ii 1

Breaking Barriers

Letter to Shareholders 2 Awards 4 Emerging Stronger in the face of adversity 5 Our Place in the Sun 6 The Ideas Lab 8 Business Excellence 12

Board of Directors 14

Management’s Discussion and Analysis 16

Directors’ Report 40

Corporate Governance Report 47

Annual Accounts & Financials

Moser Baer India Ltd. 66 European Optic Media Technology GmbH (Europe) 93 Moser Baer Photo Voltaic Ltd 98 Consolidated Financial Statements 112

C o n t e n t s

2 3

D e e p a k P u r i

C M D ’ s L e t t e r

Dear Shareholders,

Let me begin by thanking you all for your patience during these volatile times in global markets and extending your faith in the company through this diffi cult but equally exciting phase in our technology leadership journey. While it was a tough year, I must say that we have successfully navigated through one of the most diffi cult phases in Optical Media Industry to emerge stronger. With the entry into solar power, we are ready for the ‘next big leap’. The strategic direction is clear –through cutting edge innovation we will continue to pursue leadership in high technology areas.

The energy in the company today is infectious with ‘all systems on go’: Research & Development, Operations, Marketing, Finance, Human Resources, IT… innovation is happening in every division, department and cubicle of the company.

Information is the key: The ‘explosion in information’ has just begun. I am confi -dent of the growth potential of data storage.I see the world moving towards High Defi nition content. It is after a gap of many years, that a technology is emerging that will signifi cantly change the consumer’s viewing experience. This presents a huge opportunity for us.

Developing technologies for tomorrow: Our R&D skills are growing from strength to strength with our large team of highly qualifi ed scientists pushing progress. In fact, I am proud to say that the high technology environment in Moser Baer is increasingly attracting top notch global, especially ‘global Indian’ engineering talent, inducing a ‘reverse brain drain’. Our efforts to channelise the vast talent of Indian academia through tie-ups are also delivering beyond expectations. We have a tie-up with the Indian Institute of Technology (Delhi) for thin fi lm technology development and haverecently signed an MoU with Banaras Hindu University to work in the area of material sciences. On the manufacturing front, through innovative engineering and intelligent sourcing we have continuously been able to cut cycle

time and costs to affi rm our position as one of the lowest cost and highest quality producers in the industry.

Sun is power: Given the environment and energy constraints of conventional energy, globally and in India, policy support for solar power as a ‘better option’ is increasing. We see the photovoltaic (PV) business as a signifi cant growth area for the company and aim to emerge as a leading player in the manufacturing and development of multi-technology solar photovoltaic materials and systems. The new business fi ts our criterion well as it leverages the strengths the company has built over the years in the Optical Media business i.e. best-in-class capabilities with regards: base material engineering, fi ne/wet chemical processing, thin fi lm coating, mass manufacturing and project management and execution, I think that like our technology leadership in the optical media, we will be pushing technology to its limits in the PV area to become the leaders in this business, as well.

To become the ‘best place to work’: The key resource for the company is its employees. The company has been able to create a favourable work environment that encourages innovation and meritocracy. My personal efforts will continue in this area to ensure that Moser Baer can be amongst the Preferred Employers.

Business Excellence: Our business excellence model will strive to continually improve our business in all its aspects and do it in a balanced manner laying the foundation for a deeper organizational capability enhancement leading to enhanced organizational values and results.

I would like to end by extending a special note of thanks to every member of the Moser Baer family for their contribution. People think of innovation only in terms of R&D or new product development—but taking an idea and turning it into profi ts is an effort that involves the entire company.

Thank You

“At Moser Baer, we are well positioned to leverage the Information Explosion!”

“Our expertise in Innovative engineering will be our competitive advantage in solar power.”

Worldwide, solar power production this year should reach 1.6 GW, double the 2003 level. According to CLSA, the Industry is expected to grow at 38%y-o-y till 2010 to a total capacity of 6GW taking the Industry turnover to $35-40bn.

Chairman & Managing Director

500

50

5

0.5

0.05

0.005

1920 1940 1960 1980 2000 2020

one million square kilometres

1 exabyte - 1 million million megabytes

1000 threads

1 megabyte

1 metre

source: Challenge Forum

According to The Challenge Forum, If the knowledge available to mankind could be ex-pressed physically, it would have covered the equivalent of the island of Mauritius in 1920, Madagascar in 1940, the Congo in 1960, all of Africa in 1980, all the continents by the Millennium, the whole of the planet now; and be on track, to cover 1,700 planets every year by 2020. Information couples together and fuels all the other agents of change.

According to estimates on volume of information produced each year by The Challenge Forum,an exabyte = 1 million million megabytes (so if 1 megabyte covered an area of one metre square, exabyte would cover one million square kilometres).

4 5

A w a r d s

‘Excellence’ is the key in Moser Baer. We are continuously striving and taking initiatives and making innovations to achieve excellence in all aspects of our operations. The awards are an acknowledgement of these efforts.

During FY ’06, Moser Baer received the following prestigious awards.

Moser Baer was conferred with Plasticon Award 2005 by Plast India Foundation. The Plasticon Awards have been instituted to promote and encourage Innovation and Excellence in all segments of the Indian Plastic Industry.

The company was awarded with ‘Best of All Rajiv Gandhi National Quality Award’ by the Bureau of Indian Standards. Rajiv Gandhi National Quality Award was instituted by the Bureau of Indian Standards in 1991, with a view to encourage Indian manufacturing and service organizations to strive for excellence and giving special recognition to those who are considered to be the leaders of the quality movement in India.

Moser Baer was also felicitated with the “Electronics Organization of the Year Award” from Electronics for You Publication Group. This award is in the recognition for the excellence

Moser Baer has achieved and demonstrated in the various verticals and horizontals across manufacturing processes.

Deepak Puri, Chairman and Managing Director of Moser Baer was conferred with the ‘CEO of the Year 2005 Indira Award’ for marketing excellence by the Indira Group of Institutes.

i n t h e f a c e o f a d v e r s i t y

A year in which we increased our global presence, grew our global market shares in CDR/RW and DVDR/RW, increased customer base to supply to all the top 12 global tech optical brands, shipped record volumes of optical storage media, grew in the domestic mar-ket, forged ahead in the US, outperformed industry... There have been many positives during the year, a result of the concerted efforts made by the company in technology, marketing and manufacturing. These achievements assume more importance given the fact that industry and, in turn, our company is emerging from one of the most challenging periods in the recent history of Optical Storage Media.

End of the storm

After diffi cult times over the past two years, the global optical storage media industry is now on a steady path to recovery, driven by consolidation of capacity, continued growth in consumer demand and signs of softening of prices for key inputs. The company is gradually reverting to normal levels of operational & fi nancial performance. As anticipated by us, the global demand-supply equilibrium has been restored in the CDR/RW space boosted by explosive growth in emerging markets like India, China and Mexico. We expect to start reverting back to normal operating and fi nancial levels in the medium term driven by increasing DVDR/RW contribution, improving CDR/RW pricing, rising production effi ciencies and softening

of input costs. This will be boosted with the increasing proportion of ‘Specials’ — premium products such as LightScribe and Dual Layer being shipped and once new technology products hit the market, we soon expect further improvement in performance.

Well prepared for new formats

We are in advanced stages of developing and commercializing the emerging High Density formats. We plan to launch a series of next generation formats, in conjugation with drive and recorder availability soon and expect to be the fi rst to market in HD DVD and Blu-ray recordable media.

On a strong home wicket

India represents a huge opportunity in the optical storage media industry. We have been able to successfully grow our ‘moserbaer’ brand to leverage the growth in the market and emerge as a clear leader. Launched in 2003, the ‘moserbaer’ brand has qualifi ed as a Busi-ness Superbrand in its category this year.

E m e r g i n g s t r o n g e r

Moser Baer is the largest IT hardware exporter* in the country and our products sell in over 82 countries

Honorable Union Minister for Agriculture, Consumer Affairs, Food and Public Distribution, Sharad Pawar presenting the ‘Rajiv Gandhi National Quality Award, 2005’ to Mr Girish Baluja, COO, Moser Baer.

* Source: Dataquest

6 7

O U R P L A C E I N T H E S U N

Every day, the Sun provides about 10,000 times more energy to the Earth than we consume - if only we could harness it properly! With techno-logical breakthroughs fast lowering harnessing and distribution costs, solar power is fast emerging as a viable and eco-friendly power generation option for tomorrow – with no moving parts, no noise and zero emissions.

The demand for power has been growing exponentially across the world. This has led to a severe shortage in the supply of the conventional sources of energy vis-à-vis growing demand, thereby resulting in fossil fuel prices spiraling upwards. As a result, Renewable Sources of Energy are assuming importance the world over. Governments of countries around the world are providing incentives and subsidies for promoting these ‘cleaner’ energies. Technological advances, cost reduction and the advent of grid connected systems are signifi cantly increasing the growth of Photovoltaic segment, particularly in developed markets and offering huge export potential for effi cient manufacturers.

At Moser Baer, we believe in the promise of solar energy and have taken up the challenge of developing technology and expertise in the domain. As better cost effective technolo-gies are being developed, we will see mass deployment of this power source. We plan to use the synergies between our existing business and this new venture by leveraging on core competencies in the areas of base material engineering, fi ne/wet chemical processing, thin fi lm coating, mass manufacturing, project management and ex-ecution, technology development and logistics and supply chain management. MBI has the requisite qualifi cations to achieve rapid capacity ramp up, service global markets and achieve steep cost reductions and gain market leadership position.

Future Growth Driver

According to CLSA estimates, the Industry has been growing at a CAGR of around 30% over the last 5 years. The cumulative production today stands at approximately 1.6GW of power and is expected to grow at 38%y-o-y till 2010 to a total

capacity of 6GW taking the Industry turnover to $35-40bn. The company is targeting a capacity of 80MW by Year 2007 with an initial investment of Rs. 2,600mn ($58mn). The project is on fast track and will be executed in Moser Baer Photo Voltaic Ltd., which has already been established as a 100% subidiary and capitalized. The contracts for supply of equipment and technology for cell making have already been executed and part of our short term requirements of raw materials secured. Some of the applications of PV are... Off Grid

Solar Energy has been the power supply of choice for industrial applications, where power is required at remote locations. This means that in these applications solar power is economically viable, without subsidy. Most systems in individual uses require a few kilowatts of power. Examples are home systems in remote areas, powering repeater stations for microwave, television and radio, telemetry and radio telephones. Battery storage is required in this format to provide power outside daylight hours.

Grid Connect

Recent years have seen rapid growth in the number of installations of PV on to buildings that are connected to the electricity grid. This area of demand has been stimulated in part by govern-ment subsidy programmes (especially Japan and Germany) and by green pricing policies of utilities or electricity service providers (e.g. in Switzerland and the USA). The central driving force though comes from the desire of individuals or companies to obtain their electricity from a clean, non-pollut-ing, renewable source.

The development of ‘Grid Connected’ systems also brings the costs to realistic levels in solar energy. Once a PV system has been installed, it is connected to the grid. This means there is no need for expensive storage capacity (Batteries). During the day, net available power is fed to the grid coinciding with peak load periods (daytime). The Grid provides credit based on amount of energy generated (meter runs in reverse). It also bene-fi ts the utilities as they are able to use purchased power from PV systems to obtain carbon credits.

P V a p p l i c a t i o n s

8 9

T h e I d e a s L a b

From technology recipients to technology innovators – At Moser Baer we are not just keeping up with change, we are driving it. In the mid eighties, when we entered the data storage fi eld – the company was manufacturing 8 inch Floppy Discs with a mere capacity of 80 kilobytes – today, in collaboration with industry, we are ‘Breaking Barriers’ and looking at developing discs with over 200 gigabytes capacity using holographic technol-ogy. The company has not only kept up with the fast and dramatic changes in the optical media industry – it has emerged as a high technology innovator, pushing technologies for tomorrow.

The serene surroundings of our R&D facility in Greater Noida is where you will fi nd our incu-bator for future growth. A hand picked team of highly qualifi ed scientists is working on bringing new technologies and innovations to the world. Technology change in Optical Media is rapid and at times drastic. We have today in place an ‘intellectual capacity’ to ensure we remain ahead in all our businesses. The highly challenging and change-oriented environment we have created is also attracting global talent.

This year we also hosted the fi rst ever seminar of DVD+RW Alliance Group in India to spread awareness about the new set of technologies and to promote the DVD+RW/+R set of mediaproducts. Through our ‘Advance Media Labora-tory’, we have developed R&D tie-ups with the major OEMs across the world. The Laboratory obtains certifi cation and provides guide-maps to the other Departments with regards new products to be developed.

Collaboration with Academia

The company is amongst a handful of companies that have tie-ups with leading technology institutes like the Indian Institute of Technology, Delhi and Banaras Hindu University (BHU), Varanasi. These institutions contain a vast pool of highly talented scientists and with collaborative activities like these, breakthrough research can be achieved. The tie-up with IIT is primarily to work jointly in the frontier areas of thin fi lm sputtering technology suit-able for optical data storage devices whereas in the tie-up with BHU, the emphasis will be on alternate materials development.

A Year of Media Innovations

We have been consistently investing in emergng superior optical media technologies. With the introduction of high-defi nition televi-sion HDTV) broadcasts and increasing use of high-defi nition recording for creating content, Blu-ray and HD DVD optical media provide the high capacities required. These formats not only allow users to record crystal-clear, superior images but also gives the benefi t of vast data storage capabilities.

Over the past three years, the company has invested signifi cantly in its R&D programs target-ed at developing the next generation formats in optical media space by leveraging its core skills in base material engineering, thin fi lm coating, precision sputtering and deep UV mastering technologies. Starting from 2QFY07, the company plans to launch a series of next generation formats, in conjugation with drive and recorder availabil-ity, and expects to be fi rst to market in a majority of these formats. The four products which we believe will have a signifi cant market potential in the future are DVDR Dual Layer, HD DVDR (recordable) and BDR and RE (Re-writable). In Constant Search of Excellence

Whether it is designing new grooves, looking for alternate sourcing options, working with vendors to improve machinery and lines or maximizing utilization of space while designing lines–at Moser Baer our engineers keep pursuing the best combination and permutations to derive substantial tangible benefi ts such as lower cycle-time, cost effectiveness, higher productivity and lower wastage...

Over the years, Moser Baer has been constantly searching for innovative ways of reducing costs while ensuring consistent high quality. In this quest, we have concentrated on doing different things as well as doing things differently. We export close to 85% of total production annually, despite the remoteness between the production setup and the markets catered to, the company has developed and maintained its status as the lowest-cost producer of optical media in the world through ‘creative engineering’. As a result, over the last year, the company has emerged as the

10 11

only company in the world to supply discs to all the major OEMs across the world.

We are Flexible

Flexible Manufacturing is an essential component of the company’s manufacturing excellence. Our ability to design our own lines allows us to install fl exibility. Through this fl exibility we are able to keep our options open for profi tably exploiting future technology. As technology and the consumer moved from CD technology to DVD technology, we were able to quickly scale up to changing market demand by converting

some CD lines to DVD at minimum costs. Now with new technologies coming up in the High Density area—we are again ready and waiting. We have the ability to convert most DVD lines to HD DVD or BD as per market needs.

The Industry-Academia link: Moser Baer and IT-BHU signing an MoU to jointly work on high tech research

At Moser Baer, we continue to surpass ourselves. Some of the key achievements in the year:

• Developed a unique patented technology BDRL2H, specifi cally for advanced generation of BD formats.

• New formats added in our portfolio: DVDR (DL) 1P Process, DVDR (DL) 2P Process, DVDRW 8X and LS 1.2.

• Entered a new business – Solar Photovoltaic. Set up a subsidiary Moser Baer Photo Voltaic Ltd. for the photo voltaic cells and modules business.

• Achieved record level of optical media shipment.

• Moser Baer achieved ‘Superbrand’ business status.

K E Y A C H I E V E M E N T S 2 0 0 6

12 13

b u s i n e s s E x c e l l e n c e

Leveraging on our core strength in manufactur-ing excellence, we are moving to the next level on a business excellence path, bringing a spirit of excellence permeating across the entire length and breadth of the organization.

Business excellence is as much about the destination as it is about the journey. Our business excellence model provides a framework that recognizes that they are many approaches to achieving sustainable excellence. We strive to continually improve our business in all its aspects and do it in a balanced manner laying the foundation for a deeper organizational capability building leading to enhanced organizational values and results.

Starting off with a strategic planning and annual budgeting process which is tied to the corporate scorecard deployment. This is cascaded down to functional scorecards and individuals and hence we are sharpening the focus on critical factors for sustainable business excellence.

We are also laying the foundation for a corporate six sigma program that will further enhance our ability to effectively execute on strategic objectives as well as provide with a broader platform for leadership development at all levels. We also believe that this will provide employees with a career growth path in a cross functional manner and create many more pockets of functional excellences across the organization that are aligned to the corporate strategic objectives. While we have already been creating pockets of excellence in various functions like Research & Development, Operations, Marketing, Finance, Human Resources, IT, this will further enhance the excellence initiatives. So while HR has put in the best practices for staffi ng, compensation, motivation and other facets of the function, the fi nance function is driving a strong fi nancial discipline in cost budgeting and annual budgeting processes, IT is enabling process controls, information systems and treasury management for more effective fi nancial and risk management. These are just few of the functional excellence centers being created in

Moser Baer and with the focus on a corporate business excellence framework, we will see an energized spirit in the entire organization.

