Contents. Breaking Barriers. Annual Accounts & Financials

Transcription

1 Contents Breaking Barriers Letter to Shareholders 2 Awards 4 Emerging Stronger in the face of adversity 5 Our Place in the Sun 6 The Ideas Lab 8 Business Excellence 12 Annual Accounts & Financials Moser Baer India Ltd. 66 European Optic Media Technology GmbH (Europe) 93 Moser Baer Photo Voltaic Ltd 98 Consolidated Financial Statements 112 Board of Directors 14 Management s Discussion and Analysis 16 Directors Report 40 Corporate Governance Report 47 ii 1

2 At Moser Baer, we are well positioned to leverage the Information Explosion! metre 50 1 megabyte CMD s Letter Dear Shareholders, Let me begin by thanking you all for your patience during these volatile times in global markets and extending your faith in the company through this diffi cult but equally exciting phase in our technology leadership journey. While it was a tough year, I must say that we have successfully navigated through one of the most diffi cult phases in Optical Media Industry to emerge stronger. With the entry into solar power, we are ready for the next big leap. The strategic direction is clear through cutting edge innovation we will continue to pursue leadership in high technology areas. The energy in the company today is infectious with all systems on go : Research & Development, Operations, Marketing, Finance, Human Resources, IT innovation is happening in every division, department and cubicle of the company. Information is the key: The explosion in information has just begun. I am confi - dent of the growth potential of data storage. I see the world moving towards High Defi nition content. It is after a gap of many years, that a technology is emerging that will signifi cantly change the consumer s viewing experience. This presents a huge opportunity for us. Developing technologies for tomorrow: Our R&D skills are growing from strength to strength with our large team of highly qualifi ed scientists pushing progress. In fact, I am proud to say that the high technology environment in Moser Baer is increasingly attracting top notch global, especially global Indian engineering talent, inducing a reverse brain drain. Our efforts to channelise the vast talent of Indian academia through tie-ups are also delivering beyond expectations. We have a tie-up with the Indian Institute of Technology (Delhi) for thin fi lm technology development and have recently signed an MoU with Banaras Hindu University to work in the area of material sciences. On the manufacturing front, through innovative engineering and intelligent sourcing we have continuously been able to cut cycle time and costs to affirm our position as one of the lowest cost and highest quality producers in the industry. Sun is power: Given the environment and energy constraints of conventional energy, globally and in India, policy support for solar power as a better option is increasing. We see the photovoltaic (PV) business as a signifi cant growth area for the company and aim to emerge as a leading player in the manufacturing and development of multi-technology solar photovoltaic materials and systems. The new business fi ts our criterion well as it leverages the strengths the company has built over the years in the Optical Media business i.e. best-in-class capabilities with regards: base material engineering, fi ne/ wet chemical processing, thin fi lm coating, mass manufacturing and project management and execution, I think that like our technology leadership in the optical media, we will be pushing technology to its limits in the PV area to become the leaders in this business, as well. To become the best place to work : The key resource for the company is its employees. The company has been able to create a favourable work environment that encourages innovation and meritocracy. My personal efforts will continue in this area to ensure that Moser Baer can be amongst the Preferred Employers. Business Excellence: Our business excellence model will strive to continually improve our business in all its aspects and do it in a balanced manner laying the foundation for a deeper organizational capability enhancement leading to enhanced organizational values and results. I would like to end by extending a special note of thanks to every member of the Moser Baer family for their contribution. People think of innovation only in terms of R&D or new product development but taking an idea and turning it into profi ts is an effort that involves the entire company. Thank You Our expertise in Innovative engineering will be our competitive advantage in solar power. Worldwide, solar power production this year should reach 1.6 GW, double the 2003 level. According to CLSA, the Industry is expected to grow at 38%y-o-y till 2010 to a total capacity of 6GW taking the Industry turnover to $35-40bn. Deepak Puri Chairman & Managing Director threads one million square kilometres 1 exabyte - 1 million million megabytes source: Challenge Forum According to The Challenge Forum, If the knowledge available to mankind could be expressed physically, it would have covered the equivalent of the island of Mauritius in 1920, Madagascar in 1940, the Congo in 1960, all of Africa in 1980, all the continents by the Millennium, the whole of the planet now; and be on track, to cover 1,700 planets every year by Information couples together and fuels all the other agents of change. According to estimates on volume of information produced each year by The Challenge Forum, an exabyte = 1 million million megabytes (so if 1 megabyte covered an area of one metre square, exabyte would cover one million square kilometres).

3 Awards Emerging stronger Moser Baer is the largest IT hardware exporter* in the country and our products sell in over 82 countries * Source: Dataquest in the face of adversity Excellence is the key in Moser Baer. We are continuously striving and taking initiatives and making innovations to achieve excellence in all aspects of our operations. The awards are an acknowledgement of these efforts. During FY 06, Moser Baer received the following prestigious awards. Moser Baer was conferred with Plasticon Award 2005 by Plast India Foundation. The Plasticon Awards have been instituted to promote and encourage Innovation and Excellence in all segments of the Indian Plastic Industry. Moser Baer has achieved and demonstrated in the various verticals and horizontals across manufacturing processes. Deepak Puri, Chairman and Managing Director of Moser Baer was conferred with the CEO of the Year 2005 Indira Award for marketing excellence by the Indira Group of Institutes. A year in which we increased our global presence, grew our global market shares in CDR/RW and DVDR/ RW, increased customer base to supply to all the top 12 global tech optical brands, shipped record volumes of optical storage media, grew in the domestic market, forged ahead in the US, outperformed industry... There have been many positives during the year, a result of the concerted efforts made by the company in technology, marketing and manufacturing. These achievements assume more importance given the fact that industry and, in turn, our company is emerging from one of the most challenging periods in the recent history of Optical Storage Media. End of the storm of input costs. This will be boosted with the increasing proportion of Specials premium products such as LightScribe and Dual Layer being shipped and once new technology products hit the market, we soon expect further improvement in performance. Well prepared for new formats We are in advanced stages of developing and commercializing the emerging High Density formats. We plan to launch a series of next generation formats, in conjugation with drive and recorder availability soon and expect to be the first to market in HD DVD and Blu-ray recordable media. The company was awarded with Best of All Rajiv Gandhi National Quality Award by the Bureau of Indian Standards. Rajiv Gandhi National Quality Award was instituted by the Bureau of Indian Standards in 1991, with a view to encourage Indian manufacturing and service organizations to strive for excellence and giving special recognition to those who are considered to be the leaders of the quality movement in India. Moser Baer was also felicitated with the Electronics Organization of the Year Award from Electronics for You Publication Group. This award is in the recognition for the excellence Honorable Union Minister for Agriculture, Consumer Affairs, Food and Public Distribution, Sharad Pawar presenting the Rajiv Gandhi National Quality Award, 2005 to Mr Girish Baluja, COO, Moser Baer. After difficult times over the past two years, the global optical storage media industry is now on a steady path to recovery, driven by consolidation of capacity, continued growth in consumer demand and signs of softening of prices for key inputs. The company is gradually reverting to normal levels of operational & fi nancial performance. As anticipated by us, the global demand-supply equilibrium has been restored in the CDR/RW space boosted by explosive growth in emerging markets like India, China and Mexico. We expect to start reverting back to normal operating and fi nancial levels in the medium term driven by increasing DVDR/RW contribution, improving CDR/RW pricing, rising production effi ciencies and softening On a strong home wicket India represents a huge opportunity in the optical storage media industry. We have been able to successfully grow our moserbaer brand to leverage the growth in the market and emerge as a clear leader. Launched in 2003, the moserbaer brand has qualifi ed as a Business Superbrand in its category this year. 4 5

4 OUR PLACE IN THE SUN Every day, the Sun provides about 10,000 times more energy to the Earth than we consume - if only we could harness it properly! With technological breakthroughs fast lowering harnessing and distribution costs, solar power is fast emerging as a viable and eco-friendly power generation option for tomorrow with no moving parts, no noise and zero emissions. The demand for power has been growing exponentially across the world. This has led to a severe shortage in the supply of the conventional sources of energy vis-à-vis growing demand, thereby resulting in fossil fuel prices spiraling upwards. As a result, Renewable Sources of Energy are assuming importance the world over. Governments of countries around the world are providing incentives and subsidies for promoting these cleaner energies. Technological advances, cost reduction and the advent of grid connected systems are signifi cantly increasing the growth of Photovoltaic segment, particularly in developed markets and offering huge export potential for effi cient manufacturers. At Moser Baer, we believe in the promise of solar energy and have taken up the challenge of developing technology and expertise in the domain. As better cost effective technologies are being developed, we will see mass deployment of this power source. We plan to use the synergies between our existing business and this new venture by leveraging on core competencies in the areas of base material engineering, fi ne/ wet chemical processing, thin fi lm coating, mass manufacturing, project management and execution, technology development and logistics and supply chain management. MBI has the requisite qualifi cations to achieve rapid capacity ramp up, service global markets and achieve steep cost reductions and gain market leadership position. Future Growth Driver According to CLSA estimates, the Industry has been growing at a CAGR of around 30% over the last 5 years. The cumulative production today stands at approximately 1.6GW of power and is expected to grow at 38%y-o-y till 2010 to a total capacity of 6GW taking the Industry turnover to $35-40bn. The company is targeting a capacity of 80MW by Year 2007 with an initial investment of Rs. 2,600mn ($58mn). The project is on fast track and will be executed in Moser Baer Photo Voltaic Ltd., which has already been established as a 100% subidiary and capitalized. The contracts for supply of equipment and technology for cell making have already been executed and part of our short term requirements of raw materials secured. Some of the applications of PV are Off Grid Solar Energy has been the power supply of choice for industrial applications, where power is required at remote locations. This means that in these applications solar power is economically viable, without subsidy. Most systems in individual uses require a few kilowatts of power. Examples are home systems in remote areas, powering repeater stations for microwave, television and radio, telemetry and radio telephones. Battery storage is required in this format to provide power outside daylight hours. Grid Connect PV applications Recent years have seen rapid growth in the number of installations of PV on to buildings that are connected to the electricity grid. This area of demand has been stimulated in part by government subsidy programmes (especially Japan and Germany) and by green pricing policies of utilities or electricity service providers (e.g. in Switzerland and the USA). The central driving force though comes from the desire of individuals or companies to obtain their electricity from a clean, non-polluting, renewable source. The development of Grid Connected systems also brings the costs to realistic levels in solar energy. Once a PV system has been installed, it is connected to the grid. This means there is no need for expensive storage capacity (Batteries). During the day, net available power is fed to the grid coinciding with peak load periods (daytime). The Grid provides credit based on amount of energy generated (meter runs in reverse). It also benefi ts the utilities as they are able to use purchased power from PV systems to obtain carbon credits.

5 The Ideas Lab From technology recipients to technology innovators At Moser Baer we are not just keeping up with change, we are driving it. In the mid eighties, when we entered the data storage fi eld the company was manufacturing 8 inch Floppy Discs with a mere capacity of 80 kilobytes today, in collaboration with industry, we are Breaking Barriers and looking at developing discs with over 200 gigabytes capacity using holographic technology. The company has not only kept up with the fast and dramatic changes in the optical media industry it has emerged as a high technology innovator, pushing technologies for tomorrow. The serene surroundings of our R&D facility in Greater Noida is where you will fi nd our incubator for future growth. A hand picked team of highly qualifi ed scientists is working on bringing new technologies and innovations to the world. Technology change in Optical Media is rapid and at times drastic. We have today in place an intellectual capacity to ensure we remain ahead in all our businesses. The highly challenging and change-oriented environment we have created is also attracting global talent. This year we also hosted the fi rst ever seminar of DVD+RW Alliance Group in India to spread awareness about the new set of technologies and to promote the DVD+RW/+R set of media products. Through our Advance Media Laboratory, we have developed R&D tie-ups with the major OEMs across the world. The Laboratory obtains certifi cation and provides guide-maps to the other Departments with regards new products to be developed. Collaboration with Academia The company is amongst a handful of companies that have tie-ups with leading technology institutes like the Indian Institute of Technology, Delhi and Banaras Hindu University (BHU), Varanasi. These institutions contain a vast pool of highly talented scientists and with collaborative activities like these, breakthrough research can be achieved. The tie-up with IIT is primarily to work jointly in the frontier areas of thin fi lm sputtering technology suitable for optical data storage devices whereas in the tie-up with BHU, the emphasis will be on alternate materials development. A Year of Media Innovations We have been consistently investing in emergng superior optical media technologies. With the introduction of high-defi nition television HDTV) broadcasts and increasing use of high-defi nition recording for creating content, Blu-ray and HD DVD optical media provide the high capacities required. These formats not only allow users to record crystal-clear, superior images but also gives the benefi t of vast data storage capabilities. Over the past three years, the company has invested signifi cantly in its R&D programs targeted at developing the next generation formats in optical media space by leveraging its core skills in base material engineering, thin fi lm coating, precision sputtering and deep UV mastering technologies. Starting from 2QFY07, the company plans to launch a series of next generation formats, in conjugation with drive and recorder availability, and expects to be fi rst to market in a majority of these formats. The four products which we believe will have a signifi cant market potential in the future are DVDR Dual Layer, HD DVDR (recordable) and BDR and RE (Re-writable). In Constant Search of Excellence Whether it is designing new grooves, looking for alternate sourcing options, working with vendors to improve machinery and lines or maximizing utilization of space while designing lines at Moser Baer our engineers keep pursuing the best combination and permutations to derive substantial tangible benefi ts such as lower cycle-time, cost effectiveness, higher productivity and lower wastage... Over the years, Moser Baer has been constantly searching for innovative ways of reducing costs while ensuring consistent high quality. In this quest, we have concentrated on doing different things as well as doing things differently. We export close to 85% of total production annually, despite the remoteness between the production setup and the markets catered to, the company has developed and maintained its status as the lowest-cost producer of optical media in the world through creative engineering. As a result, over the last year, the company has emerged as the 8 9

6 KEYACHIEVEMENTS 2006 At Moser Baer, we continue to surpass ourselves. Some of the key achievements in the year: Developed a unique patented technology BDRL2H, specifi cally for advanced generation of BD formats. New formats added in our portfolio: DVDR (DL) 1P Process, DVDR (DL) 2P Process, DVDRW 8X and LS 1.2. Entered a new business Solar Photovoltaic. Set up a subsidiary Moser Baer Photo Voltaic Ltd. for the photo voltaic cells and modules business. Achieved record level of optical media shipment. Moser Baer achieved Superbrand business status. The Industry-Academia link: Moser Baer and IT-BHU signing an MoU to jointly work on high tech research only company in the world to supply discs to all the major OEMs across the world. We are Flexible Flexible Manufacturing is an essential component of the company s manufacturing excellence. Our ability to design our own lines allows us to install fl exibility. Through this fl exibility we are able to keep our options open for profi tably exploiting future technology. As technology and the consumer moved from CD technology to DVD technology, we were able to quickly scale up to changing market demand by converting some CD lines to DVD at minimum costs. Now with new technologies coming up in the High Density area we are again ready and waiting. We have the ability to convert most DVD lines to HD DVD or BD as per market needs

7 business Excellence Leveraging on our core strength in manufacturing excellence, we are moving to the next level on a business excellence path, bringing a spirit of excellence permeating across the entire length and breadth of the organization. Business excellence is as much about the destination as it is about the journey. Our business excellence model provides a framework that recognizes that they are many approaches to achieving sustainable excellence. We strive to continually improve our business in all its aspects and do it in a balanced manner laying the foundation for a deeper organizational capability building leading to enhanced organizational values and results. Starting off with a strategic planning and annual budgeting process which is tied to the corporate scorecard deployment. This is cascaded down to functional scorecards and individuals and hence we are sharpening the focus on critical factors for sustainable business excellence. We are also laying the foundation for a corporate six sigma program that will further enhance our ability to effectively execute on strategic objectives as well as provide with a broader platform for leadership development at all levels. We also believe that this will provide employees with a career growth path in a cross functional manner and create many more pockets of functional excellences across the organization that are aligned to the corporate strategic objectives. While we have already been creating pockets of excellence in various functions like Research & Development, Operations, Marketing, Finance, Human Resources, IT, this will further enhance the excellence initiatives. So while HR has put in the best practices for staffing, compensation, motivation and other facets of the function, the finance function is driving a strong fi nancial discipline in cost budgeting and annual budgeting processes, IT is enabling process controls, information systems and treasury management for more effective fi nancial and risk management. These are just few of the functional excellence centers being created in Moser Baer and with the focus on a corporate business excellence framework, we will see an energized spirit in the entire organization. Business Excellence: The Moser Baer Way Budgeting Planning Strategy Execution Prioritization & Resource Allocation, Six-Sigma & Project Mgmt Framework, Reviews Framework, Management Reporting Business Strategy Development and Deployment Strategic Planning & Strategy Mapping, Balanced Scorecard Objectives Identification, Target Setting Execution Performance Management Reward & Recognition, KRA based business scorecard linkages Mid-year Reviews Annual Performance Reviews 12 13

8 Board of Directors Meet our Board of Directors - the people that provide the inspiration and environment for continuous Deepak Puri Harnam D Wahi Prakash Karnik (Chairman & Managing (Director) (Director) Director) Ratul Puri (Executive Director) Nita Puri (Director Administration & HR) Rajesh Khanna (Director Nominee Warburg Pincus Singapore LLC) Bernard Gallus (Director) 8 Arun Bharat Ram (Director) John Levack (Director) 10 Ajay Shah (Director) improvement in the Company. It is the experience and foresight of these people, which continues to take Moser Baer forward and provides it with the edge over other players in the industry Deepak Puri provides strategic direction to the Company. He is the driving force in creating an environment of integrity by ensuring fair business practices and profound respect for intellectual property rights. It is his ceaseless quest for human capital development that has helped steer the Company along a continuous growth path. He is also the Managing Director of Moser Baer Photo Voltaic Limited (MBPVL). A leading spokesman for the Indian industry, Deepak Puri has never shied from speaking his opinion. He is an esteemed member of CII, ESC and ELCINA. He holds a Master s Degree in Mechanical Engineering from Imperial College, London. 2 Ratul Puri joined Moser Baer in 1994 and has been Executive Director since Prior to assuming the directorship, Ratul was General Manager (Business Development). In this capacity, he was instrumental in setting up plants for manufacturing compact disc-recordables (CD- Rs), the fi rst to come up in India. He has also played a pivotal role in reinforcing Moser Baer s focus on maximizing 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 from Carnegie Mellon University, USA. 3 Harnam Wahi brings a wealth of experience and global expertise to the Board of the Company, having worked in various senior positions in prestigious Indian and International Organizations such as the Inchcape Group, London. He was also closely associated with several industry associations. He is a Director in MBPVL also. He is a recipient of PADMA SHREE awarded by the President of India. 4 Nita Puri is a co-promoter of Moser Baer and a Whole-Time Director of the Company. A graduate from Calcutta University, she has over three decades of experience in managing businesses. As Director (Administration and HR), she has been closely involved with the company s growth since its inception. 5 Prakash Karnik was 6 Rajesh Khanna has 7 Bernard Gallus brings 8 A Past-President of 9 John Levack is Director a Director at Electra been working with with him over four the Confederation of of Electra Partners Asia 10 Partners Asia Private Warburg Pincus for decades of experience Indian Industries (CII), Ltd. He has over 20 Ltd, one of Asia s more than six years. He in the international Arun Bharat Ram is the years of private equity leading private equity is an MBA from Indian technology and fi nance Chairman and Managing experience with Electra fi rms. An engineer from Institute of Management, markets. He was earlier Director of SRF Ltd. A and 3i Plc in Asia and the Indian Institute of Ahmedabad and a Managing Director graduate in Industrial Europe, four years of Technology (Madras) Chartered Accountant. and member of the Engineering from the which have been in University of Michigan, and a management He earlier worked with Board of J. Bosshard India. He is a director USA, he began his graduate, he has over leading fi nance and S.A. Lausanne, later at Zensar Technologies career in 1967 with the 25 years of experience consulting fi rms such taken over by the Delhi Cloth & General Ltd., MBPVL, Electra in the engineering as Citibank NA and manufacturing company Mills Co. Ltd, (now Partners Asia Pvt Ltd and fi nance sectors. Arthur Andersen & Co. W Moser Baer AG, DCM Ltd.). He went on and RT Packaging Ltd. He has worked in He has been appointed Switzerland. He is a to set up SRF Ltd. in Levack has a degree in senior positions in Managing Director of Director in MBPVL In his businesses, business administration both government and private sector organizations, including Jardine Fleming India Securities Ltd., Unit Warburg Pincus India Private Ltd and of Warburg Pincus LLC. He is also on the Boards of Nicholas Piramal India he has strongly supported corporate governance initiatives and professionalism. He has been on various from Bath University in the UK. Trust of India and the Ltd, Max New York Life government-industry Economic Development Insurance Co. Ltd, Max committees and is a Corporation of Goa Ltd. Healthcare Institute former president of the He is also a Director in Ltd, Max India Ltd, and Association of Synthetic Fibre Industry. Arun MBPVL. MBPVL. Bharat Ram is also on the Board of many other companies, some of which are as follows- Bharti Tele Ventures Limited, Samtel Color Limited, Fenner (India) Limited, SRF Polymers Limited. Ajay Shah is the Managing Partner of US-based Shah Capital Partners, which is focused on private equity investments in technology companies. He was previously the founder of SMART Modular Technologies, a company that was bought out by contract manufacturing giant Solectron Corporation in a deal valued at over $2 billion in Mr. Shah was also selected Entrepreneur of the Year in Silicon Valley in He currently serves as the Chairman of Smart Modular Technologies, Inc and is on the boards of CMAC Micro Technology and Proactive Networks, among other companies. He is also on the board of directors of the Indian School of Business and is a trustee of the American India Foundation

9 Management s Discussion & Analysis Overview The year (FY06) has been one of challenge, achievement and change. The company emerged stronger from the diffi cult industry conditions prevalent over the last 18 months, which led to a global consolidation of capacities. Over the past year, the Company has focused its efforts to improve its manufacturing and supply chain effi ciencies, drive R&D and engineering programs to improve the product and service offerings that we bring to customers. This enabled us to offer value added products to our increasing global customer base of technology OEMs, achieve record level of product shipments, surpass quality benchmarks and achieve a possible fi rst to market position in the next generation global formats the blue laser based Blu-ray disc (BD) or High Density DVD (HD DVD). Over the next few years, we believe that the company is well positioned to further enhance our global leadership position in Optical Media industry. In line with a long term strategy of creating a multi business technology led transnational, the company announced plans to enter the global Photo Voltaic (PV) industry. The new business has been identifi ed as technology driven, poised for extraordinary growth and leveraging the company s core strengths in fi ne/wet chemical processing, thin fi lm coating, mass manufacturing, rapid technology commercialization & project execution. The PV business is signifi cantly less capital intensive compared to optical media business and should contribute to improving overall returns on invested capital. The company aims at emerging as a key player in this environment friendly alternative energy technology, and to spur reduction of PV cell costs through innovation in technology and manufacturing to emerge amongst the most effi cient PV cell manufacturers in the world

10 The cornerstone for sustaining global leadership and success in the optical media and PV business will be the company s ability to break barriers on the operating and technology front. Global Industry Developments in Following the diffi cult industry environment over the past 18 months which adversely impacted the operating performance of manufacturers, the global optical storage media industry started on a steady path to recovery in , driven by global consolidation of capacity, continued growth in consumer demand and signs of softening of prices for key inputs. by increasing drive penetration and improving price-value proposition, to grow to 3.9 billion disks in 2005, a 105% growth over the previous year. Meanwhile global CDR/RW supply continues to consolidate through capacity conversions and closure of ineffi cient capacities around the world. This is helping CDR/RW demand-supply Product-wise Analysis and Outlook CDR/RW Global CDR/RW supply continues to consolidate through capacity conversions into DVDR/RW and closure of ineffi cient capacities around the world. This is helping CDR/RW demand-supply balance return to equilibrium, thereby providing a stimulus for fi rm CDR/RW pricing environment in the medium term. Strategic Marketing & Decisions (SMD) estimates and writers will also help extend the CDR/RW life cycle. DVDR/RW DVDR/RW drives are fast becoming a part of standard product offerings, increasing their penetration rates and growth in the installed base of drives. As per SMD, DVD-enabled drive sales represented nearly 75% of all optical drives sold in 2005 and the DVDR/RW writer base is expanding at over 60% p.a. The growth is being driven by proliferation of new drives and new Channel inventories depleted as the industry moved towards better demand supply balance, accompanied by strong volume growth, with DVDR being the growth leader. While capacity conversion resulted in fi rming of CDR prices later in the year, DVD prices started following the manufacturing cost curve as the product attained maturity. The price of polycarbonate (PC) remained a key factor in driving signifi cant increases in the input costs for the industry. A sharp rise in global PC prices severely impacted industry s operating Optical Media Market Total CDR/RW Total DVD/RW Total Blue R/RW performance. The PC price curve started to ease from the second half of , which should positively infl uence the industry in the near term. The year saw DVDR/RW format emerge as a format of choice for the consumer, driven 419 balance return to equilibrium with global demand estimated to be 13.6 billion disks in 2005, according to Strategic Marketing & Decisions (SMD) estimates. SMD expects global demand for optical media to grow from 17 billion units per annum in 2005 to 27 billion units per annum by 2008, driven by robust growth in DVDR/RW formats and stability in CDR/ RW. Companies should also start shipping BD/HD DVD media during Optical Media Drive Shipment global demand for CDR/RW formats to remain around the level of 13 billion units per annum over the next couple of years. Consumer demand for CDR/RW format continues to grow in Asian and Middle Eastern markets. There are also certain emerging corporate applications and niche segments like the printable media and LightScribe, which are seeing a rapid growth in the CDR/RW space. The legacy of CD-Audio disc players users with CE devices (DVD VCR, Camcorder) becoming major consumers of media. SMD expects shifting consumer preferences, increasing drive penetration and improving pricevalue proposition to grow the demand for DVDR/ RW media to over 5 billion disks per annum in 2006 from 3.9 billion disks in 2005, with 16x media emerging as the dominant variant. Delayed launch of Blue-laser based formats (BD & HD DVD) should lead to a larger than expected installed base of DVDR/RW drives and an extension in lifecycle for DVD-formats. As DVDR/RW manufacturing technology matures and as format writing speed stabilizes, the DVDR/RW pricing is expected to follow the manufacturing cost curve in the medium term, which should further aid volume growth Shipments (mn) DVD - ROM CD - ROM Comb0 DVD - Rec C B

11 Financial Highlights Gross revenue for FY 06 at INR million is an increase of 28.0% over FY 05, representing the recovery in volumes and impact of expanded capacity during the year. EBITDA (including other income) at INR 4,136.0 million grew by 5.6% over FY05. Operating performance turnaround from Q2 of FY 06 as industry variables started to improve and as company s various programs on effi ciency improvement were implemented. The company achieved a profi t after tax (including deferred tax impacts) of INR 46.7 million in FY06. Moser Baer Developments FY During the year, the company signifi cantly enhanced its position in the global optical media industry, and emerged amongst the three largest producers across both the DVD and CD formats. The company now supplies to all the top twelve leading technology OEMs in the world. The company has also strengthened its position in the domestic market by expanding its market reach and brand awareness. During the year, the company continued its efforts to gradually revert to normal levels of operational & fi nancial performance. The steady improvement in market conditions and our increasing order books enabled us to achieve record levels of optical media shipments in FY06. Despite the short term turbulence of the past years, the company remains positive on the long term potential of the optical media industry. The company expanded its capacity from 2.4 billion units per annum to 2.8 billion units during the year. During , DVDR/RW shipment volumes grew at a fast clip, while a sharp recovery in CDR/ RW shipments in line with our expectations, particularly during the second half of the year, contributed to a robust growth in optical media shipments during the year. Overall shipment volumes rose 14%, with DVDR/RW contributing to a signifi cant part of the increase. The Indian market remains one of the fastest growing markets in the world. During the year, the company continued its efforts to emerge as a dominant player in this key market with its Moser Baer PRO range of products. The brand has now grown to capture over 50% market share of the domestic branded market. The company spends around 2.1% of its revenues on pure optical media research and engineering. The multi-pronged approach to R&D at our world class research labs at Noida and Greater Noida has enabled us to sustain our competitive edge over the years. The company continues to drive extensive cost reduction programs, with a focus on DVD formats, resulting in increasing manufacturing effi ciencies. We have been able to research, design and co-develop equipment which improves process yields, enabling us to re-set benchmarks for manufacturing costs and effi ciencies. In a fast evolving market landscape and increasing competition, companies will increasingly use technology to differentiate themselves and not only launch innovative products, but also do so through more effi cient manufacturing. The company has embarked on a strategy to transform into a technology developer and innovator. This should widen the gap between the company and second-tier players. With proprietary technology and a possible fi rst to market position in the next generation formats, the company is well placed to further enhance its global leadership. Next Generation Formats: With the phased introduction of high-defi nition television (HDTV) broadcasts and increasing emergence of hardware supporting high-defi nition content, the variables exist for introduction of next generation of mass storage media. The race is already on to successfully develop and commercialize the next generation format in the industry, namely the BD or the HD DVD. SMD believes that it is the Blue Laser technology (BD & HD DVD) that has the potential of signifi cantly mitigating the impact of possible cannibalization of optical media demand by emerging alternate technologies in the long term. The next generation optical media formats have the potential to provide a price-value proposition to consumers which could be extremely diffi cult for alternate technologies to meet. Over the long term these formats could evolve to store 100GB of data at a price point equivalent to current retail price of DVDR/RW format. While SMD expects 2007 to be the first big year for blue laser based technology, the race has already begun. Over the past three years the company has invested signifi cantly in its research and development programs targeted at developing next generation formats in optical media space by leveraging its core skills in base material engineering, thin fi lm coating, precision sputtering and deep UV mastering technologies. Starting from 2QFY07, the company plans to launch a series of next generation formats, in conjugation 20 21

