MIRA INFORM REPORT

Report Date :

01.03.2007

IDENTIFICATION DETAILS

Name :	MPHASIS BFL LIMITED
Registered Office :	45/3, Gopalakrishna Complex, Residency Road Cross, Bangalore – 560025, Karnataka, India
Country :	India
Financials (as on) :	31.03.2006
Date of Incorporation :	03/06/1999
Com. Reg. No.:	25294
CIN No.: [Company Identification No.]	L30007KA1992PLC025294
TAN No.	BLRMO5590E
PAN No.:	AAACB682OC
Legal Form :	Subject is a public limited liability company. The company’s shares are listed on the Stock Exchanges.
Line of Business :	Providing a suite of information technology solutions and services specifically tailored to meet the requirements of the financial services, retail, logistics & transportation and technology.

RATING & COMMENTS

MIRA’s Rating :

A

RATING		STATUS	PROPOSED CREDIT LINE
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large

Maximum Credit Limit :	USD 21000000
Status :	Good
Payment Behaviour :	Regular
Litigation :	Clear
Comments :	Subject is a well established company having fine track. Available information indicates high financial responsibility of the company. Financial position is good. Payments are usually correct and as per commitments. The company can be considered good for any normal business dealings.Given telephone nos. are residential address.

LOCATIONS

Registered Office :	45/3, Gopalakrishna Complex, Residency Road Cross, Bangalore – 560025, Karnataka, India
Tel. No.:	91-80-25522713/25522714
Fax No.:	91-80-25522719
E-Mail :	ramesh.p@mphasis.com
Website :	http://www.mphasis.com
Corporate Office :	139/1, Hosur Road, Koramangala, Bangalore – 560095, Karnataka, India
Tel. No.:	91-80--25522713/25522714
Fax No.:	91-80-25522719
E-Mail :	ramesh.p@mphasis.com
Website:	http://www.mphasis.com
Branches :	Level 67, MLC Center, Martin Place, Sydney, NSW 2000, Australia Tel : [61]-2-9238-6139 Fax : [61]-2-9238-7633 21F, Pidemco Tower, 318 Fuzhou Road, Shanghai PRC 200001, China Tel : 86-21-330 44530 Fax : 86-21-639 12818 Koblenzer, Str 34, Post Fsh 12-21, D-56130, Bad Ems, Germany Tel : [49]-26-03750-4151 Fax : [49]-26-03750-4151 #1/1A, 7^th Main, 18^th Cross, BTM Layout 2^nd Stage, Bangalore – 560076, Karnataka, India Tel. No. 91-80-26680126 Fax No. 91-80-26681057 #8/1, Balaji Mansion, Bannerghatta Main Road, J. P. Nagar Industrial Estate, Bangalore – 560084, Karnataka, India Tel. No. 91-80-26581672 Fax No. 91-80-26583140 The Millenia, Tower A & B, No. 1 & 2, Murphy Road, Ulsoor, Bangalore – 560008, Karnataka, India Tel. No. 91-80-25567500 Fax No. 91-80-25567515 Advanced Infotech Park, 4B, Tardeo Road, Mumbai – 400034, Maharashtra, India Tel. No. 91-22-24914901 Fax No. 91-22-24961059 A/2, Jitendra Industrial Estate, 1^st Floor, M.V. Road, Andheri [East], Mumbai – 400034, Maharashtra, India Tel. No. 91-22-26969200 Fax No. 91-22-26969208 Leela Business Park, 2^nd Floor, Andheri-Kurla Road, Sahar, Andheri [East], Mumbai – 400059, Maharashtra, India Tel. No. 91-22-56777777 Fax No. 91-22-56777700 Sharada Arcade, 2^nd Floor, Bibwewadi, Pune-Satara Road, Pune – 411037, Maharashtra, India Tel. No. 91-20-24028080 Fax No. 91-20-24028697 1^st Floor, Marisoft, Marigold Premises, Survey No. 15/1 to 15/6, Vadgon, Near Kumar City, Pune – 411006, Maharashtra, India Tel. No. 91-20-24125555 Fax No. 91-20-24125556 3^rd Floor, Sakar – 10, Pune – 411001, Maharashtra, India Tel. No. 91-20-26051192 Fax No. 91-20-26051179 Prime Squate # 205, 1-1-7 Hiroo, Shibuya-Ku, Tokyo 150-0012, Japan Tel : [81]-3-3499-2388 Fax : [81]-3-5778-4884 10 Frere Felix De Valois St, Port Louis, Mauritius Tel : [230]-202-3015 Fax : [230]-212-5265 Seccion I, S.A De C. V Blvd Insurgentes No. 6101, Fracc. Guaycura, Tijuana B.C, Mexico Tel : 52-664-6609345 Planetenweg 69, 2131 HM Hoofddrorp, Netherlands Tel : [31]-23-5541410 Fax : [31]-23-5655132 138 Cecil Street, #12-02/03, Cecil Court, Singapore - 069538 Tel : 65-63721737 Fax : 65-63721739 Regent House Business Centre, 24-25 Nutford Place, London W1H 5YN, United Kingdom Tel : [44]-20-7569-3260 Fax : [44]-20-7569-3001 11600 Jones Road, Cypress Center, Suite # 108/14, Houston, TX 77070, U.S.A. Tel : [1]-281-517-5108 Fax : [1]-281-517-5107 18400 Von Karman Avenue, Suite 550, Irvine, CA 92612, U.S.A. Tel : 949-757-1456 1355, B Lynnfield Road, Suite # 245, Memphis, TN 38119, U.S.A. Tel : [1]-901-818-5455 Fax : [1]-901-818-1182 444 Park Avenue South, Suite # 503, New York, NY 10016, U.S.A. Tel : [1]-212-686-6655 Fax : [1]-212-6862422

SOLE PROPRIETOR/PARTNERS/DIRECTORS

Name :	Mr. Stephen Heidt
Designation :	Chairman
Name :	Mr. Jaithirth Rao
Designation :	CEO and Managing Director
Name :	Mr. Narayanan Subramaniam
Designation :	Vice Chairman
Name :	Mr. Rahul Bhasin
Designation :	Director
Name :	Mr. Ashish Dhawan
Designation :	Director
Name :	Mr. B. R. Menon
Designation :	Director
Name :	Mr. Richard S. Braddock
Designation :	Director
Name :	Dr. Jose de la Torre
Designation :	Director
Name :	Mr. Jeroen Tas
Designation :	Director
Name :	Mr. Arthur Flew
Designation :	Director
Name :	Mr. Nawshir H Mirza
Designation :	Director
Name :	Mr. Davinder Singh Brar
Designation :	Director
Name :	Mr. Thomas Haubenstricker
Designation :	Director
Name :	Mr. Ronald Vargo
Designation :	Director
Name :	Mr. Douglas W. Davis
Designation :	Director
Name :	Mr. Paul W. Currie
Designation :	Director
Name :	Mr. Joseph Eazor
Designation :	Director

KEY EXECUTIVES

Name :	Mr. A Sivaram Nair
Designation :	Company Secretary

MAJOR SHAREHOLDERS / SHAREHOLDING PATTERN

Names of Shareholders	No. of Shares	Percentage of Holding
Bodies Corporate	67096134	41.67
Foreign Institutional Investors	50332942	31.26
Financial Institutions	180191	0.11
Resident Indians	11914063	7.40
Mutual Funds and Banks	21551842	13.39
Non Resident Indians	2366472	1.47
Directors and Relatives	7569516	4.70
TOTAL	161011160	100.00

BUSINESS DETAILS

Line of Business :	Providing a suite of information technology solutions and services specifically tailored to meet the requirements of the financial services, retail, logistics & transportation and technology.
Product :	Software Services : 85249009.10

GENERAL INFORMATION

Bankers :	Ø Citibank NA Ø Deutsche Bank Ø Bank of America Ø ABN Amro Bank Ø HDFC Bank Limited
Facilities :	Secured Loan : Other Loan [Secured by Hypothecation of the vehicles] – Rs. 15.535 millions

Banking Relations :	Satisfactory
Auditors :	Bharat S. Raut & Company Chartered Accountants
Associates :	Mphasis BFL Group
Subsidiaries:	v MphasiS Corporation ('MphasiS USA') v MphasiS Deutschland GmbH (formerly v BFL Software GmbH) ('MphasiS GmbH') v BFL Software Asia Pacific Pte Limited ('BFLAPAC') v MphasiS Australia Pty Limited ('MphasiS Australia') v MphasiS (Shanghai) Software & Services Company Limited v (Formerly Navion (Shanghai) Software Development Limited) ('MphasiS China') v MbrokeR Inc. ('MbrokeR') v Princeton Consulting Limited ('Princeton') v Eldorado Computing Inc., ('Eldorado') v MphasiS Ireland Limited (MphasiS Ireland) v MbrokeR (India) Private Limited. ('MbrokeR India') v MphasiS Europe BV ('MphasiS Europe') v MphasiS Pte Limited ('MphasiS Singapore') v MphasiS UK Limited ('MphasiS UK') v MphasiS Software and Services (India) Private Limited ('MphasiS India') v MsourcE Holdings BV, Netherlands ('MsourcE Netherlands') v MsourcE Mauritius Inc., Mauritius ('MsourcE Mauritius') v MsourcE (India) Private Limited. (‘MsourcE India’)

CAPITAL STRUCTURE

Authorised Capital :

No. of Shares	Type	Value	Amount
200000000	Equity Shares	Rs. 10/- each	Rs. 2000.000 millions

Issued, Subscribed & Paid-up Capital :

No. of Shares	Type	Value	Amount
161025360	Equity Shares	Rs. 10/- each	Rs. 1610.254 millions
Less :	Face value of 14200 equity shares forfeited	Rs. 10/- each	Rs. 0.142 million
Add :	Amount Originally paid-up on forfeited shares		Rs. 0.071 million
	Total		Rs.1610.183 millions

FINANCIAL DATA

[all figures are in Rupees Millions]

ABRIDGED BALANCE SHEET

SOURCES OF FUNDS		31.03.2006	31.03.2005	31.03.2004
SHAREHOLDERS FUNDS
1] Share Capital		1610.183	786.070	354.530
3] Reserves & Surplus		3643.054	4860.137	3180.959
NETWORTH		5253.237	5646.207	3535.489
LOAN FUNDS
1] Secured Loans		15.535	12.435	10.919
2] Unsecured Loans		0.000	0.000	0.000
TOTAL BORROWING		15.535	12.435	10.919
DEFERRED TAX LIABILITIES		0.000	0.000	0.000
Employee Stock Options Outstanding		73.808	85.773	14.588
TOTAL		5342.580	5744.415	3560.996
APPLICATION OF FUNDS
FIXED ASSETS [Net Block]		177.348	123.080	88.623
Capital work-in-progress		4.156	3.879	12.123
INVESTMENT		4597.378	5545.151	1438.756
DEFERREX TAX ASSETS		23.599	6.770	5.728
CURRENT ASSETS, LOANS & ADVANCES
	Interest and Dividends Receivable	3.406	6.072	9.768
	Sundry Debtors	1392.767	1124.796	1366.048
	Cash & Bank Balances	199.297	100.290	779.629
	Other Current Assets	104.279	223.700	200.900
	Loans & Advances	939.837	865.020	389.556
Total Current Assets		2639.586	2319.878	2745.901
Less : CURRENT LIABILITIES & PROVISIONS
	Current Liabilities	1500.185	1962.289	595.345
	Provisions	599.302	292.054	135.775
Total Current Liabilities		2099.487	2254.343	731.120
Net Current Assets		540.099	65.535	2014.781
MISCELLANEOUS EXPENSES		0.000	0.000	0.000
Deferred employee stock compensation expenses		0.000	0.000	0.985
TOTAL		5342.580	5744.415	3560.996