Performance ManagementReward & Recognition, KRA based

business scorecard linkagesMid-year Reviews

Annual Performance Reviews

Business Strategy Development and DeploymentStrategic Planning & Strategy Mapping,

Balanced Scorecard Objectives Identification, Target Setting

Business Excellence: The Moser Baer Way

Budgeting

Strategy ExecutionPrioritization & Resource Allocation,

Six-Sigma & Project Mgmt Framework,Reviews Framework,

Management Reporting

Planning

Execution

14 15

B o a r d o f D i r e c t o r s

Deepak Puri provides strategic direction to the Company. He is the driving force in creating an environment of integrity by ensuring fair business practices and profound respect for intellectual property rights. It is his ceaseless quest for human capital development that has helped steer the Company along a continuous growth path. He is also the Managing Director of Moser Baer Photo Voltaic Limited (MBPVL). A leading spokesman for the Indian industry, Deepak Puri has never shied from speaking his opinion. He is an esteemed member of CII, ESC and ELCINA. He holds a Master’s Degree in Mechanical Engineering from Imperial College, London.

Ratul Puri joined Moser Baer in 1994 and has been Executive Director since 2001. Prior to assuming the directorship, Ratul was General Manager (Business Development). In this capacity, he was instrumental in setting up plants for manufacturing compact disc-recordables (CD-Rs), the fi rst to come up in India. He has also played a pivotal role in reinforcing Moser Baer’s focus on maximizing shareholder value and in raising funds from best-in-class investors. He is also a Director in MBPVL. He has a degree in Computer Engineering from Carnegie Mellon University, USA.

Harnam Wahi brings a wealth of experience and global expertise to the Board of the Company, having worked in various senior positions in prestigious Indian and International Organizations such as the Inchcape Group, London. He was also closely associated with several industry associations. He is a Director in MBPVL also. He is a recipient of ‘PADMA SHREE’ awarded by the President of India.

Nita Puri is a co-promoter of Moser Baer and a Whole-Time Director of the Company. A graduate from Calcutta University, she has over three decades of experience in managing businesses. As Director (Administration and HR), she has been closely involved with the company’s growth since its inception.

Prakash Karnik was a Director at Electra Partners Asia Private Ltd, one of Asia’s leading private equity fi rms. An engineer from the Indian Institute of Technology (Madras) and a management graduate, he has over 25 years of experience in the engineering and fi nance sectors. He has worked in senior positions in both government and private sector organizations, including Jardine Fleming India Securities Ltd., Unit Trust of India and the Economic Development Corporation of Goa Ltd. He is also a Director in MBPVL.

Rajesh Khanna has been working with Warburg Pincus for more than six years. He is an MBA from Indian Institute of Management, Ahmedabad and a Chartered Accountant. He earlier worked with leading fi nance and consulting fi rms such as Citibank NA and Arthur Andersen & Co. He has been appointed Managing Director of Warburg Pincus India Private Ltd and of Warburg Pincus LLC. He is also on the Boards of Nicholas Piramal India Ltd, Max New York Life Insurance Co. Ltd, Max Healthcare Institute Ltd, Max India Ltd, and MBPVL.

Bernard Gallus brings with him over four decades of experience in the international technology and fi nance markets. He was earlier Managing Director and member of the Board of J. Bosshard S.A. Lausanne, later taken over by the manufacturing company W Moser Baer AG, Switzerland. He is a Director in MBPVL.

A Past-President of the Confederation of Indian Industries (CII), Arun Bharat Ram is the Chairman and Managing Director of SRF Ltd. A graduate in Industrial Engineering from the University of Michigan, USA, he began his career in 1967 with the Delhi Cloth & General Mills Co. Ltd, (now DCM Ltd.). He went on to set up SRF Ltd. in 1971. In his businesses, he has strongly supported corporate governance initiatives and professionalism. He has been on various government-industry committees and is a former president of the Association of Synthetic Fibre Industry. Arun Bharat Ram is also on the Board of many other companies, some of which are as follows- Bharti Tele Ventures Limited, Samtel Color Limited, Fenner (India) Limited, SRF Polymers Limited.

John Levack is Director of Electra Partners Asia Ltd. He has over 20 years of private equity experience with Electra and 3i Plc in Asia and Europe, four years of which have been in India. He is a director at Zensar Technologies Ltd., MBPVL, Electra Partners Asia Pvt Ltd and RT Packaging Ltd. Levack has a degree in business administration from Bath University in the UK.

Ajay Shah is the Managing Partner of US-based Shah Capital Partners, which is focused on private equity investments in technology companies. He was previously the founder of SMART Modular Technologies, a company that was bought out by contract manufacturing giant Solectron Corporation in a deal valued at over $2 billion in 1999. Mr. Shah was also selected ‘Entrepreneur of the Year’ in Silicon Valley in 1997. He currently serves as the Chairman of Smart Modular Technologies, Inc and is on the boards of CMAC Micro Technology and Proactive Networks, among other companies. He is also on the board of directors of the Indian School of Business and is a trustee of the American India Foundation.

Meet our ‘Board of Directors’ - the

people that provide the inspiration

and environment for continuous

improvement in the Company.

It is the experience and foresight

of these people, which continues

to take Moser Baer forward and

provides it with the edge over

other players in the industry

1

1 2

3

3 4

5

5 6 7 8 9 10

1 5

Ratul Puri(Executive Director)

2

Harnam D Wahi(Director)

4Nita Puri(Director Administration & HR)

Prakash Karnik(Director)

Rajesh Khanna(Director Nominee Warburg Pincus Singapore LLC)

Deepak Puri(Chairman & Managing Director) 6

3

Bernard Gallus(Director)

8Arun Bharat Ram (Director)

10

John Levack(Director)

Ajay Shah(Director)

97

16 17

M a n a g e m e n t ’ s D i s c u s s i o n & A n a l y s i s

Overview

The year 2005-06 (FY06) has been one of challenge, achievement and change. The company emerged stronger from the diffi cult industry conditions prevalent over the last 18 months, which led to a global consolidation of capacities.

Over the past year, the Company has focused its efforts to improve its manufacturing and supply chain effi ciencies, drive R&D and engineering programs to improve the product and service offerings that we bring to customers.

This enabled us to offer value added products to our increasing global customer base of technology OEMs, achieve record level of product shipments, surpass quality benchmarks and achieve a possible ‘fi rst to market” position in the next generation global formats—the blue laser based Blu-ray disc (BD) or High Density DVD (HD DVD). Over the next few years, we believe that the company is well positioned to further enhance our global leadership position in Optical Media industry.

In line with a long term strategy of creating a multi business—technology led transnational, the company announced plans to enter the global Photo Voltaic (PV) industry. The new business has been identifi ed as technology driven, poised for extraordinary growth and leveraging the company’s core strengths in fi ne/wet chemical processing, thin fi lm coating, mass manufacturing, rapid technology commercialization & project execution. The PV business is signifi cantly less capital intensive compared to optical media business and should contribute to improving overall returns on invested capital.

The company aims at emerging as a key player in this ‘environment friendly’ alternative energy technology, and to spur reduction of PV cell costs through innovation in technology and manufacturing to emerge amongst the most effi cient PV cell manufacturers in the world.

18 19

Product-wise Analysis and Outlook

CDR/RWGlobal CDR/RW supply continues to consolidate through capacity conversions into DVDR/RW and closure of ineffi cient capacities around the world. This is helping CDR/RW demand-supply balance return to equilibrium, thereby providing a stimulus for fi rm CDR/RW pricing environment in the medium term.

Strategic Marketing & Decisions (SMD) estimates

global demand for CDR/RW formats to remain around the level of 13 billion units per annum over the next couple of years. Consumer demand for CDR/RW format continues to grow in Asian and Middle Eastern markets. There are also certain emerging corporate applications and niche segments like the printable media and LightScribe, which are seeing a rapid growth in the CDR/RW space. The legacy of CD-Audio disc players

The cornerstone for sustaining global leadership and success in the optical media and PV business will be the company’s ability to break barriers on the operating and technology front.

Global Industry Developments in 2005-06

Following the diffi cult industry environment over the past 18 months which adversely impacted the operating performance of manufacturers, the global optical storage media industry started on a steady path to recovery in 2005-06, driven by global consolidation of capacity, continued growth in consumer demand and signs of softening of prices for key inputs.

Channel inventories depleted as the industry moved towards better demand supply balance, accompanied by strong volume growth, with DVDR being the growth leader. While capacity conversion resulted in fi rming of CDR prices later in the year, DVD prices started following the manufacturing cost curve as the product attained maturity.

The price of polycarbonate (PC) remained a key factor in driving signifi cant increases in the input costs for the industry. A sharp rise in global PC prices severely impacted industry’s operating

by increasing drive penetration and improving price-value proposition, to grow to 3.9 billion disks in 2005, a 105% growth over the previous year. Meanwhile global CDR/RW supply continues to consolidate through capacity conversions and closure of ineffi cient capacities around the world. This is helping CDR/RW demand-supply

balance return to equilibrium with global demand estimated to be 13.6 billion disks in 2005, according to Strategic Marketing & Decisions (SMD) estimates. SMD expects global demand for optical media to grow from 17 billion units per annum in 2005 to 27 billion units per annum by 2008, driven by robust growth in DVDR/RW formats and stability in CDR/RW. Companies should also start shipping BD/HD DVD media during 2006.

and writers will also help extend the CDR/RW life cycle.

DVDR/RWDVDR/RW drives are fast becoming a part of standard product offerings, increasing their penetration rates and growth in the installed base of drives. As per SMD, DVD-enabled drive sales represented nearly 75% of all optical drives sold in 2005 and the DVDR/RW writer base is expanding at over 60% p.a. The growth is being driven by proliferation of new drives and new

users with CE devices (DVD VCR, Camcorder) becoming major consumers of media. SMD expects shifting consumer preferences, increasing drive penetration and improving price-value proposition to grow the demand for DVDR/RW media to over 5 billion disks per annum in 2006 from 3.9 billion disks in 2005, with 16x media emerging as the dominant variant.

Delayed launch of Blue-laser based formats (BD & HD DVD) should lead to a larger than expected installed base of DVDR/RW drives and an extension in lifecycle for DVD-formats. As DVDR/RW manufacturing technology matures and as format writing speed stabilizes, the DVDR/RW pricing is expected to follow the manufacturing cost curve in the medium term, which should further aid volume growth.

Optical Media Drive ShipmentOptical Media Market

performance. The PC price curve started to ease from the second half of 2005-06, which should positively infl uence the industry in the near term. The year 2005-06 saw DVDR/RW format emerge as a “format of choice” for the consumer, driven

2008

2007

2006

2005

2004

2003

2002

2001

0 5000 10000 15000 20000 25000 3000

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419

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13614 3939

Total CDR/RW Total DVD/RW Total Blue R/RW

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ts (

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150

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2001 2002 2003 2004 2005 2006 2007 2008DVD - ROM

DVD - RecCD - ROM

Comb0CB

20 21

Moser Baer – Developments FY 2005-06

During the year, the company signifi cantly enhanced its position in the global optical media industry, and emerged amongst the three largest producers across both the DVD and CD formats. The company now supplies to all the top twelve leading technology OEMs in the world. The company has also strengthened its position in the domestic market by expanding its market reach and brand awareness.

During the year, the company continued its efforts to gradually revert to normal levels of operational & fi nancial performance. The steady improvement in market conditions and our increasing order books enabled us to achieve record levels of optical media shipments in FY06.

Despite the short term turbulence of the past years, the company remains positive on the long term potential of the optical media industry. The company expanded its capacity from 2.4 billion units per annum to 2.8 billion units during the year.

During 2005-06, DVDR/RW shipment volumes

grew at a fast clip, while a sharp recovery in CDR/RW shipments—in line with our expectations, particularly during the second half of the year, contributed to a robust growth in optical media shipments during the year. Overall shipment volumes rose 14%, with DVDR/RW contributing to a signifi cant part of the increase.

The Indian market remains one of the fastest growing markets in the world. During the year, the company continued its efforts to emerge as a dominant player in this key market with its Moser Baer PRO range of products. The brand has now grown to capture over 50% market share of the domestic branded market.

The company spends around 2.1% of its revenues on pure optical media research and engineering. The multi-pronged approach to R&D at our world class research labs at Noida and Greater Noida has enabled us to sustain our competitive edge over the years.

The company continues to drive extensive cost reduction programs, with a focus on DVD formats, resulting in increasing manufacturing effi ciencies.

We have been able to research, design and co-develop equipment which improves process yields, enabling us to re-set benchmarks for manufacturing costs and effi ciencies.

In a fast evolving market landscape and increasing competition, companies will increasingly use technology to differentiate themselves and not only launch innovative products, but also do so through more effi cient manufacturing. The company has embarked on a strategy to transform into a technology developer and innovator. This should widen the gap between the company and second-tier players. With proprietary technology and a possible fi rst to market position in the next generation formats, the company is well placed to further enhance its global leadership.

Next Generation Formats:

With the phased introduction of high-defi nition television (HDTV) broadcasts and increasing emergence of hardware supporting high-defi nition content, the variables exist for introduction of next generation of mass storage media. The race is already on to successfully develop and

commercialize the next generation format in the industry, namely the BD or the HD DVD. SMD believes that it is the Blue Laser technology (BD & HD DVD) that has the potential of signifi cantly mitigating the impact of possible cannibalization of optical media demand by emerging alternate technologies in the long term. The next generation optical media formats have the potential to provide a price-value proposition to consumers which could be extremely diffi cult for alternate technologies to meet. Over the long term these formats could evolve to store 100GB of data at a price point equivalent to current retail price of DVDR/RW format. While SMD expects 2007 to be the fi rst big year for blue laser based technology, the race has already begun. Over the past three years the company has invested signifi cantly in its research and development programs targeted at developing next generation formats in optical media space by leveraging its core skills in base material engineering, thin fi lm coating, precision sputtering and deep UV mastering technologies. Starting from 2QFY07, the company plans to launch a series of next generation formats, in conjugation

Financial Highlights

• Gross revenue for FY ’06 at INR 17319.1 million is an increase of 28.0% over FY ’05, representing the recovery in volumes and impact of expanded capacity during the year.

• EBITDA (including other income) at INR 4,136.0 million grew by 5.6% over FY05.

• Operating performance turnaround from Q2 of FY’06 as industry variables started to improve and as company’s various programs on effi ciency improvement were implemented.

• The company achieved a profi t after tax (including deferred tax impacts) of INR 46.7 million in FY06.

22 23

with drive and recorder availability, and expects to be fi rst to market in a majority of these formats. The four products which we believe will have a signifi cant market potential in the future are DVDR Dual Layer, HD DVDR (recordable) and RE (re-writable), HD DVD Dual layer, and BD-R and RE.

The company has developed a unique technology specifi cally for advanced generation of BD formats which will not only enable lower manufacturing costs, but also allow the consumer greater ease of interchangeability of media across different drives. This is expected to give us a signifi cant competitive edge in the next generation format race.

The company has also begun collaborative efforts in the Holographic technology domain in order to work on media and related development of the future disk with capacities up to 200GB and beyond.

New Business Initiative: Photovoltaic (PV) Cell Project

During the year, the company took a big stride forward in opening new vistas for future growth with the entry in the emerging Photovoltaic industry. The company, which plans to make an aggressive entry into the PV business by manufacturing solar cells and modules, aims to emerge as one of the key industry players and

one of the most effi cient manufacturers in the sunrise PV industry.

This new fi eld of business is synergistic with our existing businesses and will leverage on our core competencies in the areas of precision high technology mass manufacturing, base metal engineering, thin-fi lm coating and project management.

Globally, energy is fast emerging as a critical issue, especially as existing power generation options have limitations in terms of growth potential and long-term sustenance. With the Sun supplying 10,000 times the amount of energy needed every year by Earth, and with technological breakthroughs fast lowering harnessing and distribution costs, solar power is fast emerging as the most viable and eco-friendly power generation option for tomorrow—with no moving parts, no noise and zero emissions.

The PV space is expected to grow fi ve-fold to a global market size of $40 billion by Year 2010. Also, the cost reduction potential of PV promises to make it competitive with grid electricity over the years, which could signifi cantly increase its applications and growth potential.

As part of its strategy in the new business, the company is targeting the two segments in PV value chain that are most attractive from a

synergy standpoint —solar cells and modules. It’s also leveraging existing core competencies and R&D to develop cutting edge manufacturing effi ciencies and identify and participate in emerging technologies to establish an early mover advantage and sustainable competitive edge.

The company is targeting a capacity of 80 MW by Year 2007 with an initial project cost of INR 2600 million ($58 million). The project is on a fast track to implementation and will be executed in Moser Baer Photo Voltaic Ltd, which has already been established and capitalized. The contracts for supply of equipment and technology for cell and module making have already been executed. The company has also secured part of its short term requirements of raw materials and is working towards closing medium to long term sourcing agreements. The company plans to start commercial production by 3QFY07.

The PV space presents the company with an exciting growth opportunity. Also, since the business is signifi cantly less capital-intensive than the company’s existing business, it is expected to noticeably improve the overall return on invested capital.

SWOT

Strengths1) Integrated manufacturing allowing cost effi cien- cies and enhanced speed to market. 2) Lower capital investment, manpower and overhead costs allow cost leadership. 3) Strong focus on R&D and engineering to constantly innovate products and reduce costs. 4) Committed shareholders add strength, longevity and sustainability to future plans.

5) Strong project management skills and execu- tion and mass manufacturing expertise.

6) Well established logistics and supply chain anagement skills.

7) Evolving into a multiple technology business transnational.

Weaknesses1) Need to scale up operations to meet exponen- tial growth opportunities.

2) Exposed to commodity cycles, especially in the short term.

