21892613611. Kotak Mutual Fund ........................................................................................ 370008725 45226.83 34975092212. LIC Mutual Fund ........................................................................................... 9139237 1000.99 913923713. Principal Mutual Fund ................................................................................... 224790622 22462.90 18676204514. Prudential ICICI Mutual Fund ........................................................................ 347220864 38431.04 33352931315. Reliance Mutual Fund ................................................................................... 163535226 18167.22 14453375116. SBI Mutual Fund ........................................................................................... 91334346 9153.13 9133434617. Tata Mutual Fund .......................................................................................... 1332810 14821.37 133281018. Templeton Mutual Fund ................................................................................ 775599 7753.69 57539219. UTI Mutual Fund ........................................................................................... 11111027 19698.51 7523157

SCHEDULE IX March 2006 March 2005Current Assets, Loans & Advances Rs. in lacs Rs. in lacs(A) Current Assets:Interest accrued on — a) Investments ............. 1.23 20.83

— b) Others ...................... 19.56 42.81Stock on Hire ......................................................... 84.41 987.88Less : Unmatured Finance charges ....................... 17.55 759.00

66.86 228.88Less : Provision for Non Performing Assets &Doubtful debts ...................................................... 14.40 82.00

52.46 146.88Stock on Hire (Repossessed Cases) ..................... 0.00 12.51Less : Unmatured Finance charges (RepossessedCases) ................................................................... 0.00 1.77

(Refer Notes to the Accounts - 9) .......................... 0.00 10.74Less : Provision for Non Performing Assets &Doubtful debts ...................................................... 0.00 8.60

0.00 2.14

Sundry Debtors : HP and LEASE (Secured)— Less than six months old .......................... 445.64 346.24— More than six months old .......................... 1,122.34 3,252.31

1,567.98 3,598.55— Less : Provision for Non Performing Assets & Doubtful debts ....................................... 1,355.21 2,284.36

Debtors Considered good ......................... 212.77 1,314.19Other Current Assets ........................................... 12.25 11.86Cash & Bank balances :

— Cash & Cheques on hand ....................... 1,435.47 803.69— Balance with Scheduled Bank in current

account ................................................... 7,801.63 5,489.01— Balance with Scheduled Bank in Cash

Credit A/c ................................................ 187.61 65.30— Balance in Unclaimed dividend Bank

Account ................................................... 2.74 1.63 — Term Deposits with Scheduled Banks

— Free of lien ............................... 120.00 250.00— Under lien ................................. 3,478.96 4,527.44

(Refer Notes to the accounts - 17) ..........Total (A) ...... 13,324.68 12,675.78

SCHEDULE IX (Contd.) March 2006 March 2005Current Assets, Loans & Advances Rs. in lacs Rs. in lacs

[B] Loans & Advances(Unsecured unless otherwise stated) ....................Dues from Subsidiaries ......................................... 0.00 10.66Bills of Exchange ................................................... 169.00 190.68Less : Bills rediscounted ................................... 0.00 0.00

169.00 190.68Less : Provision for Non Performing Assets &

Doubtful Debts ....................................... 8.05 8.05

Bills Considered good ............................................ 160.95 182.63

Advances recoverable in cash or in kind or forvalue to be received :Advances under Loan Agreements ....................... 18,796.60 14,161.12Less : Provision for Non Performing Assets &

Doubtful Debts ....................................... 404.20 738.86

Advances Considered good ................................... 18,392.40 13,422.26Inter Corporate Deposits Given ............................. 10,100.00 252.95Less : Provision for Non Performing Assets ...... 100.00 100.00

Deposits Considered good ...................... 10,000.00 152.95Advance payment of tax (net of provisions) .......... 209.10 571.69Deposits for office premises ................................. 184.21 143.84Deposits - Others .................................................. 235.28 22.66

Loans against Assets (Secured) (includingoverdue loans)

— considered good ..................................... 394,452.06 258,370.20— considered doubtful ................................ 22,573.26 15,660.98

417,025.32 274,031.18Less : Provision for Non Performing Assets &

Doubtful debts ........................................ 8,645.04 4,513.23

408,380.28 269,517.95Retained Interest in Securitised Assets ................ 3,977.44 5,275.27Loans and advances unsecuredConsidered good ................................................... 1487.42 433.44

Total (B) ...... 443,027.08 289,733.35

Total Current Assets, Loans & Advances (A + B) 456,351.76 302,409.13

293


SCHEDULE XV Rs. in Lacs Rs. in LacsEmployee Cost March 2006 March 2005

Salary, Bonus & Incentives .................................... 3,545.34 2,467.81Company’s Contribution to P.F. & other funds ....... 293.42 112.37Staff Welfare ......................................................... 137.10 134.09Employee Compensation Expense on account ofESOS (Refer Notes to the accounts - 1) ................ 78.80 0.00

Total ............ 4,054.66 2,714.27

SCHEDULE XVI Rs. in Lacs Rs. in LacsProvisions & Write offs March 2006 March 2005

Bad Debts & Write offs ......................................... 5,641.62 4,095.96Provision for Non Performing Assets (as perRBI norms) ............................................................ 389.72 459.52Additional provision for Non Performing Assets .... 2,129.30 1,044.69(Refer Notes to the accounts - 6 )

Total ............ 8,160.64 5,600.17

SCHEDULE XVII Rs. in Lacs Rs. in LacsDepreciation & Amortisation March 2006 March 2005

Depreciation : Statutory 438.16 325.07Special 0.51 24.52

Amortisation of Intangible Assets 78.66 35.27

Total ............ 517.33 384.86

SCHEDULE XVIII Rs. in Lacs Rs. in LacsOther Expenses March 2006 March 2005

Electricity Charges ................................................ 158.87 94.25Rent ...................................................................... 471.95 309.73Repairs & Maintenance - Building ........................ 175.31 10.70

- Others .......................... 16.39 20.97Insurance ............................................................... 111.70 83.19Rates & Taxes ....................................................... 230.48 234.10Directors Remuneration - Fees ............................. 2.20 1.50

- Commission ................. 40.75 39.90Commission & Brokerage ..................................... 2,325.82 1,828.54Legal & Professional Charges ............................... 1,426.62 336.98Loss on Sale / retirement of Owned Assets ......... 8.71 44.50Auditors Remuneration - Audit Fees .................... 11.02 11.02

- Other Services ............. 16.44 10.71Donations - Political Parties ................................... 0.00 40.00

- Others ................................................ 18.00 10.80(Refer Notes to the accounts - 14)General & Administrative Expenses ...................... 3,734.38 2,098.86

Total ............ 8,748.64 5,175.75

SCHEDULE XIX

Schedule to the Balance Sheet of a Non-Banking Financial Company (as required interms of Paragraph 9BB of Non-Banking Financial Companies Prudential Norms(Reserve Bank) Directions, 1998)