12 Optical Market in FY06 CDR/RW in FY 06 Demand-supply equilibrium reached as capacity partly converted/exited Signifi cant inventory depletion Demand continued to grow at low single digits worldwide CDR pricing stabilizes Outlook Shipment volumes to remain strong Contribution should normalize as entire inventory depleted DVDR/RW in FY06 DVD demand-supply in balance 16x emerging as the format of choice DVDR/RW prices are broadly tracking the manufacturing cost curve Outlook DVDR/RW shipment volumes to grow strongly DVDR/RW pricing to follow the manufacturing cost curve Pricing to continue to fi rm with drive and recorder availability, and expects to be fi rst to market in a majority of these formats. The four products which we believe will have a signifi cant market potential in the future are DVDR Dual Layer, HD DVDR (recordable) and RE (re-writable), HD DVD Dual layer, and BD-R and RE. The company has developed a unique technology specifi cally for advanced generation of BD formats which will not only enable lower manufacturing costs, but also allow the consumer greater ease of interchangeability of media across different drives. This is expected to give us a signifi cant competitive edge in the next generation format race. The company has also begun collaborative efforts in the Holographic technology domain in order to work on media and related development of the future disk with capacities up to 200GB and beyond. New Business Initiative: Photovoltaic (PV) Cell Project During the year, the company took a big stride forward in opening new vistas for future growth with the entry in the emerging Photovoltaic industry. The company, which plans to make an aggressive entry into the PV business by manufacturing solar cells and modules, aims to emerge as one of the key industry players and one of the most efficient manufacturers in the sunrise PV industry. This new fi eld of business is synergistic with our existing businesses and will leverage on our core competencies in the areas of precision high technology mass manufacturing, base metal engineering, thin-fi lm coating and project management. Globally, energy is fast emerging as a critical issue, especially as existing power generation options have limitations in terms of growth potential and long-term sustenance. With the Sun supplying 10,000 times the amount of energy needed every year by Earth, and with technological breakthroughs fast lowering harnessing and distribution costs, solar power is fast emerging as the most viable and eco-friendly power generation option for tomorrow with no moving parts, no noise and zero emissions. The PV space is expected to grow fi ve-fold to a global market size of $40 billion by Year Also, the cost reduction potential of PV promises to make it competitive with grid electricity over the years, which could signifi cantly increase its applications and growth potential. As part of its strategy in the new business, the company is targeting the two segments in PV value chain that are most attractive from a synergy standpoint solar cells and modules. It s also leveraging existing core competencies and R&D to develop cutting edge manufacturing effi ciencies and identify and participate in emerging technologies to establish an early mover advantage and sustainable competitive edge. The company is targeting a capacity of 80 MW by Year 2007 with an initial project cost of INR 2600 million ($58 million). The project is on a fast track to implementation and will be executed in Moser Baer Photo Voltaic Ltd, which has already been established and capitalized. The contracts for supply of equipment and technology for cell and module making have already been executed. The company has also secured part of its short term requirements of raw materials and is working towards closing medium to long term sourcing agreements. The company plans to start commercial production by 3QFY07. The PV space presents the company with an exciting growth opportunity. Also, since the business is signifi cantly less capital-intensive than the company s existing business, it is expected to noticeably improve the overall return on invested capital. SWOT Strengths 1) Integrated manufacturing allowing cost effi ciencies and enhanced speed to market. 2) Lower capital investment, manpower and overhead costs allow cost leadership. 3) Strong focus on R&D and engineering to constantly innovate products and reduce costs. 4) Committed shareholders add strength, longevity and sustainability to future plans. 5) Strong project management skills and execution and mass manufacturing expertise. 6) Well established logistics and supply chain anagement skills. 7) Evolving into a multiple technology business transnational. Weaknesses 1) Need to scale up operations to meet exponential growth opportunities. 2) Exposed to commodity cycles, especially in the short term

13 3) Fall in product prices: As products move into the mature phase in their life-cycle, they start to emulate commodity-type characteristics. Also, as the industry is characterized by high volumes, large capacities and investments, a sharp reduction in product pricing can impact performance. Pricing could fall due to oversupply, low demand and cost reduction due to reduction in input costs or setting up of capacities in low-cost regions. 4) Sharp increase in input costs: The key inputs for optical media and PV cell business are Polycarbonate and Polysilicon respectively, both of which are commodities. Any sharp increase in prices of these commodities or demand-supply imbalances could adversely impact business. The company is working on strategic sourcing agreements for critical raw materials, and this will help ease the impact of any pricing volatility. The company s aim is to be amongst the global leaders in technology evolution in the Photo Voltaic business and to relentlessly drive down costs to establish itself as a leading highly effi cient manufacturer in the global photovoltaic industry. Long term Long term strategy of the company is to be amongst the worlds leading technology manufacturing companies by continuing to leverage upon competencies in base metal engineering, thin fi lm coating, rapid technology commercialization and effi cient asset creation. The company will continue to evaluate and grow business having high growth potential, strong technology barriers and high return on capital employed. Near-term operational objectives Further increase competitive edge by lowering costs and improving effi ciencies. Improve sales mix by developing value-added products. Continue to drive strong cash fl ow and working capital effi ciencies. First to market in next generation formats. Commercialize photovoltaic project on schedule and drive down costs. Strengthen customer base and relations by entering into strategic alliances. Long term strategic sourcing arrangements for critical inputs. Opportunities 1) Robust growth in DVDR market: With existing top-tier customer base and effi cient in-house technology, the company is well positioned to increase market share. 2) Domestic market: India is one of the fastest growing markets. The company is well positioned to dominate this captive market. 3) Emerging Technology: The Company has invested signifi cantly in its research and development programs targeted at next generation formats to be fi rst to market in a majority of these formats. 4) Solar Photovoltaic business: The Company is leveraging upon existing core competencies and R&D to develop cutting edge manufacturing effi ciencies and identify and participate in emerging technologies to establish an early mover advantage and sustainable competitive edge in PV space. Threats 1) Emerging technologies: In a dynamic technology environment, the Company s business could be threatened from more effi cient emerging technologies. A growing drive installed base, specifi c applications and an un-matched price value proposition will ensure continued growth of optical media. The company is all set to capture the imminent growth in next generation formats through its R&D and product development efforts. Also, an early mover advantage in the fast growing global PV business should provide further momentum to growth. 2) Anti-dumping and anti-subsidy levies: The Company derives a signifi cant part of its revenues from international markets. These have seen a growing protectionist attitude and a tendency by some local governments to use anti-dumping and trade protection tools to provide protection to local businesses. However, the Company continues to keep a close watch on this front and take necessary steps to minimize any fallout. 5) Change in Government policies/ subsidization programs: Worldwide, government policies and incentives have provided impetus to the tremendous growth of PV industry globally. Any change in these policies could impact the potential growth of this business. Given the rising global concern for alternate and environment friendly source of energy, PV is being recognized as a viable alternative, globally. Strategy Short term The Company s near-term strategy is to leverage its world class manufacturing base, corecompetencies and R&D to develop cutting edge manufacturing effi ciencies and identify and participate in multiple emerging technologies to establish an early mover advantage and sustainable competitive advantage in next generation formats for optical media and the Photo Voltaic business. Medium term Moser Baer believes that in the medium term, the optical storage media industry offers suffi cient growth opportunity with relatively low risks and high returns on invested capital, driven by next generation formats. Reducing time to market through innovation, R&D and process improvements

14 Operating Performance Review (in INR mn) PARTICULARS FY06 FY05 Net Sales (net of taxes/duties) Other Income Increase in stock of Finished Goods/Work in Progress Total Income Total Expenditure Interest & Finance Charges Depreciation Profit before Tax and Prior Period Items Prior Period (Income) / Expense (Net) (6.6) 56.7 Profit before Tax and after Prior Period Items Tax Expense: Current Tax (6.3) 26.3 Deferred Tax (14.0) (331.1) Fringe Benefit Tax Net Profit after Tax Financial Analysis Overview The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, and Accounting Standards in India. Our management accepts responsibility for the integrity and objectivity of these fi nancial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the fi nancial statements have been made on a prudent and reasonable basis, in order that the fi nancial statements refl ect in a true and fair manner the form and substance of transactions and reasonably present our state of affairs and profi ts for the year. Revenue analysis Gross revenues in fi scal year rose 28.0% over the previous year to INR 17,319.1 million, while a severe margin pressure resulted in a marginal net profi t after tax (including deferred tax impact) of INR 46.7 million. EBITDA (including other income) at INR 4,136.0 million grew marginally by 5.6% over the previous year, while EBITDA margin was at 23.1%, compared to 27.6% in FY However, the Company continues its efforts to gradually revert to normal levels of operational & fi nancial performance, as evident from 4Q FY06 performance. The Gross revenue increased 25.7% over previous year, while the company reported a 65.5% growth in EBITDA translating into a profi t before tax of INR 20.9 million in 4Q FY06 against a loss of INR million in the previous year. Fully diluted earnings per share for FY were at INR 0.42, against INR 5.45 in FY05. However, the company continues to generate strong gross cashfl ow of INR 3,214.3 million in FY Capital Structure There was no change in the capital structure of the Company and the paid-up equity capital remained at INR 1,115.2 million as on 31 March On September 28, 2005 Woodgreen Investment Ltd. (WIL) did not exercise their option to convert at the exercise price of INR 336/-, 5,400,000 Share Warrants issued to them on a preferential basis by the Company pursuant to an agreement dated March 25, The upfront money of INR million, received against these Share Warrants has been forfeited and accordingly taken to Reserves and Surplus as capital reserve. Reserves The company s reserves remained stable at INR 18,933.4 million in FY06 against INR 18,832.4 million in FY05. The increase was on account of capital reserves (warrants) during the year. As on 31 March 2006, Securities Premium Account comprised 47.0% of the total reserves and General Reserves (including profi t for the year) comprised the remaining 53.0%. There are no revaluation reserves as on 31 March Loans Over the years, the company has part-funded its ongoing expansion and investment programs through loans raised at progressively lower costs. We have also tried to build a prudent basket of currencies to hedge against currency risks and minimize costs. Our currency-wise total debt outstanding is as follows: 26 27

15 Table on currency wise total debt outstanding. in millions Currency Amount Amount % of in Currency in Indian Rupee Dept. USD , % Euro , % INR 8, , % During FY06 there was a net addition of debt of INR million mainly for ongoing expansion programs of the company. We believe that our current total debt to equity ratio of 0.83 remains in a comfortable range. Financial objectives, initiatives and achievements Your Company is taking proactive measures to ensure all fi nancial costs are effectively reduced to positively impact the bottom-line. The Company has shifted to working capital borrowings in foreign exchange, thereby reducing interest costs. Despite the slowdown in FY06 and pressure on margins, the Company generated INR 1,829.0 million of cash from operations as against INR 1,144.1 million last year. The ongoing foreign exchange risk management policy has been further strengthened to ensure there is no adverse impact of volatile exchange rates beyond agreed-upon tolerance levels. Interest The outfl ow on account of interest and fi nance charges increased to INR million in FY06 from INR million in FY05, representing an increase of 27.1%, primarily on account of a rise in overall debt levels as well as interest costs. However, despite the fi rming interest rate environment, the interest cost as a percentage of average debt for the company remains healthy at 5.7% in FY06. Capital expenditure Gross block of the Company increased by INR 3,017.1 million during FY06 to reach INR 34.9 billion. Majority of this increment in assets was to expand capacities to meet increasing demand. Our optical media capacity increased from 2.4 billion per annum in FY05 to 2.8 billion per annum in FY06. We intend to enhance our optical media capacity further during FY 07 and also incrementally invest in the photovoltaic business through our wholly owned subsidiary. The incremental capital expenditure is being funded by debt and internal accruals. Depreciation Depreciation increased by 12.3% in FY06 (from INR 2,820.5 million to INR 3,167.6 million) on account of increase in the gross fi xed assets. Due to the flexible nature of the asset base and the relatively long life-cycles of products in the industry, we believe that the risk of the asset base becoming obsolete is low. Working capital management The overall net working capital was 35.3 per cent of gross revenues in FY06. Working FY03 FY04 FY05 FY06 Capital (INR ) Debtors Days Inventory Days Creditors Days Debtors Despite the diffi cult market environment which has made working capital management very important and challenging, the company has been able to contract its receivable cycle to 80.1 days in FY06 from 89.5 days in FY05. This is much below the industry benchmark of days. Debt for more than six months reduced signifi cantly and represents only 7.3% of overall receivables at INR million in FY06 down from 8.4% and 10.1% of receivables in FY05 and FY04 respectively. Loans and advances In FY06, loans and advances increased to INR million against INR million in FY05, a 148.0% growth. This is mainly on account of advances to suppliers rising sharply by 363% as the company made advances to suppliers to ensure tie-up supply of critical inputs and materials. Changes in credit terms for key materials will ensure that this cash fl ow position recovers in the near future. Capital employed While the overall revenues of the company rose by over 28%, the total capital employed in the business increased marginally by 0.7% or INR million to INR 36,603.2 million in FY06 from INR 36,349.3 million in FY05. This implies an increase in asset utilization ratios. However, lower margins for the year resulted in reduction of Return on Average Capital Employed. Management of surplus funds In a growing business, there were junctures when the temporary availability of resources was higher than the immediate use. These short-term surpluses were invested in low risk fi nancial instruments that optimized returns and protected the invested principal. Internal Audit and Controls Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and that transaction are authorized, recorded and reported correctly. The company maintains an extensive system of controls which ensures optimal utilization and protection of resources, IT security, accurate reporting of fi nancial transactions and compliance with applicable laws and regulations as also internal policies and procedures. The above control is further supplemented by internal audit, which is carried out internally as well as by a reputed fi rm of Chartered Accountants, who conduct audit across all functions. The company has an Audit Committee headed by 28 29

16 a non-executive independent Director to review the observations arising out of audit reports and the effi cacy & adequacy of internal controls on a regular basis. Internal Control Systems and their Adequacy The efficiency of the internal control system has improved with further extension and refi nement of the existing ERP (enterprise resource planning) system in The system has provided a high level of system-based checks and controls through core business processes in materials, operations, accounting & HR. Regular internal audits and checks are carried out to ensure that responsibilities are executed effectively and that adequate systems are in place to maintain authenticity and correctness of recorded transactions. Significant Accounting Policies 1. Revenue recognition Revenue from sale of goods is recognized on transfer of signifi cant risks and rewards of ownership to the customer and when no signifi cant uncertainty exists regarding realization of the consideration. Sales are recorded net of sales returns, rebates and trade discounts and price differences and are inclusive of duties. 2. Inventory valuation Finished goods, work-in-progress, goods held for resale, raw materials, packing materials and stores & spares: at lower of cost or net realizable value. Cost of raw material, goods held for resale, packing materials and stores and spares, is determined on the basis of the weighted average method. Cost of work in progress and fi nished goods is determined by considering direct material costs, labor costs and appropriate proportion of overheads. 3. Fixed assets Tangible fi xed assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specifi cally attributable to its acquisition and bringing it to its working condition for its intended use. Expenditure pending allocation is allocated to productive fi xed assets in the year of commencement of the related project. Intangible assets are stated at cost less accumulated amortization. 4. Depreciation and amortization Depreciation on tangible fi xed assets is provided under the straight-line method on a pro-rata basis at the rates and in the manner specifi ed in Schedule XIV to the Companies Act, 1956, other than on certain Plant and Machinery at the Magnetic Media manufacturing units, which is depreciated at the rate of 7.42% (10.34% upto last year) based on the management s estimate of useful life of the assets and is in accordance with the rate specifi ed in Schedule XIV to the Companies Act, In respect of assets whose usefull life has been revised, the 30 31

17 Risk Management Pass on - the risk to another party - for example, insure against it Accept - the risk where existing controls are felt to be adequate Reduce - the risk by introducing new or enhancing existing controls Terminate - the activity being undertaken which generates risk unamortised depreciable amount has been charged over the revised remaining useful life. Intangible assets are amortised on equated basis over their estimated economic life not exceeding 10 years. Leasehold land and improvement to the leased premises are amortised over the period of the lease. The assets taken on fi nance lease are depreciated over the lease period. 5. Taxation a) CURRENT Provision is made for current income tax liability based on the applicable provisions of the Income Tax Act 1961, for the income chargeable under the said Act and as per the applicable overseas laws relating to the foreign branch. b) DEFERRED Deferred tax assets (DTA) and liabilities are computed on the timing differences at the Balance Sheet date between the carrying amount of assets and liabilities and their respective tax basis. DTA is recognized based on management estimates of reasonable/virtual certainty that suffi cient future taxable income will be available against which such DTA can be realized. The deferred tax charge or credit is recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Risk Management As per the revised requirements for listed companies, the company proceeded to develop a risk mitigation framework for identifi cation & assessment of risks both process control related and business risks, identifi cation & implementation of risk mitigation plans and control and review mechanism on an ongoing basis. During the year, a dedicated team was created which initiated and implemented the internal control framework for risk mitigation across the company. The company also retained external experts to assist in developing and institutionalizing a COSO based internal control framework and draw up a risk based internal audit plan. Business Risk Management As a global leader in manufacturing of high technology products, the company is exposed to various risks. Some of these risks are external and result from the business environment we operate in, while some are internal to the company. Our risk management revolves around corporate policies that outline standards and provide measurement & assessment guidelines, a framework which incorporates a mitigation strategy and also a control and review mechanism for each risk category. The risk management strategies and processes are regularly reviewed in keeping with the changing environment. The company s risk-management mechanisms are consistent with its strategic direction, desired total returns to shareholders and the credit rating of the company. Our risk appetite dictates the risk management initiatives

18 Risk Environment The global optical media industry has a high risk quotient. These risks may stem from technology obsolescence, high customer concentration, commodity cycles and geographical risks amongst others. The company is, however, well poised to manage and mitigate these risks. The obsolescence of technology is inevitable and the real challenge is to anticipate and respond to both evolutionary and disruptive changes. However, many technologies may prove to be more resilient than anticipated and the removable storage segment has proven to be so, even in the face of rapid technological developments with the need for broad-based global compatibility being a strong stabilizing infl uence. The same solid entrenchment is observed with CD-R, whereby a huge global installed base of readers and writers, estimated to far exceed 2 billion units, have served to provide the format with considerable staying power even in the face of exiting new options. The position is strengthened by a number of factors the versatility of the CD and DVD format families has served to establish them as a bridge between the information storage and entertainment segments, extending their utility and reach. Proliferating DVDs the most rapidly growing Consumer Electronic (CE) product in history not only maintain backward compatibility with CDs, but also opens up complementary new video, multi-media, and game application segments further strengthening the global mass appeal of the 120mm disc formats. The company expects that the above factors will result in a steady state for CD-R media, while DVDR media will drive the growth in the medium term. At the same time, the Company has taken concrete steps and leveraged its R&D to ensure that its manufacturing infrastructure and technology base are fully capable to emerge as amongst the fi rst to launch the next generation for formats in the industry, viz. BD and HD DVD media. Steps taken to mitigate technology risks In the dynamic storage market segment, signifi cant technological risks exist in a number of critical areas, all of which can have considerable commercial/fi nancial implications. The company has invested substantially in research & development and engineering to address and mitigate risks in all these areas, often with multiple degrees of redundancy. Ability to rapidly commercialize new products through in-house R&D capabilities. Access to new technology through longstanding strategic partnerships with key technology providers. Drive/media compatibility through cooperative links with all major hardware suppliers. Evolutionary capabilities of manufacturing infrastructure by seamlessly future-proofi ng our capital investments. Technology collaborations and tech sourcing arrangements with global technology companies in emerging areas. Other risks and key management initiatives a) INDUSTRY RISK MANAGEMENT The company operates in an industry where technology trends are constantly changing and evolving which may jeopardize future growth. The company, however, faces no immediate threat from the dynamic environment in which it operates. On the contrary, it stands to benefi t from the current growth trends in the DVDR format

19 As consumption evolves from analogue to digital technology, it is prompting legacy recordings to migrate to new media. Additionally, the company also entered the exciting global photovoltaic industry which is growing at a rapid pace. This not only mitigates the risk of exposure to a single industry, but as this industry is signifi cantly less capital intensive than optical media industry, it is expected to improve the overall returns on invested capital. c) GEOGRAPHIC RISK MANAGEMENT A geographically concentrated revenue base may affect growth in the event of some of these regions not performing up to expectations The consumer base is primarily addressed through global technology OEMs which sell products in different continents across the globe. As we supply to global customers, the geographical risk is mitigated. Additionally, we continue to focus on emerging and new markets. also build management resources for a multibusiness enterprise. e) COMPETITION DE-RISKING As installed capacities in global data storage industry have risen, prices have declined Moser Baer has responded to price-based competition with an unbeatable price-value proposition superior quality, timely delivery, attractive price and introduction of new products. g) FAILURE TO ENTER INTO LONG TERM CONTRACTS FOR CRITICAL RAW MATERIALS & CONSUMABLES Sharp commodity cycles and demand-supply imbalances in critical raw material can severely impact operations The company is working on long term strategic sourcing arrangements with key raw material suppliers which is are expected to signifi cantly mitigate this risk. b) CUSTOMER ATTRITION RISK CONTROL Our over-dependence on a few customers could impact revenues in the event of attrition. Our product quality, unbeatable price-value proposition and excellent service extended our reach to a wider larger spread of customers. We believe that the impact on the Company in the event of customer attrition would be low. d) PEOPLE RISK MANAGEMENT High quality human resources are vital to the success of our business. In order to retain talent, the Company promotes a sense of ownership and pride in association with strong HR initiatives, which have helped us keep attrition rates well in control. The company continues to drive organization development and f) FAILURE TO FORECAST ACCURATELY It s critical to correctly understand and forecast emerging tends in the technology space The company is strengthening its forecasting and S&OP process to be used for high level production planning and cover plans for key materials. h) CASH FLOW RISK The company operates in a high growth and capital intensive industry. Hence, it is imperative to efficiently estimate and manage cash fl ows in this volatile environment. The Company s working capital arrangements are well in place to guard against any uneven or seasonal factors. Besides, the company has tied up additional alternative 36 37

20 fi nancing for cost optimization/funding the operations. Also, the Company monitors liquidity on a regular basis. i) SECURITY/DISASTER RISK MANAGEMENT Operations could be disrupted due to natural, political and economic disturbances. The company has implemented an extensive IT disaster recovery plan across all its facilities. The company has mapped out all the related risks on these accounts and put in place suffi cient mitigants and control mechanisms with are regularly updated and monitored. j) NEW BUSINESS RISK: During the year the company announced plans to enter the photovoltaic space. This is a new business segment for the company and is also prone to regulatory risks and risks on account of technology and project execution. The project is on a fast track to commercialization in 3QFY07. The company has done extensive due diligence for the past couple of years in this industry and has identifi ed key risks in the business and put in place a multi pronged mitigation strategy and control mechanism. The business has strong synergies with existing business and the company is confi dent of starting the project on schedule and emerging as a leading and a cost effective manufacturer in the world. Human Resource /Industrial Relations The company recognizes the fact that its employees are its key strategic assets. Over the years, the company has been able to create a favorable work environment that encourages creativity and ownership. During the year , the company added 350 employees, taking the total strength to up from 4,663 at the end of the previous year. In an effort to emerge as a global technology manufacturing company having a multi faceted growth strategy, the company signifi cantly 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. Disclosures During the year under review, the Company has not entered into any transaction of the material nature with its Promoters, the Directors or the management, their subsidiaries or relatives, etc. that may have potential confl ict with the interest of the Company at large. Management s Responsibility Statement The management is responsible for preparing the Company s consolidated fi nancial statements and related information that appears in this annual report. The management believes that these financial statements fairly refl ect the form and substance of transactions and reasonably represent the Company s financial condition and results of operations in conformity with Indian Generally Accepted Accounting Principles. Disclaimer Some of the statements in this report that are not historical facts are forward-looking statements. The forward-looking statements include our fi nancial growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. These risks include uncertainties that could cause actual events to differ materially 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 their spending for our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualifi ed personnel, currency fl uctuations and market conditions in India and elsewhere around the world and other risks not specifi cally mentioned. Creating Value Economic Value Added (EVA) EVA analysis starts with the premise that investors are primarily concerned with the cash return on their cash investment and the risk associated with that investment. This return can be directly compared with the return expected by investors, the companys WACC. Value is created/destroyed if the business generates a return above/below its cost of capital. EVA is thus defi ned as: EVA = (ROIC WACC) x Capital Risk-free Return (R F ) We have used the yield on the 10-year government bond as the risk-free rate. This bond currently yields 7.2% per annum. Equity beta (ß e ) Based on an analysis of comparable optical storage media companies in Asia as well as Moser Baer s beta estimate from Bloomberg, Moser Baer s adjusted equity beta is estimated to be 1.0 for Market Risk Premium (MRP) The MRP is the additional return over and above the risk-free return investors require to invest in the market portfolio. We estimate the MRP to be 8.0%. Year ended March Average capital employed (Rs in mn) Average debt (Rs in mn) Beta Variant Risk-free debt cost (%) Market risk premium Prime lending Rate (%) Marginal Tax Rate (%) Cost of equity (%) Post-tax cost of debt (%) Weighted average cost of capital (WACC) (%) Economic value added (EVA) Operating profi t (PBT excl extraordinaries) Less: tax Less: cost of capital Economic value added Enterprise value Market value of equity Add: net debt Enterprise value Ratio EVA as a percentage of capital employed (%) Enterprise value/average capital employed 38 39

21 D i r e c t o r s R e p o r t Dear Shareholder, Your Directors are pleased to present the 23 rd Annual Report and Audited Accounts for the financial year ended 31 March, Financial Results (Rupees in Million) Particulars Year ended March 31, Gross sales and other income 17, , Profit before depreciation, interest and tax but after prior period items 4, , Depreciation 3, , Interest and finance charges Profit before tax Tax expenses (7.14) (304.84) Profit after tax Profit carried forward from last year Profit available for appropriation Appropriations: Dividend (proposed) Provision for tax on proposed dividend Transfer to Profit and Loss Account Operations Revenues for FY 06 stood at Rs 17, million, profit before depreciation, interest and tax, but after prior-period items stood at Rs 4, million, and profit after tax was Rs million. Subsequent to the difficult market environment prevalent over the past two years, the global optical storage media industry is now on a steady path to recovery, driven by consolidation of capacity, continued growth in consumer demand and signs of softening of prices for key inputs. Your Company witnessed a turnaround in the last two quarters of the FY 06 as it continued its efforts to gradually revert to normal levels of operational & financial performance. Continuing strong growth in demand for DVD s and a stable market for CD s combined with consolidation helped create a more favorable environment during the progress of the year. Market environment and outlook Industry Outlook In 2006, Strategic Marketing Decisions (SMD) estimates that global demand for CDR/RW will 40 Moser COL.p /6/2006, 7:43 PM

