CMC Limited
                                                                     Thirty first annual report 2006 - 2007


...
CMC Limited
                      Thirty first annual report 2006 - 2007

    CORPORATE INFORMATION                       ...
NOTICE
Notice is hereby given that the 31st Annual General Meeting of the Members of CMC Limited will be held on Monday, J...
CMC Limited
                       Thirty first annual report 2006 - 2007
        Further the Company shall not be in a po...
DIRECTORS’ REPORT

TO THE MEMBERS OF CMC LIMITED


Your Directors have pleasure in presenting the 31st Annual Report and t...
CMC Limited
              Thirty first annual report 2006 - 2007

              The profit before tax at Rs. 84.87 crores ...
3.3      IT Enabled Services (ITES)
The ITES Strategic Business Unit (SBU) undertakes business process outsourcing service...
CMC Limited
              Thirty first annual report 2006 - 2007

              4.       SUBSIDIARY COMPANY
              ...
for the Mentally Challenged children and their parents; Candle stalls were put up at various offices on Diwali
which were ...
CMC Limited
                      Thirty first annual report 2006 - 2007

     iii)     The Directors had taken proper and...
Annexure-I

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND
OUTGO
A.   CONSERVATION OF ENERGY...
CMC Limited
                             Thirty first annual report 2006 - 2007
          d.   Expenditure on R&D
        ...
Annexure - II
                 INFORMATION UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956 READ WITH THE COMPANIES
      ...
CMC Limited
                       Thirty first annual report 2006 - 2007

     MANAGEMENT DISCUSSION AND ANALYSIS

     O...
Threats:
As the IT market in India is growing and also maturing at a fast pace, speed and low cost of delivery is becoming...
CMC Limited
                         Thirty first annual report 2006 - 2007
     Profit After Tax (PAT) has increased from...
International
The Company achieved strong growth in its International revenue during the year driven by SI and ITES SBUs i...
CMC Limited
                        Thirty first annual report 2006 - 2007
     3.   Legal risks
          Litigation rega...
CORPORATE GOVERNANCE REPORT
Company’s philosophy on Corporate Governance
As part of the Tata Group, CMC’s philosophy on Co...
CMC Limited
                           Thirty first annual report 2006 - 2007
     (ii)   The Members of the Board of Dire...
IV. Disclosures
(A) Basis of related party transactions
    (i)   The statements containing the transactions with related ...
CMC Limited
                           Thirty first annual report 2006 - 2007
     (F) Management
          The Management...
Whether Special Resolutions:
(a) Were put through postal ballot last year:
      Yes, a Resolution was passed by requisite...
CMC Limited
                       Thirty first annual report 2006 - 2007
     (v) Listing
         The Stock Exchanges on...
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
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CMC Annual Report 2006-07
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CMC Annual Report 2006-07
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CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
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CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
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CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
CMC Annual Report 2006-07
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CMC Annual Report 2006-07

  1. 1. CMC Limited Thirty first annual report 2006 - 2007 Contents Corporate Information 2 Notice 3 Directors’ Report 5 Management Discussion and Analysis 14 Corporate Governance Report 19 Declaration of the Managing Director & CEO 28 Secretarial Auditors’ Certificate on Corporate Governance 28 Company Secretary’s Responsibility Statement 29 Auditors’ Report 30 Balance Sheet 34 Profit & Loss Account 35 Cash Flow Statement 36 Schedules & Notes on Accounts 37 Balance Sheet Abstract and Company’s General Business Profile 53 Information under Section 212 of the Companies Act, 1956 54 related to Subsidiary Company Consolidated Financial Statements Auditors’ Report 55 Consolidated Accounts 56 Annual General Meeting on Monday, June 25, 2007 at 3.30 p.m. at Bhartiya Vidya Bhavan Auditorium, BVB Hyderabad Kendra No. 5-9-1105, Basheerbagh-King Koti Road, Hyderabad-500029 1
  2. 2. CMC Limited Thirty first annual report 2006 - 2007 CORPORATE INFORMATION Audit Committee Dr KRS Murthy Board of Directors Mr Surendra Singh Mr S Ramadorai (Chairman) Mr C B Bhave Mr R Ramanan (Managing Director & CEO) Share Transfer-cum-Shareholders Mr Ishaat Hussain Grievance Committee Dr KRS Murthy Mr Surendra Singh Mr Surendra Singh Mr R Ramanan Mr C B Bhave Mr Shardul Shroff Mr Shardul Shroff Mr Vivek Agarwal Management Team Remuneration Committee Mr R Ramanan (Managing Director & CEO) Dr KRS Murthy Mr J K Gupta (CFO) Mr S Ramadorai Mr Prasad Rangnekar (Head of Operations) Mr C B Bhave Mr Prabhat Mittra (Global Head - CS & ITES) Mr Surendra Singh Mr Uday Bhobe (Global Head - SI) Executive Committee Mr Saibal Ghosh (Global Head, E&T & National Sales Head) Mr S Ramadorai Mr Dilip Madhav Pai (CIO) Mr R Ramanan Mr S V Ramanan (Head-HR & Corp. Communications) Mr Ishaat Hussain Mr Vivek Agarwal (Company Secretary & Head – Legal) Dr KRS Murthy Statutory Auditors Mr C B Bhave M/s S.B. Billimoria & Co. Nomination Committee Chartered Accountants Mr S Ramadorai Secretarial Auditors Mr R Ramanan M/s Chandrasekaran Associates Mr Ishaat Hussain Company Secretaries Dr KRS Murthy Internal Auditors Ethics and Compliance Committee M/s Ernst & Young Pvt. Ltd. Mr Surendra Singh Registered Office Mr R Ramanan CMC Centre Mr Shardul Shroff Old Mumbai Highway Mr Vivek Agarwal Gachibowli, Hyderabad-500032 Registrars & Share Transfer Agents Tel. : 040-66578000 (10 lines) M/s Karvy Computershare Private Limited Fax : 040-23000509 Karvy House, 46, Avenue 4, Street No 1 Corporate Office Banjara Hills, Hyderabad - 500 034 PTI Building, 5th Floor Stock Exchanges where Company’s 4, Sansad Marg Securities are listed New Delhi-110001 Bombay Stock Exchange Ltd. Tel. : 011-23736151 (8 lines) National Stock Exchange of India Ltd. Fax : 011-23736159 The Calcutta Stock Exchange Ass. Ltd. Principal Bankers Canara Bank Web site State Bank of Bikaner & Jaipur www.cmcltd.com ICICI Bank 2
  3. 3. NOTICE Notice is hereby given that the 31st Annual General Meeting of the Members of CMC Limited will be held on Monday, June 25, 2007 at 3.30 P.M. at Bhartiya Vidya Bhavan Auditorium, BVB Hyderabad Kendra No. 5-9-1105 Basheerbagh-King Koti Road, Hyderabad – 500 029, Andhra Pradesh, to transact the following business: ORDINARY BUSINESS: 1. To receive, consider and adopt the audited Profit and Loss Account for the year ended 31st March, 2007 and the Balance Sheet as at that date and the Reports of the Board of Directors and the Auditors thereon. 2. To declare a dividend. 3. To appoint a Director in place of Mr Surendra Singh, who retires by rotation and, being eligible, offers himself for re-appointment. 4. To appoint a Director in place of Mr C B Bhave, who retires by rotation and, being eligible, offers himself for re-appointment. 5. To appoint Statutory Auditors and to fix their remuneration. Mumbai BY ORDER OF THE BOARD April 14, 2007 For CMC LIMITED Registered Office: VIVEK AGARWAL CMC Centre COMPANY SECRETARY & HEAD - LEGAL Old Mumbai Highway, Gachibowli Hyderabad-500 032 (A.P.) Notes: 1. A Member entitled to attend and vote is entitled to appoint a Proxy to attend and vote at the meeting instead of himself and the Proxy need not be a Member of the Company. The Proxy Form must be deposited at the Registered Office of the Company not later than 48 hours before the commencement of the meeting. 2. The relevant details of item nos. 3 & 4 above pursuant to Clause-49 of the listing agreement are annexed hereto. 3. Members who hold shares in dematerialised form are requested to bring their DP ID and Client ID numbers for easy identification of attendance at the meeting. 4. For the convenience of the Members, attendance slip is enclosed elsewhere in the Annual Report. Members/Proxy Holders/Authorised Representatives are requested to fill in and affix their signatures at the space provided therein and surrender the same at the venue. Proxy/Authorised Representatives of a member should state on the attendance slip as ‘Proxy’ or ‘Authorised Representative’ as the case may be. 5. The Register of Members and the Share Transfer Books of the Company will remain closed from Monday, June 18, 2007 to Friday, June 22, 2007 (both days inclusive). 