KPIT Cummins Infosystems Limited Keeping Promises

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1 SM KPIT Cummins Infosystems Limited Keeping Promises

56 KPIT Cummins Infosystems Limited Directors report Dear Shareholders, The Directors are pleased to present the Sixteenth Annual Report together with the Audited Accounts of the Company for the financial year ended March 31, PERFORMANCE OF THE COMPANY Particulars - Consolidated Statement of Profit and Loss Account US$ (Million) Rs. (Million) US$ (Million) Rs. (Million) Sales , , Total Expenses , , Profit before Interest and Depreciation Interest and Financial charges Depreciation Other Income Profit/(Loss) before Tax Provision for Tax (including Deferred Tax) Prior year Expenses/(Gain) Profit/(Loss) after Tax and before Minority Interest Minority Interest (0.00) (0.03) Profit/(Loss) after Tax EPS (Rs.) Basic EPS (Rs.) Diluted Appropriations: Dividend Corporate Dividend Tax Transfer to General Reserve Balance carried to Balance Sheet Particulars - Standalone Statement of Profit and Loss Account US$ (Million) Rs. (Million) US$ (Million) Rs. (Million) Sales , , Total Expenses , , Profit before Interest and Depreciation Interest and Financial charges Depreciation Other Income Profit/(Loss) before Tax Provision for Tax (including Deferred Tax) Prior year Expenses/(Gain) Profit/(Loss) after Tax EPS (Rs.) Basic EPS (Rs.) Diluted Appropriations: Dividend Corporate Dividend Tax Transfer to General Reserve Balance carried to Balance Sheet

57 Results of Operations We are happy to report that during the year the Company crossed the US$ 100 Million milestone. Total revenue for the fiscal year (FY07) was Rs. 4, Million, a growth of 45.72% over the previous year. Revenue guidance for the year under review was between Rs. 4, Million and Rs. 4, Million. The actual revenue was 2.2% higher than the higher end of the revenue guidance. Gross profit grew by 56.41% over FY06 to Rs. 1, Million. Gross profit margin improved by 2.58% to 37.81% of the revenue. Net profit after tax grew by 55.01% to Rs Million. Net profit was within the guidance provided by the Company (between Rs. 501 Million and Rs. 534 Million). Net profit margin improved from 10.23% in FY06 to 10.89% in FY07. The revenues and net profit (before extraordinary items) for the year on a consolidated basis in US$ terms are $ Million and $ Million respectively as compared to $ Million and $ 7.46 Million respectively for the previous year. In US$ terms, revenue has grown by 40.57% and net profit has grown by 49.73%. Dividend The Directors are pleased to recommend a dividend of 35% (Rs per equity share of face value of Rs. 2 each) on the paid-up equity share capital of the Company. Share Capital During the year the Company sub-divided the face value of each share from Rs. 5 to Rs. 2 and declared a bonus issue of 1:1 (that is one equity share of Rs. 2 each for every share of Rs. 2 held). Further, the Company issued the following shares:- a) 311,166 fully paid-up equity shares (face value of Rs. 5 each), on a preferential basis to International Finance Corporation, Washington ( IFC ), an affiliate of the World Bank, against a cash consideration of US$ 2.50 Million. These shares were allotted at an issue price of Rs. 356 per share (including premium of Rs. 351 per share) of face value of Rs. 5 each, calculated as per guidelines issued by the Securities and Exchange Board of India ( SEBI Guidelines ). With this issue, IFC held approximately 2% stake in the Company at the end of FY07. b) 421,600 equity shares (adjusted for the sub-division and bonus issue) of Rs. 2 each were allotted to the employees under the ESOP schemes. Consequently, the outstanding issued, subscribed and paid-up capital increased from 14,559,686 shares (of Rs. 5 each) to 74,775,861 shares (of Rs. 2 each). Apart from the above, during the year, the Board also approved issuance of upto 1,532,825 equity shares of Rs. 2 each and upto 1,532,825 warrants convertible into 1,532,825 equity shares of Rs. 2 each of the Company to Cargill Mauritius Limited, Mauritius ( Cargill ), on a preferential basis against an aggregate cash consideration of US$ 9 Million, at a price of Rs per share/warrant calculated in accordance with the SEBI guidelines, subject to shareholders approval. The allotment of equity shares and warrants is expected by end of April 2007 and would constitute an aggregate dilution of upto 4% of the Company s share capital (assuming full conversion of warrants). The warrants are convertible into equity shares of the Company over a period of 18 months from the date of allotment, subject to fulfillment of certain financial parameters. Manpower Strength, Turnover & Market Capitalisation The Company had 3,256 employees as on March 31, During the year there was a net addition of 1,134 employees, which increased the employee strength by 53.44% over the previous year. Over 19% of the new recruits were freshers. The Company achieved its mission statement of clocking US$ 100 Million turnover by FY07. For FY07, the Company recorded a turnover of US$ Million. The Company s guidance for FY (FY08) for revenues is between US$ Million and US$ Million (growth of 39.5%-40.2% over FY07) and for net profit is between US$ Million and US$ Million (growth of 44.5%-50.7% over FY07). The Company s market capitalization stood at approximately US$ 226 Million as of March 31, 2007 as compared to US$ 127 Million as on March 31, 2006 registering an increase of over 78% during the year. 55