22 remain almost flat as compared to 2005, at 13 billion units. Whereas the European and US markets will show a marginal decline in demand, rapid growth in the Asian, Latin American, Indian and Chinese markets will offset this demand decline. In the near term, new corporate applications and emerging segments like the printable media and LightScribe will ensure steady growth in the CDR/RW space. Global CDR/RW supply continues to consolidate through capacity conversions and closure of inefficient capacities. This is helping the CDR/RW demand-supply balance to return to equilibrium, thereby providing a stimulus for firm CDR/RW prices in the medium term. DVDR demand is rapidly growing on a global basis, and is expected to touch 6.4 Billion in 2006, as compared to 3.9 Billion in 2005, an increase of 64%. This demand growth is expected to continue over the next few years, until the next generation formats (Blu- ray disk and HD DVD) start to gain mass market acceptance. Next generation optical media formats have the potential to provide a price-value proposition to consumers which could be extremely difficult for alternate technologies to meet. Over the long term, these formats could evolve to store 100GB of data at a price equivalent to current retail price of DVDR/ RW format. While SMD expects 2007 to be the first big year for blue laser based technology, the race has already begun. Market development For the last few years, your Company has been evaluating various business opportunities for diversification and broadening its product portfolio. With an eye to expand the existing market, your Company has started focusing on value-added products to drive an expansion in margins. As the Company sells predominantly to OEM customers, who source their products on a global basis, individual market changes have a lesser impact on the Company s operations. The share of outsourced volume from an OEM customer has a greater impact on the Company s operations and, hence the Company s focus is to increase the share of a customer outsourcing its requirements. In our goal of maintaining a first to market position, your Company introduced a number of new products during the year, including 16x DVD+/-R disks, 1x/ 2.4x Dual Layer disks, 8x DVD +RW disks. These product introductions combined with continuing growth in the Wallet share of existing customers, and new customer acquisitions allowed the Company to increase it s market share significantly in the DVDR area. Over the past three years, your Company has invested significantly in its R&D programs targeted at developing next generation formats in the optical media space by leveraging its core skills in base material engineering, thin film coating, precision sputtering and deep UV mastering technologies. Starting from the first quarter FY07, your Company plans to launch a series of next generation formats, in conjugation with drive and recorder availability, and expects to be first to market in a majority of these formats. The four products which we believe will have a significant market potential in the future are 8x DVDR Dual Layer, HD DVD-R (recordable) and RE (re-writable), HD DVD Dual layer, and Bluray Disk (BD)-R and RE. New projects During FY06, your Company spent Rs 3,881 Million (USD 87 million) to expand capacity to 2.8 billion units per annum. A majority of these investments were made in the DVD format, and in next generation technologies to maintain our leading position in the marketplace Photovoltaic (PV) Cell project. In October 2005, your Company announced plans to enter the high-growth Photovoltaic (PV) business. With an initial project cost of Rs 2,600 Million (USD 58 million), your Company is targeting a capacity of 80 MW by Year This project is on a fast track to implementation and will be executed in Moser Baer Photo Voltaic Ltd, which has already been established and capitalized. The contracts for supply of some equipment and technology for cell and module making have already been executed. The company has also secured part of its short -term requirements of raw materials and is working towards closing its medium to long term sourcing agreements. Subsidiary Companies During the financial year, two companies, Moser 41 Moser COL.p /6/2006, 7:43 PM

23 Baer Photo Voltaic Limited and Moser Baer SEZ Developer Limited were incorporated as your Company s 100% subsidiaries. While Moser Baer Photo Voltaic Limited has been established with the objective to develop, manufacture and market photo voltaic cells, modules and systems, Moser Baer SEZ Developer Limited has been set up with the objective to carry on the activity of establishing, developing, maintaining and operating Special Economic Zones for non-conventional energy. Further, your Company s third subsidiary, namely- European Optic Media Technology GmbH (Europtic) has been established in Germany with the objective of establishing manufacturing facilities in Europe, to service the requirements of our OEM, retail and enterprise customers. As required under Section 212 of the Companies Act, 1956, the audited accounts Moser Baer Photo Voltaic Limited for the period 7 December, 2005 to 31 March, 2006 and the audited accounts of European Optic Media Technology GmbH for the financial year are annexed herewith along with the Auditors Reports thereon and the Directors Reports thereto, together with a statement of your Company s interest in the said subsidiary Companies. The first financial year of Moser Baer SEZ Developer Limited, which was incorporated on 20 February, 2006 and received its Certificate for Commencement of Business on 25 April, 2006, will end on 31 March, 2007.Thus, its audited accounts will be included in next year s Annual Report. Dividend Your Directors are pleased to recommend a 10% on the paid-up Equity Share Capital of the Company for financial year The total payout will be Rs million, inclusive of dividend tax and surcharge thereon. Directors In terms of the provisions of Sections 255 and 256 of the Companies Act, 1956 and the Articles of Association of the Company, Mrs. Nita Puri, Director and Mr. Prakash Karnik, Director, retire at the ensuing Annual General Meeting and, being eligible, have offered themselves for reappointment. Auditors Price Waterhouse, Chartered Accountants, hold office until the conclusion of forthcoming Annual General Meeting and, being eligible, offer themselves for re-appointment. The Company has received an intimation to the effect that their reappointment, if done, will be within the limits laid down under Section 224(1B) of the Companies Act, Stock Option Plans In pursuance of the resolution passed at the 22 nd Annual General Meeting, your Company introduced a stock option plan for its non-executive Directors i.e Directors Stock Option Plan ( DSOP ). The shareholders had given their approval, to issue up to a maximum of 450,000 options convertible into an equal number of equity shares. During the year under review, Stock Options were granted to the non-executive Directors. Further, your Company had introduced a stock option plan the Employee Stock Option Plan, 2004 ( ESOP 2004 ) for its employees. The shareholders had given their approval to issue up to a maximum of 4,400,000 options convertible into an equal number of equity shares. During the year under review, Stock Options were granted to the eligible employees. The information required to be disclosed in terms of the provisions of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 is enclosed as per Annexure A to this report. Particulars of employees Particulars of employees, as required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, form part of this report. However, in pursuance of Section 219(1)(b)(iv) of the Companies Act, 1956, this report is being sent to all shareholders of the Company, excluding the aforesaid information and the said particulars are made available at the Registered Office of the Company. The members interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company. 42 Moser COL.p /6/2006, 7:43 PM

24 Conservation of energy, research and development, technology absorption, foreign exchange earnings and outgo The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo, as required under Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988 is given as per Annexure B and forms part of the Directors Report. Fixed deposits II. III. That we have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable 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 and of the profit of the Company for that year; 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 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and During the year under review, your Company has not accepted any deposit under Section 58A of the Companies Act, 1956, read with Companies (Acceptance of Deposits) Rules, Corporate governance A report on Corporate Governance, along with a certificate from the Statutory Auditors and a certificate from the Managing Director and Group CFO, have been included in the Annual Report, detailing the compliances of corporate governance norms as enumerated in Clause 49 of the Listing Agreements with the stock exchanges. Management discussion and analysis A Management Discussion and Analysis Report has been attached and forms part of the Directors Report. Directors responsibility statement Your Directors state: I. That in the preparation of the annual accounts, the applicable accounting standards have been followed; IV. That we have prepared the annual accounts on a going concern basis. Conclusion Your Company has outperformed the industry in a challenging year and continues to maintain its leadership position. It has also been surpassing all international quality and cost benchmarks and continues to build shareholder value. Your Directors look to the future with confidence. Your Directors place on record their appreciation for the overwhelming co-operation and assistance received from investors, customers, business associates, bankers, vendors, as well as regulatory and government authorities. Your Directors also thank the employees at all levels, who, through their dedication, co-operation, support and smart work, have enabled the Company to achieve rapid growth. For and on behalf of the Board of Directors Place: New Delhi Date: 7 June, 2006 Sd/- Deepak Puri Chairman & Managing Director 43 Moser COL.p /6/2006, 7:43 PM

25 Annexure-A INFORMATION REGARDING EMPLOYEE STOCK OPTION PLAN, 2004 (ESOP) AND DIRECTORS STOCK OPTION PLAN, 2005 (DSOP) (AS ON 31 ST MARCH, 2006) Particulars ESOP-2004 DSOP Number of Stock Options granted 3,350, ,000 2 Pricing Formula (i) Normal allocation: - Rs.125 per Option or prevailing Market Price, whichever is higher. Rs.170 per Option or prevailing (ii) Special allocation: - 50% of the Options at Rs. 125 per Option or prevailing Market Market Price, whichever is higher. 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 484,825 Nil 4 Number of Options exercised Nil N.A. 5 Number of shares arising as a result of exercise of option Nil Nil 6 Number of options lapsed 672,600 Nil 7 Variation of terms of options Nil Nil 8 Money realized by exercise of options Nil N.A. 9 Number of options in force 2,677, , Employee-wise details of Options granted to: (a) Senior managerial personnel; and a. Mr. Yogesh B. Mathur, Group CFO- 180,000. (b) Any other employee who receives a grant in b. Mr. Girish Baluja, COO - 125,000. any one year of options amounting to 5% or c. Mr. Ravinder Khanna, CEO (Photo Voltaic) -100,000. Nil more of options granted during that year. 11 Identified employees who were granted Options during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant; Nil Nil 12 Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of option calculated in accordance with AS 20 Rs per share N.A. 13 Method of calculation of employee compensation cost The Company has used intrinsic value method for calculating the employee compensation cost with respect to the stock options. 14 Difference between the employee compensation 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 Nil Nil 15 The impact of this difference on profits & on EPS of the Company Nil Nil 16 Weighted-average exercise prices and weighted- a. Weighted average exercise price Rs a. Weighted average Exercise average fair values of options granted during the year Price- Rs b. Weighted average fair value of the Options- Rs b. Weighted average fair value of the Options-Rs Fair value of options based on Black-Scholes Enhanced Model i.e. Enhanced FASB 123 Model Grant Grant Grant Grant Grant Grant Grant Grant Date - 11/8/05 Date- Date- Date- Date- Date- Date- Date- 9/1/04* 29/11/04 27/1/05 24/6/05 17/8/05 27/10/05 24/1/06 Assumptions:- a) Risk-free interest rate 4.21% 6.79% 6.55% 6.67% 6.74% 6.80% 6.77% 6.56% (for 5 years, source- (for 6 (for 4 (for 5 (for 5 (for 5 (for 5 (for 5 NSE/Reuters as on 11/8/05) years, years, years, years, years, years, years, source- source- source- source- source- source- source- Reuters NSE/ NSE/ NSE/ NSE/ NSE/ NSE/ as on Reuters Reuters Reuters Reuters Reuters Reuters 9/1/04) as on as on as on as on as on as on 29/11/04) 27/1/05) 23/6/05) 16/8/05) 27/10/05) 23/1/06) b) Expected life 7 yrs. 7 yrs. 7 yrs. 7 yrs. 7 yrs. 7 yrs. 7 yrs 7 years c) Exercise Multiple 1.25 x 1.25 x 1.25 x 1.25 x 1.25 x 1.25 x 1.25 x 1.25 x d) Expected volatility 70.0% 70.0% 67.0% 62.03% 61.44% 60.76% 59.02% 61.46% (based on 5 years stock (based on (based on (based on (based on (based on (based on (based on data from NSE) 5 years 5 years 5 years 5 years 5 years 5 years 5 years stock data stock data stock data stock data stock data stock data stock data from NSE) from NSE) from NSE) from NSE) from NSE) from NSE) from NSE) Contd.. 44 Moser COL.p /6/2006, 7:43 PM

26 Particulars ESOP-2004 DSOP-2005 e) Expected dividends 1.0% 0.85% 0.85% 0.85% 0.58% 0.58% 0.58% 0.58% (Weighted average (based on (based on (based on (based on (Weighted (Weighted (Weighted dividend yield for last three the dividend simple simple simple average average average years) history for average average average dividend dividend dividend past 3 of the of the of the yield for yield for field for financial dividend dividend dividend last last last years). history of history of history of three three three past 4 past 4 past 4 financial years) years) financial financial financial years). years). years). years). f) Price of the underlying share in market at the time of option grant (in Rs.) The Weighted Average of the Vesting Period in respect of the Options granted to the Directors was 2.5 years The Weighted Average of the Vesting Period in respect of the Options granted to the employees were as follows:- Grants Weighted Average of the Vesting Period 1 st Grant on 9 January years 2 nd Grant on 29 November years 3 rd Grant on 27 January years 4 th grant 24 June, years 5 th Grant on 17 August, years 6 th grant on 27 October, years 7 th grant on 24 January, years *Options subsequently cancelled. ANNEXURE B Information as per Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 and forming part of the Directors Report for the year ended 31 March, A. Conservation of energy Your Company s energy requirements continued to increase significantly as it commissioned new manufacturing facilities and increased production at existing facilities. As an ongoing process, the Company undertakes various measures to save energy and reduce its consumption. During the financial year , some of the measures undertaken by the Company include:- 1) Installation of Variable Speed Drive Air Compressors to eliminate loading & unloading losses 2) Installing the heat exchangers in the power plant to extract energy from the lubricating oil used in the engine. 3) Saving in lighting energy by synchronizing with daily cycles. 4) Power savings in Air Handling Units by installing Variable Frequency Drive (VFD) systems To undertake the above measures, the Company made the following additional investments: 1) Air compressor- total investment of Rs. 2 Million 2) Lube oil circuitary and heat exchangerinvestment of Rs Million 3) In lighting synchronization investment of Rs. 0.3 Million 4) In Variable Frequency Drive in AHU investment of Rs. 0.6 Million 45 Moser COL.p /6/2006, 7:43 PM

27 In the aggregate, your Company made an investment of approx. Rs.3.02 million. As a result of extensive steps taken by the Company to reduce the consumption of energy, the Company saved 1200 KWH, which, on an annual basis, would result in a saving of Rs 47.3 Million. B. Technology absorption, adaptation and innovation, research & development TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION As technology plays a bigger role in our ability to offer a complete basket of products to our Customers, your Company has from time to time, entered into the acquisition of technology and the right to use technology belonging to other third party companies. During the year, a number of agreements were completed to acquire technology belonging to companies whose R&D efforts have been complementary to our technology development programs. This technology has been successfully incorporated into some of the Company s products and an ongoing effort is being made to improve the utilization of this technology and produce newer innovative products based on this technology. At the same time your Company is part of many international forums and R&D initiatives that are dedicated to the development of future formats like HD DVD and BD. Such participative activities have significantly enhanced our ability to bring products early to market, and have also allowed us to leverage our early to market position to acquire new customers. RESEARCH AND DEVELOPMENT The specific areas in which R&D was carried out by your Company are as follows: 3. HD DVD Single layer and double layer media. 4. DVD+R 16X media. 5. Development of professional archival CD and DVD media. 6. Development of DVD+RW 8x media and CDR/ DVD R LightScribe version In addition (a) an advanced media lab was set-up for DVD and BD testing and development; (b) a technology MoU was signed with the Institute of Technology, Banaras Hindu University to jointly work in the area of organic dye technology and the inorganic thin-film area. Capital expenditure of Rs million and recurring expenses of Rs million were incurred during the year towards R&D expenses, which is 2.1% of the total turnover of the Company. These expenses are part of expenses incurred under various revenue or capital heads. C. Foreign exchange earnings and outgo: Total foreign exchange earned comprising of FOB value of exports, services, interest, insurance claim received and dividend received was Rs 14, million, whereas total foreign exchange used (comprising of CIF value of imports, dividend remitted and other outgoings) was Rs 13, million. For and on behalf of the Board of Directors 1. Development of BDRE (Rewritable) high density optical media format. 2. Development of patented BD-R L2H inorganic write once discs. Place: New Delhi Date: 7 June, 2006 Amount of expenditure:- Sd/- Deepak Puri Chairman & Managing Director 46 Moser COL.p /6/2006, 7:43 PM

28 C o r p o r a t e G o v e r n a n c e R e p o r t 1. COMPANY S PHILOSOPHY ON CORPORATE GOVERNANCE Moser Baer believes that Corporate Governance refers to the processes and structure by which the business and affairs of the Company are directed and managed, in order to enhance long term shareholder value through enhancing corporate performance and accountability, whilst taking into account the interests of all stakeholders. Good corporate governance, therefore, embodies both enterprise (performance) and accountability (conformance). The Corporate Governance philosophy of the Company is based on the following principles: Satisfaction of the spirit of the law through ethical business conduct. Transparency and a high degree of disclosure levels. Truthful communication about how the Company is run internally. A simple and transparent corporate structure driven solely by the business needs. Strict compliance with Clause 49 of the Listing Agreement, as amended from time to time. Establishment of an efficient corporate structure for the management of the Company s affairs. Management is the trustee of the shareholders capital and not the owner. 2. BOARD OF DIRECTORS The present strength of the Board is 10. The Board comprises of three Executive Directors and seven Non-Executive Directors. 5 Non-Executive Directors of the Company are independent. The Non- Executive Directors bring independent judgment in the Board s deliberations and decisions. Definition of Independent Director as per Clause 49 of the Listing Agreement Independent Director shall mean a Non-Executive Director of the Company who:- apart from receiving Director s remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its Directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the Director; 47 Moser COL.p /6/2006, 7:43 PM

29 is not related to promoters or persons occupying management positions at the Board level or at one level below the Board; has not been an executive of the company in the immediately preceding three financial years; is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director; and is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares. 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 a material association with the company. Composition :- Directors Category Equity Investors represented Number of Equity Shares and Warrants held by the non-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-Executive Mrs. Nita Puri Promoter and Executive N.A. N.A. Mr. John Levack * Non-Executive Electra Partners Mauritius Limited. Nil Mr. 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. Nil Non-Executive Mr. Bernard Gallus Independent and N.A. Nil Non-Executive Mr. Ratul Puri Promoter and Executive N.A. N.A. Mr. Ajay Shah Independent and N.A. Nil Non-Executive * Mr. John Levack and Mr. Rajesh Khanna ceased to be independent Directors with effect from 1 st January, Moser COL.p /6/2006, 7:43 PM

30 DIRECTORSHIP IN OTHER COMPANIES AND BOARD COMMITTEES *: As per the requirements of the Listing Agreement, none of the Directors of the Board serve as members of more than 10 Committees or as Chairman of more than 5 Committees. Directors No. of other Directorships No. of Committee memberships (including MBIL s Committees) (excluding foreign companies and private limited companies) Status During Status Status as on During the quarter Status as on as on the quarter as on to to Chairman Member Chairman Member Chairman Member Mr. Deepak Puri Mr. Harnam D. Wahi Mr. Arun Bharat Ram Mrs. Nita Puri 1 1 Mr. John Levack Mr. Rajesh Khanna Mr. Prakash Karnik Mr. Bernard Gallus Mr. Ratul Puri Mr. Ajay Shah * Committee here means: (a) Upto :- Audit Committee, Compensation Committee and Investors Grievance Committee. (b) From to :- Audit Committee and Investors Grievance Committee. The information as required under Annexure 1-A to Clause 49 of the Listing Agreement is made available to the Board. Adequate information is circulated as part of the agenda papers to enable the Board to take informed decisions. The Company holds at least five Board meetings in a year, one in each quarter to review the financial results and one to review the audited annual results of the Company. The Board met seven times on the following dates during the financial year and the gap between two meetings did not exceed four months: April, June, July, October, October, January, February, 2006 ATTENDANCE RECORD OF DIRECTORS Directors Board meetings held Meetings attended Attended last AGM during the year held on 3 August, 2005 In person Through Audio Conferencing Mr. Deepak Puri 7 7 Yes Mr. Harnam D. Wahi 7 6 Yes Mr. Arun Bharat Ram 7 3 No Mrs. Nita Puri 7 7 No Mr. John Levack 7 5 No Mr. Rajesh Khanna No Mr. Prakash Karnik No Mr. Bernard Gallus 7 3 No Mr. Ratul Puri 7 7 No Mr. Ajay Shah No 49 Moser COL.p /6/2006, 7:45 PM

31 3. BOARD COMMITTEES Your Company has the following Board Committees: Audit Committee, Compensation Committee, Investors Grievance Committee, Corporate Governance Committee, Capex Committee, Banking and Finance Committee and Corporate Social Responsibility Committee and the guidelines for these Board Committees are set out below. The Board is responsible for constituting, assigning, co-opting and fixing terms of service for the Committee Members of various Committees and delegates these powers to the Committees. Recommendations of the Committees are submitted to the Board of Directors for approval. The frequency and agenda of meetings of each of these Committees is determined by the Chairman of the Board/ Executive Director in consultation with the Chairman of the concerned Committee. These Committees meet as and when the need arises. 4. AUDIT COMMITTEE Composition Your Company has a qualified and independent Audit Committee, with Mr Harnam D. Wahi as the Chairman. Other members comprise of Mr. Prakash Karnik, Mr. Rajesh Khanna and Mr. Bernard Gallus. The Company Secretary acts as the Secretary of the Committee. Mr. Ratul Puri and Mr. John Levack are the permanent invitees to the meetings of this Committee. Mr. Bernard Gallus has been inducted as a member of the Audit Committee at the Board Meeting held on 25 January, Further, Mr. John Levack resigned from the membership of the Audit Committee vide his letter dated 21 December, 2005 and has been inducted as a permanent invitee at the Board Meeting held on 25 January, 2006 Primary Objective The primary objective of the Audit Committee is to monitor and provide effective supervision of the management s financial reporting process with a view to ensure accurate, timely and proper disclosures and transparency, integrity and quality of financial 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 process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. b) Recommending to the Board the appointment, re-appointment and, if required, the replacement or removal of the Statutory Auditor and the fixation of audit fee. c) Approval of payment to Statutory Auditors for any other services rendered by the Statutory Auditors. d) Reviewing, with the management, the annual financial statements 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 s report in terms of clause (2AA) of section 217 of the Companies Act, Changes, if any, in accounting policies and practices and reasons for the same. Major accounting entries involving estimates based on exercise of judgment by management. Significant adjustments made in the financial statements arising out of audit findings. Compliance with listing and other legal requirements relating to financial statements. Disclosure of any related party transactions. Qualifications in draft audit report. 50 Moser COL.p /6/2006, 7:45 PM

32 e) Reviewing with the management, the quarterly financial statements before submission to the Board for approval. f) Reviewing, with the management, performance of Statutory and Internal Auditors, adequacy of the internal control systems. g) Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. h) Discussing with internal auditors any significant findings and follow up thereon. i) Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. j) Discussing with the Statutory Auditors before the audit commences about the nature and scope of audit as well as have post-audit discussion to ascertain any area of concern. k) Looking into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. l) To review the functioning of the Whistle Blower mechanism, in case the same is existing. m) Reviewing the company s financial and risk management policies. n) Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. The Audit Committee has been authorized to mandatorily review the 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 control weaknesses issued by the Statutory Auditors. d) Internal audit reports relating to internal control weaknesses. e) The appointment, removal and terms of remuneration of the Chief Internal Auditor. Meetings During the year, the Committee met five times on the following dates: (i) 27 April, 2005 (ii) 24 June, 2005 (iii) 27 July, 2005 (iv) 26 October, 2005 (v) 25 January, 2006 Following are the attendance details of the members at the Committee meetings:- Members Committee Meetings attended meetings held In person Through Audio during the year Conferencing Mr. Harnam D. Wahi (Chairman) 5 5 Mr. Prakash Karnik 5 4 Mr. Rajesh Khanna 5 4 Mr. John Levack* 5 3 Mr. Bernard Gallus** 5 * resigned w.e.f. 21 December, 2005 ** appointed as member at the Board Meeting held on 25 January, COMPENSATION COMMITTEE Composition Mr Harnam D. Wahi is the Chairman of the Compensation Committee. Other members of the Committee comprise of Mr. Prakash Karnik, Mr. John Levack, Mr. Rajesh Khanna and Mr. Bernard Gallus. The Company Secretary acts as the Secretary of the Committee. Mr. Bernard Gallus has been inducted as a member of the Compensation Committee at the Board Meeting held on 25 January, 2006 Terms of reference a) The Compensation Committee discharges the Board s responsibilities relating to compensation of the Company s Executive Directors. 51 Moser COL.p /6/2006, 7:45 PM

33 52 b) The Compensation Committee has the overall responsibility for approving and evaluating the Executive Directors compensation plans, policies and programmes of the Company. c) The Compensation Committee administers the Employees Stock Option Plan (ESOP) and the Directors Stock Option Plan (DSOP) of the Company. Responsibilities and authorities of the Compensation Committee a) The Compensation Committee shall review and approve for 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 Executive Directors. c) The Compensation Committee may make recommendations to the Board in relation to incentive plans for the Executive Directors; and d) Administer the ESOP and DSOP schemes of the Company. Meetings During the year, the Committee met five times on the following dates: (i) 27 April, 2005 (ii) 24 June, 2005 (iii) 27 July, 2005 (iv) 27 October, 2005 (v) 24 January, 2006 Following are the details regarding the Committee meetings attended by the members:- Members Committee Meetings attended meetings held In person Through Audio during the year Conferencing Mr. Harnam D. Wahi (Chairman) 5 5 Mr. Prakash Karnik 5 3 Mr. Rajesh Khanna 5 3 Mr. John Levack Mr. Bernard Gallus* 5 * appointed as member at the Board Meeting held on 25 January, REMUNERATION POLICY a) 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 are as follows: Particulars Mr. Deepak Puri, Mrs. Nita Puri, Mr. Ratul Puri, Managing Director Director Executive Director Salaries, allowances and bonus 18,956, ,800 11,321,964 PF Contribution 1,698,751 36,000 1,013,036 Perquisites 166, , ,600 TOTAL 20,821, ,600 12,501,600 Service Contracts, Notice Period, Severance Fees Mr. Deepak Puri - Managing Director; Mrs. Nita Puri - Director and Mr. Ratul Puri - Executive Director It is proposed to re-appoint Mr. Deepak Puri as Managing Director, Mrs. Nita Puri as a whole time Director and Mr. Ratul Puri as Executive Director for another period of five years with effect from 1 September, 2006, 1 December, 2006 and 1 October, 2006, respectively. A service contract will be executed with each of them after their appointment at the Annual General Meeting. Each of them will be entitled to resign from his/her office at any time upon giving to the Company at least three calendar months written notice. No severance fees shall be payable to either of them. The amount of performance bonus paid to the Managing Director and the Executive Director is based on the performance of the Company and of these Directors, as approved by the Compensation Committee and considered by the Board. b) Non-Executive Directors The Company does not have any pecuniary relationship with any of its non-executive Directors. At the Annual General Meeting held on 3 August, 2005, the shareholders of the Company passed a resolution to offer the stock options to the Non- Executive Directors of the Company to the maximum of 450,000 equity shares. Further, the shareholders of the Company also passed a resolution to pay a commission for a period of 3 years w.e.f. 1 April, 2005 to the maximum 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% Moser COL.p /6/2006, 7:45 PM

34 of the of the Net Profits of the Company for that year calculated as per the provisions of the Companies Act, 1956, without obtaining the prior approval of the Central Government. Subsequently, each of the following non-executive Directors accepted 50,000 stock options each:- 1. Mr. Harnam D. Wahi 2. Mr. Arun Bharat Ram 3. Mr. Prakash Karnik 4. Mr. John Levack 5. Mr. Bernard Gallus 6. Mr. Ajay Shah Mr. Rajesh Khanna, nominee Director of BIL, EIL, RIL and WIL did not accept 50,000 stock options offered to him. He also does not charge any Sitting Fees for attending any meetings of the Board or Committees thereof. During the year , the non-executive Directors were paid a sitting fees of Rs. 20,000 for each Board Meeting and Rs.10,000 for each 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 and Mr. Ajay Shah are Directors liable to retire by rotation. No severance fees will become payable to them if they desire not to continue as Directors of the Company. Mr. John Levack (non-rotational nominee Director and representative of Electra Partners Mauritius Ltd.) - No severance fees will become payable to him if Electra Partners Mauritius Ltd. withdraws his nomination from the Directorship of the Company. Mr. Rajesh Khanna (non-rotational nominee Director and representative of BIL, EIL, RIL and WIL affiliates of Warburg Pincus LLC) - No severance fees will become payable to him if BIL, EIL, RIL and WIL withdraw his nomination from the Directorship of the Company. 6. INVESTORS GRIEVANCE COMMITTEE Composition The Chairman of the committee, Mr. Harnam D. Wahi, is a Non-Executive Independent Director. Other members of the Committee comprise of Mr. Prakash Karnik, Mr. John Levack, Mr. Deepak Puri, Mr. Bernard Gallus and Mrs. Nita Puri. The Company Secretary acts as the Secretary of the Committee. Terms of reference The Investors Grievance Committee looks into redressal of shareholders and investors complaints like transfer of shares, non-receipt of Annual Reports, non-receipt of dividend and allied matters. Meetings During the year, the committee met four times on the following dates: (i) 27 April, 2005 (ii) 27 July, 2005 (iii) 27 October, 2005 (iv) 24 January, 2006 Following are the attendance details of the members at the Committee meetings:- Members Committee meetings No. of meetings held during the year attended Mr. Harnam D. Wahi (Chairman) 4 4 Mr. Prakash Karnik 4 2 Mr. John Levack 4 4 Mr. Deepak Puri 4 4 Mrs. Nita Puri 4 4 Mr. Bernard Gallus 4 2 Name and designation of the Compliance Officer: Mrs. Minni Katariya, Company Secretary. The transfer / transmission of physical share certificates is approved by the Company Secretary at least once in a fortnight on the basis of recommendations received from the Company s Registrars and Share Transfer Agent- M/s. MCS Limited. The investors may lodge their grievances through at shares@moserbaer.net or contact the Compliance Officer at the following numbers: - Telephone numbers : , Fax numbers : / Information regarding complaints received from the shareholders during the period 1 April, 2005 to 31 March, 2006:- 53 Moser COL.p /6/2006, 7:45 PM