6. The dividend as recommended by the Board of Directors, if declared at the Annual General Meeting, will be paid at par after June 25, 2007 to (i) those shareholders whose names appear on the Company’s Register of Members after giving effect to all valid share transfers in physical form lodged with the Company on or before June 16, 2007; (ii) in respect of shares held in electronic form to those beneficiaries whose names appear in the statements of beneficial ownership furnished by National Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd. (CDSL) as at the end of business hours on June 15, 2007. 7. In accordance with SEBI’s directions vide their Circular No. DCC/FITT/Cir-3/2001 dated October 15, 2001, arrangements have been made to credit your dividend amount directly to your bank account through the Electronic Clearing Service (ECS). In case you hold shares in physical form, please furnish your bank details in the ECS Mandate Form enclosed separately together with a xerox copy of your cheque leaf and return to our Registrars, Karvy Computershare Private Limited on or before June 16, 2007. The said details in respect of the shares held in electronic form should be sent to your respective Depository Participant and not to the Registrar as the Registrar is obliged to use only the data provided by the Depository while making payment of dividend. 8. Pursuant to provisions of Section 205A(5) of the Companies Act, 1956, dividends which remain unclaimed for a period of 7 years from the date of transfer of the same to the Company’s unpaid dividend account will be transferred to the Investor Education and Protection Fund (IEP Fund) established by the Central Government. The following are the details of the dividends paid by the Company and respective due dates for claiming by the Shareholders: Dividend Year Date of Declaration of divided Last date for claim 1999-00 28-09-2000 27-09-2007 2000-01 28-09-2001 27-09-2008 2001-02 29-08-2002 28-08-2009 2002-03 31-07-2003 30-07-2010 2003-04 30-08-2004 29-08-2011 2004-05 17-06-2005 16-06-2012 2005-06 27-06-2006 26-06-2013 3
  4. 4. CMC Limited Thirty first annual report 2006 - 2007 Further the Company shall not be in a position to entertain the claims of the Shareholders for the unclaimed dividends which have been transferred to the credit of IEP Fund. In view of the above, the Shareholders are advised to send all the un-encashed dividend warrants pertaining to the above years to our Registrar & Share Transfer Agents for revalidation and encash them before the due dates for transfer to the IEP Fund. 9. Pursuant to Section 109A of the Companies Act, 1956, Shareholders are entitled to make nomination in respect of shares held by them. Shareholders desirous of making nominations are requested to send their requests in Form No. 2B in duplicate (which will be made available on request) to the Registrar & Share Transfer Agents of the Company. 10. Members are requested to send their queries, if any, to the Company’s Corporate Office at New Delhi at least ten days before the date of the meeting so that information can be made available at the meeting. 11. As an austerity measure, copies of the Annual Report will not be distributed at the Annual General Meeting. Members are requested to bring their copies to the meeting. BY ORDER OF THE BOARD For CMC LIMITED Mumbai VIVEK AGARWAL April 14, 2007 COMPANY SECRETARY & HEAD – LEGAL DETAILS OF DIRECTORS RETIRING BY ROTATION AND SEEKING REAPPOINTMENT (In Pursuance of Clause 49 of the Listing Agreement) Name Mr Surendra Singh Mr C B Bhave Date of Birth 21.07.1937 28.08.1950 Date of Appointment 16.10.2001 16.10.2001 Qualifications B.E. (Electrical) M.Sc., Retd. I.A.S. Officer Expertise in specific functional areas Business and Finance Management Business and Finance Management Chairman/ Director of other Companies National Securities Depository Ltd.–Chairman NIIT Limited & Managing Director NIIT Technologies Limited Avaya Global Connect Ltd. Jubilant Organosys Limited NSDL Database Management Ltd.-Chairman BAG Films Limited IDFC Trustee Company Ltd. UTI Bank Limited NIIT SmartServe Limited Chairman/ Member of Committees of the Avaya Global Connect Ltd. NIIT Limited Board of Companies of which he is a Shareholders/Investors Grievance-Chairman Shareholders/Investors Grievance Director Audit Audit NIIT Technologies Limited CMC Limited Audit Audit UTI Bank Limited Remuneration Shareholders/Investors Grievance-Chairman Executive Jubilant Organosys Limited Audit CMC Limited Shareholders/Investors Grievance-Chairman Audit Remuneration Ethics & Compliance BY ORDER OF THE BOARD For CMC LIMITED Mumbai VIVEK AGARWAL April 14, 2007 COMPANY SECRETARY & HEAD - LEGAL 4
  5. 5. DIRECTORS’ REPORT TO THE MEMBERS OF CMC LIMITED Your Directors have pleasure in presenting the 31st Annual Report and the Audited Statement of Accounts for the year ended March 31, 2007. 1. FINANCIAL RESULTS (Rs. in Crores) Particulars 2006-07 2005-06 Income from Sales and Services 988.91 828.79 Other Income 5.49 28.97 Total Income 994.40 857.76 Operating Expenses 897.59 784.71 Profit before Depreciation, Interest and Tax 96.81 73.05 Depreciation 8.24 9.10 Interest 3.70 3.84 Profit before Tax 84.87 60.11 Provision for Taxation (incl. deferred Income Tax) 20.78 16.00 Profit after Tax 64.09 44.11 Add: Profit brought forward from previous year 167.11 143.90 Amount available for appropriations 231.20 188.01 Appropriations Proposed Dividend 12.12 7.58 Tax on Proposed Dividend 2.05 1.06 Transfer to General Reserve 6.41 4.41 Balance carried to Balance Sheet 210.62 174.96 231.20 188.01 1.1 OPERATING RESULTS During the year, your Company earned total revenue of Rs. 994.40 crores compared with Rs. 857.76 crores during the previous year, registering a growth of 16%. The income from Sales and Services at Rs. 988.91 crores registered a growth of 19% compared with Rs. 828.79 crores earned in the last year, mainly on account of 126% growth in ITES, 28% growth in SI, 11% growth in E&T and 10% growth in CS business. 5
  6. 6. CMC Limited Thirty first annual report 2006 - 2007 The profit before tax at Rs. 84.87 crores registered an increase of 41% over the previous year mainly on account of increased business from high value added services. The Company made a provision of tax totalling to Rs. 20.78 crores, inclusive of Fringe Benefit Tax amounting to Rs. 1.89 crore. The profit after tax stood at Rs. 64.09 crores registering an increase of 45% over the previous year. Average tax rate came down to 24.5% in the previous year compared to 26.6% in the year 2005-06. 2. DIVIDEND Your Directors recommend payment of dividend at 80% of paid-up equity share capital for the year ended March 31, 2007. 3. BUSINESS OPERATIONS 2006-07 2005-06 Others Others E&T E&T 0.4% ITES 3.2% ITES 4.3% 4.5% 7.2% 3.7% CS SI 58.2% CS SI 27.0% 61.6% 29.9% Total Revenue: Rs. 994.40 crores Total Revenue: Rs. 857.76 crores 3.1 Customer Services (CS) Customer Services Strategic Business Unit (CS SBU) undertakes all activities related to IT infrastructure including infrastructure architecture, design and consulting services; turnkey systems integration of large network and data center infrastructures including supply of associated equipment and software; on-site and remote facilities management of multi-location infrastructures of domestic and international clients. The CS SBU earned revenue of Rs. 579.04 crores during the year compared to Rs. 528.47 crores earned during the previous year, registering an increase of 10% over the previous financial year. The CS SBU added new services in the areas of large-scale nationwide application rollout projects; total Infrastructure outsourcing; high-end infrastructure design, process and security consulting; business continuity and disaster recovery planning and consultancy; remote infrastructure management. The SBU also had major successes in offshore managed-services for several international clients in the banking, finance and insurance sectors. 3.2 Systems Integration (SI) The SI SBU undertakes the activities of solution deployment that includes software development, software maintenance and support, turnkey project implementation and systems consultancy. The SI SBU earned revenue of Rs. 297.25 crores during the current year compared with Rs. 231.74 crores earned in the previous year, registering an increase of 28%. In the domestic market the SI SBU continues to be dominant player in general insurance sector, securities sector, defense, games management and e-Governance space. In the Global market, SI SBU continues to be strong in shipping, transportation and embedded systems. Embedded system revenue grew 21% during the year. 6
