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43-A, Okhla Industrial Estate, New Delhi 110020, India.Tel: + 91 11 41635201 - 07

Fax: + 91 11 41635211Email: info@moserbaer.net

Touching lives

FC+BC-ORDINARY-FINAL:Layout 1 5/30/2007 4:29 PM Page 2

CONTENTS :Touching lives through Innovative technology 2

Vision & mission 4

Letter to shareholders 6

Better storage solutions 8

Solar energy 10

Home entertainment 12

Year 2007 at a glance 14

Onward with excellence 16

Corporate Social Responsibility 18

Board of Directors 20

Management’s Discussion and Analysis 24

Director’s Report 44

Corporate Governance Report 52

Annual Accounts & Financials

- Moser Baer India Ltd. 70

- Consolidated financial statements 100

1

"What we are today comes from

our thoughts of yesterday, and our

present thoughts build our life of

tomorrow: Our life is the creation

of our mind." - Gautam Buddha

At Moser Baer, we believe that technology best reflects the current state ofhumanity's knowledge - either in its ability to combine resources and producedesired products or in its infinite potential to resolve people's problems andfulfill their wants.

Throughout history, technology has been the core catalyst transforming societies.

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Moser Baer ranks as one of the world's largestand lowest-cost optical media manufacturerhelping consumers safely, securely and cost-efficiently store their digital data. TheCompany has leveraged its robust R&Dstrengths to develop a new generation ofstorage devices which can archive critical andsensitive data for years and has also emergedas the first to market the next generation ofstorage formats such as Blu-ray Discs (BD)and HD DVD.

Right from innovating the smallest microchip to building sophisticated space stations, technology has ubiquitouslyset a new benchmark for efficiencies, competitiveness and opportunities by seamlessly connecting different marketsand economies.

At the next level, technology aims to help forward-thinking businesses to look beyond merely ushering "efficiency" tolend differentiation, enhance value and add dimensions to their product and service offerings, all of which will raisecustomer experiences beyond expectations.

Recognizing this potential of technology and innovation, Moser Baer has continuously harnessed the power of itsknowledge capital. This together with its commitment to be at the cutting edge of technology has only strengthenedits ability to set new technology benchmarks that have the power to impact and touch lives.

Touching lives throughinnovative technology

3

Looking ahead, Moser Baer intends to add features to the existingdata storage products, combine them with in-house technologicalcapabilities and cater to the aspirations of billions of Indian moviefans. The Company has already launched licensed movies in theVCD/DVD formats at unbelievable price points and withunmatched quality, an unprecedented initiative in the country.

Moser Baer has extended its corecompetencies in an endeavor to providea clear roadmap to bring down solarelectricity cost down to conventionalenergy price points. The photovoltiacinitiatives have the potential to enable afaster and cost-effective transition to therenewable solar energy market and in turndirectly or indirectly impact the lives ofpeople across the globe.

4

MISSION

We will drive growth through our excellence in massmanufacturing.

We will move up the value chain through rapid development oftechnology, products and services.

We will leverage our relationships, distribution, cost leadershipand "can do" attitude to become a global market leader in everybusiness.

5

VISI N“Touching every lifeacross the globethrough hightechnology productsand services”

6

2006-07 was a very

crucial year for Moser

Baer which marked our

journey from being a single

business firm into a multi-

technology business.

Developments during the

year vindicate our strategy

to transform Moser Baer

into a technology developer

and innovator.,

,

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This year has been one of the most exciting ones for MoserBaer as your company successfully transformed itself from asingle business into a multi-technology business organization.It gives me great pride in stating that our newly articulatedvision of touching lives through technology products andservices encapsulates our commitment to embrace nextgeneration technology to harness the immeasurable powerof our knowledge capital to set new technology benchmarks.

It gives me great satisfaction to share with you that many ofthe events and milestones your company achieved during theyear will take us closer to this vision.

In addition to the above, 2007 was also a year of tremendousfinancial accomplishments which we believe has set the stagefor long-term sustainable growth. Our revenues rose 20% toINR 20,740 million and profit after tax increased by 23.5times to INR 1,098 million when compared to the previousyear. Along with our financial performance, 2006-07 wasnoteworthy as we achieved many distinctions and entered anumber of new businesses.

BUSINESS OVERVIEWOPTICAL STORAGE MEDIA

The year has been a landmark one for our optical business.While the business reverted to normal profitability after twolong years, more importantly, your company has been able totransition itself into a technology leadership position. Forinstance, your company was the first company in the world toship out the next generation HD DVD. Also with theacquisition of OM&T, B.V, an erstwhile subsidiary of Philips,your company is amongst the very few companies in the worldto have Blu-ray disc manufacturing capabilities. We areconfident that your Company is prepared to lead the nextgeneration curve in the Blue laser based products.

The information explosion continues without any respite andso does the demand for cost efficient storage. On the back ofthe R&D efforts, Moser Baer’s optical media productscontinue to be one of lowest cost per megabyte storageproducts, a milestone, which we believe, will drive robustdemand for our products over the foreseeable future.

PV BUSINESS

As costs of conventional energy sources are rapidly rising, weare continually reminded of the need to find alternate sourcesof energy. Unlike fossil fuels, renewable energies are infinitein their supply and minus the impact of global warming andair pollution.

We are leveraging our corecompetencies in R&D and manufacturing toemerge as a significant player in the global photovoltaicindustry. While shipments from the first phase of the crystallinesilicon project have already begun, the second phase remainson fast track. With a strategy to straddle multiple technologiesin this area, we are aggressively evaluating emergingalternative technologies and are confident that we bring downPV electricity costs to match conventional energy price points.In line with this strategy, we intend on setting up of the world’slargest thin film solar fab in the country.

HOME ENTERTAINMENT

Our initiative in this business aims to bring about a paradigmchange in the home video market – a market characterized byhigh fragmentation and rampant piracy. With superior quality,unbeatable price points and a rich library, we are confident ofredefining the home video market in India. Additionally, thisbusiness will allow us to capture higher value addition in thechain and we are optimistic of emerging as a leader in thishighly exciting segment.

So far we have launched less than 5% of our library and itgives me great pride to state that the response to this newbusiness has been overwhelmingly positive. This is just thebeginning…We are confident that this new business willcreate significant shareholder value.

OUR PEOPLEToday Moser Baer is an organization of strong leaders andexceptionally talented an d dedicated individuals. People havebeen central to our success and it is through their unyieldingcontribution that Moser Baer will continue to make adifference to the lives of more people than before. I take thisopportunity to thank all our employees for their dedicationand hard work.

Finally, I want to thank all our Shareholders, Bankers,Suppliers and Customers for their continued support as weenter into what we believe to be an even more exciting newera for Moser Baer.

I assure you we will all continue to work hard to achieve it.

Deepak Puri

(Chairman & Managing Director)

Dear Shareholders,

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Touchinglives

9

through

better

storage

solutions

We are living in an age where digitization of information is happening

at an exponential pace.

According to the Challenge Forum, if the digitized dataavailable to mankind could be expressed physically, it wouldcover an area equivalent to the island of Mauritius in 1920,Madagascar in 1940, the Congo in 1960, the Africancontinent in 1980, all the continents by 2000, the whole ofearth now, and cover 1,700 planets every year by 2020!

This astronomical surge in digitized data continues unabated,resulting in a pressing requirement for secure, reliable andcost-effective data storage products and solutions.

Moser Baer is a global technology leader that understandspeople's digital data storage requirements. The Companyleverages its competencies in base material engineering, thinfilm coating and precision sputtering to lead the technologydevelopment curve.

With a capacity to manufacture over 3 billion discs per annum

and a market reach in over 82 countries, Moser Baer is livingits vision of touching almost every life across the globe byproviding superior solutions in storing and archiving preciousdata.

In addition, Moser Baer has the technological prowess tomanufacture the entire range of optical media ranging from700 MB CDs to over 50 GB blue laser based discs.

Moser Baer is committed to continuously leverage itstechnology platform, rapid commercialization abilities to offerhighly efficient, technologically advanced, low cost opticalstorage media that promises to ‘touch lives’ of people acrossthe globe. Every day.

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Touching livesthrough clean

Solar Energy

‘A LEADER IS A DEALER IN HOPE’- Napoleon Bonaparte.

Moser Baer is excited at the prospect of leading the technologydevelopment and manufacture of photovoltaic cells and modules aswell as promoting the usage of solar power at competitive rates. Thisis an endeavor which promises to `touch lives' of people in theremotest part of the globe by encouraging its usage and indirectlytouching lives of people on this planet.

Worldwide the demand for power exceeds supply and this demand-supply gap is increasing at an alarming pace. Research indicates thatconventional energy sources are failing to fulfill the global powerdeficit which has resulted in substantial investments being made in

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TOUCHING LIVES

non-conventional alternative sources of energy such as wind power,solar energy and bio-fuels.

In addition, there is the huge catastrophe of global warming andclimate change that are threatening to take over. While someindication of the possible impact are already visible, in the long term,this could cause serious and far-reaching problems from rising sealevels, melting glaciers to changes in our health impacting people,bio-diversity and inhabitants across the world. As the global warmingdebate continues, it is apparent that the world's future energygeneration is on the threshold of a dramatic change.

Moser Baer forayed into the photovoltiac business with a strategy tostraddle multiple future technologies, including crystalline silicon, thinfilm, low and high concentrator and nano technology and emerge asa significant technology-driven company. This strategy will allowMoser Baer to lead the technology curve and provide a road map tothe sub-dollar per watt costs. This coupled with its existing technologycommercialization and efficient manufacturing capabilities willenhance Moser Baer's ability to expand markets and ‘touch lives’.

Solar Energy Time line : From powering orbiting satellites and spacecrafts in the late 50s, remote telecommunications, cathodic protectionand signaling systems in mid-60s, remote residential and commercial systems since 70s, utility oriented residential and commercialapplications in the 80s, solar energy is now touching lives by becoming the key energy generator in rural areas and for many remote ordispersed off-grid applications including telecommunications, water pumping, navigation aids, transportation signals, remote lighting plusfor a growing range of commercial, industrial and consumer applications.

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The glamorous world of Indian cinema churns out dreams,

fantasies, romances and exciting thrillers, which not only attracts

millions to cinema halls but also enthuses many to watch them in

the comfort and warmth of their homes.

Yet, the Indian home video market has failed to keep pacewith the potential considering that India is the world's largestproducer and consumer of films. Rampant piracy and highfragmentation in this business have unfortunately impactedthe industry. Despite the huge potential of the home videomarket, this market accounts for a mere 8% of the INR 79billion film industry, which compares poorly with US homevideo revenues, which is double the size of its theatrical

market.

Moser Baer's foray intothe home video

market is anotherinstance where it

has leveragedits technologyleadership toenter asegment at anascent stage

and thereafter expand the market through its pioneeringand path breaking initiatives. The Company is using itsproprietary and patented technology which both enhancesquality and significantly reduces the cost to launch moviesin VCD/DVD formats. The movie titles at an attractive pricepoint of Rs 28 / Rs 34 vindicates our the technologicalcapabilities and represents an interesting paradigm changein the home video market. Today, the Company's initiativeis encouraging movie lovers across the country to build theirown libraries and create an enriching family entertainmentexperience in their living rooms.

At Moser Baer, this is just the beginning.

The Company has already acquired copyrights/exclusivelicense for around 7,000 movie titles across languages suchas Hindi, English, Tamil, Telugu, Malayalam, Kannada,Bhojpuri, Marathi, Bengali, Gujarati and Punjabi whichcombined with a strong three tier distribution model willmake Moser Baer titles available in over 200,000 outletsacross the country.

And in the process, touch every town where there is a movieloving family.

Touchinglives

through

home

entertainment

14

Collaborated with the Institute ofTechnology, Banaras Hindu University (BHU) towork jointly in the frontier areas of fundamentaland applied R&D for the optical storage mediaand Photovoltaic industry.

Commenced shipping of HD DVD-R(recordable), a next generation format, to our globalOEMs customers.

Invested USD 17 million (INR 79.2crore) in MBPV to focus on emerging PVtechnologies.

MBPV invested into Solaria, a Photovoltaicconcentration technology Company based inFremont, USA.

Forayed into the entertainment space,entered the home video market.

In 2006, Deepak Puri, the Chairman andManaging Director was conferred theprestigious PHDCCI - DistinguishedEntrepreneurship Award.

MBPV made strategic investment into aConcentration Photovoltaic (CPV) technologyCompany, SolFocus Inc.

Moser Baer's patented technology approved bythe Blu-ray Disc Association. Blu-ray Disc is the next-generation optical disc format being developed forhigh-definition video and high-capacity softwareapplications.

MBPV acquired a significant minority stake inStion Corporation, a nanostructures technologyCompany based in California.

Launched USB Flash drives in the Indian Market.USB flash drives are the fastest growing segment inthe portable storage market.

Launched the 'Platinum' range of optical mediato ensure data protection for 200 years and to

tackle the key problems in optical media datastorage - scratches, scruffs, smudges and

grime.

Ministry of Science andTechnology approved the Company's

in-house R&D centre.

May 2006July 2006

September 2006

OCTOBER 2006

November 2006

December 2006

August 2006

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Year 2007at a glance

Forayed into the Kerala home video market with101 Malayalam titles and entered the Chennaihome video market with 101 Tamil titles.

Moser Baer received the prestigious EPCES ExportAwards for Outstanding Export Performance for theyear 2004-05.

MBPV announced the strategic sourcing tie-up withDeutsche Solar, a 100 per cent subsidiary of Deutsche SolarAG, one of the largest global producers of silicon wafers.

Entered into a strategic partnership with Pyramid SaimiraTheatre for home video marketing and retailing.

Acquired OM&T BV - currently the only Company outsideJapan shipping Blu-ray discs.

MBPV acquired a 40% stake from Slovenia-based Solarvalue AG.The acquisition will ensure an assured supply of solar grade siliconwafers.

Made the largest ever bollywood home video foray with 101 titlescomprising popular titles such as Baazigar, Biwi No.1, Khakee,Aankhen, Qurbani, Vaastav, Ghayal, etc.

MBPV completed the final integration and trial on its initial 40 MWcrystalline photovoltaic cell production facility.

MBPV announced plans to set up the world's largest Thin Film solarfab to achieve new cost benchmarks and will invest over USD 250million over the next three years in thin film technology.

January 2007

February 2007

March 2007

16

"BUSINESS EXCELLENCE" IS A CATALYST FOR BRINGING ABOUT DEEP TRANSFORMATIONAL CHANGE AND BUILDING ON THE

FOUNDATION THAT HAS BEEN ESTABLISHED. EXCELLENCE IS A NEVER ENDING JOURNEY AND EVERY NEW ACHIEVEMENT BECOMES

A PAST ACHIEVEMENT TO BE FURTHER IMPROVISED. EXCELLENCE IS AS MUCH ABOUT THE JOURNEY AS IT IS ABOUT THE

DESTINATION.

Our "Business Excellence" journey was kick started in 2006-07, a year that saw the Company cross several importantmilestones. A 2+ cycle roadmap for reaching a selfsustainable stage in our excellence journey was developed asa guide. The first level envisaged was the ‘change initiationand enhanced alignment’ phase followed by the ‘resultsorientation’ phase. The third and final level is the `leveragingthe momentum' phase. In each phase a number of initiativeswere started (the "creation cycle") which then are furtherrefined in the next phase (the "reinforcing cycle") to eventuallyget integrated into the way we do business ( the "routine

cycle"). Each phase builds on the previous phase activities,further refining the past as well as starting new initiatives.

As part of the transformation roadmap, we have developed a"Planning & Execution" framework forming the core-engine for organizational transformation based on theexpressed and underlying needs of the organization. Thissubtle, simple yet very powerful framework lays emphasis onfour key pillars: Strategy Development & Deployment,Budgeting, Strategy Execution and Performance Management.The business excellence framework underpins the integrationand cross-linkages between all the four strategic pillars.

Onward with excellence

PLANNING

EXECUTIONStrategy Execution

Prioritization & Resource Allocation,Six-Sigma Y=f(x) Projects Framework,

Reviews Framework,Management Reporting

Performance ManagementReward & Recognition, KRA basedBSC alignment, Mid-year Reviews,

Annual Performance Reviews

Business Strategy Development & DeploymentStrategic Planning (STRAP) & Strategy Mapping,Balanced Scorecard Objectives Identification,

Target Setting

Budgeting(ABP/AOP)

Planning & Execution framework

Change Initiation and Enhanced Alignment

2006 2007 2008Prioritization and

Results Orientation Leveraging the

Momentum

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In the ‘Strategy Development’ phase, the company focuses ondesigning and channelizing its resources in a synchronizedmanner through the Balance Scorecard process forming the‘Strategy Deployment’ phase.

As a part of the ‘Strategy Execution’ phase, we have deployeda holistic corporate Six Sigma framework for effectivelyexecuting our strategic priorities and realizing results with highreliability. In the first year, this has already generated annualizedfinancial benefits (cost savings plus enhanced revenue potential)in excess of 4% of profit before tax plus other strategicallyimportant non-financial organizational benefits. In the current financial year, we are targeting an ambitious target of 15% of profit before tax for annualized financial benefitto the Company.

During the year, as part of its performance management

module, the Company rolled out a new set of company wideReward and Recognition program to recognize and rewardindividuals and teams that stand out in various types of activities.

In endorsement of our path to "Business Excellence," Moser Baerwas honored to have received the 2006 IMC RBNQACommendation Certificate award as well as the 2006 AmityCorporate Excellence Award.

A key element of the ‘strategy development’ phase is to have arobust process that allows the organization to look beyond thepresent and identify strategically important opportunities for theCompany to achieve its long term goals with the lowest possibleoverall risk. Towards that effect, we have implemented a STRAPprocess that best aligns our organizational vision & mission with ourcapabilities in order to identify opportunities and minimizes overallrisk

Vision & Mission

FILTER 1Synergy

FILTER 2Market

Opportunity & Risk

Filter 3Capability

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Corporate SocialResponsibility

At Moser Baer, we believe that Corporate Social Responsibility (CSR) is the way to conductbusiness that achieves a balance or integration of economic, environmental and socialimperatives while at the same time addressing stakeholder expectations. Under its CSR policy,the company affirms its commitment of seamless integration of marketplace, workplace,environment and community concerns with business operations. The company uses CSR as anintegral business process in order to support sustainable development and constantly endeavorsto be a good corporate citizen.

The company has formed the Moser Baer Trust - a dedicated vehicle set up for the purpose ofdoing community development activities.

REPORT OF ACTIVITIES : APRIL 06 – MARCH 07

CONTRIBUTING TO NATION BUILDING

MOSER BAER IS THE FIRST CORPORATE IN INDIA INVITED BY THE UNITED

NATIONS DEVELOPMENT PROGRAM AND THE MINISTRY OF

ENVIRONMENT AND FORESTS TO JOIN THE NATIONAL STEERING

COMMITTEE OF THE SMALL GRANTS PROGRAM. IT IS ALSO A MEMBER

OF THE NATIONAL TASK FORCE ON DISASTER MANAGEMENT.

SWASTHYA UTTHAN

Moser Baer Trust is running regular health camps and OPDservices through which it offers curative health services,health counseling and referral services to surroundingvillages. The trust has registered 5,270 cases so far, mainlycomprising of women, children and the elderly. The trustfocuses on Reproductive Child Health issues and hasconducted 35 community awareness meetings on relatedtopics. It also supports the government in its National PolioEradication programme and participates in awareness andimmunization drives in areas surrounding Moser Baer plantsand has reached to over 3,110 children.

DRISHTI

Project Drishti aims to eliminate avoidable blindness andrestore sight. The trust is reaching out to people in slums andrural areas through the program and is undertaking free eyetreatment, cataract surgery, spectacle distribution, eye check-ups and awareness generation. 22 Eye Camps have beenheld in the villages where 1,945 aged persons have beenexamined and 364 cases were detected for cataract andoperated to have their vision restored. Also 7,691 childrenwere tested for refractory error.

BALWADI

Almost 1,500 construction labourers including many womenwere involved in the upcoming PV plant. While Moser Baeras a responsible company caters to the development of itssurrounding communities we realized that these childrenwho are mainly wards of migrant workers needed a safe andhealthy environment away from any hazards and henceinitiated the Balwadi project. Under this project 67 childrenup to 14 years are covered through non formal education,and provided with nutrition, sports and recreational facilities.

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UDAAN

The National Association for the Blind (NAB) is thelargest NGO working in the area of the educationand rehabilitation of persons with blindness in India.One of the biggest challenges in education ofpersons with blindness is to make books available ineasily accessible audio formats . Moserbaer Trusthas joined hands with NAB to overcome this greatchallenge. Under this project Moserbaer’semployees and families volunteered to participatein the recording and have set up an in houserecording studio for this purpose. The company hasalso designed and produced 10,000 CDs to bedonated to NAB for this purpose.

E SHIKSHA

Moser Baer Trust was requested by GNIDA to bring

digital literacy to underprivileged youth in the area.It has partnered with the Trust and provided spaceat Kasna to start a computer lab with 10 computersand the Trust will train not only young people, butalso government school teachers in the GreaterNoida region.

DISHA

Rapid industrialization of the Greater Noida regionhas brought upon the problems of migration and alot of underprivileged youths - specially school dropouts, women, people living below the poverty line -do not have any chance of a dignified livelihoodbecause they are not ‘employable’ and lack theskills required by new economy jobs. MoserbaerTrust in partnership with CAP foundation, hasinitiated Disha,– a livelihoods programme that isaiming to create 1000 jobs in the region.

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Board of Directors

Men make history,

and not the other

way around.

In periods where

there is no

leadership,

society stands still.

Progress occurs

when courageous,

skilful leaders

seize the

opportunity

to change things

for the better.

- Harry S. Truman

‘

‘

MEET OUR ESTEEMED ̀ BOARD OF

DIRECTORS’ WHO THROUGH

THEIR EXPERIENCE, FORESIGHT

AND ENTREPRENEURIAL SPIRIT

HAVE ALWAYS PROVIDED THE

RIGHT DIRECTION TO DRIVE THE

COMPANY'S SUCCESS.

Deepak PuriManaging Director

Deepak Puri provides strategic direction to the Company. He is thedriving force in creating an environment of integrity by ensuring fairbusiness practices and profound respect for intellectual property rights.It is his ceaseless quest for human capital development that has helpedsteer the Company along a continuous growth path. He is also theManaging Director of Moser Baer Photo Voltaic Limited (MBPVL). Aleading spokesman for the Indian industry, Deepak Puri has never shiedfrom speaking his opinion. He is an esteemed member of CII, ESC andELCINA. He holds a Master’s Degree in Mechanical Engineering fromImperial College, London.

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Ratul PuriExecutive Director

Ratul Puri joined Moser Baer in 1994 and has been Executive Director since2001. Prior to assuming the directorship, Ratul was General Manager (BusinessDevelopment). In this capacity, he was instrumental in setting up plants formanufacturing compact disc-recordables (CDRs), the first to come up in India.He has also played a pivotal role in reinforcing Moser Baer’s focus onmaximizing shareholder value and in raising funds from best-in-class investors.He is also a Director in MBPVL. He has a degree in Computer Engineering fromCarnegie Mellon University, USA.

Nita PuriWhole Time Director

Nita Puri is a co-promoter of Moser Baer and a Whole-Time Director of theCompany. A graduate from Calcutta University, she has over three decades ofexperience in managing businesses. As Director (Administration and HR), shehas been closely involved with the Company’s growth since its inception.

Prakash KarnikDirector

Prakash Karnik was a Director at Electra Partners Asia Private Ltd, one of Asia’sleading private equity firms. An engineer from the Indian Institute of Technology(Madras) and a management graduate, he has over 25 years of experience inthe engineering and finance sectors. He has worked in senior positions in bothgovernment and private sector organizations, including Jardine Fleming IndiaSecurities Ltd., Unit Trust of India and the Economic Development Corporationof Goa Ltd. He is also a Director in MBPVL.

Harnam D WahiDirector

Harnam Wahi brings a wealth of experience and global expertise to theBoard of the Company, having worked in various senior positions inprestigious Indian and International Organizations such as the InchcapeGroup, London. He was also closely associated with several industryassociations. He is a Director in MBPVL also. He is a recipient of ‘PADMASHREE’ awarded by the President of India.

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Bernard GallusDirector

Bernard Gallus brings with him over four decades of experience in theinternational technology and finance markets. He was earlier ManagingDirector and member of the Board of J. Bosshard S.A. Lausanne, later takenover by the manufacturing company W Moser Baer AG, Switzerland. He isa Director in MBPVL.

Arun Bharat RamDirector

A Past-President of the Confederation of Indian Industries (CII), Arun Bharat Ram isthe Chairman and Managing Director of SRF Ltd. A graduate in Industrial Engineeringfrom the University of Michigan, USA, he began his career in 1967 with the DelhiCloth & General Mills Co. Ltd, (now DCM Ltd.). He went on to set up SRF Ltd. in 1971.In his businesses, he has strongly supported corporate governance initiatives andprofessionalism. He has been on various government-industry committees and is aformer president of the Association of Synthetic Fibre Industry. Arun Bharat Ram is alsoon the Board of many other companies, some of which are as follows- Bharti TeleVentures Limited, Samtel Color Limited, Fenner (India) Limited, SRF Polymers Limited.

Rajesh KhannaDirector (Nominee Warburg Pincus Singapore LLC)

Rajesh Khanna has been working with Warburg Pincus for more than six years. He isan MBA from Indian Institute of Management, Ahmedabad and a CharteredAccountant. He earlier worked with leading finance and consulting firms such asCitibank NA and Arthur Andersen & Co. He has been appointed Managing Directorof Warburg Pincus India Private Ltd and of Warburg Pincus LLC. He is also on theBoards of Nicholas Piramal India Ltd, Max New York Life Insurance Co. Ltd, MaxHealthcare Institute Ltd, Max India Ltd, and MBPVL.

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Dr. Vinayshil GautamDirector

Dr. Vinayshil Gautam has been inducted as a Director of the Company w.e.f.12th December, 2006. He was the first Director of the Indian Institute ofManagement (Khozikode) and the first Head of the ManagementDepartment at the Indian Institute of Technology (IIT), Delhi. He is currentlythe Dalmia Chair Professor of Management at IIT, Delhi and coordinator ofthe Institute's Dalmia Research Programme.

Dr. Vinayshil Gautam was a member of various significant committees ofGovernment of India including the Committee appointed to look into theefficiencies of promotional processes of 10 senior Positions in Government;Quinquennial review team of CMFRI, NAARM; Committee appointed toreview the working of NSTEDB, etc. He is also on the Board of J. K.Industries Ltd, Shivam Auto Tech Ltd, EXIM Bank, Steel Authority of Indiaand KEC International Limited.

Virander Nath Koura

Director

Virander Nath Koura has been inducted as an Additional Director of the

Company w.e f. 29th September, 2006. Virander Nath Koura received his

formal legal education at Lincoln's Inn, London and currently is a senior partner

of Koura & Co., a leading firm of legal consultants in India. He is also on the

Board of Bharti Infotel Limited, National Cereals Products Limited, Controls

and Switchgear Contractors Limited and HCL Infosystems Limited.

John LevackDirector

John Levack is Director of Electra Partners Asia Ltd. He has over 20 years ofprivate equity experience with Electra and 3i Plc in Asia and Europe, four yearsof which have been in India. He is a director at Zensar Technologies Ltd.,MBPVL, Electra Partners Asia Pvt Ltd and RT Packaging Ltd. Levack has a degreein business administration from Bath University in the UK.

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Management’sdiscussion &

analysis

OVERVIEW :Moser Baer manufactures products and provides services whichleverage its technology development and commercialization strengthsto offer the best, value-enhanced and differentiated technologyproducts and services to its global customer base.

FY 2006-07 has been a year of evolution at Moser Baer. Thecompany has emerged as a multi business organization withpresence in high growth technology driven global scale businesseshaving superior returns on investments.

Improving operational efficiencies coupled with increasingly efficient& optimal use of assets - both fixed as well as working capital - isanother positive trend in the company's performance.

During the year, the company further consolidated its leadershipposition in the global optical media industry. Moser Baer was first tomarket next generation HD DVD media. The company also achieveda unique technology & IP position in the Blu-ray format through itsown pioneering work and acquisition of OM&T (a former R&Dsubsidiary of Philips BV) - marking the transition of the company froma technology innovator to a technology developer.

During FY '06, the company had announced plans to enter the highgrowth global Photovoltaic (PV) business and achieve a leadership

position through its multi technology strategy and by leveraging its core competencies in fine/wet chemical processing, thinfilm coating, mass manufacturing and rapid technologycommercialization.

During the year, the company crossed several important milestonesfor its PV cell and module manufacturing project, the first phase ofwhich is set for commercial production. The company's wholly ownedsubsidiary, Moser Baer Photo Voltaic Limited (MBPV), announcedseveral strategic investments. On the technology side, MBPV hasmade strategic investments into Solaria, SolFocus Inc., & StionCorporation, based out of USA. The company has recently alsoacquired a significant equity stake in Slovenia-based SolarvalueProizvodnja d.d. to ensure supply of solar grade silicon. The companyalso entered into a joint technology development agreement with Applied Materials Inc (AMAT) for its foray into Thin Film PV products.

Moser Baer's strategy is to clearly straddle multiple future technologiesand emerge as an engineering & technology driven company. Theseinnovative technologies have the potential to make PV energy costscomparable to those of conventional energy - thereby significantlygrowing the market. Moser Baer aims to be at the forefront of thisemerging technology curve by investing into these technologies and

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PV BUSINESSIndustry developments in 2006-07Overview

Global energy demand is increasing at a rapid pace. Nations willspend USD 1 trillion this decade to meet electricity generating needs.Energy costs are rising globally, in line with oil prices and grid powercosts are slated to rise by 8-10% annually. Energy security is agrowing concern worldwide, leading to increasing dependence onrenewable energy sources.

Amongst the renewable space, photovoltaic technology is fastemerging as the most viable technology that has the potential tosatisfy the rising demand for distributed peaking power needs of theworld.

Increasing emphasis on cleaner, renewable fuels coupled with arapidly expanding list of countries, including Spain, Italy, Greece andFrance which are implementing or have implemented legislationsfavoring PV technology, the global demand for PV energy andsystems is on a very high growth trajectory. The global PV industrysize in 2006 grew to over 2.5 GW representing a 40% y/y growth.

The various R&D programs and technology initiatives to reach parity with base load grid power cost continued to dominate theindustry mind space during the year. The other important focus area for the industry is to scale up the Balance of Systems (BOS) technology so as to reduce BOS costs in line with cell &module cost curve.

While polysilicon continues to be supply constrained, large global

combining them with its existing technology commercialization andefficient manufacturing capabilities.

During the financial year, the company also announced its entry intothe exciting Indian content distribution/entertainment market throughthe Indian home video segment. This move will take advantage ofMoser Baer's established production capability and a well developednational distribution network. This business will also act as a lever tode-commoditize the blank optical media business given its highervalue addition and high returns on invested capital. During the yearthe company did a phased national launch of its video content onDVD and Video CD (VCD) formats using its proprietary and patentedtechnology with enhanced quality and significantly reduced cost. Thiswill enable Moser Baer to revolutionize the quality-price parity andoffer unprecedented value for the consumers in Indian market.

GLOBAL INDUSTRY DEVELOPMENTSOptical storage media

The global optical media industry steadily recovered during thefinancial year, driven by a confluence of factors - including continuingconsolidation of capacity, growth in consumer demand and softeningof input costs. The company further consolidated its position andaccording to Techno System and Research (TSR), Japan, maintained

its position as the second largest manufacturer of optical storagemedia in the world.

With continued growth in consumer demand for optical media,industry variables have improved and are reverting to normal levels.Efficient manufacturers with scale should benefit from theconsolidation which has followed the recent turbulent period in theindustry.

Strategic Marketing & Decisions (SMD) estimates global demand forblank optical media products to be 19 billion units in 2006representing a growth of 15% over 2005. This is mainly on accountof a 68% y/y growth in demand for DVDR/RW formats while demandfor the CDR/RW formats remained stable.

The year also saw the commercial shipments of next generationformats like the HD DVD and Blu-ray. While their shipments are stillsmall, SMD expects these formats to be the key growth driver for theindustry. Moser Baer was the first company in the world tocommercially ship HD DVD format to its top tier customer base.Increasing supply of Blue laser optical pick up heads and emergenceof drives which can read/write both HD DVD and Blu-ray formats aresignificant positive developments which should provide furtherimpetus to growth of these formats.

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players have initiated significant capacity expansions and technologyinnovations which should lead to an improved supply and costscenario for this key input in the long term. The emphasis is on newtechnology to manufacture polysilicon and also on convertingmetallurgical grade silicon to solar grade silicon.

Globally, utilities are increasingly entering into long term PowerPurchase Agreements (PPA) with the solar energy installations. The market is also moving towards large form factor applicationswith new technologies being the key enabler. Building IntegratedPhoto Voltaic (BIPV) systems is another emerging application whereinsolar systems can be integrated into the building during itsconstruction.

Indian Market & Policies

Currently India has an installed power generation capacity of about123 Gigawatts (GW) per annum. With a robust economic growth,the per capita electricity consumption is expected to rise from 435KwH at present to 2000 KwH by 2015. However, the capacitycurrently lags demand with an estimated energy shortage of 8% anda peak load shortage of 11.6% at present.

India has started looking at renewable energy and progressively solarenergy as a serious alternative to conventional energy needs. Thecurrent demand for PV systems in India is estimated to be 40 MWwith major applications being limited to rooftop energy generationand solar thermal applications. Driven by emerging technologies andindustry factors, a reduction in the price of solar energy productscould significantly expand this market to a multiple of GW potentialin the next few years.

Several national programs have been launched for off gridinstallations in India. Among other incentives, the Indian Governmentalso directs state utilities to buy a specific part of their energy needsfrom renewables - of which solar is set to rapidly increase its share.

Recently announced semi conductor policy provides significantbenefits to the PV manufacturing sector through capital subsidiesunderlining the rising importance of this sector in Government policyinitiatives.

PRODUCT-WISE ANALYSIS AND OUTLOOK

CDR / RW

Strategic Marketing & Decisions (SMD) estimates global demand forCDR/RW formats to be over 12 billion units in 2007. Consumerdemand for the CDR/RW format continues to grow in Asian, LatinAmerican and Middle Eastern markets. There are also certain

emerging corporate applications and niche segments like theprintable media and LightScribe, which are seeing a rapid growth inthe CDR/RW space.

Meanwhile global CDR/RW supply continues to consolidate throughcapacity conversions and closure of inefficient capacities around theworld. This is helping CDR/RW demand-supply balance return toequilibrium, thereby providing a stimulus for firm CDR/RW pricingenvironment in the medium term.

DVD / RW

Shifting consumer preferences, increasing drive penetration andimproving price-value proposition of DVDR/RW media is leading to asharp growth for the format. As per SMD global shipments ofDVDR/RW formats rose 68% y/y in 2006 to 6.2 billion units from3.7 billion units in 2005. SMD expects DVDR/RW shipments to touchalmost 9 billion units in 2007 representing a 43% growth. TheDVDR/RW media prices are expected to continue to follow itsmanufacturing cost curve, enabling healthy margins for manufacturers.

Next generation formats

Despite the next generation format war, SMD believes that it is theBlue lazer technology (BD & HD DVD) that has the potential ofsignificantly mitigating the impact of possible cannibalization ofoptical media demand by emerging alternate technologies in thelong term. During the year, first commercial shipments of these nextgeneration formats were started, spearheaded by Moser Baer. Thecurrent pricing for these formats which offer 15-23 GB space onsingle substrate is 15-20 times that of the DVD formats.

While SMD expects 2007 to be the first big year for Blue laser basedtechnology, the race has already begun in this next growth phase ofthe global optical media industry. As per US based StrategicMarketing and Decisions, the demand for the next generation highdensity formats, including HD DVD and Blu-ray media, is expected atgrow sharply to 1.7 billion discs over the next three years driven byincreasing applications driven by high definition video content andimproving price value proposition offered by these formats as theirpricing curve approaches the inflection point required to expandmarket demand.

Given the complexity and manufacturing capabilities required tomass produce these formats, only a select group of companies willemerge as key players in this high growth segment, thereby increasingthe differentiation between the technology innovators and developersand the tier-II companies over the long term.

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OPTICAL MARKET IN FY 07

CDR / RW DVDR / RW Next generation formats

� Improved demand-supply position of CDR / RW.

� Average Selling Prices (ASPs) firmedup during the year.

