HCL IFC.p65

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					        CONTENTS       1. Management Discussion and Analysis          …..............................   7
                       2. Five Year Financial Overview                …..............................   13
                       3. Directors’ Report                           …..............................   14
                       4. Report on Corporate Governance              …..............................   22
                       5. Annual Accounts – Parent
                          ♦   Auditors’ Report                        …..............................   27
                          ♦   Balance Sheet                           …..............................   30
                          ♦   Profit And Loss Account                 …..............................   31
                          ♦   Cash Flow Statement                     …..............................   32
                          ♦   Schedules To Accounts                   …..............................   34
                          ♦   Balance Sheet Abstract                  …..............................   57
                       6. Consolidated Accounts with                  …..............................   58
                          Auditors’ Report




HCL IFC.p65        1                                 10/4/2004, 5:53 PM
             Dear Stakeholder,


             The path of leadership is for the chosen few. Those who choose to tread it need
             to be focused, dedicated, agile, innovative and be prepared for the long haul.
             The result of course is worth the effort.

             The year that has gone by saw us achieving even greater heights. We became
             the first Company to sell more than 100,000 PCs in a single quarter. We kept
             raising our performance bar every quarter, in the telecom business, to take
             advantage of a growing customer base. All this while we ensured that we kept
             our customers happy. We were ranked number 1 in Customer Satisfaction Audit
             by a leading third party survey.

             We at HCL Infosystems Ltd, still continue to chase our dream of taking the
             power of IT & Telecom to each citizen of this country.

             We have to dream of leveraging IT & Telecom to cross over from a “developing
             nation” to “developed nation”. We do not have a choice, nor do we have the
             time.

             HCL Infosystems Ltd launched a PC for less than Rs. 15,000/-, being the first
             branded manufacturer to do so. We also have given the country it’s first and
             only convergence device – Beanstalk NEO. A technical marvel, that brings digital
             entertainment and computing at your finger tips, giving the customer an entirely
             different experience.

             Today we can supply and support world class IT Infrastructure at any location
             across the country. We believe that IT Infrastructure is crucial for harnessing
             the true potential of this country.

             Going forward, we believe that it is the unique prowess of the Indian mind that
             will script the success of this country for the years to come. Indian mind is the
             common cord that unites all of us Indians across the globe irrespective of age,
             sex, cast or creed. We have named this feeling, this belief as “mindia”
             (pronounced as mind india). And we know that mindia would get India it’s due
             in the global village.

             I take this opportunity to thank you for believing in an Indian Company, and
             look forward to similar generous support for many more years to come.



             Warm regards,



             Ajai Chowdhry
             Chairman & CEO




                                                    1


HCL-01.p65      1                                                       10/4/2004, 5:53 PM
                                                                 Mindia ™

        Being an Indian is more than just an acknowledgement of our nationality, our race or color of our skin. Being an Indian is
        a state of mind.

        The Indian mind.

        Mindia is a tribute to that single quality that binds all Indians together. Mindia is saluting the prowess of the Indian mind
        and its great achievements against all odds. Indian mind is all about finding solutions where none seem to exist, and that
        is what today makes us a strong nation that has risen above its problems and limitations.

        We are today one of the fastest growing economies of the world. Today, India is globally recognized as a force to be reckoned
        with in all fields of technology, from medicine to Information Technology. The remarkable prowess of the Indian Minds has
        undoubtedly proven that a third world country can have a first rate mind.

        It is this great Indian mind that we, at HCL salute today. And it is this Indian mind that has brought us where we are today
        as a successful Company. We have over the years made our humble contribution in unearthing and developing the great
        potential of the Indian mind. In fact, HCL is the only Indian Organisation to have successfully straddled and made a mark
        in all the core areas of IT.

        Mindia has taken us to ever greater heights in every field. We have taken on, and bettered, the best in the world, and we
        certainly believe that the Indian Mind shall continue to script our success in the years to come.

        The following pages bear few examples, which illustrate how mindia has the ability to overcome every impediment in its
        way.

        We believe in mindia and are proud to be Indian.




        Please visit www.mindia.net to participate in a movement called mindia.

                                                                     2


HCL-01.p65                       2                                                       10/4/2004, 5:53 PM
        MANAGEMENT DISCUSSION AND ANALYSIS

        The year under review saw HCL Infosystems Limited scaling new heights and setting up fresh benchmarks. The Company
        registered good growth in all business areas and consolidated its position as the leading player in IT, communications &
        Imaging space. It has been able to add momentum to the pace, to make most of the opportunities emerging around us.

        As our nation moves up on the IT & Communication adaptation curve, the Company is poised to leverage its expertise to
        install and support cutting edge IT Infrastructure for optimum performance.

        Infoprocessing Business

        HCL Infosystems is uniquely positioned to offer a wide range of products and services in IT business to a diverse set of
        customers that include Large Enterprises, Government and PSUs, Banking & Finance industry, Education & research,
        SME, SoHo & Home. The Company enjoys a large & loyal customer base in each of the above segments.

        The PC & server range saw volumes grow. The year saw introduction of several new models. For Enterprise segment, it
        launched Infiniti Corporate PC, which combined good looks & design with cutting edge technology and great ease of use.
        Indic PC allows the users to do the work in local Indian languages. The Infiniti range continues to offer Maximum Value
        Always to the customers irrespective of segment, usage or application.

        The Company augmented its support network, which now has 1700+ trained engineers and direct presence at 260+
        locations. This means that HCL Direct Support is available at 1000+ towns across the country. The Company has improved
        processes to ensure faster and accurate deliveries to customers across the country, to meet up with the growing numbers.

        The initiative of System Integration that began the year before has started to show encouraging results with the Company,
        bagging some prestigious SI orders in the country. The SI team today is capable to offer a plethora of solutions to the
        customers using the strengths of technology familiarity, domain knowledge of customer business and ability to seamlessly
        integrate various technologies.

        On Home & SoHo front, the Company took the decision to get to the “center of digital home” offering a range of products
        under the aegis of Beanstalk Brand to give customers a unique brand experience. The Company launched Beanstalk NEO,
        an ultimate convergence device that has TV, TV recorder, DVD player, Music System, Radio, Gaming device and a PC, all
        rolled into one. All this at the touch of convenient remote control. Beanstalk NEO is a glimpse of the future in present
        times.

        In addition to this, the Company also introduced digital cameras, MP3 players and inkjet printers for its Home/SoHo users.
        As the lifestyle goes increasingly digital, these products will find acceptance amongst the customers. HCL Ezeebee, the
        value PC launched last year, notched up good volumes this year, indicating high acceptance at the customer level.

        Going forward, the Company would target newer segments like retail to capitalize on the emerging opportunities. It would
        continue to offer leading edge technology ahead of competition and provide best value for money products & services to it’s
        customers. It would continue to grow the volumes by market expansion initiatives and going beyond B&C class towns.

        Imaging & Communications Business

        The year saw Company rapidly increasing its customer base, offering new products and solutions.

        On imaging front, the introduction of Plasma TV met with encouraging response from the customers. With the launch of
        Electronic white board, the Company has further enhanced it’s product portfolio that increase productivity and improve
        ROI. In addition to these, the Company introduced several new models in digital copiers, multi-functional devices as well
        as LCD projectors.

        In corporate networking and internet area, the Company continues to add more customers for a range of solutions and
        services on the managed network. The Company services some prestigious clients from different business verticals and
        ensures same level of customer attention & service delivery to each customer to keep up the commitment of maximum
        customer satisfaction.

        On the telecom front, the Company consolidated its position as a trusted provider of communication equipment for
        Enterprise connectivity (e.g. EPABX, Wireless LAN, VoIP, Switches, Audio & Video Conferencing). This business line
        bagged “Successful competitive strategy” award by Frost & Sullivan.

        The Company ramped up its sales & distribution network and support infrastructure to service the growth in customer base
        for GSM telephony. With the increasing penetration of mobile telephony, this capability will help the Company to make
        most of the upcoming opportunity. The Company has already set up more than 175 service centers across the country to
        take care service requirements of Nokia GSM mobile phones. It launched “HCL-Safeguard”, an unique value added
        offering at no extra cost to the customer, that offers theft insurance and added warranty.

        HCL Infosystems is today successfully straddling the two growth areas – IT & Telecom. With the nation wide ubiquitous
        presence, strong customer focus and the ability to innovate and adapt, this Indian Company is ready to surge ahead,
        capitalizing on all opportunities coming it’s way.

                                                                    7


HCL-07.p65                        7                                                    10/4/2004, 5:53 PM
        FINANCIAL REVIEW OF CONSOLIDATED OPERATIONS FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2004

        FINANCIAL PERFORMANCE


                                                                                   Key Financial Indicators

                                                                                                       FY 04    FY 03

                                                                          EBIDT                        4.9%     4.8%
                                                                          PBT                          4.9%     4.3%
                                                                          PAT                          4.0%     3.5%
                                                                          ROCE                         43.4%   20.4%
                                                                          RONW                         41.4%   31.2%
                                                                          Debt equity                   0.15    0.29
                                                                          Current Ratio                 1.3      1.2

        1.   Gross Revenue:

             Revenue grew by 63% from Rs. 2705 crores in the previous year to Rs. 4413 crores in the current year.

             Revenue from Computer systems & related services
             grew by 38% from Rs. 1104 crores in the previous
             year to Rs. 1523 crores in the current year.

             Revenue       from     Office     Automation       &
             Telecommunication business for the current year grew
             by 89% from Rs. 1522 crores in the previous year to
             Rs. 2877 crores. The current year saw strong growth
             with the segment taking up new initiatives and
             expanding it’s distribution network.

             Revenue from Internet related business grew by 38%
             from Rs. 32 crores in the previous year to Rs. 44
             crores in the current year.

        2.   Other Income:

             Other income for the current year is Rs. 23 crores as against Rs. 17 crores in the previous year. Current year includes
             Rs. 12 crores (Previous Year Rs. 7 crores) income from investment in Mutual Funds. The gain in foreign exchange
             fluctuation for the current year is Rs. 4 crores as against Rs. 6 crores in the previous year.

        3.   Gross Margins:

             Gross margins for the current year are at Rs. 445 crores as against Rs. 366 crores in the previous year.

             Gross margins for the Parent Company are at Rs. 282 crores. Gross margins remained at 19% (Previous year exclude
             demerged/transferred businesses).

        4.   Personnel Costs:

             Staff cost for the current year increased to Rs. 108 crores from Rs. 88 crores (excluding demerged/transferred
             businesses) in the previous year. Manpower increased from 3006 as at June 2003 to 3287 as at June 2004. Staff cost
             is 2.5% of sales for the current year as against 3.5% in the previous year.

             Staff cost for the Parent Company for the current year is Rs. 78 crores as against Rs. 63 crores (excluding demerged/
             transferred businesses) in the previous year.

        5.   Administrative, Selling & Repairs:

             Administrative, Selling & Repair costs for the current year increased to Rs. 127 crores from Rs. 96 crores (excluding
             demerged/transferred businesses) in the previous year. The increase in expenses is commensurate with increased
             volume of operations and expenses as a % to sales declined from 3.7% to 3%.

             Administrative, Selling & Repairs cost for the Parent Company for the current year is Rs. 80 crores as against Rs. 64
             crores (excluding demerged/transferred businesses) in the previous year.


                                                                     8


HCL-07.p65                       8                                                      10/4/2004, 5:54 PM
        FINANCIAL REVIEW OF CONSOLIDATED OPERATIONS FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2004

        6.   Operating Profit (EBIDT):

             The operating profit excluding ‘Other income’ grew by 65% from Rs. 127 crores in the previous year to Rs. 209 crores.
             EBIDT as a % to sales increased from 4.8% to 4.9%.

             Operating profit for the Parent Company for the current year is Rs. 124 crores as against Rs. 80 crores (excluding
             demerged/transferred businesses) in the previous year.

        7.   Segment Results (PBIT):

             The segment result for Computer systems & related services grew by 35% from Rs. 91 crores in the previous year to
             Rs. 123 crores in the current year.

             Office Automation & Telecommunication grew by 74% from Rs. 48 crores in the previous year to Rs. 83 crores in the
             current year.




             The losses in Internet and related services reduced significantly from Rs. 13 crores in the previous year to Rs. 2 crores
             in the current year. This has been achieved through increase in the capacity utilization of leased lines and cost savings
             done.

        8.   Finance Charges:

             Net finance cost reduced from Rs. 7 crores in the previous year to Rs. 3 crores in the current year. The Company has
             been continually restructuring its debt portfolio by lowering its loan exposure and by replacing high cost debt with low
             cost debt to benefit from the fall in the interest rates. These have resulted in lowering the interest burden.

        9.   Profit Before Tax:

             PBT grew by 89% from Rs. 112 crores in the previous year to Rs. 212 crores in the current year.

             PBT for Parent Company grew by 34% from Rs. 96 crores in the previous year to Rs. 128 crores in the current year.

        10. Taxation:

             The profits for the current year are after a provision for Rs. 21 crores for current tax and Rs. 15 crores for deferred tax.

        11. Profit After Tax:
             The Profit after tax grew by 89% from Rs. 93 crores in the previous
             year to Rs. 175 crores.

             The Profit after tax for the Parent Company grew by 96% from
             Rs. 62 crores in the previous year to Rs. 121 crores

        12. Dividend:

             The Company commenced a practice of declaring quarterly interim
             dividends during the current year. Accordingly, it distributed
             dividends at 30%, 50% and 60% for the first three quarters. The
             company proposes to pay a final dividend of 70% per fully paid
             up equity share of Rs.10/- each for the current year. The interim
             dividends paid together with proposed final dividend total 210%
             for the current year, entailing an outflow of Rs. 77 crores, including
             distribution tax.

                                                                         9


HCL-07.p65                         9                                                       10/4/2004, 5:54 PM
        FINANCIAL REVIEW OF CONSOLIDATED OPERATIONS FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2004

        13. Earning Per Share (consolidated):

             The consolidated Basic EPS grew from Rs. 29.0 in the previous year to Rs. 54.4 in the current year. The Diluted EPS
             for the current year is Rs. 50.8

             Earning Per Share (Parent Company): Basic EPS grew from Rs. 19.4 in the previous year to Rs. 37.5 in the current
             year. The Diluted EPS for the current year is Rs. 35.1




        FINANCIAL CONDITIONS

        1.   Shareholders Funds/Net Worth: During the current year, pursuant to exercise of Employee Stock Options, 9.8 lakh shares
             were allotted at a premium of Rs. 279/- per share realizing Rs. 28 crores. Interim quarterly dividends of Rs. 51 crores
             and a final dividend of Rs. 26 crores have been appropriated out of Rs. 175 crores of profits for the current year, taking
             the consolidated reserves of the Company to Rs. 390 crores and Net Worth to Rs. 423 crores as on 30th June, 2004.

             The book value per share of the Parent Company increased from Rs. 102 as on 30th June, 2003 to Rs. 121 as on 30th
             June, 2004.

        2.   Borrowings: The year-end loan balances decreased from Rs. 119
             crores as on 30th June, 2003 to Rs. 72 crores as on 30th June,
             2004.
        3.   Fixed Assets: Net block as on 30th June, 2004 is Rs. 66 crores.
             During the current year, the Company made capital expenditure
             of Rs. 18 crores mainly for

             -   Enhancing Manufacturing facility of Computer peripherals

             -   Expanding Customer Support Network for Office Automation
                 & Telecommunication business

             -   Hardware Upgrades for Internet related business

             -   Acquisition of Land for developing training facility

             Net block of Parent Company as on 30th June, 2004 is Rs. 49 crores.

        4.   Inventories: Inventories increased from Rs. 238 crores as on 30th June, 2003 to Rs. 280 crores as on 30th June, 2004.

             Inventories of Parent Company increased from Rs. 89 crores as on 30th June, 2003 to Rs. 161 crores as on 30th June,
             2004. The increase in inventory levels is to cater to the increased volume of operations.

        5.   Debtors: Debtors increased from Rs. 263 crores as on 30th June, 2003 to Rs. 416 crores as on 30th June, 2004.
             Debtors as number of days of sale stands reduced to 34 days as on 30th June, 2004 from 35 days as on 30th June,
             2003.




                                                                     10


HCL-07.p65                        10                                                      10/4/2004, 5:54 PM
        FINANCIAL REVIEW OF CONSOLIDATED OPERATIONS FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2004

             Debtors of Parent Company increased from Rs. 219 crores as on 30th June, 2003 to Rs. 295 crores as on 30th June,
             2004. However, Debtors as number of days of sale reduced from 73 days as on 30th June, 2003 to 71 days as on 30th
             June, 2004.

        6.   Cash and Cash Equivalents (including Investments in Mutual Funds): Cash & Cash Equivalents increased from
             Rs. 314 crores as on 30th June, 2003 to Rs. 364 crores as on 30th June, 2004.

        7.   Other Current Assets including Loans and Advances: Other current assets decreased from Rs. 79 crores as on 30th
             June, 2003 to Rs. 70 crores as on 30th June, 2004.

        8.   Current Liabilities & Provisions: Current liabilities and provisions increased from Rs. 556 crores as on 30th June, 2003
             to Rs. 697 crores as on 30th June, 2004.
             Current liabilities and provisions of the Parent Company increased from Rs. 263 crores as on 30th June, 2003 to
             Rs. 398 crores as on 30th June, 2004.

        9.   Segment Capital Employed: Capital Employed in Computer systems & related services is Rs. 205 crores as on 30th
             June, 2004 as against Rs. 174 crores as on 30th June, 2003. The Return on Capital Employed increased from 52%
             in the previous year to 60% in the current year.

             Capital Employed in Office Automation & Telecommunication is Rs. 65 crores as on 30th June, 2004. The Return on
             Capital Employed for the current year is 128%.

        10. Cash Flow: The cash generation from operating activities increased from Rs. 138 crores in the previous year to
            Rs. 161 crores in the current year.
             The cash generation of Parent Company from operating activities increased from Rs. 51 crores in the previous year to
             Rs. 137 crores.

             The consolidated financial results include the results of the company’s 100% subsidiary, HCL Infinet Ltd.




                                                                     11


HCL-07.p65                       11                                                      10/4/2004, 5:54 PM
        CORPORATE INFORMATION

        BOARD OF DIRECTORS       Chairman & Chief Executive Officer
                                 Ajai Chowdhry


                                 Whole-time Directors
                                 T.S. Purushothaman
                                 Ravi Thumboochetty


                                 Directors
                                 R.P. Khosla
                                 S. Bhattacharya
                                 D.S. Puri
                                 E.A. Kshirsagar
                                 Anita Ramachandran


        COMPANY SECRETARY        K.R. Radhakrishnan


        AUDITORS                 Price Waterhouse, New Delhi


        BANKERS                  State Bank of India
                                 Canara Bank
                                 HDFC Bank Ltd.
                                 ICICI Bank Ltd.
                                 Societe Generale
                                 Standard Chartered Bank
                                 State Bank of Patiala
                                 State Bank of Saurashtra


        REGISTERED OFFICE        806, Siddharth,
                                 96, Nehru Place, New Delhi – 110 019.


        CORPORATE OFFICE         E - 4, 5, 6, Sector XI, Noida – 201 301 (U.P.)


        WORKS                    ♦ RS No:34/4, 34/6 and 34/7 and Part of RS No: 34/1,Sedarpet,
                                    Pondicherry – 605 111.
                                 ♦ RS No: 105/4-5, Sedarpet, Pondicherry-605 111.
                                 ♦ RS No: 107/5,6,7, RS No: 108/10A, RS No: 110/3,5,11,12 and
                                    RS No:108/9 & 13, Sedarpet, Pondicherry-605 111.
                                 ♦ 78, South Phase, Ambattur Industrial Estate, Chennai – 600 058.
                                 ♦ Spl – A2, Industrial Estate, Thattanchavadi, Pondicherry – 605 009.




                                               12


HCL-12.p65                  12                                 10/4/2004, 5:54 PM
        FIVE YEAR FINANCIAL OVERVIEW

        Revenue and Profitability
                                                                                                                 Rs/Lacs
        YEAR ENDED JUNE 30                                     2004        2003              2002        2001      2000

        Total Revenue                                        154417      166604           127003        116843   113507
        PBIDT                                                 14523       11491             6784          9005     9515
        Interest                                                656         805              371           193      517
        Depreciation                                           1019        1109             1268          1225     1268
        Effect of Impairment                                      –        3322                –             –        –
        Profit before Tax                                     12848        6255             5145          7587     7841
        Provision for Tax                                       759          82              532           690      535
        Profit after Tax (PAT)                                12090        6173             4613          6897     7306
        Diminution in value of advances                           –           –                –          1060        –
        Profit available for Appropriation                    12090        6173             4613          5836     7306

        Equity Dividend                                      6841**        3191                798       2234       798

        Basic Earning Per Share (Rs.)*                         37.5         19.4              14.5        18.3     22.9
        Operating Margin (%)                                    9%           7%                5%          8%       9%
        Profit before Tax/Revenue (%)                           8%           4%                4%          7%       7%
        Return on Net Worth (%)#                               30%          19%               14%         23%      28%
        Return on Capital Employed (%)#                        26%          14%               10%         17%      19%
        Equity Dividend (%)                                   210**        100%               25%         70%      25%

        * (Based on equity as on Balance Sheet date)
        ** (Includes interim dividends aggregating to 140% and proposed final dividend of 70% amounting to
           Rs. 4534 Lacs and Rs. 2307 Lacs respectively).
        # Calculated on “PAT”

        Assets and Liabilities                                                                                   Rs/Lacs
        AS AT JUNE 30                                          2004        2003              2002        2001      2000

        Sources of Funds
        Equity Funds                                           3289        3191             3191         3191     3191
        Reserves and Surplus                                  36552       29454            29493        26431    23052
        Loans Funds                                            7135       11787            12597        11241    11728
        Deferred Tax Liabilities (Net)                          308         563             1004            –        –

        Total                                                 47284       44995            46285        40863    37971

        Application of Funds
        Net Block                                              4925        4954             5552         5171     5412
        Investments                                           28060       21289            13668         8501     5519
        Current Assets                                        54089       45042            55985        51401    51588
        Current Liabilities                                   39790       26290            28920        24210    24548
        Net Current Assets                                    14299       18752            27065        27191    27040

        Total                                                 47284       44995            46285        40863    37971




                                                               13


HCL-12.p65                       13                                                10/4/2004, 5:54 PM
        DIRECTORS’ REPORT

        To the Members,
        Your Directors have pleasure in presenting their Eighteenth Annual Report together with the Audited Accounts for the
        financial year ended 30th June, 2004.
        Financial Highlights
                                                                                                          (Rs./Crores)
        Particulars                                                               Consolidated                       Parent Company
                                                                          2003-04           2002-03            2003-04       2002-03
        Gross Revenue                                                     4436.20           2722.24            1544.17       1666.04
        Profit before Interest, Depreciation and Tax                       232.62            143.78             145.24        114.91
        Finance Charges                                                      3.10               6.61               6.56          8.05
        Depreciation                                                        18.01              18.55             10.19         11.09
        Miscellaneous Expenditure Written Off                                   -               3.17                  -             -
        Loss on disposal of subsidiaries/Business (Net)                         -               3.34                  -             -
        Impact of Impairment                                                    -              33.85                  -        33.22
        Profit before Tax                                                  211.51              78.26            128.49         62.55
        Provision for Taxation: Current                                     20.99               6.22             10.14           5.24
                                Deferred                                    15.41            (20.61)             (2.55)        (4.42)
        Net Profit after Tax                                               175.11              92.65            120.90         61.73
        Profit available for appropriation                                 175.11              92.65            120.90         61.73
        Appropriations
        Interim Dividends (includes tax on dividend)                         51.15                 -              51.15             -
        Proposed Dividend (includes tax on dividend)                         26.08             36.00              26.08         36.00
        Transfer to General Reserve                                          12.09              6.17              12.09          6.17
        Balance of Profit carried forward to next year                       85.79             50.48              31.57         19.56
        Performance
        The consolidated revenue of the Company was Rs. 4436 crores as against Rs. 2722 crores in the previous year. The
        consolidated profit before tax was Rs. 212 crores as against Rs. 78 crores in the previous year.
        The gross revenue and profit before tax of the Parent Company for the year under review were Rs. 1544 crores and Rs. 128
        crores respectively.
        The gross revenue and profit before tax for the previous year were Rs. 1666 crores and Rs. 63 crores respectively. As
        Software and Office Automation & Telecommunication businesses of the Company were demerged/transferred with effect
        from 1st January, 2003, the figures for the year are not comparable with those of the relevant previous period.
        Your Directors are pleased to recommend final Dividend of 70% on the fully paid-up equity shares for the financial year
        ended on 30th June, 2004. During the first nine months, three quarterly interim dividends of 30%, 50% and 60% were
        declared, taking the total dividend for the year 2003-04 to 210%.
        Infoprocessing Business
        In the year under review your Company consolidated its position as a dominant player in products & services for Info-
        processing, Communications & Imaging.
        Dataquest Magazine and International Data Corporation (IDC) ranked your Company numero uno in Desktop PC sales. It
        became the first company in India to ship more than a Lakh PCs in a single quarter. In the server business it was recognized
        as number one Indian Brand for Intel based servers, for HCL Global Line Servers.
        The efforts in increasing the channel reach in B, C & D class cities have started showing results. The newly launched
        EzeeBee brand found favour with the value conscious customers.
        The Company launched a slew of new products to meet the needs of customers. They include Beanstalk with media center,
        Infiniti Indic PC, Infiniti Corporate PC, Infiniti Orbital PC and Beanstalk NEO. The company also launched next generation
        Xeon processor based Infiniti Global Line server 2700 series.
        The Systems Integration business performance was encouraging with major orders from Bharat Sanchar Nigam, Haryana
        Police Wide Area Network project to name a few.
        The Company’s Infostructure Services (ISS) wing has bagged good business from Banks, Utility Services providers, PSUs,
        FMCG for IT security services and consultancy for Network design, roll out and management, Wide Area Network, Facility
        Management Services and Data Center Solutions.
        For Infiniti Storage products, the company bagged orders from Tata Teleservices, Federal Bank (for real time gross settlement),
        Central Depositary services to name a few.