Rs. in Lacs Rs. in LacsMarch 2006 March 2005

Liabilities Side Amount Amount Amount AmountOut- Overdue Out- Overdue

standing (un- standing (un-claimed) claimed)

(1) Loans and advances availedby the NBFCs inclusive ofinterest accrued thereonbut not paid:

(a) Debentures : Secured 260,000.00 0.00 169,100.00 0.00: Unsecured 8,500.00 0.00 0.00 0.00

(other than falling within themeaning of public deposits)(b) Deferred Credits 19,604.60 0.00 8,103.08 0.00(c) Term Loans 63,820.00 0.00 38,210.00 0.00(d) Inter-corporate loans and

borrowing 222.00 0.00 231.00 0.00(e) Commercial Paper 8,000.00 0.00 5,000.00 0.00(f) Public Deposits ***** 1,529.97 64.06 3,396.57 50.60(g) FCNR Loans 4,944.11 0.00 4,944.11 0.00(h) Subordinate debt 21,900.00 0.00 16,900.00 0.00

SCHEDULE X March 2006 March 2005Current Liabilities Rs. in lacs Rs. in lacs

Sundry Creditors ................................................... 8,935.96 7,297.26Dues to Subsidiary Company ................................ 2.69 0.00Discount received but not due (Bills) ..................... 1.37 2.45Deposits/Advances received against Loanagreements ........................................................... 827.44 651.13* Amount due to Investors Education andProtection Fund :

— Unclaimed Debentures ............................. 8.90 9.15— Unclaimed Dividend ................................. 1.26 0.43— Unclaimed Fixed Deposit Interest ............ 7.36 7.36

Credit balances in Current Accounts with Banks .. 1,658.49 651.07Other Current Liabilities ........................................ 8,267.33 6,920.00Amount Received in advance from ESOS Trust .... 1,370.15 0.00Less : Loan given to the ESOS Trust ..................... 1,200.44 0.00

169.71 0.00Interest accrued but not due — Loans ................ 8,182.83 5,944.44

— Others ............... 14.73 19.01

Total .................... 28,078.07 21,502.30

* There are no amounts outstanding and unpaid tobe credited to the Investors Education andProtection Fund. ....................................................

SCHEDULE XI Rs. in lacs Rs. in lacsProvisions March 2006 March 2005

Proposed Dividend ................................................ 1,635.08 1,092.16Corporate Dividend Tax ......................................... 229.32 153.17Provision for Estimated Loss/Expenses onSecuritisation ......................................................... 3,476.90 2,689.46Provision for Retirement Benefits ......................... 134.73 56.21

Total .................... 5,476.03 3,991.00

SCHEDULE XII Rs. in Lacs Rs. in LacsIncome From Operations March 2006 March 2005

Income from Bills .................................................. 39.75 25.74Income from Lease ............................................... 8.50 60.49Income from Hire Purchase .................................. 1,189.86 2,478.92Income from Loan ................................................. 51,650.93 34,747.30Income from Retained Interest in SecuritisedAssets ................................................................... 451.09 448.10Income from Securitisation ................................... 4,891.52 1,933.11(Refer Notes to the Accounts - 19)

Total .................... 58,231.65 39,693.66

SCHEDULE XIII Rs. in Lacs Rs. in LacsOther Income March 2006 March 2005

Profit/Premium on Sale/Redemption of Long TermInvestment ............................................................ 4.70 3.47Income from Investments — Long Term ............. 0.00 0.00

— Trade ..................... 20.18 24.20Dividend Received ................................................ 760.58 119.78Interest on Term Deposits ..................................... 251.47 267.74Interest on ICD ...................................................... 38.96 43.42(TDS Rs.12.08 lacs, Previous Year Rs. 5.85 lacs)Income - others ..................................................... 333.33 324.06[includes Bad debts recoveries of Rs. 256.45 lacs;(Previous Year Rs.162.31 lacs) and interest onincome tax refund Rs. Nil; (Previous Year Rs.124.90lacs)]

Total .................... 1,409.22 782.67

SCHEDULE XIV Rs. in Lacs Rs. in LacsFinancial Expenses March 2006 March 2005

Interest on— Fixed loans ................................................ 4,415.71 2,477.48— Debentures ................................................ 15,182.89 9,117.91— Others ....................................................... 1,765.25 1,242.38

Bank Charges ........................................................ 580.31 482.25

Total .................... 21,944.16 13,320.02

294



Amount Amount Amount AmountOut- Overdue Out- Overdue

standing (un- standing (un-claimed) claimed)

(2) Break-up of (1)(F) above(Outstanding public depositsinclusive of interest accruedthereon but not paid)

(a) In the form of Unsecureddebentures 9.46 0.00 9.71 0.00

(b) In the form of partlysecured debentures 0.00 0.00 0.00 0.00i.e. debentures wherethere is a shortfall in thevalue of security

(c) Other public deposits ***** 1,520.51 64.06 3,386.86 50.60

Assets Side Amount Amountoutstanding outstanding

(3) Break-up of Loans and Advances includingbills receivables [other than those includedin (4) below](a) Secured 0.00 0.00(b) Unsecured 34,646.80 20,215.40

(4) Break up of Leased Assets and stock onhire and hypothecation loans countingtowards EL/HP activities(i) Lease assets including lease rentals

under sundry debtors :(a) Financial lease 230.25 241.44(b) Operating lease 0.00 0.00

(ii) Stock on hire including hire chargesunder sundry debtors :(a) Assets on hire 1,191.55 3,116.71(b) Repossessed Assets 213.04 471.91

(iii) Hypothecation loans countingtowards EL/HP activities(a) Loans where assets have

been repossessed 3,616.37 2,985.00(b) Loans other than (a) above 420,167.89 278,143.15

(5) Break-up of Investments :Current Investments :1. Quoted :

(i) Shares : (a) Equity(b) Preference

(ii) Debentures and Bonds(iii) Units of Mutual Funds 29,509.50 3,100.37(iv) Government Securities 255.85 527.69

2. Unquoted :(i) Shares : (a) Equity

(b) Preference(ii) Debentures and Bonds(iii) Units of Mutual Funds(iv) Government Securities

Long Term Investments :1. Quoted :

(i) Shares : (a) Equity(b) Preference

(ii) Debentures and Bonds(iii) Units of Mutual Funds(iv) Government Securities

2. Unquoted :(i) Shares : (a) Equity 54.76 54.76

(b) Preference(ii) Debentures and Bonds(iii) Units of Mutual Funds(iv) Government Securities

(6) Borrower group-wise classification of all leased assets, stock-on-hire andloans and advances:


Category Amount net of provisions Amount net of provisionsSecured Unsecured Total Secured Unsecured Total