35 Nature of the complaints Received Replied Pending satisfactorily Relating to transfer, transmission, etc Relating to dematerialization 3 3 Relating to dividend Relating to bonus Relating to miscellaneous matters TOTAL No share was pending for transfer as on 31 March, CORPORATE GOVERNANCE COMMITTEE Composition The Chairman of the Committee, Mr. Rajesh Khanna, is a Non-Executive Director. Other members of the Committee comprise of Mr. Prakash Karnik, Mr. John Levack, Mr. Deepak Puri and Mr. Bernard Gallus. The Company Secretary acts as the Secretary of the Committee. Terms of reference a) To evaluate the current composition, organisation and governance of the Board and its Committees, as well as determine future requirements and make recommendations in this regard to the Board for its approval. b) To recommend the appointment of such Directors on the Board who are of proven competence and have adequate professional experience. c) To oversee the evaluation of the Board. d) To recommend to the Board, Director nominees for each Committee of the Board. e) To coordinate and approve Board and Committee meeting schedules. f) To make regular reports to the Board on the matters listed herein and on such other matters as may be referred to it by the Board from time to time. g) To advise the Company on the best business practices being followed on corporate governance issues world-wide and to implement 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 and implement their advise, reports or opinions. j) To recommend to the Board the governance structure for management of affairs of the Company. k) To review and re-examine this charter annually and make recommendations to the Board for any proposed changes. l) To annually review and evaluate its performance. Meetings During the year, the committee met once on 27 th April, Following are the attendance details of the members at the Committee meetings:- Members Committee meetings No. of meetings held during the year attended Mr. Rajesh Khanna (Chairman) 1 Mr. Prakash Karnik 1 1 Mr. John Levack 1 1 Mr. Deepak Puri 1 1 Mr. Bernard Gallus CAPEX COMMITTEE Composition The Chairman of the Committee, Mr. Harnam D. Wahi, is a Non-Executive Independent Director. Other members of the Committee comprise of Mr. Prakash Karnik, Mr. John Levack, Mr. Rajesh Khanna and Mr. Ratul Puri. The Company Secretary acts as the Secretary of the Committee. Terms of reference The CAPEX Committee shall plan capital expenditure for the expansion and diversification programme of the Company and lay down procedures for the same. The CAPEX Committee shall forward its decisions to the Board of Directors for its review and ratification, on a quarterly basis. The CAPEX Committee is constituted to approve all CAPEX exceeding i) Rs. 5 Crores per purchase order/contract. ii) Rs. 5 Crores per item (including substantially 54 Moser COL.p /6/2006, 7:45 PM

36 similar items) across all purchase orders/ contracts in a financial year. The Board of Directors at their meeting held on 25 January, 2006, expanded the scope of work of CAPEX Committee to consider and approve the capital expenditure of Moser Baer Photo Voltaic Limited, a 100% subsidiary of the Company as per the limits mentioned above. Meetings During the year, the Committee met four times on the following dates: (i) 27 April, 2005 (ii) 27 July, 2005 (iii) 26 October, 2005 (iv) 24 January, 2006 Following are the attendance details of the members at the Committee meetings: Members Committee meetings No. of meetings held during the year attended Mr. Harnam D. Wahi (Chairman) 4 4 Mr. Prakash Karnik 4 2 Mr. John Levack 4 3 Mr. Rajesh Khanna 4 2 Mr. Ratul Puri BANKING AND FINANCE COMMITTEE Composition Mr. Deepak Puri is the Chairman of the Committee. Other members of the Committee comprise of Mr. Harnam D. Wahi, Mrs. Nita Puri and Mr. Ratul Puri. The Company Secretary acts as the Secretary of the Committee. Terms of reference The Banking and Finance Committee identifies the fund-based and non-fund based requirements of the Company and approves the availing of these facilities from Banks and Financial Institutions, as and when the need arises, within the limits sanctioned by the Board. Meetings During the year, the Committee met ten times on the following dates: a) 4 April, 2005 b) 26 May, 2005 c) 1 June, 2005 d) 20 July, 2005 e) 20 August, 2005 f) 1 September, 2005 g) 9 September, 2005 h) 26 September, 2005 i) 5 October, 2005 j) 9 November, 2005 Following are the attendance details of the members at the Committee meetings:- Members Committee meetings No. of meetings held during the year attended Mr. Deepak Puri (Chairman) Mr. Harnam D. Wahi Mrs. Nita Puri Mr. Ratul Puri CORPORATE SOCIAL RESPONSIBILITY COMMITTEE Composition The Board, at its meeting held on 24 June, 2005 constituted Corporate Social Responsibility Committee. Mr. Deepak Puri is the Chairman of this Committee. The other members of this Committee are the following Directors: 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 up specific 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 focus areas from its corpus. (d) To prepare and place before the Board the CSR Annual Report. (e) To prepare and lay before the Board the Action Plan for the ensuing year. (f) To set up a Trust, to contribute to the Trust such funds as may be required from the overall corpus for CSR activity. 55 Moser COL.p /6/2006, 7:45 PM

37 (g) To appoint the Standing Committees and other Committees or sub-committees, as may be necessary from time to time. (h) To delegate any or all of its powers to the Chairman of the Board of Directors, other Committees or Sub-Committees duly appointed. (i) To select representatives/candidates from among the members of the Committee for participation in national and international seminars/conferences, workshops, study tours and training courses. The cost shall be borne by the Committee from the CSR budget. However, in case of the Chairman of the Board of Directors, the cost shall be borne by the Company. Meetings During the year, the Committee met twice on the following dates: 28 July, 2005 and 27 October, 2005 Following are the attendance details of the members at the Committee meetings: Members Committee Meetings attended meetings held In person Through Audio during the year Conferencing Mr. Deepak Puri (Chairman) 2 Mrs. Nita Puri 2 2 Mr. Harnam D. Wahi 2 2 Mr. Bernard Gallus Mr. Rajesh Khanna COMPLIANCE WITH SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2002 In pursuance of these regulations, the Company has formulated Standing Instructions for the Employees and Directors for dealing in Shares of the Company and these Standing Instructions were implemented with effect from 9 September, Various forms have been designed to receive periodical information from the employees and the Directors of the Company, as required in terms of these Regulations. Further, the Trading Window for dealing in shares of the Company has been closed for the Directors and employees of the Company as per the following details: - Dates of closure of trading window Friday, 1 April, 2005 to Friday, 29 April, 2005 Friday, 17 June, 2005 to Saturday, 25 June, 2005 Monday, 4 July, 2005 to Friday, 29 July, 2005 Saturday, 1 October, 2005 to Friday, 28 October, 2005 Monday, 2 January, 2006 to Friday, 27 January, 2006 Purpose of closure Consideration of un-audited financial results for the quarter ended 31 March, Consideration of audited annual accounts for the year ended 31 March, Consideration of un-audited financial results for the quarter ended 30 June, Consideration of un-audited financial results for the quarter ended 30 September, Consideration of un-audited financial results for the quarter ended 31 December, Monday, 3 April, 2006 to Friday, 28 April, 2006 Consideration of un-audited financial results for the quarter ended 31 March, Moser COL.p /6/2006, 7:45 PM

38 12. PARTICULARS OF ANNUAL GENERAL MEETINGS AND EXTRAORDINARY GENERAL MEETINGS HELD DURING THE LAST THREE YEARS General Meeting Date Time Venue Special Resolutions passed Extraordinary General Meeting 29/08/ A.M. Centaur Hotel, (a) For getting the Equity Shares of the Company de-listed New Delhi from the Stock Exchanges located at Delhi, Kolkata, Ahmedabad and Kanpur. (b) For alteration of the Article 6 of the Articles of Association of the Company. (c) For alteration of the Article 5(a) of the Articles of Association of the Company. (d) For shifting of statutory registers, records, documents, books of accounts, etc of the Company from its corporate office to its registered office. (e) For issue of Equity Shares under SEBI (ESOS and ESPS) Guidelines, 1999 to the employees of the Company. (f) For issue of Equity Shares under SEBI (ESOS and ESPS) Guidelines, 1999 to the employees of subsidiary companies of the Company. Annual General Meeting 21/10/ A.M. FICCI Golden Jubilee Auditorium, (a) For alteration of the Article 94 of the Articles of Federation House, Tansen Marg, Association of the Company. New Delhi (b) For capitalisation of reserves of the Company for issuing Bonus Shares. Extraordinary General Meeting 05/02/ A.M. Centaur Hotel, (a) For alteration of the Article 5(a) of the Articles of New Delhi Association of the Company. (b) For increasing the number of Equity Shares to be issued under SEBI (ESOS and ESPS) Guidelines, 1999 to the employees of the Company. (c) For increasing the number of Equity Shares to be issued under SEBI (ESOS and ESPS) Guidelines, 1999 to the employees of subsidiary Companies of the Company. (d) For issue and allotment of ADRs/GDRs on a preferential basis to various Institutional Investors. (e) For issue and allotment of Equity Shares on a preferential basis to Woodgreen Investment Ltd or any other affiliates of Warburg Pincus LLC. (f) For issue and allotment of Warrants convertible into Equity Shares on a preferential basis to Woodgreen Investment Ltd or any other affiliates of Warburg Pincus LLC. (g) For increasing the shareholding limit for FIIs in the Company to 74%. Annual General Meeting 26/07/04 9:30 A.M. FICCI Golden Jubilee Auditorium, (a) For appointment of M/s. Price Waterhouse, Federation House, Tansen Marg, Chartered Accountants as the Statutory Auditors in New Delhi place of M/s. K. C. Khanna & Co., Chartered Accountants-the retiring Statutory Auditors. (b) For amendment of Articles of Association of the Company. Annual General Meeting 03/08/ A.M. FICCI Golden Jubilee Auditorium, (a) For taking note of pricing formula in respect of the Federation House, Company s Employees Stock Option Plan. Tansen Marg, (b) For approving the Directors Stock Option Plan and New Delhi to offer a total of 450,000 stock options to the nonexecutive Directors. (c) For payment and distribution of commission on net profits of the Company to all the non executive Directors 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. 57 Moser COL.p /7/2006, 2:29 PM

39 During the financial year ended on 31 March, 2006, the Company passed a Special Resolution by Postal Ballot to alter the Objects Clause of the Memorandum of Association of the Company to include the following clauses within the Clause- The Objects incidental or ancillary to the attainment of the Main Objects :- 1. To carry on the activity of establishing, developing, maintaining and operating Special Economic Zones for non-conventional energy, including but not limited to all kinds of solar energy cells, modules, systems (including concentrator type solar cells, modules and systems) and equipments, or as a Free Trade and Warehousing Zone, or for setting up units to carry out authorized operations or to develop integrated infrastructure for exports including industrial, commercial and social infrastructure and activities of a character similar or analogous to the foregoing or any of them or connected therewith. 2. To carry on the activity of establishing, developing, maintaining and operating Special Economic Zones as a developer, co-developer, infrastructure facility provider or a service provider, for manufacturing, trading, buying, or selling of two or more kinds of goods or providing services in any sector, or goods or services falling in two or more sectors or for trading and warehousing or rendering of two or more kinds of services in any sector or rendering of services falling in two or more sectors, or as a Free Trade and Warehousing Zone. Details of the voting pattern are as following:- Number of valid postal ballot forms received 1,051 Votes in favour of the Resolution 2,97,18,167 Votes against the Resolution 702 Number of invalid postal ballot forms received 112 The Board of Directors appointed Mr. D.P. Gupta, a Practicing Company Secretary as the Scrutinizer for conducting the postal ballot process in a fair and transparent manner. The Board authorized Mr. Deepak Puri, Managing Director and Mrs. Minni Katariya, Company Secretary to supervise the postal ballot process. The following procedure was adopted for passing the aforesaid resolution by postal ballot:- 1. A meeting of the Board of Directors of the Company was held on 18 February, 2006 and the matters relating to alteration of the Objects Clause of the Memorandum of Association of the Company and the Notice of the Special Resolution proposed to be passed by postal ballot along with the explanatory statement thereof were duly approved. 2. The Postal Ballot Notice along with Postal Ballot Form was dispatched to all the eligible shareholders by UPC. 3. An intimation was filed in the office of Registrar of Companies, NCT of Delhi and Haryana in respect of the aforesaid matters. 4. The Bombay Stock Exchange Limited and National Stock Exchange of India Limited were informed about the decision of the Board of Directors to amend the Objects Clause of the Memorandum of Association of the Company. 5. An advertisement each was published in a leading English newspaper (circulating in the whole of India) and in one Hindi newspaper (circulating in Delhi) intimating the dispatch of the Postal Ballot Notice and Forms. 6. All the postal ballot forms received under prepaid envelopes were duly checked and taken note of by the Scrutinizer, who then prepared his report and submitted the same and the records in his custody to the Managing Director, as per the calendar of events. 7. The result of the postal ballot exercise was intimated to the Bombay Stock Exchange Limited and National Stock Exchange of India Limited and it was also published in a leading English newspaper circulating in the whole of India and in a Hindi newspaper circulating in Delhi. 8. A copy of the proceedings held on 29 March, 2006 regarding the postal ballot conducted by the Company was sent to the Bombay Stock Exchange Limited and National Stock Exchange of India Limited. 58 Moser COL.p /6/2006, 7:45 PM

40 9. The Company then filed the required form in the office of Registrar of Companies, NCT of Delhi and Haryana evidencing passing of the Special Resolution by postal ballot. No resolution is proposed to be passed through postal ballot at the forthcoming Annual General Meeting. 13. DISCLOSURES a) Disclosures on materially significant related party transactions, i.e. transactions of the Company of material nature, with its Promoters, Directors or the management, their subsidiaries or relatives, etc. that may have potential conflict 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 any statutory 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 annual financial results are sent to the concerned Stock Exchanges immediately after the same have been considered and taken on record by the Board of Directors. The Company also ensures that its quarterly financial results are also published 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 b) The Company also ensures that these results are promptly and prominently displayed on the Company s website:- c) The Company also complies with SEBI regulations regarding filing of its financial results under the EDIFAR system. d) The Company s official news releases are also displayed on the Company s web site. e) Management Discussion and Analysis Report (MD & A) is a part of the Annual Report of the Company for the year f) The Company had organized a meeting with the analysts on 28 October, 2005 at Mumbai. 15. CODE OF CONDUCT As per Clause 49 of the listing agreement, the Company has formulated a Code of Conduct each for the Directors and Senior Management and the same have been placed on the website of the Company. The declaration of the Managing Director regarding the compliance with the Codes of Conduct by Directors and the senior managerial personnel is given in the Annual Report. 16. GENERAL SHAREHOLDER INFORMATION a) 23 rd ANNUAL GENERAL MEETING Date : Wednesday, 19 July, 2006 Time : 9.30 A.M Venue : FICCI Golden Jubilee Auditorium, Federation House, Tansen Marg, New Delhi b) FINANCIAL CALENDAR : 1 April to 31 March c) BOOK : Monday, 17 July, 2006 to CLOSURE Wednesday, 19 July, d) DIVIDEND PAYMENT DATE: The dividend for the year as recommended by the Directors and if declared at the forthcoming Annual General Meeting, will be paid on or before Thursday, 17 August, 2006 to those members whose names appear:- (i) as beneficial owners as at the closure of the business hours on Wednesday, 19 July, 2006 as per the list being furnished by National Securities Depository Limited and Central Depository Services (India) Limited in respect of the shares held in electronic form; and 59 Moser COL.p /6/2006, 7:45 PM

41 (ii) as members in the Register of Members of the Company as at the closure of business hours on Wednesday, 19 July, e) LISTING The Equity Shares of the Company are listed at the following Stock Exchanges: i) Bombay Stock Exchange Limited at Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai ii) National Stock Exchange of India Limited at Exchange Plaza, Bandra - Kurla Complex, Bandra (East), Mumbai iii) *The Calcutta Stock Exchange Association Limited at 7, Lyons Range, Kolkata *The Company has made an application to The Calcutta Stock Exchange for voluntary delisting. Application for the same is under process and approval is pending. The Company has paid the Annual Listing Fees for the year to The Bombay Stock Exchange Limited and to National Stock Exchange of India Limited f) STOCK CODE The Stock Code at: i) Mumbai Stock Exchange is: ii) National Stock Exchange is: MOSERBAER iii) Calcutta Stock Exchange is: and g) i) TOP TEN SHAREHOLDERS AS ON 31 MARCH, 2006 Sr. Names No. of shares Percentage No. 1 International Finance Corporation 14,022, Woodgreen Investment Ltd. 9,950, Mrs. Sabena Puri 7,791, Electra Partners Mauritius Limited 6,640, Bloom Investments Limited 6,400, Ealing Investments Limited 6,400, Randall Investments Limited 6,400, Winterfall Limited 5,574, Deutsche Bank Trust Company Americas (shares underlying Global Depository Receipts) 4,750, Mr. Deepak Puri 3,841, g) ii) SHAREHOLDERS HOLDING MORE THAN 1% OF THE SHARE CAPITAL AS ON 31 MARCH, 2006 Sr. Names No. of % No. shares 1 International Finance Corporation 14,022, Woodgreen Investment Ltd 9,950, Mrs. Sabena Puri 7,791, Electra Partners Mauritius Ltd. 6,640, Ealing Investments Ltd. 6,400, Randall Investments Ltd. 6,400, Bloom Investments Ltd. 6,400, Winterfall Ltd. 5,574, Deutsche Bank Trust Company Americas (shares underlying Global Depository Receipts) 4,750, Mr. Deepak Puri 3,841, Elm International Ltd. 3,756, Mr. Ratul Puri 2,970, FID Funds (Mauritius) Ltd. 2,829, T Rowe Price International Inc A/c T Rowe Price New Asia Fund 2,392, HSBC Financial Services (Middle East) Ltd 2,381, Small Cap World Fund Inc 2,350, Mrs. Nita Puri 2,289, M&G Investment Mgt. Ltd. A/c The Prudential Assurance Company Limited 1,661, Deutsche Securities Mauritius Ltd. 1,632, T Rowe Price International Inc A/c T Rowe Price International Discovery Fund 1,589, HSBC Global Investment Fund A/c HSBC Global Investment Fund Mauritius Ltd. 1,560, g) STOCK PRICE DATA Stock Market Data at BSE and NSE for the period 1 April, 2005 to 31 March, 2006 Monthly high and low quotations of shares traded at The Bombay Stock Exchange Limited (BSE) and National Stock Exchange Ltd. (NSE) are as follows: - MONTHS BSE NSE Highest Lowest Highest Lowest April, May, June, July, August, September, October, November, December, January, February, March, Moser COL.p /6/2006, 7:45 PM

42 h) STOCK PERFORMANCE IN COMPARISON TO NSE INDEX (S&P CNX 500):- Following is the procedure for transfer of physical share certificates:- i) Entry of share certificate details and particulars of the transferee in the computer on receipt thereof in the office. ii) Scrutiny of transfer deeds. iii) Tallying of transferor s signature with the specimen signature available with the Registrar and Share Transfer Agent. iv) Data entry of transfer deeds. i) DISTRIBUTION OF SHAREHOLDING AS ON 31 MARCH, 2006 No. of Equity No. of %age No. of %age Shares held shareholders shares Upto 5,000 25, ,126, ,001 to 10,000 1, ,160, ,001 to 20, , ,001 to 30, , ,001 to 40, , ,001 to 50, , ,001 to 100, , ,001 & above ,351, Total 27, ,512, j) REGISTRAR AND SHARE TRANSFER AGENT MCS Limited is the Registrar & Share Transfer Agent of the Company and its office is located at W-40, Okhla Industrial Area, Phase-II, New Delhi Contact Person is Mr. Anirudh Mitra. He can be contacted at the following numbers:- Phone numbers : / / / / Fax number : address : mcsdel@vsnl.com k) SHARE TRANSFER SYSTEM The application for transfer, transmission and transposition of shares are received by the Company at its registered office or at the office of Registrar and Share Transfer Agent- M/s. MCS Limited. v) Preparation of objection memos and notices in respect of un-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 share certificates. x) Generation of covering letters for the transferred share certificates 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 dematerialization request form in the computer. ii) Scrutiny of the share certificates and the dematerialization request form in the computer. iii) Tallying of signature of the shareholder on the dematerialization request form with the specimen signature available with the Registrar and Share Transfer Agent. 61 Moser COL.p /6/2006, 7:45 PM

43 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. l) DEMATERIALISATION OF SHARES AND LIQUIDITY The Equity Shares of the Company are actively traded at major Stock Exchanges in dematerialized mode. As on 31 March 2006, 82.77% of the shares were held in dematerialized mode by 90.35% of the total shareholders of the Company. m) CONVERSION OF INSTRUMENTS i) On 23 February, 2006, Woodgreen Investment Ltd. converted its 47,500 Global Depository Receipts into 4,750,000 Equity Shares, constituting 4.26% of the outstanding paid-up Equity Share Capital of the Company. Consequently, the shareholding of Deutsche Bank Trust Company Americas, the depositary, has come down to 4,750,000 shares, constituting 4.26% of the outstanding paid-up Equity Share Capital of the Company and the shareholding of Woodgreen Investment Ltd. has increased to 8.92%. ii) On September 28, 2005, Woodgreen Investment Ltd. (WIL) did not exercise their option to convert at the exercise price of Rs. 336/- per share, 5,400,000 share warrants issued to them on a preferential basis by the Company pursuant to an agreement dated 25 March, Rs Million upfront money received against these shares warrants has been forfeited. 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) B-17, Sector 9, Noida, District- Gautam Budh Nagar U.P. iv) 66, Udyog Vihar Industrial Area, Greater Noida, U.P. o) ADDRESS FOR CORRESPONDENCE i) All correspondence regarding transfer and dematerialization of share certificates should be addressed to our Registrar and Share Transfer Agent - MCS Limited located at W- 40, Okhla Industrial Area, Phase-II, New Delhi Following are the contact numbers: ii) Telephone numbers / / / / Fax number address mcsdel@vsnl.com For any other information, the shareholders may contact the Company Secretary at the Registered Office of the Company located at 43-A, Okhla Industrial Estate, New Delhi Following are the contact nos.:- Telephone numbers: , Fax numbers: / address: shares@moserbaer.net 18. OTHER INFORMATION i) In terms of the provisions of Section 205 C of the Companies Act, 1956, unclaimed equity dividend for the year , and has been transferred to the Investor Education and Protection Fund. ii) The Company will transfer the amount remaining unpaid in its dividend account for the year to the Investor Education and Protection Fund by Saturday, 16 December, Those members who have not yet encashed their dividend warrants for the said year may refer the matter along with relevant details to the Company Secretary at the Registered Office of the Company located at 43-A, Okhla Industrial Estate, New Delhi latest by Tuesday, 31 October, 2006 to claim their unpaid dividend. 62 Moser COL.p /6/2006, 7:45 PM

44 iii) As on 31 March, 2006, 47,500 Global Depositary Receipts held by Woodgreen Investment Limited, were outstanding for conversion into an equal number of equity shares. These Global Depositary Receipts may be converted into Equity shares at any time by Woodgreen Investment Limited. Further, the conversion thereof will not have any impact on the subscribed and paid up capital of the Company because an equal number of Equity Shares are held by the depository-deutsche Bank Trust Company Americas. 19.ADOPTION OF NEW CORPORATE GOVERNANCE CLAUSE SEBI had issued a new corporate governance clause vide its circular number SEBI/CFD/DIL/ CG/1/2004/12/10 dated 29 October, The companies were required to comply with the same by 31 December, Your Company has complied with all the mandatory clauses of clause 49. 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 will endeavor, in future, to comply with the following nonmandatory list 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 be entitled to a Chairman s office at the Company s expense and also be allowed reimbursement of expenses incurred in performance of his duties is not applicable to the Company because the Company has an Executive Chairman. 2. Remuneration Committee. The Company s Remuneration Committee is functioning according to these recommendations. The Chairman of the remuneration committee was present at the previous Annual General Meeting to answer the shareholders queries. 3. Shareholders Rights The Company publishes its quarterly results in the leading newspapers and regularly uploads the results at the EDIFAR of SEBI. Further, it always ensures to regularly update the financial statements and key events on its website. However, the Company does not send the declaration of the half yearly financial performance or a summary of significant events to each shareholder of the Company. 4. Audit Qualifications The Company has a proven track record of unqualified financial statements. 5. Training of Board Members The Company endeavors to organize training programme for its Board members 6. Mechanism for evaluating Non-Executive Board members. The performance evaluation of Non-Executive Directors will be done in the due course of time. 7. Whistle Blower Policy: The Company has formulated a code of conduct for its Directors and senior managerial personnel which allows them to report any matter relating to unethical conduct or conflict of interest to their immediate supervisor. However, the Company does not have any formal whistle blower policy but the employees are free to report any matter relating to misconduct to their superiors. Date: Compliance with the Code of Ethics This is to certify that, to the best of my knowledge and belief, for the financial year ended on 31 March, 2006, all Board members and Senior Management Personnel have affirmed compliance with the code of ethics for Directors and Senior Management, respectively. Sd/- Deepak Puri Managing Director 63 Moser COL.p /6/2006, 7:45 PM

45 Managing Director and Group Chief Financial Officer Certification We, Deepak Puri, Managing Director and Yogesh Mathur, Group CFO of Moser Baer India Limited certify to the Board that: (a) We have reviewed the financial statements and the cash flow statement for the financial year ended on 31 March, 2006, and that to the best of our knowledge and belief: (i) (ii) these statement do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; these statements together present a true and fair view of the Company s affairs and are in compliance with existing accounting standards, applicable laws and regulations. (b) There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year which are fraudulent, illegal or violative of the Company s code of conduct. (c) We accept responsibility for establishing and maintaining internal controls for financial reporting and we have evaluated the effectiveness of internal control systems of the Company pertaining to financial reporting and we have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps we have taken or propose to take to rectify these deficiencies. (i) (ii) significant changes, if any, in internal controls over financial reporting during the year: During the financial year ended on 31 March, 2006, there were no significant changes in internal control over financial reporting. significant changes, if any, in accounting policies during the year and that the same have been disclosed in the notes to the financial statements: During the financial year ended on 31 March, 2006, there were no significant changes in accounting policies. (iii) instances of significant fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a significant role in the Company s internal control system over financial reporting. (d) We have indicated to the auditors and the Audit committee:- During the financial year ended on 31 March, 2006, there were no instances of the above nature. Sd/- Sd/- Deepak Puri Yogesh Mathur Managing Director Group CFO Date: 7 June, 2006 Place: New Delhi 64 Moser COL.p /6/2006, 7:45 PM

46 Auditors Certificate regarding compliance of conditions of Corporate Governance 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, 2006, 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 carried out 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 Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with 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 which the management has conducted the affairs of the Company. New Delhi June 7, 2006 Anuradha Tuli Partner Membership Number F For and on behalf of Price Waterhouse Chartered Accountants 65 Moser COL.p /6/2006, 7:45 PM

47 Auditors Report to the members of Moser Baer India Limited 1. We have audited the attached Balance Sheet of Moser Baer India Limited, as at March 31, 2006, and the related Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. These financial statements are the responsibility of the Company s management. Our responsibility 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 and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for 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 information and 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) (c) The fixed assets are physically verified by the management according to a phased programme designed to cover all the items over a period of three years, which in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during the year and no material discrepancies between the book records and the physical inventory have been noticed. In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed 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 of inventory lying with third parties, these have substantially been confirmed by them. In our opinion, the frequency of verification is reasonable. (b) In our opinion, the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. 66 Moser COL.p /6/2006, 7:46 PM