PROFIT & LOSS ACCOUNT

PARTICULARS		31.03.2006	31.03.2005	31.03.2004
Sales Turnover		3806.739	2477.681	2723.244
Other Income		2.601	1.792
Total Income				2723.244
Profit/(Loss) Before Tax		788.910	491.924	975.730
Provision for Taxation		26.653	(9.860)	1410.533
Profit/(Loss) After Tax		762.257	501.784	897.686
Total Earnings		3657.005	2439.949	NA
Total Imports		37.782	22.338	8.241
Expenditures :
	Selling Expenses	1205.317	685.673
	Administrative Expenses	178.441	173.614
	Provision for doubtful debts	8.661	1.084
	Interest	22.201	(41.419)	1750.514
	Foreign Exchange Loss	(53.091)	(5.593)
	Depreciation & Amortization	0.000	0.369
	Other Expenditure	6.857	(5.645)
Total Expenditure		1368.386	808.083	1750.514

QUARTERLY / SUMMARISED RESULTS

PARTICULARS	30.06.2006	30.09.2006	31.12.2006
Sales Turnover	1117.700	1322.500	1306.500
Other Income	0.200	0.000	0.000
Total Income	1117.900	1322.500	1306.500
Total Expenditure	969.600	1097.700	1124.600
Operating Profit	148.300	224.800	181.900
Interest	0.700	2.500	0.900
Gross Profit	147.600	222.300	181.000
Depreciation	25.400	29.700	34.100
Tax	15.700	12.600	10.400
Reported PAT	106.500	180.000	136.500

200606 Quarter 1

Notes:

EPS is Basic Status of Investor Complaints for the quarter ended June 30, 2006 Complaints Pending at the beginning of the quarter Nil Complaints Received during the quarter 03 Complaints disposed off during the quarter 03 Complaints unresolved at the end of the quarter Nil 1. The above results were taken on record at the Board on July 31, 2006. 2. Total staff costs for the quarter ended June 30, 2006 was Rs 271.893 million (quarter ended June 30, 2005 was Rs 178.060 million). 3. Total depreciation for the quarter ended June 30, 2006 was Rs 25.415 million (quarter ended June 30, 2005 was Rs 18.352 million). 4. Electronic Data Systems corporation (EDS) through its wholly owned subsidiary TH Holdings, Mauritius, made an open offer for purchase of 83 million equity shares of the Company in April 2006. The Offer was closed in June 2006 and EDS, through TH Holdings, currently holds 83 million equity shares forming more than 51% of the paid up share capital of the Company as at June 30, 2006. 5. During July 2006, the Board of the Company approved the merger of EDS Electronic Data Systems (India) Private Limited (EDS India), a wholly-owned subsidiary of Electronic Data Systems Corporation USA, into Mphasis BFL Limited, pending shareholder and regulatory approvals. The swap ratio of the merger will be 5:4 (5 shares of the Company for every 4 share of EDS India), If approved the merger will be with respective effect from April 01, 2006.

200609 Quarter 2

Notes

Other Income includes Foreign Exchange gain / loss Rs (33.653) million Other Income Rs (0.695) million Expenditure Includes Cost of revenues Rs 884.781 million Selling expenses Rs 110.589 million General & Administrative expenses Rs 97.303 million Provision for doubtful debts Rs 0.334 million Tax Indicates Provision for Income Taxes EPS is Basic Status of Investor Complaints for the quarter ended September 30, 2006 Complaints Pending at the beginning of the quarter Nil Complaints Received during the quarter 10 Complaints disposed off during the quarter 10 Complaints unresolved at the end of the quarter Nil 1. The above results were taken on record at the Board meeting held on October 30, 2006. 2. Total staff costs for the quarter & six months ended September 30, 2006 was Rs 317,392 & Rs 570,334 (quarter and six months ended September 30, 2005 were Rs 204,438 and Rs 371,902). 3. Total depreciation for the quarter and six months ended September 30, 2006 were Rs 29,660 and Rs 55,075 (quarter and six months ended September 30, 2005 was Rs 18,279 and Rs 36,565 million). 4. During July 2006, the Board of the Company approved the merger of EDS India Limited, a wholly-owned subsidiary of Electronic Data Systems Corporation USA with Mphasis BFL Limited, pending regulatory approvals. The swap ratio of the merger will be 5:4 (5 shares of the Company for every 4 share of EDS India). If approved the merger will be with respective effect from April 01, 2006. 5. Electronic Data Systems corporation (EDS) through its wholly owned subsidiary TH Holdings, Mauritius, made an open offer for purchase of 83 million shares of the Company in April 2006. The Offer was closed in June 2006 and EDS, through TH Holdings, currently holds 83 million equity shares forming more than 51% of the paid up share capital of the Company as at September 30, 2006. EDS has thereafter made a public announcement (PA) on October 19, 2006 to the shareholders of the Company of a voluntary open offer to acquire 32,947,290 fully paid equity shares of the Company representing approximately 20% of the total voting equity share capital of the Company as on January 02, 2007, including the maximum possible option dilution upto that date. As per the PA the offer is scheduled to open on November 27, 2006 and close on December 18, 2006.

200612 Quarter 3

Notes

EPS is Basic 1. The above results were taken on record at the Board Meeting held on January 31, 2007. 2. The name of the Company stands changed to MphasiS Limited with effect from November 24, 2006 based on the approval of the shareholders at their meeting held on November 13, 2006. 3. Total staff costs for the quarter and nine months ended December 31 2006 were Rs 337,996 and Rs 908,330 (quarter and nine months ended December 31, 2005 were Rs 190,218 and Rs 562,121). 4. Total depreciation for the quarter and nine months ended December 31, 2006 were Rs 34,124 and Rs 89,199 (quarter and nine months ended December 31, 2005 were Rs 23,873 and Rs 60,437). 5. Revenues of Mphasis Limited for the quarter ended December 31 2006 are net of Rs 42,888 being the amount adjusted to correctly recognize such revenues in the books of Mphasis Software & Services (India) Private Limited, a subsidiary, which was recognized in Mphasis Limited in the previous quarter. This adjustment has no impact on the results of the Mphasis Group, or on the cumulative results of the Company for the nine months ended December 31, 2006. 6. The shareholders at their meeting on November 13, 2006 approved the appointment of Mr. Deepak Patel as Managing Director of the Company with effect from November 01, 2006 on the expiry of Mr. Jaithirth Rao's term. Central Government approval of this appointment is awaited. Mr. Jaithirth Rao has become the non-executive Chairman of the Company with effect from November 01, 2006 and has become an employee of EDS from that date. 7. During July 2006, the Board of the Company approved the merger of EDS India, a wholly owned subsidiary of Electronic Data Systems Corporation USA (EDS), into Mphasis Limited. The swap ratio of the merger will be 5:4 (5 shares of the Company for every 4 shares of EDS India) and would entail the issuance of 44,104,065 shares of the Company. The scheme of merger has been approved by the shareholders at their meeting on November 13, 2006. The scheme of merger is awaiting approval of the Hon'ble High Courts of Karnataka and Mumbai. If approved, the merger will be with retrospective effect from April 01, 2006. 8. Electronic Data Systems Corporation ( EDS), through its wholly owned subsidiary TH Holdings, Mauritius, made an open offer for purchase of 83 million shares of the Company in April 2006. The offer was closed in June 2006 and EDS, through TH Holdings, currently holds 83 million equity shares forming more than 51% of the paid up share capital of the Company as at December 31, 2006. EDS has thereafter made a public announcement (PA) on October 19, 2006 to the shareholders of the Company for a voluntary open offer to acquire an additional 20% of the total voting equity of the Company. As per the PA, and the addendum thereto, the offer opened on January 29, 2007 and is scheduled to close on February 19, 2007.

KEY RATIOS

PARTICULARS	31.03.2006	31.03.2005	31.03.2004
Debt Equity Ratio	0.00	0.00	0.00
Long Term Debt Equity Ratio	0.00	0.00	0.00
Current Ratio	1.11	1.65	3.54
TURNOVER RATIOS
Fixed Assets	4.69	3.45	3.94
Inventory	0.00	0.00	0.00
Debtors	3.02	1.99	2.35
Interest Cover Ratio	33.34	547.56	973.70
Operating Profit Margin (%)	23.57	21.75	38.80
Profit Before Interest and Tax Margin (%)	21.37	19.89	37.45
Cash Profit Margin (%)	22.23	22.11	35.87
Adjusted Net Profit Margin (%)	20.03	20.25	34.53
Return on Capital Employed (%)	14.89	10.71	14.72
Return on Net Worth (%)	13.99	10.93	13.58

CONSOLIDATED BALANCE SHEET

SOURCES OF FUNDS (CONSOLIDATED)		31.03.2005	31.03.2004	31.03.2003
SHAREHOLDERS FUNDS
1] Share Capital		786.070	354.162	173.150
2] Share Application Money		0.000	0.000	0.000
3] Reserves & Surplus		5526.264	3137.930	9510.081
4] (Accumulated Losses)		0.000	0.000	0.000
NETWORTH		6312.334	3492.092	9683.231
Employee stock options outstanding		85.773	14.588	23.014
Deferred employee stock compensation expense		0.000	[0.985]	[3.956]
Minority Interest		0.000	374.815	0.000
LOAN FUNDS
1] Secured Loans		46.297	26.814	7.493
2] Unsecured Loans		0.000	0.000	0.000
TOTAL BORROWING		46.297	26.814	7.493
DEFERRED TAX LIABILITIES
TOTAL		6444.404	3907.324	9709.782
APPLICATION OF FUNDS
FIXED ASSETS [Net Block]		1102.349	917.928	64.324
Capital work-in-progress		95.591	107.272	5.430
INVESTMENT		3491.759	91.529	8399.456
DEFERREX TAX ASSETS		150.112	17.822	7.031
CURRENT ASSETS, LOANS & ADVANCES
	Inventories	0.000	0.000	0.000
	Sundry Debtors	1834.785	1522.026	842.445
	Cash & Bank Balances	954.711	1325.971	701.268
	Interest and Dividend Receivable	2.016	6.448	5.121
	Loans & Advances	805.527	598.966	184.197
Total Current Assets		3597.039	3453.411	1733.031
Less : CURRENT LIABILITIES & PROVISIONS
	Current Liabilities	1602.373	506.765	383.895
	Provisions	390.073	173.873	115.595
Total Current Liabilities		1992.446	680.638	499.490
Net Current Assets		1604.593	2772.773	1233.541
MISCELLANEOUS EXPENSES		0.000	0.000	0.000
TOTAL		6444.404	3907.324	9709.782

CONSOLIDATED PROFIT & LOSS ACCOUNT

PARTICULARS (CONSOLIDATED)	31.03.2005	31.03.2004	31.03.2003
Sales Turnover [including other income]	2575.338	2599.669	2079.914
Profit/(Loss) Before Tax	1129.218	972.730	770.798
Provision for Taxation	116.944	75.044	92.910
Profit/(Loss) After Tax	1246.162	897.686	677.888
Export Value	0.000	0.000	2071.965
Import Value	22.338	8.241	10.202
Expenditure	2366.229	1759.170	221.935

STOCK PRICES

Face Value	Rs.10.00/-
High	Rs.266.90/-
Low	Rs.255.50/-

LOCAL AGENCY FURTHER INFORMATION

Directors' Profile

Stephen Heidt, Chairman

Stephen (Steve) Heidt, Chairman of the Board, is a representative of Electronic Data Systems Corporation (EDS), the majority shareholder holding 83 million shares (51.39% as on 30 June 2006) of the Company through its investment arm, TH Holdings. He holds a Certificate in Business Programming from the School of Computer Technology, Pittsburgh, PA. He joined the Board of MphasiS in June 2006.