CDR/RW in FY’06

• Demand-supply equilibrium reached as capacity partly converted/Exited

• Signifi cant inventory depletion

• Demand continued to grow at low single digits worldwide

• CDR pricing stabilizes

Outlook

• Shipment volumes to remain strong

• Contribution should normalize as entire inventory depleted

• Pricing to continue to fi rm

DVDR/RW in FY06

• DVD demand-supply in balance

• 16x emerging as the format of choice

• DVDR/RW prices are broadly tracking the manufacturing cost curve

Outlook

• DVDR/RW shipment volumes to grow strongly

• DVDR/RW pricing to follow the manufacturing cost curve

Optical Market in FY06

24 25

Opportunities1) Robust growth in DVDR market: With existing top-tier customer base and effi cient in-house technology, the company is well positioned to increase market share.

2) Domestic market: India is one of the fastest growing markets. The company is well positioned to dominate this captive market. 3) Emerging Technology: The Company has invested signifi cantly in its research and development programs targeted at next generation formats to be fi rst to market in a majority of these formats.

4) Solar Photovoltaic business: The Company is leveraging upon existing core competencies and R&D to develop cutting edge manufac- turing effi ciencies and identify and participate in emerging technologies to establish an early mover advantage and sustainable competitive edge in PV space.

Threats1) Emerging technologies: In a dynamic technol- ogy environment, the Company’s business could be threatened from more effi cient emerging technologies. A growing drive installed base, specifi c applications and an un-matched price value proposition will ensure continued growth of optical media. The company is all set to cap- ture the imminent growth in next generation formats through its R&D and product develop- ment efforts. Also, an early mover advantage in the fast growing global PV business should provide further momentum to growth. 2) Anti-dumping and anti-subsidy levies: The

Company derives a signifi cant part of its revenues from international markets. These have seen a growing protectionist attitude and a tendency by some local governments to use anti-dumping and trade protection tools to provide protection to local businesses. However, the Company continues to keep a close watch on this front and take necessary steps to mini- mize any fallout.

3) Fall in product prices: As products move into the mature phase in their life-cycle, they start to emulate commodity-type characteristics. Also, as the industry is characterized by high volumes, large capacities and investments, a sharp reduction in product pricing can impact perform- ance. Pricing could fall due to oversupply, low demand and cost reduction due to reduction in input costs or setting up of capacities in low-cost regions.

4) Sharp increase in input costs: The key inputs for optical media and PV cell business are Polycarbonate and Polysilicon respectively, both of which are commodities. Any sharp increase in prices of these commodities or demand-supply imbalances could adversely impact business. The company is working on strategic sourcing agreements for critical raw materials, and this will help ease the impact of any pricing volatility.

5) Change in Government policies/ subsidization programs: Worldwide, government policies and incentives have provided impetus to the tremen- dous growth of PV industry globally. Any change in these policies could impact the potential growth of this business. Given the rising glo- bal concern for alternate and environment friendly source of energy, PV is being recognized as a viable alternative, globally.

Strategy

Short termThe Company’s near-term strategy is to leverage its world class manufacturing base, core- competencies and R&D to develop cutting edge manufacturing effi ciencies and identify and participate in multiple emerging technologies to establish an early mover advantage and sustainable competitive advantage in next generation formats for optical media and the Photo Voltaic business.

Medium termMoser Baer believes that in the medium term, the optical storage media industry offers suffi cient growth opportunity with relatively low risks and high returns on invested capital, driven by next generation formats.

The company’s aim is to be amongst the global leaders in technology evolution in the Photo Voltaic business and to relentlessly drive down costs to establish itself as a leading highly effi cient manufacturer in the global photovoltaic industry.

Long termLong term strategy of the company is to be amongst the worlds leading technology manufacturing companies by continuing to leverage upon competencies in base metal engineering, thin fi lm coating, rapid technology commercialization and effi cient asset creation. The company will continue to evaluate and grow business having high growth potential, strong technology barriers and high return on capital employed.

Near-term operational objectivesFurther increase competitive edge by lowering costs and improving effi ciencies.

Improve sales mix by developing value-added products.

Continue to drive strong cash fl ow and workingcapital effi ciencies.

First to market in next generation formats.

Commercialize photovoltaic project on schedule and drive down costs.

Strengthen customer base and relations by entering into strategic alliances.

Long term strategic sourcing arrangements for critical inputs.

Reducing time to market through innovation, R&D and process improvements.

26 27

Financial Analysis

OverviewThe fi nancial statements have been prepared in compliance with the requirements of the Companies Act, 1956, and Accounting Standards in India. Our management accepts responsibility for the integrity and objectivity of these fi nancial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the fi nancial statements have been made on a prudent and reasonable basis, in order that the fi nancial statements refl ect in a true and fair manner the form and substance of transactions and reasonably present our state of affairs and profi ts for the year.

Revenue analysisGross revenues in fi scal year 2005-06 rose 28.0% over the previous year to INR 17,319.1 million, while a severe margin pressure resulted in a

marginal net profi t after tax (including deferred tax impact) of INR 46.7 million. EBITDA (including other income) at INR 4,136.0 million grew marginally by 5.6% over the previous year, while EBITDA margin was at 23.1%, compared to 27.6% in FY 2004-05. However, the Company continues its efforts to gradually revert to normal levels of operational & fi nancial performance, as evident from 4Q FY06 performance. The Gross revenue increased 25.7% over previous year, while the company reported a 65.5% growth in EBITDA translating into a profi t before tax of INR 20.9 million in 4Q FY06 against a loss of INR 292.9 million in the previous year.

Fully diluted earnings per share for FY 2005-06 were at INR 0.42, against INR 5.45 in FY05. However, the company continues to generate strong gross cashfl ow of INR 3,214.3 million in FY 2005-06.

Capital Structure

There was no change in the capital structure of the Company and the paid-up equity capital remained at INR 1,115.2 million as on 31 March 2006.

On September 28, 2005 Woodgreen Investment Ltd. (WIL) did not exercise their option to convert at the exercise price of INR 336/-, 5,400,000 Share Warrants issued to them on a preferential basis by the Company pursuant to an agreement dated March 25, 2004. The upfront money of INR 181.44 million, received against these Share Warrants has been forfeited and accordingly taken to ‘Reserves and Surplus’ as capital reserve.

ReservesThe company’s reserves remained stable at INR 18,933.4 million in FY06 against INR 18,832.4 million in FY05. The increase was on account of capital reserves (warrants)

during the year. As on 31 March 2006, Securities Premium Account comprised 47.0% of the total reserves and General Reserves (including profi t for the year) comprised the remaining 53.0%. There are no revaluation reserves as on 31 March 2006.

LoansOver the years, the company has part-funded its ongoing expansion and investment programs through loans raised at progressively lower costs. We have also tried to build a prudent basket of currencies to hedge against currency risks and minimize costs. Our currency-wise total debt outstanding is as follows:

PARTICULARS FY06 FY05

Net Sales (net of taxes/duties) 16641.2 12804.0 Other Income 606.9 674.9 Increase in stock of Finished Goods/Work in Progress 550.1 869.1 Total Income 17798.2 14348.0 Total Expenditure 13662.1 10432.2 Interest & Finance Charges 935.5 736.2 Depreciation 3167.6 2820.5 Profi t before Tax and Prior Period Items 32.9 359.1 Prior Period (Income) / Expense (Net) (6.6) 56.7 Profi t before Tax and after Prior Period Items 39.5 302.4 Tax Expense: Current Tax (6.3) 26.3 Deferred Tax (14.0) (331.1) Fringe Benefi t Tax 13.2 0.0 Net Profi t after Tax 46.7 607.2

O p e r a t i n g P e r f o r m a n c e R e v i e w ( in INR mn)

28 29

Loans and advances In FY06, loans and advances increased to INR 1490.2 million against INR 600.9 million in FY05, a 148.0% growth. This is mainly on account of advances to suppliers rising sharply by 363% as the company made advances to suppliers to ensure tie-up supply of critical inputs and materials. Changes in credit terms for key materials will ensure that this cash fl ow position recovers in the near future.

Capital employedWhile the overall revenues of the company rose by over 28%, the total capital employed in the business increased marginally by 0.7% or INR 253.9 million to INR 36,603.2 million in FY06 from INR 36,349.3 million in FY05. This implies an increase in asset utilization ratios. However, lower margins for the year resulted in reduction of Return on Average Capital Employed.

Management of surplus fundsIn a growing business, there were junctures when the temporary availability of resources was higher than the immediate use. These short-term surpluses were invested in low risk fi nancial instruments that optimized returns and protected the invested principal.

Internal Audit and Controls

Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and that transaction are authorized, recorded and reported correctly.

The company maintains an extensive system of controls which ensures optimal utilization and protection of resources, IT security, accurate reporting of fi nancial transactions and compliance with applicable laws and regulations as also internal policies and procedures.

The above control is further supplemented by internal audit, which is carried out internally as well as by a reputed fi rm of Chartered Accountants, who conduct audit across all functions. The company has an Audit Committee headed by

was to expand capacities to meet increasing demand. Our optical media capacity increased from 2.4 billion per annum in FY05 to 2.8 billion per annum in FY06. We intend to enhance our optical media capacity further during FY 07 and also incrementally invest in the photovoltaic business through our wholly owned subsidiary. The incremental capital expenditure is being funded by debt and internal accruals.

DepreciationDepreciation increased by 12.3% in FY06 (from INR 2,820.5 million to INR 3,167.6 million) on account of increase in the gross fi xed assets. Due to the fl exible nature of the asset base and the relatively long life-cycles of products in the industry, we believe that the risk of the asset base becoming obsolete is low.

Working capital management The overall net working capital was 35.3 per cent of gross revenues in FY06.

Working FY03 FY04 FY05 FY06Capital (INR )

Debtors 2778.0 3030.2 3315.4 3798.9

Days 93.4 70.1 89.5 80.1

Inventory 998.5 1985.0 3435.4 4469.9

Days 33.5 45.9 92.7 94.2

Creditors 1724.9 2795.4 2253.9 2151.8

Days 58.0 64.7 60.8 75.5

DebtorsDespite the diffi cult market environment which has made working capital management very important and challenging, the company has been able to contract its receivable cycle to 80.1 days in FY06 from 89.5 days in FY05. This is much below the industry benchmark of 90-120 days. Debt for more than six months reduced signifi cantly and represents only 7.3% of overall receivables at INR 279.8 million in FY06 – down from 8.4% and 10.1% of receivables in FY05 and FY04 respectively.

Table on currency wise total debt outstanding.

in millions

Currency Amount Amount % of in Currency in Indian Rupee Dept.

USD 32.3 1,439.0 12%

Euro 41.1 2,224.1 18%

INR 8,554.1 8,554.1 70%

During FY06 there was a net addition of debt of INR 512.5 million mainly for ongoing expansion programs of the company. We believe that our current total debt to equity ratio of 0.83 remains in a comfortable range.

Financial objectives, initiatives and achievementsYour Company is taking proactive measures to ensure all fi nancial costs are effectively reduced to positively impact the bottom-line. The Company has shifted to working capital borrowings in foreign exchange, thereby reducing interest costs. Despite the slowdown in FY06 and pressure on margins, the Company generated INR 1,829.0 million of cash from operations as against INR 1,144.1 million last year. The ongoing foreign exchange risk management policy has been further strengthened to ensure there is no adverse impact of volatile exchange rates beyond agreed-upon tolerance levels.

InterestThe outfl ow on account of interest and fi nance charges increased to INR 935.2 million in FY06 from INR 736.3 million in FY05, representing an increase of 27.1%, primarily on account of a rise in overall debt levels as well as interest costs. However, despite the fi rming interest rate environment, the interest cost as a percentage of average debt for the company remains healthy at 5.7% in FY06.

Capital expenditureGross block of the Company increased by INR 3,017.1 million during FY06 to reach INR 34.9 billion. Majority of this increment in assets

30 31

a non-executive independent Director to review the observations arising out of audit reports and the effi cacy & adequacy of internal controls on a regular basis.

Internal Control Systems and their Adequacy

The effi ciency of the internal control system has improved with further extension and refi nement of the existing ERP (enterprise resource planning) system in 2005-06. The system has provided a high level of system-based checks and controls through core business processes in materials, operations, accounting & HR. Regular internal audits and checks are carried out to ensure that responsibilities are executed effectively and that adequate systems are in place to maintain authenticity and correctness of recorded transactions.

Signifi cant Accounting Policies

1. Revenue recognitionRevenue from sale of goods is recognized on transfer of signifi cant risks and rewards of

ownership to the customer and when no signifi cant uncertainty exists regarding realization of the consideration. Sales are recorded net of sales returns, rebates and trade discounts and price differences and are inclusive of duties.

2. Inventory valuationFinished goods, work-in-progress, goods held for resale, raw materials, packing materials and stores & spares: at lower of cost or net realizable value. Cost of raw material, goods held for resale, packing materials and stores and spares, is determined on the basis of the weighted average method. Cost of work in progress and fi nished goods is determined by considering direct material costs, labor costs and appropriate proportion of overheads.

3. Fixed assetsTangible fi xed assets are stated at cost less accumulated depreciation. Cost includes all

expenses, direct and indirect, specifi cally attributable to its acquisition and bringing it to its working condition for its intended use. Expenditure pending allocation is allocated to productive fi xed assets in the year of commencement of the related project. Intangible assets are stated at cost less accumulated amortization.

4. Depreciation and amortization Depreciation on tangible fi xed assets is provided under the straight-line method on a pro-rata basis at the rates and in the manner specifi ed in Schedule XIV to the Companies Act, 1956, other than on certain Plant and Machinery at the Magnetic Media manufacturing units, which is depreciated at the rate of 7.42% (10.34% upto last year) based on the management’s estimate of useful life of the assets and is in accordance with the rate specifi ed in Schedule XIV to the Companies Act, 1956. In respect of assets whose usefull life has been revised, the

32 33

unamortised depreciable amount has been charged over the revised remaining useful life. Intangible assets are amortised on equated basis over their estimated economic life not exceeding 10 years. Leasehold land and improvement to the leased premises are amortised over the period of the lease. The assets taken on fi nance lease are depreciated over the lease period.

5. Taxation a) CURRENTProvision is made for current income tax liability based on the applicable provisions of the Income Tax Act 1961, for the income chargeable under the said Act and as per the applicable overseas laws relating to the foreign branch.

b) DEFERREDDeferred tax assets (DTA) and liabilities are computed on the timing differences at the Balance Sheet date between the carrying amount of assets and liabilities and their respective tax basis. DTA is recognized based on management estimates of reasonable/virtual certainty that suffi cient future taxable income will be available against which such DTA can be realized. The deferred tax charge or credit is recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date.

Risk Management

As per the revised requirements for listed companies, the company proceeded to develop a risk mitigation framework for identifi cation & assessment of risks— both process control related and business risks, identifi cation & implementation of risk mitigation plans and control and review mechanism on an ongoing basis.

During the year, a dedicated team was created which initiated and implemented the internal control framework for risk mitigation across the company. The company also retained external experts to assist in developing and institutionalizing a COSO based internal control framework and draw up a risk based internal audit plan.

Business Risk Management

As a global leader in manufacturing of high technology products, the company is exposed to

various risks. Some of these risks are external and result from the business environment we operate in, while some are internal to the company.

Our risk management revolves around corporate policies that outline standards and provide measurement & assessment guidelines, a framework which incorporates a mitigation strategy and also a control and review mechanism for each risk category.

The risk management strategies and processes are regularly reviewed in keeping with the changing environment.

The company’s risk-management mechanisms are consistent with its strategic direction, desired total returns to shareholders and the credit rating of the company. Our risk appetite dictates the risk management initiatives.

R i s k M a n a g e m e n t

Pass on - the risk to another party - for example, insure against it

Accept - the risk where existing controls are felt to be adequate

Reduce - the risk by introducing new or enhanc-ing existing controls

Terminate - the activity being undertaken which generates risk

34 35

fi rst to launch the next generation for formats in the industry, viz. BD and HD DVD media.

Steps taken to mitigate technology risks

In the dynamic storage market segment, signifi cant technological risks exist in a number of critical areas, all of which can have considerable commercial/fi nancial implications. The company has invested substantially in research & development and engineering to address and mitigate risks in all these areas, often with multiple degrees of redundancy.

• Ability to rapidly commercialize new products through in-house R&D capabilities.

• Access to new technology through long- standing strategic partnerships with key technology providers.

Risk Environment

The global optical media industry has a high risk quotient. These risks may stem from technology obsolescence, high customer concentration, commodity cycles and geographical risks amongst others. The company is, however, well poised to manage and mitigate these risks.

The obsolescence of technology is inevitable and the real challenge is to anticipate and respond to both evolutionary and disruptive changes. However, many technologies may prove to be more resilient than anticipated and the removable storage segment has proven to be so, even in the face of rapid technological developments with the need for broad-based global compatibility being a strong stabilizing infl uence.

The same solid entrenchment is observed with CD-R, whereby a huge global installed base of readers and writers, estimated to far exceed

2 billion units, have served to provide the format with considerable staying power even in the face of exiting new options. The position is strengthened by a number of factors the versatility of the CDand DVD format families has served to establish them as a bridge between the information storage and entertainment segments, extending their utility and reach. Proliferating DVDs the most rapidly growing Consumer Electronic (CE) product in history not only maintain backward compatibility with CDs, but also opens up complementary new video, multi-media, and game application segments further strengthening the global mass appeal of the 120mm disc formats.

The company expects that the above factors will result in a steady state for CD-R media, while DVDR media will drive the growth in the medium term. At the same time, the Company has taken concrete steps and leveraged its R&D to ensure that its manufacturing infrastructure and technology base are fully capable to emerge as amongst the

• Drive/media compatibility through cooperative links with all major hardware suppliers.

• Evolutionary capabilities of manufacturing infrastructure by seamlessly future-proofi ng our capital investments.

• Technology collaborations and tech sourcing arrangements with global technology companies in emerging areas.