48 (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) (iv) The Company has not taken/granted any loans, secured or unsecured, from/to companies, firms or other parties covered in the register maintained under Section 301 of the Act. As the Company has not taken/granted any loans, secured or unsecured, from/to companies, 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 the 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. In our opinion and according to the information and explanations given to us, having regard to the explanation that certain items purchased are of special nature for which suitable alternative sources do not exist for obtaining comparative quotations, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory, fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books and records of the Company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system. (v) (a) In our opinion and according to the information and explanations given to us, there are no contracts or arrangements referred to in Section 301 of the Act that need to be entered in the register required to be maintained under that section. (b) As there are no contracts or arrangements referred to in Section 301 of the Act that need to be entered in the register required to be maintained under that section, clause (v)(b) of the 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. (vi) (vii) (viii) The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA or any other relevant provisions of the Act and the rules framed there under. In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. 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, the Company is regular in depositing undisputed statutory dues including investor education and protection fund, sales-tax, wealth tax, custom duty, excise duty, cess and other material statutory dues as applicable, and is generally regular in depositing the undisputed statutory dues including provident fund, employees state insurance, income tax and service tax with the appropriate authorities. 67 Moser COL.p /6/2006, 7:46 PM

49 (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, 2006 which have not been deposited on account of a dispute, are as follows - Name of the statute Nature of dues Amount (Rs.) Period to which Forum where the amount the dispute relates is pending Entry Tax Act Entry tax imposed on purchase 106,059, Supreme Court of India of capital goods Entry tax imposed on purchase 2,185, High Court, Lucknow of diesel and cement Central Excise Act, 1944 Customs duty levied on import of 2,761, Customs, Excise and and Customs Act, 1962 aluminium sheets toughened Service Tax Appellate glass, steel doors etc. Tribunal Service Tax Service tax levied on services 824, Commissioner (Appeals), provided by foreign supplier Customs & Central Excise, Noida 58,640, Commissioner, Customs & Central Excise, Noida 5,440, Deputy Commissioner, Customs & Central Excise, Noida Income Tax Demand U/s 143(3) of the 105,218,410 A.Y Commissioner of Income Income Tax Act, 1961 Tax (Appeals) Note: 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. (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) The Company has no accumulated losses as at March 31, 2006 and it has not incurred any cash losses in the financial year ended on that date or in the immediately preceding financial year. According to the records of the Company examined by us and the information and explanation given to us, the Company has not defaulted in repayment of dues to any financial institution or bank or debenture holders as at the balance sheet date. The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. The provisions of any special statute applicable to chit fund/nidhi/mutual benefit fund/societies are not applicable to the Company. In our opinion, the Company is not a dealer or trader in shares, securities, debentures and other investments. In our opinion and according to the information and explanations given to us, the terms and conditions on which the company has given guarantee for loans taken by others from banks are not prejudicial to the interest of the company. In our opinion, and according to the information and explanations given to us, on an overall basis, the term loans have been applied for the purposes for which they were obtained. On the basis of an overall examination of the balance sheet of the Company, in our opinion and according to the information and explanations given to us, there are no funds raised on a short-term basis which have been used for long-term investment. 68 Moser COL.p /6/2006, 7:46 PM

50 (xviii) (xix) (xx) (xxi) The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act during the year. As the Company has not issued any debentures during the year and no debentures are outstanding as at the year end, clause (xix) of the 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. The Company has not raised any money by public issues during the year. During the course of our examination of the books and records of the company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the company, noticed or reported during the year, nor have we been informed of such case by the management. 4. Further to our comments in paragraph 3 above, we report that: (a) (b) (c) (d) (e) (f) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act; On the basis of written representations received from the directors, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2006 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act; In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and attached thereto give in the prescribed manner the information required by the Act and give a true and fair view 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, 2006 (ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and (iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. New Delhi June 7, 2006 Anuradha Tuli Partner Membership Number F For and on behalf of PRICE WATERHOUSE Chartered Accountants 69 Moser COL.p /6/2006, 7:46 PM

51 SOURCES OF FUNDS: MOSER BAER INDIA LIMITED BALANCE SHEET AS AT MARCH 31, 2006 Schedule As at As at Rs. Rs. SHAREHOLDERS FUNDS: Capital 1 1,115,129,440 1,115,129,440 Share Warrants - 181,440,000 (Refer Note 15 of Schedule 20- Part B) Reserves and Surplus 2 18,933,398,325 18,832,449,804 20,048,527,765 20,129,019,244 LOAN FUNDS: Secured Loans 3 16,465,401,035 16,037,934,262 Unsecured Loans 4 89,240, ,278,740 Deferred Tax Liability (Net) - 14,045,000 (Refer Note 7 of Schedule 20- PartB) TOTAL 36,603,168,800 36,349,277,246 APPLICATION OF FUNDS: FIXED ASSETS: 5 Gross Block 34,936,740,065 31,919,622,736 Less: Depreciation 10,617,357,936 7,447,934,031 Net Block 24,319,382,129 24,471,688,705 Capital Work-in-progress 5 1,279,446, ,357,109 25,598,828,766 24,890,045,814 INVESTMENTS 6 879,474,170 2,075,173,709 CURRENT ASSETS, LOANS AND ADVANCES: Inventories 7 4,469,864,241 3,435,355,685 Sundry Debtors 8 3,798,874,698 3,315,436,156 Cash and Bank 9 2,837,200,891 4,589,941,611 Other Current Assets ,419, ,499,634 Loans and Advances 11 1,490,206, ,909,056 12,767,565,343 12,137,142,142 Less: CURRENT LIABILITIES AND PROVISIONS: 12 Current Liabilities 2,370,734,903 2,508,962,252 Provisions 271,964, ,122,167 2,642,699,479 2,753,084,419 Net Current Assets 10,124,865,864 9,384,057,723 TOTAL 36,603,168,800 36,349,277,246 ACCOUNTING POLICIES AND NOTES 20 TO ACCOUNTS This is the Balance Sheet referred to in our The schedules referred to above form an report 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 Harnam D. Wahi Minni Katariya Partner Chairman and Director Company Secretary Membership Number-F Managing Director For and on behalf of PRICE WATERHOUSE Chartered Accountants Yogesh Mathur Karandeep Singh Group CFO Vice President - Place: New Delhi Financial Planning and Date: June 07, 2006 Control 70 Moser COL.p /6/2006, 7:46 PM

52 MOSER BAER INDIA LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006 Schedule Year ended Year ended Rs. Rs. INCOME: Gross Sales 17,319,141,334 13,528,572,918 Less: Excise Duty ,905, ,450,114 Less: Countervailing duty 323,033, ,089,896 16,641,202,242 12,804,032,908 Other Income ,874, ,884,214 Increase in stock of Finished Goods/Work in Progress ,083, ,081,448 17,798,160,387 14,347,998,570 EXPENDITURE: Purchase of Finished Goods 11,465,411 - Raw Materials and Components Consumed 7,862,238,001 5,325,164,241 Packing Material Consumed 1,903,880,519 1,858,046,484 Stores, Spares and Tools Consumed 632,020, ,009,428 Personnel Expenses 16 1,035,857, ,988,445 Administration & Other Expenses 17 2,216,679,301 1,962,963,863 Interest & Finance Charges ,497, ,245,568 Depreciation 19 3,167,598,400 2,820,504,533 17,765,236,684 13,988,922,562 Profit before Tax and Prior Period Items 32,923, ,076,008 Prior Period (Income) / Expense (Net) (6,596,259) 56,687,369 (Refer Note 6 of Schedule 20-PartB) Profit before Tax and after Prior Period Items 39,519, ,388,639 Tax Expense: Current Tax [net of provision written back in respect of earlier years of Rs. 7,010,518 (Previous year Rs. Nil) and including Wealth Tax Rs 79,530 (Previous Year Rs. 174,982)] (6,334,263) 26,256,277 Deferred Tax (Refer Note 7 of Schedule 20-PartB) (14,045,000) (331,099,000) Fringe Benefit Tax 13,238,070 - Net Profit after Tax 46,661, ,231,362 Add:- Profit carried forward from last year 480,078,728 - Profit available for appropriation 526,739, ,231,362 APPROPRIATIONS: Proposed Dividend: -on Equity Shares 111,512, ,512,944 Corporate Tax on Proposed Dividend 15,639,690 15,639,690 Balance carried to Balance Sheet 399,587, ,078,728 Total 526,739, ,231,362 Earnings Per Share (Face Value of Rs. 10 each) Basic and Diluted: (Refer Note 10 of Schedule 20-Part B) ACCOUNTING POLICIES AND NOTES 20 TO ACCOUNTS This is the Profit and Loss Account referred to in our The schedules referred to above form an report 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 Harnam D. Wahi Minni Katariya Partner Chairman and Director Company Secretary Membership Number-F Managing Director For and on behalf of PRICE WATERHOUSE Chartered Accountants Yogesh Mathur Karandeep Singh Group CFO Vice President - Place: New Delhi Financial Planning and Date: June 07, 2006 Control 71 Moser COL.p /6/2006, 7:46 PM

53 MOSER BAER INDIA LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006 Year ended Year ended Rs. Rs. Cash flow from operating activities: Net profit before tax but after prior period items 39,519, ,388,639 Adjustments for: Depreciation 3,167,598,400 2,820,504,533 Interest Expense 874,310, ,763,931 Interest Income (187,012,440) (279,964,145) Income from Investment - Dividends (62,434,244) (49,593,596) Lease Rent - Finance Lease 28, ,411 (Profit)/Loss on Fixed Assets sold (70,000) 17,942 (Profit)/Loss on sale of Investments (417,759) (3,500,381) Debts / Advances Written off 698,988 23,189,990 Liability no longer required written back (13,753,857) (100,439,736) Provision for Gratuity & Leave Encashment 26,894,220 8,073,704 Stock written off 23,877 5,114,866 Provision for diminution in value of Investments - 4,268 Unrealised foreign exchange (gain) /loss (83,316,513) (134,830,455) Prior Period Expenses/(Income) (Net) (6,596,259) 56,687,369 Operating profit before working capital changes 3,755,473,890 3,313,685,340 Adjustments for changes in working capital : (Increase)/Decrease in Sundry Debtors (507,291,203) (155,559,904) (Increase)/Decrease in Other Receivables (925,440,183) 108,617,848 (Increase)/Decrease in Inventories (1,034,532,433) (1,455,494,127) Increase/(Decrease) in Trade and Other Payables 540,825,538 (667,104,060) Cash generated from operations 1,829,035,609 1,144,145,097 Taxes (Paid) / Received (Net of TDS) (4,104,721) (59,479,104) Prior Period (Expenses)/Income (Net) 6,596,259 (56,687,369) Net cash from operating activities 1,831,527,147 1,027,978,624 Cash flow from Investing activities: Purchase of fixed assets (4,565,155,663) (3,525,638,390) Proceeds from Sale of fixed assets 70,000 1,369,697 Proceeds from Sale of Investments 3,807,414,363 4,053,194,253 Purchase of investments (2,280,548,910) (5,576,145,834) Investment in Subsidiary companies (330,748,155) - Interest Received 224,169, ,805,997 Dividend Received 62,434,244 49,593,596 Net cash used in investing activities (3,082,364,500) (4,764,820,681) Contd Moser COL.p /6/2006, 7:46 PM

54 MOSER BAER INDIA LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006 Year ended Year ended Rs. Rs. Cash flow from financing activities: Proceeds from long term borrowings Receipts, excludes Gain on account of exchange fluctuation of Rs.179,853,336 2,812,809,033 2,943,540,490 (Previous year (Loss) Rs. 305,229,483) on reinstatement of foreign currency loans Payments (2,883,012,252) (2,921,176,880) Proceeds from short term borrowings (Net) 582,673,696 1,291,078,304 Interest on Finance Lease (28,580) (268,411) Interest Paid (886,831,220) (716,247,305) Dividend Paid (111,874,354) (167,421,803) Dividend Tax Paid (15,639,690) (21,431,394) Net cash used in financing activities (501,903,367) 408,073,001 Net Increase/(Decrease) in Cash & Cash Equivalents (1,752,740,720) (3,328,769,056) Cash and cash equivalents at beginning of the year 4,589,941,611 7,918,710,667 Cash and cash equivalents at end of the year 2,837,200,891 4,589,941,611 Cash and cash equivalents comprise Cash, Cheques & Drafts (in hand) and Remittances in transit 10,570,859 79,523,373 Fixed Deposits 2,707,682,109 4,315,915,078 Balance with Scheduled Banks 118,947, ,503,160 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. 508,575,698 (Previous Year Rs.688,548,853) which are not available for use by the Company. (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 Harnam D. Wahi Minni Katariya Partner Chairman and Director Company Secretary Membership Number-F Managing Director For and on behalf of PRICE WATERHOUSE Chartered Accountants Yogesh Mathur Karandeep Singh Group CFO Vice President - Place: New Delhi Financial Planning and Date: June 07, 2006 Control 73 Moser COL.p /6/2006, 7:46 PM

55 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006 SCHEDULE 1 - CAPITAL: As at As at Rs. Rs. Authorised: 142,500,000 (Previous Year 142,500,000) Equity Shares of Rs.10 each 1,425,000,000 1,425,000, ,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: 111,512,944 (Previous year 111,512,944) Equity Shares of Rs.10 each fully paid 1,115,129,440 1,115,129,440 TOTAL 1,115,129,440 1,115,129,440 SCHEDULE 2 - RESERVES AND SURPLUS: Capital Reserve: Share Warrants Forfeited (Refer Note 15 of Schedule 20-Part B) 181,440,000 - State Capital Investment Subsidy - 1,000,000 Less: Transferred to General Reserve - 1,000, ,440,000 - Share Premium Account: As per last Balance Sheet 8,891,620,004 8,891,620,004 Profit and Loss Account Balance 399,587, ,078,728 General Reserve: As per last Balance Sheet 9,460,751,072 9,459,751,072 Add: State Capital Investment Subsidy transferred - 1,000,000 9,460,751,072 9,460,751,072 TOTAL 18,933,398,325 18,832,449, Moser COL.p /6/2006, 7:46 PM

56 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006 As at As at Rs. Rs. SCHEDULE 3- SECURED LOANS: Term Loans (Refer notes below) From Banks: Rupee Loans, including interest accrued and due Rs. 22,662,800 8,576,805,156 6,442,303,348 (Previous Year Rs. 7,607,246) Foreign Currency Loans 2,986,720,655 4,839,745,708 11,563,525,811 11,282,049,056 From Others: Foreign Currency Loans 676,375,000 1,192,852,754 12,239,900,811 12,474,901,810 Other Loans: Short Term Loans from Banks: Secured by hypothecation of stock-in-trade and book debts 4,031,142,586 3,410,793,514 Including interest accrued and due Rs.755,336 (Previous Year Rs. NIL) Secured by lien on Fixed Deposits 193,234, ,498,341 From Others: Secured by hypothecation of specific vehicles 1,123,405 1,740,597 4,225,500,224 3,563,032,452 TOTAL 16,465,401,035 16,037,934,262 Notes: 1 Rupee Term 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, EXIM Bank R&D Loans and Foreign currency loans from banks / financial institutions are secured by way of first mortgage and charge on all the immovable properties 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 loans from UCO Bank and State Bank of Patiala are secured by way of first charge on whole of the movable fixed assets. 3 Short Term loans from HSBC Bank, The Bank of Nova Scotia, State Bank of India, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Travancore, Union Bank of India are further secured by way of second charge on all the immovable properties. 4 Term Loans repayable within one year Rs. 3,662,374,088 (Previous year Rs. 2,892,286,064). Other Loans repayable within one year Rs.1,123,405 (Previous year Rs. 617,192). SCHEDULE 4 - UNSECURED LOANS Short term loans from Bank Foreign Currency Loan 89,240, ,278,740 USD 2,000,000 (Previous Year USD 3,664,117 & Euro 123,493) TOTAL 89,240, ,278, Moser COL.p /6/2006, 7:46 PM

57 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006 SCHEDULE 5 - FIXED ASSETS: DESCRIPTION GROSS BLOCK DEPRECIATION NET BLOCK As at Additions Deductions As at As at For the Deductions As at As at As at Year Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Tangible Assets Land, Leasehold except to the extent of Rs 170,081 (Previous Year Rs. 170,081) 273,836, ,836,651 8,476,182 2,964,499-11,440, ,395, ,360,469 Buildings 2,235,131, ,018,074-2,416,150, ,071,135 77,965, ,036,614 2,099,113,399 1,996,060,804 Leasehold Improvements 22,547,796 4,883,610-27,431,406 4,560,731 2,378,321-6,939,052 20,492,354 17,987,065 Plant & Machinery, Electrical Installations and Other Equipments 28,958,151,475 2,799,269, ,567 31,756,821,118 7,076,023,736 3,035,603, ,567 10,111,028,029 21,645,793,089 21,882,127,739 Furniture, Fixtures and Office Equipments 152,078,951 20,388, ,467,365 39,394,430 9,146,098-48,540, ,926, ,684,521 Computers 102,659,928 9,022, ,682,064 32,117,136 17,177,852-49,294,988 62,387,076 70,542,792 Vehicles 17,377,466 1,366,027-18,743,493 5,727,307 1,584,971-7,312,278 11,431,215 11,650,159 Intangible Assets Software 22,742,575 1,769,425-24,512,000 7,220,585 4,802,621-12,023,206 12,488,794 15,521,990 Technical Know How 131,249, ,249,583 32,731,031 17,668,960-50,399,991 80,849,592 98,518,552 Leased Assets Vehicles 3,846, ,846,372 2,611, ,811-3,342, ,803 1,234,614 TOTAL 31,919,622,736 3,017,716, ,567 34,936,740,065 7,447,934,031 3,170,023, ,567 10,617,357,936 24,319,382,129 24,471,688,705 Capital Work in Progress: Capital Work in Progress, including capital advances of Rs. 226,485,518 (Previous Year Rs. 110,798,301) 1,214,457, ,797,792 Expenditure pending allocation 64,988,904 33,559,317 (Refer Note 5 of Schedule 20- PartB) TOTAL 1,279,446, ,357,109 Grand Total 31,919,622,736 3,017,716, ,567 34,936,740,065 7,447,934,031 3,170,023, ,567 10,617,357,936 25,598,828,766 24,890,045,814 Previous Year 27,315,091,445 4,607,024,242 2,492,951 31,919,622,736 4,628,534,811 2,820,504,533 1,105,313 7,447,934,031 24,890,045,814 Notes: 1. Gross Block and additions to Plant and Machinery have been reduced by Rs. 211,436,785 (Previous Year increased by Rs. 314,804,738) on account of foreign exchange differences 2. Borrowing Costs capitalised during the period Rs. 17,215,941 (Previous Year Rs. 74,349,468) 76 Moser COL.p /6/2006, 7:46 PM

58 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006 SCHEDULE 6 - INVESTMENTS: Long Term As at As at Rs. Rs. Rs. Rs. Unquoted (Non Trade): Investment in Subsidiaries European Optic Media Technology GMBH Share Capital of 2,025, ,268, ,520,046 Includes share application money of Rs. 94,004,451 (Previous Year Rs. 24,256,296) Moser Baer Photo Voltaic Ltd. 26,050,000 Equity Shares of Rs. 10/- each 260,500,000 - Moser Baer SEZ Developer Ltd. 50,000 Equity Shares of Rs 10/- each 500, ,268, ,520,046 Investments in Others CAPCO 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, ,673, ,668, ,673,784 Global Data Media FZ-LLC (Associate) 7,194 Shares of AED 1,000 each 92,532,185 92,532,185 Short Term Current (Unquoted - Others) (Refer Note 4 of Schedule 20- Part B) Investment in Mutual Funds - 1,526,451,962 Less: Diminution in value of investment - - 4,268 1,526,447,694 Total (aggregate value of unquoted investments) 879,474,170 2,075,173,709 SCHEDULE 7 - INVENTORIES: Stores and spare parts 519,591, ,856,237 including in transit Rs. 4,539,840 (Previous Year Rs. 11,125,523) -net of provision for non-moving stock Rs. 232,201 (Previous Year Rs 1,160,013) Raw Materials and Components 1,626,244,619 1,253,790,136 including in transit Rs. 578,514,319 (Previous Year Rs. 344,038,127) Packing Material 111,423, ,806,561 including in transit Rs. 93,868,444 (Previous Year Rs. 960,935) -net of provision for non-moving stock Rs.4,153,529 (Previous Year Rs. 3,907,365) Work in Progress 899,748, ,391,766 Manufactured Finished Goods 1,304,059, ,378,704 Traded Goods 8,795,777 1,132,281 TOTAL 4,469,864,241 3,435,355,685 SCHEDULE 8- SUNDRY DEBTORS: (Unsecured - Considered Good, unless otherwise stated): Debts outstanding for a period exceeding six months Considered Good 279,811, ,338,783 Considered Doubtful 53,852,778 55,091, ,664, ,430,472 Less: Provision for Doubtful Debts 53,852, ,811,970 55,091, ,338,783 Other Debts Considered Good 3,519,062,728 3,036,097,373 Considered Doubtful - 343,790 3,519,062,728 3,036,441,163 Less: Provision for Doubtful Debts - 3,519,062, ,790 3,036,097,373 TOTAL 3,798,874,698 3,315,436, Moser COL.p /6/2006, 7:46 PM

59 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006 As at As at Rs. Rs. Rs. Rs. SCHEDULE 9 - CASH AND BANK: Cash on hand including cheques/drafts 8,064,149 33,233,192 Remittance in Transit 2,506,710 46,290,181 Balances with Scheduled Banks: Current Accounts 114,097, ,305,308 Fixed Deposit Accounts 2,707,682,109 4,315,915,078 Unpaid Dividend Account 4,598,302 4,965,262 E.E.F.C. Accounts 252, ,590 2,826,630,032 4,510,418,238 TOTAL 2,837,200,891 4,589,941,611 Note: Fixed Deposits shown above include Rs. 503,977,396 (Previous Year Rs. 683,583,591) which are subject to lien with the bankers. SCHEDULE 10- OTHER CURRENT ASSETS: Interest Accrued on Fixed Deposits 35,946,331 73,103,512 Other Receivables 135,472, ,396,122 TOTAL 171,419, ,499,634 SCHEDULE 11- LOANS AND ADVANCES: (Unsecured - Considered Good, unless otherwise stated): Due from Subsidiary Companies 26,812,629 - Advances recoverable in cash or kind or for value to be received 320,189, ,390,218 Advance to Suppliers 899,504, ,411,611 Balance with Excise Authorities 55,266,052 19,789,092 Earnest Money/Security Deposits 31,949,085 12,982,970 Advance Tax/Tax Deducted at Source 156,484, ,335,165 TOTAL 1,490,206, ,909,056 Note: Amount due from a Director as at March 31, Rs. 9,209 (Previous year Rs. Nil). Maximum Balance due at any time during the year from Director and Officer of the Company was Rs. 9,209 (Previous year Rs. 2,700). 78 SCHEDULE 12- CURRENT LIABILITIES AND PROVISIONS: A. Current Liabilities: Acceptances 420,444, ,852,342 Sundry Creditors - Total outstanding dues to Small Scale Industrial Undertakings 12,806,668 15,475,769 - Total outstanding dues of creditors other than Small Scale Industrial Undertakings 1,718,505,874 1,866,569,895 1,731,312,542 1,882,045,664 Advances from Customers 669,147 5,748,206 Unclaimed Dividend * 4,591,508 4,952,918 Other Liabilities 142,605, ,922,107 Book Overdraft 423,559 6,071,528 Security Deposits 40,163,911 53,729,526 Interest accrued but not due on Loans 30,524,727 41,639,961 Total 2,370,734,903 2,508,962,252 *The above amount will be credited to Investor Education and Protection Fund as and when due. B. Provisions: Provision for taxation 99,469,001 98,520,812 Proposed Dividend 111,512, ,512,944 Corporate tax on Dividend 15,639,690 15,639,690 Staff Benefit Schemes 45,342,941 18,448,721 Total 271,964, ,122,167 Moser COL.p /6/2006, 7:46 PM

60 MOSER BAER INDIA LIMITED SCHEDULES ANNEXED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006 Year ended Year ended Rs. Rs. Rs. Rs. SCHEDULE 13- EXCISE DUTY: Excise Duty paid 359,522, ,506,640 Less: Excise duty on Closing Stock 6,136,081 1,518,544 Add: Excise duty on Opening Stock 1,518, ,018 TOTAL 354,905, ,450,114 SCHEDULE 14- OTHER INCOME: Interest Received (Gross): a) On Deposits with banks 187,012, ,964,145 b) On Income Tax Refunds 4,584,137 - c) On Staff Loan - 7,731 Tax Deducted at Source Rs. 45,252,233 (Previous Year Rs. 48,995,892) 191,596, ,971,876 Excess provisions and unclaimed credit Balances written back 13,753, ,439,736 Exchange Fluctuation (Net) 59,944,355 - Profit on cancellation of forward contracts (Net) 66,244, ,293,774 Profit on sale of Fixed Asset 70,000 - Profit on sale of Current Investment (others) 417,759 3,500,381 Dividend from -Long Term Investments (associate) 48,685, Current Investments (others) 13,748,911 49,593,596 62,434,244 49,593,596 Miscellaneous Income 212,412, ,084,851 TOTAL 606,874, ,884,214 SCHEDULE 15-INCREASE/(DECREASE) IN STOCK OF FINISHED GOODS AND WORK IN PROGRESS: Closing Stock: Finished Goods 1,304,059, ,378,704 Work in Progress 899,748, ,391,766 Traded Goods 8,795,777 1,132,281 2,212,604,248 1,657,902,751 Less: Opening Stock: Finished Goods 972,378, ,567,182 Work in Progress 684,391, ,034,267 Traded Goods 1,132,281 1,163,328 1,657,902, ,764,777 Excise duty on Increase/ (Decrease) of Finished Goods (4,617,537) (1,056,526) TOTAL INCREASE 550,083, ,081, Moser COL.p /6/2006, 7:46 PM

61 MOSER BAER INDIA LIMITED SCHEDULES ANNEXED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31,2006 Year ended Year ended Rs. Rs. SCHEDULE 16- PERSONNEL EXPENSES: Salaries, Allowances and Bonus 870,823, ,018,544 Contribution to Provident and other funds 72,293,713 46,039,485 Employee Welfare Expenses 76,895,479 51,530,059 Leave Encashment 15,845,233 8,400,357 TOTAL 1,035,857, ,988,445 SCHEDULE 17- ADMINISTRATION & OTHER EXPENSES: Power and Fuel 822,513, ,443,586 Commission on Sales 1,556,613 3,720,597 Rent (Including Lease Rent) 52,677,367 57,039,707 Repairs & Maintenance: - Building 1,008,883 1,482,565 - Plant & Machinery 16,406,901 11,780,539 - Others 37,402,032 26,794,006 Freight and Forwarding (Net) 482,495, ,573,997 Insurance 114,352, ,368,920 Rates and Taxes 8,815,284 4,466,061 Director s Sitting Fees 1,120,000 1,100,000 Donation 5,039,125 3,309,708 Remuneration to Auditors 12,694,359 9,878,275 Royalty 315,478, ,317,928 Travelling and Conveyance 144,717, ,846,888 Bad Debts 159,825 - Advances Written Off 539,163 23,189,990 Research and Development Expenses 193,034 1,780,000 Miscellaneous Expenses 199,485, ,577,913 Stock Written Off 23,877 5,069,632 Dimunition in value of Investments - 4,268 Exchange Fluctuation (Net) - 26,201,341 Loss on sale of Fixed Asset (Net) - 17,942 TOTAL 2,216,679,301 1,962,963,863 SCHEDULE 18- INTEREST & FINANCE CHARGES: Interest: On Fixed Loans 713,089, ,579,717 Others 161,221,637 71,184,214 Finance Charges 31,345,186 25,281,326 Bank Charges 29,841,076 45,200,311 TOTAL 935,497, ,245,568 SCHEDULE 19- DEPRECIATION: Depreciation on Fixed Assets (Refer Schedule 5) 3,170,023,472 2,820,504,533 Less: Depreciation on assets used for Trial Run / Testing transferred to expenditure pending allocation (Refer Note 5 of Schedule 20-PartB) 2,425,072 - Depreciation charged to Profit and Loss 3,167,598,400 2,820,504, Moser COL.p /6/2006, 7:46 PM