At EDS, Steve is the Vice President of Business Workforce and Capacity Management, reporting directly to the office of the COO. He has responsibility for all EDS Best ShoreSM activities, providing one single, globally integrated plan for Best ShoreSM across Information Technology Outsourcing, Business Process Outsourcing and Applications.

Steve began his career with EDS in the Operations Development Program and accepted his first assignment in operations management at the Dallas Regional Data Center. Since joining EDS in 1980, Steve has held numerous leadership roles directing both technical and field teams. His previous roles with EDS - Vice President of BPO Service Delivery, President of EDS Distributed Systems Services, and President of Information Solutions for EMEA region, President of EDS Global Delivery, and Director of the Technical Infrastructure group - reflect the diversity of his experience.

Jaithirth Rao, CEO and Managing Director

Jaithirth (Jerry) Rao holds a Masters degree from the University of Chicago and a MBA from Indian Institute of Management, Ahmedabad. Jerry joined the Board in January 2000.

Prior to founding MphasiS, Jerry was with Citigroup, where he built and developed Citibank's Consumer businesses as the Country/Regional Manager in India, Middle East, Eastern Europe and UK. He earlier headed Citibank's Global Technology Development Division and their Global Electronic Cards Division. Jerry is a seasoned veteran in Consumer and Corporate Financial Services and in Technology Management. With his vast experience on the subject, Jerry has testified before the US Congress on e-commerce.

Currently, Jerry is also on the Boards of Cadbury India Limited, The Arvind Mills Limited, IDFC Asset Management Company Limited, Gabriel India Limited, Royal Orchids Hotels Limited, Rao Properties Private Limited., Sanvijay Tours and Travels Private Limited. and Bangalore Review and Magazines Co. Private Limited. He is the Founder Member and Director of Development Gateway Foundation, USA, and a Trustee of the NASSCOM Foundation, Sujay Foundation, India Foundation for the Arts and Mathematical Sciences Foundation. He is also a Settlor and Executive Committee Member in IIMA Alumni Association Trust.

Rahul Bhasin, Director

Rahul Bhasin is a MBA from Indian Institute of Management, Ahmedabad. He joined the Board in June 1998. He is also the Managing Partner for Baring India Private Equity Fund. Previously he was a Fund Manager with Citibank Global Asset Management in London.

Prior to moving to London, he was based in Citibank's Delhi Office where he was in charge of Treasury. Rahul was earlier the Chairman of MphasiS BFL Limited. Currently, he is also on the boards of Siro Clinpharm Private Limited, Hindustan Oil Exploration Company Limited, Secova eServices and Baring Private Equity International.

Nawshir H Mirza, Director

Nawshir Mirza is a Fellow of the Institute of Chartered Accountants of India having qualified in the year 1973. He spent most of his career with Ernst £t Young and its Indian member firm, S.R.Batliboi & Co, Chartered Accountants, and its predecessor firm, Arthur Young, being a Partner from 1974 to 2003. He joined the Board of MphasiS in January 2004.

He has contributed to the accounting profession, being a Speaker or the Chairperson at a large number of professional conferences in India & abroad.

He is also a Director on the boards of Esab India Limited, Tata Industries Limited, RPG Guardian Private Limited and Foodworld Supermarkets Limited. As a philanthropist, he is actively involved with Childline, an all-India NGO for abused & distressed children.

Davinder Singh Brar, Director

D S Brar is a B.E. (Electrical) from Thapar Institute of Engineering & Technology, Patiala, and a Masters in Management from Faculty of Management Studies, University of Delhi (Gold Medalist - 1974). He joined the Board in April 2004. Brar started his career with Associated Cement Companies (ACC) and later joined Ranbaxy Laboratories Limited where he rose to the position of CEO and Managing Director.

Currently, he is also on the boards of Reserve Bank of India, Suraj Hotels (P) Limited, Madhubani Investments (P) Limited, Suraj Overseas (P) Limited, Green Valley Land and Development (P) Limited, Davix Management Services Private Limited, GVK Bio Sciences Private Limited, GVK Davix Technologies Private Limited and Inogent Laboratories Private Limited and Member of Board of Governors in Indian Institute of Management, Lucknow. He is also a Special Advisor to the Board of Directors of Codexis, a California based Company.

Dr. Jose de la Torre, Director

Dr. Jose de la Torre is a Doctor in Business Administration from Harvard University and MBA (Management) and B.S. (Aerospace Engineering) from the Pennsylvania State University. He is the Dean of the Chapman Graduate School of Business at Florida International University, Miami, Florida and holds the Byron Harless Chair in Management.

He joined the Board in June 2000. Dr. de la Torre was previously a professor of International business strategy at the Anderson School at UCLA and at INSEAD in France. He is also on the International Advisory Board of EDHEC in Lille and Nice, France.

Thomas Haubenstricker, Director

Thomas (Tom) Haubenstricker is a representative of EDS on the Board of the Company and joined the Board of MphasiS in June 2006. He holds a Bachelor's degree in Business Administration from Central Michigan University.

At EDS, he is the interim co-Chief Financial Officer and shares joint responsibility for the controllership, treasury, tax, investor relations, audit, supply chain management, corporate financial analysis, procurement finance and corporate administration functions for EDS' worldwide operations. He reports directly to the Chairman and CEO of EDS.

Tom joined EDS' finance organization in 1985 and has held various financial accounting, planning and reporting positions in the United States and EMEA (EDS' Europe, Middle East and Africa region). Tom has been Vice President for Finance Administration since January 2003 and has responsibility for EDS' corporate business development, corporate planning and financial analysis organizations. He has also served the roles of Vice President of Strategic Planning and Business Development and Managing Director of Financial Planning and Reporting.

Ronald Vargo, Director

Ronald P (Ron) Vargo is also a representative of EDS on the Board of the Company. He too joined the Board in June 2006. Ron holds a MBA degree in Finance from Stanford University and BA degree in Economics from Dartmouth College.

He joined EDS in 2004 and is currently the interim co-Chief Financial Officer and shares joint responsibility for the controllership, treasury, tax, investor relations, audit, supply chain management, corporate financial analysis, procurement finance and corporate administration functions for EDS' worldwide operations. He reports directly to the Chairman and CEO of EDS.

Before joining EDS, Ron was Corporate Treasurer and Vice President of Investor Relations at TRW Inc., now part of Northrop Grumman. Before TRW, Ron spent 10 years advancing through assignments in finance and treasury, planning and development, and general management at The Standard Oil Company (subsequently British Petroleum).

Previously, he held various auditing and financial positions at General Electric (GE) where he graduated from GE's Financial Management Program.

Douglas W. Davis, Director

Douglas (Doug) Davis is also a representative of EDS on the Board of the Company, since June 2006. Doug holds a Bachelor's degree in both Accounting and Business Administration from Evangel College and a MBA degree in finance from Southwest Missouri State University. He has also completed Executive Development programs from the London Business School, Duke University and Thunderbird University.

He is the Vice President of Service Delivery for the Europe, Middle East and Africa (EMEA) region with EDS. He is responsible for the end-to-end delivery to all clients across the region, including service, contractual and financial performance, as well as growing the existing business for EDS.

Before joining EDS, Doug was Director for Strategy, Planning and Negotiations with General Motors (GM) on a worldwide basis. He began his career with GM as an operations analyst with the Packard Electric Division.

Paul W. Currie, Director

Paul W. Currie, representative of EDS on the Board of the Company, also joined the Board in June 2006. He is a Canadian Chartered Accountant and was honored as an Ontario Institute silver medalist and named to the Canadian Institute honor roll.

At EDS, he is the Executive Vice President responsible for Corporate Strategy and Business Development. His responsibilities include oversight for developing EDS' corporate strategies and developing growth plans to build the company's business portfolio through related merger and acquisition activities. He reports directly to the EDS Chairman and CEO and serves as a member of EDS' Executive Committee.

Earlier, Paul served as managing partner of Currie & Company, a consultancy providing strategic, corporate development, financial and operational advice, and related services primarily to large multinational corporations.

His previous assignments include Chief Executive Officer of Symcor (a leading BPO services provider in Canada) and Executive Vice President for Corporate Development and Mergers and Acquisitions for Newcourt Credit Group (a global provider of leasing and capital asset lending). He also served as a partner with Coopers & Lybrand for more than a decade.

Paul currently serves on the board of directors of CEI Corporation and is on the Dean's Advisory Council for York University Business School.

Joseph Eazor, Director

Joseph (Joe) Eazor is also a representative of EDS on the Board of the Company since June 2006. He has a MBA degree from the University of Chicago and a BSc. Degree from the Colorado School of Mines.

At EDS, he is the President of EDS Asia and Chairman of EDS China. In this position, Joe leads EDS' efforts in ASEAN, China, Hong Kong, India, Japan, Korea and Taiwan. Previously, he was the Vice President and General Manager of the EDS' BPO unit. As head of BPO, he was responsible for EDS' financial processing, administrative processing, CRM, F&A and HR outsourcing businesses, including ExcellerateHRO.

Before leading EDS' BPO business, Joe was the head of Corporate Strategy and Operations Improvement, working for the Chairman and CEO. A former A.T. Kearney Vice President and global industry practices leader, Joe has also worked with Ernst and Young as a partner and co-leader of its Strategic Advisory Services Practice. He also served as a Principal with AlixPartners LLC, a management turnaround and consulting firm, and as President and CEO of Springbow Solutions, a business-to-business software solutions company.

CONSOLIDATED PERFORMANCE

The Company and its subsidiaries' (Group's) total revenue grew by 23% from Rs.7656.7 million in the previous year to Rs.9401.1 million for the year 2005-06. The profit before taxes for the same period grew by 38% from Rs.1129.2 million to Rs.1556.8 million. Basic earnings per share (adjusted for 1:1 Bonus during the year) grew from Rs.8.22 to Rs.9.42.