                                                                     14


HCL-12.p65                        14                                                      10/4/2004, 5:54 PM
        DIRECTORS’ REPORT

        Imaging and Communications Business (HCL Infinet)
        The Company launched several new products and services in the year 2003-04 in quest for leadership in the above
        business segments.
        In Imaging products & services, the Company bagged major orders from Army Headquarters, Delhi Police, Accenture,
        Indian Bank, Ministry of Health, Reliance Petrochem and Tamil Nadu Police, among others.
        In Telecom services business, the Company in partnership with Ericsson launched Ericsson Assymetric Digital Subscriber
        Line and bagged first order from Bharti Broadband.
        The Company expanded its distribution network & reach manifolds for its Nokia GSM phone distribution business - to make
        most of the opportunity emerging out of country-wide Telecom revolution.Apart from multi-tier, multi location distribution
        channel, the Company has set up showrooms across the country to provide sales & support.The Company launched HCL
        Safeguard in December 2003, which was very well received by the customers.
        In the corporate networking business, the Company launched Wireless Broadband for interference free frequency band. It
        also continued to add prestigious corporates to its existing list. The orders came in from Apollo tyres, LG, HDFC, Lord
        Krishna Bank, Deccan Aviation, PHI Seeds (a division of DuPont), to name a few.
        The Company maintained its strong focus on customer satisfaction and continued working towards giving even better user
        experience. In the nation wide Customer Satisfaction Audit conducted by Dataquest magazine, it was ranked as No.1 for
        Desktop segment and No.2 for Server segment.
        Quality Initiatives
        During the year under review significant milestones were achieved on the quality initiatives front.
        Conformance to ISO 9001-2000 and ISO 14001 standards for the manufacturing facility at Pondicherry was reiterated.
        Electronics Components Industries Association conferred on us the ELCINA award in recognition of our quality initiatives
        in manufacturing.
        Annual Customer Satisfaction Survey for all the Company’s business divisions was conducted. Apart from getting the
        highest response rate in the surveys we also got the highest ever ratings in customer satisfaction levels. The high level
        customer loyalty ratings of the survey promises better repeat business potential.
        A near 100% machine uptime at the customer locations reflects the quality initiates on the service front. This has also
        positively impacted the satisfaction levels of customers on delivery, installation and product quality parameters.
        Employee Stock Option Plan
        Pursuant to the approval of the shareholders at the Extra-Ordinary General Meeting held on 25th February, 2000 for grant
        of options to the employees of the Company and its subsidiaries, not exceeding 31,90,200 options (each option conferring
        on the employee a right to get one equity share of Rs.10/- each at an exercise price), the Board has approved an offer upto
        16,06,100 options at an exercise price of Rs. 538.15.
        During the year ended June 30, 2004, 9,80,414 equity shares of Rs.10/- each fully paid up were issued and allotted
        pursuant to the exercise of stock options.
        Credit Ratings
        The credit rating by ICRA continued at ‘A1+’ rating indicating highest safety to the Company’s Commercial Paper program
        of Rs. 75 crores.
        Fixed Deposits
        As on June 30, 2004, 84 persons, whose deposits amounting to Rs.10,76,000/- had become due for repayment, did not
        claim their deposits. During the year net fixed deposits repaid amounted to Rs. 1,42,000/-.
        There has been no delay in making the payment of Fixed Deposits on maturity and in fulfilment of the terms and conditions
        of the Company’s scheme.
        De-listing of Equity Shares
        As approved by the shareholders at the Annual General Meeting held on October 19, 2001, the Company had made
        applications to the stock exchanges at Chennai, Kolkata and Kanpur for de-listing the equity shares of the Company from
        these stock exchanges. The equity shares of the Company were de-listed from the Uttar Pradesh Stock Exchange Association
        Limited. The applications are in process with the stock exchanges at Chennai and Kolkata.
        As the Company’s shares are mostly traded at the National Stock Exchange and The Stock Exchange, Mumbai, it is
        proposed to de-list the shares of the Company from The Delhi Stock Exchange Association Limited (DSE) also. The
        proposed delisting of the shares of the Company from DSE, as and when the same takes place, will not adversely affect the
        investors. The shares of the Company will continue to be listed at BSE and NSE.


                                                                   15


HCL-12.p65                       15                                                    10/4/2004, 5:54 PM
        DIRECTORS’ REPORT

        Directors
        In accordance with the Articles of Association of the Company, Mr. Ajai Chowdhry, Mr. S. Bhattacharya and Mr. T.S.
        Purushothaman, Directors will retire by rotation at the forthcoming Annual General Meeting and being eligible, offer
        themselves for re-appointment.
        Directors’ Responsibility Statement
        Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm:
        a. that in the preparation of the annual accounts, the applicable accounting standards had been followed along with
           proper explanation relating to material departures, if any;
        b. that appropriate accounting policies have been selected and applied consistently, and that the judgements and estimates
           made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at June 30,
           2004 and of the profit of the Company for the said period;
        c. that proper and sufficient care has been taken 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;
        d. that the annual accounts have been prepared on a going concern basis.
        Personnel
        Industrial Relations during the period under review continued to be peaceful and harmonious. No man-day was lost due to
        any Industrial dispute.
        Your Company successfully participated in DMA Watson Wyatt Award for Excellence in Innovative HR Practices in 2003 &
        we were amongst the Top 25 companies.
        Information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956 read with the Companies
        (Particulars of Employees) Rules, 1975, is given in the Annexure forming part of this report.
        Additional information relating to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and
        Outgo.
        The additional information required in accordance with sub-section (1)(e) of Section 217 of the Companies Act, 1956,
        read with the Company (Disclosure of Particulars in the Report of the Board of Directors) Rules,1988, is appended to and
        forms part of this report.
        Particulars of subsidiary company
        The Company has obtained permission from the Ministry of Company Affairs, Government of India, vide their letter No: 47/
        140/2004-CL-III dated August 25, 2004 for not annexing the accounts of HCL Infinet Limited, the wholly owned subsidiary
        of the Company.
        The accounts of the HCL Infinet Limited are available at the Registered Office of the Company on any working day to the
        shareholders of the Company, on request.
        Acknowledgement
        Your Directors wish to place on record their appreciation for the continued co-operation the Company received from various
        departments of the Central and State Government, Bankers, Financial Institutions, Dealers and Suppliers and also
        acknowledge the contribution made by the employees.
        The Board also wishes to place on record its gratitude to the valued Customers, Members and Investing public for their
        continued support and confidence reposed in the Company.


                                                                                            On behalf of the Board of Directors

                                                                                            AJAI CHOWDHRY
        August 25, 2004                                                                     Chairman and Chief Executive Officer.




                                                                   16


HCL-12.p65                       16                                                    10/4/2004, 5:54 PM
        INFORMATION RELATING TO CONSERVATION OF ENERGY, R&D, TECHNOLOGY ABSORPTION AND INNOVATION, AND
        FOREIGN EXCHANGE EARNINGS/OUTGO, FORMING PART OF THE DIRECTORS’ REPORT IN TERMS OF SECTION 217
        (1) (e) OF THE COMPANIES ACT, 1956.
        A. Conservation of energy
             The entire product range including Personal Computers, Servers & Peripherals are designed keeping in view the Company’s
             philosophy of energy conservation. Several environment friendly measures have been adopted by the Company such as
             1. Use of recycled materials in packaging.
             2. Rain water harvesting.
             3. Use of solar pasteurizing system for water purification instead of electrical heating.
             4. Conservation of electrical energy by using the natural day light with glare control measures in the factory thus
                avoiding usage of tube lights and bulbs in the day time in the operations area.
             5. Use of displacement ventilation, eliminating Air-conditioning in the operations area.
             6. Automatic power shutdown of machines in the Reliability testing area once the testing is completed thus eliminating
                excess electricity consumption for the testing of computers.
        B. Research & Development
             1. Specific areas in which R&D is carried out by the company:
                The Company introduced a host of new products under Infiniti Pro, Infiniti Orbital, Infiniti Challenger, Infiniti
                Global Line, Infiniti Xcel Line, Infiniti Atum, Beanstalk, Busybee, Ezeebee, BeePOS and NetManager product
                ranges. Products based on technologies like 64bit AMD processor, 90 nm technology based Intel processor, embedded
                security sub-system, Windows XP Media Center Edition etc. were launched. High-density server system based on
                Blade technology, Hindi PCs using Unicode structure, Beanstalk Neo with convergence at home, etc. were also
                launched. The products are designed to meet the requirements of a wide range of business segments, user profiles
                and environmental conditions.
                The Peripherals Division of the Company has introduced varieties of Thin Client Model solutions which include
                signature display solutions for banking sectors, Infosys certified models for Finacle software. The hardware is also
                geared up to have more processing power with additional features of USB storage and Printer device support.
                During the year the following solution based Information kiosks were introduced:-
                •   Integration of Siebel with Kiosk banking application and content management tool with smart card access
                    facility;
                •   Developed ObservBee - a remote kiosk management solution; Beecoin - an activeX control for Coin validation;
                    Surfbee- a Thinclient browsing Kiosk;
                •   Successfully developed Railway Kiosk - PEAK; Bill payment for BWSSB, Electricity board and Telephones.
                A Power distribution box used in a high-end equipment for an overseas requirement in U.S.A. was designed and
                developed.
                An Industrial color monitor with UL/MPRII/FCC approvals was also developed.
                A new 4 port model of Peripherals’s flagship technology product Lansterm was introduced during the year. Also for
                Indian Railways, the Peripherals division has developed and sold Unreserved Ticketing Terminal with local language
                support, Multiplexers and Passenger operated Enquiry Terminal with local language support.
                In the Color monitor segment, the division has released the following new models during the year – HCM 770FH, a
                17” sleek real flat color monitor; HCM500LSA a 15” LCD color monitor with audio support.
                The Pondicherry Peripherals Facility has achieved a record production of 3 lacs color monitors during the year with
                the monthly record of 47300 monitors in Mar04.
                Peripherals division’s CNC operations have been moved to a new facility in Ambattur, Chennai during the year with
                an additional investment on Laser machine from Japan to cater for the ongoing export projects.
                Introduced Nutshelter 19” UPS Rack for American Power Conversion Inc, U.S.A and the first pilot batch of 100
                sets is planned for exports shortly.
             2. Benefits derived as a result of the above R&D:
                The company has a wide range of products to cater to Home, SOHO, SME, Corporate and Government sectors.
                Products are well accepted in their business segments in terms of performance, cost and reliability. The company
                maintains its technology leadership by introducing new technology products on par with their global launch. The
                servers have consolidated its position in the market due to Company’s focus on high-end solution.


                                                                     17


HCL-12.p65                        17                                                     10/4/2004, 5:54 PM
             3. Expenditure on R & D :                                                                                        (Rs./Lacs)
                                                               Capital                                                            85.66
                                                               Revenue                                                            40.63
                                                               Total                                                             126.29
        C. Technology absorption, adaptation and innovation
             Innovation is the tool, which is used to bring state of the art, latest technology, cost effective, reliable and feature rich
             products for all the segments. The company was the first to launch AMD64 based workstation and desktop, Intel
             E7210 chipset based Server in India. The company has also launched desktop that interfaces with users in Hindi to
             provide access to wider user base. Continuous efforts to adapt to the latest manufacturing process, diagnostics and
             technology like Disk Imaging are being under taken to ensure error free and reliable product.
        D. Foreign exchange earnings/outgo
             During the period under review, the Company’s earnings in foreign currency were Rs. 4227.36 Lacs (Previous Year
             Rs. 6510.31 Lacs). The expenditure in foreign currency including imports during the year amounted to Rs. 67858.69
             Lacs (Previous year Rs. 48848.86 Lacs).




                                                                       18


HCL-12.p65                         18                                                       10/4/2004, 5:54 PM
             The details of the options granted under the HCL Infosystems Ltd., Employee Stock Option Scheme as on 30th June,
             2004 are given below:-
             Options granted                                    30,18,000 options

             Pricing formula                                    The members of the Company at the Extra Ordinary General
                                                                Meeting held on February 25, 2000 approved the exercise price
                                                                as the price which will be not less than 85% of the fair market
                                                                value of the shares on the date on which the Board of Directors
                                                                of the Company approved the Grant of such options to the
                                                                employees or such price as the Board of Directors may determine
                                                                in accordance with the regulations and guidelines prescribed by
                                                                SEBI. The exercise price for options granted on August 10, 2000
                                                                was Rs. 289/- per option and the exercise price for lapsed options
                                                                granted on January 28, 2004 was Rs. 538.15 per option. The
                                                                above prices were the closing prices at National Stock Exchange
                                                                of India Ltd., where the shares are quoted and which recorded
                                                                the highest trading volume on the grant date.

             Options vested                                     Out of the 30,18,000 options granted in August, 2000,
                                                                13,81,920 options have been vested.

                                                                The vesting schedule for the options granted in January, 2004
                                                                are vested as follows:-
                                                                30%     -    12months after the grant date
                                                                30%     -    24 months after the grant date
                                                                40%     -    42 months after the grant date

             Options exercised                                  Out of the options granted in August, 2000, 9,80,414 options
                                                                were exercised and no options were exercised out of the options
                                                                granted in January, 2004.

             Total number of shares arising as                  9,80,414 equity shares
             a result of exercise of option

             Options lapsed                                     29,980 options lapsed out of the options granted in August,
                                                                2000 and 72,960 options lapsed out of the options granted in
                                                                January, 2004.

             Variance of terms of options                       NIL

             Money realised by exercise of options              Rs. 28,33,39,646/-

             Total number of options in force                   4,01,506 options were in force out of the options granted in
                                                                August,2000 and 14,38,524 options were in force out of the
                                                                options granted in January, 2004.




                                                                 19


HCL-12.p65                        19                                                 10/4/2004, 5:54 PM
             Employee-wise details of options granted to

             (i) Senior Management

                Name                                             No.of options
                Mr. T.S. Purushothaman                           40,000
                Mr. Ravi Thumboochetty                           30,000
                Mr. J.V. Ramamurthy                              27,500
                Mr. Sandeep Kanwar                               25,000
                Mr. Rajendra Kumar                               25,000
                Mr. M.L. Taneja                                  18,000

             (ii) Employees holding 5% or more                   NIL
                  of the total number of options
                  granted during the year

             (iii) Identified employees who were                 NIL
                   granted options, during any one
                   year equal to or exceeding 1% of
                   the issued capital (excluding
                   outstanding warrants and conver-
                   sions) of the Company at the
                   time of grant.

             Diluted EPS pursuant to issue of shares
             On exercise of options                              Rs.35.07




                                                      AUDITORS’ CERTIFICATE

        We have examined the books and records of the HCL Infosystems Limited Stock Option Scheme (“The Scheme”) as
        produced before us and based on such books and records and according to the information and explanations given to us,
        we hereby certify that HCL Infosystems Limited (“The Company”) has implemented The Scheme in accordance with the
        SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999 and in conformity with
        the resolution passed by the shareholders in the Extra-Ordinary General Meeting of The Company held on February 25,2000.


                                                                                                H. SINGH
                                                                                                Partner
                                                                                                Membership Number F-86994
                                                                                                For and on behalf of
        Place: New Delhi                                                                        Price Waterhouse
        Date: August 25, 2004                                                                   Chartered Accountants




                                                                  20


HCL-12.p65                        20                                                 10/4/2004, 5:54 PM
HCL-12.p65
                          Particulars of Employees forming part of Directors’ Report in terms of Section 217 (2A) of the Companies Act, 1956

                          S.No     Name                           Age Designation                          Qualification      Remuneration         Experience   Date of         Previous Employment -Designation
                                                                                                                                                     in Years   Commencemant
                                                                                                                                         Rs.                    of employment

                          (A)      Employed for the full financial year


                          1        Chowdhry, Ajai                 54      Chairman & CEO                   B.E                  12,709,427               32     01.03.1989      Far East Computers Pte Ltd.




21
                          2        Purushothaman, T S             65      Chief Operating Officer          B.Sc (Engg.)          7,724,678               40     01.05.1986      HCL Ltd - CE Manager
                                                                          (India Operations)
                          3        Thumboochetty, J Ravi          56      Chief Operating Officer          B.Tech, MBA           4,581,118               31     01.05.1986      HCL Ltd - Regional Manager
                                                                          (International Operations)
                          4        Kanwar, Sandeep                43      CFO & Executive Vice President   FCA                   3,311,578               21     01.03.1988      Oriental Carbon & Chemicals Ltd -
                                                                                                                                                                                Accounts Officer
                          5        Ramamurthy, J V                51      President                        M.E                   3,351,052               25     01.07.1998      HCL Office Automation Ltd -
                                                                                                                                                                                President & CEO
                          6        Pattabiraman, S                49      Executive Vice President         B.Sc, ACA             3,090,792               25     01.07.1998      HCL Peripherals Ltd, - Senior Manager


                          (B)      Employed for part of the financial year




                     21
                          1        Bhatnagar, Priti               38      General Manager                  B.Com.,ACA              439,554               16     30.04.1994      Bennett Coleman & Co Ltd -
                                                                                                                                                                                Manager Accounts
                          2        Wadhawan, Rahul                38      Sr. Account Manager              B.Sc.,Dip.in            248,164               15     07.06.1993      DCM Data Products - Sales Executive
                                                                                                           System Management




                          Notes :
                          (i)   The remuneration shown above comprises salary, allowances, incentives, taxable value of perquisites, gratuity, medical




10/4/2004, 5:54 PM
                                insurance benefit and company’s contribution to provident fund and superannuation funds.
                          (ii)    The nature of employment is contractual in all cases.
                          (iii)   None of the above employees is related to any director of the Company.
        REPORT ON CORPORATE GOVERNANCE

        1. A BRIEF STATEMENT ON COMPANY’S PHILOSOPHY ON CODE OF GOVERNANCE :
               HCL Infosystems strives to integrate the myriad perspectives of corporate governance, social responsibility, accountability,
               openness and organizational and professional ethics to evolve into a responsible business enterprise. Sound corporate
               governance principles and practices applied consistently to all aspects of our businesses ensure that our standards of
               excellence, integrity and accountability are leveraged to sustain stakeholders’ trust and belief in the Company.
        2. BOARD OF DIRECTORS :
               The Board of Directors has an optimal combination of executive, non-executive and independent directors. The Board
               comprises of eight directors headed by an executive Chairman. The composition and category of Directors is as per the
               table given below. During the financial year the Board of Directors of the Company met four times on the following
               dates: 23rd September 2003, 29th October 2003, 28th January 2004 and 21st April, 2004.
             Name                  Designation           Category                      Directorship in   Committee              No. of Board      Whether
                                                                                        other public     Membership              Meetings         Attended
                                                                                        Companies                                                 last AGM
                                                                                                                              Held     Attended

             Ajai Chowdhry         Chairman & Chief      Promoter and Executive              7                 4               4           4        Yes
                                   Executive Officer     Director

             T. S. Purushothaman   Whole-time Director   Executive Director                  1                 Nil             4           4        Yes

             Ravi Thumboochetty    Whole-time Director   Executive Director                  4                 Nil             4           4        Yes

             R.P. Khosla           Director              Independent, non-executive          2                 Nil             4           4        Yes

             S. Bhattacharya       Director              Independent, non-executive         10                 8               4           4        Yes

             D. S. Puri            Director              Promoter and non -executive        Nil                Nil             4           3        No
                                                         Director

             E.A. Kshirsagar       Director              Independent, non-executive          1                 1               4           4        Yes

             Anita Ramachandran    Director              Independent, non-executive          2                 3               4           4        Yes

               Some of the important items discussed at the Board meetings are listed below :
               1. Annual Business Plan.
               2. Investments.
               3. Review of operations of subsidiary.
               4. Quarterly/half yearly/annual financial results.
               5. Employee Stock Option Scheme and matters related thereto.
               6. Review of implementation of various approvals obtained from the Board.
               7. Payment of interim dividend.
        3. ACCOUNTS & AUDIT COMMITTEE :
               The Accounts & Audit Committee of Directors was formed in August 1998, to review various areas of Accounting &
               Audit. Mr. E.A. Kshirsagar, Mr. S. Bhattacharya and Mr. R.P. Khosla are the members of this Committee. Mr.Ajai
               Chowdhry is an ex-officio member and Mr. T.S.Purushothaman is an invitee. Mr. E.A. Kshirsagar is the Chairman.
               The Committee met 4 times during the financial year 2003-2004 on the following dates: 22/9/2003; 29/10/2003;
               27/1/2004 and 20/4/2004. Except Mr. R.P. Khosla, all the members attended all the four meetings and Mr. R.P.
               Khosla attended three meetings.
        4. EMPLOYEE COMPENSATION AND EMPLOYEE SATISFACTION COMMITTEE :
               The “Employees Compensation & Employees Satisfaction” Committee was constituted in August 1998.
               Ms. Anita Ramachandran, Mr. Ajai Chowdhry, Mr. S. Bhattacharya and Mr. R.P. Khosla are the members of this
               Committee. Ms. Anita Ramachandran is the Chairperson.
               The Committee met 3 times during the financial year 2003-2004 on the following dates: 22/9/2003, 28/01/2004, &
               20/4/2004 and all the members attended all three meetings.




                                                                                  22


HCL-12.p65                              22                                                               10/4/2004, 5:54 PM
        REPORT ON CORPORATE GOVERNANCE

             a) Details of remuneration to all the directors for the period 1/7/2003 to 30/6/2004:
                                                                                (Rs./Lacs)
             Name of Director                Salary &       Perquisites      Performance        Commission          Sitting      Stock
                                            Allowances                       linked bonus                            Fees        Option
                                                                                                                                  Nos

             Mr. Ajai Chowdhry                56.40            21.23            50.00                  -                 -
             Mr. T.S. Purushothaman           31.57            10.82            35.00                  -                 -      40000*
             Mr. Ravi Thumboochetty           24.84            16.06             5.00                  -                 -      30000*
             Mr. R.P. Khosla                    -                -                -                  3.60              0.80
             Mr. S.Bhattacharya                 -                -                -                  4.65              0.80
             Mr. D.S. Puri                      -                -                -                    -                 -
             Mr. E.A. Kshirsagar                -                -                -                  3.15              0.80
             Ms. Anita Ramachandran             -                -                -                  4.42              0.80
             The above remuneration excludes reimbursement of expenses on actuals to Directors for attending meetings of the
             Board/Board Committees.
             • All the options granted are now vested.
        5. SHAREHOLDERS’/INVESTORS’ GRIEVANCE COMMITTEE :
             Mr. R.P. Khosla, Mr. E.A. Kshirsagar and Mr. S. Bhattacharya are the members of the Shareholders’/Investors’ Grievance
             Committee. Mr. Ajai Chowdhry is an ex-officio member. Mr. R.P. Khosla is the Chairman.
             The Committee met 4 times during the financial year 2003-2004 on the following dates: 22/9/2003, 29/10/2003,
             27/1/2004 and 20/4/2004. Except Mr. R.P.Kholsa all the members attended all the four meetings and Mr. R.P. Khosla
             attended three meetings.
             Mr. K.R. Radhakrishnan, Company Secretary is the Compliance Officer of the Company.
             During the period from 01-07-2003 to 30-6-2004, the Company has received 19 complaints from SEBI/Stock Exchanges/
             DCA which were replied to the satisfaction of shareholders.
        6. KEY RESULT AREA COMMITTEE :
             The Key Result Area (KRA) Committee was constituted in August 1998 to formulate and review the various key result
             areas of the Company.
             Mr. R.P. Khosla, Mr. Ajai Chowdhry and Mr. E.A. Kshirsagar are the members of this Committee. Mr. R.P. Khosla is the
             Chairman.
             The Committee met 3 times during the financial year 2003-2004 on the following dates: 22/9/2003, 28/1/2004 and
             20/4/2004 and all the members attended the three meetings.
        7. CUSTOMERS’ SATISFACTION COMMITTEE :
             The Customers’ Satisfaction Committee was constituted in August 1998 to review and formulate strategies for continuous
             improvement of customer satisfaction.
             Mr. D.S. Puri, Mr. Ajai Chowdhry and Mr. R.P. Khosla are the members of this Committee. Mr. Ajai Chowdhry is the
             Chairman.
             During the financial year 2003-2004 the Committee met on 22/9/2003 and 27/1/2004 and all the members of the
             Committee were present.
        8. GENERAL BODY MEETINGS :
             Location and time of last 3 Annual General Meetings :
             Year           Location                                                     Date                 Day             Time

             2002-2003      FICCI Auditorium, 1, Tansen Marg, New Delhi-110 001          25-11-2003           Tuesday         10.00 A.M.

             2001-2002      FICCI Auditorium, 1, Tansen Marg, New Delhi-110 001          18-12-2002           Wednesday 10.00 A.M.

             2000-2001      FICCI Auditorium, 1, Tansen Marg, New Delhi-110 001          19-10-2001           Friday          10.00 A.M.
             No special resolutions were put through postal ballot last year. At present, there are no resolutions which are required
             to be passed by postal ballot.