1. Related Parties

(a) Subsidiaries 0.00 0.00 0.00 0.00 0.00 0.00

(b) Companies in thesame group 0.00 0.00 0.00 0.00 0.00 0.00

(c) Other related parties 6.95 0.00 6.95 3.71 0.00 3.71

2. Other than relatedparties 412,615.99 30,040.77 442,656.76 276,255.35 14,191.28 290,446.63

Total 412,622.94 30,040.77 442,663.71 276,259.06 14,191.28 290,450.34

(7) Investor group-wise classification of all investments (current and long term)in shares and securities (bothquoted and unquoted):


Category Market Value/ Book Market Value/ BookBreak up or Value Break up or Value

Fair Value or (Net of Fair Value or (Net ofNAV (Provisions) NAV (Provisions)

1. Related Parties

(a) Subsidiaries 54.76 54.76 54.76 54.76

(b) Companies in thesame group

(c) Other related parties

2. Other than related parties 31,630.39 31,630.39 3,628.06 3,628.06

Total 31,685.15 31,685.15 3,682.82 3,682.82

(8) Other information:

Rs. in Lacs Rs. in LacsParticulars March 2006 March 2005

(i) Gross Non-Performing Assets

(a) Related parties 0.00 0.00

(b) Other than related parties 26,827.87 21,709.62

(ii) Net Non-Performing Assets

(a) Related parties 0.00 0.00

(b) Other than related parties 13,433.42 11,264.93

(iii) Assets acquired in satisfaction of debt 0.00 0.00

***** Represents unclaimed deposit & interest thereof in respect of which theCompany is yet to receive instructions for repayment/renewal from thedepositors.

SCHEDULE XIX (Contd.)

295


SCHEDULE XX

Notes to the Accounts for the year ended March 31, 2006Significant Accounting Policies (SAP):

1) Basis for Preparation of Accounts:

The accounts have been prepared to comply in all the material aspects withapplicable accounting principles in India, the Accounting Standards issued bythe Institute of Chartered Accountants of India and relevant provisions of theCompanies Act, 1956. Further, the Company follows directions issued by TheReserve Bank of India for Non-Banking Financial Companies.

2) Stock on Hire / Loans against assets:

Stock on hire is stated at agreement value net of instalments due less unmaturedfinance charges. Loan against receivables are stated at agreement value net ofinstalments received less unmatured finance charges.

3) Depreciation:

i. Depreciation on fixed assets, other than leased assets and repossessedassets capitalised for own use, has been charged using Straight LineMethod at rates specified in Schedule XIV to the Companies Act, 1956except for office equipment on which depreciation is charged at the rateof 16.21% instead of 4.75% as prescribed in Schedule XIV based on theestimated useful life of the asset. Assets costing less than Rs.5,000/- arefully depreciated in the year of purchase.

ii. Leased assets (acquired prior to 01.04.2001) are depreciated at rates specifiedin Schedule XIV to the Companies Act, 1956 as required by the old Guidancenote on lease accounting issued by the Institute of Chartered Accountants ofIndia prior to issuance of Accounting Standard 19 on leasing transactions. Toensure capital recovery over the primary lease period, the difference betweenthe depreciation charged as computed using the IRR implicit in the lease andthe charge as disclosed for the year, is reflected in the lease equalisation account.

iii. Repossessed assets that have been capitalised for own use are depreciated@ 15% using the Straight Line Method over the remaining useful life ofthese assets. The same have been grouped under the head ‘OwnedAssets’.

4) Revenue Recognition:

i. General:

The Company follows the accrual method of accounting for its income andexpenditure except delayed payment charges and Interest on Trade advance,which on account of uncertainty of ultimate collection are accounted on receiptbasis. Also in accordance with the guidelines issued by the Reserve Bank ofIndia for Non-Banking Finance Companies, income on business assetsclassified as non-performing assets, is recognised on receipt basis.

ii. Income from Lease:

Finance earnings on lease transactions are calculated by applying theinterest rate implicit in the lease, to the investment in the leased assets,as reduced by the Net Present Value of the lease instalments falling due.

iii. Income from Hire Purchase:

Income from Hire Purchase transactions entered into prior to 01.04.2001is accounted for on equated basis in accordance with the terms of thecontract (except in some cases in which it is accounted for by applying theinterest rate implicit in such contracts). For Hire Purchase transactionsentered into by the company on or after 01.04.2001 the income is accountedfor by applying the interest rate implicit in such contracts.

iv. Income from Loan:

Income from loan transactions is accounted for by applying the interestrate implicit in such contracts.

v. Income from Subvention/Service/Document Charges:

Subvention received from dealers/manufacturers on retail cases is bookedover the period of the contract. However, service charges & documentationcharges are booked at the commencement of the contract.

vi. Income from Securitisation & Assignment:

Securitised assets are derecognised as the contractual rights therein aretransferred to the special purpose vehicle or Buyer as the case may be.On derecognition, the difference between book value of the securitisedasset and consideration received as reduced by the estimated provisionfor loss/expenses and incidental expenses related to the transaction isrecognised as gain or loss arising on securitisation.

In case of assignment of receivables the assets are derecognised as allthe rights, title, future receivables & interest thereof are assigned to thepurchaser. On derecognition, the difference between book value of thereceivables assigned and consideration received as reduced by theestimated provision for loss/expenses & incidental expenses related tothe transaction is recognised as gain or loss arising on assignment.

Income on Retained Interest in Securitised Assets is booked on accrualbasis.

vii. Income from Investments:

a) Dividend from investments is accounted for as income when the rightto receive dividend is established.

b) Interest income is accounted on accrual basis.

5) Fixed Assets:

Fixed assets are stated at cost of acquisition (including incidental expenses),less depreciation.

Assets held for sale are stated at the lower of their net book value and netrealisable value.

6) Foreign Exchange Transactions:

All assets and liabilities in foreign currencies are translated at the relevant ratesof exchange prevailing at the year end, except those covered by forwardexchange contracts which are translated at contracted rates, where thedifference between the contracted rate and the spot rate on the date of thetransaction (other than in respect of the contracts for the acquisition of fixedassets) is charged to Profit and Loss Account over the period of the contract.

In case of the current assets, current liabilities and long term liabilities (otherthan those for acquisition of fixed assets and technical know-how) the exchangedifferences are recognised in the Profit and Loss Account.

7) Investments:

Investments held as long-term investments are stated at cost comprisingof acquisition and incidental expenses less permanent diminution in value,if any.

Investments other than long-term investments are classified as currentinvestments and valued at cost or fair value whichever is less.

8) Retirement Benefits:

a) The Company’s liability towards gratuity and superannuation to itsemployees is covered by a group gratuity policy with LIC of India. Chargeto the Profit and Loss Account includes premium paid to LIC of India andchange in Actuarial valuation during the year net of fund value available.

b) Liability on account of encashment of leave to employees is provided onthe basis of actuarial valuation.

9) Borrowing Cost:

Borrowing costs that are attributable to the acquisition or construction ofqualifying assets are capitalised as part of the cost of such assets. A qualifyingasset is one that necessarily takes a substantial period of time to get readyfor its intended use or sale. All other borrowing costs are charged to revenuein the year of incurrence.