58 KPIT Cummins Infosystems Limited Institutional Holding During the year, the institutional holding in the Company came down to 22.45% from 30.62%. The institutional holding is excluding LB I Group s (an affiliate of Lehman Brother - US) holding of approximately 8% in the Company and approximately 2% of International Finance Corporation, Washington. Together with LB-I and IFC, the institutional holding stands at 32.18%. Information about the Subsidiary Companies As on March 31, 2007 the Company had ten subsidiaries as under: a. KPIT Infosystems Inc. (KPIT US) was incorporated in 1998, in US, for catering to the demand of US based customers. We hold 100% of the share capital and voting power of KPIT US. KPIT US earned revenues of Rs. 2, Million (previous year Rs. 1, Million) and profit of Rs Million (previous year Rs Million) for the period of 15 months ended on March 31, b. KPIT Infosystems Limited (KPIT UK) was incorporated in 1996, in UK, for catering to the demand of European customers. We hold 100% of the share capital and voting power of KPIT UK. During the year, KPIT UK has earned revenues of Rs Million (previous year Rs Million) and incurred loss of Rs Million (previous year profit of Rs Million) for the year ended March 31, c. KPIT Infosystems Inc. [a.k.a. PANEX Consulting Inc.] (KPIT Panex) was added as a wholly owned subsidiary from FY05. Based in USA, this subsidiary is engaged in the business of providing SAP consulting. KPIT Panex earned a profit of Rs Million during the period of 15 months ended on March 31, 2007 (previous year Rs Million) on revenues of Rs Million (previous year Rs Million). d. KPIT Cummins Global Business Solutions Limited (KPIT GBS) was incorporated as a wholly owned subsidiary of the Company in India during FY06 for rendering business process outsourcing and other business solutions. KPIT GBS reported a profit of Rs Million for the year ended March 31, 2007 (previous year a loss of Rs Million) on revenues of Rs Million ( previous year Rs Million). e. KPIT Infosystems GmbH (KPIT Germany) was added as a step down subsidiary during FY06. The Company is a 60:40 joint venture between KPIT UK and Mr. Sanjay Mandal, and is based in Germany. KPIT Germany reported a loss of Rs Million for the year ended March 31, 2007 (previous year a loss of Rs Million) on revenues of Rs Million (previous year Rs. Nil). f. KPIT Infosystems Inc. [a.k.a. SolvCentral.com Inc.] (SolvCentral), based in US was added as a step down subsidiary in FY06 when KPIT US acquired 90% of its shares. SolvCentral earned a profit of Rs Million during the period of 15 months ended on March 31, 2007 (previous year Rs Million) with revenues of Rs Million (previous year Rs Million). g. KPIT Infosystems France SAS (KPIT France) was formerly known as Pivolis. We hold 73% of the shares and voting right of KPIT France and the balance 27% is held by its original promoters namely Messrs Francois Hisquinn, Annie Massol, Jean Vyes Grisi and Octo Technology. This was the first year of consolidation of accounts of this entity with the Company and for the year ended March 31, 2007, KPIT France reported a loss of Rs Million with revenues of Rs Million. Previous year figures are not relevant as this entity got consolidated with effect from April 1, h. KPIT Cummins Infosystems (Bangalore) Private Limited (KPIT Bangalore), formerly known as CG Smith Software Private Limited, was acquired by the Company in FY06 and its accounts got consolidated with the Company in the current fiscal. KPIT Bangalore is a prominent leader of Real Time & Embedded Software Services and Products, with key strength in automotive electronics and is headquartered in Bangalore, India. KPIT Bangalore earned a profit of Rs Million for the year ended March 31, 2007 on revenues of Rs Million. Previous year figures are not relevant as this entity got consolidated with effect from April 1, i. KPIT Infosystems (BA) Inc. (KPIT-BA, US), formerly known as CG Smith Software Inc. is a wholly owned subsidiary of KPIT Bangalore, which was acquired by the Company in FY06. KPIT-BA, US earned a profit of Rs Million for the year ended March 31, 2007 on revenues of Rs Million. Previous year figures are not relevant as accounts of this entity got consolidated with effect from April 1, j. KPIT Infosystems Central Europe Sp.z o.o., (KPIT Poland), was promoted by the Company as its wholly owned subsidiary in Poland during the year under review. The area of operations of this entity has already been described elsewhere in this annual report. KPIT Poland recorded a loss of Rs Million for the period from August 2006 till March 31, Previous year figures are not relevant as this was the first year since its incorporation. 56