  7. 7. 3.3 IT Enabled Services (ITES) The ITES Strategic Business Unit (SBU) undertakes business process outsourcing services including total front-office/back-office outsourcing; office records digitization and document management; examination results and recruitment management; legacy data migration management; inbound call center services with specific business domain expertise, and on-demand software services. The ITES SBU earned revenue of Rs. 71.21 crores during the year compared to Rs. 31.48 crores earned in the previous year registering an increase of 126%. The year has seen the transformation of the ITES business from being a niche player in on- site digitization, examination and recruitment processing, cards digitization and electoral rolls processing in the domestic market to being a mature player in sophisticated knowledge-based digitization business for large international clients. During the year, ITES SBU added two large international clients in the digitization space in synergy with TCS. ITES SBU earned 56% of its revenue from international markets during the year. 3.4 Education & Training (E&T) E&T SBU of the Company offers courses on information technology including professional courses, career development courses etc. E&T SBU embarked on increasing the business in private sector, focusing on more profitable corporate segments during the year. The E&T SBU earned revenue of Rs. 42.39 crores compared to Rs. 38.24 crores earned in the previous year, registering an increase of 11% over the previous financial year. E&T SBU has been focusing on fast growing corporate segment and has established itself as a preferred vendor of E&T services to a large number of IT and ITES Companies in India. E&T SBU was able to get a break through in the BPO segment and partnered with some of the large BPO Companies and offered its professional training programmes to the individual Companies. E&T SBU has identified Application Roll Out Training as one of the growth areas. During the year, E&T offered its services to DTH service Company and also launched number of new courses to provide training coupled with work experience to unemployed fresh graduates. 3.5 SPECIAL ECONOMIC ZONE & STP 3.5.1 Special Economic Zone: The Company obtained necessary approvals and started the work for setting up an IT and ITES Sector specific Special Economic Zone (SEZ), named Synergy Park, at its Campus at Gachibowli, Hyderabad. The proposed SEZ is being built in total area of 50.87 acres of land. The Synergy Park is being built in two phases. Phase I will have 2832 seat capacity and Phase II will have 7175 seat capacity taking the total to over 10,000 seat capacity besides common facilities like Auditorium and Canteen facilities etc. Phase I would be completed before July 31, 2007, and the Phase II is planned to be completed by June 30, 2009. The Company has spent a total of Rs. 26.12 crores on SEZ project during the year. 3.5.2 Software Technology Park: Your Company has set up a new Software Technology Park (STP) at Kolkata during the year. The Company now has three STPs, the other two being in Hyderabad and Mumbai. The Kolkata STP is currently engaged primarily in executing new international contracts won during the year in ITES space. 7
  8. 8. CMC Limited Thirty first annual report 2006 - 2007 4. SUBSIDIARY COMPANY Your Company has a wholly owned subsidiary CMC Americas Inc. in USA. Copies of the Balance Sheet, Profit & Loss Account and Report of the Auditors of the Subsidiary Company have not been attached as per approval granted by the Central Government under Section 212(8) of the Companies Act, 1956. However, as per the exemption letter of the Central Government, a statement containing the financial details of the Subsidiary Company for the year ended March 31, 2007 is included in the Annual Report. As per Accounting Standard 21 issued by The Institute of Chartered Accountants of India, the Consolidated Financial Statements have been attached which include the financial information of its Subsidiary. The Annual Accounts of the Subsidiary Company and related detailed information will be made available to the Shareholders of the Company seeking such information at any point of time. The Annual Accounts of the Subsidiary Company are also kept for inspection by any investors at the Registered Office of your Company. 5. FIXED DEPOSIT During the year, the Company has not accepted any fixed deposits under Section 58A of the Companies Act, 1956. 6. LISTING The equity shares of the Company are listed with Bombay Stock Exchange Limited, National Stock Exchange and Calcutta Stock Exchange. There are no arrears on account of payment of listing fees to the Stock Exchanges. 7. DIRECTORS Mr Surendra Singh and Mr C B Bhave are retiring by rotation at the ensuing Annual General Meeting and, being eligible, offer themselves for re-election. The Company has a Nomination Committee. The nomenclature of this Committee is detailed in the Corporate Governance report attached to the Annual Report. The objectives of the Committee are to identify the Independent Directors and to refresh the composition of the Board from time to time. 8. COMMUNITY DEVELOPMENT The Company has been actively promoting and supporting its staff members to volunteer for activities related to community services. The Company has chosen to focus its efforts towards helping the under privileged and physically challenged children to overcome their shortcomings by organizing medical check- ups, sports activities and also helping their institutions with volunteers and financial support. The Company has also taken up a programme of harnessing its expertise in IT to develop an ATM which can be used by visually handicapped persons. This is based on recognition of fingerprints automatically by the ATM. The Company promotes active participation among staff members in activities related to community services with emphasis on volunteering their services. As a part of this, the Company organized Medical Health Camp 8
  9. 9. for the Mentally Challenged children and their parents; Candle stalls were put up at various offices on Diwali which were made by mentally challenged children of Aashirwad Special Education; Donation campaign in which CMCites donated clothes, bedsheets, linen, blankets etc was organized for distribution to beneficiary NGOs. During the year under review, your Company also organized a ‘Special Athletic Event 2006’ for the mentally challenged children. 9. BUSINESS EXCELLENCE AND QUALITY INITIATIVES Your Company had embarked on the excellence journey with adoption of Tata Business Excellence Model (TBEM) three years ago. The process has kept the organizational focus on continuous improvement and evaluation of progress against internal and external benchmarks. The Company went through the external assessment process for the third year in succession and was evaluated as having “shifted a score band” signifying improvement over the previous year. Key business processes like business planning, business acquisition, review, reporting and communication have been addressed and changes have been brought about to make them more effective in meeting the business objectives. Continuous and consistent internal communication from the top management through various modes has been initiated to focus on business excellence and continuous improvement. 10. CORPORATE GOVERNANCE As required under Clause 49 of the Listing Agreement with the Stock Exchanges, the report on Management Discussion and Analysis, Corporate Governance as well as the Secretarial Auditors’ Certificate regarding compliance of conditions of Corporate Governance form a part of the Annual Report. Your Company is also following the Secretarial Standard norms issued by the Institute of Company Secretaries of India. 11. TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Information as required under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 in respect of energy conservation, technology absorption and foreign exchange earnings and outgo is given in Annexure-I to this Report. 12. DIRECTORS’ RESPONSIBILITY STATEMENT Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956, the Directors based on the information and representations received from the operating management confirm that: i) In the preparation of the Annual Accounts, the applicable Accounting Standards have been followed with no material departures; ii) The Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company as on March 31, 2007 and of the profit of the Company for that period; 9