10) Leasehold improvements:

Expenditure incurred on improvements to leasehold premises is classified intoCapital and Revenue. Addition of assets are capitalised under Fixed Assets andbalance expenditure, if any, is debited to Profit & Loss Account.

11) Taxes on Income:

Current tax is determined as the amount of tax payable in respect of taxableincome for the year. Deferred tax is recognised, subject to consideration ofprudence, on timing differences, being the difference between taxable incomeand accounting income that originate in one period and are capable of reversalin one or more subsequent periods. Deferred tax assets arising on account ofunabsorbed depreciation or carry forward of tax losses are recognised only tothe extent that there is virtual certainty supported by convincing evidencethat sufficient future taxable income will be available against which suchdeferred tax assets can be realised.

12) Intangible Assets:

All Intangible Assets are initially measured at cost and amortised so as to reflectthe pattern in which the asset’s economic benefits are consumed.

296


13) Software Expenses:

Software expenses are either treated as revenue expense or treated asIntangible Assets which are amortised over a period of 36 months dependingupon the type of software and evaluation of future benefits there from.

14) Miscellaneous Expenditure:

Preliminary Expenses:

Preliminary and pre-operative expenses are amortised over a period of fiveyears.

15) Impairment of Assets:

Management periodically assesses using external and internal sourceswhether there is an indication that an asset may be impaired. An impairmentoccurs where the carrying value exceeds the present value of future cashflows expected to arise from the continuing use of the asset and its eventualdisposal. The impairment loss to be expensed is determined as the excess ofthe carrying amount over the higher of the asset’s net sales price or presentvalue as determined above.

16) Provisions and Contingent Liabilities:

Provisions are recognised in accounts in respect of present probable obligations,the amount of which can be reliably estimated.

Contingent liabilities are disclosed in respect of possible obligations that arisefrom past events but their existence is confirmed only by the occurrence ornon-occurrence of one or more uncertain future events not wholly within thecontrol of the company.

17) Share Issue Expenses:

Expenses incurred in connection with fresh issue of share capital are eithercharged to Profit & Loss Account or adjusted against Securities Premiumaccount in the year in which they are incurred.

18) Derivatives:

The hedging contracts comprise of interest rate swap undertaken tohedge interest rate risk on certain liabilities. These hedges are accountedfor like the underlying liabilities. The net interest payable is accountedon accrual basis over the life of the swap.

NOTES TO THE ACCOUNTS:

1) During the year the Company has issued, 26,86,550 Equity shares of Rs.10each at a premium of Rs. 41 each to the Mahindra & Mahindra Financial ServicesLimited Employees’ Stock Option Trust under the Employee Stock OptionScheme (ESOS) of the company. The details of the Employee Stock OptionScheme are :

Type of Arrangement Employee Share-Based Payment Plan administeredthrough Employee Stock Option Trust.

Number of Options 26,86,550Granted

Grant Date 7th December, 2005

Contractual life Options will lapse if not exercised within 6 years

from the date of grant i.e. 7th December, 2005.

Exercise Price Rs. 51 per share

Method of Settlement By Issue of Shares at Exercise Price

Vesting Conditions 35% On expiry of 12 months from the date of grant25% On expiry of 24 months from the date of grant20% On expiry of 36 months from the date of grant10% On expiry of 48 months from the date of grant

10% On expiry of 60 months from the date of grant

a) The Company has adopted intrinsic value method in accounting foremployee cost on account of ESOS. The intrinsic value of the shares basedon the valuation obtained from an independent valuer is Rs. 65.53 (roundedup to Rs.66) per share based on Net Asset Value/Asset Based Method.The difference between the intrinsic value & the exercise price of Rs.51per share is being amortised as employee compensation cost over thevesting period. Commencing from the date of grant viz. 7th December,2005 the total amount to be amortised over the vesting period isRs.402.98 lacs.

Accordingly the charge to Profit & Loss account during the current year isRs.78.80 lacs and the amount carried forward is Rs.324.18 lacs.

The fair value of options, based on the valuation of the independent valueras of date of grant i.e. 7th December, 2005:

Vesting period Expected Vesting Fair Valuein years (Rs.)

1 940292 23.39

2 671638 23.54

3 537310 24.56

4 268655 25.82

5 268655 26.51

2686550

Had this method been used, the charge to Profit & Loss account on accountof amortisation of difference between the fair value and the exercise priceof Rs.51 per share during the year would have been Rs.124.85 lacs. Thetotal amount that would have been amortised over the vesting period isRs.650.59 lacs.

b) The Company has granted a loan of Rs.1200.44 lacs without interest toMahindra & Mahindra Financial Services Limited Employees’ Stock OptionTrust for the purchase of shares of the company under the stock optionscheme.

2) On January 5, 2006, the Company has allotted 31,57,895 equity shares ofRs.10 each at premium of Rs.180 per share on preferential basis to Copa Cabana(a Mauritius based Foreign Institutional Investor, which is a 100% subsidiary ofChrysCapital III, LLC and is registered with SEBI).

3) On March 9, 2006, the Company made public issue of 20,000,000 Equity Sharesof Rs. 10 each for cash at a price of Rs. 200 per Equity Share, comprising aFresh Issue of 10,000,000 Equity Shares of Rs. 10 each and an offer for Sale of10,000,000 Equity Shares of Rs. 10 each by Mahindra & Mahindra Limited andcertain other shareholders of the Company.

Proceeds from initial public issue are utilised to provide funding for loans to ourcustomers and for other general corporate purposes as disclosed in theprospectus to the issue and the amount remaining unutilised is Rs.1865.04 lacs.

4) Earnings Per Share as required by Accounting Standard 20 read with theGuidance Note on “Accounting for Employee share-based Payments” is asfollows:

Intrinsic Value Fair ValueMethod Method

A. Net Profit After Tax (Rs. in lacs) 10827.24 10781.19

Less: Preference dividend 393.39 393.39

Amount used as the numerator 10433.85 10387.80

B. Weighted Average number ofEquity Shares of Rs.10/- each 71530269 71530269

C. Earnings Per Share - Basic (Rs.) 14.59 14.52

D. Earnings Per Share - Diluted @ (Rs.) 14.41 14.34

@ Dilution in Earnings Per Share is on account of 2686550 equity sharesissued to Employees Stock Option Trust on 6th December, 2005 underthe Employees Stock Option Scheme.

5) The issue expenses relating to shares under ESOS, Private placement andPublic issue have been debited to Securities Premium account as permittedunder Section 78 of Companies Act,1956.

6) The Company has made adequate provision for the Non-performing assetsidentified, in accordance with the guidelines issued by the Reserve Bank of India.Also, the Company has made an additional provision of Rs. 2129.30 lacs (previousyear Rs. 1044.69 lacs) on a prudential basis.