59 Particulars required as per Section 212 of the Companies Act, 1956 As per Section 212 of the Companies Act, 1956 we are required to attach the Directors Report, Balance Sheet and Profit and Loss Account of all the above subsidiaries. We had applied to the Government of India for an exemption from such attachment as we present the audited consolidated financial statements in the annual report. We believe that consolidated financial statements present a full and fair picture of the state of affairs and the financial condition of a company and are accepted globally. Government of India has granted us exemption from complying with Section 212. Accordingly, this annual report does not contain the financial statements of these subsidiaries. The Company will make available the audited annual accounts and related detailed information of the subsidiary companies, where applicable, upon request by any member of the Company. These documents will also be available for inspection during business hours at our registered office. Corporate Governance A separate section on Corporate Governance with a detailed compliance report thereon is annexed to this annual report. The Auditors Certificate in respect of compliance with the provisions concerning Corporate Governance, as required by Clause 49 of the Listing Agreement, is also annexed. Directors Pursuant to Article 72 of the Articles of Association of the Company read with Section 256 of the Companies Act, 1956 Messrs S. B. (Ravi) Pandit, Steven Spaulding and Sudheer Tilloo, Directors, retire by rotation at the ensuing Annual General Meeting and, being eligible, offer themselves for re-appointment. During the year, the Company appointed two additional Independent directors namely Mr. Amit Kalyani (with effect from May 30, 2006) and Dr. Srikant Datar (with effect from March 26, 2007) on its Board. Both these additional directors, appointed during the year under review, hold their office upto the date of ensuing annual general meeting and may be re-appointed as Directors in compliance of Section 257 of the Companies Act, A detailed profile of both these directors forms a part of the notice of this ensuing meeting, which is attached with this annual report. Mr. Anand Khandekar and Dr. Naushad Forbes resigned from the directorship with effect from April 27, 2006 and April 26, 2007, respectively. Auditors The Statutory Auditors, M/s Deloitte Haskins & Sells, Chartered Accountants, retire at the ensuing annual general meeting and have confirmed their eligibility and willingness to accept the office, if re-appointed. Responsibility Statement of the Board of Directors Pursuant to Section 217(2AA) of the Companies Act, 1956 your Directors confirm that: i. in the preparation of the accounts for the financial year ended March 31, 2007, the applicable accounting standards have been followed and there has been no material departure; ii. iii. iv. the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end of the said financial year and of the profit of the Company for the said financial year; the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; the Directors have prepared the accounts for the year ended March 31, 2007 on a going concern basis. Particulars of Employees As required under the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended, a statement showing the names and other particulars of employees is set out in the Annexure I to this report. In accordance with the amendments made by the Department of Company Affairs to the Companies (Particulars of Employees) Rules, 1975 vide a Notification No. GSR 212 (E) dated March 24, 2004 the particulars of employees of the Company posted and working outside India, not being Directors or their relatives, drawing more than Rs. 24 lakh per financial year or Rs. 2 lakh per month, as the case may be, have not been included in the said statement. 57

60 KPIT Cummins Infosystems Limited Employee Stock Options (ESOPs) The status of employee stock option, as on March 31, 2007 is as under: 1. Employee Stock Option Scheme 1998 (through Employee Welfare Trust) Particulars * * a. No. of Options granted 1, , b. Exercise Price Rs. 5 Rs. 5 c. No. of Options vested 1, , d. Options exercised 4, , e. Total number of shares arising as a result of exercise of Options 405, ,000 f. Options Lapsed/cancelled Nil g. Variation of terms of Options Nil Nil h. Money realized by exercise of Options (in Rs.) 2,026, ,000 i. Total no. of Options in force 3, , * all figures adjusted for sub-division and bonus issue j. Employee wise details of Options granted: i. No Options have been granted to the promoter Directors. 1,250 Options convertible into 125,000 equity shares of the Company were granted to an employee belonging to the senior management cadre namely, Mr. Pawan Sharma, President, KPIT Cummins Global Business Solutions Limited, a wholly owned subsidiary of the Company. ii. iii. There are no other employees other than those stated above, who have received a grant of Options, in any one year, amounting to 5% or more of Options granted during that year. There are no 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. 2. Employee Stock Option Plan 2004 Particulars * * a. No. of Options granted 2,111,955 2,827,365 b. Exercise Price Closing market price of the Company s equity share on National Stock Exchange on the date of grant of Options c. No. of Options vested 797, ,930 d. Options exercised 421,600 74,340 e. Total number of shares arising as a result of exercise of Options 421,600 74,340 f. Options Lapsed/cancelled 568, ,080 g. Variation of terms of Options Nil Nil h. Money realized by exercise of Options (in Rs.) 20,122,208 2,866,550 i. Total no. of Options in force 4,440,820 3,318,945 * all figures adjusted for sub-division and bonus issue 58

61 j. Employee wise details of Options granted: i. No options have been granted to the promoter Directors. List of employees belonging to the senior management, who have been granted Options, is given as Annexure II to this report. ii. iii. There are no other employees other than those given in Annexure II to this report, who have received a grant of Options, in any one year, amounting to 5% or more of Options granted during that year. There are no 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. 3. Employee Stock Option Plan 2006 Particulars # * a. No. of Options granted 2,191,000 Not applicable b. Exercise Price Closing market price of the Company s equity share on National Stock Exchange on the date of grant of Options c. No. of Options vested Nil Not applicable d. Options exercised Nil Not applicable e. Total number of shares arising as a result Nil Not applicable of exercise of Options f. Options Lapsed/Cancelled 22,500 Not applicable g. Variation of terms of Options Nil Not applicable h. Money realized by exercise of Options Nil Not applicable i. Total no. of Options in force 2,168,500 Not applicable * first grant made on October 19, 2006 under this Plan, hence previous year figures are not relevant # all figures adjusted for sub-division and bonus issue j. Employee wise details of Options granted: i. No Options have been granted to the promoter Directors. List of employees belonging to the senior management, who have been granted Options, is given as Annexure II to this report. ii. iii. There are no other employees other than those given in Annexure II to this report, who have received a grant of Options, in any one year, amounting to 5% or more of Options granted during that year. There are no 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. A certificate issued by the Auditors of the Company shall be placed at the ensuing annual general meeting of the Company certifying that the above schemes have been implemented in accordance with SEBI guidelines and in accordance with the resolution passed at the general meeting of the Company. Fixed Deposits The Company has not accepted any deposits and, as such, no amount of principal or interest was outstanding on the date of the Balance Sheet. 59

