Prudence and Simplicity

Transcription

1 Prudence and Simplicity Kotak Mahindra Inc. ANNUAL REPORT -13

2 BOARD OF DIRECTORS: MR. MANISH MEHTA, MR. VISWANATH VARDARAJAN, MR. GAURANG SHAH, MR. C. JAYARAM Directors Report I To the shareholders of Kotak Mahindra Inc The Directors have pleasure in presenting their Annual Report together with the audited accounts of your Company for the year ended 31st March,. OPERATIONS The Company is a 'broker- dealer' registered with the FINRA. FINANCIAL RESULTS AND DIVIDEND The Company's loss for the financial year ended 31st March, amounted to INR 52,787,231 (Previous Year loss - INR 47,002,505).The Directors do not recommend any dividend for the year under review. DIRECTOR'S RESPONSIBILITY STATEMENT The Directors state as an averment of their responsibility that: (a) the Company has, in the preparation of the annual accounts for the year ended 31st March,, followed the applicable accounting standards along with proper explanations relating to material departures, if any; (b) the Directors have selected such accounting policies and applied them consistently and made judgment and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, and of the profit/loss of the Company for the financial year ended 31st March, ; (c) the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (d) the Directors have prepared the annual accounts on a going concern basis. For and on behalf of the Board of Directors Ravilochan Pola Director Varadarajan Viswanathan Director Date: 27th April ANNUAL REPORT -13 1

3 INDEPENDENT AUDITORS REPORT To The Members of Kotak Mahindra, Inc. The financial statements of Kotak Mahindra, Inc. as at 31 st March, being a company registered in the United States of America, are audited by Rothstein Kass, Certified Public Accountants, New Jersey and we have been furnished with their audit report dated 15 th April,. We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with requirements of section 212 of the Companies Act We give our report hereunder: Report on the Financial Statements We have audited the accompanying financial statements of Kotak Mahindra, Inc., which comprise the Balance Sheet as at 31 st March, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the 2 KOTAK MAHINDRA INC.

4 appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31 st March ; (b) in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and (c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. Report on Other Legal and Regulatory Requirements In view of the facts specified in Para 1 and 2 herein above, the requirements of Companies (Auditor s Report) Order, 2003, report under section 227(3) of the Act, report on directors disqualification in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956 and payment of cess under section 441A of the Companies Act, 1956 are not applicable. For V.C. Shah & Co. Chartered Accountants Firm Registration No W A.N Shah. Place: Mumbai Partner Date: April, Membership No.: ANNUAL REPORT -13 3

5 Particulars I. EQUITY AND LIABILITIES Kotak Mahindra, Inc Balance Sheet as at 31st March Note No. As at 31st March, As at 31st March, 1 Shareholders funds (a) Share capital , ,645 (b) Reserves and surplus ,434, ,538,846 2 Non-current liabilities (a) Long-term provisions 3.3 5,245,573 6,478,018 3 Current liabilities (a) Trade payables 2,433,778 2,333,320 (b) Short-term provisions 3.4 8,061,282 4,938,754 TOTAL 242,873, ,987,583 II. ASSETS Non-current assets 1 (a) Fixed assets Tangible assets 3.5 1,225,739 1,364,651 (b) Non-current investments 3.6 8,143 7,631 (c) Deferred tax assets (net) - 12,049,133 (d) Long-term loans and advances ,430 (e) Other non-current assets 3.8 1,642,121 1,851,850 2 Current assets (a) Current investments ,591,937 39,622,865 (b) Trade receivables ,741,296 4,696,501 (c) Cash and bank balance ,550,208 85,168,415 (d) Short-term loans and advances ,774, ,833,844 (e) Other current assets , ,263 TOTAL 242,873, ,987,583 Significant Accounting Policies and Notes to Accounts 2&3 In terms of our report of even date For V. C. Shah & Co. Chartered Accountants For and on Behalf of the Board of Directors A.N. Shah Ravilochan Pola V Varadarajan Partner Director Director Mumbai Dated: 27th April, Dated: 29th April, 4 KOTAK MAHINDRA INC.