� Strong demand from Asian countries.

� Global CDR / RW demand growthreaching maturity

Outlook

� Pricing to remain range bound.

� Consumption of global CDR / RWformats driven by emerging markets.

� Demand grew 68% in 2006 for DVDR / RW formats.

� Manufacturing costs falling as playersachieved scale.

� Pricing follows the manufacturing costcurve.

Outlook

� Pricing to track the manufacturingcost curve.

� Global demand for DVDR / DVDRWto grow strongly.

� Blu-laser formats launchedcommercially.

� Formats in initial growth phase.

� Manufacturing technology limited tohandful of players.

Outlook

� Exponential volume growth expected during early growth phase.

� Pricing premium to existing formats.

PV BUSINESS - BRIEF TECHNOLOGY ANALYSIS ANDOUTLOOKIncreasing emphasis on clean energy sources and expandingfootprint of PV friendly legislations around the world coupled withreducing cost of solar systems enabled through technologyinnovations are sharply growing the global photovoltaic market. ThePV market is on a high growth curve with global demand expectedto grow from current 2 GW to over 10 GW resulting in over USD 40billion in revenues by 2010. Demand for solar energy systems ishighly price elastic, as electricity costs from solar energy systems nearparity with conventional energy costs, the global demand for PVsystems should rise exponentially.

The innovations in the established crystalline silicon technology andvalue chain coupled with emergence of potentially disruptive newtechnologies like the Concentration Photovoltaic (CPV) technology,Thin Film technology and Nano technology, provides a clear pathwayto drive the PV energy costs to parity with the conventional energycosts.

Amongst the emerging technologies, Thin Film and Concentratorsare best positioned to be commercialized at a price point which couldpotentially go below grid parity at USD 1/watt.

There are broadly three emerging factors for success which willdifferentiate companies in this industry over the long term. Firstly, thescale &/or manufacturing efficiencies; Secondly, access to technologyand lastly, the level of integration along the PV value chain fromstarting input to BOS.

Companies which are highly efficient manufacturers and haveachieved scale will emerge as front runners in established crystallinesilicon technology. Additionally, these companies will need to takepositions in one or few of the emerging technologies to establish orsustain competitive edge given their potential to reduce PV systemcosts.

Companies will also integrate themselves along the PV value chainto capture higher value addition and offer customized solutions totheir consumers worldwide to differentiate themselves.

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MOSER BAER DEVELOPMENT FY 2006-07During the year the company evolved into a technology driven,multiple business translational by adding high growth technologydriven businesses to its portfolio which have the potential tosignificantly increase combined revenues and overall returns oninvested capital.

Optical Storage Media

FY2006-07 is a year of recovery with the global blank optical mediaindustry steadily returning to normalcy, driven by robust consumerdemand, consolidation of capacities & consequent price stabilizationand softening of prices of raw materials. Consequently the company'soperating & financial parameters also returned to normal andsustainable levels during the year under review.

During the year, the company increased its blank optical mediacapacity from 2.8 billion discs per annum to 3.4 billion discs perannum in FY07 through an efficient mix of new capacity andopportunistic acquisition of couple of distressed capacities in Europe.This has led to a significant improvement in our asset turnover during the year.

The base optical media business reached stabilization during FY07 and has emerged free cash accretive driven by improvingprofitability, asset turnovers and sharp improvement in workingcapital cycles; growth and returns remain attractive from long termperspective.

With the company's improved manufacturing efficiency, growingmarket share, proprietary technology and "first to market" position innext generation Blue laser based formats; the company is well placedto benefit from improved industry dynamics and high growthpotential.

During the year, the company emerged as the second largest playerin the global blank optical media industry with the largest marketshare of CDR/RW segment and the second largest share of the fastgrowing DVDR/RW segment. The share of the high value DVDR/RWsegment has increased sharply during the year and currentlyconstitutes over 50% of revenue against less than 25% in FY06.

A major highlight of the year is the transformation of Moser Baer froma technology innovator to a technology developer through itsrelentless efforts on R&D and various technology collaborations.

In the 2Q FY07, the company achieved the status of being the firstin the world to commence commercial shipments of next generationHD DVD-R media to its top tier OEM customers. Additionally, thecompany's proprietary and patented technology was established asone of the four standard media to be included in the Blu-ray discspecifications by the Blu-ray Disc Association. The company'spioneering work in Blue Ray phase change technology and a uniqueIP position should provide a significant competitive edge to thecompany and enable it to change the cost dynamics for the formatto consumer. As per Strategic Marketing & Decisions (SMD) BlueLaser based formats (HD & Blu-ray) demand is set to exceed over1.7 billion discs by 2009 from a couple of million units at present,and the company is well positioned to capture a significant share ofthis emerging opportunity.

In the last quarter of FY 2006-07, Moser Baer acquired 81% stakein OM&T B.V., a highly specialized technology company from Philips.This acquisition will complement the existing cutting edge technologyresearch being done in Moser Baer's R&D center in India and help thecompany to be at the forefront of technology in both the optical andsolar photovoltaic (PV) segments.

A significant part of the Blue-ray technology development andcommercialization was done by OM&T and it will enhance theleadership position of Moser Baer in this format. Moser Baer will alsobe able to leverage OM&T's best in class mastering and stampermaking capabilities.

OM&T also possesses world class capabilities in thin film, wetchemical processing, optics, concentration and testing procedureswhich will enable Moser Baer to take a significant leap forward in itsR&D efforts in multiple PV technology verticals.

In another major development, the company's in-house R&D centerwas granted recognition by the Ministry of Science and Technology(MoST), Government of India. The company is now amongst a selectfew in India to have its R&D centre approved by the Department

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of Scientific and Industrial Research (DSIR), MoST.

Having established the `Moserbaer' brand as a market leader in thefast growing Indian storage media market, the company alsoleveraged its strong brand equity and an extensive distributionnetwork to address another market niche by launching 'Moserbaer'range of USB Flash drives in the Indian market in the third quarter ofFY07.

Developments in the PV business

Moser Baer leveraged the existing core competencies in wet chemicalprocessing, photo lithography, base material engineering and nano-etching into the photovoltaic space by establishing a solar cells and modules manufacturing facility in India's first renewable energy SEZ.

Moser Baer utilized its engineering capabilities and learning from theoptical media manufacturing to design a unique horizontal, in-lineconfiguration allowing higher throughput, inherent flexibility in waferusage and a pathway to thin wafer handling. The company willrapidly increase deployment of thinner wafers and set industrybenchmarks in production efficiencies in line with its strategy toemerge as one of the most efficient manufacturers in the photovoltaicspace.

The company's initial 80 MW of crystalline silicon cell manufacturingproject crossed significant milestones towards commercializationduring the year. The first 40 MW of phase I of this project is set toachieve commercialization. The company is also in the process ofadding a module manufacturing facility to capture incremental partof the PV value chain and provide customized solutions to thecustomers.

In addition to the target of being one of the most efficient solar cellmanufacturers, the company also put in place an efficient siliconsourcing strategy to adequately address current demand supplyimbalances in silicon availability. In line with this strategy, thecompany announced the strategic sourcing tie-up with DeutscheSolar, a leading global silicon wafer manufacturer, for the supply ofsilicon wafers. The company has recently also acquired 40% strategicequity stake in the Slovenia-based Solarvalue Proizvodnja d.d. Thisstrategic stake will help MBPV secure long term supplies of solargrade silicon wafer at competitive prices.

The company's strategy is to straddle multiple future technologies andemerge as an engineering & technology driven company withdifferentiated business model to peers. In line with this strategy the company made strategic investments into US basedConcentration Photovoltaic (CPV) technology companies, namely,Solaria Inc. and SolFocus Inc.

Solaria's unique low-concentration technology platform shouldenable Moser Baer to produce two to three times the number ofmodules from the same amount of silicon material used in today's

conventional cells and modules. Solaria's technology fits seamlesslyinto the existing PV supply chain; has the same form, fit and functionof traditional solar PV offerings; and can be deployed in a range ofcommercial, industrial and residential rooftop and ground-mountedapplications.

The low cost of SolFocus high concentration solar panel productswill enable a dramatic reduction in the cost of delivering renewablesolar energy, and for the first time enable solar to compete with conventional fuels in several large multi-billion dollar energymarkets. The strategic investment of Moser Baer into SolFocusrepresents a significant step towards commercialization of this CPVtechnology.

The company also entered into a technology partnership with the USbased Applied Materials Inc, a global leader in nano manufacturingtechnology solutions for the electronics industry, to manufacture largearea Thin Film modules. This enables Moser Baer to have a firstmover advantage in the manufacture of large area Thin Film moduleswhich are ideal for energy farms, rural applications and BuildingIntegrated Photovoltaic (BIPV) markets.

Moser Baer's acquisition of OM&T BV - a Philips' technology andR&D subsidiary will also contribute in significantly enhancingcompany's development efforts in the large area thin film modulespace.

The company also invested into Stion Corporation, a breakthroughinnovator of nanotechnology for solar photovoltaic industry. MBPVhas acquired a significant minority stake in Stion Corporation, ananostructures technology company based in California, formerlyknown as NStructures. Stion Corporation is a pioneer in the cuttingedge Nanostructure based PV technologies. The technology customtunes nanostructure particles using several substrate materials toabsorbing nearly the entire solar light spectrum, enabling highefficiency solar cells at a low cost. This technology is still at lab scaleand a couple of years away from commercialization.

MBPV is expected to start commercial production of its first phase ofcrystalline silicon capacity in FY08 and rapidly achieve scale byramping up capacity to over 200MW over next three years.

Additionally, its thin film project is expected to start commercialproduction in early 2009 with an initial capacity of 40 MW, which willeventually ramp up to 200 MW capacity over three years - makingit the largest thin film solar fab in the world.

The Concentration Photovoltaic (CPV) vertical will start contributingto revenues in early 2008 with an initial capacity of 40 MW

ENTERTAINMENT SPACE AS A NEW BUSINESSINITIATIVEDuring the year, the company forayed into the exciting Indian contentdistribution and entertainment market through the Indian home videosegment. Several positive attributes of the robust strategy and unique

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opportunities underpin the company's positive prospects in the newbusiness venture.

Rising disposable incomes, increasing penetration of hardware, largeand increasing content base and hectic lifestyles will continue toincrease demand for home entertainment. According to estimates,while India has over 26 million DVD/ VCD users, they barelycomprise a fourth of population having TV ownership in the country.It is estimated that the number of DVD/VCD owners will grow at ahealthy clip of over 25% per annum.

The Indian home video market accounts for a mere 7% of the totalfilm revenues of INR 79 billion, which is very low when compared to50% in a market like the USA. Home Video share could rise sharplywith increasing consolidation and improving price value propositionbeing offered to the consumers.

Home Entertainment is a key revenue driver in theinternational markets

FY 06 estimates India (Rs in Billion) US (USD Billion)

Film entertainment 79 40

Theatrical 59 10

Home Video 5.5 20

Home Video as a % of 7% 50%

film entertainment

Home Video as a % of 9% 200%

Theatrical

(Source: PWC-FICCI Report, company estimates)

StrategyThe home entertainment business will leverage Moser Baer'sproprietary manufacturing technology and established nationaldistribution network to offer quality product at a price point - INR 34for DVD & INR 28 for VCD - which will change the currentbenchmarks for price value proposition to the consumers and createa standard which peers will find extremely difficult to emulate. Theother key differentiators of the strategy are the diversity of content,library size, language options and a strong delivery mechanism.

In the long term the strategy is to create a business model which isagnostic to the type of content distributed and also selectively developcontent and movies for the home entertainment segment.

Moser Baer has already acquired copyrights/exclusive license/marketing and distribution rights of around 6,000 titles in all majorIndian languages comprising a third of all mainstream films everproduced in India, making Moser Baer the biggest player in the homevideo segment. The company has established distribution network ofover 450 distributors with DVDs and VCDs being available across200,000 outlets in the country. The company has also launched aweb-based sales initiative from its site www.moserbaerhomevideo.com.

The company has adopted the pull and awareness marketing strategythrough its "hello happiness" campaign to reach out to consumersand communicate the value proposition offered. As a mark ofassurance, the company is offering a certified quality money backguarantee in case of any manufacturing defect and is promising toreplace the disc absolutely free.

OutlookThe company plans to invest USD 100 million over the next threeyears in this business, mainly on acquisition of content and marketingexpenses. The price point offered to consumers is expected to expandthe market with higher share of legitimate content distribution. MoserBaer expects to catalyze this trend in the Indian home vide segmentand expects this business to significantly contribute to it's revenuesand earnings over the next few years.

SWOTStrengths

1) Lower capital investment compared to industry standards and high process efficiencies enables global cost leadership.

2) Integrated & Flexible manufacturing facility enables adaptingto changing market dynamics.

3) Cutting edge R&D infrastructure enables development ofsuperior technology products and faster commercialization of the same to emerge "first to market".

4) Strong logistics and distribution network spread across the globe.

5) Present in multiple technologies within each businesssegment.

6) Excellent project management, large-scale production skills enabling faster technology commercialization.

7) Emerging from a technology innovator to technologydeveloper.

8) Committed shareholders add strength, longevity andsustainability to future plans.

9) Presence in multiple businesses having high growth and returnon invested capital.

Weaknesses

1) Key raw materials in the business are commodities, henceexposed to price fluctuations.

2) As the new businesses are in investment phase, they will require large investments of funds, manpower and resourcesin the short term.

3) Internal control and information systems need to be strengthened to meet the requirements of a multi businessesorganization handling large number of product variants across segments.

Opportunities

1. A first to market and unique IP position in the next generationBlu Laser based formats provides a significant competitiveedge and growth opportunity as demand for these formatsgrows to over 1.7 billion discs by 2009. Having a first moveradvantage in this segment, the company is likely to earn supernormal profits during the initial stages.

2. The company has emerged as the second largest player forDVDR/RW formats in the world - a segment which is to growover 40% p.a. in 2007.

3. Domestic market: India is one of the fastest growing markets

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for optical media. The company is well positioned todominate this captive market.

4. Solar Photo Voltaic business: Increasing reliance on cleanenergy and falling PV system costs are set to grow globaldemand by over 5x (USD 40 billion value) by 2010 whichpresents Moser Baer with an exciting growth opportunity.Moser's core competencies along with its multi technologystrategy should allow the company to differentiate itself andsignificantly grow its market share.

5. Home entertainment business: Leverages existing strengthsand is highly synergistic. This business represents an excellentopportunity to leverage proprietary technology, enable thesetting of new cost benchmarks and de-commoditizing of theblank optic media business by higher value addition. Theinitiative should also increase Moser's brand equity in Indianmarket. The company is uniquely positioned in this businesswhich should ensure higher returns and growth for Moser Baer and also redefine the home video market in India.

Threats

1. Alternate technologies: Given Moser Baer's presence in hightechnology businesses, managing technology evolution andbeing at the forefront of the technology curve assumes primeimportance. Threat of technology obsolescence and alternatetechnologies is a constant in the optical and PV space. However,over the years the company has evolved from a technologyinnovator to a developer and has also entered into strategictechnology alliances in PV space to emerge as a technologydriven company, thereby mitigating this threat.

2. Prices of key inputs: Polycarbonate for optical media andpolysilicon for photo Voltaics are critical key raw material. Thesecommodities are influenced by a variety of factors, includingcrude prices, respective demand-supply balance, etc. Any sharpincrease in prices of these commodities or demand-supplyimbalances could adversely impact business. The company isworking on strategic sourcing agreements, including investmentsinto production facilities, for critical raw materials. This shouldease the impact of any pricing volatility and improve productionplanning.

3. Anti-dumping and anti-subsidy / government policies: TheCompany derives a significant part of its revenues frominternational markets. These have seen a growing protectionistattitude and a tendency by some local governments to use anti-dumping and trade protection tools to provide protection to localbusinesses. However, the Company continues to keep a closewatch on this front and take necessary steps to minimize any fallout.

In the PV front, Government incentive programs and benefits toPV industry are providing strong impetus to demand growth forPV systems. Any adverse change in these policies could have anegative impact on global demand. Moser Baer's multitechnology strategy in PV space is not based on the pace ofincentive programs as these new technologies could deliverenergy at costs comparable to that of conventional energy.

4. Fall in product prices: As products move into the mature phase in their life-cycle, they start to emulate commodity-type characteristics. Also, optical media industry has relativelyhigh capital intensity; hence a sharp fall in prices could severely impact overall returns. The company has beenconsistently improving its asset turnover by installing moreefficient lines, improving product mix, etc. The leadership positionin high value next generation formats should further improvethese returns.

Currently, the growth in PV industry is demand constrainedleading to healthy pricing and margins. Given the shortage oninputs side, the pricing should continue to track input cost trendsin medium term. Demand being highly price elastic, any sharpfall in costs should significantly expand demand.

5. Emerging delivery platforms in entertainment segmentThe introduction of video-on-demand, IP TV, pay per viewservices, etc, which enable the customers to select and watchmovies at their convenience could compete with the physicaldistribution of home video. These technologies are still indevelopment and trial phase in India and may not offer the pricevalue proposition and "ownership" experience offered by physicalformats. The legitimate market is expected to significantly expandat the price points of the company's format, thereby helping thisbusiness grow in the long term.

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OPTICAL MEDIA PV BUSINESS ENTERTAINMENT

Short term

� Increase global market share to 20 per cent

� Leverage "first to market" and IPposition in next generation Blue laserformats

� Leverage existing R&D and technology capabilities in expanding product portfolio in storage (flash)

� Double the contribution of value-added products (specials).

Medium

� Consolidate global leadershipposition

� Improve Return on Capital Employed (ROCE) and asset turnover.

� Target "first to market" in near field and holographic technologies.

Long-term

� Continue to dominate the media industry and to be a technologyleader.

� Rapidly scale up capacities incrystalline silicon vertical.

� Achieve best in class cost benchmarks on efficiency and yields.

� Efficient sourcing strategy for rawmaterial.

� Commercialize new technologies

� Hire key people to scale up thesebusinesses.

� Rapidly scale up the differenttechnology verticals.

� Emerge as one of the largest and most efficient manufacturer in world.

� Increase integration across the valuechain upto the BOS.

� Emerge as a leading, multitechnology, integrated and efficient manufacturer in the global PV space.

� Acquire copyright/exclusive license of40 per cent of mainstream films everproduced across all languages.

� Establish a strong pan-Indiadistribution reach.

� Selectively acquire new content.

� Scale up business.

� To have clear leadership / dominance in the segment.

� Selectively get into content creation.

� Selectively launch other content typethrough established channel.

� Also evaluate alternate distributionplatforms.

� Leader in creation and distribution ofquality content spanning the entireentertainment & infotainmentsegments.

STRATEGY

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NEAR-TERM OPERATIONAL OBJECTIVESOptical

� Further augment technological and cost leadership.

� Scale up the contribution of value-added next generationproducts and penetrate markets with these products.

� Continuously launch new innovative products for customers, in conjugation with new drive launches.

� Drive working capital efficiencies and cash flows.

� Develop strategic alliances for smooth raw material supplies.

PV business

� Commercialize silicon based 80 MW project on scheduleand drive down cost.

� Evolve an effective sourcing strategy.

� Execute the projects for new technologies and get them torapid and efficient commercialization.

� Leverage existing core competencies to emerge as a largeand the most efficient manufacturers of PV cells and Modulesin the world.

� Work closely with technology partners to continue to evolve new and innovative technologies and reduce cost of energyof PV systems to parity with conventional grid costs.

� Develop an effective market development and marketingstrategy to maximize revenue potential of these technologies.

Entertainment � Progressive launch more titles across the country in next six

months.

� Acquire more titles across different genre.

� Further increase the distribution footprint.

HUMAN RESOURCE /INDUSTRIAL RELATIONS

The company recognizes the fact that its employees are its keystrategic assets and main cornerstone of our success. We firmlybelieve that our people make the vital difference that ensuressustainable business advantage. In order to ensure comprehensivedevelopment of our employees, we continue to work on our HRvision of providing association to our employees by havingmeaningful professional life & joy of association through work-lifebalance. Our holistic HR model helps to focus on the current and

emerging business needs in a competitive manner.

In order to align ourselves with the evolving business realities, thesenior management has also arrived at a collective vision andmission; and a set of common values that will be the guiding lightsfor the whole organization. We have also initiated organization-wideactivities that focus to enhance Employee Engagement across levels.There has also been increased priority on the Reward & Recognitionschemes so that employees can be appreciated for the positivebehaviors. Besides this, we've also moved forward in terms ofdevelopment initiatives for the identified potential in order toproactively ready ourselves in the areas of succession planning andcareer movements.

In terms of building more efficiency and user-friendliness, we havealso initiated HR Systems Automation projects (for e.g.: automatingthe Performance Management System) so that the organization andemployees mutually benefit. There are also structured initiatives toensure multi-skilling so that employees are able to learn and developconstantly.

We are also proud to share that the Industrial Relations have beencordial in all our manufacturing units, and we ensure that ourCommunication and Benefit programmes span across all levels andlocations. Forums like Town halls, Open house, Operational reviewmeeting, Management review meeting, etc. help to cascadeinformation across various levels. Various recreation methods likeyoga, festival celebration, sports, family visits, etc. help theemployees to maintain a healthy work-life balance. Also, employee-friendly initiatives like Intranet for leave updating, transport booking,etc; transport facility, multiple canteens, Individual PCs/ Kiosks forcomputer access, HR Helpdesk help our employees to manage theday-to-day aspects smoothly. Moving in the next year, we willcontinue our efforts of sustaining the 'Employer-of-Choice' status inthe minds of our current and prospective employees.

Over the years, the company has been able to create a favorablework environment that encourages creativity and ownership. Duringthe year 2006-07, the company added 841 employees, taking thetotal strength to 5854 - up from 5013 at the end of the previousyear. In an effort to emerge as a global technology manufacturingcompany having a multi faceted growth strategy, the companysignificantly strengthened its management over the past year. The implementation of the balanced score card regime and performance management system across the company is progressing as planned.

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FINANCIAL ANALYSISOverviewThe financial statements have been prepared in compliance with therequirements of the Companies Act, 1956, and AccountingStandards in India. Our management accepts responsibility for theintegrity and objectivity of these financial statements, as well as forvarious estimates and judgments used therein. The estimates andjudgments relating to the financial statements have been made on aprudent and reasonable basis, in order that the financial statementsreflect in a true and fair manner the form and substance oftransactions and reasonably present our state of affairs and profitsfor the year.

Revenue analysisGross revenues in fiscal year 2006-07 rose 19.8% over the previousyear to INR 20,740.3 million, while improving margins drove arobust 2,253% growth in net profit after tax (including deferred taximpact) to INR 1,097.9 million. EBITDA (including other income) atINR 6,022.1million grew by 45.6% to 28.4%, placing it at thethreshold of the sustainable margin range of between 30% to 35%.Normalization in industry conditions, improving product mix, risingproduction efficiencies and control on working capital is helping thecompany revert to normal & sustainable levels of operating andfinancial parameters.

Operatingperformance review

(in INR million)

Particulars FY 07 FY 06

Income from Sales/service 19,824.7 16,641.2(net of taxes/duties)

Other Income 787.7 607.2

Increase in stock of Finished Goods/Work in Progress 626.3 550.1

Total Income 21,238.7 17,798.5

Total Expenditure 15,216.6 13,662.5

Interest & Finance Charges 1,244.9 935.5

Depreciation 3,578.7 3,167.6

Profit before Tax and 1,198.5 32.9Prior Period Items

Prior Period (Income) / Expense (Net) - (6.6)

Profit before Tax and 1,198.5 39.5after Prior Period Items

Tax Expense:Current Tax 0.2 (6.3)

Deferred Tax 88.7 (14.0)

Fringe Benefit Tax 11.7 13.2

Net Profit after Tax 1,097.9 46.6

Add:- Profit carried forward from last year 399.6 480.1

Profit available for appropriation 1,497.5 526.7

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foreign exchange risk management policy has been furtherstrengthened to ensure there is no adverse impact of volatileexchange rates beyond agreed-upon tolerance levels.

Interest

The outflow on account of interest and finance charges increased toINR 1,244.9 million in FY 07 from 935.5 million in FY 06,representing an increase of 33%, primarily on account of a rise inoverall debt levels as well as interest costs. However, despite thefirming interest rate environment, the interest cost as a percentage ofaverage debt for the company remains healthy at 7.4% in FY 07.

Capital expenditure

Gross block of the Company increased by INR 4,083 million during FY 07 to reach INR 39 billion. Majority of this increment inassets was to expand capacities to meet increasing demand. Ourblank optical media capacity increased from 2.8 billion per annumin FY 06 to 3.4 billion per annum in FY 07. We also invested intocreation of capacity for next generation formats and into theentertainment business. We intend to enhance our optical mediacapacity further during FY 08 and also incrementally invest in thephotovoltaic & entertainment business. The incremental capitalexpenditure is being funded by a prudent mix of internal accrualsand debt.

Depreciation

Depreciation increased by 12.9% in FY 07 (from INR 3,167.6 millionto INR 3,578.7 million) on account of increase in the gross fixedassets. Due to the flexible nature of the asset base and the relativelylong life-cycles of products in the industry, we believe that the risk ofthe asset base becoming obsolete is low.

Working capital management

The overall net working capital was 26.2 per cent of gross revenuesin FY 07, which has significantly reduced from the levels of FY 06,reflecting our focus on working capital management and improvingindustry environment.

Working FY03 FY04 FY05 FY06 FY07Capital (INR )

Debtors 2778.0 3030.2 3315.4 3798.9 3288.4

Days 93.4 70.1 89.5 80.1 57.9

Inventory 998.5 1985.0 3435.4 4469.9 5392.9

Days 33.5 45.9 92.7 94.2 94.9

Creditors 1724.9 2795.4 2253.9 2151.8 3243.2

Days 58.0 64.7 60.8 75.5 110.9

Debtors

The company has been able to contract its receivable cycle to 57.9

Fully diluted earnings per share for FY 2006-07 were INR 9.78,against INR 0.42 in FY 06. The company continues to generatestrong gross cash flow of INR 4,676.6 million in FY 2006-07.

Capital structure

There was no change in the authorized share capital of the Companyand the paid-up equity share capital was INR 1,116 million as on 31 March 2007.

Reserves

The company's reserves increased to INR 19,852.2 million in FY 07against INR 18,933.4 million in FY 06. As on 31 March 2007,Securities Premium Account comprised 45% of the total reserves andGeneral Reserves (including profit for the year) comprised theremaining 55%. There are no revaluation reserves as on 31 March2007.

Loans

Over the years, the company has part-funded its ongoing expansionand investment programs through loans raised at progressively lowercosts. We have also tried to build a prudent basket of currencies tohedge against currency risks and minimize costs. Our currency-wisetotal debt outstanding is as follows:

Table on currency-wise total debt outstanding.in millions

Currency Amount in Amount in % of

Currency Indian Total

Rupee Debt

USD 53.6 2,329.2 18

Euro 17.0 986.1 8

INR 9,673.6 9,673.6 74

During FY07 there was a net addition of debt of INR 695.5 millionmainly for ongoing expansion programs of the company and itsinvestments into PV and entertainment businesses. We believe thatour current total debt to equity ratio of 0.8 and interest service coverratio of 4.8 place us in a comfortable position.

Financial objectives, initiatives and achievements

Your Company is taking proactive measures to ensure all financialcosts are effectively reduced to positively impact the bottom-line. TheCompany continued to focus on efficient working capitalmanagement to release cash into the system. The Companygenerated INR 7,007.9 million of cash from operations as againstINR 1,829 million last year, reflecting improving operatingprofitability and efficient working capital management. The companyhas also been able to improve its asset turnovers with a mix of new& efficient capacity and opportunistic acquisitions. The ongoing

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days in FY 07 from 80.1 days in FY 06. This is much below theindustry benchmark of 90-129 days. Debt for more than six monthsreduced significantly and represents only 4.2% of overall receivablesat INR 138.2 million in FY 07 - down from 7.3% and 8.4% ofreceivables in FY06 and FY05 respectively.

Loans and advances

In FY 07, loans and advances decreased to INR 1,186.2 millionagainst INR 1,495.6 million in FY06. This is mainly on account ofreduction of advances to suppliers decreasing sharply by 67.5% asthe company secured better credit terms for key materials.

Capital employed

While the overall revenues of the company rose by over 19.8%, the totalcapital employed in the business increased marginally by 4.7% or INR1,703.8 million to INR 38,307 million in FY 07 from INR 36,603.2 millionin FY 06. This implies an increase in asset utilization ratios and improvingworking capital management. Improving asset turnover and improvingoperating margins have resulted in a healthier Return on Average CapitalEmployed in FY07.

Management of surplus funds

In a growing business, there were junctures when the temporaryavailability of resources was higher than the immediate use. Theseshort-term surpluses were invested in low risk financial instrumentsthat optimized returns and protected the invested principal.

Internal Audit and Controls

The Company has a proper and adequate system of internal controlsto ensure that all assets are safeguarded and protected against lossfrom unauthorized use or disposition and that transaction areauthorized, recorded and reported correctly.

The Company has adequate internal control system to ensureoptimal use & protection of assets, facilitate accurate and timelycompilation of financial statements & management reports andensure compliance with statutory laws & regulations and companypolicies. The Company uses an Enterprise Resource Planning (ERP)package, which enhances the internal control mechanism. Thecompany maintains an extensive system of controls which ensuresoptimal utilization and protection of resources, IT security, accuratereporting of financial transactions and compliance with applicablelaws and regulations as also internal policies and procedures.

The internal audit reviews the adequacy and efficacy of internalcontrols and adherence to management policies and statutoryrequirements guided by annual audit plan which is approved by theAudit Committee. Annual Audit plan is developed based onassessment of major risks. Internal audit activity is carried out by

internal team as well as by two reputed firms of CharteredAccountants.

The Company has an Audit Committee headed by non-executive,independent Director. The Audit Committee periodically reviews the audit plan, observations arising out of audit reports, risk assessment,adequacy of internal controls and corrective actions taken.

Internal control systems and their adequacy

The efficiency of the internal control system has improved with furtherextension and refinement of the existing ERP (enterprise resourceplanning) system in 2006-07. The system has provided a high levelof system-based checks and controls through core businessprocesses in materials, operations, accounting & HR. Regularinternal audits and checks are carried out to ensure thatresponsibilities are executed effectively and that adequate systemsare in place to maintain authenticity and correctness of recordedtransactions.

Significant accounting policies

1. Revenue recognition

Revenue from sale of goods is recognized on transfer ofsignificant risks and rewards of ownership to the customer andwhen no significant uncertainty exists regarding realization ofthe consideration. Sales are recorded net of sales returns, rebatesand trade discounts and price differences and are inclusive ofduties.

2. Inventory valuation

Finished goods, work in progress, goods held for resale, rawmaterials, packing materials and stores & spares: at lower ofcost or net realizable value. Cost of raw material, goods held forresale, packing materials and stores and spares, is determinedon the basis of the weighted average method. Cost of work in progress and finished goods is determined by consideringdirect material, labor costs and appropriate portion ofoverheads.

3. Fixed assets

Tangible fixed assets are stated at cost less accumulateddepreciation. Cost includes all expenses, direct and indirect,specifically attributable to its acquisition and bringing it to itsworking condition for its intended use. Expenditure pendingallocation are allocated to productive fixed assets in the year ofcommencement of the related project. Intangible assets arestated at cost less accumulated amortization. The cost incurredto acquire “right to use and exploit” home video titles, arecapitalized as copyrights/marketing and distribution rights wherethe right allows the company to obtain a future economic benefit

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from such titles. Impairment, if any, in the carrying value of fixedassets is assessd at the end of each financial year in accordancewith the accounting policy on “Impairment of Assets”.

4. Depreciation and amortization

Depreciation on tangible fixed assets is provided under the straight-line method on a pro-rata basis at rates and in the mannerspecified in Schedule XIV to the Companies Act, 1956. In respectof assets whose useful life has been revised, unamortizeddepreciable amount is charged over the revised remaining usefullife. Intangible assets are amortized on an equated basis over theirestimated economic life not exceeding 10 years. Copyrights/marketing and distribution rights are amortized from the date theyare available for use, at the higher of the amount calculated on astraight line basis over the period the intangible asset is available,not exceeding 10 years, and the number of units sold during theperiod basis. Leasehold land and improvement to the leasedpremises are amortized over the period of the lease. The assetstaken on finance lease are depreciated over the lease period.

5. Taxation

a) CurrentProvision is made for current income tax liability based onthe applicable provisions of the Income Tax Act 1961, forthe income chargeable under the said Act and as per theapplicable overseas laws relating to the foreign branch.

b) DeferredDeferred tax assets (DTA) and liabilities are computed onthe timing differences at the Balance Sheet date between

the carrying amount of assets and liabilities and theirrespective tax basis. DTA is recognized based onmanagement estimates of reasonable/virtual certainty thatsufficient future taxable income will be available againstwhich such DTA can be realized. The deferred tax charge or credit is recognized using the tax rates and tax laws thathave been enacted or substantively enacted by the BalanceSheet date.

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RiskManagement

At Moser Baer, the objective of risk management is to ensure that risk - both process control related and business risks - are identified,adequately assessed and estimated, a risk mitigation frameworkplanned, implemented and reviewed on an ongoing basis. MoserBaer has a dedicated team which initiates and implements theinternal control framework for risk mitigation across the company.We have also consulted external experts to assist in the developmentand institutionalization of a COSO based internal control frameworkand to draw up a risk based internal audit plan.

BUSINESS RISK MANAGEMENTAs a global leader in the development and manufacture of hightechnology products, the company is exposed to various risks whichincludes external risks resulting from the business environment weoperate in and risks which are internal to the company.

The company's risk management strategy revolves around corporatepolicies that outline standards and provides measurement &assessment guidelines, a framework which incorporates a mitigationstrategy and also a control and review mechanism for each riskcategory.

In keeping with the evolving environment, the company regularlyreviews its strategies and processes. The company's risk-management mechanisms are consistent with its strategic direction,desired total returns to shareholders and the credit rating of thecompany. Moser Baer's risk appetite dictates the risk managementinitiatives.

RISK ENVIRONMENT Moser Baer is a global leader in the development, manufacture andsupply of technology products across the globe and is fasttransforming into a multi-business technology group. All the three

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MeasuringProgram

EffectivenessAssessingRisk

ConductingDecisionSupport

ImplementingControls

MeasuringProgram

EffectivenessAssessingRisk

ConductingDecisionSupport

ImplementingControls

Develop Security Risk Scorecard �

Measure Control Effectiveness �

� Plan Risk Data Gathering

� Gather Risk Data

� Prioritize Risks

� Define Functional requirements

� Identify Control Solutions

� Review Solution Against Requirements

� Estimate Risk Reduction

� Estimate Solution Cost

� Select Risk Mitigation Strategy

Seek Holistic Approach �

Organize the Control Solutions �

businesses - optical media, photovoltaic and content distributionhave an inherent risk quotient. These risks may stem from technologyobsolescence, high customer concentration, commodity cycles andgeographical risks amongst others. The company is, however, wellpoised to manage and mitigate these risks.

The obsolescence of technology is inevitable and the real challengeis to anticipate and respond to both evolutionary and disruptivechanges.

A solid entrenchment is observed with CD-R, whereby a huge globalinstalled base of readers and writers have served to provide theformat with considerable staying power even in the face of existingnew options. The position is strengthened by a number of factors theversatility of the CD and DVD format families has served to establishthem as a bridge between the information storage and entertainmentsegments, extending their utility and reach. The growth of DVDs notonly maintain backward compatibility with CDs, but also opens upcomplementary new video, multi-media, and game applicationsegments further strengthening the global mass appeal of the 120mm disc formats.

The company expects that the above factors will result in a steadystate for CD-R media, while DVDR and the next generation blue laserbased media will drive the growth in the medium to long term.

The company's strategy is to transform Moser Baer into a technologydeveloper and innovator from a technology recipient. The strongR&D will enable us develop high value products which will build thedifferentiation barriers in the long term. The world is moving towardsHigh Definition content. This is a significant technology shift in theglobal optical media industry and will radically change theconsumer's viewing experience. According to the US based StrategicMarketing and Decisions, the demand for the next generation highdensity formats is expected at 1.7 billion discs over the next three

years. This represents an exciting opportunity for us, as Moser Baernow has the first mover advantage as it began shipping HD DVD-R,a next generation format, to its global OEMs customers, during theyear. Also the company has also extended its technology leadershipposition in the Blu-ray media. Moser Baer's in-house developed andpatented technology has been considered as one of the four standardmedia to be included in the Blu-ray disc specifications by the Blu-rayDisc Association.