  10. 10. CMC Limited Thirty first annual report 2006 - 2007 iii) The Directors had taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and iv) The Directors had prepared the Annual Accounts on a ‘going concern’ basis. 13. AUDITORS M/s S B Billimoria & Co., the Statutory Auditors of the Company, hold office until the ensuing Annual General Meeting. The said Auditors have, under Section 224(1-B) of the Companies Act, 1956, furnished the Certificate regarding their eligibility for re- appointment. 14. PARTICULARS OF STAFF Information as required under section 217 (2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975, as amended, regarding particulars of employees drawing remuneration of Rs. 24 lacs per annum or Rs.2 lacs per month, as the case may be is set out in the Annexure – II to this report. The Ministry of Company Affairs has amended the Companies (Particulars of Employees) Rules, 1975 to the effect that the particulars of the employees of the Companies engaged in Information Technology Sector, posted and working outside India, not being Directors or their relatives, need not be included in the statement but, such particulars shall be furnished to the Registrar of Companies. Accordingly, the statement included in this report does not contain the particulars of employees who are posted and working outside India. 15. ACKNOWLEDGEMENTS The Directors wish to convey their appreciation to business associates for their support and contribution during the year. The Directors would also like to thank the employees, shareholders, customers, suppliers and bankers for the continued support given by them to the Company and their confidence reposed in the management. For and on behalf of the Board Mumbai S RAMADORAI April 14, 2007 Chairman 10
  11. 11. Annexure-I ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO A. CONSERVATION OF ENERGY Your Company is not an industry as listed in Schedule to rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rule, 1988. B. TECHNOLOGY ABSORPTION Efforts made in technology absorption - as per Form B given below: FORM B 1. Research and Development (R&D) a. Specific Areas in which Research and Development (R&D) is being carried out by the Company i. GPS based Vehicle tracking system ii. RFID based Vehicle tracking system iii. Biometric technologies based cheque validation systems iv. Biometric adapter for ATMs to enable personal identification v. Further refinements and upgradation of Fingerprint identification technology b. Benefits derived from the above i. GPS based vehicle tracking system is an all terrain solution which enhances and helps in offering complete end to end solutions for any logistics and fleet movement tracking requirement. ii. RFID based vehicle tracking system is a cost effective solution for specific applications wherein GPS based system would be too complex. iii. Integration of biometric solutions to enable personal identification for financial transactions have enabled secure financial transactions to the visually challenged or to those who are not literate. This has enabled the Company to open a new segment i.e Add ons to bank ATMs and extend the application of biometric to a wider end use. iv. The upgradation and enhancement of fingerprint suite has led to faster and more accurate matching of fingerprints in line with the competition. c. Future Plan of Action i. Develop a suite of products to enhance our capability in providing cost effective vehicle tracking systems to domains like shipping, road transportation, fleet management and such applications in police, para military and other security agencies. ii. Extending the biometric suite of products to other civilian uses as in national ID card and other large scale identification systems. iii. Providing an integrated solution to the financial and banking industry for personal identification using biometric technologies. 11
  12. 12. CMC Limited Thirty first annual report 2006 - 2007 d. Expenditure on R&D (Rs. in croress) Particulars 2006-07 2005-06 A Capital 0.57 0.21 B Recurring 11.09 11.60 C Total 11.66 11.81 D Total R&D Expenditure as a Percentage of Turnover 1.17 1.38 2. Technology absorption, adaptation and innovation a. Efforts made towards technology absorption, adaptation and innovation i. CMC proactively uses new and emerging technologies for conceptualizing solutions to meet its business needs. The expertise gained in early usage results in developing/enhancing our offerings and provides us an advantage in differentiating our Company against others. ii. CMC constantly interacts with its large vendors and suppliers to understand and absorb new developments in technologies and offerings and is an invaluable tool for constant updation. iii. Project teams are encouraged to try out solutions to their problems by bringing about big and small improvements thereby fostering innovation. b. Benefits derived as a result of the above efforts i. Technological upgradation of the Company’s services and solutions ii. Helps the Company in differentiating itself from the competitors and also helps us in providing long term support to our solutions. iii. Ability to respond to unique requirements of the customers and system engineer a solution with building blocks obtained from third party sources. c. Information regarding imported technology Your Company has not imported any technology. C. FOREIGN EXCHANGE EARNINGS AND OUTGO 1. Activities relating to Exports, Initiatives to increase exports, Development of new export markets for products and services & export plan As a part of its core strategy, the Company is focusing on increasing exports of its services by leveraging wide marketing reach of its parent Company, Tata Consultancy Services Limited. The Company has established itself as a major supplier of Embedded System Services and software solution in key industry verticals and e-Governance space. 2. Total Foreign Exchange Earnings & Outgoings The foreign exchange earnings of the Company during the year were Rs. 121.90 crores while the outgoings were Rs. 26.16 crores. For and on behalf of the Board Mumbai S RAMADORAI April 14, 2007 Chairman 12
  13. 13. Annexure - II INFORMATION UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956 READ WITH THE COMPANIES (PARTICULARS OF EMPLOYEES) RULES, 1975 Name Designation/ Remuneration Qualification Experience Date of Age Last % of Nature of Duties (Rs.) ( Years) commencement (yrs.) employment Equity of employment before Joining Capital the Company held (A) Personnel who are in receipt of remuneration aggregating not less than Rs 24,00,000 per annum and employed throughout the year: R Ramanan Managing 2,895,786 B Tech Electrical 26 16.10.2001 49 Vice President, NIL Director & CEO Engineering Tata Consultancy IIT Mumbai Services (B) Personnel who are in receipt of remuneration aggregating not less than Rs 2,00,000 per annum and employed for the part of the year: Jonnavithula Technical Head 1,767,623 M Tech – 18 17.11.2004 43 Engineering NIL Suryaprakash XIDC Digital System Manager – CISCO – USA Notes: 1. Remuneration includes Salary, House Rent Allowance, Commission, Provident Fund, Medical re-imbursement, LTC, Bonus, if any and Taxable value of Perquisites. 2. The Appointment is contractual as per the policy/rules of the Company. 3. Terms and conditions are as per the appointment letter given to the appointee from time to time. 4. Nature of the duties of the employee is to look after all the day to day working of the Company under the supervision and control of the Head of the concerned department. For and on behalf of the Board Mumbai S RAMADORAI April 14, 2007 Chairman 13
  14. 14. CMC Limited Thirty first annual report 2006 - 2007 MANAGEMENT DISCUSSION AND ANALYSIS Overview The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956 and Generally Accepted Accounting Principles (GAAP) in India. There are no material departures from prescribed accounting standards in the adoption of the accounting standards. The management of CMC Limited accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgements used therein. These estimates and judgements relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form and substance of transactions and the state of affairs and profits for the year. Industry structure and development The Indian economy has shown vigorous growth with strong macro economic fundamentals. The GDP is estimated to have grown by 9.2% in 2006-07 compared to 9.0% in 2005-06, as per “Economic Survey 2006-2007” The notable feature of the . current growth phase is the sharp rise in the investment rate in the economy which reflect a high degree of business optimism and reinforces the outlook for growth. As per the early estimates of NASSCOM, the Indian IT industry which is a major contributor to the GDP (5.4%), is estimated to have crossed USD 48 billion in annual revenues in the year 2006 – 07, resulting in a growth of over 28%. Services and software exports would have contributed USD 31.3 billion and forecasted to register a 32.6% growth in the current year. The domestic market size is estimated to constitute USD 8.4 billion up around 25% over the previous year. The domestic market continues to have strong services and solutions driven component. Systems Integration and network integration make up the high growth-large size category within the domestic IT services engagements; and will continue to be prime drivers in the domestic IT space. The drivers for growth in the domestic market are the financial services, communication/media and the manufacturing verticals in addition to the governmental