OUTLOOK

The Group has completed a satisfactory year, with IT business showing excellent growth and profitability and BPO business remaining steady despite several challenges faced at the beginning of the year. The Group has added to its robust list of clients and hopes to improve the performance of both IT and BPO businesses in an integrated manner, in the next fiscal.

SUBSIDIARIES

As on 31 March 2006, the Company had subsidiaries in Australia, Germany, India, Ireland, Mauritius, Netherlands, Peoples Republic of China, Singapore, the United Kingdom and the United States of America.

Revenue recognition

The Company derives its revenues primarily from software services & projects and business process outsourcing operations.

Revenues from software services and projects comprise income from time-and-material and fixed-price contracts. Revenue from time-and-material contracts is recognised on the basis of software developed and billable in accordance with the terms of the contracts with clients. Revenue from fixed-price contracts is recognised using the percentage of completion method, calculated as the proportion of the cost of efforts incurred upto the reporting date to estimated total cost of efforts.

Maintenance revenue is recognised rateably over the period of the underlying maintenance agreement. Provisions for estimated losses on incomplete contracts are recorded in the period in which such losses become probable based on the current contract estimates. 'Unbilled revenues' included in current assets represent revenues in excess of amounts billed to clients as at the balance sheet date. 'Unearned receivables' included in current liabilities represent billings in excess of revenues recognised.

Revenue from business process outsourcing operations arises from both time-based and unit-priced client contracts. Such revenue is recognized on completion of the related services and is billable in accordance with the specific terms of the contracts with the client.

Advances received for services are reported as liabilities until all conditions for revenue recognition are met. Interest on the deployment of surplus funds is recognised using the time-proportion method, based on underlying interest rates.

Dividend income is recognised when the right to receive the dividend is established.

NOTES TO THE FINANCIAL STATEMENT

With effect from 1 June 2004, the Group acquired the control of Kshema Technologies Limited ("Kshema") in terms of a definitive stock Swap and Purchase Agreement ("the Agreement") dated 2nd April 2004 approved by the shareholders of the Company at the Extraordinary General Meeting held on 12 May 2004.

The balance consideration payable to the erstwhile shareholders amounting to Rs 17,060,055 (31 March

2005: Rs 17,060,055) is carried as a liability which will be paid after necessary regulatory approvals are obtained (refer note 16).

During the year ended 31 March 2006, the shareholders and creditors of the Company, and also the creditors of Kshema have approved the Scheme of amalgamation and arrangement between Kshema and the Company with effect from 1 April 2005 as per the directions of the Hon'ble High Court of Karnataka. The Scheme has been approved by the Hon'ble High Court on 16 January 2006. As per the Scheme, the assets and liabilities of Kshema as on 1 April 2005 have been fully taken over by the Company at their book values and the book value of investments in shares of Kshema held by the Company has been cancelled. The deficit arising there from has been adjusted against the amount in the "Securities Premium Account" of the Company, in accordance with the court order.

The Company had acquired control of Princeton Consulting Limited, UK ("Princeton") on 16 February 2005.

According to the terms of the Share Purchase Agreement, an amount of GBP 7,385,000 (Rs 606,585,894) was paid in February 2005, an amount of GBP 100,000 (Rs 8,354,000) was paid in April 2005 and remaining consideration, amounting to GBP 500,000 (Rs 38,816,251) was paid in March 2006 in cash to the selling shareholders of Princeton.

The Company acquired control of Eldorado Computing Inc., USA ("Eldorado") on 1 March 2005. According to the terms of the Share Purchase Agreement an amount of USD 15,648,222 (Rs 685,943,675) was paid in cash to the selling shareholders during the year. An amount of USD 885,175 (Rs 39,492,083) is held in an escrow account and is payable upon satisfaction of certain conditions (refer note 15).

In addition, as per the Share purchase agreement, certain key executives of Eldorado Computing will be paid an earn out for three years commencing from 1 March 2005 to 29 February 2008 if they are able to exceed the agreed upon revenue and gross margin targets in each of these three years. The maximum earn out payable over three years if both the revenue and gross margin targets are met will be USD 5,000,000, with individual limits fixed for each of the three years. No earn out has been accrued for the year ended 28 February 2006.

During the year, MphasiS Ireland was incorporated in Ireland as a wholly owned subsidiary of the Company for the purpose of providing IT services in Ireland. The subsidiary is yet to commence operations. During the year ended 31 March 2006, the Company invested Euro 10,000 (Rs 541,100) in MphasiS Ireland.

The company’s fixed assets of important value include freehold land, buildings, leasehold improvements, plant and machinery, computer equipment, software, office equipment, furniture and fixtures, Books and vehicles.

Incorporated in Aug.1992, Mphasis BFL Limited (previously known as BFL Software) was promoted by a group of industrialists and professionals. Its promoters include S Bangur, S R Rathi and V K Rungta. To strengthen its competitive edge in a dynamic technology environment, Subject acquired 100% interest in MphasiS Corporation - USA, in June 2000, reducing the stake of Baring India Investment from 51.79% of the company equity, to 30.5% after the stock swap to acquire EmphasiS. The present name reflects this change in holding.

Subject is an Indian based global software solution company, operates through Bangalore. The company specialises in the delivery of a variety of IT solutions for large and reputed clients includes global leaders like Compaq, Fed-Ex, NEC, Samsung and ING. Subject's expertise covers solutions in the e-commerce, systems, enterprises, networking and telecom spaces; the company also creates software products (de-merged into a subsidiary from 2000.) The technology includes IBM, Microsoft, Tandem, Unix, Unisys, Linux and Solaris among others. 

Subject generates major portion of its revenue from USA (72%). Europe (11%), Asia Pacific (5%), Japan (7%), India & Middle East (5%) & rest of world (3%) contribute the balance. Retail/ Logistic/Transportation business contribute 27.6%, Financial Services 43.6%, Technology 22.8% & IT enabled services contributes 6% to the total sales. SUBJECT has reputation for delivering quality solutions has been re-inforced by the company being appraised at the SEI-CMM level IV in 1999. SUBJECT has wound up its healthcare product line, which was being managed by its German subsidiary, BFL gmbh.  

The shareholders of Mphasis BFL (MBL) has approved Chrysalis' investment ofRs 45 crore in the company at an extra-ordinary general meeting (EGM) held on 14 July 2001. Chrysalis is a leading private equity firm that invests incompanies in the outsourcing services, software services and technology spaces in India. In April,2003 the company passed resolution for the purpose of issue of bonus shares in the proposition of 1:1 equity held by them. The issue is subject to the approval of ensuing AGM. 

The company acquired Navion (Shanghai) Software Development Company, from Oakstone Ventures Inc.(USA). Since Chinese market is potentially lucrative this acquisition will make it as an entry point as well as to supplement the existing projects in the Far East & Japan. Mphasis had set up an call centre in Mexico at an investment of $1 million and the same is presently engaed in serving the requirements of one of MsourceE's large financial services clients in the US. 

Subject has acquired UK based Princeton Consulting during February 2005 which has been a niche consultancy services provider and is engaged in customer management solutions. 

In 2006, The merger of the wholly owned subsidiary, Kshema Technologies Limited with Subject. The scheme of amalgamation with effect from 1st April 2005. Electronic Data Systems Corporation (EDS), through its wholly owned subsidiary TH Holding, Mauritius, made an open offer for purchase of 8.3 Crores shares of our company in April 2006. The offer was successfully closed in June 2006. Currently TH Holdings holds 83 million shares forming approximately 51.39% of the paid up capital of the company as on 30 June 2006. The company will continue to operate under the current name.

Website details are attached herewith:

Subject supports G2000 companies around the world in the improvement of their business processes. They focus on Financial Services, Retail, Logistics, Utilities, Pharmaceuticals and Technology industries, building on a platform of world-class IT and Business Process Outsourcing (BPO) capabilities. All their solutions are driven by the highest quality standards (SEI CMMi Level 5, ISO 9000, Six-Sigma, BS 7799).

Their specific expertise is in the intersection of IT and BPO. They believe that the new generation of business processes in the services industries will be workflows that are tightly integrated and managed, but can be decomposed and executed in the location, which offers the best price/ performance. The convergence of technologies such as web services, workflow software and business performance monitoring enables this services delivery revolution. Subject is playing a leading role in the application of these technologies.

Subject - a global IT and BPO service provider to G2000 companies around the globe, assists its clients in innovating and streamlining their business processes by offering custom solutions for technology and operations outsourcing.

The Company's expertise is focused on financial services, logistics and technology verticals and spans across architecture, application development and integration, application management and business process outsourcing, including the operation of large-scale customer contact centers.

Subject specializes in multi-channel solutions, which optimize sales and service processes from a cost and quality perspective.

Besides an onsite presence at key locations, the Company has an extensive offshore infrastructure for IT Development and Business Process Outsourcing with centers in India, China and Mexico. Subject has a strong quality culture, reflected in ISO 9000 and BS 7799 certifications, CMMi Level 5 rating and Six Sigma quality initiatives. The company currently employs over 8500 professionals.

Led by Jerry (Jaithirth) Rao (Chairman and CEO) and Jeroen Tas (Vice Chairman), both former Citibank executives, the Subject management team has a unique blend of domain & technology leadership.

Message from Jerry & Jeroen

The Subject vision is to become the best-in-class service provider of offshore-based IT and BPO services in select business processes and industries in the coming years.

As they continue to work closely with their clients to innovate, automate and co-source their business processes they have found increasing synergies in their IT and BPO businesses. Better understanding of their clients' business processes allows them to deliver new solutions which combine IT and BPO. They are positioning theirselves as an offshore services provider that specializes in supporting their client's business processes through solutions that combine IT and BPO capabilities.

At Subject they are striving to achieve deep process execution expertise, apply world class IT skills and deliver leading edge tools. They are helping their clients to innovate, automate and execute their business processes at lotheyr cost with higher quality. In order to be effective in transitioning and managing their client's business processes they will integrate their processes and the underlying applications and systems. On top of this they will provide their clients complete control, security and transparency of the execution of the processes. IT plays an important role in quality management, workforce management, business activity monitoring and business intelligence. BPO and IT are closely related. Both require detailed understanding of their clients, their domain, their processes and the way their clients make decisions, work and operate. Only by closely associating with their clients can they be really effective in servicing them.

At Subject’s BPO, they provide high quality, value added contact center services and Business Process Outsourcing (BPO) services to Fortune 500 companies. Their contact centers in Bangalore and Pune. India offer English language support in an ISO 9001 certified environment. They also provide Spanish language solutions through their Tijuana, Mexico contact center facility.

They offer the satisfaction that comes from working with a technologically sound business partner. They are committed to continually investing in their people, processes, infrastructure and facilities. Their objective is to provide their clients with the highest levels of performance. They are committed to building scalable and repeatable business solutions that ensure their customer’s success.

Subject Technologies mission is to provide high quality, cost effective services and solutions to organizations in the fields of R&D and product development. By operating as virtual extensions, they align and deliver their services in line with their customer’s business goals.