Other risks and key management initiatives

a) INDUSTRY RISK MANAGEMENTThe company operates in an industry where technology trends are constantly changing and evolving which may jeopardize future growth.

The company, however, faces no immediate threat from the dynamic environment in which it operates. On the contrary, it stands to benefi t from the current growth trends in the DVDR format.

36 37

also build management resources for a multi-business enterprise.

e) COMPETITION DE-RISKINGAs installed capacities in global data storage industry have risen, prices have declined…

Moser Baer has responded to price-based competition with an unbeatable price-value proposition superior quality, timely delivery, attractive price and introduction of new products.

f) FAILURE TO FORECAST ACCURATELYIt’s critical to correctly understand and forecast emerging tends in the technology space…

The company is strengthening its forecasting and S&OP process to be used for high level production planning and cover plans for key materials.

g) FAILURE TO ENTER INTO LONG TERM CONTRACTS FOR CRITICAL RAW MATERIALS & CONSUMABLESSharp commodity cycles and demand-supply imbalances in critical raw material can severely impact operations

The company is working on long term strategic sourcing arrangements with key raw material suppliers which is are expected to signifi cantly mitigate this risk.

h) CASH FLOW RISKThe company operates in a high growth and capital intensive industry. Hence, it is imperative to effi ciently estimate and manage cash fl ows in this volatile environment. The Company’s working capital arrangements are well in place to guard against any uneven or seasonal factors. Besides, the company has tied up additional alternative

As consumption evolves from analogue to digital technology, it is prompting legacy recordings to migrate to new media.

Additionally, the company also entered the exciting global photovoltaic industry which is growing at a rapid pace. This not only mitigates the risk of exposure to a single industry, but as this industry is signifi cantly less capital intensive than optical media industry, it is expected to improve the overall returns on invested capital.

b) CUSTOMER ATTRITION RISK CONTROLOur over-dependence on a few customers could impact revenues in the event of attrition.

Our product quality, unbeatable price-value proposition and excellent service extended our reach to a wider larger spread of customers. We believe that the impact on the Company in the event of customer attrition would be low.

c) GEOGRAPHIC RISK MANAGEMENTA geographically concentrated revenue base may affect growth in the event of some of these regions not performing up to expectations

The consumer base is primarily addressed through global technology OEMs which sell products in different continents across the globe. As we supply to global customers, the geographical risk is mitigated. Additionally, we continue to focus on emerging and new markets.

d) PEOPLE RISK MANAGEMENTHigh quality human resources are vital to the success of our business.

In order to retain talent, the Company promotes a sense of ownership and pride in association with strong HR initiatives, which have helped us keep attrition rates well in control. The company continues to drive organization development and

38 39

fi nancing for cost optimization/funding the operations. Also, the Company monitors liquidity on a regular basis.

i) SECURITY/DISASTER RISK MANAGEMENT

Operations could be disrupted due to natural, political and economic disturbances …….

The company has implemented an extensive IT disaster recovery plan across all its facilities. The company has mapped out all the related risks on these accounts and put in place suffi cient mitigants and control mechanisms with are regularly updated and monitored.

j) NEW BUSINESS RISK:

During the year the company announced plans to enter the photovoltaic space. This is a new business segment for the company and is also prone to regulatory risks and risks on account of technology and project execution.

The project is on a fast track to commercialization in 3QFY07. The company has done extensive due diligence for the past couple of years in this industry and has identifi ed key risks in the business and put in place a multi pronged mitigation strategy and control mechanism. The business has strong synergies with existing business and the company is confi dent of starting the project on schedule and emerging as a leading and a cost effective manufacturer in the world.

Human Resource /Industrial Relations

The company recognizes the fact that its employees are its key strategic assets. Over the years, the company has been able to create a favorable work environment that encourages creativity and ownership. During the year 2005-06, the company added 350 employees, taking the total strength to 5013 - up from 4,663 at the end of the previous year. In an effort to emerge as a global technology manufacturing company having a multi faceted growth strategy, the company signifi cantly strengthened its management over the past year. The implementation of the balanced score card regime

and performance management system across the company is progressing as planned.

Disclosures

During the year under review, the Company has not entered into any transaction of the material nature with its Promoters, the Directors or the management, their subsidiaries or relatives, etc. that may have potential confl ict with the interest of the Company at large.

Management’s Responsibility Statement

The management is responsible for preparing the Company’s consolidated fi nancial statements and related information that appears in this annual report. The management believes that these fi nancial statements fairly refl ect the form and substance of transactions and reasonably represent the Company’s fi nancial condition and results of operations in conformity with Indian Generally Accepted Accounting Principles.

Disclaimer

Some of the statements in this report that are not historical facts are forward-looking statements. The forward-looking statements include our fi nancial growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. These risks include uncertainties that could cause actual events to differ materially from these forward-looking statements. These risk include, but are not limited to, the level of market demand for our services, the highly-competitive market for the types of services that we offer, market conditions that could cause our customers to reduce their spending for our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualifi ed personnel, currency fl uctuations and market conditions in India and elsewhere

around the world and other risks not specifi cally mentioned. Creating Value

Economic Value Added (EVA) EVA analysis starts with the premise that investors are primarily concerned with the cash return on their cash investment and the risk associated with that investment.

This return can be directly compared with the return expected by investors, the companys WACC. Value is created/destroyed if the business generates a return above/below its cost of capital. EVA is thus defi ned as: EVA = (ROIC – WACC) x Capital

Risk-free Return (R F )We have used the yield on the 10-year government bond as the risk-free rate. This bond currently yields 7.2% per annum.

Equity beta (ß e )Based on an analysis of comparable optical storage media companies in Asia as well as Moser Baer s beta estimate from Bloomberg, Moser Baer s adjusted equity beta is estimated to be 1.0 for 2005-06.

Market Risk Premium (MRP)The MRP is the additional return over and above the risk-free return investors require to invest in the market portfolio. We estimate the MRP to be 8.0%.

39

Year ended March 31 2006 2005 2004 2003 2002 2001 2000 1999 1998

Average capital employed (Rs in mn) 32447.6 32297.6 25989.8 17227.3 12018.9 6727.7 2714.9 1289.0 934.0

Average debt (Rs in mn) 16395.9 15470.7 13231.7 9949.0 5927.8 3092.9 1709.4 813.4 601.7

Beta Variant 1.0 1.1 0.9 1.01 1.34 1.33 1.14 1.21 1.1

Risk-free debt cost (%) 7.2 7.2 6.0 7.5 7.5 10.1 10.0 12.0 12.0

Market risk premium 8.0 7.0 6.0 6.0 7.0 8.0 8.5 8.5 8.5

Prime lending Rate (%) 10.3 10.3 10.3 10.8 11.3 11.5 11.3 12.0 13

Marginal Tax Rate (%) 33.7 33.7 35.7 35.7 35.7 40.3 40.3 40.3 35

Cost of equity (%) 15.2 14.7 11.6 13.6 16.9 20.7 19.6 22.2 21.3

Post-tax cost of debt (%) 6.8 6.8 6.6 6.9 7.3 6.9 6.8 7.2 8.5Weighted average cost of capital 11.8 11.8 10.1 10.4 13.9 18.3 16.8 13.8 11.9(WACC) (%)

Economic value added (EVA)

Operating profi t 32.9 359.1 3626.7 2359.8 2200.3 1385.9 441.5 204.6 132.1(PBT excl extraordinaries)

Less: tax -7.1 -304.8 -49.4 12.9 42.4 0.3 0.3 0.2 0.1

Less: cost of capital 3815 3811 2626 1794 1669 1234 457 178 111

Economic value added -3775 -3147 1050 553 489 152 -15 26 21

Enterprise value

Market value of equity 23640.5 26762.9 30275.5 11085.9 13119.1 14758.7 6113.2 642.6 223.1

Add: net debt 13717.4 11616.0 6664.7 9051.8 7137.5 2283.6 1499.0 513.5 602.4

Enterprise value 37357.9 38378.9 36940.2 20137.7 20256.6 17042.4 7612.1 1156.1 825.5

Ratio

EVA as a percentage of -11.6 -9.7 4.0 3.2 4.1 2.3 -0.6 2.0 2.2capital employed (%)

Enterprise value/Average 1.2 1.2 1.4 1.2 1.7 2.5 2.8 0.9 0.9capital employed

40

Dear Shareholder,

Your Directors are pleased to present the 23rd

Annual Report and Audited Accounts for the financialyear ended 31 March, 2006.

Financial Results(Rupees in Million)

Particulars Year ended March 31,2006 2005

Gross sales and other income 17,926.01 14,203.46Profit before depreciation,interest and tax but afterprior period items 4,142.62 3,859.14Depreciation 3,167.60 2,820.50Interest and finance charges 935.50 736.25Profit before tax 39.52 302.39Tax expenses (7.14) (304.84)Profit after tax 46.66 607.23Profit carried forwardfrom last year 480.08 –Profit available forappropriation 526.74 607.23

Appropriations:Dividend (proposed) 111.51 111.51Provision for tax onproposed dividend 15.64 15.64Transfer to Profit andLoss Account 399.59 480.08

Operations

Revenues for FY ’06 stood at Rs 17,926.01 million,profit before depreciation, interest and tax, but afterprior-period items stood at Rs 4,142.62 million, andprofit after tax was Rs 46.66 million. Subsequent tothe difficult market environment prevalent over thepast two years, the global optical storage mediaindustry is now on a steady path to recovery, drivenby consolidation of capacity, continued growth inconsumer demand and signs of softening of pricesfor key inputs.

Your Company witnessed a turnaround in the lasttwo quarters of the FY ’06 as it continued its effortsto gradually revert to normal levels of operational &financial performance. Continuing strong growth indemand for DVD’s and a stable market for CD’scombined with consolidation helped create a morefavorable environment during the progress of theyear.

Market environment and outlook

Industry Outlook

In 2006, Strategic Marketing Decisions (SMD)estimates that global demand for CDR/RW will

D i r e c t o r s ’D i r e c t o r s ’D i r e c t o r s ’D i r e c t o r s ’D i r e c t o r s ’ R e p o r t R e p o r t R e p o r t R e p o r t R e p o r t

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remain almost flat as compared to 2005, at 13 billionunits. Whereas the European and US markets willshow a marginal decline in demand, rapid growthin the Asian, Latin American, Indian and Chinesemarkets will offset this demand decline. In the nearterm, new corporate applications and emergingsegments like the printable media and LightScribewill ensure steady growth in the CDR/RW space.

Global CDR/RW supply continues to consolidatethrough capacity conversions and closure ofinefficient capacities. This is helping the CDR/RWdemand-supply balance to return to equilibrium,thereby providing a stimulus for firm CDR/RW pricesin the medium term.

DVDR demand is rapidly growing on a global basis,and is expected to touch 6.4 Billion in 2006, ascompared to 3.9 Billion in 2005, an increase of 64%.This demand growth is expected to continue overthe next few years, until the next generation formats(Blu- ray disk and HD – DVD) start to gain massmarket acceptance.

Next generation optical media formats have thepotential to provide a price-value proposition toconsumers which could be extremely difficult foralternate technologies to meet. Over the long term,these formats could evolve to store 100GB of dataat a price equivalent to current retail price of DVDR/RW format. While SMD expects 2007 to be the firstbig year for blue laser based technology, the racehas already begun.

Market development

For the last few years, your Company has beenevaluating various business opportunities fordiversification and broadening its product portfolio.With an eye to expand the existing market, yourCompany has started focusing on value-addedproducts to drive an expansion in margins. As theCompany sells predominantly to OEM customers,who source their products on a global basis,individual market changes have a lesser impact onthe Company’s operations. The share of outsourcedvolume from an OEM customer has a greater impacton the Company’s operations and, hence theCompany’s focus is to increase the share of acustomer outsourcing its requirements.

In our goal of maintaining a first to market position,your Company introduced a number of new products

during the year, including 16x DVD+/-R disks, 1x/2.4x Dual Layer disks, 8x DVD +RW disks. Theseproduct introductions combined with continuinggrowth in the ‘Wallet share” of existing customers,and new customer acquisitions allowed theCompany to increase it’s market share significantlyin the DVDR area.

Over the past three years, your Company hasinvested significantly in its R&D programs targetedat developing next generation formats in the opticalmedia space by leveraging its core skills in basematerial engineering, thin film coating, precisionsputtering and deep UV mastering technologies.Starting from the first quarter FY07, your Companyplans to launch a series of next generation formats,in conjugation with drive and recorder availability,and expects to be first to market in a majority ofthese formats. The four products which we believewill have a significant market potential in the futureare 8x DVDR Dual Layer, HD DVD-R (recordable)and RE (re-writable), HD DVD Dual layer, and Blu-ray Disk (BD)-R and RE.

New projects

During FY06, your Company spent Rs 3,881 Million(USD 87 million) to expand capacity to 2.8 billionunits per annum. A majority of these investmentswere made in the DVD format, and in nextgeneration technologies to maintain our leadingposition in the marketplace

Photovoltaic (PV) Cell project.

In October 2005, your Company announced plansto enter the high-growth Photovoltaic (PV) business.With an initial project cost of Rs 2,600 Million (USD58 million), your Company is targeting a capacity of80 MW by Year 2007. This project is on a fast trackto implementation and will be executed in MoserBaer Photo Voltaic Ltd, which has already beenestablished and capitalized. The contracts for supplyof some equipment and technology for cell andmodule making have already been executed. Thecompany has also secured part of its short -termrequirements of raw materials and is workingtowards closing its medium to long term sourcingagreements.

Subsidiary Companies

During the financial year, two companies, Moser

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Baer Photo Voltaic Limited and Moser Baer SEZDeveloper Limited were incorporated as yourCompany’s 100% subsidiaries. While Moser BaerPhoto Voltaic Limited has been established with theobjective to develop, manufacture and market photovoltaic cells, modules and systems, Moser Baer SEZDeveloper Limited has been set up with the objectiveto carry on the activity of establishing, developing,maintaining and operating Special Economic Zonesfor non-conventional energy.

Further, your Company’s third subsidiary, namely-European Optic Media Technology GmbH (Europtic)has been established in Germany with the objectiveof establishing manufacturing facilities in Europe,to service the requirements of our OEM, retail andenterprise customers.

As required under Section 212 of the CompaniesAct, 1956, the audited accounts Moser Baer PhotoVoltaic Limited for the period 7 December, 2005 to31 March, 2006 and the audited accounts ofEuropean Optic Media Technology GmbH for thefinancial year 2005-06 are annexed herewith alongwith the Auditors’ Reports thereon and the Directors’Reports thereto, together with a statement of yourCompany’s interest in the said subsidiaryCompanies.

The first financial year of Moser Baer SEZ DeveloperLimited, which was incorporated on 20 February,2006 and received its Certificate forCommencement of Business on 25 April, 2006, willend on 31 March, 2007.Thus, its audited accountswill be included in next year’s Annual Report.

Dividend

Your Directors are pleased to recommend a dividend@ 10% on the paid-up Equity Share Capital of theCompany for financial year 2005-06. The totalpayout will be Rs. 127.15 million, inclusive ofdividend tax and surcharge thereon.

Directors

In terms of the provisions of Sections 255 and 256of the Companies Act, 1956 and the Articles ofAssociation of the Company, Mrs. Nita Puri, Directorand Mr. Prakash Karnik, Director, retire at theensuing Annual General Meeting and, being eligible,have offered themselves for reappointment.

Auditors

Price Waterhouse, Chartered Accountants, holdoffice until the conclusion of forthcoming AnnualGeneral Meeting and, being eligible, offerthemselves for re-appointment. The Company hasreceived an intimation to the effect that theirreappointment, if done, will be within the limits laiddown under Section 224(1B) of the Companies Act,1956.

Stock Option Plans

In pursuance of the resolution passed at the 22nd

Annual General Meeting, your Company introduceda stock option plan for its non-executive Directorsi.e Directors Stock Option Plan- 2005 (“DSOP-2005”). The shareholders had given their approval,to issue up to a maximum of 450,000 optionsconvertible into an equal number of equity shares.During the year under review, Stock Options weregranted to the non-executive Directors.

Further, your Company had introduced a stockoption plan—the Employee Stock Option Plan, 2004(“ESOP 2004”)—for its employees. Theshareholders had given their approval to issue upto a maximum of 4,400,000 options convertible intoan equal number of equity shares. During the yearunder review, Stock Options were granted to theeligible employees.

The information required to be disclosed in termsof the provisions of the SEBI (Employee StockOption Scheme and Employee Stock PurchaseScheme) Guidelines, 1999 is enclosed as perAnnexure ‘A’ to this report.

Particulars of employees

Particulars of employees, as required under Section217(2A) of the Companies Act, 1956, read with theCompanies (Particulars of Employees) Rules, 1975,as amended, form part of this report. However, inpursuance of Section 219(1)(b)(iv) of theCompanies Act, 1956, this report is being sent to allshareholders of the Company, excluding theaforesaid information and the said particulars aremade available at the Registered Office of theCompany. The members interested in obtainingsuch particulars may write to the CompanySecretary at the Registered Office of the Company.

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Conservation of energy, research anddevelopment, technology absorption, foreignexchange earnings and outgo

The information pertaining to conservation ofenergy, technology absorption, foreign exchangeearnings and outgo, as required under Section217(1)(e) of the Companies Act, 1956, read withthe Companies (Disclosure of particulars in thereport of the Board of Directors) Rules, 1988 is givenas per Annexure ‘B’ and forms part of the Directors’Report.

Fixed deposits

During the year under review, your Company hasnot accepted any deposit under Section 58A of theCompanies Act, 1956, read with Companies(Acceptance of Deposits) Rules, 1975.