62 KPIT Cummins Infosystems Limited Information u/s 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 Conservation of Energy Being into Software services, the operations of the Company are not energy intensive. Still, during the year under review, a few six sigma projects were initiated aiming at energy savings in the two software development facilities of the Company in Pune, India. The adoption of six sigma methodologies brought down the power consumption by over 18% without compromising on the time utilization and quality air supply. These two facilities have been divided into different zones in accordance with ambient heat conditions and optimized on operational hours. For optimizing power usage for illumination, we have adopted the occupancy sensor based switching in new facility which resulted into approximately 15% savings in energy consumption. This has contributed into approximately 30% reduction in power consumption. Research and Development (R&D) Activities - This year the Company started the initiative called CREST - Center of Research for Engineering Sciences and Technology. This function aims at developing solutions and Intellectual Property using the various technology domains that the Company focuses on. The engineering domain include Embedded Systems for Automotive, VLSI designs for power management, ARM processor based solutions etc. The Business IT domain includes solutions in Business Intelligence, Manufacturing Execution Systems, Fast Track ERP deployments, Web portals and Business Process Management etc. Technology Absorption - The Company is constantly upgrading its technological excellence through its Infrastructure, Technology and Services (ITS) function. The Company has started building partnerships with leading technology vendors like Microsoft, SAP, HP and Oracle. Through these partnerships the Company has the advantage to create and build technical solutions for its customers and for its own consumption. The Company focuses on using the technology for its own use as well as create showcase for customers. Foreign Exchange Earnings and Outgo - The Company focuses on exports and undertakes all possible efforts to expand its presence in the export markets. Total foreign exchange earnings during the year have been Rs. 3, Million (previous year Rs. 2, Million) and foreign exchange outgo has been Rs. 1, Million (previous year Rs. 1, Million). Awards/Recognition The Institute of Company Secretaries of India selected us among top 25 companies to receive ICSI National Award for Excellence in Corporate Governance for FY We were also ranked among the Fast 500 companies in Asia Pacific and among the Fastest 50 companies in India in a study conducted by Deloitte Consulting (November 2006). An independent survey carried out by Citigroup IMA (June 2006) listed us among the Top 100 Transitioning Enterprises in India. Outlook Business (October 2006) listed us among the 15 Future Titans of Indian industry across all verticals. Acknowledgments Your Directors take this opportunity to thank all the members and investors of the Company for their continued support. Your Directors hereby place on record their appreciation for the co-operation and support received from all the customers, vendors, financial institutions including HDFC Bank Limited, State Bank of India, ABN Amro Bank NV, The Hongkong and Shanghai Banking Corporation Limited, International Finance Corporation, CitiBank NA, the Registrars and Share Transfer Agent viz. Intime Spectrum Registry Limited and also thank all the employees of the Company for their aluable contribution in the growth of the Company. We also thank the Governments of United States of America, United Kingdom, Germany, France, Poland, Japan and Singapore. We further thank all the constituents of the Government of India, particularly Ministry of Communication and Information Technology, the Software Technology Parks of India, Pune, the Department of Central Excise & Customs, Maharashtra Industrial Development Corporation, National Association of Software and Service Companies, Stock Exchanges (where our shares are listed), Securities and Exchange Board of India, Registrar of Companies, Pune, Department of Company Affairs, Reserve Bank of India, the State Governments, and other government agencies and the Media and Press for their support during the year and look forward to their continued support in the future. By Order of the Board of Directors For KPIT Cummins Infosystems Limited Pune, April 26, 2007 S. B. (Ravi) Pandit Chairman & Group CEO 60