These intensive R&D thrust which enabled this feat will help us tofurther consolidate our global leadership position in the opticalmedia space.

Steps taken to mitigate technology risks

The company's technology-led optic media storage products beingpart of a very active market segment are prone to significanttechnological risks. These risks exist in a number of critical areas, allof which can have considerable commercial / financial implications.

As a prudent and forward-looking initiative, the company hasinvested substantially in R&D and engineering to address andmitigate risks in all these areas, often with multiple degrees ofredundancy.

� Strong in-house R&D capabilities, enables the company torapidly commercialize new products.

� Longstanding strategic partnerships with key technologyproviders, allows the company to access new technologies.

� Cooperative links with all major hardware suppliers facilitatesdrive/media compatibility.

� Seamlessly future-proofing our capital investments assureevolutionary capabilities of manufacturing infrastructure.

� Technology collaborations and tech sourcing arrangements

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with global technology companies in emerging areas.

� Acquisitions of pioneering companies in optical media R&D, will enhance the leadership position of Moser Baer in the next generation optical format race.

Other risks and key management initiatives

a) INDUSTRY RISK MANAGEMENT

The company operates in an industry where technology trendsare constantly changing and evolving which may jeopardizefuture growth.

The company, however, faces no immediate threat from thedynamic environment in which it operates. On the contrary, itstands to benefit from the current growth trends in the DVDRformat. It also stands to benefit from the demand for the nextgeneration high density formats which is expected at 1.7 billiondiscs over the next three years. Moser Baer enjoys first moveradvantage with the shipment of HD DVD-R, a next generationformat.

As consumption evolves from analogue to digital technology, it isprompting legacy recordings to migrate to new media.

In line with the long term strategy of creating multiple synergisticbusinesses, the company made its maiden foray into theentertainment industry through the Indian home video market.This business is identified as an important value-enhancing,forward integration initiative to the optical media business. It willde-commoditize the blank optical media business due to thehigher value addition to its products. The entertainment businessis significantly less capital intensive compared to optical mediabusiness and will contribute to improving the overall returns oninvested capital.

Additionally, the company also entered the exciting globalphotovoltaic industry which is growing at a rapid pace. The PVindustry is also significantly less capital intensive than opticalmedia industry and it is expected to improve the overall returns oninvested capital.

Entry into both these businesses mitigates the risk of exposure toa single industry.

b) CUSTOMER ATTRITION RISK CONTROL

Over-dependence on a few customers could impact revenues inthe event of attrition. The company with its combined valueproposition of high quality standards, competitive prices, andexcellent service will continue to expand our customer base. Thecompany believes the event of customer attrition and the chances

of an adverse impact on the company would be low.

c) GEOGRAPHIC RISK MANAGEMENT

Concentration of customers and revenue bases in a closegeographic area may impact growth in case some of theseregions are not performing up to expectations.

A geographically concentrated revenue base may impact growthin the case of some of these regions not delivering as perexpectations.

The consumer base is primarily addressed through globaltechnology OEMs which sell products in different continentsacross the globe. As we supply to global customers, thegeographical risk is mitigated. Additionally, we continue to focuson emerging and new markets.

d) PEOPLE RISK MANAGEMENT

Quality of our human resources charts the success and growthpotential of our business.

The company has managed to keep attrition rates well in controlby imbibing a sense of ownership and pride and strong HRinitiatives geared to nurturing latent talent and unlocking thepower of intellectual capital. The company continues to driveorganization development and also build management resourcesfor a multi-business enterprise.

e) COMPETITION DE-RISKING

As installed capacities in global data storage industry have risen,prices have declined.

The company has addressed this through unbeatable price-valueproposition superior quality, timely delivery, attractive price andintroduction of new products.

f) FAILURE TO FORECAST ACCURATELY

Understanding and forecasting emerging tends in the technologyspace is critical.

The company is strengthening its forecasting and S&OP processto be used for high level production planning and cover plans forkey materials.

g) FAILURE TO ENTER INTO LONG TERM CONTRACTS FORCRITICAL RAW MATERIALS & CONSUMABLES

Sharp commodity cycles and demand-supply imbalances incritical raw material can severely impact operations. The

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company is working on long term strategic sourcingarrangements with key raw material suppliers; which are expectedto significantly mitigate this risk.

h) CASH FLOW RISK

Moser Baer operates in a high growth and capital intensiveindustry. Hence, it is imperative to efficiently estimate andmanage cash flows in this volatile environment. The Company'sworking capital arrangements are well in place to guard againstany uneven or seasonal factors. The company is set to emerge asa free cash company aided by improving margins and betterworking capital management. The rising contribution of nextgeneration formats and value added products to further aidrevenue and margin expansion.

Additionally, the company also entered the exciting globalphotovoltaic which is growing at a brisk pace. The foray into thehome entertainment business with value propositions which willdirectly discourage the rampant piracy by facilitating much higherconsumption of legal home video content and expand themarkets.

This not only mitigates the risk of exposure to a single industry, butboth these industries are significantly less capital intensive thanoptical media industry, it is expected to improve the overall returnson invested capital.

i) SECURITY/DISASTER RISK MANAGEMENT

Natural, political and economic disturbances could disruptoperations. To counter balance this, the company hasimplemented an extensive IT disaster recovery plan across all itsfacilities. The company has mapped out all the related risks onthese accounts and put in place sufficient risk mitigations and control mechanisms which are regularly updated andmonitored.

NEW BUSINESS RISKSHome Entertainment

During the year, the company has announced plans to enter thehome entertainment business segment. This is a new business for thecompany and is prone to risk on account of firstly being a newbusiness on account of execution risk.

Diversity of offering and the library size will be important businessdriver in this segment. To achieve a leadership position, a strongpresence across all film genres will be critical. The company hasacquired copyright/exclusive license/marketing and distribution rightsof around 6,000 mainstream films ever produced across alllanguages in a short period. The company has adequatelyresearched the business and as a strategy, the company may eitheradopt the outright purchase of titles which provides a minimum 3years of exclusive rights on the content especially for catalogue

42

purchases. The company may even consider the revenue sharingmodel for latest movie releases. As a risk mitigation strategy, thecompany also has plans in future to develop its own content andmovies for home entertainment segment.

The company is offering its products at an all-inclusive price point ofDVDs at INR 34 and VCDs at INR 28 as compared to the prevailingprice points of INR 300 and INR 125-150 for the similar legitimateproducts. In future, the company pricing strategy will depend on thecontent acquisition costs and cost of key inputs being stable. Anychange in these factors can impact the profitability of the company.The company believes that by narrowing down prices of pirated andoriginal disc, it will expand the whole home entertainment marketand encourage people to build libraries, and by driving volumes willbe in a position to sustain these price points.

PV business

The PV business which is also a part of the company's new businessinitiatives; is prone to risks on account of being a new business,project delays, technology risk, shortage of raw material, availabilityof fund for the business and shortage of manpower.

Project Execution Risk

Delay in execution of the company's new projects can negativelyimpact the company's profitability. Any delay in the company's secondphase 40 MW crystalline silicon or its Thin Film project will certainlyimpact the financial projections and return on investments of thecompany. The company is on track for its various projects and with a right teamin place, it is confident of mitigating the risk of project delays.

Technology and commercialization risks

PV being a new business and being a high technology driven businessfaces the risk of commercialization. Success will be determined bythe right human capital, right technology and being present at theright time. Moser Baer with its experience in high tech manufacturing,in achieving rapid scale and commercializing technology products ispoised to emerge as a global leader in this rapidly growing market.

The company plans to straddle multiple future technologies and hasmade strategic investments in high technology start-ups and jointdevelopment plans and it believes that the risk is adequatelymitigated. Additionally, the OM&T acquisition which has bought inworld class capabilities in thin film, wet chemical processing, optics& concentration and testing procedures will further reduce thetechnology risk.

Raw material shortage risk

A global demand supply imbalance of silicon exists which can impactthe PV industry. The company has already secured its short termrequirements of raw material and is in the final process of closingmedium and long term agreements. The company has also made aninvestment in a company as a backward integration measure. Theindustry is currently in the 'pass through' stage and the companybelieves that any hike in raw material prices can be easily passed onto its customers.

Funding Risk

The developmental plans of the PV business; envisages strategic tie-ups and technology-intensive capex projects to be executed whichrequires the mobilisation of funds. The company's inability to mobilizefunds would impact the business prospects. The company intends tofund these projects through debts and internal accruals as a measureof prudence; the entire PV business is being carried by through itswholly owned subsidiary Moser Baer Photo Voltaic Limited (MBPV).Keeping in mind the massive investment required in the thin filmproject, the project is being implemented through a Special PurposeVehicle (SPV).

Human capital risk

Human capital is a distinctive business driver as the PV business is ina nascent stage and is a technology driven segment requiresspecialized manpower. The PV space is an emerging and complexbusiness and challenge is in getting the right people with a deepunderstanding, skills and ability to take the business to the next level.The company has put in place the key technical and

43

managerial resources and has a team of 231 people dedicated tothe business.

Human Resource /Industrial Relations

The skills and dedication of our employees underpin the successes weas a company have achieved. In turn, we are equally committed toensuring the environment within which they work fosters development,growth, creativity and encourages ownership. The companyobjectively recognises and rewards individual efforts and evaluatesoverall performance through balanced score card regimes.

Reflecting on our day-to-day policies and operational proceduresand to ensure we consistently achieve the performance benchmarkswe have designed a new vision, mission and value charter which webelieve will reflect the ethos of our company.

During the year 2006-07, the company added 841 employees,taking the total strength to 5854 up from 5013 at the end of theprevious year. In an effort to emerge as a global technologymanufacturing company having a multi-faceted growth strategy, thecompany significantly strengthened its management systems over thepast year.

Disclosures

During the year under review, the Company has not entered into anytransaction of the material nature with its Promoters, the Directors orthe management, their subsidiaries or relatives, etc. that may havepotential conflict with the interest of the Company at large.

Management's Responsibility Statement

The management is responsible for preparing the Company'sconsolidated financial statements and related information thatappears in this annual report. The management believes that thesefinancial statements fairly reflect the form and substance oftransactions and reasonably represent the Company's financialcondition and results of operations in conformity with IndianGenerally Accepted Accounting Principles.

Disclaimer

Some of the statements in this report that are not historical facts areforward-looking statements. The forward-looking statements includeour financial growth projections as well as statements concerning ourplans, strategies, intentions and beliefs concerning our business andthe markets in which we operate. These statements are based oninformation currently available to us, and we assume no obligationto update these statements as circumstances change. These risksinclude uncertainties that could cause actual events to differmaterially from these forward-looking statements. These risk include,but are not limited to, the level of market demand for our services,the highly-competitive market for the types of services that we offer,market conditions that could cause our customers to reduce theirspending for our services, our ability to create, acquire and build newbusinesses and to grow our existing businesses, our ability to attractand retain qualified personnel, currency fluctuations and marketconditions in India and elsewhere around the world and other risksnot specifically mentioned.

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DEAR SHAREHOLDER,

Your Directors are pleased to present the 24th Annual Report andAudited Accounts for the financial year ended 31 March 2007.

FINANCIAL RESULTS(Rupees in Million)

Year ended March 31,

2007 2006

Gross sales, service and 21,533.7 17,926.4other income

Profit before depreciation, interest and tax but after prior period items 6,022.1 4,142.6

Depreciation 3,578.7 3,167.6

Interest and finance charges 1,244.9 935.5

Profit before tax 1,198.5 39.5

Tax expenses 100.6 (7.1)

Profit after tax 1,097.9 46.6

Profit carried forward from last year 399.6 480.1

Profit available for appropriation 1,497.5 526.7

Appropriations:

Transfer to profit and loss account 1,301.6 399.6Dividend (proposed) % 15 10

OPERATIONS

Revenues for FY '07 stood at 21,533.7 million, Profit beforedepreciation, interest and tax stood at 6,022.1 million, and Profitafter tax was 1,097.9 million. Commencing from second half ofFY '07, the operating and financial parameters for the global opticalmedia industry started to revert to normal and sustainable levels,subsequent to a difficult environment over the past eighteen months.The key drivers were continued demand growth for the optical mediaformats, consolidation of capacity and softening of prices for majorinputs.

As a result of improving industry environment, your Companywitnessed a turnaround in the last two quarters of the FY '07. Robustgrowth in DVD demand, improving demand and pricing cycle forCD combined with emergence of next generation Blu-Ray formatswere some of the key trends for the industry during the year underreview.

MARKET ENVIRONMENT AND OUTLOOK

Industry outlook

The year 2006-07 was clearly a year of recovery for the globaloptical storage media industry as industry went through aconsolidation, improving demand-supply scenario, consumer

Directors’Report

Directors’

45

demand continued to be robust and pricing power started to comeback to manufacturers towards the end of the year. Additionally,subsequent to a steep rise, the prices of key inputs also started tosoften during the year. Strategic Marketing & Decisions (SMD) expectsindustry demand to expand to 21 billion units by 2009 - adding over2 billion units over existing levels, mainly driven by high valueDVDR/RW and next generation Blu-ray formats. The growth inindustry value should remain robust in the long term.

There was a sharp turnaround in the CDR/RW demand-supply andpricing cycle during the later part of the year driven by demandgrowth in Asian/Emerging markets and exit/conversion of inefficientcapacities. The improved demand-supply position aided the increasein ASPs (Average Selling Prices) of CDR/RW, a trend which shouldcontinue in the near to medium term. SMD (Strategic Marketing &Decisions) estimates global demand for CDR / RW during 2007 tobe 12 billion disks.

The DVDR / RW segment continues to grow at a rapid pace, withglobal demand at 6.2 billion units in 2006 - a 68% year-on-yeargrowth in volumes during 2006 (SMD estimates). Demand forDVDR/RW formats is expected to remain strong as global volumestouch almost 9 billion units in 2007. DVDR/RW media marginsshould remain stable as DVDR/RW media pricing follows themanufacturing cost curve in the near term.

The next generation Blu Laser based formats such as Blu Disc and HDDVD formats are the emerging growth drivers for the global industrydriven by increasing penetration of high definition/density videocontent and applications.

Market development

The financial year 2006-07 was the first year when your Companystarted "Retail Private Label" segment along with selling to OEMcustomers. With an eye to expand the existing market, your Companyhas already started focusing on value-added products which reflectsthe commitment to move up the value chain in terms of givingpremium & value added products to its customers.

During the year, your Company introduced a number of newproducts including double layer storage media formats, mini DVDrecordable and re-writable discs and Gold Media. The Companylaunched an in house developed "Aqua Shield" media, a nicheproduct for the European market. Your Company was also the firstcompany in the world to commercially ship next generation HDDVDR format. The acquisition of OM&T (an erstwhile subsidiary ofPhilips) has significantly strengthened your Company's position ofbeing a frontrunner in the next generation Blu-ray format given

OM&T's pioneering work and manufacturing expertise in the Blu-raydisc technology.

PHOTOVOLTAIC (PV) CELL PROJECTMoser Baer Photo Voltaic Limited (MBPV), 100% subsidiary of yourCompany, has also ventured into the emerging and high growthglobal solar energy market by executing its first project tomanufacture photovoltaic cells and modules, targeting an annualcapacity of 40 MW in Phase I of the project. The initial project costis estimated to be Rs 2.6 billion, with Moser Baer investing Rs 1.2billion in this venture. The Company will leverage synergies betweenexisting core manufacturing and technology competencies to emergeas a significant player in the fast growing global photovoltaic market.The global photovoltaic market is on a high growth curve - salesexpected to grow over 6x to USD 40 billion by 2010. This demandis also highly price elastic. A lowering of PV electricity costs toconventional levels could exponentially expand this market as PVstarts to penetrate into base load demand of electricity. During theyear under review, the Company successfully completed final lineintegration and trials on its initial 40 MW crystalline photovoltaic cellproduction facility.

During the financial year, Moser Baer Photo Voltaic Limited acquireda significant minority stake in three US based technology companiesfocused on innovative photovoltaic technologies. These include StionCorporation, Solaria and SolFocus, USA. These investments are inline with our strategy to reduce cost of solar power generation bystraddling multiple future technologies and emerge as an significantplayer in the global PV industry.

More recently, MBPV also announced acquisition of a 40% strategicequity stake in Slovenia-based Solarvalue Proizvodnja d.d. Thisstrategic investment ensures stable and cost effective supply of solargrade silicon wafers over the long term. The Company also enteredinto a strategic tie-up with Deutsche Solar for sourcing silicon wafersin line with its strategy to meet its silicon requirements in an efficientand cost effective method.

CONTENT BUSINESSDuring the financial year, your Company announced the launch ofa new business initiative by moving up the value chain in Indianmarket by moving into content distribution segment, marking theCompany's maiden foray into the Indian entertainment industry. YourCompany will have a presence across the country in all major metrosas well as in smaller towns through an active and well-organized three-tiered distribution channel. This forward integration

46

will take advantage of the established Moser Baer production andtechnology capability in optical media as well as an extensivenational distribution network. The Company will release videocontent on DVD and Video CD formats at an unrivaled price valueproposition to the consumers using its proprietary and patentedtechnology which enhances quality and significantly reduces cost.

SUBSIDIARY COMPANIESUnder the provisions of Section 212(8) of the Companies Act, 1956,the Ministry of Company Affairs has granted exemption fromattaching the documents relating to all of its subsidiary companies,as required under Section 212 of the Companies Act, 1956.

The information required to be published in terms of the provisionsof Section 212(1) of the Companies Act, 1956 is available forinspection by the investors of the holding company and the subsidiarycompanies at the registered office of the Company located at 43A,Okhla Industrial Estate, Phase III, New Delhi - 110 020.

DIVIDENDYour Directors are pleased to recommend a dividend @15% on thepaid-up Equity Share Capital of the Company for the financial year2006-07.

DIRECTORSDuring the year under review, Mr. Ajay Shah resigned from theDirectorship of the Company and as per the provisions of Section262 of the Companies Act, 1956, the Board of Directors, at themeeting held on 12 December, 2006, inducted Dr. VinayshilGautam in his place.

Further, the Board of Directors co-opted Mr. V. N Koura as anAdditional Director of the Company and as per the provisions ofSection 260 of the Companies Act, 1956, Mr. Koura holds officeupto the date of ensuing Annual General Meeting. The Companyhas received a notice under Section 257 of the Companies Act,1956 proposing his candidature as a Director of the Company.

In terms of the provisions of Sections 255 and 256 of the CompaniesAct, 1956 and the Articles of Association of the Company,Dr. Vinayshil Gautam, Mr. Harnam D. Wahi, Director and Mr. RatulPuri, Director retire at the ensuing Annual General Meeting and Dr.Vinayshil Gautam and Mr. Ratul Puri, being eligible, have offeredthemselves for reappointment. Mr. Harnam D. Wahi has not offeredhimself for re-appointment.

AUDITORSPrice Waterhouse, Chartered Accountants, hold office until theconclusion of forthcoming Annual General Meeting and, beingeligible, offer themselves for re-appointment. The Company hasreceived an intimation to the effect that their reappointment, if done,will be within the limits laid down under Section 224(1B) of theCompanies Act, 1956.

STOCK OPTION PLANS

Your Company had introduced a stock option plan for its non-executive Directors i.e Directors Stock Option Plan- 2005 ("DSOP-2005"). The shareholders had given their approval to issue up to amaximum of 450,000 options convertible into an equal number ofequity shares. During the year under review, Stock Options weregranted to Dr. Vinayshil Gautam and Mr. V. N. Koura- the non-executive Directors. Further, it is proposed to increase the totalnumber of stock options to 1,000,000 convertible into an equalnumber of equity shares.

Further, your Company had also introduced a stock option plan-theEmployees Stock Option Plan, 2004 ("ESOP 2004")-for itsemployees and the employees of its subsidiary companies. Theshareholders had given their approval to issue up to a maximum of4,400,000 options convertible into an equal number of equityshares. During the year under review, Stock Options were granted tothe eligible employees.

The information required to be disclosed in terms of the provisionsof the SEBI (Employee Stock Option Scheme and Employee StockPurchase Scheme) Guidelines, 1999 is enclosed as per Annexure 'A'to this report.

PARTICULARS OF EMPLOYEESParticulars of employees, as required under Section 217(2A) of theCompanies Act, 1956 read with the Companies (Particulars ofEmployees) Rules, 1975, as amended, form part of this report.However, in pursuance of Section 219(1)(b)(iv) of the CompaniesAct, 1956, this report is being sent to all shareholders of theCompany excluding the aforesaid information and the saidparticulars are made available at the Registered Office of theCompany. The members interested in obtaining such particulars maywrite to the Company Secretary at the Registered Office of theCompany.

CONSERVATION OF ENERGY, RESEARCH &DEVELOPMENT, TECHNOLOGY ABSORPTION AND

47

FOREIGN EXCHANGE EARNINGS & OUTGOThe information pertaining to conservation of energy, technologyabsorption, foreign exchange earnings and outgo, as required underSection 217(1)(e) of the Companies Act, 1956, read with theCompanies (Disclosure of particulars in the report of the Board ofDirectors) Rules, 1988 is given as per Annexure 'B' and forms part ofthe Directors' Report.

FIXED DEPOSITSDuring the year under review, your Company has not accepted anydeposit under Section 58A of the Companies Act, 1956 read withCompanies (Acceptance of Deposits) Rules, 1975.

CORPORATE GOVERNANCEA report on Corporate Governance, along with a certificate fromthe Statutory Auditors and a certificate from the Managing Directorand Group CFO, have been included in the Annual Report, detailing the compliances of corporate governance norms asenumerated in Clause 49 of the Listing Agreements with the stockexchanges.

MANAGEMENT DISCUSSION AND ANALYSISThe Management Discussion and Analysis Report is attached andforms part of the Directors' Report.

DIRECTORS' RESPONSIBILITY STATEMENTYour Directors state:

I. that in the preparation of the annual accounts, the applicable accounting standards have been followed;

II. that we have selected such accounting policies and applied

them consistently and made judgments and estimates that arereasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year 2006-2007 and of the profit of the Company for that year;

III. that we have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventing anddetecting fraud and other irregularities; and

IV. that we have prepared the annual accounts on a goingconcern basis.

CONCLUSIONYour Company has outperformed the industry in a challenging yearand continues to maintain its leadership position. It has also beensurpassing all international quality and cost benchmarks andcontinues to build shareholder value. Your Directors look to thefuture with confidence.

Your Directors place on record their appreciation for theoverwhelming co-operation and assistance received from investors,customers, business associates, bankers, vendors as well asregulatory and government authorities. Your Directors also thank theemployees at all levels, who, through their dedication, co-operation,support and smart work, have enabled the Company to achieverapid growth.

For and on behalf of the Board of Directors

Sd/-

Place: New Delhi Deepak PuriDate : 1 May, 2007 Chairman & Managing Director

48

ANNEXURE- AINFORMATION REGARDING EMPLOYEES STOCK OPTION PLAN, 2004 (ESOP) AND DIRECTORS' STOCK OPTION

PLAN, 2005 (DSOP) (AS ON 31 MARCH, 2007)

Particulars ESOP-2004 DSOP-2005

1 Number of Stock Options granted 3,795,700 400,000

2 Pricing Formula (i) Normal allocation: -Rs.125 per Option or prevailing Market Rs.170 per Option or prevailingPrice, whichever is higher. Market Price, whichever is higher.

(ii) Special allocation: -50% of the Options at Rs. 125 per Option or prevailing Market Price, whichever is higher and the balance 50% of the Options at Rs. 170 per Option or prevailing Market Price,whichever is higher.

3 Number of Options vested 876,760 62,500

4 Number of Options exercised 88,240 Nil

5 Number of shares arising as a 88,240 Nilresult of exercise of option

6 Number of options cancelled / lapsed 794,500 50,000

7 Variation of terms of options Nil Nil

8 Money realized by exercise of Rs. 19,409,383 N.A. options

9 Number of options in force 2,912,960 350,000

10 Employee-wise details of Options granted to:(a) Senior managerial personnel; and a. Mr. Ram Nomula- 150,000 N.A(b) Any other employee who receives b. Mr. G. Dhanajayan- - 75,000

a grant in any one year of option c. Mr. Rajeev Krishnan- 75,000amounting to 5% or more of d. Mr. Rakesh Kumar- 75,000option granted during that year. e. Mr. Sandeep Muju- 50,000

f. Ms. Minni Katariya - 3,600

11 Identified employees who were Nil Nilgranted Options during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrant and conversions) of the Company at the time of grant;

12 Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of option calculated in Rs. 9.78 Rs. 9.84accordance with AS 20

13 Method of calculation of employee The Company has used intrinsic value method for calculating the employee compensation costcompensation cost with respect to the stock options.

14 Difference between the employee Nil Nilcompensation cost so computed at serial number 13 above and the employee compensation cost that shall have been recognized if it had used the fair value of options

15 The impact of this difference on Nil Nilprofits & on EPS of the Company

16 Weighted-average exercise prices and a. Weighted average exercise price - Rs. 240.71 a. Weighted average Exerciseweighted-average fair value of b. Weighted average fair value of the Options- Rs. 80.41 Price -Rs. 280.92options granted during the year b. Weighted average fair value of

the Options-Rs. 95.50

49

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50

ANNEXURE B

Information as per Section 217(1)(e) of the Companies Act, 1956read with the Companies (Disclosure of Particulars in the Report ofBoard of Directors) Rules, 1988 and forming part of the Directors'Report for the year ended 31 March, 2007.

A. Conservation of energy

Your Company's energy requirements continued to increasesignificantly as it commissioned new manufacturing facilities and increased production at existing facilities. As an ongoingprocess, the Company undertakes various measures to saveenergy and reduce its consumption. During the financial year2006-07, some of the measures undertaken by the Companyinclude:-

1) Installation of 90 numbers of variable frequency drives inclean room Air Handling Units in various plants of theCompany resulting in the saving of 947 KW in terms ofenergy and Rs. 37.9 million in terms of cost by incurring anexpenditure of Rs. 12.4 million for this purpose.

2) Reduction in the canteen power consumption which resultedin saving of 10 KW in terms of energy and Rs. 0.4 million interms of cost. No expenditure was required to be incurredfor this purpose.

3) There was an energy saving of 57 KW and Rs. 2.3 million in terms of cost in the lube oil separators. The Company made an investment of Rs. 0.4 million for this purpose.

B. Technology absorption, adaptation and innovation, research &development

TECHNOLOGY ABSORPTION, ADAPTATION ANDINNOVATION

Technology plays a big role in our ability to offer a complete basketof products to our customers. Your Company thus, has entered intoagreements to acquire technology and the right to use technologybelonging to other third party companies. During the year, a numberof agreements were completed to acquire technology belonging tocompanies whose R&D efforts have been complementary to ourtechnology development program. This technology has beensuccessfully incorporated into some of the Company's products andan ongoing effort is being made to improve the utilization of thistechnology and produce newer innovative products based on thistechnology.

At the same time, your Company is a part of many internationalforums and R&D initiatives that are dedicated to the development of

future formats like LightScribe technology, HD DVD and Blu-ray. Suchparticipative activities have significantly enhanced the image of yourCompany as an individual entity and India as a whole in the mind ofthe international community.

RESEARCH AND DEVELOPMENT

The specific areas in which R&D was carried out by your Companyand the benefits derived as a result thereof are as follows:

1) Development of following new formats:

� BDRE (Rewritable) high density optical media

� BDR H2L 1x-2x

� BDR H2L 1x-4x

� BDR H2L 8x

� HD DVD single layer media and double layer media (first to market)

2) An entirely new design of co-sputtering machine has beendeveloped in collaboration with IIT, Delhi.

3) Development of following new products:

� DVD+RW 8x

� DVD-RW 1x-2x Mini RW

� CDR/DVD R LightScribe version 1.2

� Special Printable Process

4) The set up of R&D lab with the following features:

� DVD and Blu-ray disc test set up

� Format verification set up

� Playability test set up

� Print evaluation set up

� Equipments like ODU 1000, Spectro photometer (coveringwavelength range from 190 to 1100 nm), DSC forcrystallization studies, high magnification microscope,LCMS (Liquid chromatograph mass spectro meter) for dyestudies.

5) As a result of the various R&D activities undertaken by yourCompany, it will gain edge over other media manufacturers.

Amount of expenditure

Capital expenditure of Rs 193.7 million and recurring expenses of

51

Rs 17.7 million were incurred during the year towards R&D expenses, which is 1.1% of the turnover of the Company. Theseexpenses are part of expenses incurred under various revenue orcapital heads.

C. Foreign exchange earnings and outgo

Total foreign exchange earned comprising of FOB value ofexports, interest, insurance claim and dividend received was

Rs 15,910.6 million, whereas total foreign exchange used(comprising of CIF value of imports, dividend and otheroutgoings) was Rs 12,165.8 million.

For and on behalf of the Board of DirectorsSd/-

Place: New Delhi Deepak PuriDate : 1 May, 2007 Chairman & Managing Director

52

CorporateGovernance Report

1. COMPANY'S PHILOSOPHY ON CORPORATEGOVERNANCE

Moser Baer believes that "Corporate Governance" refers to theprocesses and structure by which the business and affairs of theCompany are directed and managed, in order to enhance longterm shareholder value through enhancing corporateperformance and accountability, whilst taking into account theinterests of all stakeholders. Good corporate governance,therefore, embodies both enterprise (performance) andaccountability (conformance).

The Corporate Governance philosophy of the Company is basedon the following principles:

� Satisfaction of the spirit of the law through ethicalbusiness conduct

� Transparency and a high degree of disclosure levels

� Truthful communication about how the company is runinternally

� A simple and transparent corporate structure driven solely by the business needs

� Strict compliance with Clause 49 of the ListingAgreement as amended from time to time

� Establishment of an efficient corporate structure for themanagement of the Company's affairs

� Management is the trustee of the shareholders' capitaland not the owner

2. BOARD OF DIRECTORS

The present strength of the Board is eleven. The Board comprisesof three Executive Directors and eight Non-Executive Directors.Six Non-Executive Directors of the Company are independent.

During the financial year 2006-07, the Board co-opted two non-executive Independent Directors as Board Members. The Non-Executive Directors bring independent judgment in the Board'sdeliberations and decisions.

Definition of 'Independent Director' as per Clause 49 of the ListingAgreement

'Independent Director' shall mean a Non-Executive Director ofthe Company who:-

� apart from receiving director's remuneration, does not have any material pecuniary relationships or transactionswith the company, its promoters, its directors, its senior management or its holding company, its subsidiaries andassociates which may affect independence of the director;

� is not related to promoters or persons occupyingmanagement positions at the board level or at one levelbelow the board;

� has not been an executive of the company in theimmediately preceding three financial years;

� is not a partner or an executive or was not a partner or an executive during the preceding three years, of any of thefollowing:

- the statutory audit firm or the internal audit firm that is associated with the company, and

- the legal firm(s) and consulting firm(s) that have amaterial association with the company.

� is not a material supplier, service provider or customer ora lessor or lessee of the company, which may affect independence of the director; and

� is not a substantial shareholder of the company i.e. owningtwo percent or more of the block of voting shares.

Corporate

53

-As per clause 49 of the Listing Agreement, ‘Committee’ here meansAudit Committee and the Investors' Grievance Committee

The information as required under Annexure I-A to Clause 49 of the

Listing Agreement is made available to the Board. Adequateinformation is circulated as part of the agenda papers to enable theBoard to take informed decisions.

DIRECTORSHIP IN OTHER COMPANIES AND BOARD COMMITTEES :

As per the requirements of the Listing Agreement, none of the Directors of the Board should serve as a member of more than 10 Committeesor as Chairman of more than 5 Committees.

COMPOSITION

Directors Category Equity Investors represented Number of Equity Sharesand Warrants held by thenon-executive Directors

Mr. Deepak Puri Promoter and Executive N.A. N.A.Mr. Harnam D. Wahi Independent and N.A. 400 Equity Shares

Non-Executive Mr. Arun Bharat Ram Independent and N.A. Nil

Non-ExecutiveMrs. Nita Puri Promoter and Executive N.A. N.A.Mr. John Levack Non-Executive Electra Partners Mauritius Limited. NilMr. Rajesh Khanna Non-Executive Bloom Investments Limited (BIL), Nil

Ealing Investments Limited (EIL), Randall Investments Limited (RIL) and Woodgreen Investment Ltd (WIL). BIL, EIL, RIL and WIL are affiliates of Warburg Pincus LLC.

Mr. Prakash Karnik Independent and N.A. NilNon-Executive

Mr. Bernard Gallus Independent and N.A. NilNon-Executive

Mr. Ratul Puri Promoter and N.A. N.A.Executive

Mr. Ajay Shah* Independent and N.A. NilNon-Executive

Mr. V.N Koura** Independent and N.A. NilNon-Executive

Dr. Vinayshil Gautam*** Independent and Non-Executive N.A. Nil

* Resigned from the Directorship of the Company with effect from 16 July, 2006** Inducted as an Additional Director with effect from 29 September, 2006***Inducted as a Director in casual vacancy with effect from 12 December, 2006

Name of Director No. of other Directorships No. of Committee membership(excluding foreign companies and (including MBIL's Committees)

private limited companies)

Chairman MemberMr. Deepak Puri 8 -- 1Mr. Harnam D. Wahi 5 3 --Mr. Arun Bharat Ram 8 1 3Mrs. Nita Puri 3 -- 1Mr. John Levack 3 -- 1Mr. Rajesh Khanna 6 -- 5Mr. Prakash Karnik 5 -- 3Mr. Bernard Gallus 1 -- 2Mr. Ratul Puri 8 -- --Mr. Ajay Shah* -- -- --Mr. V. N Koura** 4 -- 1Dr. Vinashil Gautam*** 4 1 3* Resigned from the Directorship of the Company with effect from 16 July, 2006** Inducted as an Additional Director with effect from 29 September, 2006***Inducted as a Director in casual vacancy with effect from 12 December, 2006

54

The Company holds at least five Board meetings in a year, one ineach quarter to review the financial results and one to review theaudited annual results of the Company.

The Board met eleven times on the following dates during thefinancial year 2006-2007 and the gap between two meetings didnot exceed four months:

a) 27 April, 2006

b) 7 June, 2006

c) 27 July, 2006d) 29 August, 2006

e) 27 October, 2006-2 numbers of meetings

f) 12 December, 2006

g) 21 December, 2006

h) 25 January, 2007

i) 5 March, 2007

j) 29 March, 2007

ATTENDANCE RECORD OF DIRECTORS

Directors Board meetings Meetings Attended Attended last AGMheld during the year held on 19 July, 2006

Present in person Attended through audio conferencing

Mr. Deepak Puri 11 11 - YesMr. Harnam D. Wahi 11 9 - YesMr. Arun Bharat Ram 11 4 - NoMrs. Nita Puri 11 11 - NoMr. John Levack 11 8 1 NoMr. Rajesh Khanna 11 6 1 NoMr. Prakash Karnik 11 8 - NoMr. Bernard Gallus 11 5 1 NoMr. Ratul Puri 11 9 - NoMr. Ajay Shah* 11 - - NoMr. V.N Koura** 11 4 - NoDr. Vinayshil Gautam*** 11 2 - No

* Resigned from the Directorship of the Company with effect from 16 July, 2006** Inducted as a Director with effect from 29 September, 2006***Inducted as a Director with effect from 12 December, 2006

3. BOARD COMMITTEES

Your Company has the following Board Committees: AuditCommittee, Compensation Committee, Investors' GrievanceCommittee, Corporate Governance Committee, CapexCommittee, Banking and Finance Committee and CorporateSocial Responsibility Committee and the guidelines for theseBoard Committees are set out below.

The Board is responsible for constituting, assigning, co-optingand fixing terms of service for the Committee Members of variousCommittees and delegates these powers to the Committees.Recommendations of the Committees are submitted to the Boardof Directors for approval.

The frequency and agenda of meetings of each of theseCommittees is determined by the Chairman of the Board/Executive Director in consultation with the Chairman of theconcerned Committee. These Committees meet as and when theneed arises.

4. AUDIT COMMITTEEComposition

Your Company has a qualified and independent AuditCommittee, with Mr Harnam D. Wahi as the Chairman. Othermembers comprise of Mr. Prakash Karnik, Mr. Rajesh Khanna,Mr. Bernard Gallus and Mr. V.N Koura*. The Company Secretary

acts as the Secretary of the Committee. Mr. Ratul Puri and Mr. John Levack are the permanent invitees to the meetings ofthis Committee.

*Co-opted as a member of the Audit Committee at the BoardMeeting held on 12 December, 2006.