62 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS Part-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 in accordance with generally accepted accounting practices in India and conform to the applicable Accounting Standards issued by the Institute of Chartered Accountants of India and relevant provisions of the Companies Act, B USE OF ESTIMATES The preparation of financial statements requires the management of the Company to make estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statements and 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. 2 REVENUE RECOGNITION Revenue from sale of goods is recognised on transfer of significant risks and rewards of ownership to the customer and when no significant uncertainty exists regarding realisation of the consideration. Sales are recorded net of sales returns, rebates and trade discounts and 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. 3 FIXED ASSETS Tangible Fixed Assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specifically 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. 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 specified in Schedule XIV to the Companies Act, 1956, other than on certain Plant and Machinery at the Magnetic Media manufacturing units, which is depreciated at the rate of 7.42% (10.34% upto last year) based on management s estimate of useful life of the assets and is in accordance with the rate specified in Schedule XIV to the Companies Act,1956. In respect of assets whose useful life has been revised, the unamortised depreciable amount has been charged over the revised remaining useful life. Intangible assets are amortised on equated basis over their estimated economic life not exceeding 10 years. 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. 5 INVESTMENTS Long term investments are stated at cost of acquisition inclusive of expenditure incidental to acquisition. A provision for diminution is made 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 net } Raw 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 average method. Cost of Work in progress and finished goods is determined by considering direct material costs, labour costs and appropriate portion of overheads. Liability for excise duty in respect of goods manufactured by the company, other than for exports, is accounted upon completion of manufacture. 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 of specific fixed assets are adjusted from the cost of the related fixed assets. 81 Moser COL.p /6/2006, 7:47 PM

63 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) 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 of commencement of commercial use of the asset. All other borrowing costs are charged to the Profit and Loss Account. 9 RETIREMENT BENEFITS Liability towards gratuity payable on death/retirement of employees is accrued based on an actuarial valuation at year end, and covered by funding/premium as determined by Life Insurance Corporation of India. Provision for leave encashment benefit for the employees is based on an actuarial valuation as at the balance sheet date. 10 FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currency are converted at the exchange rate prevailing at the date of the transaction. Foreign currency monetary assets and liabilities not covered by forward exchange contracts are restated at the year end rates and the resultant gains or losses are recognised in the Profit and Loss Account, except exchange differences arising on settlement and/or translation of foreign currency liabilities relating 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 rate prevailing on the date of the transaction. Monetary assets and liabilities are restated at the year end rates and resultant gains or losses are recognised in the Profit and Loss Account. Gains and losses on foreign exchange forward contracts are recognised in the Profit and Loss Account over the life of the contract, except in respect of liabilities incurred for acquiring fixed assets, in which case such difference is adjusted to the carrying amount of the respective fixed 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 income chargeable 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 amount of assets and liabilities and their respective tax basis. DTA is recognised based on management estimates of reasonable/ virtual certainty that sufficient future taxable income will be available against which such DTA can be realised. The deferred tax charge or credit is recognised 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 at inception of the lease and the present value of minimum lease payments. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to periods during the lease term so as to produce a constant 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 Option Plan are accounted in accordance with Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, Accordingly, the excess, if any, of the market price of the underlying equity shares as of the date of the grant of the option over the exercise price of the option, is recognised as employee 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 any such indication exists, the Company estimates the recoverable amount. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised in the profit and loss account to the extent the carrying amount exceeds recoverable amount. Where there is 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 of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods. 82 Moser COL.p /6/2006, 7:47 PM

64 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS 1 Contingent Liabilities In respect of:- 1.1 Corporate guarantee given on behalf of the Subsidiary Company: Rs. 450,000,000 (Previous Year Rs. Nil). 1.2 Legal costs contingent upon the outcome of a court case which could be in the range of Rs. 2,705,500 to Rs. 5,411, Disputed demands in respect of: (Rs.) (Rs.) Entry tax (excluding interest) 110,117, ,744,806 Service tax 68,825,596 65,417,192 Sales Tax 6,706,074 1,310,000 Custom duty and Excise duty 2,761,250 5,414,214 Total 188,410, ,886, Claims against the Company not acknowledged as debts: Rs. 18,412,975 (Previous Year Rs. 18,850,002). 1.5 The Company has received a notice from the Uttar Pradesh Sales Tax authorities demanding sales tax of Rs. 198,390,609 in respect of non-submission of C Forms. The company has untill July 31, 2006 to deposit the C Forms. As on the date of these financial statements, C Forms amounting to a sales tax of Rs. 190,438,045 have been collected and are pending to be deposited. The management is reasonably certain of collecting the remaining C Forms amounting to a sales tax of Rs. 7,952,564 by July31, Accordingly the above amount of Rs. 198,390,609 has not been considered as a Contingent Liability Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances): Rs.939,195,856 (Previous Year Rs. 1,406,499,426). 2.2 Letters of Credit opened by banks on behalf of the Company: Rs.1,349,373,002 (Previous Year Rs. 947,349,519). 3 Lease Obligations a) Total of minimum future lease payments under non-cancellable operating leases for various periods are as follows:- Amount (Rs.) Amount (Rs.) Amount payable not later than one year 17,442,073 14,948,359 Amount payable later than one year but not later than five years 75,042,807 68,296,177 Amount payable later than five years 24,812,895 42,752,590 Total 117,297, ,997,126 Total lease payments recognized in the statement of Profit and Loss Account: Rs. 19,018,200 (Previous year Rs. 30,348,865). The company has entered into operating leases for its offices, employees residences and for vehicles that are renewable on a periodic basis and cancellable at company s option. Except for its Office, the company has not entered into sublease agreements with others. The total rent recovered on sub lease of its office during the year Rs. 347,076 (Previous year Rs. 338,736). 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 charges payments minimum lease payments Rs. Rs. Rs. Amount paid upto ,181,202 2,691,376 1,489,826 Amount payable not later than one year 1,230,881 1,123, ,476 Total 5,412,083 3,814,781 1,597,302 Previous year 5,263,939 3,814,781 1,449,158 Total cost of leased vehicles and their carrying amount as at 31st March 2006 are Rs. 3,846,372 (Previous Year Rs. 3,846,372) and Rs. 503,803 (Previous Year Rs. 1,234,614) respectively. 83 Moser COL.p /6/2006, 7:47 PM

65 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS 4 Movements in Other Investments Current Investments (Unquoted) No. Cost (Rs.) No. Cost (Rs.) (Mutual fund units of the face value of Rs. 10 each except for units in Franklin Templeton mutual fund which are of Rs.1,000 each.) Acquired and sold during the year Birla Sun Life Mutual Fund 57,681, ,673,816 48,210, ,878,765 Prudential ICICI Mutual Fund 89,762,993 1,064,047,119 51,049, ,886,530 SBI Mutual Fund 13,272, ,157,051 30,137, ,800,159 Franklin Templeton Treasury Management Fund , ,898,991 ING Vysya Liquid Fund ,122, ,275,190 Deutsche Floating Rate Fund 23, ,736 14,936, ,428,726 Kotak Floater Short Term ,269, ,300,799 Reliance Floating Rate Fund 68, ,542 30,078, ,527,030 HDFC Floating Rate Income Fund ,208, ,849,184 ING Vysya Floating Rate Fund 5,067,232 50,684,986 40,180, ,064,332 HSBC Cash Fund ,477, ,784,166 Reliance Treasury Plan 14,416, ,242, DSP ML Floating Rate Fund 23,303, ,822, Total 203,596,009 2,280,548, ,074,222 4,049,693,872 (Mutual fund units of the face value of Rs. 10 each) Sold during the year Prudential ICICI Mutual Fund 25,586, ,242, Deutsche Insta Cash Plus Institutional Plus 9,982, ,017, DSP ML Floating Rate Fund 30,578, ,425, SBI Magnum Institutional Income Savings 30,530, ,300, Reliance Floating Rate Fund 10,327, ,715, ING Vysya Floating Rate Fund 40,665, ,749, Total 147,671,123 1,526,451, Acquired during the year and outstanding as at year end Prudential ICICI Mutual Fund ,586, ,242,694 Deutsche Insta Cash Plus Institutional Plus - - 9,982, ,017,361 DSP ML Floating Rate Fund ,578, ,425,745 SBI Magnum Institutional Income Savings ,530, ,300,585 Reliance Floating Rate Fund ,327, ,715,850 ING Vysya Floating Rate Fund ,665, ,749,727 Total ,671,123 1,526,451, Expenditure pending allocation Details of expenditure pending allocation are as follows: As at As at (Rs.) (Rs.) Salaries and Wages 5,825,296 10,177,846 Travelling Expenses 1,108,999 - Freight and Cartage 22,689,608 1,808,094 Interest 4,627,463 17,109,924 Difference in exchange rate - 4,463,453 Raw Material cost- Trial run 10,058,499 - Power & Fuel 391,606 - Stores spares & consumables 203,925 - Legal and Professional 528,000 - Depreciation 2,425,072 - Loss on cancellation of Forward Contract 17,130,436 - Total 64,988,904 33,559,317 Moser COL.p /6/2006, 7:47 PM

66 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS 6 Prior period expenses/(income) (Net) Details of prior period expenditure/(income) are as follows: (Rs.) (Rs.) Salaries and Wages - 1,350,051 Sales promotion - 2,666,049 Financial charges - 4,383,720 Stores, spares and consumables - 28,378,683 Packing Material - 401,724 Staff Welfare - 122,380 Rent - 8,781,147 Price Variance on sales - 13,652,843 Travelling expenses 1,083,174 - Repairs & Maintenance 2,003,714 - Annual Maintenance Contract 185,828 - Total of prior period expenses 3,272,716 59,736,597 Less: Prior Period Income: Miscellaneous Income (9,868,975) (3,049,228) Total of prior period (income)/expense (Net) (6,596,259) 56,687,369 7 Taxation Provision for taxation has been made based on Minimum Alternate Tax as applicable to the company for the current year in accordance with the relevant provisions of the Income Tax Act,1961. The deferred tax expense for the year is adjusted for deferred tax liability in respect of undertakings enjoying tax benefits under section 10A and section 10B of the Income Tax Act,1961 and also on account of adjusting deferred tax assets and liabilities at substantively enacted rates of depreciation and Income Tax rates as on the balance sheet date. The Break up of net deferred tax liability is as under: (Amount in Rupees) Particulars of As at Movements during As at Timing Differences March 31,2005 the year March 31,2006 Deferred tax Liability Depreciation 1,246,707, ,596,302 1,369,303,302 Deferred tax Assets Unabsorbed Depreciation 1,223,109, ,371,498 1,368,480,498 Brought Forward Losses 9,553,000 (8,730,196) 822,804 Total 1,232,662, ,641,302 1,369,303,302 Net deferred tax liability 14,045,000 (14,045,000) - Previous year 345,144,000 (331,099,000) 14,045,000 8 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 exercise prices 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 of four years from the date of grant. As at the date of balance sheet no option has been exercised by any employee or non-executive director. 85 Moser COL.p /6/2006, 7:47 PM

67 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS Number of options granted, exercised and forfeited during the year Number Weighted Number Weighted Average Price Average Price Options outstanding at beginning of year 2,165, ,030, Add : Options Granted 1,108, ,065, Less : Options Exercised Options Cancelled - - 1,553, Options Forfeited Options Lapsed 295, , Options outstanding at the end of year 2,977, ,165, Option exercisable at the end of year 484, , The options outstanding at the end of the year had exercise prices in the range of Rs to Rs and a weighted average remaining contractual life of 3.19 years. 9 ADDITIONAL INFORMATION PURSUANT TO REQUIREMENTS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND OTHER DISCLOSURES 9.1 Licensed Capacity Not Applicable for any product of the company 9.2 Installed Capacity *Installed Capacity Actual Production Storage Media (Nos.) 4,292,803,400 3,612,563,400 3,198,166,193 2,753,706,325 (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). 9.3 In terms of order no.46/05/2006-cl-iii. dated 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 , 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). 9.4 Composition of raw material, packing material stores,spares and consumables consumed: Raw Material and Packing Material Stores, Spares and Consumables Imported Percentage Value (Rs.) 7,965,872,062 5,135,246, ,780, ,614,462 Indigenous Percentage Value (Rs.) 1,800,246,458 2,047,964, ,240, ,394,966 Total ,766,118,520 7,183,210, ,020, ,009, Moser COL.p /6/2006, 7:47 PM

68 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS 9.5 Foreign Currency Transactions: Value of Imports on CIF Basis: (Rs.) (Rs.) Purchase of Finished Goods 11,465,411 3,024,036 Raw Material, including in transit Rs. 581,022,524 (Previous year Rs. 344,259,430) 7,660,367,132 5,481,759,131 Capital Goods, including in transit and Capital work in progress Rs. 835,723,596 (Previous Year Rs. 78,785,226) 4,137,024,260 3,102,998,159 Stores, Spares and Consumables, including in transit Rs. 4,882,235 (Previous Year Rs. 11,125,523) 626,012, ,045,359 Packing Material, including in transit Rs. 97,171,033 (Previous Year Rs. 960,935) 626,380,235 24,329,190 Total 13,061,249,350 9,136,155, Expenditure in foreign currency (on payment basis) : (Rs.) (Rs.) Travel 9,212,975 6,070,854 Interest 165,791, ,911,565 Royalty/Technical Know-how Fees (including advance royalty) 409,113, ,876,604 Directors Sitting Fees 460, ,000 Legal and Professional 12,558,239 14,998,527 Other expenditure 35,433,953 34,475,004 Expenditure of Foreign Branch: Staff Welfare 513,321 2,616,687 Rent/Lease Rent 3,009,852 14,837,502 Freight and Forwarding - 15,606,861 Legal and Professional 6,290,657 6,927,888 Miscellaneous Expenses 41,181,257 26,327,589 Financial Charges - 5,956,762 Insurance 375, ,864 Salaries and Wages 42,799,352 35,620,531 Repairs and Maintenance 2,024, ,912 Commission on Sales (other selling agents) - 713,676 Total 728,765, ,564, Earnings in Foreign Exchange: (Rs.) (Rs.) Value of Exports on FOB basis 14,045,740,379 10,028,340,237 Services - 6,756,500 Interest 10, ,582 Duty Refund - 4,449,983 Others: -Insurance Claim Received 302, Dividend 48,685, Moser COL.p /6/2006, 7:47 PM

69 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS Amount remitted in Foreign Currencies for Dividend : Dividend remitted on fully paid-up equity shares of Rs.10 each Number of Non Resident Shareholders 1 2 Number of Shares held 135,000 6,775,230 Year to which it relates Dividend remitted in (Rs.) 135,000 10,162, Managerial Remuneration (Remuneration to Directors): (figures in bracket are for the previous year) (Amount in Rupees) DEEPAK PURI NITA PURI RATUL PURI Total Managing Whole time Wholetime Director Director Director Salaries, allowances and bonus 18,956, ,800 11,321,964 30,733,020 (19,781,250) (454,800) (11,816,964) (32,053,014) Contribution to Provident Fund 1,698,751 36,000 1,013,036 2,747,787 (1,698,750) (36,000) (1,013,036) (2,747,786) Perquisites 166, , , ,993 (166,599) (103,756) (166,599) (436,954) Total 20,821, ,600 12,501,600 33,920,800 (21,646,599) (594,556) (12,996,599) (35,237,754) Note - Provision for leave encashment: Rs.3,034,472 (Previous year Rs. 1,709,347) and Gratuity: Rs. 813,025 (Previous year Rs. 986,121) made during the year have not been included above. 9.7 Related Party Transactions: In accordance with the requirements of Accounting Standard - 18 Related Party Disclosures the names of the related party where control/ability to exercise significant influence exists, along with the aggregate amount of transactions and year end balances with them as identified and certified by the management are given below: Nature of relationship Name of the related party Share Holding Subsidiary European Optic Media Technology GmbH 100% Subsidiary Moser Baer Photo Voltaic Ltd 100% Subsidiary Moser Baer SEZ Developer Ltd 100% 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 88 Moser COL.p /6/2006, 7:47 PM

70 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS 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 European Moser Baer Global Data Moser Baer SEZ Key Total Optic Media Photo Media Developer Ltd Management Technology Voltaic Ltd Personnel (Subsidiary) (Subsidiary) (Associate) (Subsidiary) Sales of Finished goods 7,998,784,035 7,998,784,035 ( ) ( ) (5,243,135,648) ( ) ( ) (5,243,135,648) Expenses charged to other companies 26,791,427 29,488,616 21,202 56,301,245 ( ) ( ) (38,012,434) ( ) ( ) (38,012,434) Expenses charged by other companies 25,224,537 25,224,537 ( ) ( ) (45,649,342) ( ) ( ) (45,649,342) Dividend received 48,685,333 48,685,333 ( ) ( ) ( ) ( ) ( ) ( ) Directors Remuneration 33,920,800 33,920,800 (Refer Note 9.6 above) ( ) ( ) ( ) ( ) (35,237,754) (35,237,754) Share Application Money 69,748,149 69,748,149 ( ) ( ) ( ) ( ) ( ) ( ) Investments 260,500, , ,000,000 ( ) ( ) ( ) ( ) ( ) ( ) Outstanding receivables In respect of sales 3,065,593,385 3,065,593,385 ( ) ( ) (1,817,573,077) ( ) ( ) (1,817,573,077) In respect of expenses 26,791,427 23,986,812 21,202 9,209 50,808,650 ( ) ( ) ( ) ( ) ( ) ( ) Outstanding payable In respect of expenses 33,308,145 33,308,145 ( ) ( ) (7,038,690) ( ) ( ) (7,038,690) In respect of Managerial Remuneration 10,111,392 10,111,392 ( ) ( ) ( ) ( ) (11,937,513) (11,937,513) 9.8 Remuneration To Auditors: (Rs.) (Rs.) For Statutory Audit 7,500,000 5,000,000 For Limited Review 4,500,000 3,500,000 For Certification / Other Reports 584, ,000 For Reimbursement of out of pocket expenses and service tax 428,058 1,048,275 Total 13,012,089 9,878, Moser COL.p /6/2006, 7:47 PM

71 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS 10 Earnings per share a) Calculation of Weighted Average number of equity shares 1. For Basic EPS No. of Shares at the beginning of the year 111,512, ,512,944 Total number of equity shares outstanding at the end of the year 111,512, ,512,944 Weighted Average number of equity shares outstanding during the year 111,512, ,512, For Diluted EPS Weighted Average number of equity shares outstanding during the year as computed above 111,512, ,512,944 Weighted average number of stock options outstanding for 230 days (Previous year 64 days) 255,429 19,156 Weighted Average number of equity shares outstanding during the year for Diluted EPS 111,673, ,516,303 b) Net Profit after tax available for equity shareholders 46,661, ,231,362 Earnings per share (face value per share Rs. 10 each) Basic and Diluted Commission to Directors: Computation of Net Profits in accordance with the provisions of Section 349 of the Companies Act, Net Profit Before Tax as per Profit & Loss Account 39,519,962 Add: Directors Remuneration 34,014,123 Depreciation as per books 3,167,598,400 Directors sitting Fees 1,120,000 3,242,252,485 Less:Profit on sale of Investments 417,759 Depreciation as per Section 350 of the Companies Act,1956 3,167,598,400 Profit on sale of Fixed Assets 70,000 Net Profit in terms of section ,166,326 Net Profit for the purpose of Section ,166,326 Commission to non-executive Directors u/s 1% (restricted to 0.2% of Profit after tax in terms of resolution dated 24th June 2005) 93, Due to change in estimated useful life of certain plant and machinery located at one of the plants (NSEZ) the depreciation rates have been revised. If the rate of depreciation as applicable for the previous year had been applied, the depreciation for the year would have higher by Rs.9,572,841 and profit for the year lower by the same amount. 13 Segment information Considering the nature of the company s business, its activities, production facilities being located in a single geographical location, the internal financial reporting, element of risk and returns and its predominant product being storage media, there are no business/ geographical segments within the meaning of AS-17 Segment Reporting, issued by the Institute of Chartered Accountants of India. 90 Moser COL.p /6/2006, 7:47 PM

72 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part -B NOTES TO ACCOUNTS 14 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: Alpna Packaging Pvt. Ltd. Globe Machine Tools AKS Packaging Co Pvt Ltd Premier Packaging Pvt Ltd Avon Containers Pvt. Ltd. Khemka Containers Pvt Ltd Advance System Inc Usha sales Bertech Engineering Co Ltd. 15 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, Rs million, the upfront money received against these Share Warrants has been forfeited and accordingly taken to Reserve and Surplus. 16 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 Harnam D. Wahi Minni Katariya Yogesh Mathur Karandeep Singh Chairman and Director Company Secretary Group CFO Vice President - Managing Director Financial Planning and Control Place: New Delhi Date: June 07, Moser COL.p /6/2006, 7:47 PM

73 MOSER BAER INDIA LIMITED BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE I Registration Details Registration No : State Code: 55 Balance Sheet Date: II Capital Raised during the year (Amount in Rs.Thousands) Public Issue : NIL Right Issue : NIL Bonus issue : NIL Private Placement: NIL III Position of Mobilisation and Deployment of Funds (Amount in Rs.Thousands) Total Liabilities: 36,603,169 Total Assets: 36,603,169 SOURCE OF FUNDS: Paid up Capital: 1,115,129 Reserves & Surplus : 18,933,399 Share Warrant: NIL Unsecured Loans : 89,240 Secured Loans : 16,465,401 Deferred Tax Laiblity: NIL APPLICATION OF FUNDS: Net Fixed Assets : 25,598,829 Investments : 879,474 Net Current Assets : 10,124,866 Misc.Expenditure : NIL Accumulated Losses: NIL IV Performance of Company (Amount in Rs.Thousands) Turnover : 17,926,016 Total Expenditure : 17,886,496 Profit Before Tax : 39,520 Profit After Tax : 46,661 Earning per share in Rs: 0.42 Dividend Rate : 10% V Generic Names of Three Principal Products/Services of the Company (as per monetary terms) Item Code No: (ITC Code) Product Description: MAGNETIC DISK Item Code No: (ITC Code) Product Description: COMPACT DISK RECORDABLE Item Code No: (ITC Code) Product Description: STORAGE UNITS By order of the Board Deepak Puri Harnam D. Wahi Minni Katariya Yogesh Mathur Karandeep Singh Chairman and Director Company Secretary Group CFO Vice President - Managing Director Financial Planning and Control Place: New Delhi Date: June 07, Moser COL.p /6/2006, 7:47 PM

74 Directors Report - European Optic Media Technology GmbH To the member, The Directors are pleased to present their report and the financial statements for the year ended 31 March, A summary of the financial results is as follows:- Particulars Amount (In Euros) Other Interest and Similar Income and Other Operating Income 2,821 Expenditure 1,401,059 Loss for the year (1,398,238) Other taxes 327 Net Loss (1,398,565) Capital infusion During the year under review, the Company received an amount aggregating to Euros 1,300,557 from its holding Company, namely- Moser Baer India Limited towards Reserve Capital. Auditors The accounts have been audited by Price Waterhouse, India. Particulars of Employees There was one employee on board till the 31 March, Operations During the year under review, the Company continued to explore new business ventures and new technologies in Europe, including setting up of optical media manufacturing facilities. Place: New Delhi Date : June 7, 2006 V. J. Prakash Managing Director 93 Moser COL.p /6/2006, 7:47 PM

75 Auditors Report to the shareholders of European Optic Media Technology GmbH We have audited the accompanying Balance Sheet as at March 31, 2006, and the related Profit & Loss Account of European Optic Media Technology GmbH ( the Company ) for the year ended on that date. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 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 principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial information of the Company. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2006 and the results of its operations for the year then ended in accordance with generally accepted accounting principles. Place : New Delhi Date : June 7, 2006 Anuradha Tuli Partner Membership Number F For and on behalf of Price Waterhouse Chartered Accountants 94 Moser COL.p /6/2006, 7:47 PM

76 EUROPEAN OPTIC MEDIA TECHNOLOGY GmbH BALANCE SHEET AS AT MARCH 31, 2006 As at As at Euro Euro SOURCES OF FUNDS Share Capital 2,025,000 2,025,000 (Authorised Capital - Euro 2,025,000) RESERVES AND SURPLUS Reserve Capital 1,764, ,000 (Refer Note 2.2 to Notes to the Accounts) Opening Balance (833,202) (195,706) Profit/ (Loss) during the period (1,398,565) (2,231,767) (637,496) (833,202) Total 1,557,790 1,655,798 APPLICATION OF FUNDS Assets Project Expenses 504,000 1,626,693 (Refer Note 2.1 to Notes to the Accounts) Current Assets Bank Balances 188,633 48,051 VAT receivable 11,857 20,770 Loans 875,379-1,075,869 68,821 Less: Current Liabilities & Provisions 22,079 1,053,790 39,716 29,105 Total 1,557,790 1,655,798 This is the Balance Sheet referred to in our report of even date. Anuradha Tuli Partner Membership Number-F For and on behalf of PRICE WATERHOUSE Chartered Accountants V.J. PRAKASH Managing Director Place: New Delhi Date: June 07, Moser COL.p /6/2006, 7:47 PM

77 EUROPEAN OPTIC MEDIA TECHNOLOGY GMBH PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006 Year ended Year ended Euro Euro INCOME: Other interest and similar income 1,320 7,699 Other operating income 1,501 1,207 Miscellaneous Total Income (A) 2,821 9,403 EXPENDITURE: Accountancy Fees 2,938 2,184 Audit Fees 9,278 5,000 Bank Charges 2,024 61,818 Entertainment Expenses Interest and similar expenses - 10,103 Legal and Professional charges 67, ,760 Office Rent (234) 6,307 Other Operating Costs 241 4,319 Outsourced Work - 15,198 Personnel Expenses 120,336 80,139 Postage - 19 Project Expenses charged off 1,186, ,425 (Refer Note 3.1 to Notes to the Accounts) Telephone Expenses 2,039 1,832 Travelling Expenses 10,967 4,709 Total Expenses (B) 1,401, ,899 (Loss) for the year (A)-(B) (1,398,238) (637,496) Other Taxes Net (loss) for the year (1,398,565) (637,496) This is the Profit and Loss Account referred to in our report of even date. Anuradha Tuli Partner Membership Number-F For and on behalf of PRICE WATERHOUSE Chartered Accountants V.J. PRAKASH Managing Director Place: New Delhi Date: June 07, Moser COL.p /6/2006, 7:47 PM

78 EUROPEAN OPTIC MEDIA TECHNOLOGY GMBH Notes to the Accounts for the year ended March 31, Accounting and Valuation Methods 1.1 The financial statements are prepared in accordance with historical cost convention on accrual basis of accounting. 1.2 Other receivables contain receivables resulting from VAT credits. 1.3 Other accruals include all identifiable risks and uncertain liabilities. 1.4 Liabilities were stated at repayment amounts. 2 Notes to the Balance Sheet 2.1 Project Expenses include construction cost Euro 504,000 which consist of basic and detailed engineering costs.based on a review carried out by the Company in consultation with project experts, the management is of the opinion that the future economic benefits in respect of such expenses shall continue to be derived even if the project is relocated to another country within the European Union. 2.2 The reserve capital has increased to Euro 1,764,557 on account of additional investment of Euro 1,300,557 during the year by Moser Baer India Limited, the Holding Company. 3 Notes to the income statement 3.1 Given the Company s decision to relocate its proposed project for setting up manufacturing facility to another location within EU, project expenses amounting to Euro 1,186,193 have been charged off to Profit and Loss account. Place: New Delhi V.J. PRAKASH Date: June 07, 2006 Managing Director 97 Moser COL.p /6/2006, 7:48 PM

79 Directors Report - Moser Baer Photo Voltaic Limited 98 To, The Members of Moser Baer Photo Voltaic Limited, Your Directors are pleased to present the 1 st Directors report for the period from 7 December, 2005 to 31 March, Financial Results Particulars (Amount in Rs.) Other Income 24,594 Loss Before Tax 22,871,020 Less: Fringe Benefit Tax 14,427 Loss After Tax Carried to Balance Sheet 22,885,447 Operations Your Company, a 100% subsidiary of Moser Baer India Limited and which has been set-up with the object to manufacture, design, buy, sell, import and export all kinds of photovoltaic cells, modules and systems, was incorporated on 7 December, 2005 and received the Certificate for Commencement of Business on 4 January, The Company has undertaken many steps to initiate the commercial operations of the Company, some of which are as follows:- 1. Moser Baer India Limited has made an initial equity capital investment of Rs million in your Company. 2. The Company expects to be able to house its proposed unit for manufacture of photovoltaic cells, modules and systems in the Special Economic Zone proposed to be set up by its holding company- Moser Baer India Limited or a suitable Special Purpose Vehicle. 3. Plant and machinery needed for the manufacturing activities of photovoltaic cells have been ordered and will be erected and commissioned at site during the financial year Your Company has entered into agreements with leading universities, research laboratories and organisations to cooperate on the development of PV technology. 5. Detailed design and engineering has been completed for the facilites, products and equipment to facilitate a smooth start-up for manufacturing. Dividend As the Company has not yet commenced its commercial operations, the Board of Directors of the Company do not recommend any dividend for the financial year ended on 31 March, Reserves As the Company has no profits, the Board of Directors of the Company does not recommend any amount to be carried to the Reserves. Directors Mr. Deepak Puri, Mr. Ratul Puri and Mr. Harnam Dass Wahi are the First Directors of the Company, as per its Articles of Moser COL.p /6/2006, 7:48 PM