                                                                     23


HCL-12.p65                        23                                                     10/4/2004, 5:54 PM
        REPORT ON CORPORATE GOVERNANCE

        9. DISCLOSURES
             RELATED PARTY TRANSACTIONS :
             Related Party transactions are defined as transactions of the Company of material nature, with Promoters, the Directors
             or the Management, their subsidiaries or relatives etc. that may have potential conflict with the interest of the Company
             at large.
             There are no material transactions during the year 2003-2004 that are prejudicial to the interest of the Company.
             NON COMPLIANCE BY THE COMPANY, PENALTIES, STRICTURES :
             The Company has complied with the requirements of the Stock Exchange/SEBI/any Statutory Authority on all matters
             related to capital markets during the last three years. There are no penalties or strictures imposed on the Company by
             Stock Exchange or SEBI or any statutory authorities relating to the above.
        10. MEANS OF COMMUNICATION
             a) At present quarterly results are sent to each household of shareholders.
             b) The quarterly/half yearly and annual results are published in English and Hindi Newspapers and are displayed on
                the website of the Company – ‘www.hclinfosystems.com’ alongwith official news releases and presentations.
             c) The Management Discussion and Analysis forms a part of the Annual Report.
        11. GENERAL SHAREHOLDERS’ INFORMATION
             a) Annual General Meeting
                Date :      Thursday, 21st October, 2004
                Time :      10.00 A.M.
                Venue :     FICCI Auditorium, 1, Tansen Marg, New Delhi-110 001.
             b) Financial Calendar (Tentative Calendar for the financial year 2004 - 2005)
                Adoption of Results for the quarter ending 30th September, 2004            : 20th October, 2004
                Adoption of Results for the quarter ending 31st December, 2004             : 19th January, 2005
                Adoption of Results for the quarter ending 31st March, 2005                : 20th April, 2005
                Adoption of Results for the quarter ending 30th June, 2005                 : 24th August, 2005
             c) Book Closure                                                               : From Monday, 25th October,2004
                                                                                             to Tuesday 26th October,2004
             d) Dividend payment date                                                      : Before 20th November,2004
             e) Listing on Stock Exchanges
                The shares of the Company are listed on the National Stock Exchange and the stock exchanges at Delhi, Mumbai,
                Chennai and Kolkata.
                Listing fees for the period April 2004 to March 2005 have been paid to the stock exchanges at Delhi, Mumbai and
                the National Stock Exchange. The Company has applied for delisting from the stock exchanges at Chennai and
                Kolkata. It is proposed to delist the shares of the company from the Delhi Stock Exchange Association Ltd.
             f) Stock Code
                Trading Symbol on ‘National Stock Exchange of India Ltd.’                  : HCL-INSYS
                Trading Symbol on ‘The Stock Exchange, Mumbai’                             : Physical Form – 179
                                                                                             Electronic Form-500179
                Trading Symbol on ‘The Delhi Stock Exchange Association Limited’           : 8014




                                                                      24


HCL-12.p65                        24                                                      10/4/2004, 5:54 PM
        REPORT ON CORPORATE GOVERNANCE

             g) Market price data (Rs.)
                                                                                                            Historical Stock Chart
                MONTH                      HIGH      LOW
                July 2003                 162.80   130.55
                August 2003               175.00   138.40
                September 2003            315.00   158.00




                                                                                                                                                            S&P CNX NIFTY INDEX in points
                October 2003              385.00   297.65




                                                                HCL Insys Share Price in Rs.
                November 2003             374.60   338.10
                December 2003             417.80   351.00
                January 2004              557.00   373.20
                February 2004             549.00   488.70
                March 2004                802.00   501.20
                April 2004                788.00   669.90
                May 2004                  740.00   480.10
                June 2004                 605.00   520.00
                                                                                                    S&P CNX NIFTY       HCL Insys Share Price
             (*Source : National Stock Exchange)
             h) Registrar and transfer agents
                As per the provisions of Listing Agreements entered with the Stock Exchanges, the Company has appointed
                M/s. MCS Limited, as the Common Registrar and Share Transfer Agents for the shares of the Company held in both
                physical and electronic modes. All correspondence with regard to share transfers and matters related therewith may
                directly be addressed to the Share Registrar and Transfer Agents at the address given below:-
                MCS Limited
                Sri Venkatesh Bhawan
                W-40, Okhla Industrial Area, Phase II
                New Delhi-110 020
                Phone Nos: 011 –2638 4917-20; Fax No: 011 – 26384908                                Email : mcsdel@vsnl.com
             i) Share Transfer System
                The shares received in physical mode by the Company’s Registrars and Share Transfer Agents are transferred within
                a period of 15 days from the date of receipt.
             j) Distribution of Shareholding as on 30th June, 2004
             Category                                                                                         No. of Shares                     % holding

             A. Promoters’ holding
                1. Promoters
                   - Indian Promoters                                                                          20,745,574                        63.08%
                   - Foreign Promoters                                                                                 Nil                           Nil
                2. Persons acting in concert                                                                           Nil                           Nil
                                                                      Sub Total                                20,745,574                        63.08%
             B. Non-Promoters’ holding
                3. Institutional Investors
                   a. Mutual Funds and UTI                                                                          1,365,985                     4.15%
                   b. Banks, Financial Institutions, Insurance Companies (Central/
                       State Government Institutions/Non-government institutions)                                   1,466,621                     4.46%
                   c. FIIs                                                                                          5,115,881                    15.55%
                                                                      Sub Total                                     7,948,487                    24.16%
                4. Others
                   a. Private Corporate Bodies                                                                    422,960                         1.29%
                   b. Indian Public                                                                             3,669,244                        11.16%
                   c. NRI/OCBs                                                                                    103,608                         0.32%
                   d. Any other (Please specify)                                                                       Nil                           Nil
                                                                      Sub Total                                 4,195,812                        12.76%
                                                                      Grand Total                              32,889,873                       100.00%




                                                                                               25


HCL-12.p65                       25                                                                      10/4/2004, 5:54 PM
        REPORT ON CORPORATE GOVERNANCE

        k) Dematerialisation of shares and liquidity
           Dematerialisation of shares :
           The shares of the Company are compulsorily traded in dematerialised form by all categories of investors w.e.f. 31st May,
           1999. As on 30th June, 2004, 84.42% shares of the Company are held in dematerialised form.
           Liquidity of shares :
           The shares of the Company are traded in the “A”/Forward Group in BSE.
        l) There are no outstanding GDRs/ADRs/Warrants or any Convertible instruments.
        m) Plant locations
           • R.S. No: 34/4, 34/6 and 34/7, and part of 34/1, Sedarpet, Pondicherry-605 111.
           • R.S. No: 105/4-5, Sedarpet, Pondicherry-605 111.
           • R.S. No: 107/5,6,7, R.S.No. 108/10A, R.S.No: 110/3,5,11,12 and R.S.108/9 & 13, Sedarpet, Pondicherry-605 111.
           • 78, South Phase, Ambattur Industrial Estate, Chennai – 600 058.
           • Spl. A2, Industrial Estate, Thattanchavadi, Pondicherry-605 005.
        n) Address for Correspondence
           The shareholders may address their communication/suggestions/grievances/queries to the Registrar and Share Transfer
           Agents at their addresses mentioned above or to
           The Company Secretary
           HCL Infosystems Ltd.
           E – 4, 5, 6, Sector – XI,
           NOIDA (U.P.) – 201 301.
           Tel. No. : 0120-2526518, 2526519, 2526993
           Fax: 0120-2525196, Email : cosec@hclinsys.com




                  AUDITORS’ CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF
               CORPORATE GOVERNANCE UNDER CLAUSE 49 OF THE LISTING AGREEMENT


        To the Members of HCL Infosystems Limited
        1. We have reviewed the implementation of Corporate Governance procedures by HCL Infosystems Limited (the company)
           during the year ended June 30,2004, with the relevant records and documents maintained by the company, furnished
           to us for our review and the report on Corporate Governance as approved by the Board of Directors.
        2. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination 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.
             We further state that such compliance is neither an assurance as to the future viability of the Company nor the
             efficiency or effectiveness with which management has conducted the affairs of the company.
        3. On the basis of our review and according to the information and explanations given to us, the conditions of Corporate
           Governance as stipulated in Clause 49 of the listing agreement with the Stock Exchanges have been complied with in
           all material respect by the Company.
        4. As required by the Guidance Note issued by the Institute of Chartered Accountants of India, we state that no investor
           grievances were pending exceeding a period of one month as per the records maintained by the Shareholders/Investors
           Grievance Committee.
                                                                                                  H. SINGH
                                                                                                  Partner
                                                                                                  Membership Number F-86994
                                                                                                  For and on behalf of
        Place: New Delhi                                                                          Price Waterhouse
        Date: August 25, 2004                                                                     Chartered Accountants


                                                                   26


HCL-12.p65                       26                                                    10/4/2004, 5:54 PM
        AUDITORS’ REPORT

        To
        The Members of HCL Infosystems Limited
        1. We have audited the attached Balance Sheet of HCL Infosystems Ltd., as at 30th June 2004, 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 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) The fixed assets are physically verified by the management in a cycle of one to 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.
                     (c)   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 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.
                     (c)   On the basis of our examination of the inventory records, in our opinion, the Company is maintaining
                           proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to
                           book records were not material.
             (iii)   The Company has neither granted nor taken any loans, secured or unsecured, to/from companies, firms or other
                     parties covered in the register maintained under Section 301 of the Act.
             (iv)    In our opinion, there are adequate internal control procedures 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. 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 procedures.
             (v)     In our opinion and according to the information and explanations given to us, there are no transactions that
                     need to be entered into the register in pursuance of Section 301 of the Act. Accordingly clause (v) (b) of the
                     Companies (Auditor’s Report) Order, 2003 is not applicable to the Company for the current year.
             (vi)    In our opinion and according to the information and explanations given to us, the Company has complied with
                     the directives issued by Reserve Bank of India and the provisions of Sections 58A and 58AA of the Act and the
                     Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. According
                     to the information and explanations given to us, no Order under the aforesaid Sections has been passed by the
                     Company Law Board on the Company.
             (vii)   In our opinion, the Company has an internal audit system commensurate with its size and nature of its business.
             (viii) We have broadly reviewed the books of account maintained by the Company in respect of products where,
                    pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been


                                                                      27


HCL-12.p65                          27                                                    10/4/2004, 5:54 PM
        AUDITORS’ REPORT

                     prescribed under clause (d) of sub-section (1) of Section 209 of the Act and are of the opinion that prima facie,
                     the prescribed accounts and records have been made and maintained. However, we are not required and have
                     not carried out any detailed examination of such accounts and records.
             (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 generally regular in depositing the undisputed statutory dues including
                           provident fund, investor education and protection fund, employees’ state insurance, income-tax, sales-tax,
                           wealth tax, customs duty, excise duty, professional 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,
                         the particulars of dues of sales-tax, customs duty and excise duty as at June 30, 2004 which have not
                         been deposited on account of a dispute have been stated below.
                     S. Name of the         Nature         Amount        Amount deposited Period to              Forum where
                     No statute             of the         (Rs./Lacs)    under protest    which the              dispute is
                                            dues                         (Rs./Lacs)       amount relates         pending
                     1     U.P. Sales Tax   Sales Tax          8.23               —             2001-2002        Dy. Commissioner
                                            (including                                                           of Sales Tax
                                            interest)
                     2     Delhi Sales Tax Sales Tax          25.57            0.05             1999-2000        Asst. Commissioner
                                                                                                                 of Sales Tax
                                            Sales Tax         31.79               —             2001-2003        Addl. Commissioner
                                                                                                                 of Sales Tax
                     3     Bhubaneshwar     Sales Tax       116.10                —             1996-1999        Orissa Tribunal,
                           Sales Tax                                                                             Cuttack
                     4     Chennai          Sales Tax          3.64               —             1998-1999        Chennai Tribunal
                           Sales Tax
                     5     Kolkata          Sales Tax          0.39               —             1995-1996        Dy. Commissioner
                           Sales Tax                                                                             (Appeals)
                                            Sales Tax         19.36            2.44             1997-2001        Dy. Commissioner
                                                                                                                 (Appeals)
                           Total                            205.08             2.49
                     6     Excise Act       Excise Duty       46.12               —             1996-1997        CEGAT, Chennai
                                            Excise Duty     593.93                —             1980-1984        CEGAT, Delhi
                                            (including
                                            Penalty)
                           Total                            640.05                —
                     7     Customs Act      Custom Duty       90.57           23.78             1998-1999        Commissioner
                                                                                                                 (Appeals)
             (x)     The Company has no accumulated losses as at June 30, 2004 and it has not incurred any cash losses in the
                     financial year ended on that date or in the immediately preceding financial year.
             (xi)    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.
             (xii)   The Company has not granted any loans and advances on the basis of security by way of pledge of shares,
                     debentures and other securities.
             (xiii) The provisions of any special statute applicable to chit fund/nidhi/mutual benefit fund/societies are not applicable
                    to the Company.
             (xiv)   In our opinion, the Company is not a dealer or trader in shares, securities, debentures and other investments.
             (xv)    In our opinion and according to the information and explanations given to us, the terms and conditions of the
                     guarantees given by the Company, for loans taken by others from banks or financial institutions during the year,
                     are not prejudicial to the interest of the Company.


                                                                        28


HCL-12.p65                             28                                                  10/4/2004, 5:54 PM
        AUDITORS’ REPORT

             (xvi)   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.
             (xvii) 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, and vice versa.
             (xviii) 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.
             (xix)   The Company has not issued any debentures which have remained outstanding at the year-end.
             (xx)    The Company has not raised any money by public issues during the year.
             (xxi)   During the course of our examination of the books and records of the Company, carried out in accordance with
                     the 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)     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;
             (b)     In our opinion, proper books of account as required by law have been kept by the Company so far as appears
                     from our examination of those books;
             (c)     The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement
                     with the books of account;
             (d)     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;
             (e)     On the basis of written representations received from the directors, as on June 30, 2004 and taken on record by
                     the Board of Directors, none of the directors is disqualified as on June 30, 2004 from being appointed as a
                     director in terms of clause (g) of sub-section (1) of Section 274 of the Act;
             (f)     In our opinion and to the best of our information and according to the explanations given to us, the said financial
                     statements 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 June 30, 2004;
                     (ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and
                     (iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.


                                                                                                      H. SINGH
                                                                                                      Partner
                                                                                                      Membership Number F-86994
                                                                                                      For and on behalf of
        Place: New Delhi                                                                              Price Waterhouse
        Date: August 25, 2004                                                                         Chartered Accountants




                                                                       29


HCL-12.p65                         29                                                      10/4/2004, 5:54 PM
        BALANCE SHEET AS AT 30TH JUNE

                                                                                 2004                                   2003
                                                Schedule                       Rs./Lacs                             Rs./ Lacs
        Sources of Funds:
        Shareholders’ Funds :
        Capital                                    1                          3289.00                               3190.96
        Reserves and Surplus                       2                         36551.57                              29454.37
        Loan Funds:
        Secured Loans                              3                          6903.70                               8448.88
        Unsecured Loans                            4                           231.87                               3338.26
        Deferred Tax Liabilities (Net)           21(4)                         307.73                                563.00
                                                                             47283.87                              44995.47

        Application of Funds:
        Fixed Assets:                              5
        Gross Block                                         10947.48                           10056.27
        Less: Depreciation                                   6035.17                            5207.47
        Net Block                                               4912.31                             4848.80
        Capital Work-In-Progress                                  12.62                              105.74
        (Including Capital Advances)                                          4924.93                               4954.54
        Investments                                6                         28059.88                              21289.01
        Current Assets, Loans & Advances:
        Inventories                                7        16125.89                            8904.78
        Sundry Debtors                             8        29454.44                           21932.48
        Cash and Bank Balances                     9         4461.89                            4338.43
        Other Current Assets                      10         1450.88                            1540.37
        Loans and Advances                        11         2596.01                            8325.68
                                                            54089.11                           45041.74
        Less:Current Liabilities
        & Provisions                              12
        Current Liabilities                                 35902.18                           21901.56
        Provisions                                           3887.87                            4388.26
                                                            39790.05                           26289.82
        Net Current Assets                                                   14299.06                              18751.92
                                                                             47283.87                              44995.47

        Significant Accounting Policies           20
        Notes to Accounts                         21




        This is the Balance Sheet referred to                   The schedules referred to above form an integral part of
        in our report of even date                              the Balance Sheet
                                                                For and on behalf of the Board of Directors
        H.SINGH                                                 AJAI CHOWDHRY                              S. BHATTACHARYA
        Partner                                                 Chairman and                                        Director
        Membership Number F-86994                               Chief Executive Officer
        For and on behalf of
        Price Waterhouse
        Chartered Accountants
        Place : New Delhi                                                                              K.R. RADHAKRISHNAN
        Dated : 25th August, 2004                                                                           Company Secretary

                                                           30


HCL-30.p65                         30                                          10/4/2004, 5:54 PM
        PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE

                                                                                            2004                                  2003
                                                           Schedule                       Rs./Lacs                              Rs./Lacs
        Income
        Business Income                                      13       152324.87                         165121.54
        Less : Excise Duty                                             10534.39       141790.48           8636.90            156484.64
        Other Income                                         14                         2091.65                                1482.20
                                                                                      143882.13                              157966.84
        Expenditure
        Cost of Sales and Services                           15                       113622.11                              129712.20
        Personnel                                            16                         7783.37                                8629.46
        Administration, Selling, Distribution and Others     17                         7491.75                                7737.03
        Repairs and Maintenance                              18                          461.48                                 396.95
        Finance Charges                                      19                          656.07                                 805.15
        Depreciation                                                       1023.56                             1113.77
        Less : Transfer to Revaluation Reserve                                4.58       1018.98                  4.58         1109.19

                                                                                      131033.76                              148389.98
        Profit for the year                                                             12848.37                               9576.86
        Effect of Impairment                                                                   –                               3321.97
        Profit before Tax                                                               12848.37                               6254.89
        Tax expense                                         21 (4)
           -Current [Wealth tax Rs.2.00 lacs
             (2003-Rs.1.50 lacs)]                                          1014.00                               523.60
           -Deferred                                                       (255.27)        758.73              (441.60)           82.00
        Profit after Tax                                                                12089.64                               6172.89
        Profit available for appropriation                                              12089.64                               6172.89

        Appropriations:
        Interim Dividend                                                                 4534.01                                     –
        Proposed Final Dividend                                                          2306.82                               3190.95
        Tax on Interim Dividend                                                           580.92                                     –
        Tax on Proposed Final Dividend                                                    301.47                                408.84
        Transfer to General Reserve                                                      1208.96                                617.29
        Balance Carried Over                                                             3157.46                               1955.81
        Earning per share (Basic) of Rs.10/- each
        (in Rs.)                                           21 (21)                           37.52                                19.35
        Earning per share (Diluted) of Rs.10/- each
        (in Rs.)                                           21 (21)                           35.07
        Significant Accounting Policies                      20
        Notes to Accounts                                    21


        This is the Profit and Loss Account                                The schedules referred to above form an integral part of
        referred to in our report of even date                             the Profit and Loss Account
                                                                           For and on behalf of the Board of Directors
        H.SINGH                                                            AJAI CHOWDHRY                              S. BHATTACHARYA
        Partner                                                            Chairman and                                        Director
        Membership Number F-86994                                          Chief Executive Officer
        For and on behalf of
        Price Waterhouse
        Chartered Accountants
        Place : New Delhi                                                                                         K.R. RADHAKRISHNAN
        Dated : 25th August, 2004                                                                                      Company Secretary

                                                                      31


HCL-30.p65                        31                                                      10/4/2004, 5:54 PM
        CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE

                                                                                            2004                            2003
                                                                                        Rs./Lacs                         Rs./Lacs
        A. Cash Flow from Operating Activities


             Profit before Tax                                                         12848.37                          6254.89


             Adjustments for:


             Depreciation                                                   1018.98                          1109.19
             (Profit)/Loss on sale of Fixed Assets(Net)                       (5.24)                            5.37
             (Profit)/Loss on disposal of (Others) Investments (Net)        (777.55)                         (543.03)
             Interest on borrowings                                          827.60                          1163.47
             Interest and Dividend income                                   (768.52)                         (495.16)
             Unrealised (Gain)/Loss on Foreign Exchange
             Fluctuation (Net)                                               179.77                          (198.43)
             Effect of Impairment/Provision for Doubtful Debts                25.00                          3321.97
             Provision/Liabilities no longer required written back           (41.21)                          (36.88)
             Diminution in the value of Current Investments                        –                            0.03
             Fixed Assets written off                                          0.01      458.84                 4.27     4330.80


             Operating profit before Working Capital Changes                           13307.21                         10585.69


             Adjustments for:


             Trade and Other Receivables                                (7106.68)                     (15427.87)
             Inventories                                                (7221.11)                            2189.25
             Trade Payables and Other Liabilities                       14311.50         (16.29)             7627.49    (5611.13)

             Cash generated from Operation                                             13290.92                          4974.56
             Direct Tax (paid)/Refund (Net)                                              415.42                           156.54

             Cash from Operating activities                                            13706.34                          5131.10

             Net Cash from Operating activities                  (A)                   13706.34                          5131.10


        B. Cash Flow from Investing Activities


             Interest and Dividend received (Gross)                          784.06                           835.92
             Purchase of Fixed Assets                                   (1104.17)                            (679.94)
             Deferred Payment Credit                                               –                           (0.19)
             Sale of Fixed Assets                                             15.61                             9.18
             Purchase of Investments                                   (59249.81)                     (37519.45)
             Disposal/Redemption of Investments                         52087.36                        32543.22
             Investment in bonds of Subsidiary                          (4200.00)                       (1860.78)
             Redemption of Bonds/Purchase Consideration
             received from Subsidiary                                       9404.67                                 –
             Capital Work-in-Progress                                         93.12                           (73.00)
             (Including Capital Advances)


             Net cash from/(used in) Investing activities        (B)                   (2169.16)                        (6745.04)



                                                                       32


HCL-30.p65                          32                                                  10/4/2004, 5:54 PM
        CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE

                                                                                          2004                                2003
                                                                                      Rs./Lacs                              Rs./Lacs


        C. Cash Flow from Financing Activities


             Share Capital Issued                                         98.04                                   –
             Interest paid                                             (934.33)                       (1238.42)
             Share Premium received                                    2735.36                                    –
             Secured Loans received/(paid)                          (1545.18)                              1028.92
             Unsecured Loans received/(paid)                        (3105.90)                         (1064.52)
             Dividend paid (including dividend tax)                 (8661.71)                              (794.17)


             Net cash from Financing Activities             (C)                   (11413.72)                              (2068.19)


             Opening balance of Cash and Cash Equivalents                            4338.43                               8020.56
             Closing balance of Cash and Cash Equivalents                            4461.89                               4338.43
             [(Includes Exchange Rate Fluctuation of
             Rs.3.42 Lacs (2003-Rs.2.45 Lacs)]
             [Includes unclaimed dividend of
             Rs.99.15 lacs (2003-Rs.46.14 lacs)]


             Net Increase/(Decrease) in Cash
             and Cash Equivalents                                                      123.46                             (3682.13)


             Total (A)+(B)+(C)                                                         123.46                             (3682.13)


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




        This is the Cash Flow Statement                                The schedules referred to above form an integral part of
        referred to in our report of even date                         the Cash Flow Statement
                                                                       For and on behalf of the Board of Directors
        H.SINGH                                                        AJAI CHOWDHRY                              S. BHATTACHARYA
        Partner                                                        Chairman and                                        Director
        Membership Number F-86994                                      Chief Executive Officer
        For and on behalf of
        Price Waterhouse
        Chartered Accountants
        Place : New Delhi                                                                                     K.R. RADHAKRISHNAN
        Dated : 25th August, 2004                                                                                  Company Secretary




                                                                  33


HCL-30.p65                          33                                                10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

                                                                                  2004                             2003
                                                                                Rs./Lacs                         Rs./Lacs

        1- Capital
           (Schedule-21, Note 17)

        Authorised:
        8,00,00,000 (2003-8,00,00,000) Equity Shares of Rs. 10/- each           8000.00                          8000.00
        5,00,000 (2003-5,00,000) Preference Shares of Rs. 100/- each             500.00                           500.00

                                                                                8500.00                          8500.00



        Issued, Subscribed and Paid up:
        3,28,89,873 (2003 -3,19,09,459) Equity Shares of Rs. 10/-
        each fully paid up [Including 1,00,89,459 Equity Shares
        (2003-1,00,89,459) issued pursuant to contract without payment
        being received in cash, 1,06,36,553 (2003-1,06,36,553)
        Bonus Shares issued from Share Premium Account and 9,80,414
        (2003-Nil) Equity Shares issued pursuant to the exercise of
        options granted under ESOP Scheme]
        Out of the total above, 1,66,03,841 (2003-1,63,99,782) Equity
        Shares are held by HCL Corporation Limited, the holding company.        3288.99                          3190.95

        Add : Shares Forfeited                                                      0.01                            0.01

                                                                                3289.00                          3190.96




        2- Reserves and Surplus                                 As At                                               As At
           (Schedule-21, Note 17)                         01.07.2003        Additions          Deductions     30.06.2004
                                                             Rs./Lacs        Rs./Lacs            Rs./Lacs        Rs./Lacs



        General Reserve                                      4413.24        1208.96                    –         5622.20
                                                           (6415.72)        (617.29)          (2,619.77)       (4413.24)

        Profit and Loss Account                             20726.52         3157.46                      –     23883.98
                                                          (18770.71)       (1955.81)                    (–)   (20726.52)

        Share Premium                                        4004.01        2735.36                     –        6739.37
                                                           (4306.14)             (–)             (302.13)      (4004.01)

        Revaluation Reserve (Adj.)                            310.23               –                   4.58       305.65
                                                                  (–)       (314.81)                 (4.58)     (310.23)

        Capital Reserve                                           0.37              –                     –          0.37
                                                                (0.37)            (–)                   (–)        (0.37)

                                                           29454.37         7101.78                 4.58        36551.57
        Previous year                                     (29492.94)       (2887.91)           (2926.48)      (29454.37)




                                                                34


HCL-30.p65                        34                                            10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

                                                                                         2004                               2003
                                                                                       Rs./Lacs                           Rs./Lacs

        3- Secured Loans
        Loans and Advances from Banks:
        Cash Credits                                                                             -                         369.62
        Foreign Currency loan
             External Commercial Borrowings                                            1589.15                           1184.69
             Others                                                                    2287.36                           1944.83
        Term Loan
             Foreign currency                                                           875.60                           1440.15
             Others                                                                    2151.59                           3509.59

                                                                                       6903.70                           8448.88



        a) Cash Credits along with non-fund based facilities, Foreign Currency Loans and Foreign Currency Term Loan from Bank
           are secured by way of hypothecation of stock-in-trade, book debts as first charge and by way of second charge on all the
           immovable and movable assets of the Company. The charge ranks pari-passu amongst Bankers.
        b) Term loan in Indian rupees from a Bank is secured by equitable mortgage on all the immovable assets of the Company
           and hypothecation of all movable assets subject to equitable mortgage of specific assets under term loan from another
           bank and prior charge in favour of Company’s bankers on book debts and stock in trade for working capital facilities.
           Term loan from another Bank is secured by equitable mortgage on specific assets.
        c) Amount payable within one year from the Balance Sheet date is Rs. 6903.70 Lacs (2003-Rs. 4987.52 Lacs)




                                                                                         2004                               2003
                                                                                       Rs./Lacs                           Rs./Lacs
        4- Unsecured Loans
           (Schedule-21, Notes 18 & 19)
        Public Deposits                                                                    9.18                             12.61
        Interest accrued and due                                                           2.02                              2.51
        Short Term Loans and Advances:
             - From Banks -Commercial Paper                                                      –                       3000.00
        Other Loans and Advances:
             - From a Financial Institution                                             146.74                             259.54
        Deferred Lease Obligations                                                        73.93                             63.60


                                                                                        231.87                           3338.26

        Notes:-
        1) Amount payable within one year Rs.63.94 Lacs (2003-Rs.76.84 Lacs)
        2) Public Deposits include unclaimed matured deposits.