Corporate governance

A report on Corporate Governance, along with acertificate from the Statutory Auditors and acertificate from the Managing Director and GroupCFO, have been included in the Annual Report,detailing the compliances of corporate governancenorms as enumerated in Clause 49 of the ListingAgreements with the stock exchanges.

Management discussion and analysis

A Management Discussion and Analysis Report hasbeen attached and forms part of the Directors’Report.

Directors’ responsibility statement

Your Directors state:

I. That in the preparation of the annual accounts,the applicable accounting standards have beenfollowed;

II. That we have selected such accounting policiesand applied them consistently and madejudgments and estimates that are reasonableand prudent so as to give a true and fair viewof the state of affairs of the Company at theend of the financial year 2005-2006 and of theprofit of the Company for that year;

III. That we have taken proper and sufficient carefor the maintenance of adequate accountingrecords in accordance with the provisions ofthe Companies Act, 1956 for safeguarding theassets of the Company and for preventing anddetecting fraud and other irregularities; and

IV. That we have prepared the annual accountson a going concern basis.

Conclusion

Your Company has outperformed the industry in achallenging year and continues to maintain itsleadership position. It has also been surpassing allinternational quality and cost benchmarks andcontinues to build shareholder value. Your Directorslook to the future with confidence.

Your Directors place on record their appreciationfor the overwhelming co-operation and assistancereceived from investors, customers, businessassociates, bankers, vendors, as well as regulatoryand government authorities. Your Directors alsothank the employees at all levels, who, through theirdedication, co-operation, support and smart work,have enabled the Company to achieve rapid growth.

For and on behalf of the Board of Directors

Sd/-Place: New Delhi Deepak PuriDate: 7 June, 2006 Chairman &

Managing Director

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Annexure-AINFORMATION REGARDING EMPLOYEE STOCK OPTION PLAN, 2004 (ESOP)

AND DIRECTORS’ STOCK OPTION PLAN, 2005 (DSOP)(AS ON 31ST MARCH, 2006)

Particulars ESOP-2004 DSOP-2005

1 Number of Stock Options granted 3,350,300 300,000

2 Pricing Formula (i) Normal allocation: - Rs.125 per Option or prevailing Market Price, whichever is higher. Rs.170 per Option or prevailing(ii) Special allocation: - 50% of the Options at Rs. 125 per Option or prevailing Market Market Price, whichever is higher.

Price, whichever is higher and the balance 50% of the Options at Rs. 170 per Optionor prevailing Market Price, whichever is higher.

3 Number of Options vested 484,825 Nil

4 Number of Options exercised Nil N.A.

5 Number of shares arising as a resultof exercise of option Nil Nil

6 Number of options lapsed 672,600 Nil

7 Variation of terms of options Nil Nil

8 Money realized by exercise of options Nil N.A.

9 Number of options in force 2,677,700 300,000

10 Employee-wise details of Options granted to:

(a) Senior managerial personnel; and a. Mr. Yogesh B. Mathur, Group CFO- 180,000.(b) Any other employee who receives a grant in b. Mr. Girish Baluja, COO - 125,000.

any one year of options amounting to 5% or c. Mr. Ravinder Khanna, CEO (Photo Voltaic) -100,000. Nilmore of options granted during that year.

11 Identified employees who were granted Optionsduring any one year, equal to or exceeding 1%of the issued capital (excluding outstandingwarrants and conversions) of the Companyat the time of grant; Nil Nil

12 Diluted Earnings Per Share (EPS) pursuant toissue of shares on exercise of option calculatedin accordance with AS 20 Rs. 0.42 per share N.A.

13 Method of calculation of employee compensation cost The Company has used intrinsic value method for calculating the employee compensation cost with respect to thestock options.

14 Difference between the employee compensation costso computed at serial number 13 above and theemployee compensation cost that shall have beenrecognized if it had used the fair value of options Nil Nil

15 The impact of this difference on profits & on EPSof the Company Nil Nil

16 Weighted-average exercise prices and weighted- a. Weighted average exercise price – Rs. 217.59. a. Weighted average Exerciseaverage fair values of options granted during the year Price- Rs. 228.30

b. Weighted average fair value of the Options- Rs. 92.59 b. Weighted average fair value ofthe Options-Rs. 105.00

17 Fair value of options based on Black-Scholes’Enhanced Model i.e. Enhanced FASB 123 Model

Grant Grant Grant Grant Grant Grant Grant Grant Date - 11/8/05Date- Date- Date- Date- Date- Date- Date-9/1/04* 29/11/04 27/1/05 24/6/05 17/8/05 27/10/05 24/1/06

Assumptions:-

a) Risk-free interest rate 4.21% 6.79% 6.55% 6.67% 6.74% 6.80% 6.77% 6.56% (for 5 years, source-(for 6 (for 4 (for 5 (for 5 (for 5 (for 5 (for 5 NSE/Reuters as on 11/8/05)years, years, years, years, years, years, years,source- source- source- source- source- source- source-Reuters NSE/ NSE/ NSE/ NSE/ NSE/ NSE/as on Reuters Reuters Reuters Reuters Reuters Reuters9/1/04) as on as on as on as on as on as on

29/11/04) 27/1/05) 23/6/05) 16/8/05) 27/10/05) 23/1/06)

b) Expected life 7 yrs. 7 yrs. 7 yrs. 7 yrs. 7 yrs. 7 yrs. 7 yrs 7 years

c) Exercise Multiple 1.25 x 1.25 x 1.25 x 1.25 x 1.25 x 1.25 x 1.25 x 1.25 x

d) Expected volatility 70.0% 70.0% 67.0% 62.03% 61.44% 60.76% 59.02% 61.46% (based on 5 years stock(based on (based on (based on (based on (based on (based on (based on data from NSE)5 years 5 years 5 years 5 years 5 years 5 years 5 yearsstock data stock data stock data stock data stock data stock data stock datafrom NSE) from NSE) from NSE) from NSE) from NSE) from NSE) from NSE)

Contd..

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e) Expected dividends 1.0% 0.85% 0.85% 0.85% 0.58% 0.58% 0.58% 0.58% (Weighted average(based on (based on (based on (based on (Weighted (Weighted (Weighted dividend yield for last threethe dividend simple simple simple average average average years)history for average average average dividend dividend dividendpast 3 of the of the of the yield for yield for field forfinancial dividend dividend dividend last last lastyears). history of history of history of three three three

past 4 past 4 past 4 financial years) years)financial financial financial years).years). years). years).

f) Price of the underlying share in marketat the time of option grant (in Rs.) 342.00 224.05 213.20 209.80 234.75 214.70 196.60 228.30

The Weighted Average of the Vesting Period in respect of the Options granted to the Directors was 2.5 yearsThe Weighted Average of the Vesting Period in respect of the Options granted to the employees were as follows:-

Grants Weighted Average of the Vesting Period

1st Grant on 9 January 2004 3 years

2nd Grant on 29 November 2004 2.5 years

3rd Grant on 27 January 2005 2.5 years

4th grant 24 June, 2005 2.5 years

5th Grant on 17 August, 2005 2.5 years

6th grant on 27 October, 2005 2.5 years

7th grant on 24 January, 2006 2.5 years

*Options subsequently cancelled.

Particulars ESOP-2004 DSOP-2005

ANNEXURE B

Information as per Section 217(1)(e) of theCompanies Act, 1956, read with the Companies(Disclosure of Particulars in the Report of Board ofDirectors) Rules, 1988 and forming part of theDirectors’ Report for the year ended 31 March, 2006.

A. Conservation of energy

Your Company’s energy requirements continued toincrease significantly as it commissioned newmanufacturing facilities and increased productionat existing facilities.

As an ongoing process, the Company undertakesvarious measures to save energy and reduce itsconsumption. During the financial year 2005-06,some of the measures undertaken by the Companyinclude:-

1) Installation of Variable Speed Drive AirCompressors to eliminate loading & unloadinglosses

2) Installing the heat exchangers in the powerplant to extract energy from the lubricating oilused in the engine.

3) Saving in lighting energy by synchronizing withdaily cycles.

4) Power savings in Air Handling Units by installingVariable Frequency Drive (VFD) systems

To undertake the above measures, the Companymade the following additional investments:

1) Air compressor- total investment of Rs. 2 Million

2) Lube oil circuitary and heat exchanger-investment of Rs. 0.12 Million

3) In lighting synchronization – investment ofRs. 0.3 Million

4) In Variable Frequency Drive in AHU –investment of Rs. 0.6 Million

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In the aggregate, your Company made aninvestment of approx. Rs.3.02 million.

As a result of extensive steps taken by the Companyto reduce the consumption of energy, the Companysaved 1200 KWH, which, on an annual basis, wouldresult in a saving of Rs 47.3 Million.

B. Technology absorption, adaptation andinnovation, research & development

TECHNOLOGY ABSORPTION, ADAPTATION ANDINNOVATION

As technology plays a bigger role in our ability tooffer a complete basket of products to ourCustomers, your Company has from time to time,entered into the acquisition of technology and theright to use technology belonging to other third partycompanies. During the year, a number ofagreements were completed to acquire technologybelonging to companies whose R&D efforts havebeen complementary to our technologydevelopment programs. This technology has beensuccessfully incorporated into some of theCompany’s products and an ongoing effort is beingmade to improve the utilization of this technologyand produce newer innovative products based onthis technology.

At the same time your Company is part of manyinternational forums and R&D initiatives that arededicated to the development of future formats likeHD DVD and BD. Such participative activities havesignificantly enhanced our ability to bring productsearly to market, and have also allowed us toleverage our early to market position to acquire newcustomers.

RESEARCH AND DEVELOPMENT

The specific areas in which R&D was carried outby your Company are as follows:

1. Development of BDRE (Rewritable) highdensity optical media format.

2. Development of patented BD-R L2H inorganicwrite once discs.

3. HD DVD Single layer and double layer media.

4. DVD+R 16X media.

5. Development of professional archival CD andDVD media.

6. Development of DVD+RW 8x media and CDR/DVD R LightScribe version 1.2.

7. In addition

(a) an advanced media lab was set-up for DVDand BD testing and development;

(b) a technology MoU was signed with theInstitute of Technology, Banaras HinduUniversity to jointly work in the area oforganic dye technology and the inorganicthin-film area.

Amount of expenditure:-

Capital expenditure of Rs 255.59 million andrecurring expenses of Rs 101.14 million wereincurred during the year towards R&D expenses,which is 2.1% of the total turnover of the Company.These expenses are part of expenses incurredunder various revenue or capital heads.

C. Foreign exchange earnings and outgo:

Total foreign exchange earned comprising of FOBvalue of exports, services, interest, insurance claimreceived and dividend received was Rs 14,094.74million, whereas total foreign exchange used(comprising of CIF value of imports, dividendremitted and other outgoings) was Rs 13,790.15million.

For and on behalf of the Boardof Directors

Sd/-Place: New Delhi Deepak PuriDate: 7 June, 2006 Chairman &

Managing Director

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1. COMPANY’S PHILOSOPHY ON CORPORATEGOVERNANCE

Moser Baer believes that “Corporate Governance”refers to the processes and structure by which thebusiness and affairs of the Company are directedand managed, in order to enhance long termshareholder value through enhancing corporateperformance and accountability, whilst taking intoaccount the interests of all stakeholders. Goodcorporate governance, therefore, embodies bothenterprise (performance) and accountability(conformance).

The Corporate Governance philosophy of theCompany is based on the following principles:

• Satisfaction of the spirit of the law through ethicalbusiness conduct.

• Transparency and a high degree of disclosurelevels.

• Truthful communication about how the Companyis run internally.

• A simple and transparent corporate structuredriven solely by the business needs.

• Strict compliance with Clause 49 of the ListingAgreement, as amended from time to time.

• Establishment of an efficient corporate structurefor the management of the Company’s affairs.

• Management is the trustee of the shareholders’capital and not the owner.

2. BOARD OF DIRECTORS

The present strength of the Board is 10. The Boardcomprises of three Executive Directors and sevenNon-Executive Directors. 5 Non-Executive Directorsof the Company are independent. The Non-Executive Directors bring independent judgment inthe Board’s deliberations and decisions.

Definition of ‘Independent Director’ as per Clause49 of the Listing Agreement

‘Independent Director’ shall mean a Non-ExecutiveDirector of the Company who:-

• apart from receiving Director’s remuneration,does not have any material pecuniaryrelationships or transactions with the company,its promoters, its Directors, its seniormanagement or its holding company, itssubsidiaries and associates which may affectindependence of the Director;

C o r p o r a t eC o r p o r a t eC o r p o r a t eC o r p o r a t eC o r p o r a t e G o v e r n a n c e R e p o r t G o v e r n a n c e R e p o r t G o v e r n a n c e R e p o r t G o v e r n a n c e R e p o r t G o v e r n a n c e R e p o r t

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• is not related to promoters or persons occupyingmanagement positions at the Board level or atone level below the Board;

• has not been an executive of the company inthe immediately preceding three financial years;

• is not a partner or an executive or was notpartner or an executive during the precedingthree years, of any of the following:

• the statutory audit firm or the internal auditfirm that is associated with the company, and

• the legal firm(s) and consulting firm(s) thathave a material association with thecompany.

• is not a material supplier, service provider orcustomer or a lessor or lessee of the company,which may affect independence of the director;and

• is not a substantial shareholder of the companyi.e. owning two percent or more of the block ofvoting shares.

Composition :-

Directors Category Equity Investors represented Number of Equity Sharesand Warrants held by thenon-executive Directors

Mr. Deepak Puri Promoter and Executive N.A. N.A.

Mr. Harnam D. Wahi Independent and N.A. 400 Equity SharesNon-Executive

Mr. Arun Bharat Ram Independent and N.A. NilNon-Executive

Mrs. Nita Puri Promoter and Executive N.A. N.A.

Mr. John Levack * Non-Executive Electra Partners Mauritius Limited. Nil

Mr. Rajesh Khanna * Non-Executive Bloom Investments Limited (BIL), NilEaling Investments Limited (EIL),Randall Investments Limited (RIL)and Woodgreen Investment Ltd (WIL).BIL, EIL, RIL and WIL are affiliatesof Warburg Pincus LLC.

Mr. Prakash Karnik Independent and N.A. NilNon-Executive

Mr. Bernard Gallus Independent and N.A. NilNon-Executive

Mr. Ratul Puri Promoter and Executive N.A. N.A.

Mr. Ajay Shah Independent and N.A. NilNon-Executive

* Mr. John Levack and Mr. Rajesh Khanna ceased to be independent Directors with effect from 1st January, 2006

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ATTENDANCE RECORD OF DIRECTORS

Directors Board meetings held Meetings attended Attended last AGMduring the year held on 3 August, 2005

In person Through AudioConferencing

Mr. Deepak Puri 7 7 — Yes

Mr. Harnam D. Wahi 7 6 — Yes

Mr. Arun Bharat Ram 7 3 — No

Mrs. Nita Puri 7 7 — No

Mr. John Levack 7 5 — No

Mr. Rajesh Khanna 7 5 1 No

Mr. Prakash Karnik 7 5 1 No

Mr. Bernard Gallus 7 3 — No

Mr. Ratul Puri 7 7 — No

Mr. Ajay Shah 7 5 1 No

Directors No. of other Directorships No. of Committee memberships (including MBIL’s Committees)(excluding foreign companies andprivate limited companies)

Status During Status Status as on 31.12.05 During the quarter 1.1.06 Status as onas on the quarter as on to 31.3.06 31.3.0631.12.05 1.1.06 to 31.3.06

31.3.06

Chairman Member Chairman Member Chairman Member

Mr. Deepak Puri 1 1 2 — 1 — — — 1Mr. Harnam D. Wahi 1 1 2 3 — 1 — 3 —Mr. Arun Bharat Ram 9 1 10 2 3 — 1 1 3Mrs. Nita Puri — — — — 1 — — — 1Mr. John Levack 1 1 2 — 3 — — — 1Mr. Rajesh Khanna 4 1 5 — 8 — 1 — 5Mr. Prakash Karnik — 1 1 — 3 — 1 — 3Mr. Bernard Gallus — 1 1 — 1 — 1 — 2Mr. Ratul Puri 1 1 2 — — — — — —Mr. Ajay Shah — — — — — — — — —

* Committee here means:

(a) Upto 31-12-05:- Audit Committee, Compensation Committee and Investors’ Grievance Committee.

(b) From1-1-06 to 31-3-06:- Audit Committee and Investors’ Grievance Committee.

The information as required under Annexure 1-A toClause 49 of the Listing Agreement is madeavailable to the Board. Adequate information iscirculated as part of the agenda papers to enablethe Board to take informed decisions.

The Company holds at least five Board meetings ina year, one in each quarter to review the financialresults and one to review the audited annual resultsof the Company.

The Board met seven times on the following datesduring the financial year 2005-2006 and the gapbetween two meetings did not exceed four months:1. 28 April, 20052. 24 June, 20053. 28 July, 20054. 26 October, 20055. 27 October, 20056. 25 January, 20067. 18 February, 2006

DIRECTORSHIP IN OTHER COMPANIES AND BOARD COMMITTEES *:

As per the requirements of the Listing Agreement, none of the Directors of the Board serve as members ofmore than 10 Committees or as Chairman of more than 5 Committees.

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3. BOARD COMMITTEES

Your Company has the following Board Committees:Audit Committee, Compensation Committee,Investors’ Grievance Committee, CorporateGovernance Committee, Capex Committee,Banking and Finance Committee and CorporateSocial Responsibility Committee and the guidelinesfor these Board Committees are set out below.

The Board is responsible for constituting, assigning,co-opting and fixing terms of service for theCommittee Members of various Committees anddelegates these powers to the Committees.Recommendations of the Committees are submittedto the Board of Directors for approval.