80 Association. Pursuant to the provisions of the Companies Act, 1956 read with the Articles of Association of the Company, their respective tenures will come to end at the ensuing Annual General Meeting. The Board of Directors recommends their appointment as the Directors of the Company. In terms of provisions of Section 260 of the Companies Act, 1956, the Board had co-opted Mr. Rajesh Khanna, Mr. Prakash Karnik, Mr. John Levack and Mr. Bernard Gallus as the Additional Directors of the Company at the Board Meeting held on 24 January, 2006 and their respective tenures as Additional Directors will expire at the ensuing Annual General Meeting. The Company has received notices under Section 257 of the Companies Act, 1956 proposing their candidature for the office of Directors. Auditors Pursuant to the provisions of Section 224 of the Companies Act, 1956, the Board of Directors of the Company had, at its meeting held on 23 December, 2005, appointed Price Waterhouse, Chartered Accountants as the Statutory Auditors of the Company to hold the office upto the conclusion of the ensuing Annual General Meeting. Price Waterhouse, Chartered Accountants, have offered themselves for re-appointment and a certificate has been received from the Auditors to the effect that the re-appointment, if made, would be within the limits prescribed under Section 224 (1B) of the Companies Act, Particulars of Employees There are no employees of the category mentioned in Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended. Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo. The information pertaining to conservation of energy, research and development, technology absorption, foreign exchange earnings and outgo, as required under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988 is not applicable as the Company has not commenced its operations during the period under review. Fixed Deposits During the year under review, the Company has not accepted any deposit under Section 58A of the Companies Act, 1956 read with Companies (Acceptance of Deposits) Rules, Directors Responsibility Statement (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 are reasonable 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 and of the loss 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 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (iv) that we have prepared the annual accounts on a going concern basis. Conclusion Your Directors place on record their appreciation for the overwhelming co-operation and assistance received from the holding company, namely- Moser Baer India Limited, bankers, vendors, regulatory and government authorities. Your Directors also thank the employees at all levels, who through their dedication, co-operation, support and smart work, are enabling the Company to make rapid progress. Place: New Delhi Date: 7 June, 2006 For and on behalf of the Board of Directors Your Directors state:- Sd/- Deepak Puri Chairman & Managing Director 99 Moser COL.p /6/2006, 7:48 PM

81 Auditors Report to the members of Moser Baer Photo Voltaic Limited 1. We have audited the attached Balance Sheet of Moser Baer Photo Voltaic Limited, as at March 31, 2006, and the related Profit and Loss Account and Cash Flow Statement for the period ended on that date annexed thereto, which we have signed under reference to this report. These financial statements are the responsibility of the company s management. Our responsibility 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 and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of The Companies Act, 1956 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 information and explanations given to us, we further report that: 3.1 As the company has not acquired any fixed asset during the period, clauses (i)(a), (i)(b) and (i)(c) 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 period. 3.2 As the company does not have inventories at the period end, clauses (ii)(a), (ii)(b) and (ii)(c) 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 for the current period. 3.3 The company has not granted or taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under Section 301 of the Act. As the Company has not granted or taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under Section 301 of the Act, clauses (iii)(b), (iii)(c), (iii)(d), (iii)(e), (iii)(f) and (iii)(g) of the 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 period. 3.4 In our opinion and according to the information and explanations given to us, having regard to the explanation that certain items purchased are of special nature for which suitable alternative sources do not exist for obtaining comparative quotations, there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchase of fixed assets. Further, on the basis of our examination of the books and records of the company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system. 3.5 (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the value of Rupees Five Lakhs in respect of any party during the period have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time except for purchase of services aggregating to Rs lakhs as there are no market prices comparable for such services, which however, are considered to be of special nature as explained by the management of the Company. 3.6 The company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA or any other relevant provisions of the Act and the rules framed there under. 3.7 As the company is not listed on any stock exchange or the paid-up capital and reserves as at the commencement of the financial period did not exceed Rupees Fifty Lakhs or the average annual turnover for a period of three consecutive financial years immediately preceding the financial year did not exceed Rupees Five Crores, clause (vii) of paragraph 4 of the Companies (Auditor s Report) Order, 2003 is not applicable to the company for the current period. 3.8 As the company has not yet commenced any manufacturing or sale of photovoltaic modules or cells, the provisions of clause (viii) of paragraph 4 of the Companies (Auditor s Report) Order, 2003 are not applicable to the company for the current period. 3.9 (a) According to the information and explanations given to us and the records of the company examined by us, in our opinion, the company is generally regular in depositing the undisputed statutory dues including provident fund, incometax, service tax, cess and other material statutory dues as applicable with the appropriate authorities. (b) According to the information and explanations given to us and the records of the company examined by us, there are no dues of income-tax, service tax and cess as at March 31, 2006 which have not been deposited on account of a dispute As the company is registered for a period less than five years, clause (x) 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 period. Moser COL.p /6/2006, 7:48 PM

82 3.11 As the company has not availed any loan during the period, clause (xi) 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 period The company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities The provisions of any special statute applicable to chit fund/nidhi/mutual benefit fund/societies are not applicable to the company In our opinion, the company is not a dealer or trader in shares, securities, debentures and other investments In our opinion, and according to the information and explanations given to us, the company has not given any guarantee for loans taken by others from banks or financial institutions during the period The company has not obtained any term loans On the basis of an overall examination of the balance sheet of the company, in our opinion and according to the information and explanations given to us, there are no funds raised on a short-term basis which have been used for long-term investment As the company has not made preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act during the period, provision of clause (xviii) of paragraph 4 of the Companies (Auditor s Report) Order, 2003 is not applicable to the company for the current period The company has not issued debentures during the period The company has not raised any money by public issues during the period During the course of our examination of the books and records of the company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the company, noticed or reported during the period, nor have we been informed of such case by the management. 4. Further to our comments in paragraph 3 above, we report that: (a) (b) (c) (d) (e) (f) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the company so far as appears from our examination of those books; The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act; On the basis of written representations received from the directors, as on March 31, 2006 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2006 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act; In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and attached thereto give in the prescribed manner the information required by the Act and give a true and fair view 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, 2006; (ii) (iii) in the case of the Profit and Loss Account, of the loss for the period ended on that date; and in the case of the Cash Flow Statement, of the cash flows for the period ended on that date. Place : New Delhi Date : June 7, 2006 Anuradha Tuli Partner Membership Number - F For and on behalf of Price Waterhouse Chartered Accountants 101 Moser COL.p /6/2006, 7:48 PM

83 MOSER BAER PHOTO VOLTAIC LIMITED BALANCE SHEET AS AT MARCH 31, 2006 SOURCES OF FUNDS: Schedule As at Rs. SHAREHOLDERS FUNDS: Share Capital 1 260,500,000 TOTAL 260,500,000 APPLICATION OF FUNDS: FIXED ASSETS: Capital Work-in-progress (Capital advances) 206,779,500 Incidental expenditure pending capitalisation 2 12,605,821 CURRENT ASSETS, LOANS AND ADVANCES: Cash and Bank 3 52,086,513 Other Current Assets 4 19,075 Loans and Advances 5 278,733 52,384,321 Less: CURRENT LIABILITIES AND PROVISIONS: 6 Current Liabilities 34,005,858 Provisions 149,231 34,155,089 Net Current Assets 18,229,232 Profit and Loss Account 22,885,447 TOTAL 260,500,000 ACCOUNTING POLICIES AND NOTES 9 TO ACCOUNTS This is the Balance Sheet referred to in our The schedules referred to above form an report of even date. integral part of the Balance Sheet. By order of the Board For and on behalf of MOSER BAER PHOTO VOLTAIC LIMITED Anuradha Tuli Deepak Puri Harnam D.Wahi Partner Managing Director Director Membership Number-F For and on behalf of PRICE WATERHOUSE Chartered Accountants Place: New Delhi Date: June 7, 2006 Saurabh Mathur Company Secretary 102 Moser COL.p /6/2006, 7:48 PM

84 MOSER BAER PHOTO VOLTAIC LIMITED PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED MARCH 31, 2006 Schedule For the Period ended Rs. INCOME: Other Income Interest Received on Fixed Deposit with Banks (Gross) 24,594 (Tax deducted at source Rs. 5,519) 24,594 EXPENDITURE: Personnel Expenses 7 6,134,447 Administration & Other Expenses 8 16,761,167 22,895,614 Loss before Tax 22,871,020 Less : Tax Expense Fringe Benefit Tax 14,427 Loss carried to Balance Sheet 22,885,447 Earnings Per Share (Face Value of Rs.10 each fully paid up) Basic and Diluted: (6.16) (Refer Note 5 of Schedule 9-Part B) ACCOUNTING POLICIES AND NOTES 9 TO ACCOUNTS This is the Profit and Loss Account referred to in our The schedules referred to above form an report of even date. integral part of the Profit and Loss Account. By order of the Board For and on behalf of MOSER BAER PHOTO VOLTAIC LIMITED Anuradha Tuli Deepak Puri Harnam D.Wahi Partner Managing Director Director Membership Number-F For and on behalf of PRICE WATERHOUSE Chartered Accountants Place: New Delhi Date: June 7, 2006 Saurabh Mathur Company Secretary 103 Moser COL.p /6/2006, 7:48 PM

85 MOSER BAER PHOTO VOLTAIC LIMITED CASH FLOW STATEMENT FOR THE PERIOD ENDED MARCH 31, 2006 For the Period ended Rs. Cash flow from operating activities: Net Profit/ (Loss) before tax (22,871,020) Adjustments for: Interest Income (24,594) Provision for Gratuity & Leave Encashment 4,330 Operating profit before working capital changes (22,891,284) Adjustments for changes in working capital : (Increase)/ Decrease in Other Receivables (273,214) Increase/ (Decrease) in Trade and Other Payables 34,005,858 Net cash from operating activities A 10,841,360 Cash flow from Investing activities: Capital Advance (206,779,500) Incidental Expenditure Pending Capitalisation (12,475,347) Net cash used in investing activities B (219,254,847) Cash flow from financing activities: Proceeds from fresh issue of Share Capital 260,500,000 Net cash used in financing activities C 260,500,000 Net Increase/(Decrease) in Cash & Cash Equivalents (A+B+C) 52,086,513 Cash and cash equivalents at beginning of the year - Cash and cash equivalents at end of the year 52,086,513 Cash and cash equivalents comprise Cash 7,023 Balance with Scheduled Banks 4,455,490 Fixed Deposits(Refer Note 3 below) 47,624,000 Total 52,086,513 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.36,234,000 which are not available for use by the Company. (Refer Schedule 3 of the Balance Sheet). This is the Cash Flow Statement referred to in our The schedules referred to above form an report of even date. integral part of the Cash Flow Statement. By order of the Board For and on behalf of MOSER BAER PHOTO VOLTAIC LIMITED Anuradha Tuli Deepak Puri Harnam D.Wahi Partner Managing Director Director Membership Number-F For and on behalf of PRICE WATERHOUSE Chartered Accountants Place: New Delhi Date: June 7, 2006 Saurabh Mathur Company Secretary 104 Moser COL.p /6/2006, 7:48 PM

86 MOSER BAER PHOTO VOLTAIC LIMITED SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006 SCHEDULE 1 - SHARE CAPITAL: As at Rs. Authorised: 3,00,00,000 Equity Shares of Rs.10 each 300,000, ,000,000 Issued, Subscribed and Paid-up: 2,60,50,000 Equity Shares of Rs.10 each fully paid in cash 260,500,000 (Refer Note 1 on Schedule 9 - Part B) TOTAL 260,500,000 SCHEDULE 2 - INCIDENTAL EXPENDITURE PENDING CAPITALISATION Salaries,allowances and other benefits: Salaries and Allowances 7,698,824 Contribution to Provident and Other Funds 119,567 7,818,391 Staff Welfare 47,464 Travelling Expenses 2,325,031 Miscellaneous expenses 2,466,441 Legal and Professional charges 991,445 Insurance 219,299 13,868,071 Less : Gain on Exchange Fluctuation 1,262,250 TOTAL 12,605,821 SCHEDULE 3 - CASH AND BANK: Cash in hand 7,023 Balances with Scheduled Banks: Current Accounts 4,455,490 Fixed Deposit Accounts (Includes Rs.36,234,000 held under lien with various authorities) 47,624,000 52,079,490 TOTAL 52,086,513 SCHEDULE 4- OTHER CURRENT ASSETS: Accrued Interest on Fixed Deposits 19,075 TOTAL 19, Moser COL.p /6/2006, 7:48 PM

87 MOSER BAER PHOTO VOLTAIC LIMITED SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006 As at Rs. SCHEDULE 5- LOANS AND ADVANCES: (Unsecured - Considered Good) Advances recoverable in cash or in kind or for value to be received 223,214 Security Deposits 50,000 Advance Tax/Tax Deducted at Source 5,519 TOTAL 278,733 SCHEDULE 6 - CURRENT LIABILITIES & PROVISIONS: A Current Liabilities: Sundry Creditors - Total outstanding dues to Small Scale Industrial Undertakings - - Total outstanding dues of creditors other than Small 33,741,478 Scale Industrial Undertakings (Includes Rs. 26,791,427 due to the holding company) Other Liabilities 264,380 TOTAL 34,005,858 B Provisions: Provision for Staff Benefits 134,804 Provision for Fringe Benefit Tax 14,427 TOTAL 149, Moser COL.p /6/2006, 7:48 PM

88 MOSER BAER PHOTO VOLTAIC LIMITED SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED ON MARCH 31, 2006 SCHEDULE 7- PERSONNEL EXPENSES: (Refer Note 4 on Schedule 9 - Part A) For the Period ended Rs. Salaries, Allowances and Bonus 6,130,117 Gratuity 2,250 Leave Encashment 2,080 TOTAL 6,134,447 SCHEDULE 8- ADMINISTRATION & OTHER EXPENSES: (Refer Note 7 on Schedule 9 - Part A) Printing & Stationery 19,770 Registration & Filing fee 2,271,845 Director s Sitting fee 30,000 Travelling Expenses 3,061,348 Remuneration to Auditors 505,080 Legal and Professional 10,080,448 Conveyance 19,319 Books & Periodicals 164,923 Postage, Telephone & Telegraph 34,336 Business Development 435,337 Bank Charges 21,130 Entertainment Expenses 104,498 Miscellaneous Expenses 13,133 TOTAL 16,761, Moser COL.p /6/2006, 7:48 PM

89 MOSER BAER PHOTO VOLTAIC LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE PERIOD ENDED MARCH 31, 2006 SCHEDULE 9 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS Part-A SIGNIFICANT ACCOUNTING POLICIES 1 METHOD OF ACCOUNTING The financial statements are prepared in accordance with the historical cost convention on an accrual basis of accounting and in accordance with generally accepted accounting practices in India and conform to the applicable Accounting Standards issued by the Institute of Chartered Accountants of India and relevant provisions of the Companies Act, FIXED ASSETS Tangible Fixed Assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specifically attributable to its acquisition and bringing it to its working condition for its intended use. Incidental Expediture pending allocation, will be allocated to productive fixed assets in the year of commencement of the related project. 3 DEPRECIATION / AMORTISATION Depreciation on tangible fixed assets is provided on straight-line method on pro-rata basis at rates specified in Schedule XIV to the Companies Act, Assets individually costing less than Rs.5,000 are fully depreciated in the year of purchase. 4 RETIREMENT BENEFITS Liability towards leave encashment and gratuity is accrued based on the assumption that such benefits are payable to all employees as at the period end and is not determined actuarially. Company s contribution to Provident Fund is accrued as per terms of contracts with the employees and provisions of Employee Provident Fund and Miscellaneous Provisions Act, FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currency are converted at the exchange rate prevailing at the date of the transaction. Foreign currency monetary assets and liabilities not covered by forward exchange contracts are restated at the year end rates and the resultant gains or losses are recognised in the Profit and Loss Account, except exchange differences arising on settlement and/or translation of foreign currency liabilities relating to acquisition of fixed assets which are adjusted against the carrying costs of respective fixed assets. 6 TAXATION Income Tax: Provision is made for current tax liability based on the current rate of tax in accordance with the provisions of Income Tax Act, Deferred Tax: Deferred tax assets (DTA) and liabilities are computed on the timing differences at the balance sheet date between the carrying amount of assets and liabilities and their respective tax bases. DTA is recognised based on management estimates of reasonable/ virtual certainty that sufficient future taxable income will be available against which such DTA can be realised. The deferred tax charge or credit is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. 7 PRELIMINARY EXPENSES Preliminary expenses are charged to the Profit and Loss Account in the year when these are incurred. Part-B NOTES TO ACCOUNTS 1 Legal Status and Activities The Company was incorporated on December 7, 2005 under the Companies Act, On December 23, 2005, the Company issued 50,000 equity shares of Rs. 10 each fully paid-up to 7 subscribers and on January 24, 2006, and March 30, 2006, the Company further issued 2,00,00,000 and 60,00,000 respectively, equity shares of Rs. 10 each fully paid up to Moser Baer India Limited. The Company is a subsidiary of Moser Baer India Limited. The Company is primarily engaged in the business of manufacturing and sale of photovoltaic cells and modules and these are the first financial statements of the Company for the period since inception i.e December 7, 2005 to March 31, 2006 and accordingly no comparative figures are available. 2 Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances) - Rs.767,200, Moser COL.p /6/2006, 7:48 PM

90 MOSER BAER PHOTO VOLTAIC LIMITED SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE PERIOD ENDED MARCH 31, 2006 SCHEDULE 9 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) Part-B NOTES TO ACCOUNTS 3 Related Party Transactions: In accordance with the requirements of Accounting Standard - 18, Related Party Disclosures, the names of the related parties where control/ability to exercise significant influence exists, along with the aggregate amount of transactions and year end balances with them, as identified and certified by the management, are given below: 3.1 Nature of relationship Name of the related party Holding Company Moser Baer India Limited Fellow Subsidiaries European Optic Media Technology GmbH, Moser Baer SEZ Developer Limited Key Management Personnel Mr. Deepak Puri 3.2 Details of significant transactions with the Related Parties in the ordinary course of business: (Amount in Rupees) Particulars Holding Company Total Expense for services rendered 26,791,427 26,791,427 Share Capital 260,500, ,500,000 Outstanding payable -In respect of expenses 26,791,427 26,791,427 4 Segment information As the company has yet to commence commercial production, there are no reportable segments for the period under audit. 5 Earnings Per Share (EPS) For the period ended a) Calculation of Weighted Average number of equity shares of Rs.10 each fully paid up Equity Shares issued on December 23, 2005 (Nos.) 50,000 Equity Shares issued on January 24, ,000,000 Equity Shares issued on March 30, ,000,000 Total number of equity shares outstanding at the end of the period 26,050,000 Weighted Average number of equity shares outstanding during the period 3,717,671 b) Loss after tax available for equity share holders (Rs.) 22,885,447 Basic & Diluted Earnings Per Share (Rs.) (6.16) 6 In view of there being no taxable profit under the Income Tax Act, 1961, no provision for Income Tax is considered necessary for the current period. In absence of virtual certainty of realisability of unabsorbed losses assessable under the Income Tax Act, 1961, deferred tax asset has not been created for the period. 7 Remuneration To Auditors For Statutory Audit (including Service Tax) Rs. 505,080 Total 505,080 8 Based on information provided by the Company, there are no dues to Small Scale Industrial undertakings as at March 31, As the Company has not commenced commercial operations during the period ended March 31, 2006, the other disclosure requirements under paragraph 3 & 4 of Part II of Schedule VI of the Companies Act, 1956 are not applicable for the period. By order of the Board For and on behalf of MOSER BAER PHOTO VOLTAIC LIMITED Deepak Puri Harnam D. Wahi Saurabh Mathur Managing Director Director Company Secretary Place: New Delhi Date: June 07, Moser COL.p /6/2006, 7:48 PM

91 MOSER BAER PHOTO VOLTAIC LIMITED BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE I Registration Details Registration No : U40106DL2005PLC State Code: 55 Balance Sheet Date: II Capital Raised during the year (Amount in Rs.Thousands) Public Issue : NIL Right Issue : NIL Bonus issue : NIL Private Placement: III Position of Mobilisation and Deployment of Funds (Amount in Rs.Thousands) Total Liabilities: 260,500 Total Assets: 260,500 SOURCE OF FUNDS: Paid up Capital: 260,500 Reserves & Surplus : NIL Share Warrant NIL Unsecured Loans : NIL Secured Loans : NIL Deferred Tax Laiblity NIL APPLICATION OF FUNDS: Net Fixed Assets : 219,386 Investments : NIL Net Current Assets : 18,229 Misc.Expenditure : NIL Accumulated Losses: 22,885 IV Performance of Company (Amount in Rs.Thousands) Turnover : 25 Total Expenditure : 22,896 Loss Before Tax : 22,871 Loss After Tax : 22,885 Earning per share in Rs: (6.16) Dividend Rate : NIL V Generic Names of Three Principal Products/Services of the Company (as per monetary terms) Item Code No: (ITC Code) Product Description: Photovoltaic Cells and Modules Deepak Puri Harnam D. Wahi Saurabh Mathur Managing Director Director Company Secretary Place: New Delhi Date: June 07, Moser COL.p /6/2006, 7:48 PM

92 STATEMENT UNDER SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIES. 1 Name European Optic Moser Baer Moser Baer Media Technology Photo Voltaic SEZ Developer GmbH Limited Limited 2 Financial Year of the subsidiary company 31 March, March, March, Holding Company s interest in the Subsidiary 100% of Equity 100% of Equity 100% of Equity Company Share Capital Share Capital Share Capital 4 Net aggregate amount of the Profit/(Loss) of the subsidiary company (concerning the members of Moser Baer India Limited) not dealt with or provided for in the accounts of Moser Baer India Limited (a) For the current year (Euro 1,398,565)* (Rs. 22,885,447) (Rs. 21,202) (Rs. 75,436,205) (b) For the previous years since it became a (Euro 833,202)* N.A N.A subsidiary (Rs. 42,003,763) 5 Net aggregate amount of the Profit/(Loss) of the subsidiary company (concerning the members of Moser Baer India Limited) dealt with or provided for in the accounts of Moser Baer India Limited (a) For the current year Nil Nil Nil (b) For the previous years since it became a subsidiary Nil Nil Nil *Converted at the respective year-end exchange rate. Deepak Puri Harnam D. Wahi Minni Katariya Yogesh Mathur Karandeep Singh Chairman and Director Company Secretary Group CFO Vice President - Managing Director Financial Planning and Control Place: New Delhi Date: June 07, Moser COL.p /6/2006, 7:48 PM

93 SOURCES OF FUNDS: MOSER BAER INDIA LIMITED CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006 Schedule As at As at Rs. Rs. SHAREHOLDERS FUNDS: Capital 1 1,115,129,440 1,115,129,440 Share Warrants - 181,440,000 (Refer Note 13 of Schedule 20- PartB) Reserves and Surplus 2 18,772,809,741 18,786,427,211 19,887,939,181 20,082,996,651 LOAN FUNDS: Secured Loans 3 16,465,401,035 16,037,934,262 Unsecured Loans 4 89,240, ,278,740 Deferred Tax Liability (Net) - 14,045,000 (Refer Note 7 of Schedule 20- PartB) TOTAL 36,442,580,216 36,303,254,653 APPLICATION OF FUNDS: FIXED ASSETS: 5 Gross Block 34,936,740,065 31,919,622,736 Less: Depreciation 10,617,357,936 7,447,934,031 Net Block 24,319,382,129 24,471,688,705 Capital Work-in-progress 5 1,526,078, ,232,739 25,845,460,327 24,981,921,444 INVESTMENTS 6 396,579,180 1,935,634,833 CURRENT ASSETS, LOANS AND ADVANCES: Inventories 7 4,469,864,241 3,435,355,685 Sundry Debtors 8 3,798,874,698 3,315,436,156 Cash and Bank 9 2,899,984,934 4,592,655,544 Other Current Assets ,079, ,637,287 Loans and Advances 11 1,510,995, ,944,476 12,851,798,536 12,141,029,148 Less: CURRENT LIABILITIES AND PROVISIONS: 12 Current Liabilities 2,379,144,020 2,511,208,605 Provisions 272,113, ,122,167 2,651,257,827 2,755,330,772 Net Current Assets 10,200,540,709 9,385,698,376 TOTAL 36,442,580,216 36,303,254,653 ACCOUNTING POLICIES AND NOTES 20 TO ACCOUNTS This is the Balance Sheet referred to in our The schedules referred to above form an report 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 Harnam D. Wahi Minni Katariya Partner Chairman and Director Company Secretary Membership Number-F Managing Director For and on behalf of PRICE WATERHOUSE Chartered Accountants Yogesh Mathur Karandeep Singh Group CFO Vice President - Place: New Delhi Financial Planning and Date: June 07, 2006 Control 113 Moser COL.p /6/2006, 7:51 PM

94 MOSER BAER INDIA LIMITED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, Schedule Year ended Year ended Rs. Rs. INCOME: Gross Sales 17,319,141,334 13,528,572,918 Less: Excise Duty ,905, ,450,114 Less: Countervailing duty 323,033, ,089,896 16,641,202,242 12,804,032,908 Other Income ,365, ,388,044 Increase in stock of Finished Goods/Work in Progress ,083, ,081,448 17,749,651,793 14,348,502,400 EXPENDITURE: Purchase of Finished Goods 11,465,411 - Raw Materials and Components Consumed 7,862,238,001 5,325,164,241 Packing Material Consumed 1,903,880,519 1,858,046,484 Stores, Spares and Tools Consumed 632,020, ,009,428 Personnel Expenses 16 1,048,482, ,521,889 Administration & Other Expenses 17 2,302,411,358 1,990,928,850 Interest & Finance Charges ,627, ,314,126 Depreciation 19 3,167,598,400 2,820,504,533 17,863,724,200 14,025,489,551 (Loss)/Profit before Tax and Prior Period Items (114,072,407) 323,012,849 Prior Period (Income) / Expense (Net) (6,596,259) 56,687,369 (Refer Note 6 of Schedule 20- PartB) (Loss)/Profit before Tax and after Prior Period Items (107,476,148) 266,325,480 Tax Expense: Current Tax [net of provision written back in respect of earlier years of Rs. 7,010,518 (Previous year Rs. Nil) and including Wealth Tax Rs. 79,530 (Previous Year Rs. 174,982)] (6,316,613) 26,256,277 Deferred Tax (Refer Note 7 of Schedule 20- PartB) (14,045,000) (331,099,000) Fringe Benefit Tax 13,252,497 - (Loss)/Profit after Tax (100,367,032) 571,168,203 (Loss)/Profit for the year before share of profit of Associate (100,367,032) 571,168,203 Share in Profit of Associate 35,646,181 26,749,815 Net (Loss)/Profit for the year (64,720,851) 597,918,018 Add:- Profit carried forward from last year 439,996,739 - Profit available for appropriation 375,275, ,918,018 APPROPRIATIONS: Proposed Dividend: Proposed Dividend on Equity Shares 111,512, ,512,944 Corporate Tax on Proposed Dividend 15,639,690 15,639,690 Transfer to General Reserve - 30,768,645 Balance carried to Balance Sheet 248,123, ,996,739 Total 375,275, ,918,018 Earnings Per Share (Face Value of Rs. 10 each) Basic and Diluted: (0.58) 5.36 (Refer Note 10 of Schedule 20-Part B) ACCOUNTING POLICIES AND NOTES 20 TO ACCOUNTS This is the Profit and Loss Account referred to in our The schedules referred to above form an report 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 Harnam D. Wahi Minni Katariya Partner Chairman and Director Company Secretary Membership Number-F Managing Director For and on behalf of PRICE WATERHOUSE Chartered Accountants Yogesh Mathur Karandeep Singh Group CFO Vice President - Place: New Delhi Financial Planning and Date: June 07, 2006 Control Moser COL.p /6/2006, 7:51 PM