63 Annexure I to the directors report Statement of employees covered under Section 217(2A) of Companies Act Employee Name A g e Designation Qualifications Experie- Date of Remun- Particulars of (Yrs.) nce (Yrs.) joining eration previous (in Rs.) employment Kishor Patil 45 CEO & Managing Director B.Com,FCA,AICWA Dec-90 3,954,050 Practising Chartered Accountant Shrikrishna Patwardhan 46 CTO/CIO M. Tech Mar-91 3,070,507 TCS (Director- Technology) Anup Sable 38 Vice President - Automotive B.E Oct-94 2,993,236 Automotive Research and Allied Embedded and (Mechanical) Association of India Tools LOB Satish Ranade * 46 Associate VP - DFS B.E. (Civil) Jan-97 2,187,342 Manhattan Anil Patwardhan 48 Vice President - Finance B.Com., ACA 23 5-Oct-98 2,695,645 Praj Industries Ltd. Anil Nashikkar 47 Associate VP - Manufacturing LOB B.E. (Electronics & Aug-99 2,833,114 Mastech Inc., US Telecommunications) Prabhakar Bendre 47 Sr. VP - Manufacturing LOB B.E. (Electronics & Aug-02 3,887,313 Geometric Software Telecommunications) Vaishali Vaid 41 Associate VP - Post Graduation in Jan-03 2,517,111 Intiqua India Manufacturing LOB Advanced Systems Limited Management Shrikant Kulkarni 55 Sr. VP - Corporate Services MA, MMS Sep-03 3,560,851 Deepak Fertilizers and Petrochemicals Corporation Ltd. Uma Thomas 42 VP - Process Excellence B.Tech (Electronics & Jul-04 2,840,859 Infosys Group Telecommunications) Technologies Ltd. Girish Wardadkar 47 President and Executive B.E. (Mechanical), MMS Jan-05 6,819,482 G.E Capital Director International Services Praveen Acharya 42 VP - Semiconductor B.E. (Electronics & Nov-05 3,906,371 DGIPRO Systems Solutions Group Communications), EDA Pvt. Ltd. Certified for VLSI Training Vinay Vaidya # 52 VP - Business and B.E. (Electrical), Oct-06 1,302,667 Siemens Information Technology Solutions M.S.E.E., Ph.D Systems Ltd. (Computer Vision) Tapas Datta # 47 Associate VP - B.Tech. (Hons) 22 2-Nov-06 1,276,908 Marvel Semiconductor Solutions Electronics & Semiconductor Group Electrical Communication, India Ltd M.S. (Electrical and Computer Engineering) Ram Ramabrahmam # 46 Associate VP - Ph.D (Electronics & Dec ,388 Future Techno Semiconductor Solutions Communications) Designs Pvt. Ltd. Group # Joined during the financial year * Relieved on October 20,2006 Notes : Remuneration comprises basic salary, allowances and taxable value of perquisites. None of the employees is related to any director of the Company. None of the employees, except Kishor Patil, owns more than 2% of the outstanding shares of the Company as on March 31, The nature of employment is contractual in all the above cases. By Order of the Board of Directors For KPIT Cummins Infosystems Limited S. B. (Ravi) Pandit Pune, April 26, 2007 Chairman & Group CEO 61

64 KPIT Cummins Infosystems Limited Annexure II to the directors report List of Grantees belonging to senior management level A. Employee Stock Option Plan 2004 Sr. No. Employee Name Options Granted Sr. No. Employee Name Options Granted 1 Vinay Vaidya 45, Rajneesh S Kalawant 7,000 2 Sukhvinder S Mehta 30, Prashant Y Ghanekar 7,000 3 Anil M Nashikkar 30, Jitendra M Joshi 7,000 4 Tapas Datta 25, Jayant Manerkar 7,000 5 Ram Ramabrahmam 25, Janardhan S Kotian 7,000 6 Vaishali Vaid 22, Ashoke Bhat 7,000 7 Uma Thomas 15, Ashish Goyal 7,000 8 Sunil Deshpande 15, Ajay Kanotra 7,000 9 Shrikant W Kulkarni 15, Vinay M Athaide 6, Sai Raghavendra Kumar 15, Thinakar R Nadar 6, Sachin Tikekar 15, Sagar N Patankar 6, Praveen Acharya 15, Pratibha A Parulekar 6, Prabhakar P Bendre 15, Omkar S Panse 6, Pankaj M Sathe 15, Makarand N Damle 6, Myles O Connor 15, Divyesh B Desai 6, Harshu Ghate 15, Devendra B Hande 6, Chandrashekhar S Sonsale 15, Deepak A Deokule 6, Anup V Sable 15, Sunil N Takalikar 3, Anil K Patwardhan 15, Sunil D Junnarkar 3, Vishwas G Dandekar 14, Shilpa A Dhavale 3, Sunil Pandkar 14, Satish R Bhalerao 3, Sumedha A Nashikkar 14, Samir A Kulkarni 3, Satish Kumar 14, Rajendra D Kango 3, Rajeev R Kulkarni 14, Rahul R Uplap 3, Pushpahas D Joshi 14, Priya A Kochar 3, Prashant V Deshpande 14, Pradeep P Kadloor 3, Narayan J Aher 14, Nitin P Bhosekar 3, Anantanarayan Seivur 14, Nilay V Mardikar 3, Taranath C 10, Mandar D Marulkar 3, Tamil Selvi R 10, Indu Nangia 3, Ganesan Karuppanaicker 10, Ashish Ahuja 3, Shyamkant S Barve 7, Arun M Karandikar 3, Shrikant D Athalye 7, Arati A Dikey 3, Shaunak V Ashtaputre 7, Anand PVRK 3, Sanjay Y Gokhale 7, Anand G Godse 3, Renuka Krishna 7, Abhijeet A Tembe 3, Ramaraju Indukuri 7,000 Total 737,000 62