The frequency and agenda of meetings of each ofthese Committees is determined by the Chairmanof the Board/ Executive Director in consultation withthe Chairman of the concerned Committee. TheseCommittees meet as and when the need arises.

4. AUDIT COMMITTEE

Composition

Your Company has a qualified and independentAudit Committee, with Mr Harnam D. Wahi as theChairman. Other members comprise of Mr. PrakashKarnik, Mr. Rajesh Khanna and Mr. Bernard Gallus.The Company Secretary acts as the Secretary ofthe Committee. Mr. Ratul Puri and Mr. John Levackare the permanent invitees to the meetings of thisCommittee.

Mr. Bernard Gallus has been inducted as a memberof the Audit Committee at the Board Meeting heldon 25 January, 2006. Further, Mr. John Levackresigned from the membership of the AuditCommittee vide his letter dated 21 December, 2005and has been inducted as a permanent invitee atthe Board Meeting held on 25 January, 2006

Primary Objective

The primary objective of the Audit Committee is tomonitor and provide effective supervision of themanagement’s financial reporting process with aview to ensure accurate, timely and properdisclosures and transparency, integrity and qualityof financial reporting.

The Audit Committee has the power to do thefollowing:-

a) To investigate any activity within its terms ofreference.

b) To seek information from any employee.

c) To obtain outside legal or other professionaladvice.

d) To secure attendance of outsiders with relevantexpertise, if it considers necessary.

Role of the Committee

a) Oversight of the Company’s financial reportingprocess and the disclosure of its financialinformation to ensure that the financial statementis correct, sufficient and credible.

b) Recommending to the Board the appointment,re-appointment and, if required, the replacementor removal of the Statutory Auditor and thefixation of audit fee.

c) Approval of payment to Statutory Auditors forany other services rendered by the StatutoryAuditors.

d) Reviewing, with the management, the annualfinancial statements before submission to theBoard for approval, with particular reference to:

• Matters required to be included in theDirectors’ Responsibility Statement to beincluded in the Board’s report in terms ofclause (2AA) of section 217 of theCompanies Act, 1956.

• Changes, if any, in accounting policies andpractices and reasons for the same.

• Major accounting entries involving estimatesbased on exercise of judgment bymanagement.

• Significant adjustments made in the financialstatements arising out of audit findings.

• Compliance with listing and other legalrequirements relating to financial statements.

• Disclosure of any related party transactions.

• Qualifications in draft audit report.

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e) Reviewing with the management, the quarterlyfinancial statements before submission to theBoard for approval.

f) Reviewing, with the management, performanceof Statutory and Internal Auditors, adequacy ofthe internal control systems.

g) Reviewing the adequacy of internal auditfunction, if any, including the structure of theinternal audit department staffing and seniorityof the official heading the department, reportingstructure coverage and frequency of internalaudit.

h) Discussing with internal auditors any significantfindings and follow up thereon.

i) Reviewing the findings of any internalinvestigations by the internal auditors intomatters where there is suspected fraud orirregularity or a failure of internal control systemsof a material nature and reporting the matter tothe Board.

j) Discussing with the Statutory Auditors before theaudit commences about the nature and scopeof audit as well as have post-audit discussion toascertain any area of concern.

k) Looking into the reasons for substantial defaultsin the payment to the depositors, debentureholders, shareholders (in case of non-paymentof declared dividends) and creditors.

l) To review the functioning of the Whistle Blowermechanism, in case the same is existing.

m) Reviewing the company’s financial and riskmanagement policies.

n) Carrying out any other function as is mentionedin the terms of reference of the Audit Committee.

The Audit Committee has been authorized tomandatorily review the following information:

a) Management discussion and analysis offinancial condition and results of operations.

b) Statement of significant related partytransactions, submitted by management.

c) Management letters/letters of internal controlweaknesses issued by the Statutory Auditors.

d) Internal audit reports relating to internal controlweaknesses.

e) The appointment, removal and terms ofremuneration of the Chief Internal Auditor.

Meetings

During the year, the Committee met five times onthe following dates:

(i) 27 April, 2005(ii) 24 June, 2005(iii) 27 July, 2005(iv) 26 October, 2005(v) 25 January, 2006

Following are the attendance details of the membersat the Committee meetings:-

Members Committee Meetings attendedmeetings held In person Through Audioduring the year Conferencing

Mr. Harnam D. Wahi(Chairman) 5 5 —Mr. Prakash Karnik 5 4 —Mr. Rajesh Khanna 5 4 —Mr. John Levack* 5 3 —Mr. Bernard Gallus** 5 — —

* resigned w.e.f. 21 December, 2005

** appointed as member at the Board Meeting held on 25 January, 2006.

5. COMPENSATION COMMITTEE

Composition

Mr Harnam D. Wahi is the Chairman of theCompensation Committee. Other members of theCommittee comprise of Mr. Prakash Karnik, Mr.John Levack, Mr. Rajesh Khanna and Mr. BernardGallus. The Company Secretary acts as theSecretary of the Committee.

Mr. Bernard Gallus has been inducted as a memberof the Compensation Committee at the BoardMeeting held on 25 January, 2006

Terms of reference

a) The Compensation Committee discharges theBoard’s responsibilities relating to compensationof the Company’s Executive Directors.

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b) The Compensation Committee has the overallresponsibility for approving and evaluating theExecutive Directors’ compensation plans,policies and programmes of the Company.

c) The Compensation Committee administers theEmployees’ Stock Option Plan (ESOP) and theDirectors’ Stock Option Plan (DSOP) of theCompany.

Responsibilities and authorities of theCompensation Committee

a) The Compensation Committee shall review andapprove for the Executive Directors of theCompany:-

• The annual base salary,• Annual incentive bonus, if any,• Any other benefits, compensation or

arrangements.

b) The Compensation Committee shall evaluate,and if necessary, amend performanceparameters of the Executive Directors.

c) The Compensation Committee may makerecommendations to the Board in relation toincentive plans for the Executive Directors; and

d) Administer the ESOP and DSOP schemes ofthe Company.

Meetings

During the year, the Committee met five times onthe following dates:

(i) 27 April, 2005(ii) 24 June, 2005(iii) 27 July, 2005(iv) 27 October, 2005(v) 24 January, 2006

Following are the details regarding the Committeemeetings attended by the members:-Members Committee Meetings attended

meetings held In person Through Audioduring the year Conferencing

Mr. Harnam D. Wahi(Chairman) 5 5 —Mr. Prakash Karnik 5 3 —Mr. Rajesh Khanna 5 3 —Mr. John Levack 5 4 1Mr. Bernard Gallus* 5 — —

* appointed as member at the Board Meeting held on 25 January, 2006.

REMUNERATION POLICY

a) Executive Directors

The details of the remuneration paid and payableto Mr. Deepak Puri, Managing Director, Mrs. NitaPuri, Director and Mr. Ratul Puri, Executive Directorduring the year 2005-2006 are as follows:

Particulars Mr. Deepak Puri, Mrs. Nita Puri, Mr. Ratul Puri,Managing Director Director Executive Director

Salaries, allowancesand bonus 18,956,256 454,800 11,321,964PF Contribution 1,698,751 36,000 1,013,036Perquisites 166,593 106,800 166,600

TOTAL 20,821,600 597,600 12,501,600

Service Contracts, Notice Period, Severance Fees

Mr. Deepak Puri - Managing Director; Mrs. Nita Puri- Director and Mr. Ratul Puri - Executive Director

It is proposed to re-appoint Mr. Deepak Puri asManaging Director, Mrs. Nita Puri as a whole timeDirector and Mr. Ratul Puri as Executive Directorfor another period of five years with effect from 1September, 2006, 1 December, 2006 and 1 October,2006, respectively. A service contract will beexecuted with each of them after their appointmentat the Annual General Meeting. Each of them willbe entitled to resign from his/her office at any timeupon giving to the Company at least three calendarmonths’ written notice. No severance fees shall bepayable to either of them.

The amount of performance bonus paid to theManaging Director and the Executive Director isbased on the performance of the Company and ofthese Directors, as approved by the CompensationCommittee and considered by the Board.

b) Non-Executive Directors

The Company does not have any pecuniaryrelationship with any of its non-executive Directors.

At the Annual General Meeting held on 3 August,2005, the shareholders of the Company passed aresolution to offer the stock options to the Non-Executive Directors of the Company to themaximum of 450,000 equity shares. Further, theshareholders of the Company also passed aresolution to pay a commission for a period of 3years w.e.f. 1 April, 2005 to the maximum of 0.2%of the Profit after Tax of every financial year.However, the overall limit of commission payableto the non-executive Directors shall not exceed 1%

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of the of the Net Profits of the Company for thatyear calculated as per the provisions of theCompanies Act, 1956, without obtaining the priorapproval of the Central Government.

Subsequently, each of the following non-executiveDirectors accepted 50,000 stock options each:-

1. Mr. Harnam D. Wahi2. Mr. Arun Bharat Ram3. Mr. Prakash Karnik4. Mr. John Levack5. Mr. Bernard Gallus6. Mr. Ajay Shah

Mr. Rajesh Khanna, nominee Director of BIL, EIL,RIL and WIL did not accept 50,000 stock optionsoffered to him. He also does not charge any SittingFees for attending any meetings of the Board orCommittees thereof.

During the year 2005-06, the non-executiveDirectors were paid a sitting fees of Rs. 20,000 foreach Board Meeting and Rs.10,000 for eachCommittee meeting attended by them.

Service Contracts, Notice Period, Severance Fees

Mr. Harnam D. Wahi, Mr. Arun Bharat Ram, Mr.Bernard Gallus, Mr. Prakash Karnik and Mr. AjayShah are Directors liable to retire by rotation. Noseverance fees will become payable to them if theydesire not to continue as Directors of the Company.

Mr. John Levack (non-rotational nominee Directorand representative of Electra Partners MauritiusLtd.) - No severance fees will become payable tohim if Electra Partners Mauritius Ltd. withdraws hisnomination from the Directorship of the Company.

Mr. Rajesh Khanna (non-rotational nominee Directorand representative of BIL, EIL, RIL and WIL –affiliates of Warburg Pincus LLC) - No severancefees will become payable to him if BIL, EIL, RIL andWIL withdraw his nomination from the Directorshipof the Company.

6. INVESTORS’ GRIEVANCE COMMITTEE

Composition

The Chairman of the committee, Mr. Harnam D.Wahi, is a Non-Executive Independent Director.

Other members of the Committee comprise of Mr.Prakash Karnik, Mr. John Levack, Mr. Deepak Puri,Mr. Bernard Gallus and Mrs. Nita Puri. TheCompany Secretary acts as the Secretary of theCommittee.

Terms of reference

The Investors’ Grievance Committee looks intoredressal of shareholders’ and investors’ complaintslike transfer of shares, non-receipt of AnnualReports, non-receipt of dividend and allied matters.

Meetings

During the year, the committee met four times onthe following dates:

(i) 27 April, 2005(ii) 27 July, 2005(iii) 27 October, 2005(iv) 24 January, 2006

Following are the attendance details of the membersat the Committee meetings:-

Members Committee meetings No. of meetingsheld during the year attended

Mr. Harnam D. Wahi(Chairman) 4 4Mr. Prakash Karnik 4 2Mr. John Levack 4 4Mr. Deepak Puri 4 4Mrs. Nita Puri 4 4Mr. Bernard Gallus 4 2

Name and designation of the Compliance Officer:Mrs. Minni Katariya, Company Secretary.

The transfer / transmission of physical sharecertificates is approved by the Company Secretaryat least once in a fortnight on the basis ofrecommendations received from the Company’sRegistrars and Share Transfer Agent-M/s. MCS Limited.

The investors may lodge their grievances throughe-mail at shares@moserbaer.net or contact theCompliance Officer at the following numbers: -

Telephone numbers : 41635201-05, 26911570-74Fax numbers : 41635211/ 26911860

Information regarding complaints received from theshareholders during the period 1 April, 2005 to 31March, 2006:-

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Nature of the complaints Received Replied Pendingsatisfactorily

Relating to transfer,transmission, etc. 20 20 —Relating to dematerialization 3 3 —Relating to dividend 15 15 —Relating to bonus 40 40 —Relating to miscellaneousmatters 50 50 —

TOTAL 128 128 —

No share was pending for transfer as on 31 March, 2006.

7. CORPORATE GOVERNANCE COMMITTEE

Composition

The Chairman of the Committee, Mr. Rajesh Khanna,is a Non-Executive Director. Other members of theCommittee comprise of Mr. Prakash Karnik, Mr. JohnLevack, Mr. Deepak Puri and Mr. Bernard Gallus.The Company Secretary acts as the Secretary of theCommittee.

Terms of reference

a) To evaluate the current composition, organisationand governance of the Board and its Committees,as well as determine future requirements andmake recommendations in this regard to theBoard for its approval.

b) To recommend the appointment of such Directorson the Board who are of proven competence andhave adequate professional experience.

c) To oversee the evaluation of the Board.

d) To recommend to the Board, Director nomineesfor each Committee of the Board.

e) To coordinate and approve Board and Committeemeeting schedules.

f) To make regular reports to the Board on thematters listed herein and on such other mattersas may be referred to it by the Board from time totime.

g) To advise the Company on the best businesspractices being followed on corporate governanceissues world-wide and to implement those in theCompany appropriately.

h) To appoint any outside agency to report oncorporate governance matters.

i) To appoint consultants in this regard and to obtainand implement their advise, reports or opinions.

j) To recommend to the Board the governancestructure for management of affairs of theCompany.

k) To review and re-examine this charter annuallyand make recommendations to the Board for anyproposed changes.

l) To annually review and evaluate its performance.

Meetings

During the year, the committee met once on 27th April,2005.

Following are the attendance details of the membersat the Committee meetings:-

Members Committee meetings No. of meetingsheld during the year attended

Mr. Rajesh Khanna(Chairman) 1 —Mr. Prakash Karnik 1 1Mr. John Levack 1 1Mr. Deepak Puri 1 1Mr. Bernard Gallus 1 1

8. CAPEX COMMITTEE

Composition

The Chairman of the Committee, Mr. Harnam D.Wahi, is a Non-Executive Independent Director.Other members of the Committee comprise of Mr.Prakash Karnik, Mr. John Levack, Mr. Rajesh Khannaand Mr. Ratul Puri. The Company Secretary acts asthe Secretary of the Committee.

Terms of reference

The CAPEX Committee shall plan capital expenditurefor the expansion and diversification programme ofthe Company and lay down procedures for the same.The CAPEX Committee shall forward its decisionsto the Board of Directors for its review and ratification,on a quarterly basis.

The CAPEX Committee is constituted to approve allCAPEX exceeding

i) Rs. 5 Crores per purchase order/contract.ii) Rs. 5 Crores per item (including substantially

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similar items) across all purchase orders/contracts in a financial year.

The Board of Directors at their meeting held on25 January, 2006, expanded the scope of work ofCAPEX Committee to consider and approve thecapital expenditure of Moser Baer Photo VoltaicLimited, a 100% subsidiary of the Company as perthe limits mentioned above.

Meetings

During the year, the Committee met four times onthe following dates:

(i) 27 April, 2005(ii) 27 July, 2005(iii) 26 October, 2005(iv) 24 January, 2006

Following are the attendance details of the membersat the Committee meetings:

Members Committee meetings No. of meetingsheld during the year attended

Mr. Harnam D. Wahi(Chairman) 4 4Mr. Prakash Karnik 4 2Mr. John Levack 4 3Mr. Rajesh Khanna 4 2

Mr. Ratul Puri 4 4

9. BANKING AND FINANCE COMMITTEE

Composition

Mr. Deepak Puri is the Chairman of the Committee.Other members of the Committee comprise ofMr. Harnam D. Wahi, Mrs. Nita Puri and Mr. RatulPuri. The Company Secretary acts as the Secretaryof the Committee.

Terms of reference

The Banking and Finance Committee identifies thefund-based and non-fund based requirements of theCompany and approves the availing of these facilitiesfrom Banks and Financial Institutions, as and whenthe need arises, within the limits sanctioned by theBoard.

Meetings

During the year, the Committee met ten times on thefollowing dates:

a) 4 April, 2005b) 26 May, 2005c) 1 June, 2005d) 20 July, 2005e) 20 August, 2005f) 1 September, 2005g) 9 September, 2005h) 26 September, 2005i) 5 October, 2005j) 9 November, 2005

Following are the attendance details of the membersat the Committee meetings:-

Members Committee meetings No. of meetingsheld during the year attended

Mr. Deepak Puri(Chairman) 10 10Mr. Harnam D. Wahi 10 10Mrs. Nita Puri 10 10Mr. Ratul Puri 10 10

10. CORPORATE SOCIAL RESPONSIBILITYCOMMITTEE

Composition

The Board, at its meeting held on 24 June, 2005constituted Corporate Social ResponsibilityCommittee. Mr. Deepak Puri is the Chairman of thisCommittee. The other members of this Committeeare the following Directors: Mrs. Nita Puri, Mr. HarnamD Wahi, Mr. Rajesh Khanna and Mr. Bernard Gallus.

Scope of work and powers of the Committee are asfollows:

(a) To interpret the organizational CSR objectivesand set up specific goals to be achieved towardsthese objectives.

(b) To make periodical appraisal of CSR initiatives.

(c) To decide about resource allocation for each ofthe focus areas from its corpus.

(d) To prepare and place before the Board the CSRAnnual Report.

(e) To prepare and lay before the Board ‘the ActionPlan’ for the ensuing year.

(f) To set up a Trust, to contribute to the Trust suchfunds as may be required from the overall corpusfor CSR activity.