Primary Objective

The primary objective of the Audit Committee is to monitor andprovide effective supervision of the management's financialreporting process with a view to ensure accurate, timely andproper disclosures and transparency, integrity and quality offinancial reporting.

The Audit Committee has the power to do the following:-

a) To investigate any activity within its terms of reference.

b) To seek information from any employee.

c) To obtain outside legal or other professional advice.

d) To secure attendance of outsiders with relevant expertise,if it considers necessary.

Role of the Committee

a) Oversight of the Company's financial reporting processand the disclosure of its financial information to ensurethat the financial statement is correct, sufficient andcredible.

55

b) Recommending to the Board the appointment, re-appointment and, if required, the replacement orremoval of the Statutory Auditor and the fixation of audit fee.

c) Approval of payment to Statutory Auditors for any otherservices rendered by the Statutory Auditors.

d) Reviewing, with the management, the annual financialstatements before submission to the Board for approval,with particular reference to:- Matters required to be included in the Directors’

Responsibility Statement to be included in the Board'sReport in terms of clause (2AA) of Section 217 of theCompanies Act, 1956

- Changes, if any, in accounting policies and practicesand reasons for the same.

- Major accounting entries involving estimates based onexercise of judgment by management.

- Significant adjustments made in the financial statementsarising out of audit findings.

- Compliance with listing and other legal requirementsrelating to financial statements.

- Disclosure of any related party transactions.- Qualifications in draft audit report.

e) Reviewing with the management, the quarterly financialstatements before submission to the Board for approval.

f) Reviewing, with the management, performance ofStatutory and Internal Auditors, adequacy of the internalcontrol systems.

g) Reviewing the adequacy of internal audit function, if any,including the structure of the internal audit departmentstaffing and seniority of the official heading thedepartment, reporting structure coverage and frequencyof internal audit.

h) Discussing with internal auditors any significant findingsand follow up thereon.

i) Reviewing the findings of any internal investigations by theinternal auditors into matters where there is suspectedfraud or irregularity or a failure of internal control systemsof a material nature and reporting the matter to the Board.

j) Discussing with the Statutory Auditors, before the auditcommences, about the nature and scope of audit as wellas have post-audit discussion to ascertain any area ofconcern.

k) Looking into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declareddividends) and creditors.

l) To review the functioning of the Whistle Blowermechanism, in case the same is existing.

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

The Audit Committee has been authorized to mandatorily reviewthe following information:a) Management discussion and analysis of financial condition

and results of operations.

b) Statement of significant related party transactions submitted by management.

c) Management letters / letters of internal controlweaknesses issued by the Statutory Auditors.

d) Internal audit reports relating to internal controlweaknesses.

e) The appointment, removal and terms of remuneration ofthe Chief Internal Auditor.

Meetings

During the year, the Committee met five times on the followingdates:

(i) 26 April, 2006

(ii) 07 June, 2006

(iii) 26 July, 2006

(iv) 26 October, 2006

(v) 24 January, 2007

The gap between two meetings did not exceed four months.

Following are the attendance details of the members at theCommittee meetings:-

Members Committee meetings Meetingsheld during the year attended

Mr. Harnam D. Wahi 5 3(Chairman)Mr. Prakash Karnik 5 5Mr. Rajesh Khanna 5 2Mr. Bernard Gallus 5 4Mr. V.N Koura* 5 1

* Co-opted as a member of the Committee at the Board meeting held on12 December, 2006

5. COMPENSATION COMMITTEE

Composition

Mr Harnam D. Wahi is the Chairman of the CompensationCommittee. Other members of the Committee comprise of Mr.Prakash Karnik, Mr. John Levack, Mr. Rajesh Khanna, Mr. BernardGallus and Mr. V.N Koura*. The Company Secretary acts as theSecretary of the Committee.

*Co-opted as a member of the Compensation Committee at theBoard Meeting held on 12 December, 2006

Terms of reference

a) The Compensation Committee discharges the Board'sresponsibilities relating to compensation of the Company's Executive Directors.

b) The Compensation Committee has the overallresponsibility for approving and evaluating the Executive Directors' compensation plans, policies and programmesof the Company.

c) The Compensation Committee administers the EmployeesStock Option Plan (ESOP) and the Directors' Stock OptionPlan (DSOP) of the Company.

56

Responsibilities and authorities of the Compensation Committee:-

a) The Compensation Committee shall review and approvefor the Executive Directors of the Company:-- The annual base salary.- Annual incentive bonus, if any.- Any other benefits, compensation or arrangements.

b) The Compensation Committee shall evaluate, and if necessary, amend performance parameters of the ExecutiveDirectors.

c) The Compensation Committee may make recommenda-tions to the Board in relation to incentive plans for theExecutive Directors.

d) Administer the ESOP and DSOP schemes of the Company.

Meetings

During the year, the Committee met five times on the followingdates:

(i) 26 April, 2006

(ii) 07 June, 2006

(iii) 26 July, 2006

(iv) 26 October, 2006

(v) 24 January, 2007

Following are the details regarding the Committee meetingsattended by the members:-

Members Committee meetings Meetingsheld during the year attended

Mr. Harnam D. Wahi 5 3(Chairman)Mr. Prakash Karnik 5 5Mr. Rajesh Khanna 5 3Mr. John Levack 5 5Mr. Bernard Gallus 5 4Mr. V.N Koura* 5 1

* Co-opted as member of the Committee at the Board Meeting held on

12 December, 2006

REMUNERATION POLICYa) Executive Directors

The details of the remuneration paid and payable to Mr. Deepak Puri(Managing Director), Mrs. Nita Puri (Director) and Mr. Ratul Puri(Executive Director) during the year 2006-2007 are as follows:

Particulars Mr. Deepak Puri, Mrs. Nita Puri, Mr. Ratul Puri,Managing Director Executive Director Director

Salaries, allowances and bonus 33,156,250 4,415,178 15,011,964PF Contribution 1,698,750 439,822 1,013,036Perquisites 145,000 145,000 145,000TOTAL 35,000,000 5,000,000 16,170,000

SERVICE CONTRACTS, NOTICE PERIOD, SEVERANCE FEES

Mr. Deepak Puri (Managing Director), Mrs. Nita Puri (Director) and

Mr. Ratul Puri (Executive Director):-

The Company has executed a Service Contract each with Mr. DeepakPuri, Managing Director, Mrs. Nita Puri, a whole time Director and Mr. Ratul Puri, Executive Director whereby each of them havebeen appointed for a period of five years with effect from 1 September, 2006, 1 December, 2006 and 1 October, 2006,respectively. Each of them is entitled to resign from his/her office at any time upon giving to the Company at least three calendarmonths' written notice. No severance fees shall be payable to eitherof them.

The amount of performance bonus paid to them is based on theperformance of the Company and the performance of theseDirectors, as approved by the Compensation Committee andconsidered by the Board.

b) Non-Executive Directors:-

The Company does not have any pecuniary relationship with any ofits non-executive Directors.

STOCK OPTIONSThe shareholders of the Company had passed a resolution to offer thestock options to the Non-Executive Directors of the Company uptothe maximum of 450,000 equity shares. Under the terms of approvedDirectors' Stock Option Plan (DSOP), each Non-Executive Director isentitled to receive upto a maximum of 50,000 stock options.

Status of stock options accepted under the above mentioned plan isas follows:

Name of Directors No. of stock options granted

Mr. Harnam D. Wahi 50,000

Mr. Arun Bharat Ram 50,000

Mr. Prakash Karnik 50,000

Mr. John Levack 50,000

Mr. Bernard Gallus 50,000

Mr. V.N Koura* 50,000

Dr. Vinayshil Gautam* 50,000

* Granted during the financial year subsequent to their co-option in the

Board.

-Mr. Ajay Shah's stock options lapsed on 15 November, 2006 i.eafter 120 days of his resignation.

Mr. Rajesh Khanna, nominee Director of BIL, EIL, RIL and WIL didnot accept 50,000 stock options offered to him. He also does notcharge any Sitting Fees for attending any meetings of the Board orCommittees thereof.

COMMISSIONThe shareholders of the Company had also passed a resolution topay a commission for a period of 3 years w.e.f. 1 April, 2005 to themaximum of 0.2% of the Profit after Tax of every financial year.However, the overall limit of commission payable to the non-executive Directors shall not exceed 1% of the of the Net Profits of theCompany for that year calculated as per the provisions of theCompanies Act, 1956, without obtaining the prior approval of theCentral Government.

57

Accordingly, the non executive Directors have been paid followingamount of commission for the financial year 2005-06:

No. Name of Director Gross Commission (Rs.)

1 Mr. Harnam D. Wahi 12,665

2 Mr. Arun Bharat Ram Nil

3 Mr. Prakash Karnik 13,331

4 Mr. Rajesh Khanna Nil

5 Mr. John Levack 13,331

6 Mr. Bernard Gallus 1,332

7 Mr. Ajay Shah 9,332

SITTING FEESDuring the year 2006-07, the non-executive Directors were paid asitting fees of Rs.20,000 for each Board Meeting and Rs.10,000 foreach Committee meeting attended by them.

SERVICE CONTRACTS, NOTICE PERIOD, SEVERANCE FEES

Mr. Harnam D. Wahi, Mr. Arun Bharat Ram, Mr. Bernard Gallus,Mr. Prakash Karnik, Mr. V.N Koura and Dr. Vinayshil Gautam areDirectors liable to retire by rotation. No severance fees will becomepayable to them if they desire not to continue as Directors of theCompany.

Mr. John Levack (non-rotational nominee Director and representativeof Electra Partners Mauritius Ltd.) - No severance fees will becomepayable to him if Electra Partners Mauritius Ltd. withdraws hisnomination from the Directorship of the Company.

Mr. Rajesh Khanna (non-rotational nominee Director andrepresentative of BIL, EIL, RIL and WIL - affiliates of Warburg PincusLLC) - No severance fees will become payable to him if BIL, EIL, RILand WIL withdraw his nomination from the Directorship of theCompany.

6. INVESTORS' GRIEVANCE COMMITTEEComposition

The Chairman of the committee, Mr. Harnam D. Wahi, is a Non-Executive Independent Director. Other members of theCommittee comprise of Mr. Prakash Karnik, Mr. John Levack, Mr.Deepak Puri, Mr. Bernard Gallus and Mrs. Nita Puri. TheCompany Secretary acts as the Secretary of the Committee.

Terms of reference

The Investors' Grievance Committee looks into redressal ofshareholders' and investors' complaints like transfer of shares,non-receipt of Annual Reports, non-receipt of dividend and alliedmatters.

Meetings

During the year, the committee met four times on the followingdates:

(i) 27 April, 2006

(ii) 26 July, 2006

(iii) 26 October, 2006

(iv) 24 January, 2007

Following are the attendance details of the members at the

Committee meetings:-

Members Committee meetings Meetingsheld during the year attended

Mr. Harnam D. Wahi 4 2(Chairman)Mr. Prakash Karnik 4 4Mr. John Levack 4 4Mr. Deepak Puri 4 4Mrs. Nita Puri 4 4Mr. Bernard Gallus 4 4

Name and designation of the Compliance Officer: Mrs. MinniKatariya, Company Secretary.

The transfer / transmission of physical share certificates is approvedby the Company Secretary at least once in a fortnight on the basis ofrecommendations received from the Company's Registrars and ShareTransfer Agent-M/s. MCS Limited.

The investors may lodge their grievances through e-mail atshares@moserbaer.in or contact the Compliance Officer at thefollowing numbers: -

Telephone numbers : 41635201-05, 26911570-74

Fax numbers : 41635211/ 26911860

Information regarding complaints received from the shareholdersduring the period 1 April, 2006 to 31 March, 2007

Nature of the Received Replied to Pendingcomplaints satisfactorily

Relating to transfer,

transmission, etc. 9 9 ---

Relating to

dematerialization Nil Nil ---

Relating to dividend 25 25 ---

Relating to bonus 22 22 ---

Relating to 9 9 ---

miscellaneous matters 9 9 ---

TOTAL 65 65 ---

No share was pending for transfer as on 31 March, 2007.

7. CORPORATE GOVERNANCE COMMITTEEComposition

The Chairman of the Committee, Mr. Rajesh Khanna, is a Non-Executive Director. Other members of the Committee compriseof Mr. Prakash Karnik, Mr. John Levack, Mr. Deepak Puri and Mr.Bernard Gallus. The Company Secretary acts as the Secretary ofthe Committee.

Terms of referencea) To evaluate the current composition, organisation and

governance of the Board and its Committees, as well asdetermine future requirements and make recommendations in this regard to the Board for its approval.

b) To recommend the appointment of such Directors on theBoard who are of proven competence and have adequateprofessional experience.

c) To oversee the evaluation of the Board.

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ii) Rs. 50 million per item (including substantially similar items)across all purchase orders/contracts in a financial year.

Meetings

During the year, the Committee met five times on the followingdates:

(i) 26 April, 2006

(ii) 26 July, 2006

(iii) 26 October, 2006

(iv) 12 December, 2006

(v) 24 January, 2007

Following are the attendance details of the members at theCommittee meetings

Members Committee meetings Meetingsheld during the year attended

Mr. Harnam D. Wahi 5 3

(Chairman)

Mr. Prakash Karnik 5 5

Mr. John Levack 5 5

Mr. Rajesh Khanna 5 3

Mr. Ratul Puri 5 5

9. BANKING AND FINANCE COMMITTEE

Composition

Mr. Deepak Puri is the Chairman of the Committee. Othermembers of the Committee comprise of Mr. Harnam D. Wahi,Mrs. Nita Puri and Mr. Ratul Puri. The Company Secretary acts asthe Secretary of the Committee.

Terms of reference

The Banking and Finance Committee identifies the fund-basedand non-fund based requirements of the Company and approvesthe availing of these facilities from Banks and FinancialInstitutions, as and when the need arises, within the limitssanctioned by the Board.

Meetings

During the year, the Committee met nineteen times on thefollowing dates:

(a) 5 May, 2006 (b) 14 June, 2006

(c) 30 June, 2006 (d) 12 July, 2006

(e) 1 August, 2006 (f) 23 August, 2006

(g) 31 August, 2006 (h) 12 September, 2006

(i) 22 September, 2006 (j) 27 September, 2006

(k) 10 November, 2006 (l) 28 November, 2006

(m) 22 December, 2006 (n) 22 January, 2007

(o) 7 February, 2007 (p) 2 March, 2007

(q) 12 March, 2007 (r) 22 March, 2007

(s) 29 March, 2007

d) To recommend to the Board, Director nominees for eachCommittee of the Board.

e) To coordinate and approve Board and Committee meetingschedules.

f) To make regular reports to the Board on the matters listedherein and on such other matters as may be referred to it bythe Board from time to time.

g) To advise the Company on the best business practices beingfollowed on corporate governance issues world-wide and toimplement those in the Company appropriately.

h) To appoint any outside agency to report on corporate governance matters.

i) To appoint consultants in this regard and to obtain andimplement their advise, reports or opinions.

j) To recommend to the Board the governance structure formanagement of affairs of the Company.

k) To review and re-examine this charter annually and makerecommendations to the Board for any proposed changes.

l) To annually review and evaluate its performance.

Meetings

During the year, the Committee met once on 12 December,2006:

Following are the attendance details of the members at theCommittee meeting:-

Members Committee meetings Meetingsheld during the year attended

Mr. Rajesh Khanna 1 1

(Chairman)

Mr. Prakash Karnik 1 --

Mr. John Levack 1 1

Mr. Deepak Puri 1 1

Mr. Bernard Gallus 1 --

8. CAPEX COMMITTEEComposition

The Chairman of the Committee, Mr. Harnam D. Wahi, is a Non-Executive Independent Director. Other members of theCommittee comprise of Mr. Prakash Karnik, Mr. John Levack, Mr.Rajesh Khanna and Mr. Ratul Puri. The Company Secretary actsas the Secretary of the Committee.

Terms of reference

The CAPEX Committee shall plan capital expenditure for theexpansion and diversification programme of the Company andMoser Baer Photo Voltaic Limited, wholly owned subsidiarycompany and lay down procedures for the same. The CAPEXCommittee shall forward its decisions to the Board of Directors forits review and ratification, on a quarterly basis.

The CAPEX Committee is constituted to approve all CAPEXexceeding

i) Rs. 50 million per purchase order/contract.

59

Following are the attendance details of the members at theCommittee meetings:-

Members Committee meetings Meetingsheld during the year attended

Mr. Deepak Puri 19 18(Chairman)Mr. Harnam D. Wahi 19 18Mrs. Nita Puri 19 18Mr. Ratul Puri 19 15

10. CORPORATE SOCIAL RESPONSIBILITY COMMITTEEComposition

Mr. Deepak Puri is the Chairman of this Committee. Othermembers of this Committee comprise of Mrs. Nita Puri,Mr. Harnam D Wahi, Mr. Rajesh Khanna and Mr. Bernard Gallus.

Scope of work and powers of the Committee are as follows:

(a) To interpret the organizational CSR objectives and set upspecific goals to be achieved towards these objectives.

(b) To make periodical appraisal of CSR initiatives.

(c) To decide about resource allocation for each of the focusareas from its corpus.

(d) To prepare and place before the Board the CSR AnnualReport.

(e) To prepare and lay before the Board 'the Action Plan' for theensuing year.

(f) To set up a Trust, to contribute to the trust such funds as maybe required from the overall corpus for CSR activity.

(g) To appoint the Standing Committees and other Committeesor sub- Committees, as may be necessary from time to time.

(h) To delegate any or all of its powers to the Chairman of theBoard of Directors, other Committees or Sub-Committeesduly appointed.

(i) To select representatives/candidates from among themembers of the Committee for participation in national andinternational seminars/conferences, workshops, study toursand training courses. The cost shall be borne by theCommittee from the CSR budget. However, in case of theChairman of the Board of Directors, the cost shall be borneby the Company.

Meetings

During the year, the Committee met twice on the following dates:26 July, 2006 and 26 October, 2006

Following are the attendance details of the members at theCommittee meetings:

Members Committee meetings Meetingsheld during the year attended

Mr. Deepak Puri (Chairman) 2 2

Mrs. Nita Puri 2 2

Mr. Harnam D. Wahi 2 2

Mr. Bernard Gallus 2 2

Mr. Rajesh Khanna 2 2

11.COMPLIANCE WITH SEBI (PROHIBITION OFINSIDER TRADING) REGULATIONS, 2002

In pursuance of these regulations, the Company has formulatedStanding Instructions for the Employees and Directors for dealingin Shares of the Company and these Standing Instructions wereimplemented with effect from 9 September, 2002. Various formshave been designed to receive periodical information from theemployees and the Directors of the Company, as required interms of these regulations. Further, the Trading Window fordealing in shares of the Company was closed for the Directorsand employees of the Company as per the following details: -

Dates of closure of trading window Purpose of closure

Monday, 3 April, 2006 to Friday, 28 April, 2006 Consideration of un-audited financial results for the quarter

ended 31 March, 2006.

Wednesday, 24 May, 2006 to Thursday, 8 June, 2006 Consideration of audited annual accounts for the year

ended 31 March, 2006.

Saturday 1 July, 2006 to Friday, 28 July, 2006 Consideration of un-audited financial results for the quarter

ended 30 June, 2006.

Tuesday, 3 October, 2006 to 31 October, 2006 Consideration of un-audited financial results for the quarter

ended 30 September, 2006.

Wednesday, 20 December, 2006 to Friday, 22 December, 2006 Corporate disclosure

Monday, 1 January, 2007 to Saturday, 27 January, 2007 Consideration of un-audited financial results for the quarter

ended 31 December, 2006.

Tuesday, 06 February, 2007 to Wednesday, 7 February, 2007 Corporate disclosure

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12.PARTICULARS OF ANNUAL GENERAL MEETINGS HELD DURING THE LAST THREE YEARS

General Meeting Date Time Venue Special Resolutions passed

Annual General 26/07/04 9:30 A.M. FICCI Golden Jubilee a) For appointment of M/s. Price Waterhouse,Meeting Auditorium, Federation Chartered Accountants as the Statutory Auditors

House, Tansen Marg, in place of M/s. K. C. Khanna & Co., Chartered New Delhi- 110 001 Accountants-the retiring Statutory Auditors.

b) For amendment of Articles of Association of theCompany.

Annual General 03/08/2005 9.30 A.M. FICCI Golden Jubilee a) For taking note of pricing formula in respect of Meeting Auditorium, Federation the Company's Employees' Stock option Plan.

House, Tansen Marg, b) For approving the Directors' Stock Option PlanNew Delhi- 110 001 and to offer a total of 450,000 stock options

to the non-executive Directors.c) For payment and distribution of commission on

net profits of the Company to all the non executiveDirectors of the Company for the period of 3 years from 1 April, 2005 at a maximum rate of 0.2% of the Profit After Tax of every financial year.

Annual General 19/07/2006 9.30 A.M. FICCI Golden Jubilee a) To pay a remuneration of Rs. 5,000,000 p.a toMeeting Auditorium, Federation Mrs. Nita Puri, Whole Time Director.

House, Tansen Marg, b) Re-appointment of Mr. Deepak Puri, ManagingNew Delhi- 110 001 Director for a period of five years w.e.f

1 September, 2006c) Re-appointment of Mrs. Nita Puri, Whole Time

Director for a period of five years w.e.f 1 December, 2006

d) Re-appointment of Mr. Ratul Puri, ExecutiveDirector for a period of five years w.e.f 1 October, 2006

e) Taking note of maximum period within whichoptions shall be vested in respect of Directors' Stock Options Plan of the Company.

During the financial year 2006-07, no resolution was passed throughpostal ballot.

It is proposed to pass the following resolution as a Special Resolutionthrough Postal Ballot to alter the Main Objects clause of theMemorandum of Association of the Company:

"RESOLVED THAT pursuant to the provisions of Section 17 of theCompanies Act, 1956, consent of the Company be and is herebyaccorded to alter the Main Objects Clause of the Memorandum ofAssociation of the Company by changing Clause number 1 and byintroducing Clause number 3 and 4 so that the amended MainObjects Clause shall now read as follows:-

(A) THE MAIN OBJECTS TO BE PURSUED BY THE COMPANYON ITS INCORPORATION:

1. To carry on in India or elsewhere all or any of the business or businesses of electrical engineers and manufacturers/buyers/sellers of, dealers in, hirers, repairers, cleaners andstores of all kinds of electronics, electrical, optical, magnetic,

semi-conductor based non-volatile memory devices plant,

machinery, equipments, appliances, apparatus, media,components, accessories and storage and other similar devicesand scientific and other equipments (including in particularelectric/electronic clocks and time recording systems, whetheranalogic or digital or otherwise and whether operated byelectronic impulses or otherwise) and such other articles,products, by-products and things of a character similar oranalogous to the foregoing or any of them or connectedtherewith and capable of being used for or in connection withapplication of electricity or other forms of energy or power,whether for lighting, heating, sound, communications(including telecommunications), data storage and retrieval orotherwise for industrial, domestic or agricultural purposes.

2. To render as principals, agents, contractors or otherwiseconsultancy services in the field of leasing, corporate financialcounselling and for know-how in electronic and electricalengineering, including the provision of facilities for manufacture, hire and use of electronic data processingequipments and devices, for commercial exploitation thereof

61

and of any patents or privileges for the time being acquired byor belonging to the Company in relation to all or any of the saidbusinesses.

3. To carry on in India or elsewhere the business or businesses ofproduction, financing, exhibition, distribution of the contentthrough satellite/ digital/ cable/ wireless mechanism / futuretechnologies, agency of Indian or foreign movies, serials, audioproducts, documentaries, other audio- visual medium products,and other similar or analogous programmes.

4. To carry on in India or elsewhere the business or businesses ofacquiring, selling, or otherwise commercially exploiting the rights,titles and other commercial interests in Indian or foreign movies,serials, audio products, documentaries, other audio- visualproducts and other similar or analogous programmes, orreplicating, developing, using or otherwise dealing in the titles ofIndian or foreign movies, serials, audio products, documentaries,other audio visual medium products and other similar oranalogous programmes.

13. DISCLOSURES

a) Disclosures on materially significant related partytransactions, i.e. transactions of the Company of materialnature, with its Promoters, Directors or the management,their subsidiaries or relatives, etc. that may have potentialconflict with the interest of the Company at large - NIL.

b) Details of non-compliance by the Company, penalties,strictures imposed by Stock Exchange or SEBI or anystatutory authority, on any matter related to capital markets,during the last three years- NIL

14.MEANS OF COMMUNICATION

a) The Company ensures that its quarterly and annualfinancial results are sent to the concerned Stock Exchangesimmediately after the same have been considered andtaken on record by the Board of Directors. The Companyalso ensures that its quarterly financial results are alsopublished in the following newspapers

(i) The Economic Times.

(ii) Business Standard

(iii) The Times of India.

(iv) Navbharat Times.

(v) The Financial Times

(vi) The Financial Express

(vii) Hindustan Hindi

(viii) Mumbai Mirror

(ix) Hindu Business Line

b) The Company also ensures that these results are promptly and prominently displayed on the Company's website:- www.moserbaer.in

c) The Company also complies with SEBI regulationsregarding filing of its financial results under the EDIFARsystem.

d) The Company's official news releases are also displayed onthe Company's web site.

e) Management Discussion and Analysis Report (MD & A) is apart of the Annual Report of the Company for the year 2006-07.

f) The Company had organized a meeting with analysts on21 December, 2006 at Mumbai.

15. CODE OF CONDUCT

As per Clause 49 of the Listing Agreement, the Company hasformulated a Code of Conduct each for the Directors andSenior Management and the same have been placed on thewebsite of the Company. The declaration of the ManagingDirector regarding the compliance with the Codes of Conductby Directors and the senior managerial personnel is given inthe Annual Report.

16.GENERAL SHAREHOLDER INFORMATION

a) 24th ANNUAL GENERAL MEETING

Date : 15 June, 2007Time : 9.30 A.MVenue : FICCI Golden Jubilee Auditorium, Federation

House, Tansen Marg, New Delhi- 110 001

b) FINANCIAL CALENDAR : 1 April to 31 March

c) BOOK CLOSURE : 13 June, 2007 to 15 June, 2007

d) DIVIDEND PAYMENT DATE: The dividend for the year2006-07 as recommended by the Directors and if declaredat the forthcoming Annual General Meeting, will be paidon or before 14 July, 2007 to those members whose namesappear:-

(i) as beneficial owners as at the closure of the businesshours on Friday, 15 June, 2007 as per the list beingfurnished by National Securities Depository Limited andCentral Depository Services (India) Limited in respect ofthe shares held in electronic form; and

(ii) as members in the Register of Members of the Companyas at the closure of business hours on Friday, 15 June,2007.

e) LISTING

The Equity Shares of the Company are listed at thefollowing Stock Exchanges:

i) Bombay Stock Exchange Limited at Phiroze JeejeebhoyTowers, Dalal Street, Mumbai- 400 001.

ii) National Stock Exchange of India Limited at 'ExchangePlaza', Bandra - Kurla Complex, Bandra (East),Mumbai- 400 051.

iii) *The Calcutta Stock Exchange Association Limited at 7,Lyons Range, Kolkata-700 001

62

Shareholders holding 1% and more shares as on 31 March, 2007

Sr. Names No. of shares PercentageNo.

1 Woodgreen Investment Ltd. 14,700,000 13.17

2 International Finance Corporation 10,894,483 9.76

3 Mrs. Sabena Puri 7,791,886 6.99

4 Electra Partners Mauritius Limited 6,640,230 5.95

5 Bloom Investments Limited 6,400,000 5.74

6 Ealing Investments Limited 6,400,000 5.74

7 Randall Investments Limited 6,400,000 5.74

8 Winterfall Limited 5,574,715 5.00

9 Mr. Deepak Puri 3,841,982 3.45

10 Elm International Ltd. 3,756,570 3.37

11 Mr. Ratul Puri 2,970,616 2.66

12 Mrs. Nita Puri 2,289,754 2.05

13 T Rowe Price International Inc A/c T Rowe Price New Asia Fund 2,137,119 1.92

14 Morgan Stanley and Co. International Ltd. A/c Morgan Stanley Dean Witter Maururitius Co. Ltd. 1,945,104 1.74

15 T Rowe Price International Inc A/cT Rowe Price International Discovery Fund 1,448,969 1.30

16 Macquarie Bank Limited 1,372,420 1.23

17 Talma Chemical Industries Pvt. Ltd. 1,220,374 1.09

18 HSBC Global Investment Funds A/c HSBC Global Investment FundsMauritius Ltd. 1,184,142 1.06

*The Company has made an application to The CalcuttaStock Exchange for voluntary delisting. Application for thesame is under process and approval is pending.

The Company has paid the Annual Listing Fees for the year 2006-07 to Bombay Stock Exchange Limited and toNational Stock Exchange of India Limited

f) STOCK CODE

The Stock Code at:

i) Mumbai Stock Exchange is: 517140

ii) National Stock Exchange is: MOSERBAER

iii) Calcutta Stock Exchange is: 23164 and 10023164

g) TOP TEN SHAREHOLDERS AND THE SHAREHOLDERSHOLDING MORE THAN 1% OF SHARE CAPITAL

Top Ten Shareholders of the Company as on 31 March, 2007

Sr. Names No. of PercentageNo. shares

1 Woodgreen Investment Ltd. 14,700,000 13.172 International Finance Corporation 10,894,483 9.76

3 Mrs. Sabena Puri 7,791,886 6.99

4 Electra Partners Mauritius Limited 6,640,230 5.95

5 Bloom Investments Limited 6,400,000 5.74

6 Ealing Investments Limited 6,400,000 5.74

7 Randall Investments Limited 6,400,000 5.74

8 Winterfall Limited 5,574,715 5.00

9 Mr. Deepak Puri 3,841,982 3.45

10 Elm International Ltd. 3,756,570 3.37

63

h) STOCK PRICE DATA

Stock Market Data at BSE and NSE for the period 1 April, 2006to 31 March, 2007

Monthly high and low quotations of shares traded at The StockExchange, Mumbai (BSE) and National Stock Exchange Ltd.(NSE) are as follows: -

MONTHS BSE NSEHighest Lowest Highest Lowest

April, 2006 245.00 201.00 244.00 210.00

May, 2006 244.00 201.00 238.50 204.00

June, 2006 224.80 162.00 212.65 161.05

July, 2006 204.00 168.20 207.00 167.35

August, 2006 208.45 177.00 209.00 176.20

September, 2006 214.05 191.50 214.20 190.00

October, 2006 268.45 204.50 268.40 204.00

November, 2006 292.00 226.60 292.50 219.00

December, 2006 321.45 215.00 320.95 216.15

January, 2007 364.95 309.00 364.70 308.50

February, 2007 399.00 318.25 399.90 315.00

March, 2007 344.80 285.25 344.80 285.35

i) STOCK PERFORMANCE IN COMPARISON TO NSE INDEX (S&P CNX 500):-

j) DISTRIBUTION OF SHAREHOLDING AS ON 31 MARCH,2007

No. of No. of %age No.of %ageEquity share- sharesShares held holders,

Upto 5,000 34,083 98.97 6,889,891 6.17

5,001 to 10,000 144 0.42 1,055,037 0.95

10,001 to 20,000 74 0.22 1,069,526 0.96

20,001 to 30,000 24 0.07 574,677 0.51

30,001 to 40,000 16 0.05 552,417 0.50

40,001 to 50,000 15 0.04 689,786 0.62

50,001 to 100,000 26 0.07 1,921,925 1.72

100,001 & above 54 0.16 98,847,925 84.57Total 34,436 100.00 111,601,184 100.00

k) REGISTRARS AND SHARE TRANSFER AGENTS

MCS Limited is the Registrar & Share Transfer Agent of theCompany and its office is located at W-40, Okhla IndustrialArea, Phase-II, New Delhi - 110 020. Contact Person is Mr. Anirudh Mitra. He can be contacted at the followingnumbers:-

Phone numbers: 41406149/ 41406151/ 41406152/41709885/ 41609386

Fax number: 41709881E-mail address: mcsdel@vsnl.com

l) SHARE TRANSFER SYSTEM

The application for transfer, transmission and transposition ofshares are received by the Company at its registered office or atthe office of Registrars and Share Transfer Agent- M/s. MCSLimited.

Following is the procedure of transfer of physical sharecertificates:-

i) Entry of share certificate details and particulars of thetransferee in the computer on receipt thereof in the office.

ii) Scrutiny of transfer deeds.

iii) Tallying of transferor's signature with the specimen signatureavailable with the Registrar and Share Transfer Agent.

iv) Data entry of transfer deeds.

v) Preparation of objection memos and notices in respect ofun-transferred shares.

vi) Generation of checklist for valid transfer deeds.

vii) Correction of data in the computer system on the basis of changes marked in the checklist.

viii) Recording of transfer of shares in the computer system.

ix) Endorsement and signatures on the reverse side of the sharecertificates.

x) Generation of covering letters for the transferred sharecertificates and dispatch of transferred share certificates,objection memos and notices by registered post.

Following is the procedure for dematerialization of shares -

i) Entry of the share certificates and the dematerializationrequest form in the computer.

ii) Scrutiny of the share certificates and the dematerializationrequest form in the computer.

iii) Tallying of signature of the shareholder on the dematerialization request form with the specimen signatureavailable with the Registrar and Share Transfer Agent.

iv) Data entry of dematerialization request forms.

v) Generation of checklist.

vi) Change of shares from physical to dematerialized mode.

vii) Send confirmation to NSDL and CDS(I)L.

150

200

250

300

350

400

450Moser Baer Vs NSE (S&P CNX 500)

4/3/20

06

4/18/2

006

4/28/2

006

5/10/2

006

5/22/2

006

6/1/20

06

6/13/2

006

6/23/2

006

7/4/20

06

7/14/2

006

7/26/2

006

8/7/20

06

8/18/2

006

8/30/2

006

9/11/2

006

9/21/2

006

10/4/2

006

10/16/20

06

10/27/20

06

11/8/2

006

11/20/20

06

11/30/20

06

12/12/20

06

12/22/20

06

1/5/20

07

1/17/2

007

1/31/2

007

2/12/2

007

2/23/2

007

3/7/20

07

3/19/2

007

3/30/2

007

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

MBI Closing MBI/NSE Relative

64

m) DEMATERIALISATION OF SHARES AND LIQUIDITY

The Equity Shares of the Company are actively traded at BSE &NSE in dematerialized mode. As on 31 March 2007, 82.85% ofthe shares were held in dematerialized mode by 92.63% of thetotal shareholders of the Company.

n) PLANT LOCATIONS

i) 66, NSEZ, Noida, District- Gautam Budh Nagar, U.P.ii) A-164, Sector 80 Noida- II, Distt. Gautam Budh Nagar, U.P.

iii) 66, Udyog Vihar Industrial Area, Greater Noida, U.P.

o) As on 31 March, 2007 no Global Depositary Receipt wasoutstanding for conversion into an equal number of EquityShares. On 29 March, 2007, Woodgreen Investment Ltd.converted 47,500 number of outstanding Global DepositaryReceipts into 4,750,000 number of Equity Shares.

p) ADDRESS FOR CORRESPONDENCE

i) All correspondence regarding transfer and dematerializationof share certificates should be addressed to our Registrarand Share Transfer Agent - MCS Limited located at W-40,Okhla Industrial Area, Phase-II, New Delhi - 110 020.Following are the contact numbers:

Telephone numbers - 41406149/ 41406151/ 41406152/41709885/ 41609386Fax number - 41709881E-mail address - mcsdel@vsnl.com

ii) For any other information, the shareholders may contact theCompany Secretary at the Registered Office of the Companylocated at 43-A, Okhla Industrial Estate, New Delhi110020. Following are the contact nos.:-

Telephone numbers: 41635201-05, 26911570-74Fax numbers: 41635211/26911860E-mail address: shares@moserbaer.in

17.OTHER INFORMATION

a. In terms of the provisions of Section 205 C of theCompanies Act, 1956, unclaimed equity dividend f or theyears 1995-96, 1996-97, 1997-98 and 1998-99 has beentransferred to the Investor Education and Protection Fund.

b. The Company will transfer the amount remaining unpaid inits dividend account for the year 1999-2000 to the InvestorEducation and Protection Fund by Monday, 10 December,2007. Those members who have not yet encashed theirdividend warrants for the said year may refer the matteralong with relevant details to the Company Secretary at theRegistered Office of the Company located at 43-A, OkhlaIndustrial Estate, New Delhi-110020 latest by Monday, 15October, 2007 to claim their unpaid dividend.