65 B. Employee Stock Option Plan 2006 Sr. No. Employee Name Options Granted Sr No. Employee Name Options Granted 1 Pawan Sharma 40 Avinash Joshi 17,500 2 Prabhakar P Bendre 40, Satish Kumar 17,500 3 Shrikant W Kulkarni 40, Ashoke Bhat 17,500 4 Pankaj M Sathe 40, Ashish - Ahuja 17,500 5 Sachin Tikekar 40, Harshu Ghate 17,500 6 Uma Thomas 32, Pravin Mulay 17,500 7 Anup V Sable 32, Ajay N Kulkarni 15,000 8 Anil K Patwardhan 32, Sunil M Deshpande 15,000 9 Praveen Acharya 32, Suhas A Damle 12, Myles O Connor 32, Swapnil Bajaj 12, Kamlesh Maheshwari 22, Raghunath C Sowani 12, Chandrashekhar S Sonsale 22, Mandar D Marulkar 12, Hiroshi Okuzaki 22, Anand G Godse 12, Vaishali Vaid 22, Sagar N Patankar 12, Anil M Nashikkar 22, Arun M Karandikar 12, Sukhvinder S Mehta 22, Umesh Deshpande 12, Shaunak V Ashtaputre 17, Shilpa A Dhavale 12, Pushpahas D Joshi 17, Nilay V Mardikar 12, Rohan R Sohoni 17, Pratibha A Parulekar 12, Shyamkant S Barve 17, Vinod Shashidharan 12, Rajneesh S Kalawant 17, Milind Chilakwad 12, Praveen Siddannavar 17, Vinay M Athaide 12, Sanjay Sinha 17, Makarand N Damle 12, Rajesh Korde 17, Ashish Goyal 12, Narayan J Aher 17, Pradeep P Kadloor 12, Vishwas G Dandekar 17, Arati A Dikey 12, Anantanarayan Seivur 17, Samir A Kulkarni 12, Satish Hakim 17, Deepak A Deokule 12, Vinay H Joshi 17, Divyesh B Desai 12, Sunil Pandkar 17, Omkar S Panse 12, Ramaraju Indukuri 17, Abhijeet A Tembe 12, Deepak Kapoor 17, Rahul R Uplap 12, Prashant V Deshpande 17, Priya P Bal 12, Prashant Y Ghanekar 17, Rajendra D Kango 12, Sumedha A Nashikkar 17, Indu Nangia 12, Prashant K.s. 17, Sanjay Marwaha 12, Rajeev R Kulkarni 17, Ganesan Karuppanaicker 12, Sanjay Y Gokhale 17, Anand G Patil 12, Renuka Krishna 17, Dinesh Nerlekar 12,500 Total Options amounting to 5% or more of the Options granted during the year under this Scheme. By Order of the Board of Directors For KPIT Cummins Infosystems Limited Pune, April 26, 2007 S. B. (Ravi) Pandit Chairman & Group CEO 63

66 KPIT Cummins Infosystems Limited Auditors certificate on corporate governance To the Members of KPIT CUMMINS INFOSYSTEMS LIMITED We have examined the compliance of conditions of Corporate Governance by KPIT Cummins Infosystems Limited, for the year ended on 31 st March 2007, as stipulated in Clause 49 of the Listing Agreement of the said Company with stock exchanges. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination has been limited to a review of the procedures and implementation thereof adopted by the Company for ensuring compliance with the conditions of Corporate Governance as stipulated in the said Clause. 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 and the representations made by the Directors and the management, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in Clause 49 of the above mentioned Listing Agreement. We further state that such compliance is neither an assurance as to the future viability of the Company nor of the efficiency or effectiveness with which the management has conducted the affairs of the Company. For DELOITTE HASKINS & SELLS Chartered Accountants HEMANT M. JOSHI Partner Pune, April 26, 2007 Membership No

67 Report on corporate governance We are immensely happy to report that in recognition of Company s high corporate governance standards, the Institute of Company Secretaries of India (ICSI) named the Company amongst the Top 25 companies in India having adopting good corporate governance for its ICSI National Award for Excellence in Corporate Governance for the year Evolution of Corporate Governance Corporate governance, as has been continuously evolving with the time, is all about transparency, fairness, accountability, interactive decision making, following sound business practices and making full disclosures with respect to all important aspects of a business. Globally, the concept of corporate governance has been successfully adopted and followed not just by corporates but also by societies. Indian corporates have been going global and are adequately poised to make their presence felt on the corporate world map more prominently in the years to come. With this notable transformation, the concept of corporate governance has evolved as of paramount importance and we have witnessed that the companies who have adopted best in the class corporate governance practices have been able to attract, satisfy and protect their stakeholders, be it investors, society, employees, customers, suppliers or the environment. The first foundation stone of corporate governance was laid down by Cadbury Committee set up by London Stock Exchange in May 1991 which came out with code of best practices. In India, the Confederation of Indian Industry (CII) took the initiative in framing a desirable code of corporate governance which was released in Following CII s initiative, the Securities and Exchange Board of India (SEBI) set up a committee under the chairmanship of Shri. Kumar Mangalam Birla to promote and raise standards of corporate governance. The committee in its report observed that strong corporate governance is thus indispensable to resilient and vibrant capital markets and is an important instrument of investor protection. It is the blood that fills the veins of transparent corporate disclosure and high quality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure. The recommendations of the Kumar Mangalam Birla Committee led to inclusion of clause 49 in the listing agreement in the year The next major event in corporate governance history was the Sarbanes-Oxley Act which was signed by the U.S. President George W. Bush into law 2002 and which led the Indian government to appoint Naresh Chandra Committee in 2002 to examine and recommend amendments to the law involving the auditor-client relationships and the role of independent directors. SEBI too, in the same year, constituted a committee under the chairmanship of Shri. N. R. Narayan Murthy, to review the implementation of corporate governance code by listed companies and to recommend revision of clause 49. Further in 2004, governments of 30 countries forming the Organization for Economic Co-operation and Development (OECD) approved a revised version of OECD s principles of corporate governance adding new recommendations for good practice in corporate behavior with a view to rebuilding and maintaining public trust in companies and stock markets. SEBI has incorporated the recommendations made by N. R. Murthy Committee on corporate governance in Clause 49 of the listing agreement and the revised Clause 49 has been made effective from January 1, At KPIT Cummins, we have been endeavoring to adopt and practice the best corporate governance framework which goes well beyond the statutory provisions of clause 49 of listing agreement with stock exchanges. The Corporate Governance philosophy Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society Sir Adrian Cadbury Global Corporate Governance Forum, World Bank 2000 The philosophy and ultimate aim of corporate governance at KPIT Cummins is to enhance the long term value of the Company for its shareholders and all other partners and the above definition elaborates and confirms our thought process of corporate governance. 65