                                                                   35


HCL-30.p65                        35                                                   10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

        5- Fixed Assets
           (Schedule -21, Notes 1 & 7)                                                                                                                               Rs./Lacs

                                                                  Gross Block                                        Depreciation                                    Net Block
                                       As at    Additions     Deductions           As at      As at   Additions                  Deductions      As at       As at           As at
                                01.07.2003           during       during   30.06.2004 01.07.2003         during    Adjustments       during 30.06.2004 30.06.2004 30.06.2003
                                                the period    the period                              the period                 the period

        Tangible :

        Land - Leasehold             398.96              –            –          398.96      14.85         5.45              –           –      20.30     378.66           384.11

        Land - Freehold              296.27          83.49            –          379.76           –           –              –           –          –     379.76           296.27

        Buildings                   3538.07          88.15            –         3626.22     683.10      144.17               –           –     827.27    2798.95         2854.97

        Plant & Machinery and
        Air Conditioners            1999.25         604.58       126.92         2476.91    1704.63      160.70               –      124.34    1740.99     735.92           294.62

        Furniture, Fixtures &
        Office Equipment            2694.61         309.72        37.56         2966.77    2109.42      345.69               –       34.23    2420.88     545.89           585.19

        Vehicles                     247.61          11.51        40.80          218.32     147.72       33.80               –       36.33     145.19       73.13           99.89

        Intangible :

        Acquired Software            881.50              –         0.96          880.54     547.75      333.75               –        0.96     880.54           –          333.75

        TOTAL                      10056.27     1097.45          206.24     10947.48       5207.47    1023.56                –      195.86    6035.17    4912.31         4848.80

        Previous Year              11298.43     1011.73        2253.89      10056.27       5795.66    1113.77            1.17     1703.13     5207.47

        Capital Work-In-Progress                                                                                                                            12.62          105.74
        [Including Capital Advances of Rs.1.00 Lacs (2003-Rs.12.71 Lacs)]
                                                                                                                                                         4924.93         4954.54
        Notes :
        1. Land - Freehold at Ambattur amounting to Rs.101.01 Lacs (2003-Rs.101.01 Lacs) and building at Mumbai amounting
           to Rs.43.54 Lacs (2003-Rs.43.54 Lacs) are pending registration in the name of the Company.
        2. Addition to Plant and Machinery includes Rs.1.82 Lacs (2003- Rs.Nil) representing restatement of assets during the
           year due to exchange rate fluctuation.



                                                                                                                          2004                                          2003
                                                                                                                        Rs./Lacs                                      Rs./Lacs
        6- Investments
           (Schedule-21, Note 14)
        Unquoted (Others) - Current
        Nil (2003 - 1,000,000.000) Units of Rs.10/- each in Alliance
        Term Plan - Growth Option (Purchased during the year - Nil
        and Redeemed during the year - 1,000,000.000 Units)                                                    –                              100.00
        Nil (2003 - 8,954,975.755) Units of Rs.10/- each in Birla
        Bond Plus - Short Term Plan - Growth Option (Purchased
        during the year - Nil and Redeemed during the year -
        8,954,975.755 Units)                                                                                   –                              980.00
        Nil (2003 - 940,264.966) Units of Rs.10/- each in
        Birla Income Plus - Dividend Option (Purchased during
        the year - 4,619,919.245, Dividend reinvested
        during the year - 181,520.224 and Redeemed
        during the year-5,741,704.435 Units)                                                                   –                               99.58
        Nil (2003 - 798,836.893) Units of Rs.10/- each in Birla
        Income Plus - Growth Option (Purchased during the year -
        Nil and Redeemed during the year - 798,836.893 Units)                                                  –                              200.00

                                                                                                                                                                        (Contd.)
                                                                                             36


HCL-30.p65                                     36                                                                       10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

                                                                                 2004                           2003
                                                                               Rs./Lacs                       Rs./Lacs

        1,300,465.278 (2003 - Nil) Units of Rs.10/- each in Birla
        Cash Fund - Growth Option (Purchased during the year -
        1,300,465.278 Units and Redeemed during the year - Nil)       225.00                              –
        3,934,839.066 (2003 - Nil) Units of Rs.10/- each in DSP
        Merrill Lynch Liquidity Fund - Growth Option (Purchased
        during the year - 14,344,200.218 and Redeemed during
        the year - 10,409,361.152 Units)                              603.49                              –
        5,879,080.117(2003 - Nil) Units of Rs.10/- each in
        DSP Merrill Lynch Short Term Fund - Growth Option
        (Purchased during the year - 5,879,080.117 Units and
        Redeemed during the year - Nil)                               634.00                              –
        983,627.520 (2003 - 983,627.520) Units of Rs.10/-
        each in DSP Merrill Lynch Bond Fund - Growth Option
        (Purchased during the year - 441,201.126 and Redeemed
        during the year - 441,201.126 Units)                          200.00                         200.00
        3,079,868.087 (2003 - Nil) Units of Rs.10/- each in
        DSP Merrill Lynch Floating Rate Fund - Growth Option
        (Purchased during the year - 3,079,868.087 Units
        and Redeemed during the year - Nil)                           325.00                              –
        5,008,219.437 (2003 - Nil) Units of Rs.10/- each in
        Deutsche Floating Rate Fund - Growth Option
        (Purchased during the year - 5,008,219.437 Units
        and Redeemed during the year - Nil)                           516.30                              –
        884,877.444 (2003-Nil) Units of Rs.10/- each in
        Deutsche Premier Bond- Institutional Growth Option
        (Purchased during the year 5,318,838.034 and
        Redeemed during the year - 4,433,960.590 Units)                98.12                              –
        Nil (2003 - 8,545,196.044) Units of Rs.10/- each in
        Grindlays Cash Fund - Dividend Option (Purchased during
        the year - 53,502,052.037, Dividend received & reinvested
        - 204,034.220 and Redeemed during the year -
        62,251,282.301 Units)                                              –                         903.98
        7,137,082.421 (2003 - Nil) Units of Rs.10/- each in
        Grindlays Cash Fund - Growth Option (Purchased during
        the year - 102,863,399.484 and Redeemed during
        the year - 95,726,317.063 Units)                              850.00                              –
        6,214,319.448 (2003 - 17,567,266.811) Units of Rs.10/-
        each in Grindlays Super Saver Income Fund - Short Term -
        Growth Option (Purchased during the year - Nil and
        Redeemed during the year - 11,352,947.363 Units)              750.00                        2016.04
        6,095,318.731 (2003 - 5,893,030.446) Units of Rs.10/-
        each in Grindlays Super Saver Income Fund - IP - Growth
        Option (Purchased during the year - 2,409,596.339 and
        Redeemed during the year - 2,207,308.054 Units)               879.02                         823.88
        20,141,502.595 (2003 - 11,498,055.345) Units of Rs.10/-
        each in Grindlays Dynamic Bond Fund - Growth Option
        (Purchased during the year - 17,392,731.841 and
        Redeemed during the year - 8,749,284.591 Units)              2138.32                        1267.80

                                                                                                               (Contd.)
                                                                37


HCL-30.p65                     37                                              10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

                                                                                   2004                           2003
                                                                                 Rs./Lacs                       Rs./Lacs


        6,394,887.390 (2003 - 1,000,000.000) Units of Rs.10/-
        each in Grindlays Super Saver Medium Term Fund - Growth
        Option (Purchased during the year 6,394,887.390 and
        Redeemed during the year - 1,000,000.000 Units)                 650.00                         100.00
        2,358,868.875 (2003 - Nil) Units of Rs.10/- each in
        Grindlays Floating Rate Fund - Growth Option (Purchased
        during the year - 2,358,868.875 Units and Redeemed during
        the year - Nil)                                                 250.00                              –
        5,777,354.619 (2003 - Nil) Units of Rs.10/- each in HSBC
        Cash Fund - Growth Option (Purchased during
        the year - 17,438,434.815 and Redeemed during the year -
        11,661,080.196 Units)                                           625.00                              –
        4,179,121.510 (2003 -Nil) Units of Rs.10/- each in
        HDFC Institutional Plan - Cash Management Fund - Growth
        Option (Purchased during the year 7,680,518.022 and
        Redeemed during the year - 3,501,396.512 Units)                 547.44                              –
        Nil (2003 - 9,668,868.105) Units of Rs.10/- each in HDFC
        Liquid Fund - Dividend reinvest Option (Purchased during
        the year - 11,648,460.658, Dividend received & reinvested
        - 130,680.712 and Redeemed during the year -
        21,448,009.475 Units)                                                –                        1152.49
        Nil (2003 - 889,683.426) Units of Rs.10/- each in HDFC
        Liquid Fund - Growth Option (Purchased during the year -
        7,973,443.080 and Redeemed during the year -
        8,863,126.506 Units)                                                 –                         108.37
        Nil (2003 - 13,916,143.043) Units of Rs.10/- each in HDFC
        Short Term Plan - Growth Option (Purchased during the year -
        Nil and Redeemed during the year - 13,916.143.043
        Units)                                                               –                        1474.10
        Nil (2003 - 509.048) Units of Rs.10/- each in
        HDFC Short Term Plan - Dividend Option (Purchased &
        Dividend Reinvest during the year - Nil and Redeemed during
        the year - 509.048 Units)                                            –                           0.05
        Nil (2003 - 953,488.437) Units of Rs.10/- each in HDFC
        Income Plan - Growth Option (Purchased during the year -
        5,644,553.043 and Redeemed during the year -
        6,598,041.480 Units)                                                 –                         133.20
        5,596,545.066 (2003 - Nil) Units of Rs.10/- each in HDFC
        Floating Rate Fund - ST - Growth Option (Purchased during
        the year - 5,596,545.066 and Redeemed during the
        year - Nil)                                                     600.00                              –
        5,005,536.065 (2003 - Nil) Units of Rs.10/- each in J M
        Fixed Maturity Plan -DQ - Dividend Option (Purchased during
        the year - 10,005,536.065 and Redeemed during the year -
        5,000,000 Units)                                                500.55                              –
        Nil (2003 - 782,135.328) Units of Rs.10 each in JM High
        Liquidity - Dividend Option (Purchased during the year -
        480,323.707 and Redeemed during the year -
        1,262,459.035 Units)                                                 –                          81.00
                                                                                                                 (Contd.)
                                                                   38


HCL-30.p65                       38                                              10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

                                                                                    2004                           2003
                                                                                  Rs./Lacs                       Rs./Lacs


        Nil (2003 - 149,358.060) Units of Rs.10 each in JM High
        Liquidity Fund - Growth Option (Purchased during the year -
        Nil and Redeemed during the year - 149,358.060 Units)                 –                          25.00
        Nil (2003 - 969,739.180) Units of Rs.10 each in K Bond
        Whole Sale Plan - Growth Option (Purchased during the year -
        592,003.220 and Redeemed during the year -
        1,561,742.400 Units)                                                  –                         157.28
        4,572,837.753 (2003 Nil) Units of Rs.10/- each in Kotak
        Dynamic Income - Growth Option (Purchased during the year
        4,572,837.753 Units and Redeemed during the year Nil)            464.98                              –
        Nil (2003 - 9,766,481.126) Units of Rs.10/- each in
        Prudential ICICI Short Term Plan - Growth Option (Purchased
        during the year - Nil and Redeemed during the year -
        9,766,481.126 Units)                                                  –                        1032.21
        1,565,051.357 (2003 - 4,221,444.231) Units of Rs.10/-
        each in Prudential ICICI Income Fund - Growth Option
        (Purchased during the year - 1,565,051.361 Units and
        Redeemed during the year - 4,221,444.235 Units)                  281.53                         740.90
        16,310,812.186 (2003 - 8,196,136.557) Units of Rs.10/
        - each in Prudential ICICI Flexible Income Plan - Growth
        Option (Purchased during the year - 8,114,675.629 Units
        and Redeemed during the year - Nil)                             1842.76                         878.77
        8,500,000.00 (2003 - Nil) Units of Rs.10/- each in
        Prudential ICICI Fixed Maturity Plan - Qtly Dividend Option
        (Purchased during the year - 8,500,000.000 Units and
        Redeemed during the year - Nil)                                  850.00                              –
        12,653,943.062 (2003 - Nil) Units of Rs.10/- each in
        Prudential ICICI Liquid Fund - Growth Option (Purchased
        during the year - 35,175,707.632 and Redeemed during
        the year - 22,521,764.570 Units)                                1972.07                              –
        11,786,731.955 (2003 - Nil) Units of Rs.10/- each in
        Prudential ICICI Floating Rate Plan - Growth Option
        (Purchased during the year 11,786,731.955 Units and
        Redeemed during the year - Nil)                                 1250.00                              –
        500,000.000 (2003 - Nil) Units of Rs.10/- each in Prudential
        ICICI Very Cautious Plan - Growth Option (Purchased during
        the year - 500,000.000 Units and Redeemed during
        the year - Nil)                                                   50.00                              –
        5,020,650.000 (2003 - Nil) Units of Rs.10/- each in
        Reliance Fixed Maturity Plan - Growth Option (Purchased
        during the year 10,020,650.000 and Redeemed during the
        year 5,000,000.000 Units)                                        502.06                              –
        Nil (2003 - 19,774.570) Units of Rs.1000/- each in
        Templeton India Short Term Plan - Growth Option (Purchased
        during the year - Nil and Redeemed during the year -
        19,774.570 Units)                                                     –                         205.73



                                                                                                                  (Contd.)
                                                                   39


HCL-30.p65                       39                                               10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

                                                                                   2004                            2003
                                                                                 Rs./Lacs                        Rs./Lacs

        2,350,427.740 (2003 - 6,774,215.855) Units of Rs.10/-
        each in Templeton India Income Builder - Growth Option
        (Purchased during the year - 3,573,364.402 and Redeemed
        during the year - 7997152.517 Units)                           411.37                         1132.86
        Nil (2003 - 10,591,186.885) Units of Rs.10/- each in
        Templeton India Floating Rate Short Term - Dividend Option
        (Purchased during the year - Nil and Redeemed during the
        year -10,591,186.885 Units)                                         –                          105.96
        Nil (2003 - 491,110.892) Units of Rs.10/- each in
        Templeton India Floating Rate Long Term - Dividend Option
        (Purchased during the year - Nil and Redeemed during the
        year - 491,110.892 Units)                                           –                           50.00
        5,753,270.982 (2003 - Nil) Units of Rs.10/- each in
        Templeton India Liquid Fund -Dividend Option (Purchased
        during the year - 5,752,182.156, Dividend received &
        reinvested 1,088.826 and Redeemed during the year - Nil
        Units)                                                         575.33                               –
        22,517,971.035 (2003 - Nil) Units of Rs.10/- each in
        Templeton Floating Rate Income Fund LT - Growth Option
        (Purchased during the year - 22,517,971.035 Units and
        Redeemed during the year - Nil)                               2591.97                               –
        7,896.900 (2003 - Nil) Units of Rs.1000/- each in
        Templeton Treasury Management a/c - Growth Option
        (Purchased during the year - 37,386.105 and
        Redeemed during the year - 29,489.205 Units)                   125.38                               –
        947,319.559 (2003 -Nil) Units of Rs.10/- each in Tata
        Dynamic Bond -B - Growth Option (Purchased during the
        year 947,319.559)                                               99.51                               –
        4,898,503.015 (2003 - Nil) Units of Rs.10/- each in Tata
        Floating Rate Fund Short Term - Growth Option (Purchased
        during the year - 4,898,503.015 Units and Redeemed during
        the year - Nil)                                                500.00   21909.20                    –   13969.20
        Note :- Net asset value of Unquoted (Others) Current
        Investment in Mutual Funds as on 30th June’ 04 -
        Rs.22367.08 Lacs (2003-Rs.14620.65 Lacs)
        Unquoted (Trade) - Long Term
        In Subsidiary Company
        19,506,750 No’s.(2003-19,506,750 No’s) Equity Shares
        of Rs.10/-each in HCL Infinet Ltd. (Acquired during the
        year - Nil)                                                   1950.68                         1950.68
        4,200,000 No’s (2003 - 5,369,130 No’s) of Unsecured
        Optionally Convertible Bonds of Rs.100/- each in HCL
        Infinet Ltd. (Acquired during the year - 4,200,000
        No’s and Redeemed during the year -5,369,130 No’s).           4200.00                         5369.13
                                                                                 6150.68                         7319.81

                                                                                28059.88                        21289.01




                                                                 40


HCL-30.p65                      40                                               10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

                                                                                2004                            2003
                                                                              Rs./Lacs                        Rs./Lacs
        7- Inventories
            [Schedule-21, Note 7(c)]
        Raw materials and Components (Including in Transit)                   6126.95                         2602.52
        Stores and Spares                                                     2621.56                         2267.72
        Finished Goods (Including in Transit)                                 6506.15                         3546.86
        Work-In-Progress                                                       871.23                          487.68

                                                                             16125.89                         8904.78




        8- Sundry Debtors -Unsecured
        Debts exceeding six months :
           - Considered Good                                       1646.56                         1890.84
           - Considered Doubtful                                     69.80                           44.80
                                                                   1716.36                         1935.64
        Less : Provision for Doubtful Debts                          69.80    1646.56                44.80    1890.84
        Other debts -Considered Good                                         27807.88                        20041.64
                                                                             29454.44                        21932.48




        9- Cash and Bank Balances
        Cash in Hand and in Transit
        [Cheques in hand Rs.1718.06 Lacs (2003-Rs.2014.95 Lacs)]              2464.18                         2342.31

        Balances with Scheduled Banks:
             - On Current Account                                   958.10                          720.20
             Less :- Money held in Trust                              0.98     957.12                 0.50     719.70
             - On Unpaid Dividend Account                                        99.15                          46.14
             - On Margin Account                                                  2.00                           3.28
             - On Fixed Deposits                                    975.44                         1265.35
             Less :- Money held in Trust                             36.00     939.44                38.35    1227.00

                                                                              4461.89                         4338.43




        10-Other Current Assets
           (Schedule-21, Notes 16,18 & 19)
        Deposits                                                               818.11                          737.48
        Prepaid Expenses                                                       285.67                          299.59
        Lease Rental Recoverable                                               347.10                          503.30

                                                                              1450.88                         1540.37




                                                              41


HCL-30.p65                          41                                        10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET AS AT 30TH JUNE

                                                                                       2004                            2003
                                                                                     Rs./Lacs                        Rs./Lacs

        11-Loans and Advances
           (Schedule-21, Note 20)
        Unsecured Considered Good
        - Amounts recoverable in cash or in kind or for value to be received         2000.87                         2229.62
        - Advances and Loans to Subsidiary [Includes Rs. Nil on
          account of purchase consideration (2003-Rs. 4034.54 Lacs)]                  370.91                         4681.35
        - Advance Tax (Net of Provisions)                                                      –                     1331.50
        - Balances with Customs, Port Trust and Excise Authorities                    224.23                           83.21

                                                                                     2596.01                         8325.68




        12-Current Liabilities and Provisions
           (Schedule-21 Notes 5, 19 & 20)

        Current Liabilities:
        Acceptances                                                                 16838.51                         8708.83
        Sundry Creditors
             - Due to Subsidiary                                           188.75                          352.75
             - Due to SSI undertakings                                     146.87                          143.95
             - Others                                                     8130.49    8466.11              5179.16    5675.86
        Sundry Deposits                                                               220.85                          189.44
        Interest accrued but not due:
             - On Secured Loans                                                       182.32                          287.59
             - On Unsecured Loans                                                        0.88                           1.85
        Investor Education and Protection Fund :
             - Unclaimed Dividend*                                                      99.15                          46.14
        Advances from Customers                                                      1110.57                          718.17
        Other Liabilities                                                            6216.75                         3654.43
        Unaccrued Revenue                                                            2767.04                         2619.25
                                                                                    35902.18                        21901.56
        Provisions:

        Proposed Final Dividend                                                      2306.82                         3190.95
        Tax on Proposed Final Dividend                                                301.47                          408.84
        Provision for Tax (Net of Advances Rs. 3646.05 Lacs)                            97.92                              –
        For Warranty Liability                                                        559.39                          316.50
        For Gratuity and Other Employee Benefits                                      622.27                          471.97

                                                                                     3887.87                         4388.26

                                                                                    39790.05                        26289.82



        * There is no amount due and outstanding to be credited to Investor Education and Protection Fund as at 30th June,
        2004.These amounts shall be credited and paid to the fund as and when due.


                                                                     42


HCL-30.p65                         42                                                10/4/2004, 5:54 PM
        SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE

                                                                            2004                   2003
                                                                          Rs./Lacs               Rs./Lacs
        13- Business Income
           [Schedule-21, Note 7 (c)]
        Sales and Related Income [Including Excise duty
        Rs.10534.39 Lacs (2003-Rs.8636.90 Lacs)]                        142270.34              150838.51
        Services                                                         10054.53               14283.03
                                                                        152324.87              165121.54
        14- Other Income
        Interest :
            - Refund from Income Tax Authority                             328.73                  74.32
            - Others                                                         0.15                      –
        Dividend from (Others) Current Investments                         268.11                  62.52
        Miscellaneous Income                                               253.54                 160.92
        Insurance Claims                                                     1.71                   9.11
        Provisions/Liabilities no longer required written back              41.21                  36.88
        Profit on Sale of Fixed Assets (Net)                                 5.24                      –
        Profit on disposal of (Others) Current Investments (Net)           777.55                 543.03
        Profit on Foreign Exchange Fluctuation (Net)                       415.41                 595.42

                                                                          2091.65                1482.20
        15- Cost of Sales and Services
           [Schedule-21, Notes 7(b) & (c), 8 & 9]
        Raw Materials & Components Consumed                              57896.92               38975.07
        Purchase of Finished Goods & Services                            50750.02               86774.98
        Stores and Spares Consumed                                        1546.34                1537.24
        Power and Fuel                                                     112.57                 108.31
        Labour and Processing Charges                                      381.73                 241.13
        Royalty                                                           6277.37                4200.46
                                                                        116964.95              131837.19
        (Increase)/Decrease in Stocks of Finished
        Goods & Work-In-Progress :
        Closing Stock
            - Finished Goods (Including in Transit)                       6506.15                3546.86
            - Work-In-Progress                                             871.23                 487.68
                                                                          7377.38                4034.54
        Closing Stock of Demerged/Transferred Businesses                            –            3393.48
        Opening Stock
           - Finished Goods (Including in Transit)                        3546.86                4764.36
           - Work-In-Progress                                              487.68                 491.89
           - Software Work-In-Progress                                          –                  46.78
                                                                          4034.54                5303.03
                                                                        (3342.84)              (2124.99)
                                                                        113622.11              129712.20
        16- Personnel
        Salaries, Wages, Allowances, Bonus & Gratuity
        (Net of Reimbursements)                                           7161.42                7864.37
        Contribution to Provident Fund & Other Funds                       281.26                 326.65
        Staff Welfare Expenses                                             532.90                 606.18
                                                                          7975.58                8797.20
        Less : Operating Cost recovered                                    192.21                 167.74
                                                                          7783.37                8629.46


                                                                   43


HCL-30.p65                       43                                       10/4/2004, 5:54 PM
        SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE

                                                                                2004                          2003
                                                                              Rs./Lacs                      Rs./Lacs
        17- Administration, Selling, Distribution and Others
           (Schedule-21, Note 18)
        Rent                                                                   495.31                        626.37
        Rates and Taxes                                                        328.99                        446.50
        Printing and Stationery                                                219.05                        204.51
        Communication                                                          472.29                        504.84
        Travelling and Conveyance                                             1127.17                       1315.37
        Packing, Freight & Forwarding                                         1715.81                       1196.24
        Legal and Professional                                                 403.95                        621.59
        Training and Conference                                                137.01                        180.17
        Office Electricity and Water                                           261.91                        361.43
        Miscellaneous                                                          793.22                        722.33
        Insurance                                                              258.19                        304.96
        Advertisement, Publicity & Entertainment (Net of Reimbursements)       472.61                        481.54
        Hire Charges                                                           125.23                        223.46
        Commission on Sales                                                    261.53                        270.58
        Loss on Sale of Fixed Assets (Net)                                          –                          5.37
        Bank Charges                                                           587.61                        469.11
        Provision for Doubtful Debts                                            25.00                             –
        Fixed Assets Written Off                                                 0.01                          4.27
                                                                              7684.89                       7938.64
        Less : Operating Cost recovered                                        193.14                        201.61

                                                                              7491.75                       7737.03



        18- Repairs and Maintenance
        Plant and Machinery                                                     13.51                         13.05
        Buildings                                                               11.18                          6.93
        Others                                                                 452.55                        390.76
                                                                               477.24                        410.74
        Less : Operating Cost recovered                                         15.76                         13.79

                                                                               461.48                        396.95



        19- Finance Charges
        (Schedule-21, Notes 18 & 19)

        Interest paid :
             - On Fixed Loans                                       512.67                         707.61
             - On Public Deposits                                      0.07                          1.10
             - On Others                                            314.86     827.60              454.76   1163.47

        Less : Interest received :
             - On Lease Rental                                      103.12                         173.77
             - On Fixed Deposits                                      62.58                        166.88
               [TDS Rs. 17.86 Lacs (2003-Rs. 89.49 Lacs)]
             - On Other Loans and Advances                             5.83    171.53               17.67    358.32
               [TDS Rs. Nil (2003-Rs. 8.05 Lacs)]
                                                                               656.07                        805.15




                                                               44


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        SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

        SCHEDULE 20 - SIGNIFICANT ACCOUNTING POLICIES

        1.   BASIS OF ACCOUNTING

             The financial statements are prepared on mercantile basis under the historical cost convention in accordance with the
             Generally Accepted Accounting Principles in India and comply with the mandatory Accounting Standards issued by
             the Institute of Chartered Accountants of India.

        2.   FIXED ASSETS

             Fixed Assets including in-house capitalisation and Capital Work-in-Progress are stated at cost except those which are
             revalued from time to time on the basis of current replacement cost/value to the Company, net of depreciation.

             Assets taken on finance lease on or after 1.4.2001 are stated at fair value of the assets or present value of minimum
             lease payments whichever is lower.

             Intangible Assets are stated at cost net of amortization.

        3.   DEPRECIATION

             (i)   Depreciation has been calculated under Straight Line Method on:

                   (a) Buildings capitalised prior to 1.5.1986 at the rates computed in the respective years of acquisition of those
                       assets as per Section 205(2)(b) of the Companies Act, 1956.