18.ADOPTION OF NEW CORPORATE GOVERNANCECLAUSE

Compliance with mandatory and non-mandatory list of items:-Your Company ensures that it complies with all the mandatory list

of items mentioned in the corporate governance clause. It willendeavor, in future, to comply with the following non-mandatorylist of items provided in the corporate governance clause,wherever applicable

1. The Board

As the Company does not have a Non-Executive Chairman,the requirement that Non-Executive Chairman may beentitled to a Chairman's office at the Company's expenseand also be allowed reimbursement of expenses incurred inperformance of his duties is not applicable to the Companybecause the Company has an Executive Chairman.

2. Remuneration Committee.

The Company's Remuneration Committee is functioningaccording to these recommendations. The Chairman of theRemuneration Committee was present at the previous AnnualGeneral Meeting to answer the shareholders' queries.

3. Shareholders Rights

The Company publishes its quarterly results in the leadingnewspapers and regularly uploads the results at the EDIFARof SEBI. Further, it always ensures to regularly update thefinancial statements and key events on its website. However,the Company does not send the declaration of the halfyearly financial performance or a summary of significantevents to each shareholder of the Company.

4. Audit Qualifications

The Company has a proven track record of unqualifiedfinancial statements.

5. Training of Board Members

The Company endeavors to organize training programmefor its Board members

6. Mechanism for evaluating Non-Executive Boardmembers.

The performance evaluation of Non-Executive Directors willbe done in the due course of time.

7. Whistle Blower Policy:

The Company has formulated a code of conduct for itsDirectors and senior managerial personnel which allowsthem to report any matter relating to unethical conduct orconflict of interest to their immediate supervisor. However,the Company does not have any formal whistle blowerpolicy but the employees are free to report any matterrelating to misconduct to their superiors.

Date: 17.04.2007

COMPLIANCE WITH THE CODE OF ETHICSThis is to certify that, to the best of my knowledge and belief, for thefinancial year ended on 31 March, 2007, all Board members andSenior Management Personnel have affirmed compliance with thecode of ethics for Directors and Senior Management, respectively.

Sd/-Deepak Puri Managing Director

65

We, Deepak Puri, Managing Director and Yogesh Mathur, GroupCFO of Moser Baer India Limited certify to the Board that:

(a) We have reviewed financial statements and the cash flowstatement for the financial year ended on 31 March, 2007,and that to the best of our knowledge and belief:

(i) these statements do not contain any materially untruestatement or omit any material fact or contain statementsthat might be misleading;

(ii) these statements together present a true and fair view of theCompany's affairs and are in compliance with existingaccounting standards, applicable laws and regulations.

(b) There are, to the best of our knowledge and belief, notransactions entered into by the Company during the year whichare fraudulent, illegal or violative of the Company's code ofconduct.

(c) We accept responsibility for establishing and maintaininginternal controls for financial reporting and we have evaluatedthe effectiveness of internal control systems of the Companypertaining to financial reporting and we have disclosed to the Auditors and Audit Committee, deficiencies in the design oroperation of such internal controls, if any, of which they areaware and the steps we have taken or propose to take to rectifythese deficiencies.

(d) We have indicated to the Auditors and the Audit Committee:-

(i) significant changes, if any, in internal control over financialreporting during the year.

During the financial year ended on 31 March, 2007, therewere no significant changes in internal control over financialreporting.

(ii) significant changes, if any, in accounting policies during theyear and that the same have been disclosed in the notes tothe financial statements.

During the financial year ended on 31 March, 2007, therewere no significant changes in accounting policies exceptthe adoption of Accounting Standard (AS) 15 (revised 2005)on ‘Employee Benefits’ issued by the Institute of Chartered Accountants of India.

(iii) instances of significant fraud of which we have becomeaware and the involvement therein, if any, of themanagement or an employee having a significant role in thecompany's internal control system over financial reporting.

During the financial year ended on 31 March, 2007, therewere no instances of the above nature.

Sd/- Sd/-Deepak Puri Yogesh MathurManaging Director Group CFO

Date : 30 April, 2007 Place: New Delhi

Managing Director and Group ChiefFinancial Officer certification

66

To the Members of Moser Baer India Limited

We have examined the compliance of conditions of Corporate Governance by Moser Baer India Limited, for the year ended March 31, 2007,as stipulated in Clause 49 of the Listing Agreement(s) of the said Company with stock exchange(s) in India.

The compliance of conditions of Corporate Governance is the responsibility of the Company's management. Our examination was carriedout in accordance with the Guidance Note on Certification of Corporate Governance (as stipulated in Clause 49 of the Listing Agreement),issued by the Institute of Chartered Accountants of India and was limited to procedures and implementation thereof, adopted by the Companyfor ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financialstatements 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 has compliedwith the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement(s).

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

Anuradha TuliPartner,Membership Number: F 85611For and on behalf of

Place : New Delhi Price Waterhouse Date : May 1, 2007 Chartered Accountants

Auditors' Certificate regarding compliance ofconditions of Corporate Governance

67

1. We have audited the attached Balance Sheet of Moser Baer India Limited, as at March 31, 2007, and the related Profit and Loss Accountand Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. Thesefinancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with the 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.

3. As required by the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditor's Report) (Amendment) Order, 2004,issued by the Central Government of India in terms of sub-section (4A) of Section 227 of 'The Companies Act, 1956' of India (the 'Act')and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the informationand explanations given to us, we further report that:

(i) (a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The fixed assets are physically verified by the management according to a phased programme designed to cover all the itemsover a period of three years, which in our opinion, is reasonable having regard to the size of the Company and the nature of itsassets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during the yearand no material discrepancies between the book records and the physical inventory have been noticed.

(c) In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not beendisposed of by the Company during the year.

(ii) (a) The inventory (excluding stocks with third parties) has been physically verified by the management during the year. In respect ofinventory lying with third parties, these have substantially been confirmed by them. In our opinion, the frequency of verification isreasonable.

(b) In our opinion, the procedures of physical verification of inventory followed by the management are reasonable and adequatein relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion, the company is maintaining proper records of inventory.The discrepancies noticed on physical verification of inventory as compared to book records were not material.

(iii) The Company has not taken/granted any loans, secured or unsecured, from/to companies, firms or other parties covered in theregister maintained under Section 301 of the Act. As the Company has not taken/granted any loans, secured or unsecured, from/tocompanies, firms or other parties covered in the register maintained under Section 301 of the Act, clauses (iii)(b), (iii)(c), (iii)(d), (iii)(f)and (iii)(g) of paragraph 4 of the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditor's Report)(Amendment) Order, 2004 are not applicable to the Company for the current year.

(iv) In our opinion and according to the information and explanations given to us, having regard to the explanation that certain itemspurchased are of special nature for which suitable alternative sources do not exist for obtaining comparative quotations, there is anadequate internal control system commensurate with the size of the Company and the nature of its business for the purchase ofinventory, fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books and records ofthe Company, and according to the information and explanations given to us, we have neither come across nor have been informedof any continuing failure to correct major weaknesses in the aforesaid internal control system.

(v) (a) According to the information and explanations given to us, there have been no contracts or arrangements referred to in Section301 of the Act during the year to be entered in the register required to be maintained under that section. Accordingly,commenting on transactions made in pursuance of such contracts or arrangements does not arise.

(b) As there are no contracts or arrangements referred to in Section 301 of the Act that need to be entered in the register requiredto be maintained under that section, clause (v)(b) of paragraph 4 of the Companies (Auditor's Report) Order, 2003, as amendedby the Companies (Auditor's Report) (Amendment) Order, 2004 is not applicable to the Company for the current year.

(vi) The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA or any other relevantprovisions of the Act and the rules framed there under.

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

Auditors' Report to the members of Moser Baer India Limited

68

(viii) The Central Government of India has not prescribed the maintenance of cost records under clause (d) of sub-section(1) of Section 209 of the Act for any of the products of the Company.

(ix) (a) According to the information and explanations given to us and the records of the Company examined by us, in our opinion, theCompany is regular in depositing undisputed statutory dues including provident fund, investor education and protection fund,employees' state insurance, wealth tax, service tax, custom duty, excise duty and cess, and is generally regular in depositing theundisputed statutory dues including income-tax, sales tax and other material statutory dues with the appropriate authorities.

(b) According to the information and explanations given to us and the records of the Company examined by us, the particulars of dues of income-tax, sales-tax, wealth tax, service tax, customs duty, excise duty and cess as at March 31, 2007 which havenot been deposited on account of a dispute, are as follows -

Name of the statute Nature of dues Amount Period to which Forum where the dispute is pending(Rs.) the amount relates

Tax on Entry of Entry tax imposed on purchase 106,059,645 1999-01 Supreme Court of IndiaGoods Act, 2000 of capital goods

Entry tax imposed on purchase 1,685,161 2004-05 High Court, Lucknowof diesel and cement (1,000,000)

Entry tax imposed on purchase 960,678 2003-04 Joint Commissioner, (Appeals), Noidaof diesel and cement (686,502)

Central Excise Customs duty levied on import of 2,761,250 2002-04 Customs, Excise and Service Tax Act, 1944 and aluminium sheets, toughened Appellate TribunalCustoms Act, 1962 glass, steel doors etc.

Central Excise Excise duty levied on the amount 2,755,310 2001-02 Commissioner of Central ExciseAct, 1944 and of royalty charges for replicating (Appeals), NoidaCustoms Act, 1962 CD-ROM.

Service Tax Service tax levied on services 824,004 2000-02 Commissioner (Appeals), Customs & (Finance Act, 1994) provided by foreign supplier Central Excise, Noida

58,640,712 2000-02 Commissioner, Customs & Central Excise, Noida

5,440,788 1999-00 Deputy Commissioner, Customs &Central Excise, Noida

Central Sales Tax Central Sales Tax 2,292,837 2002-03 High Court, AllahabadAct, 1956

UP Trade Tax Local Sales Tax 109,297 2003-04 Joint Commissioner, (Appeals), NoidaAct, 1948 (72,864)

Income Tax Demands under section 143(3) 219,353,960 A.Y. 2003-04 & Commissioner of Income Act, 1961 (22,500,000) 2004-05 Tax (Appeals)

Income Tax Demands under section 80,294,174 A.Y. 2004-05 to Commissioner of IncomeAct, 1961 201/201(1A) (5,000,000) 2007-08 Tax (Appeals)

Notes:1. The above details exclude Departmental Appeals to higher authorities as there is no stay on the order of lower authority favouring the

Company and the amount is not ascertainable.

2. The figures in brackets represent amounts deposited under protest and demands shown against them are net of such deposits.

(x) The Company has no accumulated losses as at March 31, 2007 and it has not incurred any cash losses in the financial year ended onthat date or in the immediately preceding financial year.

69

(xi) According to the records of the Company examined by us and the information and explanation given to us, the Company has notdefaulted in repayment of dues to any financial institution or bank or debenture holders as at the balance sheet date.

(xii) The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and othersecurities.

(xiii) The provisions of any special statute applicable to chit fund / nidhi / mutual benefit fund/societies are not applicable to theCompany.

(xiv) In our opinion, the Company is not a dealer or trader in shares, securities, debentures and other investments.

(xv) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees givenby the Company, for loans taken by others from banks during the year, are not prejudicial to the interest of the company.

(xvi) In our opinion, and according to the information and explanations given to us, on an overall basis, the term loans have beenapplied for the purposes for which they were obtained.

(xvii) On the basis of an overall examination of the balance sheet of the Company, in our opinion and according to the information andexplanations given to us, there are no funds raised on a short-term basis which have been used for long-term investment.

(xviii) The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained underSection 301 of the Act during the year.

(xix) As the Company has not issued any debentures during the year and no debentures are outstanding as at the year end, clause (xix)of paragraph 4 of the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditor's Report) (Amendment)Order, 2004 is not applicable to the Company for the current year.

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

(xxi) During the course of our examination of the books and records of the company, carried out in accordance with the generallyaccepted auditing practices in India, and according to the information and explanations given to us, we have neither come acrossany instance of fraud on or by the company, noticed or reported during the year, nor have we been informed of such case by themanagement.

4. Further to our comments in paragraph 3 above, we report that:

(a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposesof 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 examination ofthose books;

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

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

(e) On the basis of written representations received from the directors, and taken on record by the Board of Directors in their meeting heldon April 30, 2007, none of the directors is disqualified as on March 31, 2007 from being appointed as a director in terms of clause (g)of sub-section (1) of Section 274 of the Act.

(f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements togetherwith the notes thereon and attached thereto give in the prescribed manner the information required by the Act and give a true and fairview in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2007

(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.

Anuradha TuliPartnerMembership Number F 85611For and on behalf of

New Delhi Price WaterhouseApril 30, 2007 Chartered Accountants

70

MOSER BAER INDIA LIMITED

BALANCE SHEET AS AT MARCH 31, 2007

Schedule As at 31.03.2007 As at 31.03.2006Rs. Rs.

SOURCES OF FUNDS:SHAREHOLDERS' FUNDS:Capital 1 1,116,011,840 1,115,129,440 Reserves and Surplus 2 19,852,166,547 18,933,398,325

20,968,178,387 20,048,527,765 LOAN FUNDS:Secured Loans 3 17,250,156,997 16,465,401,035 Unsecured Loans 4 - 89,240,000 Deferred Tax Liability (Net) 88,704,743 - (Refer Note 9 of Schedule 20 Part-B)TOTAL 38,307,040,127 36,603,168,800

APPLICATION OF FUNDS:FIXED ASSETS: 5Gross Block 38,993,210,542 34,936,740,065 Less: Depreciation 14,176,569,180 10,617,357,936 Net Block 24,816,641,362 24,319,382,129 Capital Work-in-progress 5 2,867,810,187 1,279,446,637

27,684,451,549 25,598,828,766

INVESTMENTS 6 2,418,149,733 879,474,170

CURRENT ASSETS, LOANS AND ADVANCES:Inventories 7 5,392,849,971 4,469,864,241 Sundry Debtors 8 3,288,431,321 3,798,874,698 Cash and Bank 9 2,438,886,139 2,837,200,891 Other Current Assets 10 174,255,467 171,419,324 Loans and Advances 11 1,186,189,538 1,495,600,451

12,480,612,436 12,772,959,605 Less: CURRENT LIABILITIES AND PROVISIONS: 12Current Liabilities 3,876,476,856 2,370,734,903 Provisions 399,696,735 277,358,838

4,276,173,591 2,648,093,741 Net Current Assets 8,204,438,845 10,124,865,864 TOTAL 38,307,040,127 36,603,168,800

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 20

This is the Balance Sheet referred to in our The schedules referred to above form anreport of even date. integral part of the Balance Sheet.

By order of the Board for and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Ratul Puri Minni KatariyaPartner Chairman and Executive Director Company Secretary Membership Number-F-85611 Managing DirectorFor and on behalf of PRICE WATERHOUSEChartered Accountants

Yogesh Mathur R. SampathPlace: New Delhi Group CFO Vice President -Date: April 30, 2007 Financial Planning and Control

71

MOSER BAER INDIA LIMITED

PROFIT AND LOSS ACCOUNT FOR THEYEAR ENDED MARCH 31, 2007

By order of the Board for and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Ratul Puri Minni KatariyaPartner Chairman and Executive Director Company Secretary Membership Number-F-85611 Managing DirectorFor and on behalf of PRICE WATERHOUSEChartered Accountants

Yogesh Mathur R. SampathPlace: New Delhi Group CFO Vice President -Date: April 30, 2007 Financial Planning and Control

Schedule Year ended Year ended 31.03.2007 31.03.2006

Rs. Rs.

INCOME:Gross Sales (Refer Note 2 of Schedule 20 Part-A) 20,740,303,073 17,319,141,334 Less: Excise Duty 13 528,187,777 354,905,432 Less: Countervailing duty 393,030,092 323,033,660 Net Sales 19,819,085,204 16,641,202,242 Services (Refer Note 15 of Schedule 20 Part-B) 5,650,111 -

19,824,735,315 16,641,202,242 Other Income 14 787,705,332 607,221,261 Increase in stock of Finished Goods/ Work in Progress 15 626,317,667 550,083,960

21,238,758,314 17,798,507,463EXPENDITURE:Purchase of Finished Goods 73,104,898 11,465,411 Raw Materials and Components Consumed 7,937,548,252 7,862,238,001 Packing Material Consumed 1,777,496,746 1,903,880,519 Stores, Spares and Tools Consumed 960,466,064 632,020,268 Personnel Expenses 16 1,392,032,116 1,035,764,264 Administration & Other Expenses 17 3,076,046,204 2,217,119,700 Interest & Finance Charges 18 1,244,854,884 935,497,197 Depreciation/ Amortisation 19 3,578,703,374 3,167,598,400

20,040,252,538 17,765,583,760Profit before Prior Period Items and Tax 1,198,505,776 32,923,703Prior Period (Income)/ Expense (Net)(Refer Note 8 of Schedule 20 Part-B) - (6,596,259)Profit after Prior Period Items and before Tax 1,198,505,776 39,519,962Tax Expense: (Refer Note 11 of Schedule 20 Part-A)Current Tax [net of provision written back in respect of earlier years of Rs. Nil (Previous year Rs. 7,010,518) and including Wealth Tax Rs 105,595 (Previous Year Rs. 79,530)] 179,966 (6,334,263)Fringe Benefit Tax 11,756,496 13,238,070 Deferred Tax (Refer Note 9 of Schedule 20 Part-B) 88,704,743 (14,045,000)Net Profit after Tax 1,097,864,571 46,661,155Add:- Profit carried forward from last year 399,587,249 480,078,728 Profit available for appropriation 1,497,451,820 526,739,883APPROPRIATIONS:Proposed Dividend:-on Equity Shares 167,401,776 111,512,944 Corporate Tax on Proposed Dividend 28,449,932 15,639,690 Transferred to General Reserve 55,265,000 - Balance carried to Balance Sheet 1,246,335,112 399,587,249 TOTAL 1,497,451,820 526,739,883Earnings Per Share (Face Value of Rs. 10 each) (Refer Note 13 of Schedule 20 Part-B)Basic 9.84 0.42 Diluted 9.78 0.42SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 20.This is the Profit and Loss Account referred to in our The schedules referred to above form anreport of even date. integral part of the Profit and Loss Account.

72

MOSER BAER INDIA LIMITED

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2007

Year ended Year ended31.03.2007 31.03.2006

Rs. Rs.

Cash flow from operating activities:

Net profit after prior period items but before tax 1,198,505,776 39,519,962

Adjustments for:Depreciation 3,578,703,374 3,167,598,400 Interest Expense 1,175,316,642 874,310,935 Interest Income (158,276,157) (187,012,440)Income from Investment - Dividends (15,977,055) (62,434,244)Lease Rent - Finance Lease - 28,580 (Profit)/ Loss on Fixed Assets sold 227,244 (70,000)(Profit)/ Loss on sale of Investments - (417,759)Debts/ Advances Written off 3,775,949 698,988 Provision for Bad & Doubtful Debts 120,522,719 - Liability no longer required written back (18,533,320) (13,753,857)Provision for Gratuity & Leave Encashment 38,840,916 26,894,220 Stock written off 22,770,095 23,877 Unrealised foreign exchange (gain) /loss 44,675,993 (83,316,513)Prior Period Expenses/ (Income) (Net) - (6,596,259)

Operating profit before working capital changes 5,990,552,176 3,755,473,890

Adjustments for changes in working capital:(Increase)/Decrease in Sundry Debtors 352,915,450 (507,291,203)(Increase)/Decrease in Other Receivables 373,234,974 (925,440,183)(Increase)/Decrease in Inventories (945,755,824) (1,034,532,433)Increase/(Decrease) in Trade and Other Payables 1,236,979,453 540,825,538

Cash generated from operations 7,007,926,229 1,829,035,609

Taxes (Paid) / Received (Net of TDS) (71,051,060) (4,104,721)Prior Period (Expenses)/Income (Net) - 6,596,259

Net cash from operating activities 6,936,875,169 1,831,527,147

Cash flow from Investing activities:

Purchase of fixed assets (5,037,946,065) (4,565,155,663)Proceeds from Sale of fixed assets 4,357,043 70,000 Proceeds from Sale of Investments - 3,807,414,363 Purchase of investments - (2,280,548,910)Investment in Subsidiary companies (1,538,675,563) (330,748,155)Interest Received 159,091,928 224,169,621 Dividend Received 15,977,055 62,434,244 Net cash used in investing activities (6,397,195,602) (3,082,364,500)

Contd…

73

MOSER BAER INDIA LIMITED

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2007

Year ended Year ended31.03.2007 31.03.2006

Rs. Rs.

Cash flow from financing activities:

Proceeds from issue of share Capital (including Share Premium) 19,409,383 - Receipts, excludes Loss on account of exchange fluctuation of Rs.133,337,119 3,415,974,795 2,812,809,033 [Previous year (Gain) Rs. 179,853,336] on reinstatement of foreign currency loanRepayment of Long Term Loans (2,957,401,594) (2,883,012,252)Proceeds from short term borrowings (Net) (122,931,911) 582,673,696 Interest on Finance Lease - (28,580)Interest Paid (1,165,567,652) (886,831,220)Dividend Paid (111,837,650) (111,874,354)Dividend Tax Paid (15,639,690) (15,639,690)Net cash used in financing activities (937,994,319) (501,903,367)

Net Increase/(Decrease) in Cash & Cash Equivalents (398,314,752) (1,752,740,720)

Cash and cash equivalents at beginning of the year 2,837,200,891 4,589,941,611

Cash and cash equivalents at end of the year 2,438,886,139 2,837,200,891

Cash and cash equivalents compriseCash, Cheques & Drafts (in hand) and Remittances in transit 465,433,872 10,570,859 Fixed Deposits 1,571,229,236 2,707,682,109 Balance with Scheduled Banks 402,223,031 118,947,923

Notes :

1. The above Cash flow statement has been prepared under the indirect method set out in AS-3 issued by the Institute of Chartered Accountants of India.

2. Figures in brackets indicate cash outgo.

3. Previous period figures have been regrouped and recast wherever necessary to conform to the current period classification.

4. Cash and cash equivalents includes Rs. 886,294,851 (Previous Year Rs. 508,575,698) which are not available for use by theCompany. (Refer schedule 9 in the accounts)

This is the Cash Flow Statement referred to in ourreport of even date.

By order of the Board for and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Ratul Puri Minni KatariyaPartner Chairman and Executive Director Company Secretary Membership Number-F-85611 Managing DirectorFor and on behalf of PRICE WATERHOUSEChartered Accountants

Yogesh Mathur R. SampathPlace: New Delhi Group CFO Vice President -Date: April 30, 2007 Financial Planning and Control

74

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs.

SCHEDULE 1 - CAPITAL:Authorised:

142,500,000 (Previous Year 142,500,000) Equity Shares of Rs.10 each 1,425,000,000 1,425,000,000

750,000 (Previous Year 750,000) Preference Shares of Rs.100 each 75,000,000 75,000,000 1,500,000,000 1,500,000,000

Issued, Subscribed and Paid-up:111,601,184 (Previous year 111,512,944)Equity Shares of Rs.10 each fully paid 1,116,011,840 1,115,129,440 (Refer Note 10 of Schedule 20 Part-B)

TOTAL 1,116,011,840 1,115,129,440

SCHEDULE 2 - RESERVES AND SURPLUS:Capital Reserve:As per last Balance Sheet 181,440,000 - Share Warrants Forfeited (Refer Note 19 of Schedule 20 Part-B) - 181,440,000

181,440,000 181,440,000

Share Premium Account:As per last Balance Sheet 8,891,620,004 8,891,620,004 Addition during the year (Refer Note 10 of Schedule 20 Part-B) 18,526,983 -

8,910,146,987 8,891,620,004

Profit and Loss Account Balance 1,246,335,112 399,587,249

General Reserve:As per last Balance Sheet 9,460,751,072 9,460,751,072 Add: Transferred from Profit and Loss Account 55,265,000 - Less: Amounts transferred on implementation of Accounting Standard-15 (Revised) 1,771,624 -

- Employee Benefits (Refer Note 16 of Schedule 20 Part-B)9,514,244,448 9,460,751,072

TOTAL 19,852,166,547 18,933,398,325

75

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs.

SCHEDULE 3- SECURED LOANS:(Refer Note 10 of Schedule 20 Part-A)Term Loans (Refer notes below)

From Banks:Rupee Loans, including interest accrued and due Rs. 53,572,069 9,727,206,995 8,576,805,156 (Previous Year Rs. 22,662,800)Foreign Currency Loans 2,881,191,742 2,986,720,655

12,608,398,737 11,563,525,811

From Others:Foreign Currency Loans 434,175,000 676,375,000

13,042,573,737 12,239,900,811

Other Loans:Short Term Loans from Banks: (Refer notes below)Secured by hypothecation of stock-in-trade and book debts 3,734,460,033 4,031,142,586 Including interest accrued and due Rs.16,530,283 (Previous Year Rs. 755,336)Secured by lien on Fixed Deposits 473,056,689 193,234,233

From Others:Secured by hypothecation of specific vehicles 66,538 1,123,405

4,207,583,260 4,225,500,224

TOTAL 17,250,156,997 16,465,401,035

Notes:

1 Loans from State Bank of India, Canara Bank, Federal Bank, Union Bank of India, Syndicate Bank, United Bank of India, State Bankof Saurashtra, Indian Bank, State Bank of Mysore, State Bank of Indore, Vijaya Bank, Punjab National Bank, State Bank ofTravancore, Oriental Bank Of Commerce, UCO Bank, State Bank of Patiala, Bank of Baroda and Foreign Currency Loans fromBanks/Financial Institutions are secured by way of first mortgage and charge on all the immovable and movable fixed assets, presentand future, of the company (subject to prior charge on specified movables as otherwise stated, including in favour of the company'sbankers by way of security for the borrowing of working capital), ranking pari-passu with charges for the Term Loans.

2 Short Term loans from HDFC Bank, The Bank of Nova Scotia, State Bank of India, State Bank of Patiala, State Bank of Travancoreand Union Bank of India are further secured by way of second charge on all the immovable properties.

3 Term Loans repayable within one year Rs. 3,825,385,609 (Previous year Rs. 3,662,374,088). Other Loans repayable within oneyear Rs. 66,538 (Previous year Rs. 1,056,867).

SCHEDULE 4 - UNSECURED LOANS(Refer Note 10 of Schedule 20 Part-A)

Short term loans from BankForeign Currency Loan - 89,240,000 (Previous Year USD 2,000,000)

TOTAL - 89,240,000

76

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET

AS AT MARCH 31, 2007

SCH

EDU

LE 5

- F

IXED

ASS

ETS:

(Refe

r Note

3, 4,

8, 10

, 12 a

nd 14

of Sc

hedu

le 20

Part-

A)

DESC

RIPTIO

NGR

OSS

BLOC

K DE

PREC

IATIO

N/AM

ORTIS

ATIO

NNE

T BLO

CK

As at

Ad

dition

sDe

ducti

ons

As at

As

at

For t

he

Dedu

ction

sAs

at

As at

As at

01

.04.20

0631

.03.20

0701

.04.20

06Ye

ar31

.03.20

0731

.03.20

0731

.03.20

06Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.

Tang

ible A

ssets

Leas

ehold

Land

273,8

36,65

1 -

17

0,081

27

3,666

,570

11,44

0,681

2,9

66,30

2 -

14

,406,9

83

259,2

59,58

7 26

2,395

,970

Build

ings (

Refer

Note

3 be

low)

2,416

,150,0

13

353,6

20,72

5 2,5

59,52

8 2,7

67,21

1,210

31

7,036

,614

83,88

1,421

1,6

44,47

2 39

9,273

,563

2,367

,937,6

47

2,099

,113,3

99Le

aseh

old Im

prove

ments

27,43

1,406

-

58

,263

27,37

3,143

6,9

39,05

2 3,4

60,36

0

-

10,39

9,412

16

,973,7

31

20,49

2,354

Pla

nt &

Mach

inery,

Elect

rical

Instal

lation

s and

Ot

her E

quipm

ents

(Refe

r Note

s 1, 2

and 3

below

)31

,756,8

21,11

8 3,4

48,73

5,926

18

,753,8

89

35,18

6,803

,155

10,11

1,028

,029

3,418

,606,9

49

15,95

6,458

13

,513,6

78,52

0 21

,673,1

24,63

5 21

,645,7

93,08

9 Fu

rnitur

e, Fix

tures

and

Offic

e Equ

ipmen

ts (R

efer N

ote 3

below

)17

2,467

,365

16,68

8,378

-

18

9,155

,743

48,54

0,528

11

,153,8

38

-

59,69

4,366

12

9,461

,377

123,9

26,83

7 Co

mpute

rs11

1,682

,064

15,66

6,844

12

9,500

12

7,219

,408

49,29

4,988

18

,211,3

87

94,80

9 67

,411,5

66

59,80

7,842

62

,387,0

76Ve

hicles

18,74

3,493

5,3

02,36

0 1,8

55,36

3 22

,190,4

90

7,312

,278

1,727

,941

1,276

,957

7,763

,262

14,42

7,228

11

,431,2

15

Intan

gible

Asset

sSo

ftware

24,51

2,000

12

,195,3

85

-

36,70

7,385

12

,023,2

06

6,811

,453

-

18,83

4,659

17

,872,7

26

12,48

8,794

Tec

hnica

l Kno

w Ho

w13

1,249

,583

22,97

3,432

-

15

4,223

,015

50,39

9,991

19

,009,0

76

-

69,40

9,067

84

,813,9

48

80,84

9,592

Co

pyrig

hts-

60

,458,3

75

-

60,45

8,375

-

2,9

99,94

7 -

2,9

99,94

7 57

,458,4

28

-

Marke

ting a

nd D

istrib

ution

Righ

ts-

14

7,391

,553

-

147,3

91,55

3 -

12

,206,7

90

-

12,20

6,790

13

5,184

,763

-

Leas

ed As

sets

Vehic

les (R

efer N

ote 5

b) of

Sche

dule

20 Pa

rt-B)

3,846

,372

-

3,035

,877

810,4

95

3,342

,569

153,9

94

3,005

,518

491,0

45

319,4

50

503,8

03

TOTA

L34

,936,7

40,06

5 4,0

83,03

2,978

26

,562,5

01

38,99

3,210

,542

10,61

7,357

,936

3,581

,189,4

58

21,97

8,214

14

,176,5

69,18

0 24

,816,6

41,36

2 24

,319,3

82,12

9

Capit

al Wo

rk in

Progre

ss:Ca

pital

Work

in Pro

gress,

inclu

ding c

apita

l ad

vanc

es of

Rs. 3

67,70

7,903

(Pr

eviou

s Yea

r Rs.

226,4

85,51

8)2,6

45,14

7,168

1,2

14,45

7,733

Ex

pend

iture

pend

ing al

locati

on20

6,861

,055

57,92

9,978

(R

efer N

ote 7

of Sc

hedu

le 20

Part-

B)Int

angib

le As

sets U

nder

Deve

lopme

nt15

,801,9

64

7,058

,926

TOTA

L2,8

67,81

0,187

1,2

79,44

6,637

Gran

d Tot

al34

,936,7

40,06

5 4,0

83,03

2,978

26

,562,5

01

38,99

3,210

,542

10,61

7,357

,936

3,581

,189,4

58

21,97

8,214

14

,176,5

69,18

0 27

,684,4

51,54

9 25

,598,8

28,76

6

Previo

us Ye

ar31

,919,6

22,73

6 3,0

17,71

6,896

59

9,567

34

,936,7

40,06

5 7,4

47,93

4,031

3,1

70,02

3,472

59

9,567

10

,617,3

57,93

6 25

,598,8

28,76

6

Notes

:1.

Gross

Block

and a

dditio

ns to

Plan

t and

Mac

hinery

have

been

incre

ased

by Rs

. 195

,147,5

67 (P

reviou

s Yea

r incre

ased

by R

s. 21

1,436

,785)

on ac

coun

t of fo

reign

exch

ange

diffe

rences

.2.

Borro

wing

Costs

capit

alised

durin

g the

perio

d Rs

. 29,0

45,22

1 (Pre

vious

Year

Rs. 1

7,215

,941)

.3.

Gross

Block

of fix

ed as

sets i

nclud

e Rs.

399,2

83,08

1 rela

ting t

o the

SEZ d

ivisio

n of th

e Com

pany

.

77

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs. Rs. Rs

SCHEDULE 6 - INVESTMENTS(Refer Note 5 of Schedule 20 Part-A and Note 6 of Schedule 20 Part-B)

Long TermUnquoted (Non Trade):

Investment in SubsidiariesEuropean Optic Media Technology GmbHShare Capital of € 2,025,000(Previous Year € 2,025,000) 214,257,701 205,268,201 Includes share application money of Rs. 102,993,951(Previous Year Rs. 94,004,451)

Peraround Limited1,472,875 Ordinary Shares of C £1 each 112,886,063 - (Previous Year Rs. Nil)

Moser Baer Infrastructure Ltd 260,000 (Previous Year Nil) Equity Shares of Rs 10/- each 2,600,000 -

Moser Baer Photo Voltaic Ltd 28,500,000 (Previous Year 26,050,000) Equity Shares of Rs 10/- each 285,000,000 260,500,00082,851,150 (Previous Year Nil) 9% p.a Cumulative, Convertible, Redeemable Series A Preference Shares of Rs. 10 each 828,511,500 - 55,568,850 (Previous Year Nil) 9% p.a Cumulative, Redeemable Series B Preference Shares of Rs. 10 each 555,688,500 1,669,200,000 - 260,500,000

Moser Baer SEZ Developer Ltd250,000 (Previous Year 50,000) Equity Shares of Rs 10/- each 2,500,000 500,000

Moser Baer Investments Ltd 350,000 (Previous Year Nil) Equity Shares of Rs 10/- each 3,500,000 -

Investments in OthersCAPCO LUXEMBOURG S.a.r.l.1 Equity share of Euro 125 each 4,961 4,961 63,366 Preferred Equity Certificates of Euro 125 each 320,668,823 320,673,784 320,668,823 320,673,784

Global Data Media FZ-LLC (Associate)7,194 Shares of AED 1,000 each 92,532,185 92,532,185

TOTAL 2,418,149,733 879,474,170

78

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs. Rs. Rs

SCHEDULE 7 - INVENTORIES:(Refer Note 6 of Schedule 20 Part-A)Stores and spare parts 747,621,090 519,591,872 including in transit Rs. 64,086,857 (Previous Year Rs. 4,539,840)-net of provision for non-moving stock Rs. 232,201 (Previous Year Rs 232,201)Raw Materials and Components 1,639,431,928 1,626,244,619 including in transit Rs. 370,750,644 (Previous Year Rs. 578,514,319)Packing Material 153,982,867 111,423,502 including in transit Rs. 32,639,129 (Previous Year Rs. 93,868,444)-net of provision for non-moving stock Rs. 8,003,246 (Previous Year Rs 4,153,529)Work in Progress 906,604,141 899,748,788 Manufactured Finished Goods 1,938,539,814 1,304,059,683 Traded Goods 6,670,131 8,795,777

TOTAL 5,392,849,971 4,469,864,241

SCHEDULE 8- SUNDRY DEBTORS:(Unsecured - Considered Good, unless otherwise stated):

Debts outstanding for a period exceeding six monthsConsidered Good 138,238,294 279,811,970 Considered Doubtful 170,860,703 53,852,778

309,098,997 333,664,748 Less: Provision for Doubtful Debts 170,860,703 138,238,294 53,852,778 279,811,970 Other DebtsConsidered Good 3,150,193,027 3,519,062,728

TOTAL 3,288,431,321 3,798,874,698

SCHEDULE 9 - CASH AND BANK:Cash on hand including cheques/drafts 23,880,441 8,064,149 Remittance in Transit 441,553,431 2,506,710

Balances with Scheduled Banks:Current Accounts 397,088,691 114,097,111 Fixed Deposit Accounts 1,571,229,236 2,707,682,109 Unpaid Dividend Account 4,269,146 4,598,302 E.E.F.C Accounts 865,194 1,973,452,267 252,510 2,826,630,032

TOTAL 2,438,886,139 2,837,200,891

Note:Fixed Deposits shown above include Rs. 882,025,705 (Previous Year Rs. 503,977,396) which are subject to lien with the bankers.