6 Kotak Mahindra, Inc Statement of Profit and loss for the year ended 31st March Particulars Note No. For the year ended 31 March For the year ended 31 March I. Revenues from operations (a) Advisory Fee income 40,085,328 37,458,041 (b) Referral Fee Income 37,857,536 71,770,478 II. Other income ,425,247 3,708,871 III. Revenue 84,368, ,937,390 IV. Expenses: Employee cost ,471, ,508,984 Depreciation and Amortization , ,620 Unrealised loss on Investment - 6,786,890 Other expenses ,568,378 31,678,360 expenses 136,546, ,212,854 V. LOSS BEFORE TAX (52,178,291) (57,275,464) VI. Tax expense: (a) Current tax (11,552,177) (21,786,159) (b) Deferred tax 12,161,117 11,513, ,940 (10,272,959) VII. LOSS FOR THE PERIOD (52,787,231) (47,002,505) VIII. Earnings per equity share: Basic and Diluted 3.22 (34.49) (30.71) Significant Accounting Policies and Notes to Accounts 2&3 In terms of our report of even date For V. C. Shah & Co. Chartered Accountants For and on Behalf of the Board of Directors A.N. Shah Ravilochan Pola V Varadarajan Partner Director Director Mumbai Dated: 27th April, Dated: 29th April, ANNUAL REPORT -13 5

7 KOTAK MAHINDRA, INC. Cash Flow Statement for the year ended 31st March, Cash Flow from Operating Activities For the year ended For the year ended 31st March, 31st March, Net Profit / (Loss) before taxation (52,178,291) (57,275,464) Adjustments for: - Interest (3,952,675) (3,531,875) - Dividend (6,364) (22,795) - Unrealised (gain)/ loss on investment (2,317,913) 6,786,890 - Exchange Adjustments 14,826,446 33,239,003 - Depreciation 506, ,620 Operating Profit before Working Capital Changes (43,122,400) (20,565,621) Adjustments for: (Increase) / Decrease in Trade Receivable (1,044,795) 1,435,514 Increase / (Decrease) in Long-term provisions (1,232,445) 4,488,944 Increase / (Decrease) in Other current liabilities 0 0 (Increase) / Decrease in Other Non-Current assets 209,729 (736,975) Increase / (Decrease) in Short term provisions 3,205,403 3,040,365 (Increase) / Decrease in Long-term loans and advances 42,430 (42,430) (Increase) / Decrease in Short-term loans and advances (7,901,099) 448,126 (Increase) / Decrease in Other Current assets (1,449) 109,177 Increase / (Decrease) in Trade payables 100,458 (3,319,067) Cash Generated from Operations (49,744,168) (15,141,967) Direct taxes (paid)/ refund 11,429,945 34,336,750 NET CASH FLOW (USED IN)/ FROM OPERATING ACTIVITIES (A) (38,314,223) 19,194,783 Cash Flow from Investing Activities Purchase of fixed assets (275,002) (1,190,072) Purchase of Investments - (43,289,047) Dividend Received 6,364 22,795 Repayment of loan by fellow subsidiary - 73,490,000 Interest received 3,964,654 3,531,875 NET CASH FLOW (USED IN) / FROM INVESTING ACTIVITIES (B) 3,696,016 32,565,551 Net Increase in Cash and Cash Equivalents (A + B) (34,618,207) 51,760,334 Cash and Cash Equivalents at the beginning of the year 85,168,415 33,408,081 Cash and Cash Equivalents at the end of the year 50,550,208 85,168,415 (34,618,207) 51,760,334 Notes: 1 The Cash Flow Statement has been prepared under the 'Indirect Method' as set out in the Accounting Standard -3 on Cash Flow Statements notified under the Companies (Accounting Standard) Rules, 2006 as amended 2 Figures in brackets indicate cash outflow. 3 The previous year's figures have been re-grouped, wherever necessary in order to conform to this year's presentation. This is the Cash Flow Statement referred to in our report of even date For and on Behalf of the Board of Directors For V. C. Shah & Co. Chartered Accountants Ravilochan Pola Director A. N. Shah Partner Dated: 27th April, V Varadarajan Director Mumbai Dated: 29th April, 6 KOTAK MAHINDRA INC.