68 KPIT Cummins Infosystems Limited We at KPIT Cummins believe that the corporate governance framework is to encourage the efficient use of resources and equally to require accountability. It helps corporations in realizing their corporate objectives, protecting their stakeholders rights, meeting legal requirements and demonstrating transparency in conducting business to a wider section of public. Good corporate governance therefore contributes to a sustainable economic development of corporations by enhancing their performance and increasing their access to outside world. KPIT Cummins has been complying with the said provisions in letter as well as in spirit to ensure transparency in its corporate affairs. The Company is committed to continuously scale up its corporate governance standards. KPIT Cummins philosophy is aimed at conducting business ethically, efficiently and in a transparent manner; fulfilling its corporate responsibility to various stakeholders and enhancing and retaining investor trust. Our corporate governance philosophy is based on the following principles: 1. Compliance of clause 49 and conformity with globally accepted practices of corporate governance, secretarial standards provided by The Institute of Company Secretaries of India, and laws of India in true spirit; 2. Integrity in financial reporting and timeliness of disclosures; 3. Transparency in the functioning and practices of the Board; 4. Balance between economic and social goals; 5. Rights, and equitable treatment, of shareholders; 6. Maintenance of ethical culture within and outside the organization; 7. Establishing better risk management framework and mitigation measures; and 8. Maintaining independency of auditors. Corporate Governance & Values Creating an ethical culture means installing and maintaining a commitment to doing the right thing, this time and every time - so much so that it becomes entwined in the essential DNA of the firm. William H. Donaldson Chairman, US Securities and Exchange Commission Corporate governance is not just legal compliance but is a balance between economic and social goals, and between individual and communal goals. The balance between economic and social goals can be satisfied only when we maintain an ethical culture within every sphere of organization and ethical culture can be created only when an organization has deep-rooted basic values well imbibed within the organization. We are convinced that corporate governance is solely founded upon organizational values. Hence the values adopted by KPIT Cummins, as described elsewhere in this annual report, are the foundation of our corporate governance framework implemented in every sphere of our business. 66

69 I. BOARD OF DIRECTORS A. Size and composition of the Board In order to maintain independence of the Board, the Company has a balanced combination of Executive, Non-executive and Independent Directors on its Board which is most essential to separate the two main Board functions viz. governance and management. Out of the total strength of thirteen Directors as on March 31, 2007, ten Directors (approx. 77%) were independent/non-executive directors and three (approx. 23%) were executive directors. The Chairman of the Company is a non-executive director and he renders professional services in the areas of strategic planning, external interface and Board matters. The Board periodically evaluates the need for increasing or decreasing its size. The composition of our Board, and the number of directorships held by each Director outside the Company is detailed in Table Definition of an Independent Director Independent director shall mean a non-executive director of the Company who: a. 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; b. is not related to promoters or persons occupying management positions at the Board level or at one level below the Board; c. has not been an executive of the Company in the immediately preceding three financial years; d. is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: i. the statutory audit firm or the internal audit firm that is associated with the Company, and ii. the legal firm(s) and consulting firm(s) that have a material association with the Company. e. 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 f. is not a substantial shareholder of the Company i.e. owning two percent or more of the block of voting shares. g. Nominee directors appointed by an institution which has invested in or lent to the Company shall be deemed to be independent directors. Table 1: The composition of our Board, and the number of directorships held by them outside the Company Sr. Name of Director Category of Relationship No. of No. of No. of No. Directorship at with the Directorships Committee Committee KPIT Cummins Directors held in Membership in Chairmanship Public Companies@ in Committees@ Companies as on March 31, 2007* 1 Mr. S.B. (Ravi) Pandit, Non-Executive None 3 1 Chairman & Group CEO 2 Mr. Kishor Patil, CEO & Executive None 2 1 Managing Director 3 Mr. Girish Wardadkar, Executive None 2 President & Executive Director 67