79

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs. Rs. Rs

SCHEDULE 10- OTHER CURRENT ASSETS:Interest Accrued on Fixed Deposits 35,130,560 35,946,331 Other Receivables 138,039,770 135,472,993 Fixed Assets Held for Sale (at net book value or estimated net realisable value, whichever is lower) 1,085,137 - TOTAL 174,255,467 171,419,324

SCHEDULE 11- LOANS AND ADVANCES:(Unsecured - Considered Good, unless otherwise stated):Advances and Loans to Subsidiaries (Refer Note 2 Below) 159,878,117 26,812,629 Advances recoverable in cash or kind or for value to be received 269,897,197 320,189,711 Advance to Suppliers 291,914,362 899,504,444 Balance with Excise Authorities 116,168,577 55,266,052 Earnest Money/ Security Deposits 115,401,695 31,949,085 Advance Tax/ Tax Deducted at Source 232,929,590 161,878,530 TOTAL 1,186,189,538 1,495,600,451

Notes:1) Amount due from a Director as at March 31, 2007 - Rs. Nil (Previous year Rs. 9,209). Maximum balance due at any time during

the year from Director and Officer of the Company was Rs. 92,894 (Previous year Rs. 9,209)2) Maximum balance due at any time during the year from subsidiary companies was Rs. 159,878,117

(Previous year Rs. 26,812,629)

SCHEDULE 12- CURRENT LIABILITIES AND PROVISIONS:A. Current Liabilities:

(Refer Notes 17 and 18 of Schedule 20 Part-B)Acceptances 649,693,809 420,444,296 Sundry Creditors- Total outstanding dues to

Small Scale Industrial Undertakings 5,672,494 12,806,668 - Total outstanding dues of creditors other than Small

Scale Industrial Undertakings 2,587,822,675 2,593,495,169 1,718,505,874 1,731,312,542 Advances from Customers 715,892 669,147 Share Application Money Pending Allotment 581,760 - Advance Against Sale of Fixed Assets 6,640,000 - Unclaimed Dividend * 4,266,802 4,591,508 Other Liabilities 206,275,869 142,605,213 Book Overdraft - 423,559 Security Deposits 392,172,833 40,163,911 Interest accrued but not due on Loans 22,634,722 30,524,727

TOTAL 3,876,476,856 2,370,734,903

* The above amount will be credited to Investor Education and Protection Fund as and when due.

B. Provisions:(Refer Notes 1B, 9 and 11 of Schedule 20 Part-A)Taxation 91,805,159 91,625,193 Fringe Benefit Tax 24,994,566 13,238,070 Proposed Dividend 167,401,776 111,512,944 Corporate tax on Proposed Dividend 28,449,932 15,639,690 Staff Benefit Schemes 87,045,302 45,342,941

TOTAL 399,696,735 277,358,838

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MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT FOR

THE YEAR ENDED MARCH 31, 2007

Year Ended 31.03.2007 Year Ended 31.03.2006Rs. Rs. Rs. Rs

SCHEDULE 13- EXCISE DUTY:Excise Duty paid 541,079,948 359,522,969 Less: Excise duty on Closing Stock 19,028,252 6,136,081 Add: Excise duty on Opening Stock 6,136,081 1,518,544

TOTAL 528,187,777 354,905,432

SCHEDULE 14- OTHER INCOME:(Refer Notes 2 and 10 of Schedule 20 Part-A)

Interest Received (Gross):a) On Deposits with banks 158,276,157 187,012,440 b) On Income Tax Refunds - 4,584,137 Tax Deducted at Source Rs. 35,468,598 158,276,157 191,596,577(Previous Year Rs. 45,252,233)

Excess provisions and unclaimed credit balances written back 18,533,320 13,753,857 Exchange Fluctuation (Net) 361,694,633 59,944,355 Profit on cancellation of forward contracts (Net) 120,617,065 66,244,811 Profit on sale of Fixed Asset (Net) - 70,000 Profit on sale of Current Investment (others) - 417,759 Dividend from

-Long Term Investments (associate) 15,977,055 48,685,333 -Current Investments (others) - 15,977,055 13,748,911 62,434,244

Miscellaneous Income 112,607,102 212,759,658

TOTAL 787,705,332 607,221,261

SCHEDULE 15-INCREASE/(DECREASE) IN STOCK OF FINISHED GOODS AND WORK IN PROGRESS:Closing Stock:Finished Goods 1,938,539,814 1,304,059,683 Work in Progress 906,604,141 899,748,788 Traded Goods 6,670,131 2,851,814,086 8,795,777 2,212,604,248

Less: Opening Stock:Finished Goods 1,304,059,683 972,378,704 Work in Progress 899,748,788 684,391,766 Traded Goods 8,795,777 2,212,604,248 1,132,281 1,657,902,751

Excise duty on Finished Goods (12,892,171) (4,617,537)

TOTAL INCREASE 626,317,667 550,083,960

SCHEDULE 16- PERSONNEL EXPENSESSalaries, Allowances and Bonus 1,193,056,009 877,622,591 Contribution to Provident and other funds 90,314,008 72,293,713 Employee Welfare Expenses 108,686,508 76,895,479 Leave Encashment 19,680,848 15,845,233 Less: Charged to Subsidiary Company* 19,705,257 6,892,752

TOTAL 1,392,032,116 1,035,764,264

* Net of Service Tax Rs. 2,287,904 (Previous Year Rs. 1,063,244)

81

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT FOR

THE YEAR ENDED MARCH 31, 2007

SCHEDULE 17 - ADMINISTRATION & OTHER EXPENSES(Refer Note 12 of Schedule 20 Part-A)

Power and Fuel 1,064,774,673 822,513,755 Commission on Sales 4,666,817 1,556,613 Rent (Including Lease Rent) 80,669,782 53,024,443 (Refer Note 5 a) of Schedule 20 Part-B)Repairs & Maintenance:- Building 1,347,835 1,008,883 - Plant & Machinery 33,702,449 16,406,901 - Others 41,271,871 37,402,032 Freight and Forwarding (Net) 593,814,695 482,495,586 Insurance 116,977,996 114,352,872 Rates and Taxes 5,545,313 8,815,284 Director's Sitting Fees 1,650,000 1,120,000 Commission to Non-executive Directors 2,195,729 93,323 Donation 509,500 5,039,125 Remuneration to Auditors (Refer Note 11.7 of Schedule 20 Part-B) 17,260,500 12,694,359 Royalty 357,967,023 315,478,020 Travelling and Conveyance 188,853,819 144,717,377 Bad Debts 200,864 159,825 Advances Written Off 3,575,085 539,163 Provision for doubtful debts 120,522,719 - Research and Development Expenses 2,895,078 193,034 Miscellaneous Expenses 414,647,117 199,485,228 Stock Written Off 22,770,095 23,877 Loss on sale of Fixed Assets (Net) 227,244 -

TOTAL 3,076,046,204 2,217,119,700

SCHEDULE 18 - INTEREST & FINANCE CHARGES(Refer Note 8 of Schedule 20 Part-A)

Interest:On Fixed Loans 882,935,670 713,089,298 Others 292,380,972 161,221,637

Finance Charges 25,238,172 31,345,186 Bank Charges 44,300,070 29,841,076

TOTAL 1,244,854,884 935,497,197

SCHEDULE 19 - DEPRECIATION/ AMORTISATION(Refer Note 4 of Schedule 20 Part-A)

Depreciation on Fixed Assets (Refer Schedule 5) 3,581,189,458 3,170,023,472 Less: Depreciation on assets used for trial run/ testing for

new intangible assets under development 2,486,084 2,425,072

Depreciation charged to Profit and Loss 3,578,703,374 3,167,598,400

Year Ended Year Ended 31.03.2007 31.03.2006

Rs. Rs.

82

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTSPart-A SIGNIFICANT ACCOUNTING POLICIES

1A METHOD OF ACCOUNTING

The financial statements are prepared in accordance with the historical cost convention on an accrual basis of accounting and inaccordance with generally accepted accounting practices in India and conform to the applicable Accounting Standards issued by theInstitute of Chartered Accountants of India and relevant provisions of the Companies Act, 1956.

1B USE OF ESTIMATES

The preparation of financial statements requires the management of the Company to make estimates and assumptions that affect thereported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statements andreported amounts of income and expenses during the period. Example of such estimates include provisions for doubtful debts, employeeretirement benefit plans, provision for income taxes and the useful lives of fixed assets.

2 REVENUE RECOGNITIONRevenue from sale of goods is recognised on transfer of significant risks and rewards of ownership to the customer and when no significantuncertainty exists regarding realisation of the consideration. Sales are recorded net of sales returns, rebates, trade discounts and pricedifferences and are inclusive of excise duty and countervailing duty imposed by the Council of the European Union.

Service income of SEZ Division is recognised as and when services are rendered.

Interest is accounted for based on a time proportion basis taking into account the amount invested and the rate of interest.

Dividend is recognised as and when the right of the company to receive payment is established.

3 FIXED ASSETS

Tangible Fixed Assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specificallyattributable to its acquisition and bringing it to its working condition for its intended use.

Expenditure pending allocation, are allocated to productive fixed assets in the year of commencement of the related project.

Intangible assets are stated at cost less accumulated amortisation. The cost incurred to acquire "right to use and exploit" home video titles,are capitalized as copyrights/marketing and distribution rights where the right allows the company to obtain a future economic benefit fromsuch titles.

Impairment, if any, in the carrying value of fixed assets is assessed at the end of each financial year in accordance with the accountingpolicy given below on "Impairment of Assets".

4 DEPRECIATION / AMORTISATION

Depreciation on tangible fixed assets is provided under the straight-line method on a pro-rata basis at the rates and in the manner specifiedin Schedule XIV to the Companies Act, 1956.

In respect of assets whose useful life has been revised, the unamortised depreciable amount is charged over the revised remaining usefullife.

Intangible assets other than copyrights/marketing and distribution rights are amortised on equated basis over their estimated economiclife not exceeding 10 years.

Copyrights/marketing and distribution rights are amortized from the date they are available for use, at the higher of the amount calculatedon a straight line basis over the period the intangible asset is available, not exceeding 10 years, and the number of units sold during theperiod basis.

Leasehold Land and improvement to the leased premises are amortised over the period of the lease.

The assets taken on finance lease are depreciated over the lease period. Contd.

83

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

5 INVESTMENTSLong term investments are stated at cost of acquisition inclusive of expenditure incidental to acquisition. A provision for diminution ismade to recognise a decline, other than temporary in the value of long term investments.

Current investments are stated at lower of cost and fair value determined on an individual basis.

6 INVENTORY VALUATION

Finished Goods, Work in progress, Goods held for resale At lower of cost and Raw Materials, Packing Materials and Stores and Spares net realisable value

Cost of Raw material, goods held for resale, packing materials and stores and spares is determined on the basis of weighted averagemethod.

Cost of Work in progress and finished goods is determined by considering direct material costs, labour costs and appropriate portion ofoverheads.

Liability for excise duty in respect of goods manufactured by the company, other than for exports, is accounted upon completion ofmanufacture.

7 GOVERNMENT GRANTS

Grants in the nature of contribution towards capital cost of setting up projects are treated as Capital Reserve and grants in respect ofspecific fixed assets are adjusted from the cost of the related fixed assets.

8 BORROWING COSTS

Borrowing costs directly attributable to the acquisition of qualifying assets are capitalised as part of the cost of assets till the date ofcommencement of commercial use of the asset. All other borrowing costs are charged to the Profit and Loss Account.

9 EMPLOYEE BENEFITS

The Company has Defined Contribution plans for post employment benefits namely Provident Fund which is recognized by the income taxauthorities. These funds are administered through Regional Provident Fund Commissioner and the Company's contributions thereto arecharged to revenue every year. The Company's contributions to State plans namely Employee's State Insurance Fund and Employee'sPension Scheme 1995 are charged to revenue every year.

The Company has Defined Benefit plans namely leave encashment and Gratuity for all employees, the liability for which is determined onthe basis of an actuarial valuation at the end of the year. Gratuity Fund is administered through Life Insurance Corporation of India. Shortterm compensated absences are recognised at the undiscounted amount of benefit for services rendered during the year.

Termination benefits are recognised as an expense immediately. Actuarial gains and losses comprise experience adjustments and theeffects of changes in actuarial assumptions and are recognised immediately in the Profit and Loss Account as income or expense.

In the year of transition, the difference between transitional liability and the liability that would have been recognized at the beginning ofthe financial year under the Company's previous accounting policy is adjusted against the opening revenue reserves of the financial yearin accordance with Accounting Standard 15 (revised 2005) ‘Employee Benefits’.

10 FOREIGN CURRENCY TRANSACTIONS

Transactions in foreign currency are converted at the exchange rate prevailing at the date of the transaction. Foreign currency monetaryassets and liabilities not covered by forward exchange contracts are restated at the year end rates and the resultant gains or losses arerecognised in the Profit and Loss Account, except exchange differences arising on settlement and/or translation of foreign currency liabilitiesrelating to acquisition of fixed assets which are adjusted against the carrying costs of respective fixed assets.

}

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-A SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

Contd.

84

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

In respect of foreign branches, all revenues, expenses, monetary assets/liabilities and fixed assets are accounted at the exchange rateprevailing on the date of the transaction. Monetary assets and liabilities are restated at the year end rates and resultant gains or lossesare recognised in the Profit and Loss Account.

Premium on foreign exchange forward contracts are recognised in the Profit and Loss Account over the life of the contract, except inrespect of liabilities incurred for acquiring fixed assets, in which case such difference is adjusted to the carrying amount of the respectivefixed assets. Any profit or loss arising on cancellation of a forward contract is recognised as income or expense for the period.

11 TAXATION

Current Tax:Provision is made for current income tax liability based on the applicable provisions of the Income Tax Act 1961, for the incomechargeable under the said Act and as per the applicable overseas laws relating to the foreign branch.

Deferred Tax:Deferred tax assets (DTA) and liabilities are computed on the timing differences at the Balance sheet date between the carrying amountof assets and liabilities and their respective tax basis. DTA is recognised based on management estimates of reasonable/virtual certaintythat sufficient future taxable income will be available against which such DTA can be realised. The deferred tax charge or credit isrecognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

12 LEASES

Assets acquired under finance leases are recognised as an Asset and a Liability at the lower of the fair value of the leased assets atinception of the lease and the present value of minimum lease payments. Lease payments are apportioned between the finance chargeand the reduction of the outstanding liability. The finance charge is allocated to periods during the lease term so as to produce aconstant periodic rate of interest on the remaining balance of the liability and charge to the profit and loss account.

Payment made under operating leases are charged to Profit and Loss Account on a straight line basis over the period of the lease.

13 STOCK OPTION PLANS

Stock options grants to the employees and to the non-executive Directors who accepted the grant under the Company's Stock OptionPlan are accounted in accordance with Securities and Exchange Board of India ( Employees Stock Option Scheme and Employees StockPurchase Scheme) Guidelines, 1999. The Company follows the intrinsic value method and accordingly, the excess, if any, of the marketprice of the underlying equity shares as of the date of the grant of the option over the exercise price of the option, is recognised asemployee compensation cost and amortised on straight line basis over the vesting period.

14 IMPAIRMENT OF ASSETS

At each balance sheet date, the Company assesses whether there is any indication that an asset may be impaired. If such indicationexists, the Company estimates the recoverable amount and where carrying amount of the asset exceeds such recoverable amount, animpairment loss is recognised in the profit and loss account to the extent the carrying amount exceeds recoverable amount. Where thereis any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased,the Company books a reversal of the impairment loss not exceeding the carrying amount that would have been determined (net ofamortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods.

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-A SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

85

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS

1 Contingent LiabilitiesIn respect of:-

1.1 Corporate guarantees given on behalf of a Subsidiary Company: Rs. 3,520,000,000 (Previous Year Rs. 450,000,000). Againstthese guarantees loan amounts of Rs.1,251,452,840 (Previous Year Rs. Nil) have been availed by the subsidiary company.

1.2 Disputed demands (Gross) in respect of:- 2006-07 2005-06(Rs.) (Rs.)

Entry tax [Amount paid under protest Rs. 1,686,502 (Previous Year Rs.1,000,000 ); paid through bank guarantee Rs. 2,646,016 (Previous Year Rs.1,685,161)] 110,391,986 110,117,456

Service tax 68,825,596 68,825,596

Sales Tax 7,307,205 6,706,074[Amount paid under protest Rs. 72,864 (Previous Year Rs. Nil);paid through bank guarantee Rs. 2,049,747 (Previous Year Rs. Nil)]

Custom duty and Excise duty 5,516,560 2,761,250

Trade Tax 22,230,117 -

Income Tax[Amount paid under protest Rs, 5,000,000 (Previous Year Rs. Nil)] 85,294,174 -

Total 299,565,638 188,410,376

1.3 Claims against the Company not acknowledged as debts: Rs. 20,078,421 (Previous Year Rs. 18,412,975).

The amount shown in 1.1 above represents guarantees given in the normal course of the Company's operations and are not expected to result in any loss to the Company on the basis of the beneficiary fulfilling its ordinary commercial obligations.

The amounts shown in 1.2 and 1.3 above represent the best possible estimates arrived at on the basis of available information. Theuncertainties and possible reimbursements are dependent on the outcome of the different legal processes which have been invokedby the Company or the claimants as the case may be and therefore cannot be predicted accurately. The Company engages reputedprofessional advisors to protect its interests and has been advised that it has strong legal positions against such disputes.

2 A search and seizure operation was carried out by the State of Kerala, DGP and the Nodal officer at the premises of distributors stocking home video CDROM's and DVDROM's in various cities of Kerala for alleged infringement of Section 52(A) of the CopyrightAct. The Company has filed a writ petition against such police action and has received a favourable interim order. On the basis ofadvice obtained from external legal council, the Company does not expect any adverse results on issuance of the final order.

3 The Company has received claims relating to infringement of copyrights in relation to the business activities carried on by it. In theopinion of the management, no material liability is likely to arise on account of such claims.

4 4.1 Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances): Rs. 1,694,114,742 (Previous Year Rs. 939,195,856).

4.2 Letters of Credit opened by banks on behalf of the Company: Rs. 664,284,646 (Previous Year Rs. 1,349,373,002).

5 Lease Obligationsa) Total of minimum future lease payments under non-cancellable operating leases for various periods are as follows:-

Amount (Rs.) Amount (Rs.)2006-07 2005-06

Amount payable not later than one year 18,521,226 17,442,073

Amount payable later than one year but not later than five years 80,469,321 75,042,807

Amount payable later than five years 5,962,809 24,812,895

Total 104,953,356 117,297,775

86

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

Total lease payments recognized in the statement of Profit and Loss Account: Rs. 46,304,700 (Previous year Rs. 19,018,200).

The company has entered into operating leases for its offices and employees' residences that are renewable on a periodic basis andcancellable at company's option. The total rent recovered on sub lease during the year is Rs. 714,622 (Previous year Rs.347,076).

b) Reconciliation of minimum lease payments and their present value in respect of vehicles taken on finance lease, is as under:

Minimum Lease Present value of Lease chargespayments minimum lease

payments Rs. Rs. Rs.

Amount paid upto 31.3.2007 5,335,685 3,748,243 1,587,442

Amount payable not later than one year 76,398 66,538 9,860

Total 5,412,083 3,814,781 1,597,302

Previous year 5,412,083 3,814,781 1,597,302

Total cost of leased vehicles and their carrying amount as at 31st March 2007 are Rs. 810,495 (Previous Year Rs. 3,846,372) andRs. 319,450 (Previous Year Rs. 503,803) respectively.

6 Movements in Other Investments

2006-07 2005-06

Current Investments (Unquoted) No. Cost (Rs.) No. Cost (Rs.)

(Mutual fund units of the face value of Rs 10 each)

Acquired and sold during the year

Birla Sun Life Mutual Fund - - 57,681,210 577,673,816

Prudential ICICI Mutual Fund - - 89,762,993 1,064,047,119

SBI Mutual Fund - - 13,272,569 133,157,051

Deutsche Floating Rate Fund - - 23,528 235,736

Reliance Floating Rate Fund - - 68,117 684,542

ING Vysya Floating Rate Fund - - 5,067,232 50,684,986

Reliance Treasury Plan - - 14,416,911 220,242,826

DSP ML Floating Rate Fund - - 23,303,449 233,822,834

Total - - 203,596,009 2,280,548,910

Sold during the year

Prudential ICICI Mutual Fund - - 25,586,862 303,242,694

Deutsche Insta Cash Plus - Institutional Plus - - 9,982,271 100,017,361

DSP ML Floating Rate Fund - - 30,578,267 306,425,745

SBI Magnum Institutional Income Savings - - 30,530,833 306,300,585

Reliance Floating Rate Fund - - 10,327,697 103,715,850

ING Vysya Floating Rate Fund - - 40,665,193 406,749,727

Total - - 147,671,123 1,526,451,962

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

87

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

7 Expenditure pending allocation

Details of expenditure pending allocation are as follows:

As at As at 31.03.2007 31.03.2006

(Rs.) (Rs.)

Salaries and Wages 1,468,323 4,007,417

Freight and Cartage 50,814,125 22,689,608

Interest 19,182,847 4,627,463

Difference in exchange rate 9,912,090 -

Raw Material cost- Trial run 39,220,167 9,011,378

Manpower cost 1,180,555 -

Power & Fuel 978,585 259,751

Stores spares & consumables 174,926 203,925

Legal and Professional 31,342,703 -

LC Charges 2,774,060 -

Loss on cancellation of Forward Contract 49,812,674 17,130,436

Total 206,861,055 57,929,978

8 Prior period (income)/expenses (Net)

Details of prior period (income)/expenses are as follows:

2006-07 2005-06(Rs.) (Rs.)

Travelling expenses - 1,083,174

Repairs & Maintenance - 2,003,714

Annual Maintenance contract - 185,828

Total of prior period expenses - 3,272,716

Less: Prior Period Income

Miscellaneous Income - (9,868,975)

Total of prior period (income)/expenses - (6,596,259)

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

88

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

9 Taxation

Provision for taxation has been made based on the relevant provisions of the Income Tax Act,1961.

Deferred tax in respect of timing differences for undertakings enjoying tax holiday period under section 10A and section 10B of theIncome Tax Act, 1961 have been recognised in the year in which they originate, to the extent that such differences reverse after thetax holiday period.

Accordingly, the Break up of net deferred tax liability is as under:(Amount in Rupees)

Particulars of Timing Differences As at Movement As at March 31, 2006 during the year March 31, 2007

Deferred tax Liability

Depreciation 1,369,303,302 162,361,719 1,531,665,021

Deferred tax Assets

Unabsorbed Depreciation 1,368,480,498 (17,381,760) 1,351,098,738

Brought Forward Losses 822,804 3,924,844 4,747,648

Tax impact of expenses charged in the financial statements - 87,113,892 87,113,892but allowable as deduction in future years under the Income Tax Act, 1961

Total 1,369,303,302 73,656,976 1,442,960,278

Net deferred tax liability - 88,704,743 88,704,743

Previous year 14,045,000 (14,045,000) -

10 Employees Stock Option Plan (ESOP) and Directors' Stock Option Plan (DSOP)

The company has granted options to its employees and non-executive directors, to be settled through issue of equity shares, atexercise prices that are equal to the market price of the share on the date of the grant. The Options granted vest over a period ofmaximum of four years from the date of grant.

Number of options granted, exercised and cancelled/lapsed during the year

2006-07 2005-06

Number Weighted Number Weighted Average Average Price (Rs.) Price (Rs.)

Options outstanding at beginning of year 2,977,700 221.10 2,149,300 226.86

Add: Options Granted 1,022,200 244.65 1,108,200 220.49

Less: Options Exercised 88,240 219.96 - -

Options Cancelled 546,700 222.92 279,800 263.56

Options Lapsed 102,000 199.95 - -

Options outstanding at the end of year 3,262,960 228.89 2,977,700 221.10

Option exercisable at the end of year 939,260 221.27 490,125 221.26

The options outstanding at the end of year had exercise prices in the range of Rs. 196.60 to Rs. 319.25 (Previous Year Rs. 196.60to Rs. 234.75) and a weighted average remaining contractual life of 2.62 years (Previous Year 3.19 years).

During the year 88,240 options were exercised resulting in a premium of Rs. 18,526,983 which is the excess of exercise price of theoptions and nominal value of shares allotted.

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

89

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

11 ADDITIONAL INFORMATION PURSUANT TO REQUIREMENTS OF PART II OF SCHEDULE VI TO THE COMPANIESACT, 1956 AND OTHER DISCLOSURES

11.1 Licensed Capacity Not Applicable for any product of the company

11.2 Installed Capacity *Installed Capacity Actual Production

2006-07 2005-06 2006-07 2005-06

Storage Media ( Nos.) 4,602,416,185 4,292,803,400 3,635,982,005 3,198,166,193

(Inclusive of installed capacities for jewel box and cake boxes)* (As certified by the management and on which auditors have placed reliance, this being a technical matter.)

11.3 In terms of order no.46/14/2007-CL-III. dated 15.2.2007 issued by Department of Company Affairs under Section 211(4)of the Companies Act, 1956 disclosure has not been made for the quantitative details for the accounting year 2006-07 , in respect of details pursuant to paras 3 (i) (a) and 3(ii) (a) (1) and (2) of part II of Schedule VI to the Companies Act, 1956 (as amended vide Notification No GSR 494 (E) dated 30th October,1973).

11.4 Composition of raw material, packing material stores, spares and consumables consumed:

Raw Material and Packing Material Stores, Spares and Consumables

2006-07 2005-06 2006-07 2005-06

Imported

Percentage 64.37 81.57 70.86 74.80

Value (Rs.) 6,253,834,080 7,965,872,062 680,624,494 472,780,118

Indigenous

Percentage 35.63 18.43 29.14 25.20

Value (Rs.) 3,461,210,918 1,800,246,458 279,841,570 159,240,150

Total 100 100 100 100

9,715,044,998 9,766,118,520 960,466,064 632,020,268

11.5 Foreign Currency Transactions:11.5.1 Value of Imports on CIF Basis:

2006-07 2005-06(Rs.) (Rs.)

Purchase of Finished Goods - 11,465,411

Raw Material, including in transit Rs. 369,813,623 5,993,028,697 7,660,367,132(Previous year Rs. 581,022,524)

Capital Goods, including in transit Rs. 49,385,099 3,662,008,982 4,137,024,260(Previous Year Rs. 835,723,596)

Stores, Spares and Consumables, including in 1,069,228,866 626,012,312transit Rs 65,666,016 (Previous Year Rs. 4,882,235)

Packing Material, including in transit Rs. 33,318,365 733,260,007 626,380,235(Previous Year Rs. 97,171,033)

Total 11,457,526,552 13,061,249,350

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

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SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

11.5.2 Expenditure in foreign currency (on payment basis) :

2006-07 2005-06(Rs.) (Rs.)

Travel 9,978,226 9,212,975

Interest 155,537,912 165,791,735

Royalty/Technical Know-how Fees (including advance royalty) 337,902,885 409,113,868

Directors Sitting Fees 585,000 460,000

Legal and Professional 48,437,999 12,558,239

Other expenditure 25,706,115 35,433,953

Expenditure of Foreign Branch:

Staff Welfare 645,897 513,321

Rent/Lease Rent 3,960,301 3,009,852

Legal and Professional Expenses 16,603,448 6,290,657

Miscellaneous Expenses 26,957,893 41,181,257

Insurance 449,614 375,559

Salaries and Wages 47,436,453 42,799,352

Repairs and Maintenance 835,152 2,024,535

Other Misc. Expenses 33,101,146 -

Total 708,138,041 728,765,303

11.5.3 Earnings in Foreign Exchange:

2006-07 2005-06(Rs.) (Rs.)

Value of Exports on FOB basis 15,892,362,635 14,045,740,379

Interest 1,682,026 10,331

Others:

-Insurance Claim Received 589,902 302,345

-Dividend 15,977,055 48,685,333

11.5.4 Amount remitted in Foreign Currencies for Dividend :

Dividend remitted on fully paid - up equity shares of Rs.10 each 2006-07 2005-06

Number of Non Resident Shareholders 1 1

Number of Shares held 135,000 135,000

Year to which it relates 2005-06 2004-05

Dividend remitted in (Rs.) 135,000 135,000

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

91

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

11.6 Managerial Remuneration:(figures in bracket are for the previous year) (Amount in Rupees)

DEEPAK PURI NITA PURI RATUL PURI 11.6.1 Managing Whole time Whole time Total

Director Director Director

Salaries, allowances and bonus 33,156,250 4,415,178 15,011,964 52,583,392

(18,956,256) (454,800) (11,321,964) (30,733,020)

Contribution to Provident Fund 1,698,750 439,822 1,013,036 3,151,608

(1,698,751) (36,000) (1,013,036) (2,747,787)

Perquisites 145,000 145,000 145,000 435,000

(166,593) (106,800) (166,600) (439,993)

Total 35,000,000 5,000,000 16,170,000 56,170,000

(20,821,600) (597,600) (12,501,600) (33,920,800)

Note - Provision for leave encashment: Rs. 2,885,257 (Previous year Rs. 3,034,472) and Gratuity: Rs. 877,781(Previous year Rs. 813,025) made during the year have not been included above.

Total remuneration for Deepak Puri and Ratul Puri shown above includes Rs. 3,520,000 (Previous year Rs.1,020,035)in respect of remuneration charged to a subsidiary of the Company.

11.6.2 Commission to Directors:

Computation of Net Profits in accordance with the provisions of Section 349 of the Companies Act,1956

2006-07 2005-06

Net Profit Before Tax as per Profit & Loss Account 1,198,505,776 39,519,962

Add: Directors' Remuneration 58,365,729 34,014,123

Depreciation as per books 3,578,703,374 3,167,598,400

Loss on sale of Fixed Assets 227,244 -

Directors sitting Fees 1,650,000 1,120,000

4,837,452,123 3,242,252,485

Less: Profit on sale of Investments - 417,759

Depreciation as per Section 350 of the Companies Act,1956 3,578,703,374 3,167,598,400

Profit on sale of Fixed Assets - 70,000

Net Profit in terms of section 349 1,258,748,749 74,166,326

Net Profit for the purpose of Section 309 1,258,748,749 74,166,326

Commission to non-executive Directors u/s 309(4) @ 1% (restricted to 0.2% of Profit after tax in terms of resolution dated 24th June 2005) 2,195,729 93,323

11.7 Remuneration To Auditors:2006-07 2005-06

(Rs.) (Rs.)

For Statutory Audit 8,600,000 7,500,000

For Limited Review 5,200,000 4,500,000

For Certification / Other Reports 3,240,000 584,031

For Reimbursement of out of pocket expenses and service tax 598,554 428,058

Total 17,638,554 13,012,089

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

92

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

12 Related Party Transactions:In accordance with the requirements of Accounting Standard - 18 'Related Party Disclosures' the names of the related partywhere control/ability to exercise significant influence exists, along with the aggregate amount of transactions and year endbalances with them as identified and certified by the management are given below:

12.1 Nature of relationship Name of the related party Share Holding

Subsidiary European Optic Media Technology GmbH 100%

Subsidiary Omega Optical Media Technologies 100%

Subsidiary Moser Baer Photo Voltaic Ltd 100%

Subsidiary Perafly Limited 100%

Subsidiary Dalecrest Limited 100%

Subsidiary Nicofly Limited 100%

Subsidiary Perasoft Limited 100%

Subsidiary Crownglobe Limited 100%

Subsidiary Moser Baer SEZ Developer Ltd 100%

Subsidiary Solar Research Limited 100%

Subsidiary Moser Baer Media Limited 100%

Subsidiary Moser Baer Energy Limited 100%

Subsidiary Moser Baer Infrastructure Limited 100%

Subsidiary Moser Baer Investment Limited 100%

Subsidiary Photovoltaic Holdings PLC 100%

Subsidiary Moser Baer Solar PLC 100%

Subsidiary Peraround Limited 100%

Subsidiary Advoferm Limited 100%

Subsidiary OM&T B.V. 81%

Associate Company Global Data Media FZ LLC 49%

Key Management Personnel

Managing Director Mr. Deepak Puri

Whole Time Directors Mrs. Nita Puri, Mr.Ratul Puri

12.2 Details of Transactions with the Related Parties in the ordinary course of business:(figures in brackets are for the previous year) (Amount in Rupees)

Particulars Associate Subsidiary Key Management(Global Data Companies Personnel and Total

Media) their Relatives

Sales of Finished goods 8,609,612,874 712,749,846 - 9,322,362,720(7,998,784,035) ( - ) ( - ) (7,998,784,035)

Expenses charged to other companies 28,992,875 529,751 - 29,522,626(29,488,616) (21,202) ( - ) (29,509,818)

Services rendered to related partyMoser Baer Photo Voltaic Limited - 26,256,546 - 26,256,546

( - ) (26,791,427) ( - ) (26,791,427)

Lease rent charged to related partyMoser Baer Photo Voltaic Limited - 373,500 - 373,500

( - ) ( - ) ( - ) ( - )

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

Contd.

93

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

Expenses charged by other companies 19,521,354 - - 19,521,354 (25,224,537) ( - ) ( - ) (25,224,537)

Dividend received 15,977,055 - - 15,977,055 (48,685,333) ( - ) ( - ) (48,685,333)

Directors Remuneration - - 56,170,000 56,170,000 (Refer Note 11.6 above) ( - ) ( - ) (33,920,800) (33,920,800)

Share Application MoneyEuropean Optic Media Technology GmbH - 8,989,500 - 8,989,500

( - ) (69,748,149) ( - ) (69,748,149)

InvestmentsMoser Baer Photo Voltaic Limited - 1,408,700,000 -Others - 120,986,063 - 1,529,686,063

( - ) (261,000,000) ( - ) (261,000,000) Loan Granted Peraround Limited - 60,185,775 - Moser Baer Photo Voltaic Limited - 48,285,116 - 108,470,891

( - ) ( - ) ( - ) ( - )Loan Repaid Moser Baer Photo Voltaic Limited - 2,281,285 - 2,281,285

( - ) ( - ) ( - ) ( - )Security Deposit receivedMoser Baer Photo Voltaic Limited - 300,000,000 - 300,000,000

( - ) ( - ) ( - ) ( - )

Outstanding receivables 1,993,092,485 89,016,469 - 2,082,108,954 -In respect of sales (3,065,593,385) ( - ) ( - ) (3,065,593,385)

-In respect of LoanPeraround Limited - 60,185,775 - Moser Baer Photo Voltaic Limited - 46,003,830 - 106,189,605

( - ) ( - ) ( - ) ( - )

- In respect of expenses 23,695,598 350,852 - 24,046,450(23,986,812) (21,202) (9,209) (24,017,223)

- In respect of Lease RentMoser Baer Photo Voltaic Limited - 289,687 - 289,687

( - ) ( - ) ( - ) ( - )

- In respect of services renderedMoser Baer Photo Voltaic Limited - 53,047,973 - 53,047,973

( - ) (26,791,427) ( - ) (26,791,427)

Outstanding payables 18,332,194 - - 18,332,194- In respect of expenses (33,308,145) ( - ) ( - ) (33,308,145)

- In respect of Managerial RemunerationDeepak Puri - - 19,603,947 19,603,947

( - ) ( - ) (6,231,885) (6,231,885)Ratul Puri - - 7,012,332 7,012,332

( - ) ( - ) (3,778,558) (3,778,558) Nita Puri - - 973,179 973,179

( - ) ( - ) (100,950) (100,950)

Particulars Associate Subsidiary K ey Management(Global Data Companies Personnel and Total

Media) their Relatives

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

94

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

13 Earnings per sharea) Calculation of Weighted Average number of equity shares

1. For Basic EPS 2006-07 2005-06

No. of Shares at the beginning of the year 111,512,944 111,512,944

Total number of equity shares outstanding at the end of the year 111,601,184 111,512,944

Weighted Average number of equity shares outstanding during the year 111,525,875 111,512,944

2. For Diluted EPSWeighted Average number of equity shares outstanding

during the year as computed above 111,525,875 111,512,944

Weighted average number of stock options outstanding during the year 754,527 160,955

Weighted Average number of equity shares outstanding during the 112,280,402 111,673,899

year for Diluted EPS

b) Net Profit after tax available for equity shareholders 1,097,864,571 46,661,155

Earnings per share (face value per share Rs. 10 each)

Basic 9.84 0.42

Diluted 9.78 0.42

14 Segment informationThe company is primarily in the business of manufacture and sale of Optical Storage Media. The other activities of the companycomprise distribution of video content; development, operation and maintenance of sector specific Special Economic Zone for non-conventional energy. These activities are in the 'start up' phase and are yet to generate revenues and acquire significant assets.Accordingly, segment information has not been disclosed.

15 Service Income shown in the profit and loss account includes income earned by the SEZ division of the Company in the form of leaserental for assets given on lease and utility services provided to the entity situated in the SEZ.