Their offerings span 9 industries and sciences of Mobile, Networking and Telecom, Industrial Automation, Computing Platforms, Automotive Telematics, Consumer Electronics, Healthcare, Life Sciences and RFID (Retail).

They deliver their services through their established and proven “Technology Rental Lab” concept.
“Technology Rental Lab” is the single point aggregator that provides accountability across multiple inputs and players in a R&D or product development endeavor. It addresses the key requirements of process integration, IP protection, technology partnerships, domain knowledge, and resource scalability.

To sharpen and deepen their domain focus, they are evolving to a practices based organization. Mobile Technologies, Life Sciences and RFID (Retail) are their first initiatives in this direction.

Princeton Consulting is Subject’ Operational Consulting and Customer Management business for Customer Care (Sales & Service Processes). Princeton focuses on providing customer management solutions, through the pragmatic application of process improvement techniques and technology. They help clients enhance customer satisfaction, remove unnecessary cost and capitalize on revenue opportunities.

They deliver a full range of customer management products and services in the customer care space, specifically for the financial services and telecommunication industries. Their areas of expertise include customer relationship management (CRM), multi-channel customer service and support, sales automation, marketing and analytics, mobile and contact centre solutions.

They focus on understanding their customers’ specific requirements and challenges. Customers benefit from their broad experience in the customer care space, resulting in shortened development and implementation time frames. They deliver on-time and significantly reduce development costs, whilst maintaining the highest quality standards. With their in-depth knowledge in customer management best practices, strategies and technology, they are ideally positioned to help clients meet the challenge of improving business performance.

Their customer management solutions are based on leading CRM and e-business products. For customized development, they have specialist groups experienced in industry standard architectures and framework. Their expertise includes Siebel, Microsoft CRM, Contact Central, Genesys

Group Strategy and Overview

Jerry Rao wants to do the taxes.

Ah, you say, you've never heard of Jerry Rao, but the name sounds vaguely Indian. Anyway, you already have an accountant. Well, Jerry is Indian. He lives in Bangalore. And, you may not know it, but he may already be the accountant. "They have tied up with several small and medium-size C.P.A. firms in America," explained Mr. Rao, whose company, Subject, has a team of Indian accountants able to do outsourced accounting work from across the U.S.

All the necessary tax data is scanned by U.S. firms into a database that can be viewed from India. Then an Indian accountant, trained in U.S. tax practices, fills in all the basics.

"This is happening as they speak - they are doing several thousand returns," said Mr. Rao. American C.P.A.'s don't even need to be in their offices. They can be on a beach, said Mr. Rao, "and say, 'Jerry, you are particularly good at doing New York returns, so you do Tom's returns." He adds," They have taken the grunt work" so U.S. accountants can focus on customer service and thinking creatively about client needs. Mr. Rao's ability to service U.S. accounts this way is at the core of a business revolution that has happened over the past few years. I confess: I missed this revolution. I was totally focused on 9/11 and Iraq. But having now spent 10 days in Bangalore, India's Silicon Valley, I realize that while I was sleeping, the world entered the third great era of globalization.

The first era, from the late 1800's to World War I, was driven by falling transportation costs, thanks to the steamship and the railroad. That was Globalization 1.0, and it shrank the world from a size large to a size medium. The second big era, Globalization 2.0, lasted from the 1980's to 2000, was based on falling telecom costs and the PC, and shrank the world from a size medium to a size small. Now they've entered Globalization 3.0, and it is shrinking the world from size small to a size tiny. That's what this outsourcing of white-collar jobs is telling us — and it is going to require some wrenching adjustments for workers and political systems.

Globalization 3.0 was produced by three forces: First is the massive installation of undersea fiber-optic cable and bandwidth (thanks to the dot-corn bubble) that have made it possible to globally transmit and store huge amounts of data for almost nothing. Second is the diffusion of PC's around the world. And third (what I missed most) is the convergence of a variety of software applications - from e-mail, to Google, to Microsoft Office, to specially designed outsourcing programs - that, when combined with all those PC's and bandwidth, made it possible to create global "work-flow platforms."

These work-flow platforms can chop up any service job - accounting, radiology, consulting, software engineering - into different functions and then, thanks to scanning and digitization, outsource each function to teams of skilled knowledge workers around the globe, based on which team can do each function with the highest skill at the lowest price. Then the project is reassembled back at headquarters into a finished product. Thanks to this new work-flow network, knowledge workers anywhere in the world can contribute their talents more than ever before, spurring innovation and productivity. But these same knowledge workers will be under more pressure than ever to constantly upgrade their skills in this Darwinian environment.

Tom Friedman NY Times, March 4, 2004 Copyright © 2005 by The New York Times Co. Reprinted with permission. Emerging Client Needs In the last decade product companies have successfully outsourced large parts of their supply chain overseas. China has become the manufacturing base of the world. A similar shift is happening in the services industries.

The global sourcing of services is in full swing. India, with its large, well educated, English speaking population, is actively positioning itself as the hub for offshore services. US and UK companies have set up their own offshore centers or are using external service providers to support their IT projects and increasingly combining their back-office administrative processes with their front-office customer interaction. IT services are starting to reach a level of maturity and business process outsourcing (BPO) is rapidly emerging. There are tremendous opportunities to reap the benefits of lower cost, flexible capacity, higher quality and process improvements. Successful companies are continually streamlining their business processes. They are breaking up processes into components and leveraging partnerships with service providers to achieve the optimal coverage of each link in the service supply chain. They extend their enterprise by leveraging partners who can offer them innovation, flexibility, cost reduction and quality improvement for their processes, such as customer sales and service, case handling, tax and accounting, technology support and IT application management.

Strong partnerships between these companies and their service providers are based on alignment of strategy, culture, processes and systems. These partnerships are governed by robust security, performance management, risk management and relationship management. Providers such as Subject need to show deep domain expertise and world class execution capabilities for the processes they execute on their client's behalf.

Subject adds value to its clients on multiple levels:

v At the base level they seamlessly link with their client's organization to ensure that processes are executed

v and IT projects delivered according to the client's detailed, custom specifications. These types of engagements are task-based and rely on the service provider's excellence in delivering the right skills, quality and cost.

v On the next level, clients are not just assessing the partner on delivery in accordance with Service Level Agreements, but on the provider's ability to improve the productivity and performance of their processes.

v This involves higher effectiveness by applying industry best practices and automation and increased efficiency by applying six sigma methodologies and business intelligence. Examples of performance measures on this level are improved customer satisfaction, better cross selling ratios or reduced number of defects.

v At the highest level the partner is delivering business results and is being measured on the success of the outcomes, such as accounts opened, cents collected on the dollar, claims handled. The service provider will completely manage these outcomes using their proprietary platforms and processes.

Group Strategy and Overview

Subject Market Focus

Vertical Focus

Vertical focus and depth in the Financial and Technology Verticals will drive the content of their offerings. Given their reputation, knowledge and capabilities in the Financial Vertical (Retail Financial Services, Investment/ Corporate Banking, Financial Information-provision and Insurance), they will continue to invest in their dominance in this vertical.

The Technologies Vertical (M-Tec) will provide a complete portfolio of services -from R&D, Development, Testing to Tech Support- for HW and SW Technology companies. This Vertical builds on their strong position with leading companies in this industry. A separate unit for Emerging Verticals (Transportation, Pharma, Telecoms) has been established to manage their footprint and leverage the expertise built up in their core verticals. Strategy They aspire to be a differentiated company- their sole intent being to partner businesses in significantly improving the performance of their critical business processes. They help their clients achieve their business objectives by using leading edge tools to craft innovative solutions that leverage the company's global sourcing capabilities, its select domain and process expertise and backed by world class IT and BPO delivery. They intend to deliver on their growth aspirations through their "Six Box" strategy. This is their approach to achieving profitable growth based on 3 foundation businesses and 3 emerging businesses. This implies building their foundation businesses further-Voice-based BPO, Application life cycle management capabilities, particularly in Financial Services and Embedded Systems. These 3 foundation businesses have scale and brand recognition, and they will invest further in growing them to achieve market dominance. They have also identified 3 emerging businesses- Healthcare (particularly focus areas such as claims processing), Platform-based BPO (to complement Customized BPOs) and Consulting. These add strategic muscle to their game-plans- help us engage with clients higher in the value chain and in their early stages of their outsourcing journey, and provide us with opportunities to shape their destinies more formidably.

They have engaged with the pre-eminent management consulting firm, McKinsey & Co. extensively and have developed with them both this strategy and an organizational construct that they believe can help us over the next twenty-four months. Going forward they will measure the width and depth of their relationships with their Customers, irrespective of the business units (IT Services, BPO, Solutions) serving them. To keep this focus, they will also report their financials by Verticals and not by their Business Units. Subject Business Portfolio They are addressing the market through 3 Business Units (BU), with Integrated client relationship teams to ensure a common approach to building value for their clients:

Business Process Outstheircing (MphasIS BPO)

The BPO unit manages the execution of business process on behalf of their clients. Processes covered Include sales 6t service, finance 6t accounting, content management, claims-handling and technical support. Each of these businesses shows different characteristics In terms of customer needs and delivery models. Given the competitive landscape, the market dynamics, each of the business units exhibits specific growth and contribution patterns. The following picture describes the portfolio In terms of relative revenue, growth and contribution.

Group Strategy and Overview

Financial Services Solutions (FSS) This BU manages IT services, Business Process Improvement Consulting (Princeton Consulting) and Platformbased Solutions, including the Healthcare Insurance Unit (Eldorado Computing Inc.). Technologies (M-Tec) This BU provides solutions to the hi-tech industries, ranging from product R&D, maintenance & support, quality assurance and technical help desk. Platforms In their discussions with clients, they discover a major opportunity to link their performance closer to their client's business as they convert their Solutions into scalable Platforms. They will develop software platforms that allow us to offer world class business services - "Platform-based BPO"- to their clients. They consciousy seek to move to a transaction-based pricing rather than a cost plus pricing model. They have booked initial success with their Virtual Process Manager, which is now being used as a service by a few major financial institutions. Consulting The Consulting practice will position Subject uniquely- by enabling us to add value to their clients early on in their outstheircing jtheirney. They are consolidating their Consulting skills under the Princeton umbrella by combining their existing Business Analysis Group in I.T. (BAG), the Business Intelligence and Data Warehousing Group in I.T. (BI/DW) and the Business Excellence Group in BPO (B.E.). The Charter of this Group is to assist their clients in improving their business processes. This Consulting Unit with over 250 FTEs will operate under the Princeton Consulting brand-name.

Princeton Consulting will continue with its own CRM Practice under its brand name. The MphasiS Architecture Community (MAC), with its deep expertise in architecting technology, will also operate under the Consulting umbrella. Healthcare Healthcare is a high growth Vertical with tremendous opportunities for improved productivity using Platforms and skills that are specialized. They already have experience in Claims-handling and Payments, areas that play to their strengths. A large part of the US citizen's healthcare dollar goes towards paying for support processes such as health insurance claims. It is in this context that the acquisition of El Dorado, a Healthcare Claims-handling and Payments BPO fits perfectly to their plan. They are immediately leveraging the El Dorado acquisition to launch in the U.S. a platform-based BPO offering based on a per policy pricing, while exploring opportunities to lower TPA costs using the India advantage.