8 KOTAK MAHINDRA, INC. 1 Organisation and Nature of Business Kotak Mahindra, Inc. (the Company ), a majority owned subsidiary of Kotak Mahindra Bank Limited (the Parent ), is a brokerdealer registered with the Securities and Exchange Commission ( SEC ) and is a member of the Financial Industry Regulatory Authority ( FINRA ). The Company s operations consist primarily of engaging in agency transactions that are settled on a delivery versus payment basis. These include shares trading on the Indian stock exchange that are executed and handled by its fellow subsidiary, Kotak Securities Limited ( KS ) and Global and American Depository Receipts (GDR s and ADR s) that are executed and handled by another fellow subsidiary, Kotak Mahindra (UK) Limited. The company distributes research reports developed by its fellow subsidiary, KS and provides sales services and earns revenue for this service. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 2 Significant Accounting Policies: 2.1 Basis of Preparation The accounts are prepared in accordance with accounting principles generally accepted in India. The Company follows accrual method of accounting. 2.2 Conversion to Indian Rupees For the purpose of accounts, all income and expense items are converted at the average rate of exchange applicable for the period. All assets and liabilities are translated at the closing rate as on the Balance Sheet date. The Share Capital is carried forward at the rate of exchange prevailing on the transaction date. The resulting exchange difference on account of translation at the year end is transferred to Translation Reserve Account and the said account is being treated as Reserves and Surplus. 2.3 Use of estimates The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. 2.4 Revenue Recognition The Company receives referral fees for referring clients to fellow subsidiaries of the Company. Referral fees are based (a) on the month-end net asset value of the clients holdings and (b) on the equity brokerage and derivative trades as a percentage of each trade. The percentage of commissions is determined based on a pre-defined fee structure agreed by the clients at the time of opening the accounts or as per an amendment. The Company also receives advisory fees for providing research to clients and records the income at the time the services are provided. 2.5 Fixed Assets Fixed assets are stated net of depreciation. Depreciation has been provided on Straight Line Method over an estimated useful life between three and five years. The rates of depreciation are determined after considering the management s estimation of the useful life of the asset. Furniture and Fittings Computers Office Equipment 5 years 3 years 3 years 2.6 Investments Investments are classified into long-term investments and current investments. Investments which are intended to be held for more than one year are classified as long term investments and investments which are intended to be held for less than one year are classified as current investments. Long-term investments are stated at cost less other than temporary diminution. Current investments are valued at cost or market value / fair value which ever is lower. 2.7 Leases Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term. 2.8 Cash and cash equivalent For the purposes of the cash flow statement, cash and cash equivalent consists of cash in hand, bank balances and shortterm deposits with an original maturity of three months or less, net of outstanding bank overdrafts, if any. ANNUAL REPORT -13 7

9 2.9 Taxes Current tax is expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date and any adjustments payable / refund received in respect of previous years. Deferred Tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets arising mainly on account of carry forward of losses and unabsorbed depreciation under tax laws are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income against which such deferred tax assets can be realised. Deferred tax assets on account of other timing differences are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised Earnings per share Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares Provisions and Contingencies Provision is recognised when there is a present obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent Liabilities are not recognized but are disclosed in the notes unless the outflow of resources is remote. Contingent assets are neither recognised nor disclosed in the financial statements Employee Share based payments Cash-settled scheme: The cost of cash-settled scheme (stock appreciation rights) is measured initially using intrinsic value method at the grant date taking into account the terms and conditions upon which the instruments were granted. This intrinsic value is amortised on a straightline basis over the vesting period with a recognition of corresponding liability. This liability is remeasured at each balance sheet date up to and including the settlement date with changes in intrinsic value recognised in profit and loss account in Employee Cost. 8 KOTAK MAHINDRA INC.

10 3 Notes to the Accounts 3.1 (a) Share capital Share Capital Authorised shares As at 31st March As at 31st March 2,000,000 (31st March : 2,000,000) equity shares of USD 0.01 each $20,000 $20,000 Issued, Subscribed and fully Paid up 1,530,621 (31st March : 1,530,621) Equity Shares of USD 0.01 each 698, , , ,645 (b) Equity shares Reconciliation of equity share capital As at 31 March As at 31 March As at 31 March Quantity Quantity Share capital outstanding at the beginning of the year 1,530, ,645 1,530, ,645 Issued during the period Share capital outstanding at the end of the year 1,530, ,645 1,530, ,645 (c) Terms/rights attached to equity shares The company has only one class of equity shares having a par value of USD 0.01 per share. Each holder of equity shares is entitled to one vote per share. The company declares and pays dividends in USD. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders. (d) Shares held by holding/ultimate holding company and/or their subsidiaries/associates Out of equity shares issued by the company, shares held by its holding company, ultimate holding company and their subsidiaries/ associates are as below: Number of equity share As at 31 March As at 31 March Kotak Mahindra Bank Limited, the holding company 780, ,620 Kotak Mahindra Capital Company Limited, subsidiary of Kotak Mahindra Bank Limited 750, ,001 (e) Details of shareholders holding more than 5% shares in the company Equity shares of USD 0.01 fully paid up number % holding number % holding Kotak Mahindra Bank Limited, holding company 780, % 780, % Kotak Mahindra Capital Company Limited, subsidiary of Kotak Mahindra Bank Limited 750, % 750, % ANNUAL REPORT -13 9