16 The Company has during the year adopted Accounting Standard 15 (revised 2005) 'Employee Benefits'. Accordingly, thetransitional adjustment aggregating to Rs. 1,771,624 (net of deferred tax asset Rs. Nil) has been charged against the general reservesas at April 1, 2006. The details of the transitional adjustment is as follows

- Leave Encashment / Compensated Absences Rs. 1,771,624

(Also Refer Schedule 2)

The Company has classified the various benefits provided to employees as under -

I . Defined Contribution Plans Provident Fund

During the year, the Company has recognised the following amounts in the Profit and Loss Account -

Employers' Contribution to Provident Fund * 28,338,871

II. State Plans

a. Employers' Contribution to Employee's State Insurance Act 1948b. Employers' Contribution to Employee's Pension Scheme 1995

During the year, the Company has recognised the following amounts in the Profit and Loss Account

Employers' Contribution to Employee's State Insurance Act, 1948 * 9,508,344

Employers' Contribution to Employee's Pension Scheme, 1995 * 21,062,330

* Included in Contribution to Provident and Other Funds under Personnel Expenses (Refer Schedule 16)

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

95

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

III. Defined Benefit Plans

a). Contribution to Gratuity Funds - Life Insurance Corporation of India

b). Leave Encashment

In accordance with Accounting Standard 15 (revised 2005), actuarial valuation was done in respect of the aforesaid defined benefitplans based on the following assumptions:-Particulars Leave Encashment Employee's

(Unfunded) Gratuity Fund

Discount Rate (per annum) 8% 8%

Rate of increase in Compensation levels 9% 9%

Rate of Return on Plan Assets Nil 8.50%

Expected Average remaining working lives of employees (years) 14 14

Changes in the Present Value of ObligationParticulars Leave Encashment Employee's

(Unfunded) Gratuity Fund

Present Value of obligation as at April 1, 2006 26,585,078 47,111,141

Interest Cost 1,974,324 3,678,846

Current Service Cost 7,937,445 14,368,902

Settlement Cost/Credit - (213,868)

Benefits paid (3,812,054) (2,251,142)

Actuarial (gain)/loss on obligations (895,693) 10,456,132

Present Value of obligation as at March 31, 2007 31,789,100 73,150,011

Changes in the Fair value of Plan AssetsParticulars Employee's

Gratuity Fund

Fair Value of plan Assets at April 1, 2006 29,604,822

Expected Return on plan Assets 2,541,538

Contributions 2,776,352

Benefits Paid (2,251,142)

Fair Value of Plan Assets at March 31, 2007 32,671,570

Reconciliation of present value of defined benefit obligation and the fair value of assets

Particulars Employee'sGratuity Fund

Present value of funded obligation as at March 31, 2007 73,150,011

Fair Value of Plan Assets as at the end of the period funded status 32,671,570

Present value of unfunded obligation as at March 31, 2007 40,478,441

Unfunded Net Liability recognized in Balance Sheet* 40,478,441

* Included in Staff Benefit Schemes (Refer Schedule 12 B)

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

96

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE

YEAR ENDED MARCH 31,2007

Expenses recognised in the Profit and Loss Account

Particulars Leave Encashment Employee's(Unfunded) Gratuity Fund

Current Service Cost 7,937,445 14,368,902

Interest Cost 1,974,324 3,678,846

Expected Return on Plan Assets - (2,541,538)

Net actuarial (gain)/loss recognized in the period (895,693) 10,456,132

Total Expenses recognized in the Profit & Loss Account **9,016,076 *25,962,342

* Included in contribution to provident and other funds (Refer Schedule 16)** Included in Personnel expenses (Refer Schedule 16)

In respect of the Employee's Gratuity Fund, constitution of Plan Assets is not readily available from the Life Insurance Corporation of India.

Short term compensated absences amounting to Rs 10,664,772 has been included in Leave Encashment shown under PersonnelExpenses (Refer Schedule 16) with a corresponding liability included under Staff Benefit Schemes (Refer Schedule 12 B)

17 Creditors comprising Small Scale Industrial Undertakings to which the company owes amounts outstanding for more than 30 days(as per information available with the management) are as under:

New Age Hose Manufacturing Company

Sandhya Prakash Ltd.

Chhaya Packers & Printers Pvt. Ltd.

18 Based on information available with the Company, there are no dues to Micro, Small and Medium Enterprises, as defined in theMicro, Small and Medium Enterprises Development Act, 2006 as at March 31, 2007.

19 On September 28, 2005 Woodgreen Investment Ltd. (WIL) did not exercise the option to convert at the exercise price of Rs. 336,5,400,000 Share Warrants issued to them on preferential basis by the Company pursuant to an agreement dated March 25, 2004. Rs. 181.44 million, the upfront money received against these Share Warrants had been forfeited and accordingly taken to 'Reserve andSurplus' in the previous year.

20 Corresponding figures for the previous year have been regrouped/rearranged, wherever necessary to conform to current year classification.

By order of the Board for and on behalf of MOSER BAER INDIA LIMITED

Deepak Puri Ratul Puri Minni Katariya Yogesh Mathur R. SampathChairman and Executive Director Company Secretary Group CFO Vice President -Managing Director Financial Planning and Control

Place: New DelhiDate: April 30, 2007

SCHEDULE 20-SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part-B NOTES TO ACCOUNTS (CONTD.)

97

MOSER BAER INDIA LIMITED

BALANCE SHEET ABSTRACT AND COMPANY'S GENERAL BUSINESS PROFILE

I Registration DetailsRegistration No : 15418 State Code: 55Balance Sheet Date: 31.03.2007

II Capital Raised during the year (Amount in Rs.Thousands)Public Issue : NIL Right Issue : NILBonus issue : NIL Private Placement: NIL

III Position of Mobilisation and Deployment of Funds(Amount in Rs.Thousands)Total Liabilities: 38,307,040 Total Assets: 38,307,040

SOURCE OF FUNDS:Paid up Capital: 1,116,012 Reserves & Surplus : 19,852,166 Share Warrant - Unsecured Loans : NIL Secured Loans : 17,250,157 Deferred Tax Laiblity 88,705

APPLICATION OF FUNDS:Net Fixed Assets : 27,684,452 Investments : 2,418,150 Net Current Assets : 8,204,438 Misc.Expenditure : NIL Accumulated Losses: -

IV Performance of Company (Amount in Rs.Thousands)Turnover: 21,533,659 Total Expenditure: 20,335,153 Profit Before Tax: 1,198,506 Profit After Tax: 1,097,865 Earning per share in Rs: 9.84 Dividend Rate: 15%

V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)Item Code No: (ITC Code) 852320Product Description: MAGNETIC DISKItem Code No: (ITC Code) 852390Product Description: COMPACT DISK RECORDABLEItem Code No: (ITC Code) 847193.09Product Description: STORAGE UNITS

Deepak Puri Ratul Puri Minni Katariya Yogesh Mathur R. SampathChairman and Executive Director Company Secretary Group CFO Vice President -Managing Director Financial Planning and

ControlPlace: New DelhiDate: April 30, 2007

98

1. We have audited the attached consolidated balance sheet of Moser Baer India Limited, its subsidiaries and associate (the 'Group'), as atMarch 31, 2007, and the Consolidated Profit and Loss Account and Consolidated Cash Flow Statement for the year ended on that dateannexed thereto. These consolidated financial statements are the responsibility of Moser Baer India Limited's management. Ourresponsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are prepared, in all material respects, inaccordance with an identified reporting framework and are free of material misstatements. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion.

3. We did not audit the financial statements of certain subsidiaries and the associate of Moser Baer India Limited. The financial statementsof these subsidiaries reflect total assets of Rs. 209,808,484 as at March 31, 2007, total revenues and net cash outflow from operatingactivities of Rs. 35,320,179 and Rs. 17,768,401 respectively, for the period ended on that date. The financial statements of the associatehave been prepared for the year ended December 31, 2006 and reflect the Group's share of loss for the year ended on that date of Rs.2,782,493. These financial statements have been audited by other auditors whose reports have been furnished to us, and our opinion,in so far as it relates to the amounts included in respect of these subsidiaries and associate is based solely on the report of the other auditors.

4. We report that the consolidated financial statements have been prepared by the Company in accordance with the requirements ofAccounting Standard 21, 'Consolidated Financial Statements' and Accounting Standard 23, 'Accounting for Investments in Associates inConsolidated Financial Statements' issued by the Institute of Chartered Accountants of India and on the basis of the separate auditedfinancial statements of Moser Baer India Limited, its subsidiaries and associate included in the consolidated financial statements.

5. On the basis of information and explanations given to us and on consideration of separate audit reports on individual audited financialstatements of Moser Baer India Limited and its aforesaid subsidiaries and associate, in our opinion, the consolidated financial statementsgive a true and fair view in conformity with accounting principles generally accepted in India:

(i) in the case of the Consolidated Balance Sheet, of the state of affairs of the Group as at March 31, 2007;

(ii) in the case of the Consolidated Profit and Loss Account, of the consolidated results of operations of the Group for the year endedon that date; and

(iii) in the case of the Consolidated Cash Flow Statement, of the consolidated cash flows of the Group for the year ended on that date.

Anuradha TuliPartnerMembership Number F 85611For and on behalf of

New Delhi Price WaterhouseApril 30, 2007 Chartered Accountants

AUDITORS' REPORT TO THE BOARD OF DIRECTORS ON CONSOLIDATED

FINANCIAL STATEMENTS

99

100

MOSER BAER INDIA LIMITED

CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2007

Schedule As at 31.03.2007 As at 31.03.2006Rs. Rs.

SOURCES OF FUNDS:SHAREHOLDERS' FUNDS:Capital 1 1,116,011,840 1,115,129,440 Reserves and Surplus 2 19,354,897,405 18,772,809,741

20,470,909,245 19,887,939,181

Minority Interest 12,278,010 -

LOAN FUNDS:Secured Loans 3 18,389,266,007 16,465,401,035 Unsecured Loans 4 113,022,000 89,240,000 Deferred Tax Liability (Net) 88,704,743 - (Refer Note 10.1 of Schedule 20 Part-B)TOTAL 39,074,180,005 36,442,580,216

APPLICATION OF FUNDS:FIXED ASSETS: 5Gross Block 39,484,798,991 34,936,740,065 Less: Depreciation 14,565,852,707 10,617,357,936 Net Block 24,918,946,284 24,319,382,129 Capital Work-in-progress 5 3,892,084,093 1,526,078,198

28,811,030,377 25,845,460,327

Goodwill on Consolidation 50,551,009 - (Refer Note 2.4 of Schedule 20 Part-A)

INVESTMENTS 6 899,339,632 396,579,180

CURRENT ASSETS, LOANS AND ADVANCES:Inventories 7 6,130,628,467 4,469,864,241 Sundry Debtors 8 3,341,747,029 3,798,874,698 Cash and Bank 9 2,697,268,545 2,899,984,934 Other Current Assets 10 178,165,685 172,079,386 Loans and Advances 11 1,450,580,731 1,516,389,539

13,798,390,457 12,857,192,798Less: CURRENT LIABILITIES AND PROVISIONS: 12Current Liabilities 4,082,640,126 2,379,144,020 Provisions 402,491,344 277,508,069

4,485,131,470 2,656,652,089 Net Current Assets 9,313,258,987 10,200,540,709 TOTAL 39,074,180,005 36,442,580,216 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 20

This is the Balance Sheet referred to in our The schedules referred to above form anreport of even date. integral part of the Balance Sheet.

By order of the Board for and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Ratul Puri Minni KatariyaPartner Chairman and Executive Director Company Secretary Membership Number-F-85611 Managing DirectorFor and on behalf of PRICE WATERHOUSEChartered Accountants

Yogesh Mathur R. SampathPlace: New Delhi Group CFO Vice President -Date: April 30, 2007 Financial Planning and Control

101

MOSER BAER INDIA LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2007

Schedule Year ended Year ended31.03.2007 31.03.2006

Rs. Rs.INCOME:Gross Sales (Refer Note 4 of Schedule 20 Part-A) 20,799,295,503 17,319,141,334 Less: Excise Duty 13 528,187,777 354,905,432 Less: Countervailing duty 430,736,604 323,033,660 Net Sales 19,840,371,122 16,641,202,242Other Income 14 766,148,355 558,712,667 Increase in stock of Finished Goods/Work in Progress 15 624,177,030 550,083,960

21,230,696,507 17,749,998,869 EXPENDITURE:Purchase of Finished Goods 73,104,898 11,465,411 Raw Materials and Components Consumed 7,948,753,955 7,862,238,001 Packing Material Consumed 1,777,496,746 1,903,880,519 Stores, Spares and Tools Consumed 960,466,064 632,020,268 Personnel Expenses 16 1,500,026,824 1,048,389,446 Administration and Other Expenses 17 3,242,173,165 2,302,851,758 Interest and Finance Charges 18 1,263,348,810 935,627,473 Depreciation/ Amortisation 19 3,582,234,151 3,167,598,400

20,347,604,613 17,864,071,276 Profit/(Loss) before Prior Period Items and Tax 883,091,894 (114,072,407)Prior Period (Income) / Expense (Net) (Refer Note 9 of Schedule 20 Part-B) - (6,596,259)Profit/(Loss) after Prior Period Items and before Tax 883,091,894 (107,476,148)Tax Expense: (Refer Note 13 of Schedule 20 Part-A)Current Tax [net of provision written back in respect of earlier years of Rs. Nil (Previous year Rs. 7,010,518) and including Wealth Tax Rs 109,721 (Previous Year Rs. 79,530)] 260,214 (6,316,613)Fringe Benefit Tax 12,414,272 13,252,497 Fringe Benefit Tax for previous year 308,518 - Deferred Tax (Refer Note 10.1 of Schedule 20 Part-B) 88,704,743 (14,045,000)Net Profit/ (Loss) after Tax 781,404,147 (100,367,032)Minority Interest (Share in Loss) 9,646,113 - Share in (Loss)/ Profit of Associate (2,782,493) 35,646,181 Net Profit/ (Loss) for the year 788,267,767 (64,720,851)Add:- Profit carried forward from last year 248,123,254 439,996,739 Profit available for appropriation 1,036,391,021 375,275,888APPROPRIATIONS:Proposed Dividend:

Proposed Dividend on Equity Shares 167,401,776 111,512,944 Corporate Tax on Proposed Dividend 28,449,932 15,639,690

Transferred to General Reserve 55,265,000 - Balance carried to Balance Sheet 785,274,313 248,123,254 TOTAL 1,036,391,021 375,275,888Earnings Per Share (Face Value of Rs. 10 each) (Refer Note 14 of Schedule 20 Part-B)Basic 7.07 (0.58)Diluted 7.02 (0.58)SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 20 This is the Profit and Loss Account referred to in our The schedules referred to above form anreport of even date. integral part of the Profit and Loss Account.

By order of the Board for and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Ratul Puri Minni KatariyaPartner Chairman and Executive Director Company Secretary Membership Number-F-85611 Managing DirectorFor and on behalf of PRICE WATERHOUSEChartered Accountants

Yogesh Mathur R. SampathPlace: New Delhi Group CFO Vice President -Date: April 30, 2007 Financial Planning and Control

102

MOSER BAER INDIA LIMITED

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2007

Year ended Year ended31.03.2007 31.03.2006

Rs. Rs.

Cash flow from operating activities:Net profit/(loss) after prior period items but before tax 883,091,894 (107,476,148)

Adjustments for:Depreciation 3,582,234,151 3,167,598,400 Interest Expense 1,188,974,786 874,310,935 Interest Income (165,014,114) (187,108,243)Income from Investment - Dividends - (13,748,911)Lease Rent - Finance Lease - 28,580 (Profit)/ Loss on Fixed Assets Sold 227,244 (70,000)(Profit)/ Loss on Sale of Investments - (417,759)Debts/ Advances Written off 3,775,949 698,988 Provision for Bad and Doubtful Debts 120,522,719 - Liability no longer required written back (18,533,320) (13,834,793)Provision for Gratuity & Leave Encashment 40,439,752 27,029,024 Stock Written-off 22,770,095 23,877 Project Expenses Written-off 29,368,080 63,981,264 Unrealised foreign exchange (gain)/ loss 28,085,648 (86,931,692)Prior Period (Income)/Expenses (Net) - (6,596,259)

Operating profit before working capital changes 5,715,942,884 3,717,487,263

Adjustments for changes in working capital:(Increase)/Decrease in Sundry Debtors 349,252,829 (507,291,203)(Increase)/Decrease in Other Receivables 140,661,925 (899,332,005)(Increase)/Decrease in Inventories (1,668,391,642) (1,034,532,432)Increase/(Decrease) in Trade and Other Payables 1,347,711,064 547,069,239

Cash generated from operations 5,885,177,060 1,823,400,862

Taxes (Paid) / Received (Net of TDS) (73,092,591) (4,127,890)Prior Period Income/(Expenses) (Net) - 6,596,259

Net cash from operating activities 5,812,084,469 1,825,869,231

Cash flow from Investing activities:Purchase of Fixed Assets (5,864,067,345) (4,783,892,858)Proceeds from Sale of Fixed Assets 4,357,044 70,000 Proceeds from Sale of Investments - 3,807,414,363 Purchase of Investments (521,520,000) (2,280,548,911)Loans Given - (46,359,661)Interest Received 161,938,742 224,246,349 Dividend Received 15,977,055 62,434,244 Amount Paid on Acquisition of Subsidiary (111,220,539) - Net cash used in investing activities (6,314,535,043) (3,016,636,474)

Contd…

103

MOSER BAER INDIA LIMITED

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2007

Year ended Year ended31.03.2007 31.03.2006

Rs. Rs.

Cash flow from financing activities:

Proceeds from issue of Share Capital (including Share Premium) 19,409,383 - Proceeds from Long Term Borrowings-Receipts, excludes Loss on account of exchange fluctuation of Rs.133,337,119 3,415,974,795 2,812,809,033

[Previous year (gain) Rs. 179,853,336] on reinstatement of foreign currency loan-Payments (2,508,496,943) (2,883,012,252)

Proceeds from Short Term Borrowings (Net) 664,512,334 582,673,696 Interest on Finance Lease - (28,580)Interest Paid (1,175,806,278) (886,831,220)Dividend Paid (111,837,650) (111,874,354)Dividend Tax Paid (15,639,690) (15,639,690)Net cash used in financing activities 288,115,951 (501,903,367)

Net Increase/ (Decrease) in Cash & Cash Equivalents (214,334,623) (1,692,670,610)

Cash and cash equivalents at beginning of the year 2,899,984,934 4,592,655,544

Cash and Cash Equivalents acquired on acquisition of subsidiary 11,618,234 - Cash and cash equivalents at end of the year 2,697,268,545 2,899,984,934

Cash and cash equivalents compriseCash, Cheques & Drafts (in hand) and Remittances in transit 465,713,892 11,077,882 Fixed Deposits 1,694,821,820 2,755,306,109 Balance with Scheduled Banks 536,732,833 133,600,943

2,697,268,545 2,899,984,934

Notes :

1. The above Cash flow statement has been prepared under the indirect method set out in AS-3 issued by the Institute of Chartered Accountants of India.

2. Figures in brackets indicate cash outgo.

3. Cash and cash equivalents includes Rs. 947,928,851 (Previous Year Rs.544,809,698) which are not available for use by theCompany. (Refer schedule 9 in the accounts)

This is the Cash Flow Statement referred to in our report of even date.

By order of the Board for and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Ratul Puri Minni KatariyaPartner Chairman and Executive Director Company Secretary Membership Number-F-85611 Managing DirectorFor and on behalf of PRICE WATERHOUSEChartered Accountants

Yogesh Mathur R. SampathGroup CFO Vice President -

Financial Planning and ControlPlace: New DelhiDate: April 30, 2007

104

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs.

SCHEDULE 1 - CAPITAL:Authorised:

142,500,000 (Previous Year 142,500,000) Equity Shares of Rs.10 each 1,425,000,000 1,425,000,000

750,000 (Previous Year 750,000) Preference Shares of Rs.100 each 75,000,000

1,500,000,000 1,500,000,000 Issued, Subscribed and Paid-up:111,601,184 (Previous year 111,512,944)Equity Shares of Rs.10 each fully paid 1,116,011,840 1,115,129,440 (Refer Note 11 of Schedule 20 Part-B)

TOTAL 1,116,011,840 1,115,129,440

SCHEDULE 2 - RESERVES AND SURPLUS:Capital Reserve:As per last Balance Sheet 181,440,000 - Share Warrants Forfeited - 181,440,000 (Refer Note 19 of Schedule 20 Part-B)

181,440,000 181,440,000 Share Premium Account:As per last Balance Sheet 8,891,620,004 8,891,620,004 Additions during the year (Refer Note 11 of Schedule 20 Part-B) 18,526,983 -

8,910,146,987 8,891,620,004

Profit and Loss Account Balance 785,274,313 248,123,254

Foreign Currency Translation Reserve As per last Balance Sheet 1,445,687 4,629,672 Add: Additions during the year (27,083,754) (3,183,985)

(25,638,067) 1,445,687General Reserve:As per last Balance Sheet 9,450,180,796 9,450,180,796 Less: Amounts transferred on implementation of Accounting Standard-15 (Revised) - Employee Benefits 1,771,624 - (Refer Note 16 of Schedule 20 Part-B)Add : Transferred from Profit &

Loss Account during the year 55,265,000 - 9,503,674,172 9,450,180,796

TOTAL 19,354,897,405 18,772,809,741

75,000,000

105

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs.

SCHEDULE 3 - SECURED LOANS:(Refer Note 12 of Schedule 20 Part-A)

Term Loa ns (Re fer notes below):From Banks:Rupee Loans, including interest accrued and due Rs. 56,313,415 10,184,593,835 8,576,805,156 (Previous Year Rs. 22,662,800)Foreign Currency Loans 2,881,191,742 2,986,720,655

13,065,785,577 11,563,525,811From Others:Foreign Currency Loans 434,175,000 676,375,000

13,499,960,577 12,239,900,811Other Loans (Refer notes below):

Short Term Loans from Banks: Secured by hypothecation of stock-in-trade and book debts 4,416,182,203 4,031,142,586 Including interest accrued and due Rs.17,208,455 (Previous Year Rs. 755,336)Secured by lien on Fixed Deposits 473,056,689 193,234,233

From Others:Secured by hypothecation of specific vehicles 66,538 1,123,405

4,889,305,430 4,225,500,224TOTAL 18,389,266,007 16,465,401,035

Notes :1 Loans from State Bank of India, Canara Bank, Federal Bank, Union Bank of India, Syndicate Bank, United Bank of India, State Bank of Saurashtra, Indian

Bank, State Bank of Mysore, State Bank of Indore, Vijaya Bank, Punjab National Bank, State Bank of Travancore, Oriental Bank of Commerce, UCOBank, State Bank of Patiala, Bank of Baroda and Foreign Currency Loans from Banks/ Financial Institutions are secured by way of first mortgage and chargeon all the immovable and movable fixed assets, present and future, of the company (subject to prior charge on specified movables as otherwise stated,including in favour of the company's bankers by way of security for the borrowing for working capital), ranking pari-passu with charges for the Term Loans.

2 Rupee term loan from Oriental Bank of Commerce is secured by way of first pari-passu charge on all the movable and immovable fixed assets (both presentand future) of the Company.

3 Short Term loans from HDFC Bank, The Bank of Nova Scotia, State Bank of India, State Bank of Patiala, State Bank of Travancore and Union Bank ofIndia are further secured by way of second charge on all the immovable properties.

4 Short term loan from Oriental Bank of Commerce is secured by hypothecation of stock-in-trade including all current assets of the Company on pari-passubasis and further secured by way of second pari-passu charge over the fixed assets of the Company.

5 Short term loan from State Bank of Saurashtra is secured by a first charge by way of hypothecation, on pari-passu basis on the whole of the Borrower'sstock, both present and future and including all stocks of raw materials, work-in-process, semi-finished goods and finished goods, packing materials andstores, etc. and on all present and future book debts, outstanding moneys, receivables, claims, bills, contracts, engagements and securities and furthersecured by way of a second charge on pari-passu basis on all the tangible movable machinery and plant and cranes, boats and crafts and the vehiclesof the Borrower together with spares, tools and accessories and other movables, both present and future, and the furniture, fixtures and fittings and officeequipment, whether installed or not and whether lying loose or in cases which are now lying or stored in or about or shall be brought into or be storedor be in or upon or about the Borrower's premises and godowns or wherever else the same may be or be held by any party to the order or disposition ofthe Borrower (including those on lease or hire-purchase).

6 Term Loans repayable within one year Rs.3,875,385,609 (Previous year Rs. 3,662,374,088). Other Loans repayable within one year Rs. 66,538 (Previousyear Rs. 1,056,867).

SCHEDULE 4 - UNSECURED LOANS(Refer Note 12 of Schedule 20 Part-A)Short term loans from Bank

Foreign Currency Loan 113,022,000 89,240,000 USD 2,600,000 (Previous Year USD 2,000,000)

TOTAL 113,022,000 89,240,000

106

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

AS AT MARCH 31, 2007

SCH

EDU

LE 5

- F

IXED

ASS

ETS:

(R

efer N

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, 6, 1

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Assets

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35,66

8,214

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4,988

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67,47

3,138

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7,076

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18,74

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1,855

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1,757

,825

1,276

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7,793

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16,46

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Intan

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Assets

Softw

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12,19

5,385

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7,385

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5,184

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sets

Vehic

les (R

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3,846

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0,495

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4,172

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s of R

s. 416

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der D

evelop

ment

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1,964

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Notes

:1.

Gross

Block

and a

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ns to

Plan

t and

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hinery

have

been

incre

ased

by Rs

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Previo

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3. Gro

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ck of

fixed

asset

s inc

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s. 39

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Previo

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. NIL)

relat

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the S

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vision

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pany

.* O

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year.

107

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs. Rs. Rs.

SCHEDULE 6 - INVESTMENTS:(Refer Note 7 of Schedule 20 Part-A and Note 7 of Schedule 20 Part-B)Long TermUnquoted (Non Trade):Investments in OthersCAPCO LUXEMBOURG S.a.r.l.1 Equity share of Euro 125 each 4,961 4,961 63,366 (Previous Year 63,366) Preferred Equity Certificates of Euro 125 each 320,668,823 320,673,784 320,668,823 320,673,784Solaria Corporation 6,153,846 (Previous Year Nil)

Shares Series B Preferred Stock of USD 0.65 each 173,840,000

Stion Corporation1,000,000 (Previous Year Nil) Shares of Series A Preferred Stock of USD 1 each 43,460,000

Sol Focus, INC.7,000,000 (Previous Year Nil) Shares of Series A Preferred Stock of USD 0.0001 each 304,220,000 521,520,000 -

Global Data Media FZ-LLC (Associate)7,194 (Previous Year 7,194)Shares of AED 1,000 each 57,145,848 75,905,396 (Refer Notes 2.6 and 17 of Schedule 20 Part-A)

TOTAL 899,339,632 396,579,180

SCHEDULE 7 - INVENTORIES:(Refer Note 8 of Schedule 20 Part-A)

Stores and spare parts 761,147,633 519,591,872 including in transit Rs. 64,086,857(Previous Year Rs. 4,539,840)-net of provision for non-moving stock Rs. 232,201 (Previous Year Rs 232,201)Raw Materials and Components 2,350,674,839 1,626,244,619 including in transit Rs. 482,851,194 (Previous Year Rs. 578,514,319)Packing Material 153,982,867 111,423,502 including in transit Rs. 32,639,129(Previous Year Rs. 93,868,444)-net of provision for non-moving stock Rs. 8,003,246 (Previous Year Rs 4,153,529)Work in Progress 906,604,141 899,748,788 Manufactured Finished Goods 1,951,548,856 1,304,059,683 Traded Goods 6,670,131 8,795,777

TOTAL 6,130,628,467 4,469,864,241

108

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs. Rs. Rs.

SCHEDULE 8- SUNDRY DEBTORS:(Unsecured - Considered Good, unless otherwise stated)

Debts outstanding for a period exceeding six monthsConsidered Good 138,238,294 279,811,970Considered Doubtful 170,860,703 53,852,778

309,098,997 333,664,748Less: Provision for Doubtful Debts 170,860,703 138,238,294 53,852,778 279,811,970 Other DebtsConsidered Good 3,203,508,735 3,519,062,728

TOTAL 3,341,747,029 3,798,874,698

SCHEDULE 9 - CASH AND BANK:Cash on hand including cheques/ drafts 24,160,461 8,571,172Remittance in Transit 441,553,431 2,506,710Balances with Scheduled Banks:Current Accounts 531,598,493 128,750,131 Fixed Deposit Accounts 1,694,821,820 2,755,306,109 Unpaid Dividend Account 4,269,146 4,598,302 E.E.F.C Accounts 865,194 252,510

2,231,554,653 2,888,907,052

TOTAL 2,697,268,545 2,899,984,934

Note:Fixed Deposits shown above include Rs. 943,659,705 (Previous Year Rs. 540,211,396) which are subject to lien with the bankers.

SCHEDULE 10- OTHER CURRENT ASSETS:Interest Accrued on Fixed Deposits 39,040,778 35,965,406 Other Receivables 138,039,770 136,113,980 Fixed Assets Held for Sale (at net book value or estimated net realisable value, whichever is lower) 1,085,137 -

TOTAL 178,165,685 172,079,386

SCHEDULE 11- LOANS AND ADVANCES:(Unsecured - Considered Good, unless otherwise stated)Advances recoverable in cash or kind or for value to be received 328,100,712 367,735,909 Advance to Suppliers 655,703,107 899,504,444 Balance with Excise Authorities 116,168,577 55,266,052 Earnest Money/Security Deposits 115,631,695 31,999,085 Advance Tax/Tax Deducted at Source 234,976,640 161,884,049

TOTAL 1,450,580,731 1,516,389,539

Note:1) Amount due from a Director as at March 31, 2007 - Rs. Nil (Previous year Rs. 9,209). Maximum balance due at any time duringthe year from Director and Officer of the Company was Rs. 92,894 (Previous year Rs. 9,209)

109

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

AS AT MARCH 31, 2007

As at 31.03.2007 As at 31.03.2006Rs. Rs. Rs. Rs.

SCHEDULE 12- CURRENT LIABILITIES AND PROVISIONS:A. Current Liabilities:

(Refer Notes 17 and 18 of Schedule 20 Part-B)Acceptances 649,693,809 420,444,296 Sundry Creditors- Total outstanding dues to Small Scale

Industrial Undertakings 5,672,494 12,806,668 - Total outstanding dues of creditors other than Small 3,090,477,803 3,096,150,297 1,726,414,433 1,739,221,101

Scale Industrial UndertakingsAdvances from Customers 715,892 669,147 Share Application Money Pending Allotment 581,760 - Advance Against Sale of Fixed Assets 6,640,000 - Unclaimed Dividend * 4,266,802 4,591,508 Other Liabilities 208,971,313 143,105,771 Book Overdraft 809,058 423,559 Security Deposits 92,176,473 40,163,911 Interest accrued but not due on Loans 22,634,722 30,524,727

TOTAL 4,082,640,126 2,379,144,020

* The above amount will be credited to InvestorEducation and Protection Fund as and when due.

B. Provisions:(Refer Notes 3, 11 and 13 of Schedule 20 Part-A)Taxation 91,885,407 91,625,193 Fringe Benefit Tax 25,975,287 13,252,497 Proposed Dividend 167,401,776 111,512,944 Corporate tax on Dividend 28,449,932 15,639,690 Staff Benefit Schemes 88,778,942 45,477,745

TOTAL 402,491,344 277,508,069

110

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED MARCH 31, 2007

Year ended 31.03.2007 Year ended 31.03.2006Rs. Rs. Rs. Rs.

SCHEDULE 13- EXCISE DUTY:Excise Duty paid 541,079,948 359,522,969 Less: Excise duty on Closing Stock 19,028,252 6,136,081 Add: Excise duty on Opening Stock 6,136,081 1,518,544

TOTAL 528,187,777 354,905,432

SCHEDULE 14- OTHER INCOME:(Refer Notes 4 and 12 of Schedule 20 Part-A)

Interest Received (Gross):a) On Deposits with banks 165,014,114 187,108,243 b) On Income Tax Refunds - 4,584,137

Tax Deducted at Source Rs. 36,795,558 (Previous Year Rs. 45,257,752) 165,014,114 191,692,380

Excess provisions and unclaimed credit balances written back 18,533,320 13,834,793 Exchange Fluctuation (Net) 349,376,754 59,944,355 Profit on cancellation of forward contracts (Net) 120,617,065 66,244,811 Profit on sale of Fixed Asset - 70,000 Profit on sale of Current Investment (others) - 417,759 Dividend from Current Investments (others) - 13,748,911 Miscellaneous Income 112,607,102 212,759,658

TOTAL 766,148,355 558,712,667

SCHEDULE 15-INCREASE/(DECREASE) IN STOCK OF FINISHED GOODS AND WORK IN PROGRESS:Closing Stock:Finished Goods 1,951,548,856 1,304,059,683 Work in Progress 906,604,141 899,748,788 Traded Goods 6,670,131 8,795,777

2,864,823,128 2,212,604,248Less: Opening Stock:Finished Goods* 1,319,209,362 972,378,704 Work in Progress 899,748,788 684,391,766 Traded Goods 8,795,777 2,227,753,927 1,132,281 1,657,902,751Excise duty on Finished Goods (12,892,171) (4,617,537)

TOTAL INCREASE 624,177,030 550,083,960

* Includes opening stock of finished goods of a subsidiary company acquired during the year amounting to Rs.15,149,679 (PreviousYear Rs. Nil).

SCHEDULE 16- PERSONNEL EXPENSES:Salaries, Allowances and Bonus 1,267,784,886 882,793,171 Contribution to Provident and other funds 92,438,225 72,295,963 Employee Welfare Expenses 119,364,003 77,452,999 Leave Encashment 20,439,710 15,847,313

TOTAL 1,500,026,824 1,048,389,446

111

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED MARCH 31, 2007

Year ended Year ended31.03.2007 31.03.2006

Rs. Rs.

SCHEDULE 17- ADMINISTRATION & OTHER EXPENSES:(Refer Note 14 of Schedule 20 Part-A)

Power and Fuel 1,059,498,062 822,513,755 Commission on Sales 4,666,817 1,556,613 Rent (Including Lease Rent) 80,757,110 53,024,443 (Refer Note 6 a) of Schedule 20 Part-B)Repairs & Maintenance:- Building 1,347,835 1,008,883 - Plant & Machinery 33,702,449 16,406,901 - Others 48,015,570 37,402,032 Freight and Forwarding (Net) 630,958,052 482,495,586 Insurance 120,826,238 114,352,872 Rates and Taxes 10,819,520 8,822,997 Director's Sitting Fees 2,333,190 1,150,000 Commission to Non Executive Directors 2,195,729 93,323 Donation 509,500 5,039,125 Remuneration to Auditors 20,140,697 13,199,439 Royalty 357,967,023 315,478,020 Travelling and Conveyance 198,795,644 148,392,501 Bad Debts 200,864 159,825 Advances Written Off 3,575,085 539,163 Provision for doubtful debts 120,522,719 - Research and Development Expenses 2,895,078 193,034 Miscellaneous Expenses 490,080,564 217,018,105 Stock Written Off 22,770,095 23,877 Project Expenses Written off (Refer Note 20 of Schedule 20 Part-B) 29,368,080 63,981,264 Loss on sale of Fixed Assets (Net) 227,244 -

TOTAL 3,242,173,165 2,302,851,758

SCHEDULE 18- INTEREST & FINANCE CHARGES:(Refer Note 10 of Schedule 20 Part-A)

Interest:On Fixed Loans 883,286,606 713,089,298 Others 305,688,180 161,221,637

Finance Charges 25,658,150 31,345,186 Bank Charges 48,715,874 29,971,352

TOTAL 1,263,348,810 935,627,473

SCHEDULE 19- DEPRECIATION/ AMORTISATION:(Refer Note 6 of Schedule 20 Part-A)

Depreciation on Fixed Assets (Refer Schedule 5) 3,584,720,235 3,170,023,472 Less: Depreciation on assets used for trial run/ testing for new intangible assets under development 2,486,084 2,425,072

Depreciation charged to Profit and Loss 3,582,234,151 3,167,598,400

112

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THECONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2007

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTSPart - A SIGNIFICANT ACCOUNTING POLICIES

1 BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements (CFS) of the Company (Parent), its subsidiaries and associate are prepared under the historical costconvention and on an accrual basis and to comply, in all material respects with applicable statutory/ regulatory provisions, applicableAccounting Standards issued by the Institute of Chartered Accountants of India and generally accepted accounting principles andpractices prevailing in India.