MphasiS Business Process Outsourcing (BPO)

MphasiS BPO Services (formerly known as MsourcE) was one of the early movers in the BPO space in India. Over the last five years it has established a leadership position and is privileged to have a client list that includes 14 Fortune 500 (US) and 3 FTSE 100 (UK) companies. It partners with clients to deliver high quality, cost-effective services across the focus-industries Financial Services (Retail banking, Investment Banking, Insurance) and Hitech industries. Other industries like Telecoms, Utilities and Logistics are also serviced. As the leader in offshore BPO, Subject has recognized the changing customer requirements and competitive landscape. The labor arbitrage benefits of India are well understood and companies are now starting to look for benefits beyond cost savings. In order to provide sustainable cost and performance advantage to clients, MphasiS BPO is moving from providing pure cost savings to providing sustained performance enhancements. They call this high value-add offering BPO 2.0 and this is witnessing an overwhelming response from their clients and marketplace.

Business process expertise - BPO 2.0 MphasiS BPO 2.0 value proposition is characterized by adding value to clients through process improvements and application of technology to optimize the process chain. The key components of MphasiS' value-added outsourcing include: Domain knowledge: A deep understanding of the client and their industry for successful execution of business process outsourcing arrangements. Best practices: MphasiS BPO provides value by implementing best practices distilled out of operational experience in executing client's business processes. Customer experience management and process specific practices for sales 6t service, claims handling and technical support are some of the areas covered. The HR best practices cover areas such as hiring, training, operational metrics, day-to-day operations, and reward programs. Process Integration & Automation: Analyzing the business process and automating them through technology has obvious advantages. Further, sustainable competitive advantage comes through the smart use of technology to automate not only parts of the process, but to integrate the entire process and supply chain. Examples include the use of workflow technology to not only optimize the routing of information among the hierarchy of users spread in multiple locations, but also to enable higher accuracy, better customer experience, and faster turnaround. Scientific and engineering tools: Significant process improvements are realized through the applications of tools and methodologies such as Six Sigma and Total Quality Management. Examples include the improvement of customer satisfaction in a technical support environment by applying DMAIC (Define-Measure-Analyze-lmprove- Control) methodology from the Six Sigma tool box. These techniques allow for pinpointing variations in processes that cause a deviation from their expected outcome. Systematic application of these tools can provide continuous improvement. The collection and interpretation of statistical data from the processes, using Business Intelligence technologies, support this analysis. Skills arbitrage: The availability of highly specialized skills (at a fraction of the cost), allows organizations to attain business goals, that are otherwise not possible or economical in high cost locations. Examples include utilization of medical doctors to analyze and determine the underwriting risk associated with individual long term care plans or disability plans. Underwriting of such plans is an expensive proposition and insurance companies typically utilize a combination of experienced underwriters without medical degrees and part-time registered nurses to perform this task. By utilizing medical doctors in India to perform such a function, life insurance clients are starting to realize benefits such as improved premium pricing. Another example is the use of certified accountants to analyze 5K and 10K documents of public companies. MphasiS BPO has organized its skill sets and experience across select business processes. The customer contact center capabilities support inbound and outbound voice, e-mail and correspondence handling, electronic messaging and web-site support for generic processes such as:

v Customer service and Sales

v Content and Document management

v Collections

v Technical Help Desk

v Claims handling and underwriting support

v Research and Analytics

v Tax, Finance and Accounting

v Industry specific processes

Amongst Industry specific processes, MphasiS' Brokerage Practice provides brokerage services such as trade execution, account opening and order processing to clients. It also provides Fraud Early Warnings to Subject' financial services clients. In order to make the transition of the client's processes to the MphasiS centers seamless, a robust Transition Management methodology has been implemented. Project teams comprises of specialists in areas of process analysis, quality assurance, training, security, networking and systems integration. MphasiS Technologies (M-Tec) M-Tec's charter is to support technology product companies in the development, testing, deployment and support of their products, so that they can get their products into the market-place at lower cost, faster and with better customer support. M-Tec services and solutions are delivered through "Technology Rental Lab" concept - a single point technology aggregator and an extension of client's operations.

Technology Rental Lab

The "Technology Rental Lab" (TRL) provides integrated accountability across multiple inputs and players in the product life-cycle. It addresses the key requirements of process integration, IP protection, technology partnership, resource scalability and domain knowledge. The TRL and supporting teams combine to provide flexible, innovative and cost-effective technology solutions to Subject' customers.

TRL addresses key challenges faced by organizations seeking services from third party service providers:

v Managing multiple inputs, players and responsibilities

v Technology and Domain Knowledge

v Ensuring flexible processes to integrate processes with the service providers

v Resource scalability

v IP protection frameworks

v Industry and Technology affiliations/memberships

v Frameworks, Re-usable components

v A governance model that gives complete visibility and control across all delivery streams to the client Industry Verticals M-Tec offers services and solutions to companies, developing products for the following industry verticals: Networking, Telecom & Mobile

They work with product companies to provide solutions and services ranging from analysis, design, development,

MphasiS in the Community

Each one of us across Subject is aware of the presence of a larger community outside their business structure that is underprivileged and neglected. That is why they make a concerted effort to reach out and touch these lives in every way they can, both as individuals and as a huge corporation. Their sentiments are driven by the need to 'give back' to society what they draw from it. They contribute their skills and expertise in a way that benefits the community in which they live and work. They work with the voluntary sector in implementing social projects in the cities in which they conduct their business - Mumbai, Pune and Bangalore (India).

Tsunami

Subject joined hands with several well-intentioned bodies towards alleviating the suffering of the Tsunami victims. All employee contributions were channeled to GIVE India, their long-term charity partner who is noted for their transparency and accountability. In-kind donations were also accepted. Their clients were also encouraged to contribute through Subject. In the months ahead, the affected regions will enter a new phase of the crisis - one where technology, equipment and infrastructure, as well as management time and talent, will be needed to help rebuild communities devastated by the disaster. Subject intends to focus on long-term rehabilitation efforts rather than short-term succor and relief. In this regard, they are exploring ways with GIVE and grassroots NGOs in which they can contribute money, people and technology using a focused, result-oriented approach.

Children

Each One Teach One (EOTO) Charitable Foundation works with economically deprived children between the ages 13 and 16, studying in Government-run municipal schools in Mumbai. EOTO provides everyday necessities like books, uniforms, and mid-day meals to the children. The foundation takes on the responsibility of their overall physical, emotional 6t intellectual development as well. Subject funds three EOTO projects in Mumbai schools. In Mumbai, they bridged the gap further by allotting a room the EOTO children in their workspace. The children come over to their office once every week, interact with their employees who spend time teaching them computers. As part of its commitment towards drawing and employing physically challenged individuals into the productive workforce, Subject works in partnership with VOICES. VOICES is a public charitable trust in Bangalore. The project aims at providing gainful employment to the disadvantaged in the burgeoning BPO sector. They support a "preschool" for slum children between the ages 3 and 5, who do not have access to the even the most basic education. Subject employees contribute to the educational, medical and recreational activities of these children by donating their skills 6t time.

Differently-abled

There is a recruitment drive for the differently-abled, across all functions in MphasiS BPO, Technologies and IT services. There is a partnership effort with the National Association for the Blind to develop low-cost indigenous screen-reader software for the visually-impaired. They have started a spoken English program for children from an NGO called "Dream a Dream". Volunteers from Subject deliver a 16-hour module spread over 4 weeks, and also train other volunteers to help draw a larger number of slum children to be trainedin spoken English. Their volunteers conducted computer classes for kids from the Ashwini Charitable Trust (Bangalore). This trust is being supported by some of their employees who make a monthly donation towards the education of these children. A commonplace, yet highly effective program - The Newspaper Donation Drive - in Bangalore is a substantial fundraiser. Proceeds from old newspapers and magazines donated by the employees go a long way in supporting their charitable projects. They have initiated a payroll-giving program in aid of the Parikrama Humanity Foundation, Bangalore.

Management Discussion of Risks and Concerns

Any Group needs to ensure that It has a proper continuous risk Identification and management process. This process will generally Involve the following steps:

v Identifying, ranking and sourclng risks Inherent In the Group's strategy (Including Its overall goals and appetite for risk);

v Selecting the appropriate risk management approaches and transferring or avoiding those risks that the business Is not competent or willing to manage;

v Implementing controls to manage the remaining risks;

v Monitoring the effectiveness of risk management approaches and controls;

v Learning from experience and making Improvements.

Management has Identified certain areas of risk where the Group Is vulnerable, listing them below along with actions to deal with the same and thereby mitigate, If not eliminate such risks. Management strives to ensure a policy of strong corporate ethics that are more about the culture of the organisation rather than an outcome of legal provisions. Thus, It maintains healthy Internal systems and practices rather than being bound by legal limitations from without.

Business Risks

Client Concentration Risk

The Group derived 17% of Its total revenues during the quarter ended 31 March 2005 from a single client.

The Group's profitability and revenues would be affected In case of loss of this client or a significant downsizing of projects given to the Group by this client. Management Is aware of this risk and has undertaken measures to broaden Its client base. However, the overall trend Is a declining client concentration and the Group Is confident that this will continue.

Business concentration risk by vertical

The Group derived 61% Its revenues from the Financial Services vertical, which Include banks, brokerages, Insurance companies and financial Institutions. A downturn In the fortunes of clients In this group or a reduction In their IT spending / budgets, would adversely affect the Group's own profitability. The Group Is actively pursuing client acquisitions In other verticals.

Geographic concentration risk

The group derived 69% of It revenues from the US, which makes It susceptible to adverse market conditions and events that might exist In the US and thus affect the Group's revenues. To counter this, management Is actively pursuing clients In Europe, Japan, Asia Pacific and Middle East regions and thereby reduce the dependence of the Group on US based customers.

Competition risk

New competitors may enter the markets the Group operates In or current competitors could decide to focus more on these markets, and thereby Intensify the highly competitive conditions that already exist. These new entrants and existing competitors could offer or Introduce new technologies, offer a different service model, or could treat the services to be provided by one of their businesses as a component of a larger service offering. Such developments would enable these new and existing competitors to offer similar services at reduced prices. Such developments could harm the Group's business and results of operations. The market for software development services Is highly competitive and subject to rapid technological change, regulatory developments and emerging Industry standards that the Group expects will continue. This could result In lower margins In future for the Group and could also result In Increased pricing pressures. Certain of the Group's competitors have substantially greater financial, technical, marketing and other resources than the Group, and competitors of the Group have made and continue to make significant Investments In the construction of new facilities. To the extent the Group Is unable to compete effectively against Its competitors, Its financial condition and results of operations would be materially and adversely affected. Management expects competition to persist and Increase In the future. Management cannot assure that the Group will be able to compete successfully against these or future competitors. Management expects that a portion of the Group's anticipated future revenue growth in the various business segments will be derived from:

v the continued selling of services to their existing customers;

v the planned introduction of new or enhanced services;

v the selling of services to new customers; and

v the selling of services to their existing customers.