sector. Opportunity and Threats Opportunity: NASSCOM analysis of the IT industry shows that the expansion of the exports market as well as the domestic market is accompanied by significant shift in the nature of engagements. The Indian Companies are getting larger and more complex deals in the International market driving up the average size of contracts awarded to them. The domestic market is breaking out of the hardware led growth and the trend of software and services gaining share is expected to continue. The Company is well positioned to benefit from the overall economic growth in the country and the accompanying increase in IT spends on infrastructure and services. The growing demand and supply gap for trained IT professionals is estimated to be around 40% and offers an opportunity for the Company to provide education and training services to bridge this gap both in the IT as well as in ITES space.The Company can offer its expertise to address this market as part of the skill enhancement and upgradation plan to service professionals as well. While Indian enterprises get into large scale digitization of their business processes, conversion/re-engineering of legacy data suitable for such digitizations offer a large opportunity. The Company has developed expertise in these areas for both the domestic and the international market. The Company can leverage its expertise in providing IT infrastructure set up services, life cycle support as well as Systems Integration services in the domestic market. The increased opportunities in Government Sector under the National e-Governance Plan can be addressed by the vast range of proven solutions and services which the Company has developed specifically for Governance applications. The international segment of IT industry offers the Company an opportunity in further leveraging its expertise in embedded system, ports solutions and in providing large knowledge process outsourcing in critical back office processes for large volume applications. The Company has traditionally been strong in providing services and solutions in the domestic market and the emerging global market opportunities offer it the opportunity to further grow and consolidate its business. 14
  15. 15. Threats: As the IT market in India is growing and also maturing at a fast pace, speed and low cost of delivery is becoming the determinants of customer choice of vendors. MNCs and large Companies are increasingly eyeing the domestic market and bring with them economies of scale and end- to-end services capability to bear on the market. In addition, Small & Medium IT Companies are also offering niche services and solutions and provide an attractive proposition to the customers. The rapid technological obsolescence and the possibility of cheaper alternative to application/solution ownership is a threat to vendors in terms of investment protection and ability to re-engineer the solutions and services. Scarcity of the right talent as well as the ability to retain them is one of the critical factors confronting all IT Companies. Financial Performance: Revenues: During the year under review, the Company earned total revenue of Rs. 994.40 crores compared with Rs. 857.76 crores during the last year registering a growth of 15.9%. The income from sales and services at Rs. 988.91 crores registered a growth of 19.3% compared with Rs. 828.79 crores earned in the last year mainly on account of 17.5% growth in SI, 9.8% growth in Education and Training, 8.0% growth in CS, 7.7% growth in ITES in the domestic market and 54% growth in International business. Income from sale of purchased equipment increased by 7.3% from Rs. 376.17 crores to Rs. 403.55 crores, while income from services increased by 29.3% from Rs. 452.62 crores to Rs. 585.36 crores. The share of services in total operating revenue improved from 55% to 59%. Other income has declined from Rs. 28.97 crores to Rs. 5.49 crores. Last year other income included an amount of Rs. 24.66 crores on account of profit on sale of certain properties. The segment-wise breakdown of total revenue is given below: ( Rs./Crores) Segment 2006-07 2005-06 Domestic - Customer Services 538.58 498.70 - Systems Integration 87.85 74.76 - ITES 30.80 28.59 - Education & Training 41.96 38.22 International 289.72 188.52 Other Income 5.49 28.97 Total 994.40 857.76 Expenditure: During the year under review, the operating expenses at Rs. 897.59 crores increased by 14.4% compared with Rs. 784.71 crores incurred in the previous year in line with 19.3% increase in operating revenues. As a percentage of total operating revenue, these expenses registered a decline from 94.7% to 90.8%. The operating costs have gone up mainly on account of 8% increase in living expenses due to 54% increase in international business and 10% increase in manpower costs primarily due to 2.3% increase in average manpower strength during the current year compared with the previous year and increase in average manpower cost due to salary increases. The total manpower strength has increased to 3509 as on 31st March 2007 compared to 3431 at the beginning of the year. The manpower cost as a percentage of operating revenue has declined from 19.2% to 17.7%. Other operating expenses increased by 32.3% mainly on account of increased outsourced services from Rs. 61.60 crores to Rs. 77.53 crores (an increase of 25.9%) due to increased business, Rs. 23.47 crores provisioning on account of possible losses that may arise from a contract under dispute. The interest cost decreased by 4% to Rs. 3.70 crores during the current year compared with Rs. 3.84 crores incurred in the last year as a result of reduction in borrowings from Rs. 67.07 crores to Rs. 17.76 crores. Depreciation charge declined by 9% from Rs. 9.10 crores to Rs. 8.24 crores. As a result, Operating Profit (PBT excluding other income) has increased by 154.9% from Rs. 31.14 crores to Rs. 79.38 crores. Operating Margin has increased from 3.8% to 8.0%. PBT (including other income) has increased by 41.2% from Rs. 60.11 crores to Rs. 84.87 crores and as a percentage of total revenue PBT has increased from 7.0% to 8.5%. The provision for taxation (including deferred tax and fringe benefit tax) increased to Rs. 20.78 crores from Rs. 16.00 crores in the last year, resulting in an increase of 29.8%. However, since the Company had larger portion of income from international operations eligible for tax breaks, the effective tax rate for the Company has decreased from 26.6% to 24.5%. 15
  16. 16. CMC Limited Thirty first annual report 2006 - 2007 Profit After Tax (PAT) has increased from Rs. 44.11 crores to Rs. 64.09 crores, an increase of 45.3% over the previous year. PAT as a percentage of total revenue has increased from 5.1% to 6.4%. Financial Position Fixed Assets The gross fixed assets as at 31st March, 2007 was Rs. 158.07 crores (including capital WIP) compared with Rs. 131.35 crores as at the beginning of the year, resulting in an increase of 20.3% during the year, mainly on account of investment of Rs. 26.12 crores in setting up Special Economic Zone (SEZ) at Gachibowli Campus of the Company at Hyderabad. The Company is in the process of setting up an IT & ITES specific SEZ spread across 50.87 acres of land at its Gachibowli Campus at Hyderabad. The SEZ is coming up in two phases and is planned to create 10,000 seat capacity by the end of June 2009. Working Capital Net current assets as at 31st March, 2007 reduced to Rs. 154.54 crores compared to Rs. 219.95 crores at the beginning of the year, mainly on account of decline in current assets from Rs. 505.33 crores to Rs. 503.72 crores and increase in current liabilities and provision from Rs. 285.38 crores to Rs. 349.18 crores during the year. Decline in current assets is attributable mainly to decrease in accrued debtors from Rs. 132.37 crores to Rs. 118.13 crores and inventory from Rs. 52.36 crores to Rs. 23.07 crores. However, it was partly offset by increase in sundry debtors from Rs. 233.02 crores to Rs. 241.67 crores. The level of debtors in terms of number of days has declined from 103 days sales to 89 days. Debtors over six months (net of provisioning) have increased by 8% to Rs. 41.68 crores (17.2% of total debtors) from Rs. 38.73 crores (16.6% of total debtors). Of the remaining Rs. 199.99 crores, debtors less than 30 days are Rs. 120.60 crores (50% of total debtors). Total debtors level including accrued debtors have declined from 161 days to 133 days sales. Capital Structure Net worth of the Company as at 31st March, 2007 was Rs. 232.24 crores compared with Rs. 182.32 crores at the beginning of the year (after adjusting Rs.28.40 crores out of opening reserves on account of application of new AS-15 relating to accounting of post retirement benefits applicable from April 1, 2006), resulting in an increase of 27% during the year mainly on account of profit after tax earned