                   (b) Assets acquired on or after 1.5.1986 and before 16.12.1993 on a prorata basis at the rates specified in
                       Schedule XIV of the Companies (Amendment) Act, 1988. These assets are subject to annual technical
                       evaluation for their economic useful life and additional depreciation is charged if there is any reduction in
                       economic useful life as re-evaluated.
                   (c) Assets acquired on and after 16.12.1993 on a prorata basis based on economic useful life determined by
                       way of periodical technical evaluation. Economic useful lives which are not exceeding those stipulated in
                       Schedule XIV of the Companies Act, 1956 are as under:

                                       Plant and machinery                       4-6    years
                                       Building - Factory                      25-28    years
                                       Building - Others                       50-58    years
                                       Furniture & Fixture                       4-6    years
                                       Air Conditioners                          3-6    years
                                       Vehicles                                  4-6    years
                                       Office Equipment                          3-6    years
                                       Computers                                 3-5    years

                   (d) The assets taken on finance lease on or after April 1, 2001 over their expected useful lives.

             (ii) Leasehold land, premises and improvements are amortised over the primary lease period.

             (iii) Intangible Assets are amortised over a period of 1-3 years.

        4.   INVESTMENTS

             Long-term investments are stated at cost of acquisition inclusive of expenditure incidental to acquisition. Any decline
             in the value of the said investment, other than a temporary decline, is recognised and charged to Profit and Loss
             Account.

             Current Investments are carried at lower of cost or fair value.

             Income from investments is recognised in the accounts in the year in which it is accrued.

        5.   INVENTORIES

             Raw Materials and components held for use in the production of inventories are valued at cost if the finished goods in
             which they will be incorporated are expected to be sold at or above cost. If there is a decline in the price of materials/
             components and it is estimated that the cost of finished goods will exceed the net realisable value, the materials/
             components are written down to net realisable value measured on the basis of their replacement cost.

                                                                     45


HCL-45.p65                        45                                                      10/4/2004, 5:54 PM
         SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

             Stores and Spares are valued at lower of cost and net realisable value. Adequate adjustments are made to the carrying
             value for obsolescence.

             Work-In-Progress and Finished Goods are valued at lower of cost and net realisable value. Cost of Finished Goods and
             Work-In-Progress includes direct labour and proportionate overhead expenses. Cost is determined on the basis of
             weighted average.

             Goods in Transit are valued inclusive of custom duty, where applicable.

        6.   FOREIGN CURRENCY TRANSACTIONS

             Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transactions.

             Foreign currency monetary assets and liabilities are restated at the exchange rates prevailing at the year end and the
             overall net gain/loss including those arising out of fluctuations in exchange rates on settlement during the period is
             adjusted to the Profit and Loss Account, except in cases of liabilities relating to acquisition of fixed assets which are
             adjusted in the cost of respective assets.

             Foreign currency monetary assets and liabilities covered by forward contracts are stated at the forward contract rates
             and the difference between the forward rate and the exchange rate at the inception of the forward contract is recognised
             in the Profit and Loss Account over the life of the contract, except in cases of liabilities relating to acquisition of fixed
             assets which are adjusted in the cost of respective assets.

        7.   RETIREMENT BENEFITS TO EMPLOYEES
             (a) Liability for gratuity and leave encashment is provided as determined on actuarial valuation made at the end of
                 the year which is computed using projected unit credit method.

             (b) Company’s contributions towards recognised Provident Fund and Superannuation Fund are accounted for on
                 accrual basis.

        8.   REVENUE RECOGNITION

             (a) Sales, net of discount, are inclusive of excise duty and the related revenue is recognised (after providing for
                 expenses to be incurred connected to such sale) on transfer of all significant risks and rewards of ownership to the
                 customer and when no significant uncertainty exists regarding realisation of the consideration.

             (b) Service income includes income

                  i)    From maintenance of products and facilities under maintenance agreements, which is recognised upon
                        creation of contractual obligations rateably over the period of contract, where no significant uncertainty
                        exists regarding realisation of the consideration.

                  ii)   From software services

                        (a) The revenue from time and material contracts is recognised based on the time spent as per the terms of
                            contracts.

                        (b) In case of fixed priced contracts revenue is recognised on percentage of completion basis. Foreseeable
                            losses, if any, on contract completion are recognised immediately.

        9.   LEASES
             a) Lease transactions entered into prior to April 1, 2001:

                  i)    Assets leased out are stated at cost and amortised over the primary lease period.

                  ii)   Lease rentals in respect to the assets taken/given on lease are recognised in the Profit and Loss Account on
                        accrual basis.

             b)   Lease transactions entered into on or after April 1, 2001:

                  i)    Assets taken under leases where the Company has substantially all the risks and rewards of ownership are
                        classified as Finance leases. Such assets are capitalised at the inception of the lease at the lower of fair value
                        or the present value of minimum lease payments and a liability is created for an equivalent amount. Each
                        lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic
                        rate of interest on outstanding liability for each period.

                                                                       46


HCL-45.p65                         46                                                       10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

                 ii)   Assets taken on leases where significant portion of the risks and rewards of ownership are retained by the
                       lessor are classified as operating leases. Lease rentals are charged to the Profit and Loss Account on straight-
                       line basis over the lease term.

                 iii) Profit on sale and leaseback transactions is recognised over the period of the lease.

                 iv) Assets given under finance lease are recognised as receivables at an amount equal to the net investment in
                     the lease. Inventories given on finance lease are recognised as deemed sale at fair value. Lease income is
                     recognised over the period of the lease so as to yield a constant rate of return on the net investment in the
                     lease.

                 v)    Assets leased out under operating leases are capitalised. Rental income is recognised on accrual basis over
                       the lease term.

                 vi) Initial direct costs relating to the finance lease transactions are included as part of the amount capitalised as
                     an asset under the lease.

        10. BORROWING COSTS

             Borrowing costs to the extent related/attributable to the acquisition/construction of assets that necessarily take substantial
             period of time to get ready for their intended use are capitalised along with the respective fixed asset up to the date
             such asset is ready for use. Other borrowing costs are charged to the Profit and Loss Account.

        11. INCOME TAXES
             The current charge for income taxes is calculated in accordance with the relevant tax regulations.

             Deferred tax assets and liabilities are recognised for the future tax consequences attributable to timing differences
             between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.
             Deferred tax assets and liabilities are measured using the enacted or substantially enacted tax rates as on the balance
             sheet date. Deferred tax asset is recognized and carried forward when it is reasonably certain that sufficient taxable
             profits will be available in future against which deferred tax assets can be realised.




                                                                       47


HCL-45.p65                         47                                                       10/4/2004, 5:54 PM
         SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

        SCHEDULE 21 - NOTES TO ACCOUNTS

        1.   Land and Buildings and certain Plant and Machinery were revalued by registered valuers’ after considering depreciation
             upto that date on the governing principle of current replacement cost/value to the Company. The amounts added/
             reduced on aforesaid revaluation were as under:
                                                                                            Rs./Lacs
             Land                                                                            444.39
             Buildings                                                                       643.81
             Plant & Machinery                                                             (100.78)
             Total                                                                           987.42
             Less : Goodwill                                                                 570.00
             Transferred to Revaluation Reserve                                              417.42
             Less:
             - Expenditure incurred on acquisition of business in 1992                        86.31
             - Loss on sale of Land                                                           15.16
                                                                                             315.95

        2.   Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances) are
             Rs. 7.38 Lacs (2003 - Rs. 23.93 Lacs).

        3.   Contingent Liabilities:

             a)   Claims not acknowledged as debts for:

                  - Excise, Income Tax and Sales Tax demands of Rs. 913.16 Lacs (2003- Rs. 2799.26 Lacs). Against this, the
                    Company has deposited a sum of Rs. 2.49 Lacs (2003 - Rs. 34.32 Lacs).

                  - Other Sundry Claims of Rs. 497.95 Lacs (2003 - Rs. 288.26 Lacs).

             b)   Corporate Guarantee of Rs. 6950.00 Lacs (2003 - Rs. 2950.00 Lacs) was given to a Bank for working capital
                  facilities sanctioned to a subsidiary, against which total amount utilised till date is Rs. 3739.35 Lacs (2003-
                  Rs. 570.87 Lacs).
             c)   Non fund based facilities amounting to Rs. 20.30 Lacs (2003 - Rs. 852.09 Lacs) related to the demerged and
                  transferred business.

        4.   Taxation:

             a)   Provision for taxation has been computed by applying the Income Tax Act, 1961 to the profit for the financial year
                  ended 30th June, 2004, although the actual tax liability of the Company has to be computed each year by
                  reference to the taxable profit for each fiscal year ended 31st March.
             b)   Provisions includes Rs. NIL (2003 - Rs. 34.49 Lacs) on account of tax deducted overseas.

             c)   The significant components and classification of deferred tax asset and liability on account of timing differences
                  are as follows:

                  Deferred tax assets                                                 2004                           2003
                                                                                     Rs./Lacs                       Rs./Lacs
                  Diminution in the value of Investments                           –                           12.60
                  Allowances for doubtful debts                                23.53                           14.90
                  Demerger Scheme Expenses                                     21.29                           27.76
                  Expense accruals                                            385.75                          320.17
                  Other timing differences                                         –            430.57          0.33        375.76
                  Deferred tax liabilities
                  Depreciation                                                313.47                          368.53
                  Other timing differences                                    424.83            738.30        570.23        938.76
                  Deferred tax liability (Net)                                                  307.73                      563.00

        5.   The names of Small Scale Industrial Undertakings to whom the Company owes money and dues are outstanding for
             more than 30 days as at the Balance Sheet date are Cubix Control Systems Pvt Ltd, Esteem Industries, K K Nag Ltd,
             Acme Tech, Avon Data Cables Pvt Ltd, Polyteck Packings (India) Pvt Ltd, Sri Kaleeswarar Industries, Sivasakthi




                                                                    48


HCL-45.p65                        48                                                    10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

             Plastic and Welding, Sri Guru Ragavendra Enterprises, Jain Transfer, Coromandel Electronics, Endura Metal Finishers,
             Plastic Coats, Shakthi Data Cables, Doss Packaging, Rangsons Electronics, Nithya Packaging, Electronics Consultants,
             Electronics Fasteners, Glossy & Matt, Hindustan Metal Finishers, Hexagon Technologies, Giri Metal Finsihers, Saras
             Micron Tools, G.T.N. Industries, SPA Electronics, Navarang Industrial Corporation, and B.R. Engineering Plastics.

             Interest has been provided for delays in payments to the suppliers covered under the “Interest on Delayed Payments
             to Small Scale and Ancillary Undertakings Act, 1993”.

        6.   Expenditure on Research and Development:

                                                                                                              2004           2003
                                                                                                            Rs./Lacs       Rs./Lacs
             Capital                                                                                          85.66           5.35
             Revenue                                                                                          40.63          46.91

             Total                                                                                          126.29           52.26

        7.   Capacities, Production, Sales & Stocks:

             •    Sales, Purchases, Opening and Closing stocks have been given in terms of values and/or, where ascertainable, in
                  numbers.

             •    Bought out Computers and certain peripherals have been included in the stock/sales of systems.

             •    Sales value are net of capitalisation of the Company’s products at cost-Rs. 64.34 Lacs (2003 - Rs. 127.55 Lacs)
             a)   Particulars of goods manufactured:

                  Class of Product                                                                          Installed        Actual
                                                                                                            capacity     Production

                  Computers/Micro processor
                  Based systems                                                    Nos.                   525000           295192
                                                                                                        (300000)         (167888)
                  Data Graphic/Display Monitor/Terminals, Hubs etc                 Nos.                   350000           297991
                                                                                                        (200000)         (170173)

                  Note: Installed capacity being a technical matter has been certified by the management.

             b)   Information in respect of purchase of finished goods and services:

                                                                                                                Nos.          Value
                                                                                                                           Rs./Lacs

                  Computers                                                                                16282          18428.74
                                                                                                         (11892)        (14455.92)
                  Printers/Scanners/UPS/CVT                                                               158536          14962.95
                                                                                                         (85197)         (8701.06)
                  Photocopiers                                                                                  –                 –
                                                                                                           (2987)        (3077.62)
                  Cellular Phones                                                                          46131           2588.97
                                                                                                        (769396)        (45093.70)
                  EPABX Systems                                                                                 –                 –
                                                                                                            (232)          (895.91)
                  Others                                                                                                  14769.36
                                                                                                                        (14550.77)

                  Total                                                                                                   50750.02
                                                                                                                        (86774.98)




                                                                   49


HCL-45.p65                          49                                                 10/4/2004, 5:54 PM
         SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

             c)   Stocks and Sales:

             Class of Products            Unit       Sales/Adjustments             Opening Stock                        Closing Stock
                                                        Qty.        Value          Qty.        Value                   Qty.         Value
                                                                 Rs./Lacs                   Rs./Lacs                             Rs./Lacs
             Computers/Micro              Nos      307270 101668.83               6595         1774.38           10799            3189.99
             processor based Systems              (178037) (70369.34)            (4852)       (1185.35)          (6595)         (1774.39)
             Printers/Scanners/           Nos      154273       16708.50           3922          180.01            8185            565.14
             UPS/CVT’S                             (85513)      (9441.28)        (4238)        (325.89)          (3922)          (180.01)
             Photocopiers                 Nos            –              –             –               –                   –             –
                                                    (2998)      (3972.41)         (659)        (999.50)                 (–)           (–)
             Cellular Phones              Nos        48778    2803.94              4033          246.32            1386            103.95
                                                  (751910) (45619.32)            (6984)        (527.65)          (4033)          (246.32)
             EPABX Systems                Nos             –             –             –               –                   –             –
                                                      (214)     (1010.33)         (121)        (331.48)                 (–)           (–)
             Others                                              21089.07                       1346.15                           2647.07
                                                               (20425.83)                     (1394.49)                         (1346.14)
             Total                                              142270.34                       3546.86                           6506.15
                                                              (150838.51)                     (4764.36)                         (3546.86)

             Note: Previous year’s figures are given in brackets.

        8.   Value of imported and indigenous raw materials and components consumed during the year (excluding value of
             consumption of stores and spares which is not readily ascertainable) classified on the basis of ratio between purchase
             of imported and indigenous raw materials and components during the year:

                                                                           2004                                      2003
                                                                Rs./Lacs    % of Consumption              Rs./Lacs     % of Consumption

             Imported                                         42220.10                 72.92           27897.55                    71.58
             Indigenous                                       15676.82                 27.08           11077.52                    28.42

             Total                                            57896.92                100.00           38975.07                   100.00

        9.   Details of raw materials and components consumed (in value):
                                                                                                                       2004        2003
                                                                                                                     Rs./Lacs    Rs./Lacs

             a)   Mother Boards and Assemblies                                                                  11533.96         8386.78
             b)   Hard Disk Drives                                                                               9416.17         5522.45
             c)   Processors                                                                                    15590.55         9583.68
             d)   Monitors                                                                                       1394.26         3355.79
             e)   CRT, Key Tops, PCBs & Cabinets                                                                 8832.95         5422.90
             f)   Others                                                                                        11129.03         6703.47

                  Total                                                                                         57896.92 38975.07

             Note: Separate quantitative numbers of raw materials & components (including for resale) are not readily ascertainable.

        10. Value of Imports calculated on CIF basis:
                                                                                                                       2004        2003
                                                                                                                     Rs./Lacs    Rs./Lacs

             a)   Raw materials & components                                                                    49653.43 31561.57
             b)   Stores and spares                                                                               191.98   420.77
             c)   Capital goods                                                                                   253.73    26.87
             d)   Traded items                                                                                  12879.05 12799.14

                  Total                                                                                         62978.19 44808.35



                                                                    50


HCL-45.p65                        50                                                      10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

        11. Expenditure in Foreign Currency:
            (On actual payment basis)
                                                                                                                     2004       2003
                                                                                                                   Rs./Lacs   Rs./Lacs
             a)     Travel                                                                                          31.03      213.28
             b)     Royalty (Net of tax)                                                                          4683.68     3684.65
             c)     Interest                                                                                       122.09       94.60
             d)     Others *                                                                                        43.70       47.98
                    Total                                                                                         4880.50     4040.51

             * Includes Professional fees of Rs. Nil (2003- Rs. 0.67 Lacs) and excludes Rs. Nil (2003 - Rs. 541.00 Lacs) on
             account of Expenditure deducted at source.

        12. Earnings in Foreign Currency:
                                                                                                                     2004       2003
                                                                                                                   Rs./Lacs   Rs./Lacs
             a)     Commission                                                                                      60.12       68.52
             b)     FOB value of exports (including deemed exports)                                               3207.59     5934.51
             c)     Others (including reimbursement of expenses, subscriptions etc)                                959.65      507.28
                    Total                                                                                         4227.36     6510.31

        13. Remuneration to Auditor:
                                                                                                                     2004       2003
                                                                                                                   Rs./Lacs   Rs./Lacs
             a)     As Auditor                                                                                       16.00      31.00
             b)     In Other Capacity:
                    Tax Audit                                                                                         9.00       9.00
                    Certification                                                                                     1.00      14.65
                    Out-of-Pocket Expenses                                                                            2.32       1.82
                    Total                                                                                            28.32      56.47

        14. Details of Investments purchased, reinvested and sold on various dates within the financial year are as follows.

             Name of the Fund                                               Face Value                   * No. of Units           Cost
                                                                           Rs. per unit                                       Rs./Lacs

             Growth Options
             HSBC Income Fund - Investment Plan                                       10                 4414465.320             500
             JM Income Fund                                                           10                  192781.411              50
             K Bond (Institutional) - Growth                                          10                 5723508.740            1000
             JM Short Term - Institutional Plan - Growth                              10                 4652158.135             500

             Dividend Options
             Deutsche Premier Bond Fund                                            10                   4863408.158              510
             Deutsche Short Maturity Fund - DW                                     10                   5056087.215              518
             DSP Merrill Lynch Liquidity Fund                                      10                   8984006.160             1114
             DSP Merrill Lynch Short Term Fund                                     10                   4973175.943              502
             HSBC Cash Fund                                                        10                   8644356.469              903
             HSBC Income Fund - ST                                                 10                   4753047.119              502
             IL & FS Liquid Fund                                                   10                   7011457.012              701
             Principal Cash MF Liquid Option                                       10                   5941475.712              600
             Principal Income Fund                                                 10                   4585643.343              633
             Prudential ICICI - ST                                                 10                   4617532.272              503
             Prudential ICICI Liquid Plan - DW                                     10                  25485021.070             3017
             Templeton India Short Term                                          1000                     45909.979              501

                                                                                                       99944034.058

                  * Represents total of transactions on account of renewals and reinvestments.

                                                                     51


HCL-45.p65                          51                                                     10/4/2004, 5:54 PM
         SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

        15. Managerial Remuneration :

        (I)   Computation of net profit under Section 349 of the Companies Act, 1956.
                                                                                                  2004                      2003
                                                                                                Rs./Lacs                  Rs./Lacs

              Profit before Taxation                                                         12848.37                    6254.89

              Add:
              Directors Remuneration Paid/payable                                309.94                      262.14
              Depreciation                                                      1018.98                     1109.19
              Loss on sale of Fixed Assets (Net)                                      –                        5.37
              Provision for Doubtful Debts                                        25.00                           –
                                                                                              1353.92                    1376.70
                                                                                             14202.29                    7631.59
              Less:
              Depreciation under Section 350 of the
              Companies Act, 1956                                               1018.98                     1109.19
              Profit on Disposal of (Other) Investments (Net)                    777.55                      543.03
              Profit on sale of Fixed Assets (Net)                                 5.24                           –
              Debts written off against previous year’s provision and not
              debited to Profit &Loss Account                                          –       1801.77       109.99      1762.21

              Net Profit under Section 349                                                   12400.52                    5869.38
              Calculation of Commission under Section 309 of the
              Companies Act, 1956 @ 1%                                                           124.01                     58.69
              Restricted to                                                                       15.82                      8.90

        (II) Paid/payable to the Wholetime Directors
             a) Salaries, Allowances & Bonus                                                     242.81                    220.83
                 Contribution to Provident and Superannuation Funds                               15.55                     13.06
                 Perquisites                                                                      32.56                     18.35

                                                                                                 290.92                    252.24
              b)   Directors’ Sitting Fees                                                         3.20                      1.00
                   Commission to Non Wholetime Directors                                          15.82                      8.90
                   Managerial remuneration under Section 198
                   of the Companies Act, 1956                                                    309.94                    262.14

        16. Unaccrued forward exchange cover as on 30th June, 2004 of Rs. 7.78 Lacs (2003- Rs. 23.15 Lacs) has been
            included in prepaid expenses.

        17. Pursuant to the approval of the shareholders at the Extra-Ordinary General Meeting held on 25th February, 2000 for
            grant of options, to the employees of the Company and its subsidiaries, the Board had approved at their meeting held
            on August 10, 2000, an offer granting upto 30,18,000 (2003-30,18,000) options (each option conferring on the
            employee a right to get one equity share of Rs. 10/- each), at an exercise price of Rs. 289/- being the market price at
            the grant date. During the year 9,80,414 (2003- Nil) options were exercised.

              Out of the 30,18,000, options granted 16,36,080 (2003 – 9,09,500) options had lapsed. The Board of Directors at
              their meeting held on January 28, 2004, had approved grant of 16,06,100 lapsed options at an exercise price of
              Rs. 538.15 being the market price on the grant date. During the year 72,960 options were lapsed out of the options
              granted January 28, 2004.

        18. Leases:

              A)   Finance Leases:

                   (i)   Assets acquired under Sale and Leaseback arrangements comprises of Computers. There are no exceptional/
                         restrictive covenants in the lease agreements.

                   (ii) The minimum lease payments and its present value as at 30th June, 2004 in respect of assets acquired under
                        finance lease are as follows:


                                                                     52


HCL-45.p65                         52                                                  10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

                                                                                             Minimum Lease                  Present
                                                                                                  Payments                    Value
                                                                                                   Rs./Lacs                Rs./Lacs
                   Not later than one year
                   Later than one year and not later than five years                                      42.43               35.32
                                                                                                        (25.19)             (23.60)
                                                                                                          41.16               38.61
                                                                                                        (51.26)             (40.00)

                   Total                                                                                  83.59               73.93
                                                                                                        (76.45)             (63.60)

                   Reconciliation:                                                                                         Rs./Lacs

                   Total Minimum Lease Payments as above                                                                      83.59
                                                                                                                            (76.45)
                   Less: Future Finance charges                                                                                9.66
                                                                                                                            (12.85)
                   Net Present Value                                                                                          73.93
                                                                                                                            (63.60)
                   Note: Previous year’s figures are given in brackets.

             (iii) The Company has given on finance lease certain Assets/Inventories, which comprise of computers. The lease has
                   a primary period, which is fixed and non-cancellable. There are no exceptional/restrictive covenants in the lease
                   agreements.

             (iv) The gross investment in the assets given on finance lease as at 30th June, 2004 and its present value as at that
                  date are as follows:

                                                                                                                   Gross    Present
                                                                                                             Investment       Value
                                                                                                                Rs./Lacs   Rs./Lacs

             Not later than one year                                                                            274.44       216.26
                                                                                                              (260.27)     (238.98)
             Later than one year and not later than five years                                                  181.40       130.84
                                                                                                              (410.22)     (264.32)
             Total                                                                                              455.84       347.10
                                                                                                              (670.49)     (503.30)

             Reconciliation:                                                                                               Rs./Lacs

             Gross Investment                                                                                                455.84
                                                                                                                           (670.49)
             Less : Unearned Finance Income                                                                                  108.74
                                                                                                                           (167.19)
             Net Present Value                                                                                               347.10
                                                                                                                           (503.30)

             [includes minimum sub lease receivable Rs. 68.67 Lacs (2003 - Rs. 56.94 Lacs)]

             Note: Previous year’s figures are given in brackets.
        B)   Operating Lease:

             (i)   The Company has taken various residential/commercial premises under cancellable operating leases. These leases
                   are normally renewable on expiry.

             (ii) The rental expense in respect of operating leases is Rs. 495.31 Lacs (2003 - Rs. 626.37 Lacs)

        19. In the previous year, all the lease transactions entered into on or after 1st July 2001 were being considered as Leases
            under Accounting Standard (AS) 19 (Accounting for Leases) and were accounted for accordingly. During the current
            year, the lease transactions between 1st April 2001 and 30th June 2001 have also been considered as leases falling

                                                                       53


HCL-45.p65                           53                                                 10/4/2004, 5:54 PM
         SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

             under AS 19. As a result, the current year’s profits are lower to the extent of Rs. 24.01 Lacs with consequential impact
             on the following Assets and liabilities:

                                                                                                                            Rs./Lacs

             Reconciliation:
             Increase in Deferred Lease Obligations                                                                           41.60
             Add : Increase in Deferred Profit                                                                                24.26
                                                                                                                              65.86
             Less: Increase in Lease Rent recoverable                                                                         41.85

                                                                                                                              24.01

        20. Disclosure of related parties and related party transactions.

             (i)   Holding Company:

                   HCL Corporation Ltd.

             (ii) List of Parties where control exists/existed:

                   Subsidiary:
                   HCL Infinet Ltd.

             (iii) Other related parties with whom transactions have taken place during the year and/or balances exist:
                   Fellow Subsidiaries:

                   HCL Technologies Ltd and its Subsidiaries, HCL Peripherals Ltd and its Subsidiaries.

                   Others (where there is significant influence):

                   * HCL Perot Systems Ltd, OWNHCL Trust, Shri Sivasubramaniya Nadar Educational and Charitable Trust.
                   * ceased to be a related party w.e.f. December, 2003.

                   Key Management Personnel

                   a)   Directors:
                        Mr. Ajai Chowdhry
                        Mr. T.S. Purushothaman
                        Mr. Ravi Thumboochetty

                   b)   Other Key Management Personnel:
                        Mr. Hari Bhaskaran
                        Mr. J. V. Ramamurthy
                        Mr. K.R.Radhakrishnan
                        Mr. Manohar Lal Taneja
                        Mr. Rajendra Kumar
                        Mr. Sandeep Kanwar
                        Mr. S. Pattabiraman
                        Mr. Suman Ghose Hazra

             (iv) Summary of Related Party disclosures (Rs./Lacs)

             Note: All transactions with related parties have been entered into in the normal course of business.