70 KPIT Cummins Infosystems Limited Sr. Name of Director Category of Relationship No. of No. of No. of No. Directorship at with the Directorships Committee Committee KPIT Cummins Directors held in Membership in Chairmanship Public in Companies as on March 31, 2007* 4 Mr. Shrikrishna Patwardhan, Executive None 1 Director Technology 5 Mr. Naushad Forbes (Resigned on April 26, 2007) Non-executive None /Independent 6 Mr. Ajay Bhagwat Non-executive None 1 1 /Independent 7 Mr. Sudheer Tilloo Non-executive None 3 1 /Independent 8 Mr. Vijay Kelkar Non-executive None 11 4 /Independent 9 Mr. Steven Spaulding Non-executive None 1 /Independent 10 Ms. Gail Farnsley Non-executive None 1 1 /Independent 11 Mr. Anant Talaulicar Non-executive None 10 2 /Independent 12 Mr. Amit Kalyani (Appointed Non-executive None 13 4 on May 30, 2006) /Independent 13 Mr. Srikant Datar (Appointed Non-executive None 1 on March 26, 2007) /Independent Mr. Ron Lannan, Alternate Non-executive None 1 Director /Independent Mr. Steven Chapman, Non-executive None 5 Alternate Director /Independent Mr. Floyd Rutan, Non-executive None 1 Alternate Director /Independent * including directorship in KPIT Cummins Infosystems includes only Audit Committee and Investor Grievances Committee in all companies including KPIT Cummins Infosystems Limited. 2. Responsibilities of the Non-executive Chairman and other executive directors As per the current policy the Company has a non-executive Chairman & Group CEO Mr. S.B. (Ravi) Pandit, a CEO and Managing Director Mr. Kishor Patil, a President and Executive Director Mr. Girish Wardadkar and a Director Technology Mr. Shrikrishna Patwardhan. The authorities and responsibilities of each of the above Directors are clearly demarcated as under: The Chairman & Group CEO is responsible for managing the external interface of the Company, as well as the formulation of corporate strategy and performance goal setting. He is also engaged in defining the corporate vision and goals of KPIT Cummins to transform the Company to built a global IT consulting organization of first choice. He plays a strategic role in the 68

71 areas of Investor and Press Relations, community initiatives, board matters and corporate governance. He also interacts with global thought leaders to enhance our leadership position and various institutions to highlight and help bring about the benefits of IT to every section of society. The CEO and Managing Director is responsible for the overall management of the Company. He is specifically responsible for all day-to-day operational issues like planning and executing business, reviewing and guiding the country offices, customer delivery units and support functions, and ensuring efficient and effective functioning of the organization as a whole. He is also responsible for providing the strategic direction, building strategic partnerships and integration of acquired entities. The President and Executive Director is responsible for he is responsible for service delivery & operations management and formulating the operational policy. He is also responsible for process excellence, and to attract and enhance the quality of talent in the Company. The Technology Director currently designated as Chief Technology Officer / Chief Information Officer is responsible for consumer service operations and for providing direction in terms of technology architecture, design and deployment for a variety of technologies and instrumental for key customer accounts management. As CTO he is responsible for technical consulting services and architecture solutions for the Customer Delivery Units. He is also responsible for Technology Absorption and Technology Change Management. In a CIO role he is responsible for IT Infrastructure (Networking, Security, Data Center Services), Business Process Automation, Information Systems and Intranet initiatives at KPIT Cummins. 3. Membership Term As per the current laws in India, one-third of the Board members (who are liable to retire by rotation) are liable to retire every year and if qualified, may be re-appointed. As such Messers S. B. (Ravi) Pandit, Sudheer Tilloo, and Steven Spaulding, constituting one-third of the Board of the Company, retire at the ensuing annual general meeting of the Company. The executive directors are appointed by the shareholders of the Company for a maximum period of 5 years at a time, but are eligible for re-appointment upon completion of their respective term. The non-executive directors have no specified period but they retire by rotation, as per the law. The Company also endeavours to specify a maximum term of 9 year for any nonexecutive director and in this direction Dr. Naushad Forbes stepped down from the post of Independent Director w.e.f. April 26, 2007, after having served for more than 9 years as Director of the Company. 4. Board Meeting Agenda and Minutes The Company Secretary receives details on the matters which require the approval of the Board/Committees of the Board, from various department of the Company, well in advance, so that they can be included in the board meeting agenda, if required. The information as required under Clause 49 of the Listing Agreement and combined code of corporate governance and conduct has been made available to the members of the Board/Committee. All material information is incorporated in the agenda papers for facilitating meaningful and focused discussions at the meetings. In compliance of the statutory requirements, the following information is supplied to the Board in agenda of every quarterly board meeting: Minutes of meetings of the previous board and committee meetings; Minutes of meetings of all its subsidiaries of the Company; Quarterly results of the Company; Annual operating plans and quarterly variance analysis; Presentation on the financial results which generally includes the following: Action tracker on implementation of decisions taken in last board meeting Financials for the quarter and its analysis Free cash generated during the quarter Yearly plan vs actual LoB (Line of Business) wise performance Profitability drivers 69

Directors Report. Financial Highlights

Directors Report. Financial Highlights Directors Report (for the Year 2007-2008) Dear Shareholders, We are delighted to present the Report on our business and operations for the year ended March 31, 2008. Financial Highlights (Rs. In Lacs)