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Dates of closure oftrading window

Friday, 1 April, 2005 toFriday, 29 April, 2005

Friday, 17 June, 2005 toSaturday, 25 June, 2005

Monday, 4 July, 2005 toFriday, 29 July, 2005

Saturday, 1 October, 2005 toFriday, 28 October, 2005

Monday, 2 January, 2006 toFriday, 27 January, 2006

Monday, 3 April, 2006 toFriday, 28 April, 2006

(g) To appoint the Standing Committees and otherCommittees or sub-Committees, as may benecessary from time to time.

(h) To delegate any or all of its powers to theChairman of the Board of Directors, otherCommittees or Sub-Committees duly appointed.

(i) To select representatives/candidates fromamong the members of the Committee forparticipation in national and internationalseminars/conferences, workshops, study toursand training courses. The cost shall be borneby the Committee from the CSR budget.However, in case of the Chairman of the Boardof Directors, the cost shall be borne by theCompany.

Meetings

During the year, the Committee met twice on thefollowing dates: 28 July, 2005 and 27 October, 2005

Following are the attendance details of the membersat the Committee meetings:

Members Committee Meetings attendedmeetings held In person Through Audioduring the year Conferencing

Mr. Deepak Puri(Chairman) 2 — —Mrs. Nita Puri 2 2 —Mr. Harnam D. Wahi 2 2 —Mr. Bernard Gallus 2 1 1Mr. Rajesh Khanna 2 — 1

11. COMPLIANCE WITH SEBI (PROHIBITION OFINSIDER TRADING) REGULATIONS, 2002

In pursuance of these regulations, the Company hasformulated Standing Instructions for the Employeesand Directors for dealing in Shares of the Companyand these Standing Instructions were implementedwith effect from 9 September, 2002. Various formshave been designed to receive periodicalinformation from the employees and the Directorsof the Company, as required in terms of theseRegulations. Further, the Trading Window fordealing in shares of the Company has been closedfor the Directors and employees of the Companyas per the following details: -

Purpose of closure

Consideration of un-auditedfinancial results for the quarterended 31 March, 2005.

Consideration of audited annualaccounts for the year ended 31March, 2005.

Consideration of un-auditedfinancial results for the quarterended 30 June, 2005.

Consideration of un-auditedfinancial results for the quarterended 30 September, 2005.

Consideration of un-auditedfinancial results for the quarterended 31 December, 2005.

Consideration of un-auditedfinancial results for the quarterended 31 March, 2006.

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12. PARTICULARS OF ANNUAL GENERAL MEETINGS AND EXTRAORDINARY GENERAL MEETINGSHELD DURING THE LAST THREE YEARS

General Meeting Date Time Venue Special Resolutions passed

Extraordinary General Meeting 29/08/03 9.30 A.M. Centaur Hotel, (a) For getting the Equity Shares of the Company de-listedNew Delhi- 110 037 from the Stock Exchanges located at Delhi, Kolkata,

Ahmedabad and Kanpur.

(b) For alteration of the Article 6 of the Articles of Associationof the Company.

(c) For alteration of the Article 5(a) of the Articles ofAssociation of the Company.

(d) For shifting of statutory registers, records, documents,books of accounts, etc of the Company from itscorporate office to its registered office.

(e) For issue of Equity Shares under SEBI (ESOS andESPS) Guidelines, 1999 to the employees of theCompany.

(f) For issue of Equity Shares under SEBI (ESOS andESPS) Guidelines, 1999 to the employees of subsidiarycompanies of the Company.

Annual General Meeting 21/10/03 9.30 A.M. FICCI Golden Jubilee Auditorium, (a) For alteration of the Article 94 of the Articles ofFederation House, Tansen Marg, Association of the Company.New Delhi- 110 001 (b) For capitalisation of reserves of the Company for issuing

Bonus Shares.

Extraordinary General Meeting 05/02/04 10.00 A.M. Centaur Hotel, (a) For alteration of the Article 5(a) of the Articles ofNew Delhi- 110 037 Association of the Company.

(b) For increasing the number of Equity Shares to be issuedunder SEBI (ESOS and ESPS) Guidelines, 1999 to theemployees of the Company.

(c) For increasing the number of Equity Shares to be issuedunder SEBI (ESOS and ESPS) Guidelines, 1999 to theemployees of subsidiary Companies of the Company.

(d) For issue and allotment of ADRs/GDRs on a preferentialbasis to various Institutional Investors.

(e) For issue and allotment of Equity Shares on apreferential basis to Woodgreen Investment Ltd or anyother affiliates of Warburg Pincus LLC.

(f) For issue and allotment of Warrants convertible intoEquity Shares on a preferential basis to WoodgreenInvestment Ltd or any other affiliates of Warburg PincusLLC.

(g) For increasing the shareholding limit for FIIs in theCompany to 74%.

Annual General Meeting 26/07/04 9:30 A.M. FICCI Golden Jubilee Auditorium, (a) For appointment of M/s. Price Waterhouse,Federation House, Tansen Marg, Chartered Accountants as the Statutory Auditors inNew Delhi- 110 001 place of M/s. K. C. Khanna & Co., Chartered

Accountants-the retiring Statutory Auditors.

(b) For amendment of Articles of Association of theCompany.

Annual General Meeting 03/08/05 9.30 A.M. FICCI Golden Jubilee Auditorium, (a) For taking note of pricing formula in respect of theFederation House, Company’s Employees’ Stock Option Plan.Tansen Marg, (b) For approving the Directors’ Stock Option Plan andNew Delhi- 110 001 to offer a total of 450,000 stock options to the non-

executive Directors.

(c) For payment and distribution of commission on netprofits of the Company to all the non executive Directorsof the Company for the period of 3 years from 1 April,2005 at a maximum rate of 0.2% of the Profit After Taxof every financial year.

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During the financial year ended on 31 March, 2006,the Company passed a Special Resolution by PostalBallot to alter the Objects Clause of theMemorandum of Association of the Company toinclude the following clauses within the Clause-‘TheObjects incidental or ancillary to the attainment ofthe Main Objects’:-

1. To carry on the activity of establishing,developing, maintaining and operating SpecialEconomic Zones for non-conventional energy,including but not limited to all kinds of solarenergy cells, modules, systems (includingconcentrator type solar cells, modules andsystems) and equipments, or as a Free Tradeand Warehousing Zone, or for setting up unitsto carry out authorized operations or to developintegrated infrastructure for exports includingindustrial, commercial and social infrastructureand activities of a character similar oranalogous to the foregoing or any of them orconnected therewith.

2. To carry on the activity of establishing,developing, maintaining and operating SpecialEconomic Zones as a developer, co-developer,infrastructure facility provider or a serviceprovider, for manufacturing, trading, buying, orselling of two or more kinds of goods orproviding services in any sector, or goods orservices falling in two or more sectors or fortrading and warehousing or rendering of twoor more kinds of services in any sector orrendering of services falling in two or moresectors, or as a Free Trade and WarehousingZone.

Details of the voting pattern are as following:-

Number of valid postal ballot forms received 1,051

Votes in favour of the Resolution 2,97,18,167

Votes against the Resolution 702

Number of invalid postal ballot forms received 112

The Board of Directors appointed Mr. D.P. Gupta, aPracticing Company Secretary as the Scrutinizerfor conducting the postal ballot process in a fair andtransparent manner. The Board authorized Mr.Deepak Puri, Managing Director and Mrs. MinniKatariya, Company Secretary to supervise thepostal ballot process.

The following procedure was adopted for passingthe aforesaid resolution by postal ballot:-

1. A meeting of the Board of Directors of theCompany was held on 18 February, 2006 andthe matters relating to alteration of the ObjectsClause of the Memorandum of Association ofthe Company and the Notice of the SpecialResolution proposed to be passed by postalballot along with the explanatory statementthereof were duly approved.

2. The Postal Ballot Notice along with Postal BallotForm was dispatched to all the eligibleshareholders by UPC.

3. An intimation was filed in the office of Registrarof Companies, NCT of Delhi and Haryana inrespect of the aforesaid matters.

4. The Bombay Stock Exchange Limited andNational Stock Exchange of India Limited wereinformed about the decision of the Board ofDirectors to amend the Objects Clause of theMemorandum of Association of the Company.

5. An advertisement each was published in aleading English newspaper (circulating in thewhole of India) and in one Hindi newspaper(circulating in Delhi) intimating the dispatch ofthe Postal Ballot Notice and Forms.

6. All the postal ballot forms received under prepaidenvelopes were duly checked and taken noteof by the Scrutinizer, who then prepared hisreport and submitted the same and the recordsin his custody to the Managing Director, as perthe calendar of events.

7. The result of the postal ballot exercise wasintimated to the Bombay Stock ExchangeLimited and National Stock Exchange of IndiaLimited and it was also published in a leadingEnglish newspaper circulating in the whole ofIndia and in a Hindi newspaper circulating inDelhi.

8. A copy of the proceedings held on 29 March,2006 regarding the postal ballot conducted bythe Company was sent to the Bombay StockExchange Limited and National Stock Exchangeof India Limited.

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9. The Company then filed the required form in theoffice of Registrar of Companies, NCT of Delhiand Haryana evidencing passing of the SpecialResolution by postal ballot.

No resolution is proposed to be passed throughpostal ballot at the forthcoming Annual GeneralMeeting.

13. DISCLOSURES

a) Disclosures on materially significant relatedparty transactions, i.e. transactions of theCompany of material nature, with its Promoters,Directors or the management, their subsidiariesor relatives, etc. that may have potential conflictwith the interest of the Company at large - NIL.

b) Details of non-compliance by the Company,penalties, strictures imposed by Stock Exchangeor SEBI or any statutory authority, on any matterrelated to capital markets, during the last threeyears- NIL

14. MEANS OF COMMUNICATION

a) The Company ensures that its quarterly andannual financial results are sent to theconcerned Stock Exchanges immediately afterthe same have been considered and taken onrecord by the Board of Directors. The Companyalso ensures that its quarterly financial resultsare also published in the following newspapers

(i) The Economic Times.(ii) Business Standard(iii) The Times of India.(iv) Navbharat Times.(v) The Financial Times(vi) The Financial Express(vii) Hindustan Hindi(viii) Mumbai Mirror

b) The Company also ensures that these resultsare promptly and prominently displayed on theCompany’s website:- www.moserbaer.in

c) The Company also complies with SEBIregulations regarding filing of its financial resultsunder the EDIFAR system.

d) The Company’s official news releases are alsodisplayed on the Company’s web site.

e) Management Discussion and Analysis Report(MD & A) is a part of the Annual Report of theCompany for the year 2005-06.

f) The Company had organized a meeting with theanalysts on 28 October, 2005 at Mumbai.

15. CODE OF CONDUCT

As per Clause 49 of the listing agreement, theCompany has formulated a Code of Conduct eachfor the Directors and Senior Management and thesame have been placed on the website of theCompany. The declaration of the Managing Directorregarding the compliance with the Codes of Conductby Directors and the senior managerial personnelis given in the Annual Report.

16. GENERAL SHAREHOLDER INFORMATION

a) 23rd ANNUAL GENERAL MEETINGDate : Wednesday, 19 July, 2006Time : 9.30 A.MVenue : FICCI Golden Jubilee Auditorium,

Federation House, Tansen Marg,New Delhi- 110 001

b) FINANCIALCALENDAR : 1 April to 31 March

c) BOOK : Monday, 17 July, 2006 toCLOSURE Wednesday, 19 July, 2006.

d) DIVIDEND PAYMENT DATE: The dividend forthe year 2005-06 as recommended by theDirectors and if declared at the forthcomingAnnual General Meeting, will be paid on orbefore Thursday, 17 August, 2006 to thosemembers whose names appear:-

(i) as beneficial owners as at the closure of thebusiness hours on Wednesday, 19 July, 2006as per the list being furnished by NationalSecurities Depository Limited and CentralDepository Services (India) Limited inrespect of the shares held in electronic form;and

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(ii) as members in the Register of Members ofthe Company as at the closure of businesshours on Wednesday, 19 July, 2006.

e) LISTING

The Equity Shares of the Company are listed atthe following Stock Exchanges:

i) Bombay Stock Exchange Limited atPhiroze Jeejeebhoy Towers, Dalal Street,Mumbai- 400 001.

ii) National Stock Exchange of India Limited at‘Exchange Plaza’, Bandra - Kurla Complex,Bandra (East), Mumbai- 400 051.

iii) *The Calcutta Stock Exchange AssociationLimited at 7, Lyons Range, Kolkata-700 001

*The Company has made an application to TheCalcutta Stock Exchange for voluntary delisting.Application for the same is under process andapproval is pending.

The Company has paid the Annual Listing Fees forthe year 2006-07 to The Bombay Stock ExchangeLimited and to National Stock Exchange of IndiaLimited

f) STOCK CODE

The Stock Code at:i) Mumbai Stock Exchange is: 517140ii) National Stock Exchange is: MOSERBAERiii) Calcutta Stock Exchange is: 23164 and

10023164

g) i) TOP TEN SHAREHOLDERS AS ON 31MARCH, 2006

Sr. Names No. of shares PercentageNo.

1 International Finance Corporation 14,022,584 12.572 Woodgreen Investment Ltd. 9,950,000 8.923 Mrs. Sabena Puri 7,791,886 6.994 Electra Partners Mauritius Limited 6,640,230 5.955 Bloom Investments Limited 6,400,000 5.746 Ealing Investments Limited 6,400,000 5.747 Randall Investments Limited 6,400,000 5.748 Winterfall Limited 5,574,715 5.009 Deutsche Bank Trust Company Americas

(shares underlying Global DepositoryReceipts) 4,750,000 4.26

10 Mr. Deepak Puri 3,841,982 3.45

g) ii) SHAREHOLDERS HOLDING MORE THAN1% OF THE SHARE CAPITAL AS ON 31MARCH, 2006

Sr. Names No. of %No. shares

1 International Finance Corporation 14,022,584 12.572 Woodgreen Investment Ltd 9,950,000 8.923 Mrs. Sabena Puri 7,791,886 6.994 Electra Partners Mauritius Ltd. 6,640,230 5.955 Ealing Investments Ltd. 6,400,000 5.746 Randall Investments Ltd. 6,400,000 5.747 Bloom Investments Ltd. 6,400,000 5.748 Winterfall Ltd. 5,574,715 5.009 Deutsche Bank Trust Company Americas

(shares underlying GlobalDepository Receipts) 4,750,000 4.26

10 Mr. Deepak Puri 3,841,982 3.4511 Elm International Ltd. 3,756,570 3.3712 Mr. Ratul Puri 2,970,616 2.6613 FID Funds (Mauritius) Ltd. 2,829,770 2.5414 T Rowe Price International Inc

A/c T Rowe Price New Asia Fund 2,392,210 2.1515 HSBC Financial Services (Middle East) Ltd 2,381,771 2.1416 Small Cap World Fund Inc 2,350,000 2.1117 Mrs. Nita Puri 2,289,754 2.0518 M&G Investment Mgt. Ltd.

A/c The Prudential AssuranceCompany Limited 1,661,760 1.49

19 Deutsche Securities Mauritius Ltd. 1,632,836 1.4620 T Rowe Price International Inc

A/c T Rowe Price InternationalDiscovery Fund 1,589,378 1.43

21 HSBC Global Investment FundA/c HSBC Global InvestmentFund Mauritius Ltd. 1,560,000 1.40

g) STOCK PRICE DATA

Stock Market Data at BSE and NSE for theperiod 1 April, 2005 to 31 March, 2006

Monthly high and low quotations of sharestraded at The Bombay Stock Exchange Limited(BSE) and National Stock Exchange Ltd. (NSE)are as follows: -

MONTHS BSE NSEHighest Lowest Highest Lowest

April, 2005 238.75 204.40 239.00 205.00

May, 2005 225.00 205.00 225.05 192.80

June, 2005 238.15 207.00 237.60 207.10

July, 2005 225.90 201.20 226.50 189.00

August, 2005 254.00 211.10 254.50 205.00

September, 2005 234.90 195.00 235.00 191.10

October, 2005 223.20 186.90 223.00 176.55

November, 2005 219.60 192.00 220.00 192.00

December, 2005 209.20 193.00 209.00 194.10

January, 2006 215.00 195.00 214.40 193.30

February, 2006 244.90 207.00 244.90 202.00

March, 2006 237.00 203.40 232.00 217.20

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h) STOCK PERFORMANCE IN COMPARISONTO NSE INDEX (S&P CNX 500):-

i) DISTRIBUTION OF SHAREHOLDING AS ON31 MARCH, 2006

No. of Equity No. of %age No. of %ageShares held shareholders shares

Upto 5,000 25,557 91.59 3,126,783 2.80

5,001 to 10,000 1,481 5.31 1,160,790 1.04

10,001 to 20,000 511 1.83 794,572 0.71

20,001 to 30,000 114 0.41 295,365 0.26

30,001 to 40,000 56 0.20 208,273 0.19

40,001 to 50,000 36 0.13 171,697 0.15

50,001 to 100,000 57 0.20 403,658 0.36

100,001 & above 92 0.33 105,351,806 94.49

Total 27,904 100.00 111,512,944 100.00

j) REGISTRAR AND SHARE TRANSFER AGENT

MCS Limited is the Registrar & Share TransferAgent of the Company and its office is locatedat W-40, Okhla Industrial Area, Phase-II, NewDelhi – 110 020. Contact Person is Mr. AnirudhMitra. He can be contacted at the followingnumbers:-Phone numbers : 41406149/ 41406151/

41406152/ 41709885/41609386

Fax number : 41709881E-mail address : mcsdel@vsnl.com

k) SHARE TRANSFER SYSTEM

The application for transfer, transmission andtransposition of shares are received by theCompany at its registered office or at the officeof Registrar and Share Transfer Agent- M/s.MCS Limited.