11 3.2 Reserves and Surplus Reserves and Surplus a. Securities Premium Reserve Opening Balance 34,033,725 34,033,725 Closing Balance 34,033,725 34,033,725 b. Translation Reserve Opening Balance 45,233,927 9,607,557 Additions/(deductions) during the period 17,682,584 35,626,370 Closing Balance 62,916,511 45,233,927 c. Surplus in the statement of profit and loss Opening balance 182,271, ,273,699 Net Loss For the current year (52,787,231) (47,002,505) Closing Balance 129,483, ,271, ,434, ,538, Long Term Provisions Long Term Provisions Provision for employee benefits Stock Appreciation Rights (refer note 3.25) 5,245,573 6,478,018 5,245,573 6,478, Short-term Provisions Short-term Provisions Provision for Stock Appreciation Rights (refer note 3.25) 8,061,282 4,855,879 Provision for taxes - 82,875 8,061,282 4,938, KOTAK MAHINDRA INC.

12 3.5 Fixed Assets a Tangible Assets Fixed Assets Gross Block Accumulated Depreciation Balance as at 1st April, Additions Deduction/ Adjustments* Balance as at 31st March, Balance as at 1st April, Depreciation charge for the year Deduction/ Adjustments* Balance as at 31st March, Balance as at 31st March, Net Block Balance as at 31st March, Furniture and Fixtures 1,795, , ,355 2,120, , ,589 51,608 1,087,899 1,032,822 1,017,928 Office equipment 519,061 17,968 34, , ,061 2,702 34, ,549 15,271 - Computer & Software 3,394,066 52, ,494 3,673,858 3,047, , ,763 3,496, , ,723 5,708, , ,640 6,366,399 4,344, , ,157 5,140,660 1,225,739 1,364,651 Previous year 3,896,429 1,190, ,256 5,708,757 3,585, , ,706 4,344,106 1,364,651 * Deduction / adjustments includes effect of translation reserve ANNUAL REPORT

13 Non Current Investments Face Value As at 31st March, As at 31st March, Quantity Quantity Other Non-current Investments National Association of Security Dealers $ , ,631 Non Current Investments 8,143 7,631 Aggregate amount of unquoted investments 8,143 7,631 Long Term Loans and Advances Unsecured, considered good Capital Advances - 42,430-42, Other Non-Current Assets Unsecured, considered good Deposits 1,642,121 1,851,850 1,642,121 1,851, Current Investments Face Value As at 31st March, As at 31st March, Quantity Quantity Current Investments Alps Kotak India Growth Fund $ , ,591,937 90, ,622,865 Current Investments 44,591,937 39,622, Trade Receivables Unsecured, considered good Outstanding for a period less than six months from the date they are due for payment 5,741,296 4,696,501 5,741,296 4,696, Cash and bank balances Cash and cash equivalents 12 KOTAK MAHINDRA INC.

14 Balances with banks: 50,550,208 85,168,415 50,550,208 85,168, Short-term Loans and Advances Unsecured, considered good Loans and advances to related parties 135,712, ,187, ,712, ,187,500 3,022,443 3,646,344 39,357-3,061,800 3,646, ,774, ,833,844 In November 2007, the Company provided 112,250,000 three-month term loan to Kotak Mahindra International Limited, a stock holder and fellow subsidiary, which was renewable upon notice. The note was last renewed in February and bears interest of 2.8% per annum and is due 30th April,. As of 31st March,, the total notes receivable outstanding was 135,712,500. The Company earned interest income of 3,952,675 (Previous Year 3,531,875) related to the notes, which is included in Interest Income in the accompanying profit and loss account of which interest income receivable of 316,662 (Previous Year 328,641) was included in Other Current Assets in the accompanying Balance Sheet Other current assets Interest accrued on loan Other receivables 316, ,641 23,071 21, , ,263 Other Income For the year ended 31st March, For the year ended 31st March, Interest income on fixed deposits 148, ,201 Interest income on loans 3,952,675 3,531,875 Dividend Income 6,364 22,795 Provision written back on investsments 2,317,913-6,425,247 3,708,871 Employee Cost For the year ended 31st March, For the year ended 31st March, ANNUAL REPORT