during the year. Loan funds as at 31st March, 2007 were Rs. 17.76 crores, resulting in a reduction of Rs.49.31 crores over Rs.67.07 crores at the beginning of the year. As a result, the debt equity ratio has declined to 0.08:1 compared with 0.37:1 at the beginning of the year. Segment-wise Review Customer Services The Customer Services SBU earned revenue of Rs. 538.58 crores from the domestic market registering an increase of 8.0% over the previous year. The total revenue of the SBU (including international revenue) was Rs. 579.04 crores registering an increase of 9.6% over the previous year. The share of domestic revenue of CS SBU in the total operating revenue declined from 60.2% to 54.2%. Systems Integration The Systems Integration SBU earned revenue of Rs. 87.85 crores from the domestic market registering an increase of 17.5% over the previous year. The total revenue of the SBU (including international revenue) was Rs. 297.25 crores registering an increase of 28.3% over the previous year. The share of Domestic revenue of SI SBU in the total operating revenue declined marginally from 9.0% to 8.9%. IT Enabled Services The ITES SBU earned revenue of Rs. 30.80 crores from the domestic market registering an increase of 7.7% over the previous year. The total revenue of the SBU (including international revenue) was Rs. 71.21 crores registering an increase of 126.2% over the previous year. The share of domestic revenue of ITES SBU in the total operating revenue decreased from 3.4% to 3.1%. Education & Training The E&T SBU earned revenue of Rs. 41.96 crores from the domestic market registering an increase of 9.8% over the previous year. The total revenue of the SBU (including international revenue) was Rs. 42.39 crores registering an increase of 10.9% over the previous year. The share of E&T SBU in the total operating revenue was marginally reduced from 4.6% to 4.2%. 16
  17. 17. International The Company achieved strong growth in its International revenue during the year driven by SI and ITES SBUs in the America and the UK markets. The total International revenues of the Company increased to Rs. 289.72 crores during the year, registering an increase of 53.68% over Rs. 188.52 crores earned in the previous year. The share of international revenue in total operating revenue increased from 22.7% to 29.3%. Future outlook The Company believes that the current trends in IT spend both domestically and in the international market presents unprecedented opportunity for growth. Liberalization and opening up of more infrastructure sectors like roads, airports and sea ports, national e-governance initiatives and implementation of Mission Mode Projects, recent policy initiatives to make Indian Companies more competitive including new policy on Special Economic Zone, the focus of Indian corporates to benchmark themselves with leading global players in terms of quality of processes and competitiveness, is going to drive increase in IT spend. The Company is well poised to exploit the emerging opportunities both in India and global market in synergy with TCS. Risk and Concerns A comprehensive and integrated risk management framework forms the basis of all the de-risking efforts of the Company. Formal reporting and control mechanisms ensure timely information availability and facilitate proactive risk management. These mechanisms are designed to cascade down to the level of the line managers so that risks at the transactional level are identified and steps are taken towards mitigation in a decentralised fashion. The Board of Directors is responsible for monitoring risk levels on various parameters and the Managing Director & CEO ensures implementation of mitigation measures. The Audit Committee provides the overall direction on the risk management policies. 1. Business risks Excessive dependance on any single business segment increases risks and needs to be avoided. The Company has adopted prudential norms wherever required, to prevent undesirable concentration in any one vertical technology client or geographical area. Excessive exposure to a few large clients has the potential to impact profitability and to increase credit risk. However, large clients and high repeat business lead to higher revenue growth and lower marketing cost. Therefore, the Company needs to strike a balance. The Company actively seeks new business opportunities and clients to reduce client concentration levels. A high geographical concentration of business could lead to volatility because of political and economic factors in target markets. However, individual markets have distinct characteristics – growth, IT spends, willingness to outsource, costs of penetration and price points. Cultural issues such as language, work culture and ethics and acceptance of global talent also come into play. Due to these business considerations, the Company has decided not to impose any rigid limits on geographical concentration. Exposure to the inherent risks in a specific geography consists of legal and contractual risks as well as tax related changes. The Company has a process of evaluating country risks by taking legal opinion from the legal counsel operating/familiar with the geography. Proactively looking for business opportunities in new geographies and thereby increasing their contribution to total revenues helps manage this risk. Vertical domains relate to the industries in which clients operate. The Company has chosen to focus on selected vertical segments with a view to leverage accumulated domain expertise to deliver enhanced value to its clients. Being a Company exposed to rapid shifts in technology, an undue focus on any particular technology could adversely affect the risk profile of the Company. Given the rapid pace of technological change, the Company has chosen not to impose rigid concentration limits. Often, industry characteristics and market dynamics determine the choice of technology. 2. Financial risks The debtor recovery cycle of the Company is long due to dominance of Government entities in its customer profile resulting in need to finance higher level of working capital. The Company is broad-basing its client profile in order to reduce debtors recovery cycle on one hand and to strengthen the collection efforts on the other hand. In the interim, the Company is confident to have adequate funding to finance its working capital requirements. The volatility in foreign currency rates may impact the profitability of the Company to the extent of its exposure to the International business and specific currencies. 17
  18. 18. CMC Limited Thirty first annual report 2006 - 2007 3. Legal risks Litigation regarding intellectual property rights, patents and copyrights is significantly high in the software industry. In addition, there are other general corporate legal risks. The management has clearly charted out a review and documentation process for contracts. Legal compliance issues are an important factor in assessing all new business proposals. 4. Internal process risks The key resource for the Company is its people. With increased competition from Indian and international IT services Companies, there is an increased pressure on salary increases and consequent pressure on margins. As demand of specified skilled IT personnel outpace supplies, the Company faces increased risk of attrition. The Company has been focusing on creating a favorable work environment that encourages innovation and meritocracy to improve employee retention and to reduce attrition rate. Risk management processes at the operational level are a key requirement for reducing uncertainty in delivering high- quality software solutions to clients within budgeted time and cost. Adoption of quality models such as the Software Engineering Institute’s Capability Maturity Model (SEI-CMM) has ensured that risks are identified and measures are taken to mitigate these at the project plan stage itself. The Company evaluates technological obsolescence and the associated risks on a continuing basis and makes investments accordingly. Internal control systems and their adequacy The Company has an adequate system of internal controls implemented by the management towards achieving efficiency in operations, optimum utilisation of resources and effective monitoring thereof and compliance with applicable laws. The system is continuously reinforced with analysis of data to strengthen it to meet the changing requirements. The system comprises well defined organisation structure, pre-identified authority levels and documented policy guidelines and manuals for delegation of authority. A qualified and independent Audit Committee of the Board of Directors reviews the internal audit reports and the adequacy of internal controls. Human Resources The Company has always provided an open and challenging work environment wherein the staff members get an opportunity to rapidly gain and assimilate knowledge. The Company’s focus during the year has been three fold: (i) Improve per person productivity through improved utilization and by managing the staff mix between regular and outsourced person power. (ii) Shift resources from low realization projects to higher realization International projects. (iii) Increase learning and development opportunities for every staff member. The Company synergized its learning and development activities with that of TCS by adopting their best practices in “people engagement” activities as well as in getting access to TCS resources in this area. Major thrust is being given in the next year by focused effort in bringing about a measurable change in training coverage and effectiveness. The staff strength of the Company as on 31st March, 2007 was 3509 as compared to 3431 as on 31st March, 2006. Cautionary Statement Statements in the Management Discussion and Analysis describing the Company’s objectives, expectations or predictions may be forward looking within the meaning of applicable securities, laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Company’s operations include change in Government regulations, tax laws, economic & political developments within and outside the country and such other factors. 18