7) Bad debts & Write offs includes loss on termination which mainly representsshortfall on settlement of certain contracts due to realisation of lower valuefrom such Hire Purchase/Leased/Loan assets on account of poor financialposition of such customers.

8) Lease Disclosures as per Accounting Standard 19:

The Company has not undertaken any fresh leases after 01.04.2001. The existingleasing transactions continue to be shown under Fixed Assets and adequatedepreciation is provided as required by the old Guidance note on lease accountingissued by the Institute of Chartered Accountants of India prior to issuance ofAccounting Standard 19 on leasing transactions.

297


a) Reconciliation of Gross Investment & Present Value of Minimum LeasePayments (MIP) Receivables for Contracts Booked on or after 1/4/2001

Rs. in lacs

Maturity Profile

Particulars Balance as on less than between more than1 year 1 & 5 years 5 years

Mar-06 Mar-05 Mar-06 Mar-05 Mar-06 Mar-05 Mar-06 Mar-05

GrossInvestmentOutstanding 86.79 926.74 86.79 824.00 0.00 102.74 Nil Nil

UnmaturedFinanceCharges (6.04) (88.37) (6.04) (81.34) 0.00 (7.03) Nil Nil

Present Valueof MinimumLease PaymentsOutstanding 80.75 838.37 80.75 742.66 0.00 95.71 Nil Nil

The disclosure in respect of total gross investments & present value of minimumlease payments in lease contracts is considered to mean gross investmentand present value of minimum lease payments outstanding on balance sheetdate.

b) The unearned finance income as on 31st March, 2006 is Rs. 6.04 lacs (previousyear Rs. 88.37 lacs).

c) The Unguaranteed Residual Values accruing to the benefit of the company isnil.

d) The accumulated provision for uncollectible minimum payments receivable isRs. 555.83 lacs (previous year Rs. 1928.74 lacs).

e) No Contingent rent has been recognised in the statement of Profit & LossAccount for the year ended 31st March, 2006 (previous year nil).

f) The Company is engaged in financing vehicles and farm equipments undervarious hire purchase schemes.

g) The Company incurs initial cost of Dealer Commission and stamp duty, whichare charged to Profit and Loss Account on accrual basis.

h) During the year ended 31st March, 2006, Rs. 0.51 lacs (previous year Rs. 24.52lacs) have been debited to Lease equalisation account.

9) Repossessed Assets in case of hire purchase contracts is shown under CurrentAssets as Stock on Hire net of unmatured finance charges.

10) Commission & Brokerage represents amount incurred in respect of acquisitionof customers.

11) The Company has single reportable segment namely financial services for thepurpose of Accounting Standard 17 on Segment Reporting.

12) In the opinion of the Board, Current Assets, Loans and Advances areapproximately of the value stated if realised in the ordinary course of business.

13) Current Liabilities include Deposits/Advances received on account of Lease/Hire Purchase/Loan, which are repayable over the period of the contract.

14) During the year under audit the Company has donated Rs. Nil (previous yearRs. 40 lacs, out of which Rs. 25 lacs to Shiv Sena and Rs.15 lacs to MumbaiRegional Congress Committee) as a contribution to the political party.

15) The Foreign Currency Loan availed by the Company in respect of which theCompany has obtained a forward cover has been translated at the forwardcontract rate and forward exchange risk of Rs. Nil is debited to Profit & LossAccount (previous year Rs. 2.53 lacs).

16) Disclosure on Derivatives

a) There were 25 (previous year 17) Derivative instruments for hedging interestrate risk outstanding as on 31st March, 2006.

b) All the instruments are for hedging interest rate risk.

c) There was in unhedged exposure of Japanese Yen (JPY) of 7.47 lacs i.e.Rs. 2.83 lacs (previous year nil) on account of cross currency interest swap.

17) Term Deposits include Rs.3478.96 lacs (previous year Rs. 4527.44 lacs)maintained as cash collateral in accordance with the assignment agreements.

18) Expenditure in Foreign Currency

Membership & Subscription Rs. 0.15 lacs. (previous year Rs. 1.81 lacs).

Other Expenses Rs. 2.32 lacs (previous year Rs. 24.35 lacs).

19) a) The Reserve Bank of India issued guidelines on securitisation transactionvide its circular dated February 1, 2006 under reference no. DBOD No.BP.BC.60/21/04.48/2005-06, wherein the profit/premium arising onsecuritisation is required to be amortised over the life of the securitiesissued while any loss arising on account of securitisation is recognised inthe period in which the transaction occurs. Since the company has enteredinto all the securitisation transactions prior to the issuance of the saidguidelines (i.e. in respect of the securitisation transactions up to January31, 2006), any gain or loss from the sale of receivables has been recognisedupfront on the date on which the sale occurred.

As the assignment transactions fall outside the purview of thesesguidelines, the Company has continued to recognise upfront gain/loss onall such transactions.

b) During the year the Company has without recourse securitised loanreceivables of 6251 (Previous year 20863) contracts amounting toRs.15474.35 lacs (previous year Rs. 42586.09 lacs) (including future interestreceivable) for a consideration of Rs.14274.35 lacs (previous year Rs.39877.18 lacs). As the income booked in respect of securitisation ofreceivables includes certain amount towards cost of future servicing ofthe securitised pool, an appropriate amount has been provided towardsexpenditure for future services. The Securitisation income booked isRs.1035.82 lacs (previous year Rs.3000.77 lacs), and provision for estimatedloss/expenses of Rs.348.11 lacs (previous year Rs.1178.22 lacs).

c) During the year ended the Company has without recourse assigned loanreceivables of 16393 (previous year 1627) contracts amounting toRs. 40156.23 lacs (previous year Rs. 2691.60) (including future interestreceivable) for a consideration of Rs. 37193.87 lacs (previous yearRs.2552.66 lacs). As the income booked in respect of assignment ofreceivables includes certain amount towards cost of future servicing ofthe assigned pool, an appropriate amount has been provided towardsexpenditure for future services. On assignment of receivables incomebooked is Rs.4682.18 lacs (previous year Rs.251.90 lacs), & provision forestimated loss/expenses of Rs.1734.55 lacs (previous year Rs.77.50 lacs).

d) During the year provision in respect of securitisation and assignment ofRs.609.47 lacs (net of tax) considered no longer necessary has been writtenback.

20) Related Party Disclosure as per Accounting Standard 18:

List of the related parties:

Holding Company : Mahindra & Mahindra Limited

Subsidiary Company : Mahindra Insurance Brokers Limited(w.e.f. 07/04/04)

Fellow subsidiary Companies : As per list given below

Automartindia Limited Mahindra Holidays & Resorts IndiaLimited

Bristlecone (Singapore) Pte. Limited Mahindra Holidays & Resorts USA Inc.