15 Salaries, bonus and allowances Employee Stock Option Scheme Staff welfare expenses 93,873, ,459,524 7,284,640 9,900,917 10,313,251 9,148, ,471, ,508,984 Other expenses For the year ended 31st March, For the year ended 31st March, Rent, rates & taxes Communication expenses Advertising, Business Promotion and Entertainment Repairs and maintenance Travel expenses Insurance Professional and legal fees Auditor s remuneration Miscellaneous expenses Recruitment Expenses 6,514,860 8,479,889 4,168,415 3,763, ,211 1,346, , ,854 4,529,084 6,991, ,426 1,094,750 3,733,241 5,367,449 1,387,047 1,581,155 1,850,791 1,356, ,823 24,568,378 31,678, The Company is the subsidiary of Kotak Mahindra Bank Limited (KMBL). The accounts have been prepared and audited to attach with the accounts of KMBL, the holding company to comply with the provisions of the Indian Companies Act, The transactions are in local currency (US Dollars), which have been converted into Indian Currency (Indian Rupees) for reporting and the rate applied is as per para 2.2 of the significant accounting policies The Company appointed Kotak Mahindra (UK) Limited, a fellow subsidiary, as its clearing agent to execute and process the settlement of its ADR and GDR business. For the year ended 31st March,, there were no commissions earned for transactions that cleared through Kotak Mahindra (UK) Limited The Company received referral fees from two fellow subsidiaries who managed accounts referred to them by the Company. The Company had referral fees from these two fellow subsidiaries of approximately 29,644,730 (Previous year 66,887,665 ) for the year ended 31st March,. Amounts due from these two fellow subsidiaries at 31st March, were approximately 2,008,545 (Previous year 3,408,625) 3.21 Income Taxes As at 31st March,, the Company had net operating loss carry forwards of approximately 67,421,970 and 187,663,245 for federal and state income tax purposes, respectively. No deferred tax assets as at 31st March, has been recognisd on account of carry forward of losses as there is no virtual certainty supported by convincing evidence that there will be sufficient future taxable income against which such deferred tax assets can be realised. A deferred tax asset of 12,049,133 had been included in the balance sheet as of 31st March, to the extent of carry back available Earnings per equity share Particulars Earnings / (loss) used in the computation of basic and diluted earnings per share (`) (A) (52,787,231) (47,002,505) Weighted average number of equity shares used in computation of basic earnings per share (B) 1,530,621 1,530,621 Nominal value of Equity shares $ 0.01 $ 0.01 Basic and diluted earnings / (loss) per share () (A/B) (34.49) (30.71) 3.23 The Company has non-cancelable operating leases for office facilities in White Plains and New York, which expire in August 2015 and March 2014, respectively. These leases are subject to escalations for increases in real estate taxes and other operating costs. Aggregate future minimum rental payments under the leases as of 31st March, are as follows: 14 KOTAK MAHINDRA INC.

16 Year ending 31 March ,599, ,125, ,737,120 13,462,680 Office rent expenses amounted to 5,049,693 for the year ended 31st March, (Previous Year 6,818,041). On 1st April, the Company entered into a new one year lease agreement for office space in New York City, with monthly lease payments of approximately 271, Contingencies and other commitments The Company is subject to various regulatory examinations that arise in the ordinary course of business. In the opinion of management, after consultation with legal counsel, results of these examinations will not materially affect the Company s financial position or results of operations Stock appreciation rights (SARs) The Management grants SARs to eligible employees as and when it deems fit. The SARs are to be settled in cash and will vest in the manner as provided in the scheme / grant letters to employees. No SARs were granted during the year. Detail of activity under SAR is summarized below: For the year ended 31st March, No. of SARs For the year ended 31st March, Outstanding at the beginning of the year Granted during the year 79,880 23,530-65,040 19,637 6,850 Exercised during the year Employees transferred during the year - 1,840 Expired during the year 10,153 - Outstanding at the end of the year 50,090 79,880 Effect of share based payment to employees on the profit and loss account and on its financial position Year ended March 31, Employee Compensation Cost pertaining to share-based payment plans Closing balance of liability for cash-settled options 7,284,640 9,900,917 13,306,855 11,333,897 Had the company recorded the compensation cost computed on the basis of fair valuation method instead of intrinsic value method, employee compensation cost would have been lower by 409,539 (Previous year higher by 1,009,719) and the loss after tax would have been lower (Previous year higher) by the same amount Previous years figures have been regrouped, reclassified wherever necessary to confirm with figures of the current year. In terms of our report of even date For V. C. Shah & Co. Chartered Accountants For and on Behalf of the Board of Directors A.N. Shah Ravilochan Pola V Varadarajan Partner Director Director Mumbai Dated: 27th April, Dated: 29th April, ANNUAL REPORT

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18 Prudence and Simplicity Kotak Mahindra, Inc ANNUAL REPORT -13