How successful the Group will be in these efforts will depend on a variety of factors, including the Group's:

v service offerings;

v effective sales and marketing efforts;

v ability to attract new as well as retention of new and existing customers;

v market acceptance and the avoidance of difficulties or delays in development or introduction of new services.

Therefore management has commenced the integration of the services provided by the software solution services and the BPO capabilities of the Group to counter the integrated offerings that the competition may provide.

However, there can be no assurance that the Group will achieve revenue growth objectives from cross-selling efforts, integrating services and selling new services. The inability to cross-sell services, attract and retain new customers or successfully develop new and enhanced services would harm the Group's business.

International operations risk

The Group has international operations in Australia, Belgium, China, Germany, Hong Kong, Japan, Mexico, Middle East, The Netherlands, Singapore, South Korea, Sri Lanka, UK, and the US. International operations are subject to various risks which could adversely affect those operations or the business as a whole, including:

v costs of customizing products and services for foreign customers;

v difficulties in managing and staffing international operations;

v reduced protection for intellectual property rights in some countries;

v longer sales and payment cycles;

v the burdens of complying with a wide variety of foreign laws; and

v exposure to local economic conditions.

Overseas tax obligation risk

The Group is also required to comply with various state level legislation / statutes in the US which is the largest market for the Group. Based on legal opinion the Group provides for the Income / Sales taxes in the various states in the US, where it has operations. In the event that there is a dispute with the state authorities, the actual tax liability may be higher than that recognised hitherto by the Group. The tax calculation and provision are suitably verified by the Group's tax consultants and legal advisors in the US so as to mitigate these risks.

Fixed price contract risk The Group derived 10% of its total revenues from Fixed Price contracts during the quarter ended 31 March 2005. Such projects require continuous monitoring and as well as accurate estimation of overall efforts, which directly affects the profitability of the group. If constant and adequate control is not exercised, it will result in cost overruns and eventual losses for the Group besides loss in client goodwill on account of delayed delivery, quality and failure to meet contractual obligations. It also results in revenue variability as it depends on new project wins once an existing project is complete. Management minimises this risk through a process of periodic monitoring of the profitability of fixed price contracts, including reviewing the estimate of efforts to complete and appropriate corrective action being undertaken by the concerned client management teams. These actions ensure that the estimated profitability of these contracts is maintained. Management Discussion of Risks and Concerns Termination of contracts by clients A significant portion of the Group's contracts with its clients is on a non-exclusive, project-by-project basis. The clients, with or without cause, may terminate the contracts, including fixed-price contracts, by providing an advance notice varying between zero to 90 days. Further, these contracts do not carry a commitment of future volume of business. The Group's business is therefore dependant on the decisions and actions of the client, which are outside the Group's control, and could result in the termination of the said contracts. These actions could include:

v Financial difficulties for the client;

v A change in strategic priorities;

v A demand for reduction in prices; and

v A change in outsourcing strategy by shifting work to in-house IT departments or to the Group's competitors.

Delivery Disputes

As explained in the preceding paragraph, a large proportion of the Group's revenues are derived from Fixed Price projects. In many cases the specifications may be not completely defined at the inception of the project, where for competitive reasons the Group still needs to accept the project. This could lead to differences in opinion with the client at the time of delivery of the project. The Group's client relationships are sufficiently strong whereby such disputes can be resolved to the mutual satisfaction of the client and the Group. But in future if such disputes are not resolved, they could have an impact on the operating results of the Group. These risks are heightened in cases where clients face budgetary constraints or have internal management issues. The Group also maintains adequate insurance for professional indemnity and errors and omissions to cover such cases.

Onsite - Offshore proportion

Some clients insist on onsite efforts to exercise better control and to monitor progress of the project. The Group is moving towards offshore efforts over a period of time once clients are convinced of the Group's ability to deliver and execute projects as per plan or even ahead of such plans. However, requirements by the customers to maintain a specified number of resources onsite could significantly impact the results of operations of the Group.

Operational Results I Issues

The Group's ability to improve profit margins will depend on factors that include the degree to which and the speed with which the Group will be able to increase operational efficiencies and reduce operating costs. Delays or difficulties in implementing and consolidating process improvements, such as those designed to reduce travel, telecommunication and customer service costs, or installing new products and services and in consolidating various functions, including administrative functions, eliminating duplicate operations and consolidating facilities could adversely affect the timing or effectiveness of cost reduction and margin improvement efforts. The Group has an effective system of forecasting and budgeting for costs so as to ensure optimum utilisation of resources. It is continuously in the process of reviewing its systems and procedures to implement tighter controls. Customer retention is an important factor in the amount and predictability of revenue and profits in the Group's businesses. The Group's ability to retain existing customers depends on a number of factors, including:

v customer satisfaction;

v service offerings by competitors;

v customer service levels; and

v price.

In providing services, the Group would incur installation and conversion costs in connection with new customers that will need to be recovered before the contractual relationship will provide incremental profit. Longer customer relationships are likely to be more profitable.

As discussed under the 'Competition risk', a significant portion of the Group's revenues is generated from existing clients and the Group has also been successful in adding new clients every year. However, there can be no assurance that the Group would be able to retain all/significant proportion of its existing clients

Mergers & Acquisitions

One of the Group's growth strategies is to make acquisitions of and investments in complementary businesses, technologies that will enable the Group to add services for the Group's core customer base and for adjacent markets, and to expand geographically. The Group's ability to make these acquisitions and investments will depend on:

v the availability of suitable acquisition candidates and investments at acceptable costs;

v ability to compete effectively for these acquisition candidates and investments; and

v the availability of capital to complete these acquisitions and investments.

These risks could be heightened if the Group completes several acquisitions or investments within a relatively short period of time. The benefits of an acquisition or investment may often take considerable time to develop, and management cannot guarantee that any acquisition or investment will in fact produce the revenue, earnings or business synergies earlier anticipated. In addition, implementation of this strategy entails a number of risks, including:

v inaccurate assessment of undisclosed liabilities or recoverability of carrying value of assets;

v entry into markets in which the Group has limited or no experience;

v potential loss of key employees or customers of the acquired businesses;

v difficulties in assimilating the operations and products of an acquired business or in realizing projected efficiencies and cost savings;

v reallocation of significant amounts of capital from operating initiatives to acquisitions; and

v increase in the Group's indebtedness and a limitation in ability to access additional capital when needed.

Also, from an accounting perspective, acquisitions and investments may involve non-recurring charges that could affect operating results. Also given the financial characteristics of the Group's businesses, it may be difficult for to avoid making acquisitions that would be dilutive to earnings per share. telecommunication infrastructure risk The use of strategically located software development centres provides the Group with cost advantages, ability to attract and retain highly skilled personnel and consequently the ability to provide the clients with services 24 hours a day and 7 days a week. This delivery model involves the maintenance of active voice and data communication links between the Group's call centres, its software development centres and clients. Although the Group maintains redundancy facilities and satellite communication links, any loss in its ability to transmit voice and data through satellite and telephone communication links could adversely affect the Group's ability to complete client projects on a timely basis thereby affecting its revenues and operational performance.

Financial Risks

Foreign exchange fluctuation risk

As over 98% of the Group's billings are in foreign currency, it is exposed to currency fluctuations and volatility against the Indian rupee. Principal currencies dealt with by the Group include the US Dollar, British Pound, Euro, Singapore Dollar, Japanese Yen and the Australian Dollar. To the extent that there is a signficant appreciation of the rupee, it would affect their earnings negatively. Such volatility would also affect their assets located at various locations worldwide in terms of their carrying value. A rupee depreciation would affect the Group's import policy especially covering capital items thereby increasing their liability and cost. Conversely a rupee appreciation affects the Group's revenue streams and also reduces the carrying value of current assets especially accounts receivable. These risks are hedged by the purchase of forward covers.

Credit Risk

The Group's ability to recover dues from a client is dependent on the credit terms given to the client. With clients and operations all across the world, effective procedures and recovery mechanism have to be in place to avoid excessive bad debts. The Group constantly reviews credibility of existing customers and follows rigorous credit checks on prospective clients before fixing credit limits and credit periods.

(Rs in Millions)

With effect from 1 June 2004, the Group acquired control of Kshema Technologies Limited ("Kshema") in terms of a definitive Stock Swap and Purchase Agreement ("the Agreement") dated 2 April 2004 approved by the shareholders of the Company at the Extraordinary General Meeting held on 12 May 2004. According to the terms of this agreement and the shareholders' resolution, an amount of Rs 288.366was paid in June 2004 in cash to a selling shareholder of Kshema. During the quarter ended 30 September 2004, the Company issued 2.338 equity shares valued at Rs 713.678 in terms of the SEBI formula for pricing of preferential allotments, in discharge of the balance consideration payable after obtaining the necessary regulatory approvals (refer note 17). During the quarter ended 31 December 2004, the Company created a liability for the balance consideration payable to erstwhile shareholders amounting to Rs 58.569of which an amount of Rs 41.509 was paid during the quarter ended 31 March 2005. The balance will be paid after necessary regulatory approvals (refer note 17). In accordance with AS 21, the financial statements of Kshema have been consolidated with effect from 1 June 2004. This acquisition has resulted in a goodwill of Rs 923.892.

During the quarter ended 30 September 2004, the Group acquired the minority interest in MsourcE Corporation and merged MsourcE Corporation with and into MphasiS Corporation, by way of an "Agreement and Plan of Merger" ('the Merger Agreement') effective 20 September 2004 between MphasiS BFL Limited, MphasiS Corporation and MsourcE Corporation. The shareholders of the Company approved this acquisition of the minority interest in MsourcE Corporation including its option holders, for a consideration consisting of cash, stock and options of the Company at the Extraordinary General Meeting held on 12 May 2004.

The total cost of acquisition of the minority interest including employee stock options is Rs 1,873.605. The acquisition of minority interest including options resulted in a goodwill of Rs 1,476.145.

The Company acquired control of Princeton Consulting Limited, UK ("Princeton") on 16 February 2005. According to the terms of the Share Purchase Agreement, an amount of GBP 7,385,000) was paid in February 2005 in cash to the selling shareholders of Princeton. The remaining consideration, amounting to GBP 0.600 is payable upon the satisfaction of certain conditions stipulated in the aforesaid agreement and is held in escrow accounts in the interim. The acquisition has resulted in a goodwill of Rs 340.106.

2 (d) The Company acquired control of Eldorado Computing Inc., USA ("Eldorado") on 1 March 2005. According to the terms of the Share Purchase Agreement, an amount of USD 16.500 is payable in cash to the selling shareholders of Eldorado including an amount of USD 2.475to be deposited in an escrow account which is payable upon the satisfaction of certain conditions stipulated in the aforesaid agreement. Current liabilities include an amount of Rs 721.792towards consideration payable to the selling shareholders which has been paid on 5 April 2005. The acquisition has resulted in a goodwill of Rs 662.797. In addition, as per the Share purchase agreement, certain key executives of Eldorado Computing will be paid an earn out for three years commencing from 1 March 2005 to 29 February 2008 if they are able to exceed the agreed upon revenue and gross margin targets in each of these three years. The maximum earn out payable over three years if both the revenue and gross margin targets are met will be USD 5.000, with individual limits fixed for each of the three years.