                                                                     54


HCL-45.p65                         54                                                    10/4/2004, 5:54 PM
        SCHEDULES TO THE BALANCE SHEET & PROFIT AND LOSS ACCOUNT

        Related Party Transactions for the year ended 30th June 2004 and Balances as on that date
                                                                                                                                                                                       (Rs./Lacs)
        A. Transactions                                    Holding Company           Subsidiary          Fellow Subsidiaries        Others             Key Management             Total
                                                                                                                                                          Personnel
                                                         June 04    June 03     June 04     June 03       June 04     June 03   June 04      June 03   June 04    June 03    June 04      June 03
        Sales & Related Income                              0.13        0.16     234.84      151.20      2916.01     2028.20    128.25       189.34                          3279.23 2368.90
        Services                                                                  63.15    2478.19          89.25     538.76      5.22         6.45                          157.62 3023.40
        Other Income                                                                              5.83    108.39        79.94                  0.71                          108.39         86.48
        Demerger/Transfer of Business                                                      4034.54                   2615.49                                                              6650.03
        Purchase of Goods                                                      2673.66     1240.90          40.44     418.85                                                 2714.10 1659.75
        Purchase of Services                                                      24.60      610.74       386.92      217.25                                                 411.52        827.99
        Donations Given                                                                                                          48.00                                        48.00
        Impairment/Debts written off                                 232.77                                  2.17     182.54                                                   2.17        415.31
        Assets Purchased                                                          15.60           2.36                                                                        15.60          2.36
        Assets Sold                                                                                                                                                   1.43                   1.43
        Remuneration                                                                                                                                   485.15     465.59     485.15        465.59
        Reimbursements towards expenditure
        a) Received                                         4.04        3.02     346.46      337.96         80.63       56.77     0.66         0.75                          431.79        398.50
        b) Made                                             5.47        2.94        5.85      36.89          8.56       11.21                                                 19.88         51.04


        B. Amount due to/from related parties              Holding Company           Subsidiary          Fellow Subsidiaries        Others             Key Management             Total
                                                                                                                                                          Personnel
                                                         June 04    June 03     June 04     June 03       June 04     June 03   June 04      June 03   June 04    June 03    June 04      June 03
        Investment                                                             6150.68     7319.81                                                                           6150.68 7319.81
        Accounts Receivables                                                      30.02    1065.52        362.85      159.74                   0.10                          392.87 1225.36
        Loans & Advances & Other Recoverables               0.09                 370.91    4681.35          91.05    1090.85                  59.93                   2.07   462.05 5834.20
        Creditors                                                                188.75      352.75         63.86       21.81                  0.34                          252.61        374.90
        Other Payables                                                                                      56.05       66.57     4.43         0.42       8.00        8.00    68.48         74.99




        21. Earnings per share (EPS)

               The earnings considered in ascertaining the Company’s EPS represent profit for the year after tax. Basic EPS is
               computed and disclosed using the weighted average number of equity shares outstanding during the year. Diluted
               earnings per share is computed and disclosed using the weighted average number of equity and dilutive equivalent
               shares outstanding during the year, except when results would be anti dilutive.

               Calculation of EPS:

               Particulars                                                                                                            30.06.2004                             30.06.2003
               Profit after tax (Rs./Lacs)                                                                                                12089.64                               6172.89
               Weighted average number of shares considered
               as outstanding in computation of Basic EPS                                                                             32,219,079                             31,909,459
               Add dilutive impact of stock options:
               – Outstanding                                                                                                              1,012,386                                            –
               – Exercised                                                                                                                  670,794                                            –
               – Lapsed                                                                                                                     255,331                                            –
               – Issued for no consideration                                                                                                317,167                                            –
               Weighted average number of shares outstanding
               in computation of Diluted EPS                                                                                          34,474,757                             31,909,459
               Basic EPS (of Rs. 10/- each)                                                                                             Rs. 37.52                              Rs. 19.35
               Diluted EPS (of Rs. 10/- each)                                                                                           Rs. 35.07

        22. Consequent to the demerger of Software business to HCL Technologies Ltd. and transfer of Office Automation &
            Telecommunication business to HCL Infinet Ltd. last year, the Company is significantly operating only in a Single
            segment. Accordingly, Segmental information has not been disclosed.




                                                                                                    55


HCL-45.p65                                      55                                                                              10/4/2004, 5:54 PM
        23. Additional disclosure as per Clause 32 of the Listing Agreement
             Disclosure of amounts at the year end and the maximum amount of loans/advances/investments outstanding during
             the year ended 30th June, 2004.

             A.   Loans and Advances in the nature of Loans to Subsidiary.
             a.   Name.                                                                                                        Nil
             b.   Balance outstanding at the year end                                                                          Nil
             c.   Maximum amount outstanding during the year ended 30th June, 2004                                             Nil

             B. Loans and Advances in the nature of loans to Fellow Subsidiaries

             a. Name                                                                                                           Nil
             b. Balance outstanding at the year end                                                                            Nil
             c. Maximum amount outstanding during the year ended 30th June, 2004                                               Nil

             C.   Loans and Advances in the nature of loans where no interest or interest below Section 372 A of Companies Act
                  is charged - Nil.

                  Loans given to employees under various schemes of the Company have been considered to be out of purview of
                  disclosure requirement.

             D.   Loans and Advances in the nature of loans to firms/Companies in which directors are interested-
                  Nil.

             E.   Disclosure of Investment in the Company’s own shares

             a.   Name of the Loanee                                                                                Own HCL Trust
             b.   Balance outstanding at the year end                                                                          Nil
             c.   Maximum amount outstanding during the year ended 30th June, 2004                                  Rs. 59.63 lacs
             d.   Investments made by the loanee                                                                               Nil
             e.   Maximum amount of Investment during the year ended 30th June, 2004                                           Nil

        24. Previous year’s figures have been regrouped/recasted, where necessary, to conform to current year’s presentation.
            Current year figures are not comparable with the previous year figures to the extent of demerger of Software Business
            and transfer of Office Automation & Telecommunication Business from the appointed date of 1stJanuary, 2003.




                                                                  56


HCL-45.p65                       56                                                   10/4/2004, 5:54 PM
        BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

        Registration Details

                                                       Registration No.                                   State Code

                                                       0 2 3 9 5 5                                        5 5

                                                       Balance Sheet Date
                                                       3 0        0 6      2 0 0 4
                                                       D D        M M      Y Y Y Y

        Capital Raised During the Year (Amount in Rs. Thousands)

                                                       Public Issue                                       Rights Issue
                                                       N I L                                              N I   L

                                                       Bonus Issue                                        Private Issue
                                                       N I L                                              N I   L
        Position of Mobilisation and Deployment of funds (Amount in Rs. Thousands)

                                                       Total Liabilities                                  Total Assets

        Sources of Funds                                     4 7 2 8 3 8 7                                      4 7 2 8 3 8 7

                                                       Paid-up Capital                                    Reserves and Surplus
                                                                  3 2 8 9 0 0                                   3 6 5 5 1 5 7
                                                       Secured Loans                                      Unsecured Loans
                                                                  6 9 0 3 7 0                                            2 3 1 8 7

        Application of Funds                           Net Fixed Assets                                   Investments
                                                                  4 9 2 4 9 3                                   2 8 0 5 9 8 8
                                                       Net Current Assets                                 Misc. Expenditure
                                                             1 4 2 9 9 0 6                                N I   L
                                                       Accumulated Losses
                                                       N I L
        Performance of Company                         Turnover                                           Total Expenditure
                                                           1 4 3 8 8 2 1 3                                    1 3 1 0 3 3 7 6
        (Please tick Appropriate box                   Profit/ Loss before Tax                            Profit/ Loss After Tax
        + for Profit, - for Loss)                      +          1 2 8 4 8 3 7                           +     1 2 0 8 9 6 4
                                                       Earning Per Share in Rs.                           Dividend Rate (%)
                                                       3 7 .      5 2                                     2 1 0

        Generic Name of Three Principal Products/ Services of Company (as per monetary terms.)

        Item Code No. (ITC Code)                       8 4 7 1 0 0
        Product Description                            C O M P U T E R S

        Item Code No. (ITC Code)                       8 4 7 1 6 0
        Product Description                            C O M P U T E R            P E R I          P H E R A L S




                                                                   57


HCL-45.p65                          57                                               10/4/2004, 5:54 PM
        AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

        To,

        The Board of Directors of HCL Infosystems Limited,


        1. We have audited the attached Consolidated Balance Sheet of HCL Infosystems Limited and its subsidiary as at
           30th June 2004, the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement for the year
           ended on that date annexed thereto, which we have signed under reference to this report. These consolidated financial
           statements are the responsibility of the HCL Infosystems Limited’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 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 prepared,
           in all material respects, in accordance with an identified financial reporting framework and 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 presumption. We believe that our audit provides
           a reasonable basis for our opinion.

        3. We report that the Consolidated Financial Statements have been prepared by HCL Infosystems Limited’s management
           in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements, issued by
           the Institute of Chartered Accountants of India.

        4. In our opinion and to the best of our information and according to the explanations given to us, the consolidated
           financial statements give a true and fair view in conformity with the accounting principles generally accepted in India:

              a)   in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of HCL Infosystems Limited
                   and its subsidiary as at 30th June, 2004;

              b)   in the case of the Consolidated Profit and Loss Account, of the consolidated results of operations of HCL
                   Infosystems Limited and its subsidiary for the year ended on that date;

              c)   in the case of the Consolidated Cash Flow Statement of the consolidated cash flows of HCL Infosystems Limited
                   and its subsidiary for the year ended on that date.




                                                                                                  H. SINGH
                                                                                                  Partner
                                                                                                  Membership Number F-86994
                                                                                                  For and on behalf of
        Place: New Delhi                                                                          Price Waterhouse
        Date: August 25, 2004                                                                     Chartered Accountants




                                                                   58


HCL-45.p65                       58                                                    10/4/2004, 5:54 PM
        CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                        2004                                  2003
                                                       Schedule                       Rs./Lacs                              Rs./Lacs
        Sources of Funds:
        Shareholders’ Funds :
        Capital                                           1                          3289.00                               3190.96
        Reserves and Surplus                              2                         38977.19                              26458.17
        Loan Funds:
        Secured Loans                                     3                          6903.70                               8415.18
        Unsecured Loans                                   4                           296.91                               3447.34
        Deferred Tax :                                  21 (4)
           Deferred Tax Assets                                         (591.24)                                  –
           Deferred Tax Liabilities                                    1090.47         499.23                    –                –
                                                                                    49966.03                              41511.65
        Application of Funds:
        Fixed Assets:                                     5
        Gross Block                                                15040.38                           13470.19
        Less: Depreciation                                          8594.64                            6988.40
        Net Block                                                      6445.74                             6481.79
        Capital Work-in-progress                                        124.61       6570.35                134.71         6616.50
        (Including Capital Advances)
        Investments                                       6                         21909.20                              21850.90
        Current Assets, Loans & Advances:
        Inventories                                       7        28042.02                           23809.21
        Sundry Debtors                                    8        41643.22                           26268.54
        Cash and Bank Balances                            9        14521.64                            9552.46
        Other Current Assets                             10         4478.83                            3897.48
        Loans and Advances                               11         2520.78                            4028.21
                                                                   91206.49                           67555.90
        Less: Current Liabilities & Provisions           12
        Current Liabilities                                        65270.42                           50931.00
        Provisions                                                  4449.59                            4622.28
                                                                   69720.01                           55553.28
        Net Current Assets                                                          21486.48                              12002.62
        Deferred Tax :                                  21 (4)
           Deferred Tax Assets                                                 –                        2362.52
           Deferred Tax Liabilities                                            –                –     (1320.89)            1041.63
                                                                                    49966.03                              41511.65

        Consolidated Significant Accounting Policies     20
        Consolidated Notes to Accounts                   21

        This is the Balance Sheet referred to                          The schedules referred to above form an integral part of
        in our report of even date                                     the Balance Sheet
                                                                       For and on behalf of the Board of Directors
        H.SINGH                                                        AJAI CHOWDHRY                              S. BHATTACHARYA
        Partner                                                        Chairman and                                        Director
        Membership Number F-86994                                      Chief Executive Officer
        For and on behalf of
        Price Waterhouse
        Chartered Accountants
        Place : New Delhi                                                                                     K.R. RADHAKRISHNAN
        Dated : 25th August, 2004                                                                                  Company Secretary

                                                                  59


HCL-45.p65                       59                                                   10/4/2004, 5:54 PM
        CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE

                                                                                                2004                                  2003
                                                               Schedule                       Rs./Lacs                              Rs./Lacs
        Income
        Business Income                                          13       441300.13                         270507.69
        Less : Excise Duty                                                 10534.39       430765.74           8636.90            261870.79
        Other Income                                             14                         2319.65                                1716.27
                                                                                          433085.39                              263587.06

        Expenditure
        Cost of Sales and Services                               15                       386245.53                              225294.90
        Personnel                                                16                        10845.63                               12788.82
        Administration, Selling, Distribution and Others         17                        11842.24                               10598.74
        Repairs and Maintenance                                  18                          889.10                                 526.76
        Finance Charges                                          19                          310.11                                 661.03
        Depreciation                                                           1806.03                             1860.00
        Less : Transfer to Revaluation Reserve                                    4.58       1801.45                  4.58         1855.42

        Miscellaneous Expenditure Written Off                                                           –                           317.18
        Loss on disposal of Subsidiaries/Business (Net)                                                 –                           333.86
                                                                                          411934.06                              252376.71

        Profit for the year                                                                 21151.33                              11210.35
        Effect of Impairment                                                                       –                               3384.59
        Profit before Tax                                                                   21151.33                               7825.76
        Tax Expense                                             21 (4)
        - Current [Wealth tax Rs. 2.00 Lacs
          (2003-Rs. 1.50 Lacs)]                                                2099.00                           622.22
        - Deferred                                                             1540.87       3639.87          (2061.28)           (1439.06)

        Profit after Tax                                                                    17511.46                               9264.82
        Profit available for Appropriation                                                  17511.46                               9264.82
        Appropriations:
        Interim Dividend                                                                     4534.01                                     –
        Proposed Final Dividend                                                              2306.82                               3190.95
        Tax on Interim Dividend                                                               580.92                                     –
        Tax on Proposed Final Dividend                                                        301.47                                408.84
        Transfer to General Reserve                                                          1208.96                                617.29
        Balance Carried Over                                                                 8579.28                               5047.74
        Earning per share (Basic) of Rs.10/- each (in Rs.)     21 (10)                           54.35                                29.03
        Earning per share (Diluted) of Rs.10/- each (in Rs.)   21 (10)                           50.80
        Consolidated Significant Accounting Policies             20
        Consolidated Notes to Accounts                           21

        This is the Profit and Loss Account                                    The schedules referred to above form an integral part of
        referred to in our report of even date                                 the Profit and Loss Account
                                                                               For and on behalf of the Board of Directors
        H.SINGH                                                                AJAI CHOWDHRY                              S. BHATTACHARYA
        Partner                                                                Chairman and                                        Director
        Membership Number F-86994                                              Chief Executive Officer
        For and on behalf of
        Price Waterhouse
        Chartered Accountants
        Place : New Delhi                                                                                             K.R. RADHAKRISHNAN
        Dated : 25th August, 2004                                                                                          Company Secretary

                                                                          60


HCL-45.p65                          60                                                        10/4/2004, 5:54 PM
        CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE

                                                                                          2004                             2003
                                                                                      Rs./Lacs                          Rs./Lacs


        A. Cash Flow from Operating Activities


             Profit before Tax                                                       21151.33                           7825.76


             Adjustments for:
             Depreciation                                                 1801.45                          1855.43
             (Profit)/Loss on sale of Fixed Assets (Net)                    (3.71)                            9.65
             (Profit)/Loss on disposal of Investments (Net)               (795.58)                         (601.77)
             Interest on borrowings                                        882.68                          1219.83
             Interest and Dividend income                             (1321.14)                            (732.30)
             Unrealised (Gain)/Loss on Foreign Exchange
             Fluctuation (Net)                                             240.80                          (228.34)
             Loss on disposal of Subsidiaries                                    –                          333.86
             Provision for Doubtful Debts                                  148.01                           234.00
             Liabilities no longer required written back                   (70.72)                         (128.47)
             Diminution in the value of Current Investments                      –                            0.65
             Fixed Assets written off                                        0.01                             4.27
             Miscellaneous Expenditure Written Off                               –                          317.18
             Effect of Impairment                                                –     881.80              3384.59      5668.58


             Operating profit before Working Capital Changes                         22033.13                          13494.34

             Adjustments for:

             Trade and Other Receivables                             (15933.86)                     (11451.01)
             Inventories                                              (4232.81)                     (12585.43)
             Trade Payables and Other Liabilities                     14717.64       (5449.03)        24270.75           234.31

             Cash generated from Operation                                           16584.10                          13728.65
             Direct Tax (paid)/refund (Net)                                           (443.93)                            88.07

             Cash from Operating Activities                                          16140.17                          13816.72
             Net Cash from Operating Activities                (A)                   16140.17                          13816.72


        B. Cash Flow from Investing Activities

             Interest and Dividend Received (Gross)                       1331.99                          1073.06
             Purchase of Fixed Assets                                 (1806.83)                            (848.21)
             Sale of Fixed Assets                                           34.88                            26.86
             Purchase of Investments                                 (73024.56)                     (59959.75)
             Disposal/Redemption of Investments                       73761.84                        48941.46
             Consideration Received on Sale of
             Technical Help Desk Business                                        –                          200.00
             Capital Work-In-Progress                                       10.84                           (61.07)
             (Including Capital Advances)

             Net cash from/(used in) Investing Activities      (B)                     308.16                         (10627.65)




                                                                     61


HCL-45.p65                          61                                                10/4/2004, 5:54 PM
        CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE

                                                                                            2004                                2003
                                                                                        Rs./Lacs                              Rs./Lacs

        C. Cash Flow from Financing Activities

             Share Capital Issued                                           98.04                                   –
             Interest Paid                                               (989.41)                       (1294.77)
             Share Premium Received                                      2735.36                                    –
             Secured Loans Received/(Paid)                           (1511.48)                                124.04
             Unsecured Loans Received/(Paid)                         (3149.94)                          (1727.14)
             Dividend paid (including dividend tax)                  (8661.72)                               (794.17)
             Net cash from Financing Activities               (C)                   (11479.15)                              (3692.04)

             Opening balance of Cash and Cash Equivalents                              9552.46                              10055.43
             Closing balance of Cash and Cash Equivalents                             14521.64                               9552.46
             [(Includes Exchange Rate Fluctuation of
             Rs.3.42 Lacs (2003 - Rs.2.45 Lacs)]
             [Includes unclaimed dividend of Rs. 99.15 Lacs
             (2003 - Rs.46.14 Lacs)]


             Net Increase/(Decrease) in Cash
             and Cash Equivalents                                                      4969.18                               (502.97)


             Total (A)+(B)+(C)                                                         4969.18                               (502.97)


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

        This is the Cash Flow Statement                                  For and on behalf of the Board of Directors
        referred to in our report of even date


        H.SINGH                                                          AJAI CHOWDHRY                              S. BHATTACHARYA
        Partner                                                          Chairman and                                        Director
        Membership Number F-86994                                        Chief Executive Officer
        For and on behalf of
        Price Waterhouse
        Chartered Accountants
        Place : New Delhi                                                                                       K.R. RADHAKRISHNAN
        Dated : 25th August, 2004                                                                                    Company Secretary




                                                                    62


HCL-45.p65                          62                                                  10/4/2004, 5:54 PM
        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                  2004                              2003
                                                                                Rs./Lacs                          Rs./Lacs

        1- Capital
           (Schedule-21, Note 5)

        Authorised:
        8,00,00,000 (2003 - 8,00,00,000) Equity Shares of Rs. 10/- each         8000.00                           8000.00
        5,00,000 (2003 - 5,00,000) Preference Shares of Rs. 100/- each           500.00                            500.00

                                                                                8500.00                           8500.00



        Issued, Subscribed and Paid up:
        3,28,89,873 (2003 - 3,19,09,459) Equity Shares of Rs. 10/- each,
        fully paid up [Including 1,00,89,459 Equity Shares (2003 -
        1,00,89,459) issued pursuant to contract without payment being
        received in cash, 1,06,36,553 (2003 - 1,06,36,553) Bonus Shares
        issued from Share Premium Account and 9,80,414 (2003 - Nil)
        Equity Shares issued pursuant to the exercise of options granted
        under ESOP Scheme].
        Out of the total above, 1,66,03,841 (2003 - 1,63,99,782) Equity
        Shares are held by HCL Corporation Limited, the holding company.        3288.99                           3190.95

        Add : Shares Forfeited                                                      0.01                             0.01

                                                                                3289.00                           3190.96




        2- Reserves and Surplus                                As At                         Deductions/             As At
           (Schedule-21, Note 5)                         01.07.2003         Additions        Adjustments       30.06.2004
                                                            Rs./Lacs         Rs./Lacs            Rs./Lacs         Rs./Lacs



        General Reserve                                      4413.24        1208.96                    –          5622.20
                                                           (6415.72)        (617.29)           (2619.77)        (4413.24)

        Profit and Loss Account                             17730.32         8579.28                       –     26309.60
                                                          (12682.58)       (5047.74)                     (–)   (17730.32)

        Share Premium                                        4004.01        2735.36                     –         6739.37
                                                           (4306.14)             (–)             (302.13)       (4004.01)

        Revaluation Reserve (Adj.)                            310.23               –                    4.58       305.65
                                                                  (–)       (314.81)                  (4.58)     (310.23)

        Capital Reserve                                          0.37               –                   –             0.37
                                                             (302.95)             (–)            (302.58)           (0.37)

        Translation Adjustment                                      –              –                       –             –
                                                              (77.55)       (-21.76)                 (55.79)           (–)

                                                           26458.17        12523.60                 4.58         38977.19
        Previous year                                     (23784.94)       (5958.08)           (3284.85)       (26458.17)



                                                               63


HCL-45.p65                        63                                            10/4/2004, 5:54 PM
        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                          2004                               2003
                                                                                        Rs./Lacs                           Rs./Lacs

        3- Secured Loans
        Loans and Advances from Banks:
        Cash Credits                                                                             –                         335.92
        Foreign Currency Loan
             External Commercial Borrowings                                            1589.15                            1184.69
             Others                                                                    2287.36                            1944.83
        Term Loan
             Foreign currency Loan                                                       875.60                           1440.15
             Others                                                                    2151.59                            3509.59

                                                                                       6903.70                            8415.18



        a) Cash Credits along with non-fund based facilities, Foreign Currency Loans and Foreign Currency Term Loan from Banks
           by the Parent are secured by way of hypothecation of stock-in-trade, book debts as first charge and by way of second
           charge on all the immovable and movable assets of the Parent Company. The charge ranks pari-passu amongst Bankers.
        b) Term loan in Indian rupees from a Bank taken by the Parent Company is secured by equitable mortgage on all the
           immovable assets of the Parent Company and hypothecation of all movable assets subject to equitable mortgage of
           specific assets under term loan from another bank and prior charge in favour of Company’s bankers on book debts and
           stock in trade for working capital facilities. Term loan from another Bank by the Parent is secured by equitable mortgage
           on specific assets.
        c) Amount payable within one year from the Balance Sheet date is Rs. 6903.70 Lacs (2003 - Rs. 4987.52 Lacs).




                                                                                          2004                               2003
                                                                                        Rs./Lacs                           Rs./Lacs
        4- Unsecured Loans
           (Schedule-21, Notes 6 & 7)
        Public Deposits                                                                     9.18                             12.61
        Interest accrued and due                                                            2.02                              2.51
        Short Term Loans and Advances:
             - From Banks -Commercial Paper                                                       –                       3000.00
        Other Loans and Advances:
             - From a Financial Institution                                              146.74                            259.54
        Deferred Lease Obligations                                                       138.97                            172.68


                                                                                         296.91                           3447.34

        Notes:-
        1) Amount payable within one year Rs. 128.29 Lacs (2003 - Rs.133.83 Lacs)
        2) Public Deposits include unclaimed matured deposits.




                                                                    64


HCL-45.p65                        64                                                    10/4/2004, 5:54 PM
        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

        5- Fixed Assets
           (Schedule - 21, Note 2)                                                                                                                                                                      Rs./Lacs

                                                                             Gross Block                                                    Depreciation                                             Net Block
                                             As at        Additions   Deductions                        As at          As at   Additions      Deductions                        As at        As at           As at
                                      01.07.2003            during          during   Translation   30.06.2004   01.07.2003        during          during     Translation   30.06.2004   30.06.2004      30.06.2003
                                                           the Year     the Year     Adjustment                                the period      the period   Adjustments


        Tangible :
        Land - Leasehold                   398.96                –              –             –       398.96          14.85          5.45              –              –        20.30       378.66          384.11
        Land - Freehold                    296.27            83.49              –             –       379.76              –             –              –              –             –      379.76          296.27
        Buildings                        3585.41             88.15              –             –      3673.56         683.51      145.01                –              –       828.52      2845.04         2901.90
        Plant & Machinery and
        Air Conditioners                 4813.16          1091.73        148.35               –      5756.54      3129.52        806.82          126.77               –      3809.57      1946.97         1683.64
        Furniture, Fixtures &
        Office Equipment                 3018.73           526.29           40.87             –      3504.15      2246.71        474.14           35.73               –      2685.12       819.03          772.02
        Vehicles                          253.04            11.51           40.80             –       223.75         148.70       35.10           36.33               –       147.47        76.28          104.34

        Intangible :
        Acquired Software                1104.62                 –           0.96             –      1103.66         765.11      339.51             0.96              –      1103.66             –         339.51
        TOTAL                           13470.19          1801.17        230.98               –     15040.38      6988.40       1806.03          199.79               –      8594.64      6445.74         6481.79
        Previous Year                   15567.62          1166.82      3260.50             -3.75    13470.19      7657.69       1860.00         2527.34           -1.95      6988.40
        Capital Work-In-Progress                                                                                                                                                           124.61          134.71
        [Including Capital Advances of Rs.4.81 Lacs (2003-Rs.12.99 Lacs)]                                                                                                                 6570.35         6616.50

        Notes :
        1.         Land - Freehold at Ambattur amounting to Rs. 101.01 Lacs (2003 - Rs. 101.01 Lacs) and building at Mumbai amounting to Rs. 92.17 Lacs (2003 - Rs.92.17 Lacs) are pending registration
                   in the name of the Group .
        2.         Addition to Plant and Machinery includes Rs. 2.88 Lacs (2003 - Rs. Nil ) and Capital Work-In-Progress Rs. 0.73 Lacs (2003 - Rs. Nil) representing restatement of assets during the year due
                   to exchange rate fluctuation.