Bristlecone (UK) Limited Mahindra Infrastructure DevelopersLimited

Bristlecone GmbH Mahindra Intertrade Limited

Bristlecone Inc. Mahindra Logisoft Business SolutionsLimited

Bristlecone India Limited Mahindra SAR Transmission Pvt.Limited

Bristlecone Limited Cayman Islands Mahindra Shubhlabh Services Limited

Mahindra & Mahindra South Africa Mahindra Steel Service Centre Limited(Pty) Limited

Mahindra Acres Consulting Engineers Mahindra USA, IncLimited

Mahindra Ashtech Limited Mahindra MiddleEast Electrical SteelService Center (FZE)

Mahindra Engineering & Chemicals Tech Mahindra GmbHProducts Limited

Mahindra Engineering Design & Tech Mahindra Ltd.Development Company Limited(w.e.f. 27th December, 2004)

Mahindra Gesco Developers Limited Mahindra Overseas InvestmentCompany (Mauritius) Limited

Mahindra Gujarat Tractor Limited Tech Mahindra (Americas) Inc

298


Mahindra Holdings & Finance Limited Tech Mahindra (Singapore) Pte. Ltd.

NBS International Limited Mahindra (China) Tractor CompanyLimited

Mahindra Automotive Steels Private Mahindra Ugine Steel Company LimitedLimited

Mahindra Europe S.r.l. Mahindra World City Developers Ltd.

Mahindra – BT Investment Company Mahindra World City (Jaipur) Ltd.(Mauritius) Limited

Mahindra International Ltd. Mahindra Realty Ltd.(w.e.f. 01st November, 2005)

Mahindra Renault Pvt. Ltd. Tech Mahindra (R & D Services) Inc.(w.e.f. 05th August, 2005) (w.e.f. 20th November, 2005)

Tech Mahindra (R & D Services) Ltd. Tech Mahindra (R & D Services) Pte. Ltd.(w.e.f. 20th November, 2005) (w.e.f. 20th November, 2005)

Jensand Limited Stokes Group Limited

Stokes Forgings Limited Stokes Forgings Dudley Limited

Plexion Technologies (UK) Ltd. Plexion Technologies (India) Pvt. Ltd.

Plexion Technologies Inc. Plexion Technologies GmbH

Tech Mahindra (Thailand) Ltd. Tech Mahindra Foundation

Key Management Personnel : Mr. Ramesh Iyer (Managing Director)

Related Parties transactions are as under. Rs. in lacsSl. Nature of Holding Subsidiary Fellow KeyNo. Transactions Company Company subsidiary Management

Companies Personnel

1 Income Hire Purchase / Lease / — — 2.21 —

Loan income (53.82) — (13.82) — Other income 213.24 223.00 0.10 —

(85.77) (9.74) (8.24) —

2 Expenses Interest 267.11 8.78 5.37 —

(314.15) (1.45) (5.53) — Other Expenses 5.46 251.77 10.52 60.87 — (132.42) (2.28) (53.76)

3 Purchase of shares — — — —from third parties (3.90) (40.00) — —

4 Finance Unsecured Bonds

placed (incl. int 2,410.35 — — —accrued) (400.49) — — —

NCD Issued 2,102.46 — — — (3,607.15) — — —

Dividend paid – 2,083.21 — — —for previous year (1,999.93) — — —

Inter Corporate — 144.47 — —Deposits taken — (40.08) (90.48) —(including interestaccrued but not due)

Net receivable on — — 6.95 —Hire Purchase/ Loan / — — (3.71) —Lease agreements

5 Share Issue 635.07 — — —Expenses — — — —

6 Other Transactions Reimbursement 28.16 — — —

made to parties (28.93) — — —

Reimbursement — 9.46 — —from parties — (13.85) — —

7 Outstandings 11.52 2.91 — — Receivables (11.27) (23.59) — —

Payables 888.41 5.60 2.00 — (329.98) (12.93) (0.12) —

Figures in bracket represent corresponding figures of previous financial year.

21) In accordance with Accounting Standard 22 on Accounting for Taxes on Incomethe company has accounted for Deferred Asset/Liability. The break up of thedeferred tax asset as on 31st March, 2006 of Rs. 4674.63 lacs(Previous year Rs. 3635.88 lacs) is as under:

Rs. in lacsParticulars Deferred Tax Asset/ Deferred Tax

(Liability) – Asset/(Liability)March 2006 March 2005

Provision for Non Performing Assets 4572.21 3459.23

Depreciation 2.48 125.16

Other Disallowances 99.94 51.49

Total 4674.63 3635.88

22) Contingent Liability not provided for:-

i. Taxation matters: Demands against the Company not acknowledged asdebts and not provided for, relating to issues of deductibility and taxabilityin respect of which the Company is in appeal and exclusive of the effect ofsimilar matters in respect of assessments remaining to be completed:

– * Income tax: Rs. 1,187.74 lacs (Previous year Rs. 565.30 lacs).

– # Sales tax: Rs. 98.48 lacs (Previous year Rs. 98.48 lacs).

* These demands are met to the extent of Rs. 778.34 lacs, part withpayment and part adjusted against refunds due to the company.

# Out of this Turnover Tax of Rs.31.18 lacs paid under protest in thestate of Bihar where the Company is in reassessment process.

ii. The Company has given a performance guarantee in respect of which theCompany stands fully indemnified for the loss, if any, which would beincurred on failure, if any, to perform the guaranteed act for Rs. 200 lacs.(previous year Rs. 200 lacs).

iii. On account of outstanding Capital Commitments Rs. 76.29 lacs. (previousyear Rs. 37.25 lacs).

iv. Corporate undertaking on Securitisation/assignment Rs.7121.80 lacs(previous year Rs. 650.09 lacs).

v. Guarantee of Rs. 200 lacs (previous year nil) provided to NSE towardslisting of company’s shares.

vi. Legal Suits filed by the customers in Consumer Forums and Civil courtsclaiming compensation against company amounting to Rs. 603.70 lacs(previous year Rs. 203.75 lacs).

23) The company has no debentures issued to the public as at 31st March, 2006,hence no amount has been credited to the Debenture Redemption Reserveaccount during the current year.

24) There are no dues payable to Small Scale industrial undertakings in view ofthe nature of the business of the Company.