The Company Is engaged In the business of software development services, projects and professional services. Such services are not capable of being expressed In any generic unit and hence, It Is not possible to give the quantitative details required under paragraphs 3, 4C and 4D of Part II of Schedule VI to the Companies Act, 1956.

The Company's software development centres in India are 100% Export Oriented ('EOU') / Software Technology Park ('STP') Units under the Software Technology Park guidelines issued by the Government of India. They are exempted from customs and central excise duties and levies on imported and indigenous capital goods and stores and spares. The Company has executed legal undertakings to pay customs duty, central excise duty, levies and liquidated damages, if any, in respect of imported and indigenous capital goods and stores and spares consumed duty free, in the event that certain terms and conditions are not fulfilled. Bank guarantees aggregating to Rs. 2.565 millions as at 31 March 2005 have been furnished to the Customs authorities in this regard.

Overview

Subject Is a premier global IT (Information Technology) and BPO (Business Process Outsourcing) Services Group ('the Group') formed In the year 2000 after the merger of Bangalore, India, based BFL Software Limited (formed In 1993) and California, US, based MphasIS Corporation (formed In 1998). The Group offers solutions to the world's leading companies In selected Industries, such as banking 6t financial services, logistics, technology and retail, based on a portfolio of world-class IT and BPO capabilities.

The Group sees tremendous opportunities to strengthen Its BPO business through technology In the areas of Integration, automation, workflow management, business activity monitoring and business Intelligence. At the same time, a deep understanding of Its clients' business processes allows Subject to Identify focused solutions for the IT services business.

IT and BPO are closely related. Both require detailed understanding of the client organization, their domain, their processes and the way clients make decisions, work and operate. In order to be effective In transltlonlng and managing their client's engagements, Subject Integrates their Internal processes and the underlying applications and systems with the client's environment. On top of this, they provide their clients complete control, security and transparency of the execution of the processes. The Group Is endeavouring to combine Its expertise In both IT and BPO as well as Its domain knowledge In specific Industries like banking and financial services to develop platform based solutions that are ready to market and where the Group owns the Intellectual property (IPR).

The Group's financial strength and ability to adapt to the current market and economic onditions are dependent In part on the generation of cash flows, effective management of working capital and other obligations, as well as the growth of the business.

During the year ended 31 March 2005 ('FY05') consolidated revenues were Rs 7,656.7 million, a growth of Rs 1,851.0 million or 31.9% over the year ended 31 March 2004 ('FY04'). This Increase Is primarily attributable to Increased operations of MphasIS BPO ('BPO Services'), the revenues for which Increased by 52% during the year.

The consolidated net profit was Rs 1,246.2 million In FY05, an Increase of Rs 260.5 million or 26.4% over FY04.

As a percentage of total revenues, In FY05 the net profit was 16.3% compared to 17% In FY04.

Further during FY05, the Group generated cash flows from operations amounting to Rs 1,606.8 million, an Increase of Rs 812.5 million or 102%. The Group has also Invested, Rs 556.5 million In fixed assets, Rs 7.5 million towards the remaining purchase consideration for acquisition of the business of Onlda Infotech services, China, Rs 336.6 million towards the cash component of the purchase consideration of Kshema Technologies Limited, India, Rs 679.8 million towards the cash component of the acquisition of the minority Interest In MsourcE Corporation, USA, Rs 305.6 million towards acquisition of Princeton Consulting Limited, UK,

News Release :

Jerry Rao Awarded ‘Distinguished Alumni Award’ by Chicago Graduate School of Business Bangalore:

Jerry Rao, CEO, MphasiS was awarded the ‘Distinguished Entrepreneurial Alumni Award’ by the University of Chicago Graduate School of Business (Chicago GSB). The award was presented to Jerry Rao by Edward A.

Snyder, Dean, Chicago GSB, on Friday, October 6, 2006. The award ceremony was part of the annual Alumni Celebration dinner of Alumni Weekend 2006 and was attended by distinguished corporate, academic and other personalities from around the world.

These awards presented by Chicago GSB seek to recognize outstanding professional achievement among its alumni who, in the opinion of the selection committee, have demonstrated admirable professionalism.

The Entrepreneurial Award is presented to an individual who has demonstrated professional achievement of the highest caliber in the management of an entrepreneurial enterprise. Such achievement may include:

v Creation or significant involvement in the formation of a successful enterprise

v Successful creation of a new idea, new business, new product and/or private ownership which can be directly attributed to the direction of the individual

v Recognition by colleagues and peers of outstanding leadership and administrative abilities in an entrepreneurial area

Speaking on the announcement, Edward A. Snyder, Dean, Chicago GSB said, “Chicago GSB has a strong relationship with its alumni and the business community across the world. Our goals include increasing opportunities for GSB students and alumni as well as increasing the school’s influence so it can continue to help improve business practices, increase performance, and strengthen the world’s marketoriented economies. We congratulate Jerry and recognize his significant achievements in taking such an active role in India’s historic economic boom and building one of the world’s most dynamic entrepreneurial enterprises.”

Commenting on his award, Jerry Rao, CEO, MphasiS said, “It gives me great pleasure to be recognized by my alma mater. Chicago GSB truly infused the entrepreneurial spirit in me and being awarded by the University gives me immense professional and personal satisfaction and further reinforces the realization of my achievements at MphasiS.”

About MphasiS

MphasiS BFL Limited (Bombay Stock Exchange: 526299 and National Stock Exchange of India: MPHASISBFL), an EDS company, is a leading applications and business process outsourcing (BPO) services company based in Bangalore, India. It currently has about 12,000 employees, including 11,000 in India. MphasiS serves clients in multiple industries, including financial services, transportation, technology and healthcare, and is particularly strong in the retail banking sector serving the world’s top five banks.

CMT REPORT (Corruption, Money Laundering & Terrorism]

The Public Notice information has been collected from various sources including but not limited to: The Courts, India Prisons Service, Interpol, etc.

1] INFORMATION ON DESIGNATED PARTY

No records exist designating subject or any of its beneficial owners, controlling shareholders or senior officers as terrorist or terrorist organization or whom notice had been received that all financial transactions involving their assets have been blocked or convicted, found guilty or against whom a judgement or order had been entered in a proceedings for violating money-laundering, anti-corruption or bribery or international economic or anti-terrorism sanction laws or whose assets were seized, blocked, frozen or ordered forfeited for violation of money laundering or international anti-terrorism laws.

2] Court Declaration :

No records exist to suggest that subject is or was the subject of any formal or informal allegations, prosecutions or other official proceeding for making any prohibited payments or other improper payments to government officials for engaging in prohibited transactions or with designated parties.

3] Asset Declaration :

No records exist to suggest that the property or assets of the subject are derived from criminal conduct or a prohibited transaction.

4] Record on Financial Crime :

Charges or conviction registered against subject: None

5] Records on Violation of Anti-Corruption Laws :

Charges or investigation registered against subject: None

6] Records on Int’l Anti-Money Laundering Laws/Standards :

Charges or investigation registered against subject: None

7] Criminal Records

No available information exist that suggest that subject or any of its principals have been formally charged or convicted by a competent governmental authority for any financial crime or under any formal investigation by a competent government authority for any violation of anti-corruption laws or international anti-money laundering laws or standard.

8] Affiliation with Government :

No record exists to suggest that any director or indirect owners, controlling shareholders, director, officer or employee of the company is a government official or a family member or close business associate of a Government official.

9] Compensation Package :

Our market survey revealed that the amount of compensation sought by the subject is fair and reasonable and comparable to compensation paid to others for similar services.

10] Press Report :

No press reports / filings exists on the subject.

CORPORATE GOVERNANCE

MIRA INFORM as part of its Due Diligence do provide comments on Corporate Governance to identify management and governance. These factors often have been predictive and in some cases have created vulnerabilities to credit deterioration.

Our Governance Assessment focuses principally on the interactions between a company’s management, its Board of Directors, Shareholders and other financial stakeholders.

CONTRAVENTION

Subject is not known to have contravened any existing local laws, regulations or policies that prohibit, restrict or otherwise affect the terms and conditions that could be included in the agreement with the subject.

FOREIGN EXCHANGE RATES

Currency	Unit	Indian Rupees
US Dollar	1	Rs.44.28
UK Pound	1	Rs.86.62
Euro	1	Rs.58.32

SCORE & RATING EXPLANATIONS

SCORE FACTORS	RANGE	POINTS
HISTORY	1~10	7
PAID-UP CAPITAL	1~10	7
OPERATING SCALE	1~10	7
FINANCIAL CONDITION
--BUSINESS SCALE	1~10	7
--PROFITABILIRY	1~10	7
--LIQUIDITY	1~10	7
--LEVERAGE	1~10	7
--RESERVES	1~10	7
--CREDIT LINES	1~10	7
--MARGINS	-5~5	--
DEMERIT POINTS
--BANK CHARGES	YES/NO	YES
--LITIGATION	YES/NO	NO
--OTHER ADVERSE INFORMATION	YES/NO	NO
MERIT POINTS
--SOLE DISTRIBUTORSHIP	YES/NO	NO
--EXPORT ACTIVITIES	YES/NO	YES
--AFFILIATION	YES/NO	YES
--LISTED	YES/NO	YES
--OTHER MERIT FACTORS	YES/NO	YES
TOTAL		63

This score serves as a reference to assess SC’s credit risk and to set the amount of credit to be extended. It is calculated from a composite of weighted scores obtained from each of the major sections of this report. The assessed factors and their relative weights (as indicated through %) are as follows:

Financial condition (40%) Ownership background (20%) Payment record (10%)

Credit history (10%) Market trend (10%) Operational size (10%)

RATING EXPLANATIONS

RATING		STATUS	PROPOSED CREDIT LINE
>86	Aaa	Possesses an extremely sound financial base with the strongest capability for timely payment of interest and principal sums	Unlimited
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory
26-40	B	Unfavourable & favourable factors carry similar weight in credit consideration. Capability to overcome financial difficulties seems comparatively below average/normal.	Small
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security
<10	C	Absolute credit risk exists. Caution needed to be exercised	Credit not recommended
NR		In view of the lack of information, we have no basis upon which to recommend credit dealings	No Rating

PRIVATE & CONFIDENTIAL : This information is provided to you at your request, you having employed MIPL for such purpose. You will use the information as aid only in determining the propriety of giving credit and generally as an aid to your business and for no other purpose. You will hold the information in strict confidence, and shall not reveal it or make it known to the subject persons, firms or corporations or to any other. MIPL does not warrant the correctness of the information as you hold it free of any liability whatsoever. You will be liable to and indemnify MIPL for any loss, damage or expense, occasioned by your breach or non observance of any one, or more of these conditions