2 CONSOLIDATION PROCEDURE

2.1 The CFS are prepared in accordance with Accounting Standard (AS-21) "Consolidated Financial Statements" issued by the Instituteof Chartered Accountants of India (ICAI). The financial statements of the Parent and its subsidiaries are combined on a line by linebasis by adding together sums of like nature, comprising assets, liabilities, income and expenses and after eliminating intra-groupbalances/ transactions.

2.2 The Financial Statements of certain foreign subsidiaries and the associate, are prepared by them on the basis of generally acceptedaccounting principles, local laws and regulations as prevalent in their respective countries and such financial statements areconsidered for consolidation. The effect of adjustments on account of variance in accounting policies of such subsidiaries andassociate vis -à-vis those of the parent is not material, and accordingly, not considered. Also, refer note 17 below.

2.3 The financial statements of the subsidiaries have been drawn for the period from 1st April, 2006 or date of incorporation/acquisitionto 31st March, 2007, as mentioned in note 1 of Schedule 20 Part - B.

2.4 The Parent's cost of its investment in its subsidiaries has been eliminated against the Parent's portion of equity of each subsidiary asat the year end. The amount of Goodwill arising on consolidation has been disclosed separately in the CFS.

2.5 For the purpose of compilation of the CFS the foreign currency assets, liabilities, income and expenditure are translated as perAccounting Standard (AS-11) on 'Accounting for the Effects of Changes in Foreign Exchange Rates', issued by the Institute ofChartered Accountants of India. Exchange differences arising are recognised in the Consolidated Profit and Loss account or in the Foreign Currency Translation Reserve classified under Reserves and Surplus as applicable, under the above mentioned AccountingStandard.

2.6 Investment in associate is accounted for under the Equity Method as per AS-23 "Accounting for Investments in Associates" issued byThe Institute of Chartered Accountants of India based on the financial statements of the associate upto the year ended on December31, 2006. The different reporting date of the associate has been consistently used from period to period.

3 USE OF ESTIMATES

The preparation of financial statements requires the management of the Company to make estimates and assumptions that affect thereported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statementsand reported amounts of income and expenses during the period. Example of such estimates include provisions for doubtful debts,employee retirement benefit plans, provision for income taxes and the useful lives of fixed assets.

4 REVENUE RECOGNITION

Revenue from sale of goods is recognised on transfer of significant risks and rewards of ownership to the customer and when nosignificant uncertainty exists regarding realisation of the consideration. Sales are recorded net of sales returns, rebates, trade discountsand price differences and are inclusive of excise duty and countervailing duty imposed by the Council of the European Union.

Interest is accounted for based on a time proportion basis taking into account the amount invested and the rate of interest.

Dividend is recognised as and when the right of the company to receive payment is established.

5 FIXED ASSETS

Tangible Fixed Assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specifically(Contd.)

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MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THECONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2007

attributable to its acquisition and bringing it to its working condition for its intended use.

Expenditure pending allocation, are allocated to productive fixed assets in the year of commencement of the related project.

Intangible assets are stated at cost less accumulated amortisation. The cost incurred to acquire "right to use and exploit" home videotitles, are capitalized as copyrights/marketing and distribution rights where the right allows the company to obtain a future economicbenefit from such titles.

Impairment, if any, in the carrying value of fixed assets is assessed at the end of each financial year in accordance with the accountingpolicy given below on "Impairment of Assets".

6 DEPRECIATION / AMORTISATION

Depreciation on tangible fixed assets is provided under the straight-line method on a pro-rata basis at the rates and in the mannerspecified in Schedule XIV to the Companies Act, 1956.

In respect of assets whose useful life has been revised, the unamortised depreciable amount is charged over the revised remaininguseful life.

Intangible assets, other than Copyright/Marketing and distribution rights, are amortised on equated basis over their estimated economiclife not exceeding 10 years.

Copyrights/marketing and distribution rights are amortized from the date they are available for use, at the higher of the amountcalculated on a straight line basis over the period the intangible asset is available, not exceeding 10 years, and the number of units sold during the period basis.

Leasehold Land and improvement to the leased premises are amortised over the period of the lease.

The assets taken on finance lease are depreciated over the lease period.

7 INVESTMENTS

Long term investments are stated at cost of acquisition inclusive of expenditure incidental to acquisition. A provision for diminution ismade to recognise a decline, other than temporary in the value of long term investments.

Current investments are stated at lower of cost and fair value determined on an individual basis.

8 INVENTORY VALUATION

Finished Goods, Work in progress, Goods held for resale, At lower of cost and netRaw Materials, Packing Materials and Stores and Spares realisable value

Cost of Raw material, goods held for resale, packing materials and stores and spares is determined on the basis of weighted averagemethod.

Cost of Work in process and finished goods is determined by considering direct material costs, labour costs and appropriate portion ofoverheads.

Liability for excise duty in respect of goods manufactured by the company, other than for exports, is accounted upon completion ofmanufacture.

9 GOVERNMENT GRANTS

Grants of the nature of contribution towards capital cost of setting up projects, are treated as Capital Reserve and grants in respect ofspecific fixed assets are adjusted from the cost of the related fixed assets.

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - A SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

}

(Contd.)

114

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THECONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2007

10 BORROWING COSTS

Borrowing costs directly attributable to the acquisition of qualifying assets are capitalised as part of the cost of assets till the date ofcommencement of commercial use of the asset. All other borrowing costs are charged to the Profit and Loss Account.

11 EMPLOYEE BENEFITS

The Company has Defined Contribution plans for post employment benefits namely Provident Fund which is recognized by the incometax authorities. These funds are administered through Regional Provident Fund Commissioner and the Company's contributions theretoare charged to revenue every year. The Company's contributions to State plans namely Employee's State Insurance Fund and Employee'sPension Scheme 1995 are charged to revenue every year.

The Company has Defined Benefit plans namely leave encashment and Gratuity for all employees, the liability for which is determinedon the basis of an actuarial valuation at the end of the year. Gratuity Fund is administered through Life Insurance Corporation of India.Short Term compensated absences are recognised at the undiscounted amount of benefit for services rendered during the year.

Termination benefits are recognised as an expense immediately. Actuarial gains and losses comprise experience adjustments and theeffects of changes in actuarial assumptions and are recognised immediately in the Profit and Loss Account as income or expense.

In the year of transition, the difference between transitional liability and the liability that would have been recognized at the beginning ofthe financial year under the Company's previous accounting policy is adjusted against the opening revenue reserves of the financial yearin accordance with Accounting Standard 15 (revised 2005) 'Employee Benefits'.

12 FOREIGN CURRENCY TRANSACTIONS

Transactions in foreign currency are converted at the exchange rate prevailing at the date of the transactions. Foreign currency monetaryassets and liabilities not covered by forward exchange contracts are restated at the year end rates and the resultant gains or losses arerecognised in the Profit and Loss Account, except exchange differences arising on settlement and/or translation of foreign currency liabilitiesrelating to acquisition of fixed assets which are adjusted against the carrying costs of respective fixed assets.

In respect of foreign branches, all revenues, expenses, monetary assets/liabilities and fixed assets are accounted at the exchange rateprevailing on the date of the transaction. Monetary assets and liabilities are restated at the year end rates and resultant gains or losses arerecognised in the Profit and Loss Account.

Premium on foreign exchange forward contracts are recognised in the Profit and Loss Account over the life of the contract, except in respectof liabilities incurred for acquiring fixed assets, in which case such difference is adjusted to the carrying amount of the respective fixedassets. Any profit or loss arising on cancellation of a forward contract is recognised as income or expense for the period.

13 TAXATION

Current Tax:Provision is made for current income tax liability based on the applicable provisions of the Indian Income Tax Act 1961 and the relevantincome tax laws of other countries in which the branch/ subsidiaries are incorporated.

Deferred Tax:Deferred tax assets (DTA) and liabilities are computed on the timing differences at the Balance sheet date between the carrying amount ofassets and liabilities and their respective tax basis. DTA is recognised based on management estimates of reasonable/virtual certainty thatsufficient future taxable income will be available against which such DTA can be realised. The deferred tax charge or credit is recognisedusing the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

14 LEASES

Assets acquired under finance leases are recognised as an Asset and a Liability at the lower of the fair value of the leased assets at

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - A SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

(Contd.)

115

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THECONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2007

inception of the lease and the present value of minimum lease payments. Lease payments are apportioned between the finance chargeand the reduction of the outstanding liability. The finance charge is allocated to periods during the lease term so as to produce a constantperiodic rate of interest on the remaining balance of the liability and charged to the profit and loss account.

Payment made under operating leases are charged to Profit and Loss Account on a straight line basis over the period of lease.

15 STOCK OPTION PLANS

Stock options granted to the employees and to the non-executive Directors who accepted the grant under the Company's Stock OptionPlan are accounted in accordance with Securities and Exchange Board of India (Employees Stock Option Scheme and Employees StockPurchase Scheme) Guidelines, 1999. The Company follows the intrinsic value method and accordingly, the excess, if any, of the marketprice of the underlying equity shares as of the date of the grant of the option over the exercise price of the option, is recognised asemployee compensation cost and amortised on straight line basis over the vesting period.

16 IMPAIRMENT OF ASSETS

At each balance sheet date, the Company assesses whether there is any indication that an asset may be impaired. If such indication exists,the Company estimates the recoverable amount and where carrying amount of the asset exceeds such recoverable amount, an impairmentloss is recognised in the profit and loss account to the extent the carrying amount exceeds recoverable amount. Where there is anyindication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased, theCompany books a reversal of the impairment loss not exceeding the carrying amount that would have been determined (net of amortisationor depreciation) had no impairment loss been recognised for the asset in prior accounting periods.

17 ACCOUNTING POLICIES OF ASSOCIATE

Following are the accounting policies adopted by the associate company in preparation of their annual accounts which are not inconsonance with the policies followed by the parent company. No adjustment has been carried out in the CFS as it is not practicable toestimate appropriate adjustments.

InventoriesTraded inventory has been valued at First In First Out (FIFO) basis. However, inventory in CFS has been valued after adjusting the impactof unrealised gain thereon.

Equipment and Motor VehiclesUseful life of equipment and motor vehicles is expected to be three years. Effectively, these assets are being depreciated at rates higherthan those specified in Schedule XIV to the Companies Act, 1956.

GoodwillGoodwill was amortised using the straight line method over its estimated useful life of 10 years upto 31st December 2004. With effectfrom 1st January 2005, Goodwill is not amortised in accordance with IFRS 3, "Business Combination". The group will annually assesswhether there is any indication of Impairment and assess whether the carrying amount of Goodwill is fully recoverable. A write down ismade if the carrying amount exceeds the recoverable amount.

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - A SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

116

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS

1 Subsidiaries and Associate:

1.1 The CFS comprise the results of the Parent, its subsidiaries and associate:

1.1.1 Name of Subsidiary Country of Proportion of Date of Incorporation Ownership Incorporation/

Acquisition*

European Optic Media Technology GmbH Germany 100% 30th Jan. 2003

Moser Baer Photo Voltaic Ltd India 100% 7th Dec. 2005

Moser Baer SEZ Developer Ltd India 100% 20th Feb. 2006

Advoferm Limited Cyprus 100% 25th May 2006

Omega Optical Media Technologies Slovakia 100% *13th June 2006

Peraround Ltd. Cyprus 100% 3rd July 2006

Perafly Limited Cyprus 100% 3rd July 2006

Nicofly Limited Cyprus 100% 4th July 2006

Perasoft Limited Cyprus 100% 6th July 2006

Dalecrest Limited Cyprus 100% 8th August 2006

Moser Baer Media Limited India 100% 14th Sept. 2006

Moser Baer Infrastructure Ltd India 100% 16th Sept. 2006

Moser Baer Energy Limited India 100% 27th Sept. 2006

Solar Research Limited India 100% 28th Sept. 2006

Crownglobe Limited Cyprus 100% 17th Nov. 2006

OM&T B.V. Netherlands 81% *1st Jan. 2007

Moser Baer Investments Ltd India 100% 18th Jan. 2007

Photovoltaic Holdings PLC Isle of Man 100% 16th Feb. 2007

Moser Baer Solar PLC Isle of Man 100% 16th Feb. 2007

The first financial statements of Moser Baer SEZ Developer Ltd. have been prepared for the period February 20, 2006 toMarch 31, 2007 since the first financial period of the Company ends on March 31, 2007. However, financial statements forthe year ended March 31, 2007 (previous year for the period ended March 31, 2006) have been drawn up for consolidationpurposes.

1.1.2 Associate:

The particulars of associate considered in the CFS are as under :

Name of Associate Country of Incorporation Proportion of OwnershipGlobal Data Media FZ LLC Dubai, United Arab Emirates 49%

1.2 Particulars of Investment in Associate:

S.No. Particulars As at 31.03.2007 As at 31.03.2006 (Rs.) (Rs.)

Cost of investment 92,532,185 92,532,185

(a) Carrying value of the investment at the beginning of the year 75,905,396 88,513,355

(b) Add: Share of post acquisition profits/(loss) (Net) * (2,782,493) 36,077,374

(c) Less: Dividend Received 15,977,055 48,685,333

(d) Carrying value at the end of the year 57,145,848 75,905,396

* Includes exchange fluctuation gain of Rs.431,193 for the previous year.(Contd.)

117

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

2 Contingent Liabilities

In respect of:

2.1 Corporate guarantees given: Rs.3,520,000,000 (Previous Year Rs. 450,000,000). Against these guarantees loan amount of Rs. 1,251,452,840 (Previous Year Rs. Nil) have been availed.

2.2 Disputed demands (Gross) in respect of:-

2006-07 2005-06(Rs.) (Rs.)

Entry tax [Amount paid under protest Rs. 1,686,502 (Previous Year Rs.1,000,000 ); paid through bank guarantee Rs. 2,646,016 (Previous Year Rs.1,685,161)] 110,391,986 110,117,456

Service tax 68,825,596 68,825,596

Sales Tax [Amount paid under protest Rs. 72,864 (Previous Year Rs. Nil); paid through bank guarantee Rs. 2,049,747 (Previous Year Rs. Nil)] 7,307,205 6,706,074

Custom duty and Excise duty 5,516,560 2,761,250

Trade Tax 22,230,117 -

Income Tax[Amount paid under protest Rs, 5,000,000 (Previous Year Rs. Nil)] 85,294,174 -

Total 299,565,638 188,410,376

2.3 Claims against the Company not acknowledged as debts: Rs. 20,078,421 (Previous Year Rs. 18,412,975).

The amount shown in 2.1 above represents guarantees given in the normal course of the Company's operations and are not expectedto result in any loss to the Company on the basis of the beneficiary fulfilling its ordinary commercial obligations.

The amounts shown in 2.2 and 2.3 above represent the best possible estimates arrived at on the basis of available information. Theuncertainties and possible reimbursements are dependent on the outcome of the different legal processes which have been invokedby the Company or the claimants as the case may be and therefore cannot be predicted accurately. The Company engages reputedprofessional advisors to protect its interests and has been advised that it has strong legal positions against such disputes.

3 A search and seizure operation was carried out by the State of Kerala, DGP and the Nodal officer at the premises of distributors stockinghome video CDROM's and DVDROM's in various cities of Kerala for alleged infringement of Section 52(A) of the Copyright Act. The Company has filed a writ petition against such police action and has received a favourable interim order. On the basis of adviceobtained from external legal council, the Company does not expect any adverse results on issuance of the final order.

4 The Company has received claims relating to infringement of copyrights in relation to the business activities carried on by it. In theopinion of the management, no material liability is likely to arise on account of such claims.

5 5.1 Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances): Rs. 1,816,013,171(Previous Year Rs. 1,706,396,356)

5.2 Letters of Credit opened by banks on behalf of the Company: Rs. 664,284,646 (Previous Year Rs. 1,349,373,002).

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS (CONTD.)

(Contd.)

118

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

6 Lease Obligations

a) Total of minimum future lease payments under non-cancellable operating leases for various periods are as follows:-

Amount (Rs.) Amount (Rs.)2006-07 2005-06

Amount payable not later than one year 18,521,226 17,442,073

Amount payable later than one year but not later than five years 80,469,321 75,042,807

Amount payable later than five years 5,962,809 24,812,895

Total 104,953,356 117,297,775

Total lease payments recognized in the statement of Profit and Loss Account: Rs. 46,633,200 (Previous year Rs. 19,018,200).

The company has entered into operating leases for its offices and employees' residences that are renewable on a periodic basis andcancellable at company's option. The total rent recovered on sub lease during the year is Rs. 386,122 (Previous year Rs.347,076).

b) Reconciliation of minimum lease payments and their present value in respect of vehicles taken on finance lease, is as under:

Minimum Present value Lease chargesLease payments of minimum

lease payments(Rs.) (Rs.) (Rs.)

Amount paid upto 31.3.2007 5,335,685 3,748,243 1,587,442

Amount payable not later than one year 76,398 66,538 9,860

Total 5,412,083 3,814,781 1,597,302

Previous year 5,412,083 3,814,781 1,597,302

Total cost of leased vehicles and their carrying amount as at 31st March 2007 are Rs. 810,495 (Previous Year Rs. 3,846,372) andRs. 319,450 (Previous Year Rs. 503,803) respectively.

7 Movements in Other Investments2006-2007 2005-2006

Current Investments (Unquoted) No. Cost (Rs.) No. Cost (Rs.)

(Mutual fund units of the face value of Rs 10 each)Acquired and sold during the yearBirla Sun Life Mutual Fund - - 57,681,210 577,673,816 Prudential ICICI Mutual Fund - - 89,762,993 1,064,047,119 SBI Mutual Fund - - 13,272,569 133,157,051Deutsche Floating Rate Fund - - 23,528 235,736Reliance Floating Rate Fund - - 68,117 684,542ING Vysya Floating Rate Fund - - 5,067,232 50,684,986Reliance Treasury Plan - - 14,416,911 220,242,826DSP ML Floating Rate Fund - - 23,303,449 233,822,834Total - - 203,596,009 2,280,548,910Sold during the yearPrudential ICICI Mutual Fund - - 25,586,862 303,242,694Deutsche Insta Cash Plus - Institutional Plus - - 9,982,271 100,017,361DSP ML Floating Rate Fund - - 30,578,267 306,425,745 SBI Magnum Institutional Income Savings - - 30,530,833 306,300,585 Reliance Floating Rate Fund - - 10,327,697 103,715,850 ING Vysya Floating Rate Fund - - 40,665,193 406,749,727Total - - 147,671,123 1,526,451,962

(Contd.)

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS (CONTD.)

119

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

8 Expenditure pending allocation

Details of expenditure pending allocation are as follows:

As at As at 31.03.2007 31.03.2006

(Rs.) (Rs.)

Salaries and Wages 31,577,674 11,963,413

Travelling Expenses 5,332,623 2,325,031

Freight and Cartage 50,814,125 22,689,608

Interest 42,714,570 6,900,001

Difference in exchange rate 62,484,173 (1,262,250)

Raw Material cost- Trial run 173,947,916 9,011,378

Manpower cost 1,180,555 -

Power & Fuel 6,255,196 259,751

Stores spares & consumables 1,318,670 203,925

Legal and Professional 32,334,148 991,445

LC Charges 2,774,060 -

Loss on cancellation of Forward Contract 49,812,674 17,130,436

Miscellaneous expenses 103,762 103,762

Deferred Project expenses - 27,246,240

Insurance 219,299 219,299

Total 460,869,445 97,782,039

9 Prior period (income)/expenses (Net)Details of prior period (income)/expenses are as follows:

2006-07 2005-06(Rs.) (Rs.)

Travelling expenses - 1,083,174

Repairs & Maintenance - 2,003,714

Annual Maintenance contract - 185,828

Total of prior period expenses - 3,272,716

Less: Prior Period Income:

Miscellaneous Income - (9,868,975)

Total of prior period (income)/expenses (Net) - (6,596,259)

(Contd.)

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part -B NOTES TO ACCOUNTS (CONTD.)

120

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

10 Taxation

10.1Provision for taxation has been made based on the relevant provisions of the Indian Income Tax Act,1961 and the income tax lawsas applicable to the foreign subsidiaries

Deferred tax in respect of timing differences for undertakings enjoying tax holiday period under section 10A, section 10AA andsection 10B of the Income Tax Act, 1961 have been recognised in the year in which they originate, to the extent that such differencesreverse after the tax holiday period.

Accordingly, the Break up of net deferred tax liability is as under:(Amount in Rupees)

Particulars of Timing Differences As at March Movements As at March31, 2006 during the year 31, 2007

Deferred tax LiabilityDepreciation 1,369,303,302 162,422,719 1,531,726,021

Deferred tax AssetsUnabsorbed Depreciation 1,368,480,498 (17,320,760) 1,351,159,738

Brought Forward Losses 822,804 3,924,844 4,747,648 Tax impact of expenses charged in the financial statements - 87,113,892 87,113,892 but allowable as deduction in future years under the Income Tax Act, 1961Total 1,369,303,302 73,717,976 1,443,0 21,278

Net deferred tax liability - 88,704,743 88,704,743

Previous Year 14,045,000 (14,045,000) -

10.2OM&T B.V., the Company's subsidiary in the Netherlands is in the process of negotiations with the Dutch tax authorities to determinethe applicability of income tax to the subsidiary. Accordingly, the impact of income tax on the profits/losses of this subsidiary will beknown on conclusion of such negotiations. However, management does not expect the impact to be material on the consolidatedfinancial statements.

11 Employees Stock Option Plan (ESOP) and Directors' Stock Option Plan (DSOP)

The company has granted options to its employees and non-executive directors, to be settled through issue of equity shares, at exerciseprices that are equal to the market price of the share on the date of the grant. The Options granted vest over a period of maximum offour years from the date of grant.

Number of options granted, exercised and cancelled/lapsed during the year

2006-07 2005-06

Number Weighted Number WeightedAverage Price Average Price

(Rs.) (Rs.)

Options outstanding at beginning of year 2,977,700 221.10 2,149,300 226.86

Add:Options Granted 1,022,200 244.65 1,108,200 220.49

Less:Options Exercised 88,240 219.16 - -

Options Cancelled 546,700 222.92 279,800 263.56

Options Lapsed 102,000 199.95 - -

Options outstanding at the end of year 3,262,960 228.89 2,977,700 221.10

Options exercisable at the end of year 939,260 221.27 490,125 221.26

(Contd.)

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS (CONTD.)

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MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

The options outstanding at the end of year had exercise prices in the range of Rs. 196.60 to Rs. 319.25 (Previous Year Rs. 196.60 toRs. 234.75) and a weighted average remaining contractual life of 2.62 years (Previous Year 3.19 years).

During the year 88,240 options were exercised resulting in a premium of Rs. 18,526,983 which is the excess of exercise price of theoptions and nominal value of shares allotted.

12 Managerial Remuneration

(figures in bracket are for the previous year) (Amount in Rupees)

DEEPAK PURI NITA PURI RATUL PURI TotalManaging Director Whole time Whole time

Director Director

Salaries, allowances and bonus 33,156,250 4,415,178 15,011,964 52,583,392

(18,956,256) (454,800) (11,321,964) (30,733,020)

Contribution to Provident Fund 1,698,750 439,822 1,013,036 3,151,608

(1,698,751) (36,000) (1,013,036) (2,747,787)

Perquisites 145,000 145,000 145,000 435,000

(166,593) (106,800) (166,600) (439,993)

Total 35,000,000 5,000,000 16,170,000 56,170,000

(20,821,600) (597,600) (12,501,600) (33,920,800)

Note - Provision for leave encashment: Rs. 2,885,257 (Previous year Rs. 3,034,472) and Gratuity: Rs. 877,781 (Previous year Rs. 813,025) made during the year have not been included above.

13 Related Party Transactions:

As required by Accounting Standard 18 - `Related Party Disclosures' issued by the Institute of Chartered Accountants of India, since theCFS presents information about the Parent and its subsidiary as a single reporting enterprise, it is not necessary to disclose intra-grouptransactions.

In accordance with the requirements of Accounting Standard - 18 'Related Party Disclosures' the names of the related party wherecontrol/ability to exercise significant influence exists, along with the aggregate amount of transactions and year end balances with themas identified and certified by the management are given below:

13.1 Nature of relationship Name of the related party Share Holding

Associate Company Global Data Media FZ LLC 49%

13.2 Key management Personnel

Managing Director Mr. Deepak Puri

Whole Time Directors Mrs. Nita Puri, Mr.Ratul Puri

(Contd.)

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS (CONTD.)

122

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

13.3 Details of transactions with the related parties in the ordinary course of business:(figures in brackets are for the previous year) (Amount in Rupees)

Particulars Global Data Key Management TotalMedia Inc (Associate) Personnel

Sales of Finished goods 8,609,612,874 - 8,609,612,874(7,998,784,035) ( - ) (7,998,784,035)

Expenses charged to other companies 28,992,875 - 28,992,875(29,488,616) ( - ) (29,488,616)

Expenses charged by other companies 19,521,354 - 19,521,354(25,224,537) ( - ) (25,224,537)

Directors Remuneration (Refer Note 12 above) - 56,170,000 56,170,000( - ) (33,920,800) (33,920,800)

Outstanding receivables:-In respect of sales 1,993,092,485 - 1,993,092,485

(3,065,593,385) ( - ) (3,065,593,385)-In respect of expenses 23,695,598 - 23,695,598

(23,986,812) (9,209) (23,996,021)Outstanding payable:-In respect of expenses 18,332,194 - 18,332,194

(33,308,145) ( - ) (33,308,145)-In respect of Managerial Remuneration

Deepak Puri - 19,603,947 19,603,947( - ) (6,231,885) (6,231,885)

Ratul Puri - 7,012,332 7,012,332( - ) (3,778,558) (3,778,558)

Nita Puri - 973,179 973,179( - ) (100,950) (100,950)

14 Earnings per share

a) Calculation of Weighted Average number of equity shares

1. For Basic EPS 2006-2007 2005-2006No. of Shares at the beginning of the year 111,512,944 111,512,944

Total number of equity shares outstanding at the end of the year 111,601,184 111,512,944Weighted Average number of equity shares outstanding during the year 111,525,875 111,512,944

2. For Diluted EPS

Weighted Average number of equity shares outstanding 111,525,875 111,512,944during the year as computed above

Weighted average number of stock options outstanding 754,527 160,955during the year

Weighted Average number of equity shares outstanding 112,280,402 111,673,899during the year for Diluted EPS

b) Net Profit (Loss) after tax available for equity shareholders 788,267,767 (64,720,851)Earnings per share (face value per share Rs. 10 each)Basic 7.07 (0.58)Diluted 7.02 (0.58)

(Contd.)

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS (CONTD.)

123

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

15 Segment information

The company is primarily in the business of manufacture and sale of Optical Storage Media. The other activities namely distribution ofvideo content, development, operation and maintenance of sector specific SEZ for non-conventional energy and manufacture ofphotovoltaic cells and modules (through certain subsidiaries) are in a 'start up' phase and are yet to generate revenue/ acquire significantassets. Accordingly, segment information has not been disclosed.

16 The Company has during the year adopted Accounting Standard 15 (revised 2005) 'Employee Benefits'. Accordingly, the transitionaladjustment aggregating to Rs. 1,771,624 (net of deferred tax asset Rs. Nil) has been charged against the general reserves as at April 1, 2006. The details of the transitional adjustment is as follows- Leave Encashment / Compensated Absences Rs. 1,771,624(Also Refer Schedule 2)

The Company has classified the various benefits provided to employees as under -

I . Defined Contribution Plans

Provident Fund

During the year, the Company has recognised the following amounts in the Profit and Loss Account -

Employers' Contribution to Provident Fund * 29,448,830

II State Plans a) Employers' Contribution to Employee's State Insurance Act, 1948

b) Employers' Contribution to Employee's Pension Scheme, 1995

During the year, the Company has recognised the following amounts in the Profit and Loss Account

Employers' Contribution to Employee's State Insurance Act, 1948 * 9,557,631

Employers' Contribution to Employee's Pension Scheme, 1995 * 21,320,252

* Included in Contribution to Provident and Other Funds under Personnel Expenses (Refer Schedule 16)

III Defined Benefit Plans

a) Contribution to Gratuity Funds - Life Insurance Corporation of India

b) Leave Encashment

In accordance with Accounting Standard 15 (revised 2005), actuarial valuation was done in respect of the aforesaid defined benefitplans based on the following assumptions:-

Leave Employee'sParticulars Encashment Gratuity Fund

(Unfunded)

Discount Rate (per annum) 8% 8%

Rate of increase in Compensation levels 9% 9%

Rate of Return on Plan Assets Nil 8.50%

Expected Average remaining working lives of employees (years) 14 14

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS (CONTD.)

(Contd.)

124

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

Changes in the Present Value of Obligation

Leave Employee'sParticulars Encashment Gratuity Fund

(Unfunded)

Present Value of obligation as at April 1, 2006 26,643,509 47,187,514

Interest Cost 1,978,738 3,684,956

Current Service Cost 8,294,048 14,823,866

Settlement Cost/Credit - (213,868)

Benefits paid (3,818,554) (2,251,142)

Actuarial (gain)/loss on obligations (829,221) 10,568,126

Present Value of obligation as at March 31, 2007 32,268,520 73,799,452

Changes in the Fair value of Plan Assets

Particulars Employee's Gratuity Fund

Fair Value of plan Assets at April 1, 2006 29,604,822

Expected Return on plan assets 2,541,538

Contributions 2,776,352

Benefits Paid (2,251,142)

Fair Value of Plan Assets at March 31, 2007 32,671,570

Reconciliation of present value of defined benefit obligation and the fair value of assets

Employee's Particulars Gratuity Fund

Present value of funded obligation as at March 31, 2007 73,799,452

Fair Value of Plan Assets as at the end of the period funded status 32,671,570

Present value of unfunded obligation as at March 31, 2007 41,127,882

Unfunded Net Liability recognized in Balance Sheet* 41,127,882

* Included in Staff Benefit Schemes. Refer Schedule 12 B

Expenses recognised in the Profit and Loss Account

Leave Employee'sParticulars Encashment Gratuity Fund

(Unfunded)

Current Service Cost 8,294,048 14,823,866

Interest Cost 1,978,738 3,684,956

Expected Return on Plan Assets - (2,541,538)

Net actuarial (gain)/loss recognized in the period (829,221) 10,568,126

Total Expenses recognized in the Profit & Loss Account **9,443,565 *26,535,410

* Included in Contribution to Provident and other funds (Refer Schedule 16)

** Included in Personnel Expenses (Refer Schedule 16)(Contd.)

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS (CONTD.)

125

MOSER BAER INDIA LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENT

FOR THE YEAR ENDED MARCH 31, 2007

In respect of the Employee's Gratuity Fund, constitution of Plan Assets is not readily available from the Life Insurance Corporationof India.

Short term compensated absences amounting to Rs 10,994,065 has been included in Leave Encashment shown under PersonnelExpenses (Refer Schedule 16) with a corresponding liability included under Staff Benefit Schemes (Refer Schedule 12 B)

17 Creditors comprising Small Scale Industrial Undertakings to which the company owes amounts outstanding for more than 30 days (as per information available with the management) are as under:

New Age Hose Manufacturing Company

Sandhya Prakash Ltd.

Chhaya Packers & Printers Pvt. Ltd.

18 Based on information available with the Company, there are no dues to Micro, Small and Medium Enterprises, as defined in the Micro,Small and Medium Enterprises Development Act, 2006 as at March 31, 2007.

19 On September 28, 2005 Woodgreen Investment Ltd. (WIL) did not exercise the option to convert at the exercise price of Rs. 336,5,400,000 Share Warrants issued to them on preferential basis by the Company pursuant to an agreement dated March 25, 2004. Rs. 181.44 million, the upfront money received against these Share Warrants had been forfeited and accordingly taken to 'Reserve andSurplus' in the previous year.

20 During the previous year, project expenses amounting to Euro 1,186,193 incurred by European Optic Media Technology Gmbh (a subsidiary company) for setting up of manufacturing facility in Europe, had been written off. In the current year, the remaining balanceof Euro 504,000 has also been written off as the Company does not expect any future economic benefit to accrue from the aboveexpenditure.

21 Other Disclosures:

In terms of Accounting Standard Interpretation-15 issued on Accounting Standard - 21 'Consolidated Financial Statements' by theInstitute of Chartered Accountants of India, additional information pursuant to requirements of Part II of Schedule VI to The Companies Act, 1956, have not been disclosed in these notes to the CFS.

22 Corresponding figures for the previous year have been regrouped/rearranged, wherever necessary to conform to current year classification.

By order of the Board for and on behalf of MOSER BAER INDIA LIMITED

Deepak Puri Ratul Puri Minni Katariya Yogesh Mathur R. SampathChairman and Executive Director Company Secretary Group CFO Vice President -Managing Director Financial Planning and Control

Place: New DelhiDate: April 30, 2007

SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)Part - B NOTES TO ACCOUNTS (CONTD.)

126

MOSER BAER INDIA LIMITED

STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956

RELATING TO SUBSIDIARY COMPANIES

Name of the Subsidiary Company Financial Year Holding Company Extent of Holding Net aggregate amounts of Net aggregate amounts of theof the Subsidiary Company's profits/(losses) of the Subsidiary so profits/ (losses) of the Subsidiary soCompany ended Interest in the far as it concerns members of the far as it concerns the members of the

on Subsidiary Company Holding Company and is not dealt Holding Company and is dealt (%) with in the accounts of with in the accounts of

Holding Company (in Rs.) Holding Company (in Rs.)

For the financial For the previous For the financial For the previousyear of the financial year(s) year of the financial year(s)

Subsidiary Company of the Subsidiary Subsidiary Company of the Subsidiary since it became a since it became aSubsidiary of the Subsidiary of the

Company Company

(1) (2) (3) (4) (5) (6) (7) (8)

European Optic Media 31st March 2007 Moser Baer India Limited 100 (79,386,756) (122,069,641) Nil NilTechnology GmbH

Omega Optical Media 31st March 2007 European Optic Media 100 (446,401) - Nil N.A.Technologies s.r.o. Technology GmbH

Moser Baer Photo Voltaic Limited 31st March 2007 Moser Baer India Limited 100 (153,043,857) (22,885,447) Nil Nil

Perafly Ltd. 31st March 2007 Moser Baer Photo 100 (4,397,474) - Nil N.A.Voltaic Limited

Dalecrest Ltd. 31st March 2007 Perafly Limited 100 (1,121,197) - Nil N.A.

Nicofly Ltd 31st March 2007 Perafly Limited 100 (1,073,557) - Nil N.A.

Perasoft Ltd. 31st March 2007 Perafly Limited 100 (1,137,013) - Nil N.A.

Crownglobe Ltd. 31st March 2007 Perafly Limited 100 (22,691) - Nil N.A.

Moser Baer SEZ Developer Limited 31st March 2007 Moser Baer India Limited 100 (206,445) (21,202) Nil Nil

Solar Research Limited 31st March 2007 Moser Baer 100 (72,904) - Nil N.A.SEZ Developer Limited

Moser Baer Media Limited 31st March 2007 Moser Baer 100 (63,504) - Nil N.A.SEZ Developer Limited

Moser Baer Energy Limited 31st March 2007 Moser Baer 100 (72,904) - Nil N.A.SEZ Developer Limited

Moser Baer Infrastructure Limited 31st March 2007 Moser Baer India Limited 100 (219,854) - Nil N.A.

Moser Baer Investments Limited 31st March 2007 Moser Baer India Limited 100 (344,316) - Nil N.A.

Photovoltaic Holding plc 31st March 2007 Moser Baer 100 (321,237) - Nil N.A.Investments Limited

Moser Baer Solar plc 31st March 2007 Photovoltaic Holding plc 100 (400,761) - Nil N.A.

Peraround Limited 31st March 2007 Moser Baer India Limited 100 (2,020,429) - Nil N.A.

Advoferm Limited 31st March 2007 Peraround Limited 100 (5,367,939) - Nil N.A.

OM&T B.V 31st March 2007 Advoferm Limited 81 (41,118,010) - Nil N.A.

For and on behalf of the boardSd/-

Date: April 30, 2007 Deepak PuriPlace: New Delhi Chairman and Managing Director

MOSER BAER INDIA LIMITED

127

FINANCIAL DETAILS OF THE SUBSIDIARY COMPANIES

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