299


25) Secured Non-Convertible Debentures

Series No. Amount Rs. in Amount Rs. in Date of Earliest Redemption Datelacs as on lacs as on Allotment

31.03.2006 31.03.2005

Series HU 0 2000 16-Aug-02 36 months from date of allotment

Series IG 0 2000 18-Sep-02 36 months from date of allotment

Series IQ 0 2400 03-Oct-02 36 months from date of allotment

Series IY 0 2000 23-Oct-02 36 months from date of allotment

Series IZ 0 1500 25-Oct-02 36 months from date of allotment

Series NC 0 2000 07-May-03 24 months from date of allotment

Series NJ 0 1700 20-May-03 24 months from date of allotment

Series NL 0 500 22-May-03 689 days from date of allotment

Series NH-III-1 0 1000 10-Jun-03 24 months from date of allotment

Series NH-III-2 0 1500 10-Jun-03 24 months from date of allotment

Series NI 0 1000 10-Jun-03 22 months from date of allotment

Series OO 2500 2500 04-Jul-03 36 months from date of allotment

Series OP 0 2000 07-Jul-03 24 months from date of allotment

Series OR 2500 2500 08-Jul-03 36 months from date of allotment

Series OZ 0 2500 01-Aug-03 24 months from date of allotment

Series OY 5000 5000 05-Aug-03 36 months from date of allotment

Series NS 0 2500 10-Aug-03 24 months from date of allotment

Series PI 0 2000 25-Aug-03 24 months from date of allotment

Series PJ 2500 2500 27-Aug-03 36 months from date of allotment

Series QI-1 2500 2500 10-Oct-03 36 months from date of allotment

Series QI-2 2500 2500 10-Oct-03 36 months from date of allotment

Series QJ-1 0 500 15-Oct-03 24 months from date of allotment

Series QJ-2 0 1500 15-Oct-03 24 months from date of allotment

Series QV 2500 2500 07-Nov-03 36 months from date of allotment

Series QY 0 2500 13-Nov-03 18 months from date of allotment

Series QZ 0 2000 14-Nov-03 24 months from date of allotment

Series RB 0 1500 14-Nov-03 24 months from date of allotment

Series RK 0 2500 08-Dec-03 19 months from date of allotment

Series RR-2 0 2500 24-Dec-03 546 days from date of allotment

Series RT 2500 2500 01-Jan-04 36 months from date of allotment

Series RU-1 1500 1500 07-Jan-04 30 months from date of allotment

Series SP 2500 2500 01-Mar-04 771 days from date of allotment

Series SR 0 1000 17-Mar-04 415 days from date of allotment

Series SW 1000 1000 24-Mar-04 741 days from date of allotment

Series SX 0 1500 26-Mar-04 731 days from date of allotment

Series SV 0 1000 05-Apr-04 364 days from date of allotment

Series TG-I 5000 5000 16-Apr-04 3 years from date of allotment

Series TG-II 7500 7500 16-Apr-04 3 years from date of allotment

Series TH 2500 2500 16-Apr-04 2 years from date of allotment

Series TI 1000 1000 19-Apr-04 3 years and 11 days from date of allotment

Series TJ 2500 2500 20-Apr-04 3 years and 10 days from date of allotment

Series TL 5000 5000 30-Apr-04 2 years from date of allotment

Series TN 5000 5000 03-May-04 3 years from date of allotment

Series TR-1 6000 6000 28-Jun-04 3 years from date of allotment

Series TT 2500 2500 07-Jul-04 2 years and 36 days from date of allotment

Series TZ 5000 5000 07-Jul-04 3 years from date of allotment

Series UC 4000 4000 28-Jul-04 2 years and 6 months from date of allotment

Series UD 2500 2500 28-Jul-04 3 years from date of allotment

Series UE 5000 5000 30-Jul-04 3 years from date of allotment

Series UF 2500 2500 03-Aug-04 3 years from date of allotment

300


Series VI 0 5000 07-Dec-04 364 days from date of allotment

Series VJ 0 5000 07-Dec-04 364 days from date of allotment

Series VL 2500 2500 08-Dec-04 2 years from date of allotment

Series VM 0 2500 08-Dec-04 364 days from date of allotment

Series VK-1 1000 1000 17-Dec-04 730 days from date of allotment




Series VR 5000 5000 23-Dec-04 3 years from date of allotment

Series VW-1 5000 5000 12-Jan-05 3 years from date of allotment

Series VW-2 2500 2500 12-Jan-05 3 years from date of allotment

Series VX 2500 2500 13-Jan-05 3 years from date of allotment

Series VY 2500 2500 17-Jan-05 3 years from date of allotment

Series EJ2005-1 2500 0 27-Apr-05 730 days from date of allotment




Series EK2005 15000 0 16-May-05 1096 days from date of allotment

Series EL2005 5000 0 24-May-05 1096 days from date of allotment

Series EM2005 5000 0 24-May-05 1096 days from date of allotment

Series EN2005 5000 0 24-May-05 692 days from date of allotment

SeriesEO2005 2000 0 15-Jun-05 1096 days from date of allotment

Series EP2005 5000 0 14-Jun-05 1096 days from date of allotment

Series EV2005 2500 0 24-Aug-05 1096 days from date of allotment

Series EV2005 5000 0 24-Aug-05 1096 days from date of allotment

Series EW2005 2500 0 24-Aug-05 1096 days from date of allotment

Series ER2005 2500 0 20-Oct-05 1096 days from date of allotment

Series ER2005 2500 0 20-Oct-05 1096 days from date of allotment

Series GI2005 3000 0 28-Oct-05 595 days from date of allotment

Series GS2005 10000 0 10-Nov-05 914 days from date of allotment

Series GW2005 1000 0 11-Nov-05 913 days from date of allotment



Series GX2005 5000 0 16-Nov-05 546 days from date of allotment

Series HR2005 1900 0 29-Nov-05 553 days from date of allotment

Series HL2005 1000 0 02-Dec-05 549 days from date of allotment

Series HV2005 10000 0 06-Dec-05 370 days from date of allotment

Series IC2005 2500 0 08-Dec-05 579 days from date of allotment

Series IE2005 2000 0 15-Dec-05 634 days from date of allotment

Series IM2005 5000 0 29-Dec-05 125 days from date of allotment

Series IP2005 15000 0 03-Jan-06 1098 days from date of allotment

Series IL2005 7500 0 10-Jan-06 1098 days from date of allotment

Series AB2006 2900 0 10-Jan-06 604 days from date of allotment

Series AD2006 2000 0 23-Jan-06 464 days from date of allotment

Series AC2006 5000 0 24-Jan-06 128 days from date of allotment

Series AE2006 1500 0 06-Feb-06 455 days from date of allotment

Series AE2006 1000 0 06-Feb-06 455 days from date of allotment

Series AF2006 1500 0 13-Feb-06 455 days from date of allotment

Series AG2006 2500 0 17-Feb-06 458 days from date of allotment

Series AH2006 2700 0 17-Feb-06 580 days from date of allotment

Total 260000 169100

Series No. Amount Rs. in Amount Rs. in Date of Earliest Redemption Datelacs as on lacs as on Allotment

31.03.2006 31.03.2005

301


26) Unsecured Non-Convertible Debentures

Series No. Amount Amount Date of Earliest Redemption DateRs.in lacs Rs.in lacs Allotment

as on as on31/03/2006 31/03/2005

Series AI2005 2500 0 27-Feb-06 88 days from date of allotment

Series AI2005 2500 0 27-Feb-06 88 days from date of allotment

Series AJ2005 1000 0 27-Feb-06 87 days from date of allotment

Series AK2005 2500 0 28-Feb-06 86 days from date of allotment

Total 8500 0

27) Computation of Net Profit in accordance with Section 309(5) of the Companies Act, 1956 for the year ended on 31st March 2006.Rupees in lacs