                                                                                                                                                 2004                                                   2003
                                                                                                                                               Rs./Lacs                                               Rs./Lacs
        6- Investments
        Unquoted (Others) - Current
        Nil (2003 - 1,000,000.000) Units of Rs.10/- each in Alliance
        Term Plan - Growth Option (Purchased during the year - Nil
        and Redeemed during the year - 1,000,000.000 Units)                                                                      –                                         100.00
        Nil (2003 - 8,954,975.755) Units of Rs.10/- each in Birla
        Bond Plus - Short Term Plan - Growth Option (Purchased
        during the year - Nil and Redeemed during the year -
        8,954,975.755 Units)                                                                                                     –                                         980.00
        Nil (2003 - 940,264.966) Units of Rs.10/- each in Birla
        Income Plus - Dividend Option (Purchased during the year -
        4,619,919.245, Dividend reinvested during the year -
        181,520.224 and Redeemed during the year
        5,741,704.435 Units)                                                                                                     –                                          99.58
        Nil (2003 - 798,836.893) Units of Rs.10/- each in Birla
        Income Plus - Growth Option (Purchased during the year -
        Nil and Redeemed during the year - 798,836.893 Units)                                                                    –                                         200.00
        1,300,465.278 (2003 - Nil) Units of Rs.10/- each in
        Birla Cash Fund - Growth Option (Purchased during
        the year - 1,300,465.278 Units and Redeemed
        during the year - Nil)                                                                                          225.00                                                     –
        3,934,839.066 (2003 - Nil) Units of Rs.10/- each in DSP
        Merrill Lynch Liquidity Fund - Growth Option (Purchased
        during the year - 14,344,200.218 and Redeemed during
        the year - 10,409,361.152 Units)                                                                                603.49                                                     –

                                                                                                                65                                                                                      (Contd.)



HCL-45.p65                                           65                                                                                        10/4/2004, 5:54 PM
        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                   2004                           2003
                                                                                 Rs./Lacs                       Rs./Lacs

        Nil (2003 - 7,666,519.910) Units of Rs.10/- each in DSP
        Merrill Lynch Liquidity Fund - Dividend Option (Purchased
        during the year - 32,643,615.379, Dividend received &
        reinvested - 369,304.031 and Redeemed during the year -
        40,679,439.320 Units)                                                -                         951.07
        5,879,080.117(2003 - Nil) Units of Rs.10/- each in DSP
        Merrill Lynch Short Term Fund - Growth Option (Purchased
        during the year - 5,879,080.117 Units and Redeemed during
        the year - Nil)                                                 634.00                              –
        983,627.520 (2003 - 983,627.520) Units of Rs.10/- each
        in DSP Merrill Lynch Bond Fund - Growth Option (Purchased
        during the year - 441,201.126 and Redeemed during the
        year - 441,201.126 Units)                                       200.00                         200.00
        3,079,868.087 (2003 - Nil) Units of Rs.10/- each in DSP
        Merrill Lynch Floating Rate Fund - Growth Option (Purchased
        during the year - 3,079,868.087 Units and Redeemed during
        the year - Nil)                                                 325.00                              –
        5,008,219.437 (2003 - Nil) Units of Rs.10/- each in
        Deutsche Floating Rate Fund - Growth Option (Purchased
        during the year - 5,008,219.437 Units and Redeemed during
        the year - Nil)                                                 516.30                              –
        884,877.444 (2003-Nil) Units of Rs.10/- each in Deutsche
        Premier Bond- Institutional Growth Option (Purchased during
        the year 5,318,838.034 and Redeemed during the year -
        4,433,960.590 Units)                                             98.12                              –
        Nil (2003 - 8,545,196.044) Units of Rs.10/- each in
        Grindlays Cash Fund - Dividend Option (Purchased during
        the year - 103,518,776.987, Dividend received & reinvested
        - 409,759.510 and Redeemed during the year -
        1,124,737,32.541 Units)                                              –                         903.98
        7,137,082.421 (2003 - 13,180,033.250) Units of Rs.10/-
        each in Grindlays Cash Fund - Growth Option (Purchased
        during the year - 102,863,399.484 and Redeemed during
        the year - 108,906,350.313 Units)                               850.00                        1500.00
        6,214,319.448 (2003 - 17,567,266.811) Units of Rs.10/-
        each in Grindlays Super Saver Income Fund - Short Term -
        Growth Option (Purchased during the year - Nil and Redeemed
        during the year - 11,352,947.363 Units)                         750.00                        2016.04
        6,095,318.731 (2003 - 5,893,030.446) Units of Rs.10/-
        each in Grindlays Super Saver Income Fund - IP - Growth
        Option (Purchased during the year - 2,409,596.339 and
        Redeemed during the year - 2,207,308.054 Units)                 879.02                         823.88
        20,141,502.595 (2003 - 11,498,055.345) Units of Rs.10/-
        each in Grindlays Dynamic Bond Fund - Growth Option
        (Purchased during the year - 17,392,731.841 and Redeemed
        during the year - 8,749,284.591 Units)                         2138.32                        1267.80
        6,394,887.390 (2003 - 1,000,000.000) Units of Rs.10/-
        each in Grindlays Super Saver Medium Term Fund - Growth
        Option (Purchased during the year 6,394,887.390 and
        Redeemed during the year - 1,000,000.000 Units)                 650.00                         100.00

                                                                  66                                             (Contd.)



HCL-45.p65                      66                                               10/4/2004, 5:54 PM
        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                   2004                           2003
                                                                                 Rs./Lacs                       Rs./Lacs


        2,358,868.875 (2003 - Nil) Units of Rs.10/- each in
        Grindlays Floating Rate Fund - Growth Option (Purchased
        during the year - 2,358,868.875 Units and Redeemed during
        the year - Nil)                                                 250.00                              –
        5,777,354.619 (2003 - Nil) Units of Rs.10/- each in HSBC
        Cash Fund - Growth Option (Purchased during the year -
        17,438,434.815 and Redeemed during the year -
        11,661,080.196 Units)                                           625.00                              –
        4,179,121.510 (2003 -Nil) Units of Rs.10/- each in HDFC
        Institutional Plan - Cash Management Fund - Growth Option
        (Purchased during the year 7,680,518.022 and Redeemed
        during the year - 3,501,396.512 Units)                          547.44                              –
        Nil (2003 - 13,862,548.350) Units of Rs.10/- each in HDFC
        Liquid Fund - Dividend reinvest Option (Purchased during
        the year - 11,648,460.658, Dividend received & reinvested -
        162,732.720 and Redeemed during the year -
        25,673,741.710 Units)                                                –                        1652.85
        Nil (2003 - 889,683.428) Units of Rs.10/- each in HDFC
        Liquid Fund - Growth Option (Purchased during the year -
        7,973,443.080 and Redeemed during the year -
        8,863,126.508 Units)                                                 –                         108.37
        Nil (2003 - 13,916,143.045) Units of Rs.10/- each in HDFC
        Short Term Plan - Growth Option (Purchased during the year -
        Nil and Redeemed during the year - 13,916.143.045 Units)             –                        1474.10
        Nil (2003 - 9,340,030.038) Units of Rs.10/- each in HDFC
        Short Term Plan - Dividend Option (Purchased Dividend
        Reinvest during the year - 98,655.860 and Redeemed during
        the year - 9,438,685.898 Units)                                      –                        1009.26
        Nil (2003 - 953,488.437) Units of Rs.10/- each in HDFC
        Income Plan - Growth Option (Purchased during the year -
        5,644,553.043 and Redeemed during the year -
        6,598,041.480 Units)                                                 –                         133.20
        5,596,545.066 (2003 - Nil) Units of Rs.10/- each in HDFC
        Floating Rate Fund - ST - Growth Option (Purchased during
        the year - 5,596,545.066 and Redeemed during the
        year - Nil)                                                     600.00                              –
        5,005,536.065 (2003 - Nil) Units of Rs.10/- each in J M
        Fixed Maturity Plan -DQ - Dividend Option (Purchased during
        the year - 10,005,536.065 and Redeemed during the year -
        5,000,000 Units)                                                500.55                              –
        Nil (2003 - 782,135.328) Units of Rs.10 each in JM High
        Liquidity - Dividend Option (Purchased during the year -
        480,323.707 and Redeemed during the year -
        1,262,459.035 Units)                                                 –                          81.00
        Nil (2003 - 149,358.060) Units of Rs.10 each in JM High
        Liquidity Fund - Growth Option (Purchased during the year -
        Nil and Redeemed during the year - 149,358.060 Units)                –                          25.00




                                                                   67                                            (Contd.)



HCL-45.p65                       67                                              10/4/2004, 5:54 PM
        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                   2004                           2003
                                                                                 Rs./Lacs                       Rs./Lacs


        Nil (2003 - 969,739.180) Units of Rs.10 each in K Bond
        Whole Sale Plan - Growth Option (Purchased during the year
        - 592,003.220 and Redeemed during the year -
        1,561,742.400 Units)                                                 –                         157.28
        4,572,837.753 (2003 Nil) Units of Rs.10/- each in Kotak
        Dynamic Income - Growth Option (Purchased during the year
        4,572,837.753 Units and Redeemed during the year Nil)           464.98                              –
        Nil (2003 - 9,766,481.126) Units of Rs.10/- each in
        Prudential ICICI Short Term Plan - Growth Option (Purchased
        during the year - Nil and Redeemed during the year -
        9,766,481.126 Units)                                                 –                        1032.21
        Nil (2003 - 9,323,215.300) Units of Rs.10/- each in
        Prudential ICICI Short Term Plan - Dividend Option
        (Purchased during the year - 158,334.402 and Redeemed
        during the year - 14,070,263.302 Units)                              –                        1010.96
        1,565,051.357 (2003 - 4,221,444.231) Units of Rs.10/-
        each in Prudential ICICI Income Fund - Growth Option
        (Purchased during the year - 1,565,051.361 Units and
        Redeemed during the year - 4,221,444.235 Units)                 281.53                         740.90
        16,310,812.186 (2003 - 8,196,136.557) Units of Rs.10/
        - each in Prudential ICICI Flexible Income Plan - Growth
        Option (Purchased during the year - 8,114,675.629 Units
        and Redeemed during the year - Nil)                            1842.76                         878.77
        8,500,000.00 (2003 - Nil) Units of Rs.10/- each in
        Prudential ICICI Fixed Maturity Plan - Qtly Dividend
        Option (Purchased during the year - 8,500,000.000
        Units and Redeemed during the year - Nil)                       850.00                              –
        Nil (2003 - 20,287,536.440) Units of Rs.10/- each in
        Prudential ICICI Liquid Fund - Dividend Option (Purchased
        during the year - 64,834,495.706 , Dividend received &
        reinvested - 498,870.284 and Redeemed during the year -
        85,620,902.430 Units)                                                –                        2404.11
        12,653,943.062 (2003 - 2314.739) Units of Rs.10/- each
        in Prudential ICICI Liquid Fund - Growth Option
        (Purchased during the year - 35,175,707.632 and
        Redeemed during the year - 22,521,764.570 Units)               1972.07                           0.34
        11,786,731.955 (2003 - Nil) Units of Rs.10/- each in
        Prudential ICICI Floating Rate Plan - Growth Option
        (Purchased during the year 11,786,731.955 Units
        and Redeemed during the year - Nil)                            1250.00                              –
        500,000.000 (2003 - Nil) Units of Rs.10/- each in
        Prudential ICICI Very Cautious Plan - Growth Option
        (Purchased during the year - 500,000.000 Units
        and Redeemed during the year - Nil)                              50.00                              –
        5,020,650.000 (2003 - Nil) Units of Rs.10/- each in
        Reliance Fixed Maturity Plan - Growth Option (Purchased
        during the year 10,020,650.000 and Redeemed during the
        year 5,000,000.000 Units)                                       502.06                              –


                                                                  68                                             (Contd.)



HCL-45.p65                      68                                               10/4/2004, 5:54 PM
        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                   2004                            2003
                                                                                 Rs./Lacs                        Rs./Lacs


        Nil (2003 - 19,774.570) Units of Rs.1000/- each in
        Templeton India Short Term Plan - Growth Option (Purchased
        during the year - Nil and Redeemed during the year -
        19,774.570 Units)                                                   –                          205.73
        Nil ( 2003- 46,381.290) Units of Rs.1000/- each in
        Templeton India Short Term Plan - Dividend Option
        (Purchased during the year - 45,841.630, Dividend received
        & reinvested - 662.299 and Redeemed during the year -
        92,885.219 Units)                                                   –                          505.65
        2,350,427.740 (2003 - 6,774,215.855) Units of Rs.10/-
        each in Templeton India Income Builder - Growth Option
        (Purchased during the year - 3,573,364.402 and Redeemed
        during the year - 7997152.517 Units)                           411.37                         1132.86
        Nil (2003 - 10,591,186.885) Units of Rs.10/- each in
        Templeton India Floating Rate Short Term - Dividend Option
        (Purchased during the year - Nil and Redeemed during the
        year -10,591,186.885 Units)                                         –                          105.96
        Nil (2003 - 491,110.893) Units of Rs.10/- each in
        Templeton India Floating Rate Long Term - Dividend Option
        (Purchased during the year - Nil and Redeemed during the
        year - 491,110.893 Units)                                           –                           50.00
        5,753,270.982 (2003 - Nil) Units of Rs.10/- each in
        Templeton India Liquid Fund - Dividend Option (Purchased
        during the year - 5,752,182.156, Dividend received &
        reinvested 1,088.826 and Redeemed during the year - Nil
        Units)                                                         575.33                               –
        22,517,971.035 (2003 - Nil) Units of Rs.10/- each in
        Templeton Floating Rate Income Fund LT - Growth Option
        (Purchased during the year - 22,517,971.035 Units and
        Redeemed during the year - Nil)                               2591.97                               –
        7,896.900 (2003 - Nil) Units of Rs.1000/- each in
        Templeton Treasury Management a/c - Growth Option
        (Purchased during the year - 37,386.105 and Redeemed
        during the year - 29,489.205 Units)                            125.38                               –
        947,319.559 (2003 - Nil) Units of Rs.10/- each in Tata
        Dynamic Bond -B - Growth Option (Purchased during the
        year 947,319.559)                                               99.51                               –
        4,898,503.015 (2003 - Nil) Units of Rs.10/- each in Tata
        Floating Rate Fund Short Term - Growth Option (Purchased
        during the year - 4,898,503.015 Units and Redeemed during
        the year - Nil)                                                500.00   21909.20                    –   21850.90
        Note :- Net asset value of Unquoted (Others) Current
        Investment in Mutual Funds as on 30th June’ 04 -
        Rs.22367.08 Lacs (2003-Rs. 22509.15 Lacs)
                                                                                21909.20                        21850.90




                                                                 69


HCL-45.p65                      69                                               10/4/2004, 5:54 PM
        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                     2004                            2003
                                                                                   Rs./Lacs                        Rs./Lacs
        7- Inventories

        Raw Materials and Components (Including in Transit)                       6126.95                          2602.52
        Stores and Spares                                                         3810.56                          3209.00
        Finished Goods (Including in Transit)                                    17233.28                         17510.01
        Work-In-Progress                                                           871.23                           487.68

                                                                                 28042.02                         23809.21



        8- Sundry Debtors -Unsecured
        Debts exceeding six months :
           - Considered Good                                         1896.24                            1123.90
           - Considered Doubtful                                      186.23                             145.50
                                                                     2082.47                            1269.40
        Less : Provision for Doubtful Debts                           186.23      1896.24                145.50    1123.90
        Other debts - Considered Good                              39746.98                        25144.64
                    - Considered Doubtful                             25.51                               –
                                                                   39772.49                        25144.64
        Less : Provision for Doubtful Debts                           25.51      39746.98                 –       25144.64


                                                                                 41643.22                         26268.54



        9- Cash and Bank Balances
        Cash in Hand and in Transit
        [Cheques in hand Rs. 2656.17 Lacs (2003 - Rs. 2092.02 Lacs)]              3732.89                          2757.00

        Balances with Scheduled Banks:
             - On Current Account                                    7209.59                            5222.14
             - Less :- Money held in Trust                             19.12                               0.50
                                                                                  7190.47                          5221.64

             - On Unpaid Dividend Account                                             99.15                          46.14
             - On Margin Account                                                       2.00                           3.28
             - On Fixed Deposits                                     3533.13                            1562.75
             - Less :- Money held in Trust                             36.00      3497.13                 38.35    1524.40

                                                                                 14521.64                          9552.46

        Note:- Fixed Deposit includes Rs. 6.86 Lacs (2003-Rs. 5.96 Lacs) under lien as a margin
        money on bank guarantee.



        10-Other Current Assets
           (Schedule-21, Notes 6 & 7)
        Deposits                                                                  1148.19                          1018.26
        Prepaid Expenses                                                          1069.64                           421.21
        Lease Rental Recoverable                                                  2261.00                          2458.01
                                                                                  4478.83                          3897.48


                                                                70


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        SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE

                                                                                       2004                              2003
                                                                                     Rs./Lacs                          Rs./Lacs

        11- Loans and Advances
        Unsecured Considered Good
        - Amounts recoverable in cash or in kind or for value to be received         2296.55                          2613.50
        - Advance Tax (Net of Provisions)                                                      –                      1331.50
        - Balances with Customs, Port Trust and Excise Authorities                    224.23                             83.21

                                                                                     2520.78                          4028.21




        12-Current Liabilities and Provisions
           (Schedule-21, Note 7)

        Current Liabilities:
        Acceptances                                                                20670.00                          11562.59
        Sundry Creditors
             - Due to SSI Undertakings                                   146.87                           143.95
             - Others                                                 27639.64     27786.51          27665.42        27809.37
        Sundry Deposits                                                               286.05                            205.84
        Interest accrued but not due:
             - On Secured Loans                                                       182.32                            287.59
             - On Unsecured Loans                                                        0.88                              1.85
        Investor Education and Protection Fund :
             - Unclaimed Dividend *                                                     99.15                            46.14
        Advances from Customers                                                      1556.32                          1054.23
        Other Liabilities                                                            9325.32                          5363.22
        Unaccrued Revenue                                                            5363.87                          4600.17
                                                                                   65270.42                          50931.00
        Provisions:

        Proposed Final Dividend                                                      2306.82                          3190.95
        Tax on Proposed Final Dividend                                                301.47                            408.84
        Provision for Tax (Net of Advances Rs. 4523.09 Lacs)                          360.88                             37.31
        For Warranty Liability                                                        661.52                            373.09
        For Gratuity and Other Employee Benefits                                      818.90                            612.09

                                                                                     4449.59                          4622.28

                                                                                   69720.01                          55553.28



        * There is no amount due and outstanding to be credited to Investor Education and Protection Fund as at 30th June, 2004.
        These amounts shall be credited and paid to the fund as and when due.




                                                                   71


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        SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE

                                                                            2004                   2003
                                                                          Rs./Lacs               Rs./Lacs
        13- Business Income
        Sales and Related Income [Including Excise duty
        Rs.10534.39 Lacs (2003 - Rs.8636.90 Lacs)]                      422407.38              248199.57
        Services                                                         18892.75               22308.12
                                                                        441300.13              270507.69

        14- Other Income
        Interest :
            - Refund from Income Tax Authority                             330.55                  74.32
            - Others                                                         0.15                   3.14
        Dividend from (Others) Current Investments                         417.87                  96.04
        Miscellaneous Income                                               299.54                 170.66
        Insurance Claims                                                    22.52                  16.24
        Provisions/Liabilities no longer required written back              70.72                 128.47
        Profit on disposal of (Others) Current Investments (Net)           795.58                 601.77
        Profit on Foreign Exchange Fluctuation (Net)                       379.01                 625.63
        Profit on Sale of Fixed Assets                                       3.71                      –
                                                                          2319.65                1716.27

        15- Cost of Sales and Services
        Raw Materials & Components Consumed                              57896.92               38975.07
        Purchase of Finished Goods & Services                           319110.18              192280.47
        Stores and Spares Consumed                                        2439.32                1864.72
        Power and Fuel                                                     112.57                 108.31
        Labour and Processing Charges                                      521.93                 305.76
        Royalty                                                           6277.37                4200.46
                                                                        386358.29              237734.79
        (Increase)/Decrease in stocks of
        Finished Goods & Work-In-Progress :
        Closing Stock
           - Finished Goods (Including in Transit)                       17239.22               17510.01
           - Work-In-Progress                                              871.23                 487.68
                                                                         18110.45               17997.69
        Closing Stock of Demerged Business as at the Appointed Date                 –              46.45
        Opening stock
           - Finished Goods (Including in Transit)                       17510.01                4768.23
           - Work-In-Progress                                              487.68                 699.19
           - Software Work-In-Progress                                          –                 136.83
                                                                         17997.69                5604.25
                                                                          (112.76)             (12439.89)
                                                                        386245.53              225294.90

        16- Personnel
        Salaries, Wages, Allowances, Bonus & Gratuity                     9843.98               11677.48
        Contribution to Provident Fund & Other Funds                       376.52                 398.52
        Staff Welfare Expenses                                             652.46                 848.48
                                                                         10872.96               12924.48
        Less : Operating Cost recovered                                     27.33                 135.66
                                                                         10845.63               12788.82




                                                                   72


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        SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE

                                                                                 2004                           2003
                                                                               Rs./Lacs                       Rs./Lacs
        17- Administration, Selling, Distribution and Others
           (Schedule-21, Notes 6 & 7)
        Rent                                                                    814.37                         895.88
        Rates and Taxes                                                         766.67                         683.38
        Printing and Stationery                                                 326.54                         245.10
        Communication                                                           623.56                         567.84
        Travelling and Conveyance                                              1547.86                        1763.11
        Packing, Freight & Forwarding                                          2145.79                        1350.55
        Legal and Professional                                                  730.40                        1172.58
        Training and Conference                                                 255.92                         253.26
        Office Electricity and Water                                            446.83                         442.21
        Miscellaneous                                                          1121.14                         855.75
        Insurance                                                               654.51                         466.44
        Advertisement, Publicity & Entertainment (Net of Reimbursements)        860.81                         674.65
        Hire Charges                                                            160.70                         270.14
        Commission on Sales                                                     573.60                         347.49
        Loss on Sale of Fixed Assets (Net)                                           –                           9.65
        Bank Charges                                                            684.48                         554.06
        Provision for Doubtful Debts                                            148.01                         234.00
        Fixed Assets Written Off                                                  0.01                           4.27
        Diminution in value of :
            - Current Investment                                                         –                       0.62
                                                                              11861.20                       10790.98
        Less : Operating Cost recovered                                          18.96                         192.24
                                                                              11842.24                       10598.74

        18- Repairs and Maintenance
        Plant and Machinery                                                     138.48                          51.93
        Buildings                                                                12.52                          29.74
        Others                                                                  741.32                         457.83
                                                                                892.32                         539.50
        Less : Operating Cost recovered                                           3.22                          12.74
                                                                                889.10                         526.76

        19- Finance Charges
           (Schedule-21, Notes 6 & 7)

        Interest paid :
             - On Fixed Loans                                       512.67                          707.61
             - On Public Deposits                                      0.07                           1.10
             - On Others                                            369.94      882.68              511.12    1219.83
        Less : Interest received :
             - On Lease Rental                                      483.04                          354.05
             - On Fixed Deposits                                      83.70                         165.80
               [TDS Rs. 22.92 Lacs (2003 - Rs. 92.17 Lacs)]
             - On Other Loans and Advances                             5.83     572.57               38.95     558.80
               [TDS Rs. Nil (2003 - Rs. 8.05 Lacs)]
                                                                                310.11                         661.03




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        SCHEDULE 20 - CONSOLIDATED SIGNIFICANT ACCOUNTING POLICIES

        1.   BASIS OF ACCOUNTING AND CONSOLIDATION
             The Consolidated Financial Statements of HCL Infosystems Ltd and its subsidiary are prepared under historical cost
             convention in accordance with generally accepted accounting principles applicable in India and Accounting Standard 21
             on Consolidation of Financial Statements issued by the Institute of Chartered Accountants of India to the extent possible
             in the same format as that adopted by the Parent Company (HCL Infosystems Ltd) for its separate financial statements.
             Intra-group balances and intra-group transactions and resulting unrealised profits are eliminated in full. Unrealised
             losses resulting from intra-group transactions are also eliminated unless cost can be recovered.

        2.   FIXED ASSETS

             Fixed Assets including in-house capitalisation and Capital Work-In-Progress are stated at cost except those which are
             revalued from time to time on the basis of current replacement cost/value to the Company, net of depreciation.
             Assets taken on finance lease on or after 1.4.2001 are stated at fair value of the assets or present value of minimum
             lease payments whichever is lower.
             Intangible Assets are stated at cost net of amortization.

        3.   DEPRECIATION

             Depreciation has been calculated under Straight Line Method on:
             (i)   a)   Buildings capitalised prior to 1.5.1986 at the rates computed in the respective years of acquisition of those
                        assets as per Section 205(2)(b) of the Companies Act, 1956.
                   b)   Assets acquired on or after 1.5.1986 and before 16.12.1993 on a prorata basis at the rates specified in
                        Schedule XIV of the Companies (Amendment) Act, 1988. These assets are subject to annual technical
                        evaluation for their economic useful life and additional depreciation is charged if there is any reduction in
                        economic useful life as re-evaluated.
                   c)   Assets acquired on and after 16.12.1993 on a prorata basis based on economic useful life determined by
                        way of periodical technical evaluation. Economic useful lives which are not exceeding those stipulated in
                        Schedule XIV of the Companies Act, 1956 are as under:
                                        Plant and machinery                      4-6    years
                                        Building - Factory                     25-28    years
                                        Building - Others                      50-58    years
                                        Furniture & Fixture                      4-6    years
                                        Air Conditioners                         3-6    years
                                        Vehicles                                 4-6    years
                                        Office Equipment                         3-6    years
                                        Networking equipment                     3-6    years
                                        Computers                                3-5    years

                   (d) The assets taken on finance lease on or after 1st April, 2001 over their expected useful lives.
             (ii) Leasehold land, premises and improvements are amortised over the primary lease period.
             (iii) Intangible Assets are amortised over a period of 1-3 years.

        4.   INVESTMENTS

             Current Investments are carried at lower of cost or fair value.
             Income from Investments is recognised in the accounts in the year in which it is accrued.