  19. 19. CORPORATE GOVERNANCE REPORT Company’s philosophy on Corporate Governance As part of the Tata Group, CMC’s philosophy on Corporate Governance is founded upon a rich legacy of fair and transparent governance practices. The Corporate Governance philosophy has been further strengthened with the adoption of the Tata Business Excellence Model and Tata Code of Conduct and the adoption of the requirements under Clause 49 of the Listing Agreement with the Stock Exchanges. I. Board of Directors (A) Composition of Board The present Board consists of one Executive Director and six Non-Executive Directors. Out of the Non-Executive Directors, four are Independent Directors and the other two represent the Promoters. The Non-Executive Directors with their diverse knowledge, experience and expertise brings in their independent judgment to the deliberations and decisions of the Board. Apart from the sitting fees paid for attending Board/Committee Meetings, the Non-Executive Directors did not have any material pecuniary relationship or transactions with the Company during the year 2006-07. The Company has a Non-Executive Chairman. The number of Independent Directors is more than one-third of the total number of Directors. The Company meets the requirements relating to the composition of Board of Directors. (B) Non-Executive Directors’ compensation and disclosures The Non-Executive Directors of the Company are paid sitting fee as fixed by the Board of Directors within the limits prescribed under the Companies Act, 1956. No stock options were granted to Non-Executive Directors or Independent Directors during the year under review. (C) Other provisions as to Board and Committees During the year 2006-07, 10 meetings of the Board of Directors were held on April 15, April 25, July 17, August 14, October 14, November 22 and December 13 in 2006, on January 13, February 26 and March 17 in 2007. The 30th Annual General Meeting of your Company was held on June 27, 2006. None of the Directors of the Board serve as Members of more than 10 Committees nor do they Chair more than 5 Committees, as per the requirements of the Listing Agreement. Detailed information is given in the table: Name Category Board Attendance No. of outside No. of Committees Directorships* Meetings at the and attended AGM held Positions held during the on 27.06.2006 Member Chairman year Mr S Ramadorai Non-Independent 10 Yes 11 03 01 (Chairman) Non-executive Mr R Ramanan Non-Independent 10 Yes 01 01 - Executive Mr Ishaat Hussain Non-Independent 09 Yes 12 06 04 Non-executive Dr KRS Murthy Independent 08 Yes 02 01 01 Non-executive Mr Shardul Shroff Independent 02 No 06 04 - Non-executive Mr Surendra Singh Independent 08 Yes 06 04 03 Non-executive - Mr C B Bhave Independent 10 Yes 04 03 Non-executive * This does not include directorships in Private Limited Companies, Foreign Companies and Companies under Section 25 of the Companies Act, 1956. (D) Code of Conduct (i) The Board of Directors has laid down Code of Conduct for all Board Members and Senior Management of the Company. The copies of Code of Conduct as applicable to the Directors as well as Senior Management of the Company are uploaded on the website of the Company – www.cmcltd.com. 19
  20. 20. CMC Limited Thirty first annual report 2006 - 2007 (ii) The Members of the Board of Directors and Senior Management personnel have affirmed the compliance with the Code applicable to them during the year ended March 31, 2007. The Annual Report of the Company contains a Certificate duly signed by the MD & CEO in this regard. II. Audit Committee (A) Qualified and Independent Audit Committee The Company complies with the provisions of Section 292A of the Companies Act, 1956 as well as requirements under the listing agreement pertaining to the Audit Committee. Its functioning is as under: (i) The Audit Committee consists of the three directors as members who are all independent directors. (ii) All members of the Committee are financially literate and one of the members, Mr C B Bhave, is having the requisite financial management expertise. (iii) The Chairman of the Audit Committee is an independent director. (iv) The Chairman of the Audit Committee was present at the last Annual General Meeting. (v) The Chief Financial Officer, Addl. General Manager – Corporate Finance & Accounts, Internal Auditors and the representatives of the Statutory Auditors and such other officials of the Company are invited to attend the Audit Committee meetings as and when required. (vi) The Company Secretary acts as the Secretary to the Committee. (B) Meeting of Audit Committee During the year, 8 Audit Committee meetings were held on April 15, June 20, July 17 and October 14 in 2006 and on January 13, February 13, February 26 and March 17 in 2007. The Audit Committee meetings are held both at Corporate Office and other locations. The composition of the Audit Committee and number of meetings attended by the Members are given below: Name of Member Composition of the Audit Committee Number of meetings attended Dr KRS Murthy Independent Director 8 Mr CB Bhave Independent Director 8 Mr Surendra Singh Independent Director 7 The Chairman of the Committee is Dr KRS Murthy. Two Members were present in all the meetings of the Audit Committee. (C) Terms of reference Apart from all the matters provided in clause 49 of the Listing Agreement and section 292A of the Companies Act, 1956, the terms of reference of the Audit Committee include: 1. Management discussion and analysis of financial condition and results of operations of the Company. 2. Statement of related party transactions. 3. The reports of Statutory Auditors. 4. The appointment of Internal Auditors, reviewing Internal Audit Reports and weaknesses of Internal Control. 5. Reviewing Internal Audit Programme. 6. All major contracts entered into with various parties. The Minutes of the Audit Committee are being circulated to the Board of Directors. III. Subsidiary Companies (i) The Company does not have any non listed Indian Subsidiary Company. (ii) The Minutes of the Subsidiary Company are placed at the Board Meetings of the Holding Company. The financial statements of the unlisted Subsidiary Company were put up at the Board Meetings of the Holding Company. 20
  21. 21. IV. Disclosures (A) Basis of related party transactions (i) The statements containing the transactions with related parties were submitted periodically to the Audit Committee. (ii) There were no material individual transactions with related parties during the year, which were not in the normal course of business as well as on an arm’s length basis. (iii) There is no related party transactions that may have potential conflict with the interest of the Company at large. (iv) There is no non-compliance by the Company and no penalties, strictures imposed on the Company by Stock Exchange or SEBI or any statutory authority, on any matter related to capital market, during the last three years. (v) The Company is maintaining Whistle Blower Policy in the Company and no personnel has been denied access to the Audit Committee. (B) Disclosure of Accounting Treatment During the year, there has been no change in Accounting Standard. (C) Board Disclosures – Risk Management The Company has laid down procedures to inform the Board of Directors about the Risk Management and its minimization procedures. The Audit Committee and the Board of Directors review these procedures periodically. (D) Proceeds from public issues, rights issues, preferential issues etc. The Company did not have any of the above issues during the year under review. (E) Remuneration