95 MOSER BAER INDIA LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006 Year ended Year ended Rs. Rs. Cash flow from operating activities: Net (loss)/profit before tax but after prior period items (107,476,148) 266,325,480 Adjustments for: Depreciation 3,167,598,400 2,820,504,533 Interest Expense 874,310, ,335,464 Interest Income (187,108,243) (280,399,690) Income from Investment - Dividends (13,748,911) (49,593,596) Lease Rent - Finance Lease 28, ,411 (Profit)/Loss on Fixed Assets sold (70,000) 17,942 (Profit)/Loss on sale of Investments (417,759) (3,500,381) Debts / Advances Written off 698,988 23,189,990 Liability no longer required written back (13,834,793) (100,508,020) Provision for Gratuity & Leave Encashment 27,029,024 8,073,704 Stock written off 23,877 5,114,866 Provision for diminution in value of Investments - 4,268 Project expenses written off 63,981,264 18,183,012 Unrealised foreign exchange (gain) /loss (86,931,692) (127,300,117) Prior Period (Income)/Expenses (Net) (6,596,259) 56,687,369 Operating profit before working capital changes 3,717,487,263 3,303,403,235 Adjustments for changes in working capital : (Increase)/Decrease in Sundry Debtors (507,291,203) (155,559,904) (Increase)/Decrease in Other Receivables (899,332,005) 110,663,095 (Increase)/Decrease in Inventories (1,034,532,432) (1,455,494,127) Increase/(Decrease) in Trade and Other Payables 547,069,239 (665,922,530) Cash generated from operations 1,823,400,862 1,137,089,769 Taxes (Paid) / Received (Net of TDS) (4,127,890) (59,479,104) Prior Period Income/(Expenses) (Net) 6,596,259 (56,687,369) Net cash from operating activities 1,825,869,231 1,020,923,296 Cash flow from Investing activities: Purchase of fixed assets (4,783,892,858) (3,571,197,054) Proceeds from Sale of fixed assets 70,000 1,369,697 Proceeds from Sale of Investments 3,807,414,363 4,053,194,253 Purchase of investments (2,231,863,578) (5,576,145,834) Loans given (46,359,661) - Interest Received 224,246, ,241,542 Dividend Received 13,748,911 49,593,596 Net cash used in investing activities (3,016,636,474) (4,809,943,800) Conted Moser COL.p /6/2006, 7:51 PM

96 MOSER BAER INDIA LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006 Year ended Year ended Rs. Rs. Cash flow from financing activities: Proceeds from long term borrowings Receipts, excludes Gain on account of exchange fluctuation of Rs.179,853,336 2,812,809,033 2,943,540,490 (Previous year (Loss) Rs. 305,229,483) on reinstatement of foreign currency loans Payments (2,883,012,252) (2,921,176,880) Proceeds from short term borrowings (Net) 582,673,696 1,291,078,304 Interest on Finance Lease (28,580) (268,411) Interest Paid (886,831,220) (716,818,840) Dividend Paid (111,874,354) (167,421,803) Dividend Tax Paid (15,639,690) (21,431,394) Net cash used in financing activities (501,903,367) 407,501,466 Net Increase/(Decrease) in Cash & Cash Equivalents (1,692,670,610) (3,381,519,038) Cash and cash equivalents at beginning of the year 4,592,655,544 7,974,174,582 Cash and cash equivalents at end of the year 2,899,984,934 4,592,655,544 Cash and cash equivalents comprise Cash, Cheques & Drafts (in hand) and Remittances in transit 11,077,882 79,523,373 Fixed Deposits 2,755,306,109 4,315,915,078 Balance with Scheduled Banks 133,600, ,217,093 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 include Rs. 544,809,698 (Previous Year Rs. 688,548,853) which are not available for use by the Company. (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 Harnam D. Wahi Minni Katariya Partner Chairman and Director Company Secretary Membership Number-F Managing Director For and on behalf of PRICE WATERHOUSE Chartered Accountants Yogesh Mathur Karandeep Singh Group CFO Vice President - Place: New Delhi Financial Planning and Date: June 07, 2006 Control 116 Moser COL.p /6/2006, 7:51 PM

97 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006 SCHEDULE 1 - CAPITAL: As at As at Rs. Rs. Authorised: 142,500,000 (Previous Year 142,500,000) Equity Shares of Rs.10 each 1,425,000,000 1,425,000, ,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: 111,512,944 (Previous year 111,512,944) Equity Shares of Rs.10 each fully paid 1,115,129,440 1,115,129,440 TOTAL 1,115,129,440 1,115,129,440 SCHEDULE 2 - RESERVES AND SURPLUS: Capital Reserve: Share Warrants Forfeited (Refer Note 13 of Schedule 20-Part B) 181,440,000 - State Capital Investment Subsidy - 1,000,000 Less: Transferred to General Reserve - 1,000, ,440,000 - Share Premium Account: As per last Balance Sheet 8,891,620,004 8,891,620,004 8,891,620,004 8,891,620,004 Profit and Loss Account Balance 248,123, ,996,739 General Reserve: As per last Balance Sheet 9,450,180,796 9,418,412,151 Add: State Capital Investment Subsidy transferred. - 1,000,000 Add: Transferred from profit and loss account during the year - 30,768,645 9,450,180,796 9,450,180,796 Foreign Currency Translation Reserve: As per last Balance Sheet 4,629,672 (2,900,663) Add: Additions during the year (3,183,985) 7,530,335 1,445,687 4,629,672 TOTAL 18,772,809,741 18,786,427, Moser COL.p /6/2006, 7:51 PM

98 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006 SCHEDULE 3- SECURED LOANS: As at As at Rs. Rs. Term Loans (Refer notes below) From Banks: Rupee Loans, including interest accrued and due Rs. 22,662,800 8,576,805,156 6,442,303,348 (Previous Year Rs. 7,607,246) Foreign Currency Loans 2,986,720,655 4,839,745,708 11,563,525,811 11,282,049,056 From Others: Foreign Currency Loans 676,375,000 1,192,852,754 12,239,900,811 12,474,901,810 Other Loans: Short Term Loans from Banks: Secured by hypothecation of stock-in-trade and book debts 4,031,142,586 3,410,793,514 Including interest accrued and due Rs.755,336 (Previous Year Rs. NIL) Secured by lien on Fixed Deposits 193,234, ,498,341 From Others: Secured by hypothecation of specific vehicles 1,123,405 1,740,597 4,225,500,224 3,563,032,452 TOTAL 16,465,401,035 16,037,934,262 Notes: 1 Rupee Term 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, EXIM Bank R&D Loans and Foreign currency loans from banks / financial institutions are secured by way of first mortgage and charge on all the immovable properties 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 loans from UCO Bank and State Bank of Patiala are secured by way of first charge on whole of the movable fixed assets. 3 Short Term loans from HSBC Bank, The Bank of Nova Scotia, State Bank of India, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Travancore, Union Bank of India are further secured by way of second charge on all the immovable properties. 4 Term Loans repayable within one year Rs. 3,662,374,088 (Previous year Rs. 2,892,286,064). Other Loans repayable within one year Rs. 1,123,405 (Previous year Rs. 617,192). SCHEDULE 4 - UNSECURED LOANS: Short term loans from Bank Foreign Currency Loan 89,240, ,278,740 USD 2,000,000 (Previous Year USD 3,664,117 & Euro 123,493) TOTAL 89,240, ,278, Moser COL.p /6/2006, 7:51 PM

99 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006 SCHEDULE 5 - FIXED ASSETS: DESCRIPTION GROSS BLOCK DEPRECIATION NET BLOCK As at Additions Deductions As at As at For the Deductions As at As at As at Year Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Tangible Assets Land, Leasehold except to the extent of Rs 170,081 (Previous Year Rs. 170,081) 273,836, ,836,651 8,476,182 2,964,499-11,440, ,395, ,360,469 Buildings 2,235,131, ,018,074-2,416,150, ,071,135 77,965, ,036,614 2,099,113,399 1,996,060,804 Leasehold Improvements 22,547,796 4,883,610-27,431,406 4,560,731 2,378,321-6,939,052 20,492,354 17,987,065 Plant & Machinery, Electrical Installations and Other Equipments 28,958,151,475 2,799,269, ,567 31,756,821,118 7,076,023,736 3,035,603, ,567 10,111,028,029 21,645,793,089 21,882,127,739 Furniture, Fixtures and Office Equipments 152,078,951 20,388, ,467,365 39,394,430 9,146,098-48,540, ,926, ,684,521 Computers 102,659,928 9,022, ,682,064 32,117,136 17,177,852-49,294,988 62,387,076 70,542,792 Vehicles 17,377,466 1,366,027-18,743,493 5,727,307 1,584,971-7,312,278 11,431,215 11,650,159 Intangible Assets Software 22,742,575 1,769,425-24,512,000 7,220,585 4,802,621-12,023,206 12,488,794 15,521,990 Technical Know How 131,249, ,249,583 32,731,031 17,668,960-50,399,991 80,849,592 98,518,552 Leased Assets Vehicles 3,846, ,846,372 2,611, ,811-3,342, ,803 1,234,614 TOTAL 31,919,622,736 3,017,716, ,567 34,936,740,065 7,447,934,031 3,170,023, ,567 10,617,357,936 24,319,382,129 24,471,688,705 Capital Work in Progress: Capital Work in Progress, including capital advances of Rs. 433,265,018 (Previous Year Rs. 110,798,301) 1,421,237, ,797,792 Expenditure pending allocation 104,840, ,434,947 (Refer Note 5 of Schedule 20- PartB) TOTAL , ,232,739 Grand Total 31,919,622,736 3,017,716, ,567 34,936,740,065 7,447,934,031 3,170,023, ,567 10,617,357,936 25,845,460,327 24,981,921,444 Previous Year 27,315,091,445 4,607,024,242 2,492,951 31,919,622,736 4,628,534,811 2,820,504,533 1,105,313 7,447,934,031 24,981,921,444 Notes: 1. Gross Block and additions to Plant and Machinery have been reduced by Rs. 212,699,035 (Previous Year increased by Rs. 314,804,738) on account of foreign exchange differences 2. Borrowing Costs capitalised during the period Rs. 17,215,941 (Previous Year Rs. 74,349,468) 119 Moser COL.p /6/2006, 7:51 PM

100 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31,2006 SCHEDULE 6 - INVESTMENTS: Long Term Unquoted (Non Trade): As at As at Rs. Rs. Rs. Rs. Investments in Others CAPCO 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, ,668, ,673, ,673,784 Global Data Media FZ-LLC (Associate) 7,194 Shares of AED 1,000 each 75,905,396 88,513,355 (Refer Note 2.2 of Schedule 20 - Part A) Short Term Current (Unquoted - Others) (Refer Note 4 of Schedule 20- PartB) Investment in Mutual Funds - 1,526,451,962 Less: Diminution in value of investment - 4,268-1,526,447,694 Total (aggregate value of unquoted investments) 396,579,180 1,935,634,833 SCHEDULE 7 - INVENTORIES: Stores and spare parts 519,591, ,856,237 [including in transit Rs. 4,539,840 (Previous Year Rs. 11,125,523) net of provision for non-moving stock Rs. 232,201 (Previous Year Rs 1,160,013)] Raw Materials and Components 1,626,244,619 1,253,790,136 [including in transit Rs. 578,514,319 (Previous Year Rs. 344,038,127)] Packing Material 111,423, ,806,561 [including in transit Rs. 93,868,444 (Previous Year Rs. 960,935) net of provision for non-moving stock Rs. 4,153,529 (Previous Year Rs 3,907,365)] Work in Progress 899,748, ,391,766 Manufactured Finished Goods 1,304,059, ,378,704 Traded Goods 8,795,777 1,132,281 TOTAL 4,469,864,241 3,435,355,685 SCHEDULE 8- SUNDRY DEBTORS: (Unsecured - Considered Good, unless otherwise stated): Debts outstanding for a period exceeding six months Considered Good 279,811, ,338,783 Considered Doubtful 53,852,778 55,091, ,664, ,430,472 Less: Provision for Doubtful Debts 53,852,778 55,091, ,811, ,338,783 Other Debts Considered Good 3,519,062,728 3,036,097,373 Considered Doubtful - 343,790 3,519,062,728 3,036,441,163 Less: Provision for Doubtful Debts - 343,790 3,519,062,728 3,036,097,373 TOTAL 3,798,874,698 3,315,436, Moser COL.p /6/2006, 7:51 PM

101 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31,2006 As at As at Rs. Rs. Rs. Rs. SCHEDULE 9 - CASH AND BANK: Cash on hand including cheques/drafts 8,571,172 33,233,192 Remittance in Transit 2,506,710 46,290,181 Balances with Scheduled Banks: Current Accounts 128,750, ,019,241 Fixed Deposit Accounts 2,755,306,109 4,315,915,078 Unpaid Dividend Account 4,598,302 4,965,262 E.E.F.C. Accounts 252, ,590 2,888,907,052 4,513,132,171 TOTAL 2,899,984,934 4,592,655,544 Note: Fixed Deposits shown above include Rs. 540,211,396 (Previous Year Rs. 683,583,591) which are subject to lien with the bankers SCHEDULE 10- OTHER CURRENT ASSETS: Accrued Interest on Fixed Deposits 35,965,406 73,103,512 Other Receivables 136,113, ,533,775 TOTAL 172,079, ,637,287 SCHEDULE 11- LOANS AND ADVANCES: (Unsecured - Considered Good): Advances recoverable in cash or in kind or for value to be received 367,735, ,425,638 Advance to Suppliers 899,504, ,411,611 Balance with Excise Authorities 55,266,052 19,789,092 Earnest Money/Security Deposits 31,999,085 12,982,970 Advance Tax/Tax Deducted at Source 156,489, ,335,165 TOTAL 1,510,995, ,944,476 Note: Amount due from a Director as at March 31, Rs. 9,209 (Previous year Rs. Nil). Maximum Balance due at any time during the year from Director and Officer of the Company was Rs. 9,209 (Previous year Rs. 2,700). SCHEDULE 12- CURRENT LIABILITIES AND PROVISIONS: A. Current Liabilities: Acceptances 420,444, ,852,342 Sundry Creditors - Total outstanding dues to Small Scale Industrial Undertakings 12,806,668 15,475,769 - Total outstanding dues of creditors other than Small Scale Industrial Undertakings 1,726,414,433 1,868,474,043 1,739,221,101 1,883,949,812 Advances from Customers 669,147 5,748,206 Unclaimed Dividend * 4,591,508 4,952,918 Other Liabilities 143,105, ,264,312 Book Overdraft 423,559 6,071,528 Security Deposits 40,163,911 53,729,526 Interest accrued but not due on Loans 30,524,727 41,639,961 Total 2,379,144,020 2,511,208,605 * The above amount will be credited to Investor Education and Protection Fund as and when due. B. Provisions: Provision for taxation 99,483,428 98,520,812 Proposed Dividend 111,512, ,512,944 Corporate tax on Dividend 15,639,690 15,639,690 Staff Benefit Schemes 45,477,745 18,448,721 Total 272,113, ,122, Moser COL.p /6/2006, 7:51 PM

102 MOSER BAER INDIA LIMITED SCHEDULES ANNEXED TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31,2006 Year ended Year ended Rs. Rs. Rs. Rs. SCHEDULE 13- EXCISE DUTY: Excise Duty paid 359,522, ,506,640 Less: Excise duty on Closing Stock 6,136,081 1,518,544 Add: Excise duty on Opening Stock 1,518, ,018 TOTAL 354,905, ,450,114 SCHEDULE 14- OTHER INCOME: Interest Received (Gross): a) On Deposits with banks 187,108, ,399,690 b) On Income Tax Refunds 4,584,137 - c) On Staff Loan - 7,731 Tax Deducted at Source Rs. 45,257, ,692, ,407,421 (Previous Year Rs. 48,995,892) Excess provisions and unclaimed credit balances written back 13,834, ,508,021 Exchange Fluctuation (Net) 59,944,355 - Profit on cancellation of forward contracts (Net) 66,244, ,293,774 Profit on sale of Fixed Asset 70,000 - Profit on sale of Current Investment (others) 417,759 3,500,381 Dividend from Current Investments (others) 13,748,911 49,593,596 Miscellaneous Income 212,412, ,084,851 TOTAL 558,365, ,388,044 SCHEDULE 15-INCREASE/(DECREASE) IN STOCK OF FINISHED GOODS AND WORK IN PROGRESS: Closing Stock: Finished Goods 1,304,059, ,378,704 Work in Progress 899,748, ,391,766 Traded Goods 8,795,777 1,132,281 2,212,604,248 1,657,902,751 Less: Opening Stock: Finished Goods 972,378, ,567,182 Work in Progress 684,391, ,034,267 Traded Goods 1,132,281 1,163,328 1,657,902, ,764,777 Excise duty on Increase/ (Decrease) of Finished Goods (4,617,537) (1,056,526) TOTAL INCREASE 550,083, ,081, Moser COL.p /6/2006, 7:51 PM

103 MOSER BAER INDIA LIMITED SCHEDULES ANNEXED TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31,2006 Year ended Year ended Rs. Rs. SCHEDULE 16- PERSONNEL EXPENSES: Salaries, Allowances and Bonus 882,886, ,167,012 Contribution to Provident and other funds 72,293,713 46,039,485 Employee Welfare Expenses 77,455,249 51,915,035 Leave Encashment 15,847,313 8,400,357 TOTAL 1,048,482, ,521,889 SCHEDULE 17- ADMINISTRATION & OTHER EXPENSES: Power and Fuel 822,513, ,443,586 Commission on Sales 1,556,613 3,720,597 Rent (Including Lease Rent) 52,677,367 57,039,707 Repairs & Maintenance: - Building 1,008,883 1,482,565 - Plant & Machinery 16,406,901 11,780,539 - Others 37,402,032 26,794,006 Freight and Forwarding (Net) 482,495, ,573,997 Insurance 114,352, ,368,920 Registration & Filing fee 2,293,047 - Rates and Taxes 8,815,284 4,466,061 Director s Sitting Fees 1,150,000 1,100,000 Donation 5,039,125 3,309,708 Remuneration to Auditors 13,199,439 10,161,125 Royalty 315,478, ,317,928 Travelling and Conveyance 148,392, ,118,201 Bad Debts Written Off 159,825 - Advances Written Off 539,163 23,189,990 Research and Development Expenses 193,034 1,780,000 Miscellaneous Expenses 214,732, ,805,725 Stock Written Off 23,877 5,069,632 Dimunition in value of Investments - 4,268 Exchange Fluctuation (Net) - 26,201,341 Project expenses written off 63,981,264 18,183,012 Loss on sale of Fixed Asset (Net) - 17,942 TOTAL 2,302,411,358 1,990,928,850 SCHEDULE 18- INTEREST & FINANCE CHARGES: Interest: On Fixed Loans 713,089, ,579,717 Others 161,221,637 71,755,747 Finance Charges 31,345,186 25,281,326 Bank Charges 29,971,352 48,697,336 TOTAL 935,627, ,314,126 SCHEDULE 19- DEPRECIATION: Depreciation on Fixed Assets (Refer Schedule 5) 3,170,023,472 2,820,504,533 Less: Depreciation on assets used for Trial Run / Testing transferred to expenditure pending allocation (Refer Note 5 of Schedule 20-PartB) 2,425,072 - Depreciation charged to Profit and Loss Account 3,167,598,400 2,820,504, Moser COL.p /6/2006, 7:51 PM

104 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS Part - A ACCOUNTING POLICIES 1 Basis of Preparation of Consolidated Financial Statements: 1.1 Consolidated Financial Statements (CFS) of the Company (Parent), its subsidiaries and associate are prepared to comply, in all material respects with applicable statutory/ regulatory provisions, applicable Accounting Standards issued by the Institute of Chartered Accountants of India and generally accepted accounting principles and practices prevailing in India. 1.2 The CFS are prepared under the historical cost convention and on accrual basis. 2 Subsidiaries and Associate: 2.1 The CFS comprise the results of the Parent, its subsidiaries and associate: Name of Subsidiary Country of Incorporation Proportion of Ownership European Optic Media Technology GmbH Germany 100% Moser Baer Photo Voltaic Ltd. India 100% Moser Baer SEZ Developer Ltd. India 100% Moser Baer Photo Voltaic Ltd. was incorporated on December 7, 2005 under the Companies Act, The Company is primarily engaged in the business of manufacturing and sale of photovoltaic cells and modules.the first accounts of the Company have been prepared for the period upto 31st March, Moser Baer SEZ Developer Ltd. was incorporated on February 20, 2006 under the Companies Act, The financial statements summarised below, have been drawn up for the period ending 31st March, 2006 for consolidation purposes, although the first financial year of the Company ends on 31st March, Particulars Amount (Rs.) Share Capital 500,000 Cheque in hand 500,000 Expenditure 21,202 Loss for the year 21, Associate: The particulars of associate considered in the CFS are as under : Name of Associate (Overseas) Country of Incorporation Proportion of Ownership Global Data Media FZ LLC Dubai, United Arab Emirates 49% 2.2 Particulars of Investments in Associate: S. Particulars As at As at No. (Rs.) (Rs.) Cost of investment 92,532,185 92,532,185 (a) Carrying value of the investment at the beginning of the year 88,513,355 61,763,540 (b) Add: Share of post acquisition profits/(loss) (Net) * 36,077,374 26,749,815 (c) Less: Dividend Received 48,685,333 - (d) Carrying value at the end of the year 75,905,396 88,513,355 * Includes exchange fluctuation gain of Rs. 431,193 for the current year 124 Moser COL.p /6/2006, 7:51 PM

105 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) 3 Consolidation Procedure: 3.1 The CFS are prepared in accordance with Accounting Standard (AS-21) Consolidated Financial Statements issued by the Institute of Chartered Accountants of India (ICAI). The financial statements of the Parent and its subsidiaries are combined on a line by line basis by adding together sums of like nature, comprising assets, liabilities, income and expenses and after eliminating intra-group balances/ transactions. 3.2 The Financial Statements of the subsidiaries and the associate, are prepared by them on the basis of generally accepted accounting principles, local laws and regulations as prevalent in their respective countries and such financial statements are considered for consolidation. The effect of adjustments on account of variance in accounting policies of the subsidiaries and associate vis -à-vis those of the parent is not material, and accordingly, not considered. Also, refer para The financial statements of the subsidiaries have been drawn for the period from 1st April, 2005 to 31st March, 2006, except as mentioned in Para above. 3.4 The Parent s cost of its investment in its subsidiaries has been eliminated against the Parent s portion of equity of each subsidiary as at the year end, instead of Parent s portion of equity of each subsidiary as on the date on which investment is made in the subsidiary. The amount of Goodwill/ Capital Reserve on consolidation has not arisen, these being newly formed companies. 3.5 For the purpose of compilation of the consolidated financial statements the foreign currency assets, liabilities, income and expenditure are translated as per Accounting Standard (AS-11) on Accounting for the Effects of Changes in Foreign Exchange Rates, issued by the Institute of Chartered Accountants of India. Exchange differences arising are recognised in the Foreign Currency Translation Reserve classified under Reserves and Surplus. 3.6 Investments in associate are accounted for under the Equity Method as per AS-23 Accounting for Investments in Associates in Consolidated Financial Statements issued by The Institute of Chartered Accountants of India based on the financial statements of the associate upto the year ended on 31st December, Additional Disclosures: Additional information disclosed in the separate financial statements of the parent and the subsidiaries having no bearing on the true and fair view of the CFS and not been material, have not been disclosed in the CFS. 4 Significant Accounting Policies and Notes to Accounts: 4.1 Significant Accounting Policies: METHOD OF ACCOUNTING A The financial statements are prepared in accordance with the historical cost convention on an accrual basis of accounting and in accordance with generally accepted accounting practices in India and conform to the applicable Accounting Standards issued by the Institute of Chartered Accountants of India and relevant provisions of the Companies Act, USE OF ESTIMATES B The preparation of financial statements requires the management of the Company to make estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statements and 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 REVENUE RECOGNITION Revenue from sale of goods is recognised on transfer of significant risks and rewards of ownership to the customer and when no significant uncertainty exists regarding realisation of the consideration. Sales are recorded net of sales returns, rebates and trade discounts and price differences and are inclusive of excise duty and countervailing duty imposed by the Council of the European Union. 125 Moser COL.p /6/2006, 7:51 PM

106 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) 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 FIXED ASSETS Tangible Fixed Assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specifically 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 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 specified in Schedule XIV to the Companies Act, 1956, other than on certain Plant and Machinery at the Magnetic Media manufacturing units, which is depreciated at the rate of 7.42% (10.34% upto last year) based on management s estimate of useful life of the assets and is in accordance with the rate specified in Schedule XIV to the Companies Act, In respect of assets whose useful life has been revised, the unamortised depreciable amount has been charged over the revised remaining useful life. Intangible assets are amortised on equated basis over their estimated economic life not exceeding 10 years. 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 INVESTMENTS Long term investments are stated at cost of acquisition inclusive of expenditure incidental to acquisition. A provision for diminution is made 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 INVENTORY VALUATION Finished Goods, Work in progress, Goods held for resale, Raw Materials, Packing Materials and Stores and Spares } At lower of cost and net realisable value Cost of Raw material, goods held for resale, packing materials and stores and spares is determined on the basis of weighted average method. Cost of Work in process and finished goods is determined by considering direct material costs, labour costs and appropriate portion of overheads. Liability for excise duty in respect of goods manufactured by the company, other than for exports, is accounted upon completion of manufacture GOVERNMENT GRANTS Grants of the nature of contribution towards capital cost of setting up projects, are treated as Capital Reserve and grants in respect of specific fixed assets are adjusted from the cost of the related fixed assets BORROWING COSTS Borrowing costs directly attributable to the acquisition of qualifying assets are capitalised as part of the cost of assets till the date of commencement of commercial use of the asset. All other borrowing costs are charged to the Profit and Loss Account. 126 Moser COL.p /6/2006, 7:51 PM

107 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) RETIREMENT BENEFITS Liability towards gratuity payable on death/retirement of employees is accrued based on an actuarial valuation at year end and covered by funding/premium as determined by Life Insurance Corporation of India. Provision for leave encashment benefit for the employees is based on an acturial valuation as at the balance sheet date FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currency are converted at the exchange rate prevailing at the date of the transactions. Foreign currency monetary assets and liabilities not covered by forward exchange contracts are restated at the year end rates and the resultant gains or losses are recognised in the Profit and Loss Account, except exchange differences arising on settlement and/or translation of foreign currency liabilities relating 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 rate prevailing on the date of the transaction. Monetary assets and liabilities are restated at the year end rates and resultant gains or losses are recognised in the Profit and Loss Account. Gains and losses on foreign exchange forward contracts are recognised in the Profit and Loss Account over the life of the contract, except in respect of liabilities incurred for acquiring fixed assets, in which case such difference is adjusted to the carrying amount of the respective fixed assets. Any profit or loss arising on cancellation of a forward contract is recognised as income or expense for the period TAXATION Current Tax: Provision is made for current income tax liability based on the applicable provisions of the Income Tax Act 1961, for the income chargeable 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 amount of assets and liabilities and their respective tax basis. DTA is recognised based on management estimates of reasonable/virtual certainty that sufficient future taxable income will be available against which such DTA can be realised. The deferred tax charge or credit is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date 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 inception of the lease and the present value of minimum lease payments. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to periods during the lease term so as to produce a constant 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 lease STOCK OPTION PLANS Stock options granted to the employees and to the non-executive Directors who accepted the grant under the Company s Stock Option Plan are accounted in accordance with Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, Accordingly, the excess, if any, of the market price of the underlying equity shares as of the date of the grant of the option over the exercise price of the option, is recognised as employee compensation cost and amortised on straight line basis over the vesting period. 127 Moser COL.p /6/2006, 7:51 PM

108 MOSER BAER INDIA LIMITED SCHEDULES FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.) IMPAIRMENT OF ASSETS At each balance sheet date, the Company assesses whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised in the profit and loss account to the extent the carrying amount exceeds recoverable amount. Where there is 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 of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods Global Data Media FZ LLC Following are the accounting policies adopted by the associate company in preparation of their annual accounts which are not in consonance with the policies followed by the parent company. No adjustment has been carried out in the CFS as it is not practicable to estimate appropriate adjustments. Inventories Traded inventory amounting to Rs.383,854,612 ( Previous year Rs. 252,295,790 ) has been valued at First In First Out (FIFO) basis. However, for CFS, inventory have been valued after adjusting the impact of unrealised gain thereon. Equipment and Motor Vehicles Useful life of equipment and motor vehicles is expected to be three years. Effectively, these assets are being depreciated at rates higher than those specified in Schedule XIV to the Companies Act, Goodwill Goodwill was amortised using the straight line method over its estimated useful life of 10 years upto 31st December With effect from 1st January 2005, Goodwill is not amortised in accordance with IFRS 3, Business Combination. The group will annually assess whether there is any indication of Impairment and assess whether the carrying amount of Goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. 128 Moser COL.p /6/2006, 7:51 PM

109 136 Moser COL.p /7/2006, 1:04 AM