        5.   INVENTORIES
             Raw Materials and components held for use in the production of inventories are valued at cost if the finished goods in
             which they will be incorporated are expected to be sold at or above cost. If there is a decline in the price of materials/
             components and it is estimated that the cost of finished goods will exceed the net realisable value, the materials/
             components are written down to net realisable value measured on the basis of their replacement cost.

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             Work-In-Progress and Finished Goods are valued at lower of cost and net realisable value. Cost of Finished Goods and
             Work-In-Progress includes direct labour and proportionate overhead expenses. Cost is determined on the basis of
             weighted average.
             Stores and Spares are valued at lower of cost and net realisable value. Adequate adjustments are made to the carrying
             value for obsolescence.
             Goods in Transit are valued inclusive of custom duty, where applicable.

        6.   FOREIGN CURRENCY
             Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transactions.
             Foreign currency monetary assets and liabilities are restated at the exchange rates prevailing at the year end and the
             overall net gain/loss including those arising out of fluctuations in exchange rates on settlement during the period is
             adjusted to the Profit and Loss Account, except in cases of liabilities relating to acquisition of fixed assets which are
             adjusted in the cost of respective assets.
             Foreign currency monetary assets and liabilities covered by forward contracts are stated at the forward contract rates
             and the difference between the forward rate and the exchange rate at the inception of the forward contract is recognised
             in the Profit and Loss Account over the life of the contract, except in cases of liabilities relating to acquisition of fixed
             assets which are adjusted in the cost of respective assets.

        7.   RETIREMENT BENEFITS TO EMPLOYEES
             a)   Liability for gratuity and leave encashment is provided as determined on actuarial valuation made at the end of
                  the year which is computed using projected unit credit method.
             b)   The contributions towards recognised Provident Fund and Superannuation Fund are accounted for on accrual
                  basis.
             c)   The Group has no further obligations beyond the yearly provisions and contributions.

        8.   REVENUE RECOGNITION
             a)   Sales, net of discount, are inclusive of excise duty and the related revenue is recognised (after providing for
                  expenses to be incurred connected to such sales) on transfer of all significant risks and rewards to the customer
                  and when no significant uncertainty exists regarding realisation of the consideration.
             (b) Service income includes income
                  i)    From maintenance of products and facilities under maintenance agreements, which is recognised upon
                        creation of contractual obligations rateably over the period of contract, where no significant uncertainty
                        exists regarding realisation of the consideration.
                  ii)   From software services
                        (a) The revenue from time and material contracts is recognised based on the time spent as per the terms of
                            contracts.
                        (b) In case of fixed priced contracts revenue is recognised on percentage of completion basis. Foreseeable
                            losses, if any, on contact completion are recognised immediately.
                  iii) Internet Access services: Revenue is recognised on the basis of actual usage of hours by the customer or over
                       the period of the validity of the pack based on the customer agreements.
                  iv) Virtual private networks: Revenue is recognised on proportionate basis over the period of contract with the
                      customer. One time charges recovered from the customers are recognised as revenue at the commencement
                      of service.
                  v)    Technical help desk: The Group is engaged in providing technical and administrative help desk support to its
                        various customers through the Web. Revenue for the same has been recognised based on fulfilling obligations
                        as contracted in the respective agreements.




                                                                       75


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        9.   LEASES
             a)   Lease transactions entered into prior to April 1, 2001 by the parent and it’s Indian subsidiary:
                  i)    Assets leased out are stated at cost and amortised over the primary lease period.
                  ii)   Lease rentals in respect to the assets taken/given on lease are recognised in the Profit and Loss Account on
                        accrual basis.
             b)   Other lease transactions
                  i)    Assets taken under leases where the Company has substantially all the risks and rewards of ownership are
                        classified as Finance leases. Such assets are capitalised at the inception of the lease at the lower of fair value
                        or the present value of minimum lease payments and a liability is created for an equivalent amount. Each
                        lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic
                        rate of interest on outstanding liability for each period.
                  ii)   Assets taken on leases where significant portion of the risks and rewards of ownership are retained by the
                        lessor are classified as operating leases. Lease rentals are charged to the Profit and Loss Account on straight
                        line basis over the lease term.
                  iii) Profit on sale and leaseback transactions is recognised over the period of the lease.
                  iv) Assets given under finance lease are recognised as receivables at an amount equal to the net investment in
                      the lease. Inventories given on finance lease are recognised as deemed sale at fair value. Lease income is
                      recognised over the period of the lease so as to yield a constant rate of return on the net investment in the
                      lease.
                  v)    Assets leased out under operating leases are capitalised. Rental income is recognised on accrual basis over
                        the lease term.
                  vi) Initial direct costs relating to the finance lease transactions are included as part of the amount capitalised as
                      an asset under the lease.

        10. SEGMENT ACCOUNTING
             The segment accounting policy is in accordance with the policies consistently used in the preparation of financial
             statements of the Group. The basis of reporting is as follows: -
             a)   Revenue and expenses distinctly identifiable to a segment are recognised in that segment. Identified expenses
                  include direct material, labour, overheads and depreciation on Fixed Assets. Expenses that are identifiable with/
                  allocable to segments have been considered for determining segment results.
                  Allocated expenses include support function costs which are allocated to the segments in proportion of the
                  services rendered by them to each of the business segments. Depreciation on Fixed Assets is allocated to the
                  segments on the basis of their proportionate usage.
             b)   Unallocated expenses are enterprise expenses, which are not attributable or allocable to any of the business
                  segment.
             c)   Assets and liabilities which arise as a result of operating activities of the segment are recognised in that segment.
                  Fixed Assets which are exclusively used by the segment or allocated on a reasonable basis are also included.
             d)   Unallocated assets and liabilities are those which are not attributable or allocable to any of the segments and
                  includes liquid assets like Investments, Bank Deposits and Non-attributable Cash and Bank balances.
             e)   Segment revenue resulting from transactions with other business segments is accounted on the basis of transfer
                  price which is at par with the prevailing market price.

        11. BORROWING COSTS
             Borrowing costs to the extent related/attributable to the acquisition/construction of assets that necessarily take substantial
             period of time to get ready for their intended use are capitalised along with the respective fixed asset up to the date
             such asset is ready for use. Other borrowing costs are charged to the Profit and Loss Account.




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        12. INCOME TAXES
             The current charge for income taxes is calculated in accordance with the relevant tax regulations.
             Deferred tax assets and liabilities are recognised for the future tax consequences attributable to timing differences
             between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.
             Deferred tax assets and liabilities are measured using the enacted or substantially enacted tax rates as on the balance
             sheet date. Deferred tax asset is recognized and carried forward when it is reasonably certain that sufficient taxable
             profits will be available in future against which deferred tax assets can be realised.

        13. MISCELLANEOUS EXPENDITURE
             For Internet service:
             Pre-operative expenditure incurred from the date of incorporation of the subsidiary upto the date of commencement of
             commercial operations has been deferred and amortised over a period of three years from the date of commencement
             of commercial operations.
             Web site development cost of the subsidiary relating to planning the web site, testing website applications and
             creating initial graphics etc. till the date the website was thrown open to the users has been accumulated and
             amortised over a period of two years from that date.
             Advertisement and publicity expenses relating to initial launch of the services has been deferred and amortised
             equally over a period of three years.




                                                                    77


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        SCHEDULE 21 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        1.   The Consolidated Financial Statements have been prepared in accordance with the Accounting Standard (AS) 21 -
             “Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India.
             The subsidiary (which along with HCL Infosystems Ltd., the parent, constitute the Group), considered in preparation
             of Consolidated Financial Statements is as under: -

             Name of the                                           Country of                            Extent of holding (%)
             Subsidiary Company                                  Incorporation                              as at 30th June
                                                                                                         2004                2003

             HCL Infinet Ltd                                         India                                100                100

             The reporting date for HCL Infinet Ltd has been changed from 31st March to 30th June. Consequently the current
             period figures of HCL Infinet Ltd comprises of 15 months period ended 30th June 2004. However for consolidation,
             financials are drawn up for the 12 months ended 30th June 2004.
        2.   Estimated value of contracts remaining to be executed on capital account and not provided for (Net of advances) are
             Rs. 15.96 Lacs (2003 - Rs. 66.07 Lacs).
        3.   Contingent Liabilities:
             (i)   Claims not acknowledged as debts for:
                   - Excise, Income Tax and Sales Tax demands of Rs. 994.51 Lacs (2003 - Rs. 2799.43 Lacs). Against this, the
                     Company has deposited a sum of Rs. 24.50 Lacs (2003 - Rs. 34.32 Lacs).
                   - Other Sundry Claims Rs. 529.12 Lacs (2003 - Rs. 305.38 Lacs)
             (ii) Non fund based facilities amounting to Rs. 20.30 Lacs (2003 - Rs. 56.26 Lacs) related to the demerged
             business.
        4.   Taxation
             (a) Provision includes Rs. Nil (2003 - Rs. 34.49 Lacs) on account of withholding tax deducted at source.
             (b) The significant components and classification of deferred tax asset and liability on account of timing differences
                 as at 30th June are as follows:
                   Deferred tax assets                                                 2004                              2003
                                                                                      Rs./Lacs                          Rs./Lacs
                   Diminution in the value of Investments                             –                            12.82
                   Allowances for doubtful debts                                  72.25                            33.37
                   De-Merger Scheme expenses                                      21.29                            27.76
                   Expense accruals                                              426.01                           333.53
                   Unabsorbed losses                                                  –                          1954.71
                   Other timing differences                                       71.69          591.24             0.33         2362.52
                   Deferred tax liability
                   Depreciation                                                  665.64                           697.93
                   Other timing differences                                      424.83        1090.47            622.96         1320.89
                   Net deferred tax (liability)/assets                                         (499.23)                          1041.63

        5.   Stock Options
             a)    Pursuant to the approval of the shareholders at the Extra-Ordinary General Meeting held on 25th February, 2000
                   for grant of options, to the employees of the Company and its subsidiaries, the Board had approved at their
                   meeting held on August 10, 2000, an offer granting upto 30,18,000 (2003 - 30,18,000) options (each option
                   conferring on the employee a right to get one equity share of Rs. 10/- each), at an exercise price of Rs. 289/-
                   being the market price at the grant date. During the year 9,80,414 (2003 - Nil) options were exercised.
                   Out of the 30,18,000,options granted 16,36,080 (2003 - 9,09,500) options had lapsed. The Board of Directors
                   at their meeting held on January 28, 2004, had approved grant of 16,06,100 lapsed options at an exercise price
                   of Rs. 538.15 being the market price on the grant date. During the year 72,960 options were lapsed out of the
                   options granted on January 28, 2004.
             b)    Pursuant to a resolution dated April 20,2004 the Board of HCL Infinet Limited (a wholly owned subsidiary of HCL
                   Infosystems Limited) has approved the cancellation of Employees Stock Option (ESOP) granted in two phases on

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                  August 26, 2000 and August 29, 2002 with immediate effect from that date. Consequently 80,750 options
                  outstanding as on April 20, 2004 (2003 - 90,750 options) under Employees Stock Option (ESOP) have been
                  cancelled.
        6.   Leases :
             a)   Finance Leases:
                  (i)   Assets acquired under sale and leaseback arrangements comprise mainly computers and office equipment.
                        There are no exceptional/restrictive covenants in the lease agreements.
                  (ii) The minimum lease rentals and its present value as at 30th June, 2004 in respect of assets acquired under
                       finance lease are as follows:
                                                                                                Minimum Lease          Present Value
                                                                                                     Payments
                                                                                                      Rs./Lacs             Rs./Lacs

                        Not later than one year                                                               111.40          99.67
                                                                                                             (96.33)        (88.66)
                        Later than one year and not later than five years                                      41.87          39.30
                                                                                                            (107.53)        (84.02)
                        Total                                                                                 153.27         138.97
                                                                                                            (203.86)       (172.68)
                        Reconciliation
                                                                                                                            Rs./Lacs
                        Total Minimum Lease Payments as above                                                                153.27
                                                                                                                           (203.86)
                        Less: Future Finance charges                                                                          14.30
                                                                                                                            (31.18)
                        Net Present Value                                                                                    138.97
                                                                                                                           (172.68)
                  Note: Previous year’s figures are given in brackets.
                  (iii) The Group has given on finance lease certain assets/inventories. These comprise computers and office
                        equipment. The lease has a primary period, which is fixed and non-cancellable. There are no exceptional/
                        restrictive covenants in the lease agreements.
                  (iv) The gross investment in the assets given on finance lease as at 30th June, 2004 and its present value as at
                       that date are as follows:
                                                                                              Gross Investment      Present Value
                                                                                                      Rs./Lacs           Rs./Lacs

                        Not later than one year                                                          1208.07            825.53
                                                                                                       (1074.78)          (967.88)
                        Later than one year and not later than five years                                1893.44           1435.47
                                                                                                       (2407.82)         (1487.40)
                        Later than five years                                                                   –                 –
                                                                                                           (4.29)            (2.73)
                        Total                                                                            3101.51           2261.00
                                                                                                       (3486.89)         (2458.01)
                        Reconciliation
                                                                                                                           Rs./Lacs
                        Gross Investment                                                                                   3101.51
                                                                                                                         (3486.89)
                        Less : Unearned Finance Income                                                                      840.51
                                                                                                                         (1028.88)
                        Net Present Value                                                                                  2261.00
                                                                                                                         (2458.01)
                        [includes minimum sub lease receivable Rs. 184.86 Lacs (2003 - Rs. 231.53 Lacs)]


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             b)    Operating Lease:
                   (i)   Cancellable Operating leases
                         a)   The Group has taken various residential/commercial premises under cancellable operating leases. These
                              leases are normally renewable on expiry.
                         b)   The rental expense in respect of operating leases is Rs. 796.37 Lacs. (2003 - Rs. 796.92 Lacs).
                   ii)   Non cancellable leases
                         a)   The future minimum lease payments under non cancellable operating leases are:
                                                                                                                            Rs./Lacs
                              Not later than one year                                                                         18.00
                                                                                                                            (18.00)
                              Later than one year and not later than five years                                                    –
                                                                                                                            (18.00)
                              Total                                                                                           18.00
                                                                                                                            (36.00)

                         b)   Lease Payments recognised in the Profit & Loss Account for the year ended 30th June, 2004.
                                                                                                                            Rs./Lacs
                              Minimum Lease Payments                                                                          18.00
                                                                                                                           (117.40)
                              Contingent Rents                                                                                     –
                              Note: Previous year’s figures are given in brackets.
        7.   In the previous year, all the lease transactions entered into on or after 1st July 2001 were being considered as Leases
             under Accounting Standard (AS) 19 (Accounting for Leases) and were accounted for accordingly. During the current
             year, the lease transactions between 1st April 2001 and 30th June 2001 have also been considered as leases falling
             under AS 19. As a result, the current year’s profits are lower to the extent of Rs. 39.23 Lacs with consequential impact
             on the following Assets and liabilities:
                                                                                                                            Rs./Lacs
             Reconciliation
             Increase in Deferred Lease Obligations                                                                           82.10
             Add : Increase in Deferred Profit                                                                                36.14
                                                                                                                             118.24
             Less: Increase in Lease Rent recoverable                                                                         79.01
                                                                                                                              39.23
        8.   Disclosure of related parties/related party transactions.
             (i)   Holding Company:
                   HCL Corporation Ltd.
             (ii) Related parties with whom transactions have taken place during the year and/or balances exist
                   Fellow Subsidiaries:
                   HCL Technologies Ltd and its Subsidiaries, HCL Peripherals Ltd and its Subsidiaries.
                   Associates & others (where there is significant influence):
                   * HCL Perot Systems Ltd, OWNHCL Trust, Shri Sivasubramaniya Nadar Educational & Charitable Trust.
                   * ceased to be a related party w.e.f. December, 2003.
             (iii) Key Management Personnel
                   a)    Directors:
                         Mr Ajai Chowdhry
                         Mr. T.S. Purushothaman
                         Mr. Ravi Thumboochetty
                   b)    Other Key Management Personnel:
                         Mr. Hari Bhaskaran
                         Mr. J. V. Ramamurthy
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                           Mr.   K. R.Radhakrishnan
                           Mr.   Manohar Lal Taneja
                           Mr.   Rajendra Kumar
                           Mr.   Sandeep Kanwar
                           Mr.   S. Pattabiraman
                           Mr.   Suman Ghose Hazra
                (iv) Summary of Related party disclosures (Rs./Lacs)
                       Note: All transactions with related parties have been entered into in the normal course of business.

        Summary of Consolidated Related Party Disclosures
                                                                                                                                             (Rs./Lacs)
        A. Transactions                            Holding               Fellow               Associates          Key Management         Total
                                                  Company              Subsidiaries            & Others              Personnel
                                                June 04 June 03     June 04    June 03     June 04 June 03       June 04 June 03 June 04      June 03

        Sales & Related Income                    5.67       3.06   3183.75 2635.65        189.06   206.82                         3378.48   2845.53
        Services                                                     881.85 1485.65          5.87      9.71                         887.72   1495.36
        Other Income                                                 108.39   79.94                    0.71                         108.39     80.65
        Demerger/Transfer of Business                                       2815.49                                                          2815.49
        Purchase of Goods                                             84.03    442.88                                                84.03       442.88
        Purchase of Services                                         510.45    355.30                                               510.45       355.30
        Donations Given                                                                     48.00                                    48.00
        Impairment/Debts written off                     232.77        2.17    182.54                                                 2.17       415.31
        Assets Purchased                                                        15.33                                                             15.33
        Assets Sold                                                                                                         1.43                   1.43
        Remuneration                                                                                              485.15 525.22     485.15       525.22
        Reimbursements towards expenditure
        (a) Received                              4.04       3.02     83.02        67.47     0.66      0.75                          87.72        71.24
        (b) Made                                  5.47       2.94     16.54        11.23                                             22.01        14.17

        B. Amount due to/from related              Holding                Fellow              Associates          Key Management         Total
             parties                               Company              Subsidiaries            & Others             Personnel
                                                June 04 June 03     June 04 June 03        June 04 June 03       June 04 June 03 June 04      June 03

        Accounts Receivables                      0.01       2.90    448.00 280.00           1.08      8.90                         449.09    291.80
        Loans & Advances & Other Recoverables     0.09                91.62 1103.15                   59.93                 2.07     91.71   1165.15
        Creditors                                                     90.82        79.57               0.34                          90.82        79.91
        Other Payables                                                81.04        66.57     4.43      0.42          8.00   8.00     93.47        74.99


        9.      Segment Reporting
                The Group recognises the following segments as its primary segments.
                a)     The operations of Product & Related Services consists of sale of Computer Hardware & system integration products
                       and providing a comprehensive range of IT services, including system maintenance and facility management in
                       different industries.
                b)     The operation of software services includes software development and customisation of packaged software and
                       integration, which has been demerged to HCL Technologies w.e.f. 1st January, 2003 i.e. appointed date.
                c)     Internet & Related Services include Internet related products & services consist of Internet Access services,
                       Virtual Private Network, other connectivity services and sale of related hardware.
                d)     The businesses of Office Automation, Telecom products and services consist of sale of telecommunication products,
                       office equipment products and related comprehensive maintenance services.
                e)     Others comprise primarily Technical Help Desk operations, which has been transferred to HCL Technologies BPO
                       Services Ltd. w.e.f. 1st January, 2003 i.e. appointed date.
                       Secondary segmental reporting is based on the geographical location of the customers. Details of secondary
                       segments are not disclosed as more than 90% of the Company’s revenues, results and assets relate to the
                       domestic market.

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         SCHEDULES TO THE CONSOLIDATED BALANCE SHEET & PROFIT AND LOSS ACCOUNT

        Consolidated Segment wise performance for the year ended 30th June,2004                                                                             Rs./Lacs

               Primary Segments                         Product & Related Services        Internet &      Software         Others            Inter-             Total
                                                      Computer Office Automation &          Services       Related                        segment
                                                       Systems     Telecommunication        Services                                   Elimination
        (i)    Revenue
               External Revenue                      152029.49            284950.66        4319.98                                                        441300.13
                                                   (110084.84)          (150641.02)      (2814.91)      (6636.16)       (330.76)                        (270507.69)
               Intersegment Revenue                      295.38              2726.60         95.94                                       -3117.92                   –
                                                       (287.93)            (1517.25)      (386.51)         (15.9)              –       (-2207.59)                   –
               Total Gross Revenue                   152324.87            287677.26        4415.92              –              –         -3117.92         441300.13
                                                   (110372.77)          (152158.27)      (3201.42)      (6652.06)       (330.76)       (-2207.59)       (270507.69)
               Less: Excise Duty                      10534.39                                                                                             10534.39
                                                      (8636.90)                                                                                            (8636.90)
               Total Net Revenue                     141790.48            287677.26         4415.92             –              –         -3117.92         430765.74
                                                   (101735.87)          (152158.27)       (3201.42)     (6652.06)       (330.76)       (-2207.59)       (261870.79)
        (ii)   Results                                12298.98               8325.34        -194.87                                                        20429.45
                                                      (9133.76)            (4785.12)     (-1251.65)      (-151.98)       (-61.05)                          (12454.2)
               Less: Unallocable Expenditure                                                                                                                   746.16
                                                                                                                                                           (1221.69)
               Operating Profit                                                                                                                            19683.29
                                                                                                                                                         (11232.51)
               Add: Other Income (Excluding gains on Exchange Rate Fluctuations and Other Operational Income)                                                1778.15
                                                                                                                                                             (972.73)
               Loss on Disposal of Subsidiaries/Business (Net)                                                                                                      –
                                                                                                                                                            (-333.86)
               Less: Interest (Net)                                                                                                                            310.11
                                                                                                                                                             (661.03)
               Less: Effect of Impairment                                                                                                                           –
                                                     (3216.97)                  (42)        (51.62)             (74)                                       (3384.59)
               Profit Before Tax                                                                                                                           21151.33
                                                                                                                                                           (7825.76)
               Less: Tax Expense
               - Current                                                                                                                                     2099.00
                                                                                                                                                            (622.22)
               - Deferred                                                                                                                                    1540.87
                                                                                                                                                          (-2061.28)
               Profit After Tax                                                                                                                            17511.46
                                                                                                                                                           (9264.82)
        (iii) Segment Assets                         56895.83              34893.33        1723.20                                                         93512.36
                                                     (39176.2)           (27509.75)      (2184.07)               (–)             (–)                     (68870.02)
               Unallocated Corporate Assets
               a) Liquid Assets                                                                                                                            25408.33
                                                                                                                                                          (23375.3)
               b) Deferred Tax Assets                                                                                                                        591.24
                                                                                                                                                          (2362.52)
               c) Others                                                                                                                                     765.35
                                                                                                                                                          (3777.98)
               Total Assets                                                                                                                              120277.28
                                                                                                                                                         (98385.82)
        (iv) Segment Liabilities                      36417.27             28396.78        1459.35                                                         66273.40
                                                    (21729.21)           (28171.19)      (1442.41)               (–)                                     (51342.81)
               Unallocated Corporate Liabilities
               a) Current Liabilities                                                                                                                       3446.61
                                                                                                                                                          (4210.47)
               b) Deferred Tax Liabilities                                                                                                                  1090.47
                                                                                                                                                          (1320.89)
               c) Loan Funds                                                                                                                                7200.61
                                                                                                                                                         (11862.52)
               Total Liabilities                                                                                                                           78011.09
                                                                                                                                                         (68736.69)
        (v)    Capital Expenditure                     1097.45               503.98          199.74                                                         1801.17
                                                      (531.29)             (409.93)        (185.71)        (36.48)                                        (1163.41)
        (vi) Depreciation                               892.25               179.96          626.11                                                         1698.32
                                                      (538.57)              (72.29)        (707.44)      (114.82)                                         (1433.12)
        (vii) Other Non Cash Expenses                   204.77               153.11           30.94             –                                            388.82
                                                     (3027.44)                 (98)         (18.85)      (277.43)                                         (3421.72)
        Note: Previous year’s figures are given in brackets.
              Software services and THD business (Others segment) were discontinued from January 1, 2003. Hence figures shown for previous year only.

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        10. Earnings per share
             The earnings considered in ascertaining the Group’s earnings per share comprise net profit for the year after tax. Basic
             earnings per share are computed and disclosed using the weighted average number of equity shares outstanding
             during the year. Diluted earnings per share is computed and disclosed using the weighted average number of equity
             and dilutive equivalent shares outstanding during the year, except when results would be anti dilutive.
             Calculation of EPS:

             Particulars                                                                              30.06.2004       30.06.2003

             Profit after tax (Rs./lacs)                                                                17,511.46         9,264.82
             Weighted average number of shares considered as
             outstanding in computation of Basic EPS                                                  32,219,079       31,909,459
             Add dilutive impact of stock options:
             - Outstanding                                                                             1,012,386                 –
             - Exercised                                                                                 670,794                 –
             - Lapsed                                                                                    255,331                 –
             - Issued for no consideration                                                               317,167                 –
             Weighted average number of shares outstanding in computation of Diluted EPS              34,474,757       31,909,459
             Basic EPS (of Rs 10/- each)                                                                Rs. 54.35        Rs. 29.03
             Diluted EPS (of Rs 10/- each)                                                              Rs. 50.80                –

        11 Previous year’s figures have been regrouped/recasted, where necessary, to conform to current year’s presentation.
           Current year figures are not comparable with the previous year figures to the extent of demerger of Software Business
           and rearrangement of Office Automation & Telecommunication Business with effect from the appointed date of
           1st January, 2003.




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             Financial Summary of HCL Infinet Limited, a wholly owned subsidiary as at 30th June, 2004

             Particulars                                                                                           Amount in Rs.

             Share Capital                                                                                          195067570
             Reserves                                                                                               249405149
             Total Assets                                                                                           890126740
             Total Liabilities                                                                                      890126740
             Details of Investment (except in case of investment in subsidiary)                                             –
             Turnover                                                                                             35411573940
             Profit before Taxation                                                                                1004580270
             Provision for taxation/Deferred Tax charge/(credit)                                                    356300953
             Profit After Taxation                                                                                  648279317
             Proposed Dividend                                                                                              –


                                                                    For and on behalf of the Board of Directors


                                                                    AJAI CHOWDHRY                                S. BHATTACHARYA
                                                                    Chairman and                                          Director
                                                                    Chief Executive Officer
        Place : New Delhi                                                                                    K.R. RADHAKRISHNAN
        Dated : August 25, 2004                                                                                   Company Secretary




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