Financial Year Financial Year2005 – 2006 2004 – 2005

Profit before Taxation as per Profit and Loss Account 16,215.44 13,281.26

Add: Depreciation charged in the Account 438.67 349.59

Directors’ Remuneration including Directors’ fees 87.07 74.26

Provision for non-performing assets (Net) 2,519.02 1,504.21

Estimated Loss on Securitisation 457.91 873.55

Provision for expenses on securitisation 334.22 343.83

Loss on sale, etc. of Fixed Assets (Net) 8.71 44.50

3,845.60 3,189.94

20,061.04 16,471.20

Less : Depreciation u/s 350 of the Companies Act, 1956 438.67 349.59

Profit / Premium on Sale / Redemption of

Long Term Investments 4.70 3.47

443.37 353.06

Total 19,617.67 16,118.14

Managing Directors’ Remuneration and otherDirectors’ sitting fees 46.32 34.36

Commission payable to the wholetimeDirectors @ 0.25% restricted to 16.75 20.90

Commission payable to the non-wholetimeDirectors @ 1% restricted to 24.00 19.00

87.07 74.26

28) Previous year’s figures have been regrouped wherever necessary.

Signatures to Schedule I to XX


Bharat Doshi


Uday Y. Phadke

Dhananjay Mungale

M.G. BhideDirectors



Pawan Goenka


302


Cash Flow Statement

Rs.in lacs Rs.in lacsSchedule March 2006 March 2005

A. CASH FLOW FROM OPERATING ACTIVITIESProfit before taxes and contingencies 16,215.44 13,281.26Add/(Less) :Non Cash Expenses :Depreciation incl. Lease equalisation Adjustment 438.67 349.59Amortisation of Intangible Assets 78.66 35.27Provision for non-performing assets (net) 2,519.02 1,504.21Employee Compensation Expense on account of ESOS 78.80 0.00Add/(Less) : 3,115.15 1,889.07Income considered separately :Income received on investing activities (780.76) (143.98)(Profit)/Loss on sale/Retirement of assets 8.71 44.50(Profit)/Loss on sale of Investment (4.70) (3.47)Income from Securtisation (4,930.56) (2,035.30)

(5,707.31) (2,138.25)Operating profit before working capital changes (I) 13,623.28 13,032.08Less :(Increase)/Decrease in interest accrued on Investments/others 23.25 (12.42)(Increase)/Decrease in Stock on hire (net) 172.76 7597.46(Increase)/Decrease in Trade receivables 2,303.36 2,403.02(Increase)/Decrease in Loans & Advances (201,784.55) (149,472.24)(Increase)/Decrease in Leased assets (net) 0.93 170.40

(199,284.25) (139,313.78)Add : Increase in Current liabilities 6,654.29 3,177.20

(II) (192,629.97) (136,136.58)Cash generated from operations (I+II) (179,006.69) (123,104.50)Advance taxes paid (6,064.35) (6,104.93)

(185,071.04) (129,209.43)NET CASH FROM OPERATING ACTIVITIES (A) (185,071.04) (129,209.43)

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of fixed assets (1,130.39) (949.55)Sale of fixed assets 65.79 66.93Purchase of Investments (26,664.98) (3,678.52)Sale of Investments 532.39 537.57Purchase of Oracle Software / Intangible Assets (140.37) (73.19)Income received on investments 800.36 135.68NET CASH FROM INVESTING ACTIVITIES (B) (26,537.20) (3,961.08)

C. CASH FLOW FROM FINANCING ACTIVITIESIssue of Preference Shares 0.00 5,000.00Issue of Equity Shares (net of issue expenses) 25,272.84 4,766.39Increase/(Decrease) in Bank borrowings (net) 11,501.52 3,718.41Increase/(Decrease) in long term borrowings (net) 95,410.00 82,510.00Increase/(Decrease) in short term borrowings (net) 37,591.00 2,717.22Increase/(Decrease) in Fixed Deposits (net) (1,622.77) (669.44)Proceeds from Securtisation 51,097.16 36,635.33Dividend paid (2,838.65) (2,527.78)NET CASH FROM FINANCING ACTIVITIES (C) 216,411.10 132,150.13

NET INCREASE / (DECREASE) INCASH AND CASH EQUIVALENT (A+B+C)* 4,802.86 (1,020.38)CASH AND CASH EQUIVALENTS AS AT:Beginning of the period 6,609.63 7,630.01End of the year ** 11,412.49 6,609.63

* Cash and Cash Equivalent does not include “Term Deposits under lien” for securitised debts.** Balance of unutilised monies raised by issue of Equity shares considered as cash and cash equivalent.

As per our Report attached hereto


Bharat Doshi


Uday Y. Phadke

Dhananjay Mungale

M.G. BhideDirectors



Pawan Goenka


303


ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PART IV OF SCHEDULE VI TO THE COMPANIES

ACT, 1956.

BALANCE SHEET ABSTRACT AND COMPANY'S GENERAL BUSINESS PROFILE

I. Registration Details

Registration No. : 1 1 - 5 9 6 4 2 State Code : 1 1


Date Month Year

II. Capital Raised during the Year (Amount in Rs. Thousands)


1 0 0 0 0 0 N I L


N I L 5 8 4 4 4

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


4 6 1 5 7 2 7 9 4 6 1 5 7 2 7 9

Source of Funds


1 3 3 3 1 4 0 5 9 9 4 7 0 7


3 4 8 3 6 8 7 1 3 9 9 2 5 6 1


Net Fixed Assets Intangible Assets

2 2 9 7 3 7 1 1 7 9 8

Investments Net Current Assets

3 1 6 8 5 1 5 4 2 2 7 9 7 6 6

Miscellaneous Expenditure Accumulated Losses

N I L N I L

Deferred Tax Asset (Net)

4 6 7 4 6 3

IV. Performance of Company (Amount in Rs. Thousands)

Turnover Total Expenditure

5 9 6 4 0 8 7 4 3 4 2 5 4 3

Profit/Loss Before Tax Profit/Loss After Tax

+ 1 6 2 1 5 4 4 + 1 0 8 2 7 2 4

Earning per Share in Rs. Dividend Rate%

Basic Diluted 3 5

1 4 . 5 9 1 4 . 4 1

V. Generic Name of THREE Principal Product/Service of the Company (as per monetary terms)

Item Code No. (ITC Code) N I L

Product Description L O A N

H I R E P U R C H A S E

B I L L D I S C O U N T I N G

L E A S I N G

Anand G. Mahindra ChairmanRamesh Iyer Managing Director

Bharat DoshiAnjanikumar ChoudhariUday Y. PhadkeDhananjay MungaleM.G. Bhide

Directors V.Ravi Narayan Shankar Nasser Munjee

Chief Financial Officer Company Secretary Piyush MankadPawan Goenka


1 mah subsidiary anuual report 05-06

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