of Directors (i) Executive Director (a) The remuneration of the Executive Directors is decided by the Remuneration Committee and recommended to the Board of Directors based on criteria such as industry benchmarks, the Company’s performance vis-à-vis the industry, performance track record of the Executive Director/ appointee(s). The Company pays remuneration by way of salary, perquisites and allowances consisting of fixed and variable components. (b) Mr R Ramanan is working as the Managing Director & Chief Executive Officer of the Company. (c) The salary, bonus, benefits and perquisites paid to Mr R Ramanan, Managing Director & CEO during the year 2006-07, was Rs. 28,95,786. (ii) Non-Executive Directors (a) The Non-Executive Directors are entitled only for sitting fee for attending the Board/Committee Meetings. A sitting fee of Rs. 10,000 per meeting of the Board and Audit Committee and Rs. 5,000 per meeting of the Remuneration Committee, Share Transfer-cum-Shareholders Grievance Committee and other Committees is paid for attending such meetings to them. The sitting fee payable to the Non-Executive Directors of Remuneration Committee stands revised to Rs. 10,000 per meeting w.e.f. April 01, 2007. (b) Payment of sitting fee to Non-Executive Directors for the year ended March 31, 2007: Name of Director Sitting Fee paid (Rs.) Mr S Ramadorai 1,20,000 Mr Ishaat Hussain 1,00,000 Dr KRS Murthy 1,80,000 Mr Surendra Singh 2,45,000 Mr CB Bhave 1,95,000 Mr S Shroff 6,00,000 (c) The Non-Executive Directors have disclosed that they do not hold any shares and/or convertible instruments in the Company. (d) There have been no new appointments of Non-Executive Directors on the Board of Directors of the Company during the year under review. (e) There has been no pecuniary relationship or transactions of the Non-Executive Directors vis-à-vis the Company during the year under review. 21
  22. 22. CMC Limited Thirty first annual report 2006 - 2007 (F) Management The Management Discussion and Analysis Report has been included separately in the Annual Report to the Shareholders. (G) Shareholders (i) Mr Surendra Singh and Mr C B Bhave are retiring from the Board by rotation at the Annual General Meeting and, being eligible, offer themselves for re-election as Non-Executive Directors. The brief resume and other details of these Directors are given separately in the Annual Report. (ii) The quarterly results and presentations made by the Company to analysts are put on the Company’s website – www.cmcltd.com. (iii) Share Transfer-cum-Shareholders Grievance Committee The Share Transfer cum Shareholders Grievance Committee is constituted under the Chairmanship of a Non-Executive Director to consider and approve various requests for transfer, sub-division, consolidation, renewal, exchange, issue of new Certificates in replacement of old ones and redressal of the grievances of the Shareholders as may be received from time to time. The present composition of the Share Transfer-cum-Shareholders Grievance Committee is as under: Mr Surendra Singh .. Chairman Mr R Ramanan .. Member Mr Shardul Shroff .. Member Mr Vivek Agarwal .. Member The Committee has had 20 Meetings during the year ended March 31, 2007. Mr Vivek Agarwal, Company Secretary & Head - Legal, is the Compliance Officer and can be contacted at: CMC Limited Tel: 91-11-23736151 PTI Building, 5th Floor Fax: 91-11-23736159 4, Sansad Marg E-mail: vivek.agarwal@cmcltd.com New Delhi-110001 In addition to the above e-mail of the Compliance Officer, the Investors/Shareholders can also lodge their complaints, if any, at e-mail investor.relations@cmcltd.com. 35 investors’ complaints/queries were received during the year under review and no complaints/queries were pending as on March 31, 2007. (iv) The Board of Directors of the Company has delegated the power of share transfer to the Share Transfer-cum-Shareholders Grievance Committee and the Registrar and Share Transfer Agents. The meetings of the Share Transfer-cum-Shareholders Grievance Committee to attend to share transfer formalities are held on fortnightly basis generally. V. Report on Corporate Governance The quarterly compliance report has been submitted to the Stock Exchanges where the Company’s equity shares are listed in the requisite format duly signed by the Compliance Officer. The other information on Corporate Governance for the benefits of shareholders is as under: GENERAL BODY MEETINGS Location and time of General Meetings held in the last 3 years: Year Type Date Venue Time Whether any Special Resolution passed in previous AGM 2004 AGM 30.08.2004 Bhartiya Vidya Bhavan Auditorium, 2.30 p.m. Yes u/s 31 for BVB Hyderabad Kendra No. 5-9-1105, adopting new Basheerbagh-King Koti Road, set of Articles of Hyderabad – 500 029, A.P. Association 2005 AGM 17.06.2005 - do - 2.30 p.m. No 2006 AGM 27.06.2006 - do - 2.30 p.m. No 22
  23. 23. Whether Special Resolutions: (a) Were put through postal ballot last year: Yes, a Resolution was passed by requisite majority for alteration in Object Clause of Memorandum of Association as under: “Special Resolution u/s 17 of the Companies Act, 1956 to alter the Object Clause of the Memorandum of Association of the Company as per the Postal Ballot Notice dated 13.01.2007.” Details of voting pattern: S.No. Description No. of Votes No. of Shares Ballot Papers received 2088 8986227 1. Votes in Favour 2044 8985715 2. Votes Against 9 46 3. Invalid Votes 35 466 Persons who conducted the postal ballot exercise: Dr S Chandrasekaran Chandrasekaran Associates Company Secretaries 11-F, Pocket IV Mayur Vihar Phase-I Delhi-110091 (b) Are proposed to be conducted through postal ballot: No Means of Communication: Quarterly report sent to each household : The results of the Company are published in the of shareholders. newspapers. Quarterly results and in which newspaper : Results are normally published in Business Standard normally published in. and in Eenadu (Telugu – Hyderabad edition). Any website where displayed. : Yes, the results are displayed on the Company’s website www.cmcltd.com Whether it also displays official news releases : Yes Whether the website displays the presentation : Yes, the Company holds a conference call with Analysts and Institutional made to the institutional investors and to Investors after the quarterly, half yearly and annual financial results have the analysts. been approved by the Board of Directors, where information is disseminated and analysed. General Shareholder Information Annual General Meeting: (i) Date, time and Venue : Monday, June 25, 2007 at 3.30 p.m. Bhartiya Vidya Bhavan Auditorium Basheerbagh Hyderabad-500029 (ii) Financial year : 1st April to 31st March (iii) Date of Book Closure : Monday, June 18, 2007 to Friday, June 22, 2007 (both days inclusive) (iv) Dividend Payment Date : The dividend warrants will be posted on or before July 24, 2007. 23
  24. 24. CMC Limited Thirty first annual report 2006 - 2007 (v) Listing The Stock Exchanges on which the Company’s shares are listed: Bombay Stock The Calcutta Stock The National Stock Exchange of India Ltd. Exchange Plaza, 5th Floor Exchange Limited, Exchange Association Ltd. Phiroze Jeejeebhoy 7, Lyons Range Plot No.C/1, G Block Towers Kolkata-700001 Bandra-Kurla Complex Dalal Street Bandra (E), Mumbai-400051 Mumbai-400001 (vi) Stock Code Bombay Stock Exchange Limited : 517326 The National Stock Exchange of India Ltd. : CMC (vii) Market price information The reported high and low closing prices during the year ended March 31, 2007 on the National Stock Exchange and the Bombay Stock Exchange where your Company’s shares are frequently traded, are given below: National Stock Exchange Bombay Stock Exchange Month High (Rs.) Low (Rs.) High (Rs.) Low (Rs.) April-06 660.00 504.90 645.00 522.20 May-06 614.00 460.00 614.70 465.00 June-06 528.85 337.00 505.00 335.00 July-06 460.00 403.00 449.00 401.00 Aug-06 555.00 397.05 544.00 396.00 Sept-06 571.00 491.00 572.00 488.00 Oct-06 700.00 550.00 705.00 548.00 Nov-06 700.00 643.00 694.75 640.00 Dec-06 695.00 605.45 700.00 602.00 Jan-07 1310.00 674.00 1320.00 631.10 Feb-07 1285.00 1007.00 1275.00 1050.00 Mar-07 1469.00 1070.15 1429.00 1077.35 (viii) Performance in Comparison to BSE Sensex The performance of the Company’s scrip on the BSE as compared to the Sensex is as under: BSE Sensex CMC LIMITED Month High Low High (Rs.) Low (Rs.) April-06 12102.00 11008.43 645.00 522.20 May-06 12671.11 9826.91 614.70 465.00 June-06 10626.84 8799.01 505.00 335.00 July-06 10940.45 9875.35 449.00 401.00 Aug-06 11794.43 10645.99 544.00 396.00 Sept-06 12485.17 11444.18 572.00 488.00 Oct-06 13075.85 12178.83 705.00 548.00 Nov-06 13799.08 12937.30 694.75 640.00 Dec-06 14035.30 12801.65 700.00 602.00 Jan-07 14325.92 13303.22 1320.00 631.10 Feb-07 14723.88 12800.91 1275.00 1050.00 Mar-07 13386.95 12316.10 1429.00 1077.35 24

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