Following is the procedure for transfer ofphysical share certificates:-

i) Entry of share certificate details andparticulars of the transferee in the computeron receipt thereof in the office.

ii) Scrutiny of transfer deeds.

iii) Tallying of transferor’s signature with thespecimen signature available with theRegistrar and Share Transfer Agent.

iv) Data entry of transfer deeds.

v) Preparation of objection memos and noticesin respect of un-transferred shares.

vi) Generation of checklist for valid transferdeeds.

vii) Correction of data in the computer systemon the basis of changes marked in thechecklist.

viii)Recording of transfer of shares in thecomputer system.

ix) Endorsement and signatures on the reverseside of the share certificates.

x) Generation of covering letters for thetransferred share certificates and dispatchof transferred share certificates, objectionmemos and notices by registered post.

Following is the procedure for dematerializationof shares–

i) Entry of the share certificates and thedematerialization request form in thecomputer.

ii) Scrutiny of the share certificates and thedematerialization request form in thecomputer.

iii) Tallying of signature of the shareholder onthe dematerialization request form with thespecimen signature available with theRegistrar and Share Transfer Agent.

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iv) Data entry of dematerialization requestforms.

v) Generation of checklist.

vi) Change of shares from physical todematerialized mode.

vii) Send confirmation to NSDL and CDS(I)L.

l) DEMATERIALISATION OF SHARES ANDLIQUIDITY

The Equity Shares of the Company are activelytraded at major Stock Exchanges indematerialized mode. As on 31 March 2006,82.77% of the shares were held indematerialized mode by 90.35% of the totalshareholders of the Company.

m) CONVERSION OF INSTRUMENTS

i) On 23 February, 2006, WoodgreenInvestment Ltd. converted its 47,500 GlobalDepository Receipts into 4,750,000 EquityShares, constituting 4.26% of theoutstanding paid-up Equity Share Capital ofthe Company. Consequently, theshareholding of Deutsche Bank TrustCompany Americas, the depositary, hascome down to 4,750,000 shares, constituting4.26% of the outstanding paid-up EquityShare Capital of the Company and theshareholding of Woodgreen Investment Ltd.has increased to 8.92%.

ii) On September 28, 2005, WoodgreenInvestment Ltd. (WIL) did not exercise theiroption to convert at the exercise price of Rs.336/- per share, 5,400,000 share warrantsissued to them on a preferential basis by theCompany pursuant to an agreement dated25 March, 2004. Rs. 181.44 Million upfrontmoney received against these shareswarrants has been forfeited.

n) PLANT LOCATIONS

i) 66, NSEZ, Noida, District- Gautam BudhNagar U.P.

ii) A-164, Sector 80 Noida- II, Distt. GautamBudh Nagar U.P.

iii) B-17, Sector – 9, Noida, District- GautamBudh Nagar U.P.

iv) 66, Udyog Vihar Industrial Area, GreaterNoida, U.P.

o) ADDRESS FOR CORRESPONDENCE

i) All correspondence regarding transfer anddematerialization of share certificates shouldbe addressed to our Registrar and ShareTransfer Agent - MCS Limited located at W-40, Okhla Industrial Area, Phase-II, NewDelhi – 110 020. Following are the contactnumbers:

Telephone numbers – 41406149/ 41406151/41406152/ 41709885/ 41609386Fax number – 41709881E-mail address – mcsdel@vsnl.com

ii) For any other information, the shareholdersmay contact the Company Secretary at theRegistered Office of the Company locatedat 43-A, Okhla Industrial Estate, New Delhi110020. Following are the contact nos.:-

Telephone numbers: 41635201-05,26911570-74Fax numbers: 41635211/26911860E-mail address: shares@moserbaer.net

18. OTHER INFORMATION

i) In terms of the provisions of Section 205 Cof the Companies Act, 1956, unclaimedequity dividend for the year 1995-96, 1996-97 and 1997-98 has been transferred to theInvestor Education and Protection Fund.

ii) The Company will transfer the amountremaining unpaid in its dividend accountfor the year 1998-99 to the InvestorEducation and Protection Fund by Saturday,16 December, 2006. Those members whohave not yet encashed their dividendwarrants for the said year may refer thematter along with relevant details to theCompany Secretary at the Registered Officeof the Company located at 43-A, OkhlaIndustrial Estate, New Delhi-110020 latestby Tuesday, 31 October, 2006 to claim theirunpaid dividend.

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iii) As on 31 March, 2006, 47,500 GlobalDepositary Receipts held by WoodgreenInvestment Limited, were outstanding forconversion into an equal number of equityshares. These Global Depositary Receiptsmay be converted into Equity shares at anytime by Woodgreen Investment Limited.Further, the conversion thereof will not haveany impact on the subscribed and paid upcapital of the Company because an equalnumber of Equity Shares are held by thedepository-Deutsche Bank Trust CompanyAmericas.

19. ADOPTION OF NEW CORPORATEGOVERNANCE CLAUSE

SEBI had issued a new corporate governanceclause vide its circular number SEBI/CFD/DIL/CG/1/2004/12/10 dated 29 October, 2004. Thecompanies were required to comply with thesame by 31 December, 2005. Your Company hascomplied with all the mandatory clauses of clause49.

Compliance with mandatory and non-mandatorylist of items:-

Your Company ensures that it complies with allthe mandatory list of items mentioned in thecorporate governance clause. It will endeavor, infuture, to comply with the following non-mandatory list of items provided in the corporategovernance clause; wherever applicable

1. The Board

As the Company does not have a Non-Executive Chairman, the requirement thatNon-Executive Chairman may be entitled toa Chairman’s office at the Company’sexpense and also be allowed reimbursementof expenses incurred in performance of hisduties is not applicable to the Companybecause the Company has an ExecutiveChairman.

2. Remuneration Committee.

The Company’s Remuneration Committee isfunctioning according to theserecommendations. The Chairman of theremuneration committee was present at theprevious Annual General Meeting to answerthe shareholders’ queries.

3. Shareholders Rights

The Company publishes its quarterly resultsin the leading newspapers and regularlyuploads the results at the EDIFAR of SEBI.Further, it always ensures to regularly updatethe financial statements and key events onits website. However, the Company does notsend the declaration of the half yearly financialperformance or a summary of significantevents to each shareholder of the Company.

4. Audit Qualifications

The Company has a proven track record ofunqualified financial statements.

5. Training of Board Members

The Company endeavors to organize trainingprogramme for its Board members

6. Mechanism for evaluating Non-ExecutiveBoard members.

The performance evaluation of Non-ExecutiveDirectors will be done in the due course oftime.

7. Whistle Blower Policy:

The Company has formulated a code ofconduct for its Directors and seniormanagerial personnel which allows them toreport any matter relating to unethical conductor conflict of interest to their immediatesupervisor. However, the Company does nothave any formal whistle blower policy but theemployees are free to report any matterrelating to misconduct to their superiors.

Date: 29.05.2006

Compliance with the Code of EthicsThis is to certify that, to the best of my knowledgeand belief, for the financial year ended on31 March, 2006, all Board members and SeniorManagement Personnel have affirmed compliancewith the code of ethics for Directors and SeniorManagement, respectively.

Sd/-Deepak PuriManaging Director

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We, Deepak Puri, Managing Director and YogeshMathur, Group CFO of Moser Baer India Limitedcertify to the Board that:

(a) We have reviewed the financial statements andthe cash flow statement for the financial yearended on 31 March, 2006, and that to the bestof our knowledge and belief:

(i) these statement do not contain anymaterially untrue statement or omit anymaterial fact or contain statements thatmight be misleading;

(ii) these statements together present atrue and fair view of the Company’s affairsand are in compliance with existingaccounting standards, applicable laws andregulations.

(b) There are, to the best of our knowledge andbelief, no transactions entered into by theCompany during the year which are fraudulent,illegal or violative of the Company’s code ofconduct.

(c) We accept responsibility for establishing andmaintaining internal controls for financialreporting and we have evaluated theeffectiveness of internal control systems of theCompany pertaining to financial reporting andwe have disclosed to the auditors and the AuditCommittee, deficiencies in the design oroperation of such internal controls, if any, ofwhich they are aware and the steps we havetaken or propose to take to rectify thesedeficiencies.

(d) We have indicated to the auditors and the Auditcommittee:-

(i) significant changes, if any, in internalcontrols over financial reporting during theyear:

During the financial year ended on31 March, 2006, there were no significantchanges in internal control over financialreporting.

(ii) significant changes, if any, in accountingpolicies during the year and that the samehave been disclosed in the notes to thefinancial statements:

During the financial year ended on31 March, 2006, there were no significantchanges in accounting policies.

(iii) instances of significant fraud of which wehave become aware and the involvementtherein, if any, of the management or anemployee having a significant role in theCompany’s internal control system overfinancial reporting.

During the financial year ended on31 March, 2006, there were no instances ofthe above nature.

Sd/- Sd/-Deepak Puri Yogesh Mathur

Managing Director Group CFO

Date: 7 June, 2006Place: New Delhi

Managing Director and Group Chief Financial Officer Certification

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To the Members of Moser Baer India Limited

We have examined the compliance of conditions ofCorporate Governance by Moser Baer India Limited,for the year ended March 31, 2006, as stipulated inClause 49 of the Listing Agreement(s) of the saidCompany with stock exchange(s) in India.

The compliance of conditions of CorporateGovernance is the responsibility of the Company’smanagement. Our examination was carried out inaccordance with the Guidance Note on Certificationof Corporate Governance (as stipulated in Clause49 of the Listing Agreement), issued by the Instituteof Chartered Accountants of India and was limitedto procedures and implementation thereof, adoptedby the Company for ensuring the compliance of theconditions of Corporate Governance. It is neitheran audit nor an expression of opinion on the financialstatements of the Company.

Auditors’ Certificate regarding compliance of conditions of Corporate Governance

In our opinion and to the best of our informationand according to the explanations given to us, wecertify that the Company has complied with theconditions of Corporate Governance as stipulatedin the above mentioned Listing Agreement(s).

We state that such compliance is neither anassurance as to the future viability of the Companynor the efficiency or effectiveness with which themanagement has conducted the affairs of theCompany.

Anuradha TuliPartnerMembership Number F 85611For and on behalf ofPrice WaterhouseChartered Accountants

New DelhiJune 7, 2006

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1. We have audited the attached Balance Sheet of Moser Baer India Limited, as at March 31, 2006, and therelated Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto,which we have signed under reference to this report. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on these financial statementsbased on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. ThoseStandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.

3. As required by the Companies (Auditor’s Report) Order, 2003, as amended by the Companies (Auditor’sReport) (Amendment) Order, 2004, issued by the Central Government of India in terms of sub-section(4A) of Section 227 of ‘The Companies Act, 1956’ of India (the ‘Act’) and on the basis of such checks of thebooks and records of the Company as we considered appropriate and according to the information andexplanations given to us, we further report that:

(i) (a) The Company is maintaining proper records showing full particulars including quantitativedetails and situation of fixed assets.

(b) The fixed assets are physically verified by the management according to a phased programmedesigned to cover all the items over a period of three years, which in our opinion, is reasonablehaving regard to the size of the Company and the nature of its assets. Pursuant to theprogramme, a portion of the fixed assets has been physically verified by the managementduring the year and no material discrepancies between the book records and the physicalinventory have been noticed.

(c) In our opinion and according to the information and explanations given to us, a substantialpart of fixed assets has not been disposed of by the Company during the year.

(ii) (a) The inventory (excluding stocks with third parties) has been physically verified by themanagement during the year. In respect of inventory lying with third parties, these havesubstantially been confirmed by them. In our opinion, the frequency of verification isreasonable.

(b) In our opinion, the procedures of physical verification of inventory followed by the managementare reasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

Auditors’ Report to the members of Moser Baer India Limited

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(c) On the basis of our examination of the inventory records, in our opinion, the company ismaintaining proper records of inventory. The discrepancies noticed on physical verificationof inventory as compared to book records were not material.

(iii) The Company has not taken/granted any loans, secured or unsecured, from/to companies,firms or other parties covered in the register maintained under Section 301 of the Act. As theCompany has not taken/granted any loans, secured or unsecured, from/to companies, firmsor other parties covered in the register maintained under Section 301 of the Act, clauses(iii)(b), (iii)(c), (iii)(d), (iii)(f) and (iii)(g) of the paragraph 4 of the Companies (Auditor’s Report)Order, 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004are not applicable to the Company for the current year.

(iv) In our opinion and according to the information and explanations given to us, having regardto the explanation that certain items purchased are of special nature for which suitablealternative sources do not exist for obtaining comparative quotations, there is an adequateinternal control system commensurate with the size of the Company and the nature of itsbusiness for the purchase of inventory, fixed assets and for the sale of goods and services.Further, on the basis of our examination of the books and records of the Company, andaccording to the information and explanations given to us, we have neither come across norhave been informed of any continuing failure to correct major weaknesses in the aforesaidinternal control system.

(v) (a) In our opinion and according to the information and explanations given to us, there are nocontracts or arrangements referred to in Section 301 of the Act that need to be entered in theregister required to be maintained under that section.

(b) As there are no contracts or arrangements referred to in Section 301 of the Act that need tobe entered in the register required to be maintained under that section, clause (v)(b) of theparagraph 4 of the Companies (Auditor’s Report) Order, 2003, as amended by the Companies(Auditor’s Report) (Amendment) Order, 2004 is not applicable to the Company for the currentyear.

(vi) The Company has not accepted any deposits from the public within the meaning of Sections58A and 58AA or any other relevant provisions of the Act and the rules framed there under.

(vii) In our opinion, the Company has an internal audit system commensurate with its size andnature of its business.

(viii) The Central Government of India has not prescribed the maintenance of cost records underclause (d) of sub-section (1) of Section 209 of the Act for any of the products of the Company.

(ix) (a) According to the information and explanations given to us and the records of the Companyexamined by us, in our opinion, the Company is regular in depositing undisputed statutorydues including investor education and protection fund, sales-tax, wealth tax, custom duty,excise duty, cess and other material statutory dues as applicable, and is generally regular indepositing the undisputed statutory dues including provident fund, employees’ state insurance,income tax and service tax with the appropriate authorities.

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Note: The above details exclude Departmental Appeals to higher authorities as there is no stay on the order oflower authority favouring the Company and the amount is not ascertainable.

Name of the statute Nature of dues Amount (Rs.) Period to which Forum wherethe amount the dispute

relates is pending

Entry Tax Act Entry tax imposed on purchase 106,059,645 1999 -01 Supreme Court of Indiaof capital goods

Entry tax imposed on purchase 2,185,000 2004-05 High Court, Lucknowof diesel and cement

Central Excise Act, 1944 Customs duty levied on import of 2,761,520 2002-04 Customs, Excise andand Customs Act, 1962 aluminium sheets toughened Service Tax Appellate

glass, steel doors etc. Tribunal

Service Tax Service tax levied on services 824,004 2000-02 Commissioner (Appeals),provided by foreign supplier Customs & Central Excise,

Noida

58,640,712 2000-02 Commissioner, Customs &Central Excise, Noida

5,440,788 1999-00 Deputy Commissioner,Customs & Central Excise,Noida

Income Tax Demand U/s 143(3) of the 105,218,410 A.Y. 2003-04 Commissioner of IncomeIncome Tax Act, 1961 Tax (Appeals)

(b) According to the information and explanations given to us and the records of the Companyexamined by us, the particulars of dues of income-tax, sales-tax, wealth tax, service tax,customs duty, excise duty and cess as at March 31, 2006 which have not been deposited onaccount of a dispute, are as follows -

(x) The Company has no accumulated losses as at March 31, 2006 and it has not incurred anycash losses in the financial year ended on that date or in the immediately preceding financialyear.

(xi) According to the records of the Company examined by us and the information and explanationgiven to us, the Company has not defaulted in repayment of dues to any financial institutionor bank or debenture holders as at the balance sheet date.

(xii) The Company has not granted any loans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

(xiii) The provisions of any special statute applicable to chit fund/nidhi/mutual benefit fund/societiesare not applicable to the Company.

(xiv) In our opinion, the Company is not a dealer or trader in shares, securities, debentures andother investments.

(xv) In our opinion and according to the information and explanations given to us, the terms andconditions on which the company has given guarantee for loans taken by others from banksare not prejudicial to the interest of the company.

(xvi) In our opinion, and according to the information and explanations given to us, on an overallbasis, the term loans have been applied for the purposes for which they were obtained.

(xvii) On the basis of an overall examination of the balance sheet of the Company, in our opinionand according to the information and explanations given to us, there are no funds raised ona short-term basis which have been used for long-term investment.

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(xviii) The Company has not made any preferential allotment of shares to parties and companiescovered in the register maintained under Section 301 of the Act during the year.

(xix) As the Company has not issued any debentures during the year and no debentures areoutstanding as at the year end, clause (xix) of the paragraph 4 of the Companies (Auditor’sReport) Order, 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order,2004 is not applicable to the Company for the current year.

(xx) The Company has not raised any money by public issues during the year.

(xxi) During the course of our examination of the books and records of the company, carried out inaccordance with the generally accepted auditing practices in India, and according to theinformation and explanations given to us, we have neither come across any instance of fraudon or by the company, noticed or reported during the year, nor have we been informed ofsuch case by the management.

4. Further to our comments in paragraph 3 above, we report that:

(a) We have obtained all the information and explanations, which to the best of our knowledge and beliefwere necessary for the purposes of our audit;

(b) In our opinion, proper books of account as required by law have been kept by the Company so far asappears from our examination of those books;

(c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are inagreement with the books of account;

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by thisreport comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act;

(e) On the basis of written representations received from the directors, and taken on record by the Boardof Directors, none of the directors is disqualified as on March 31, 2006 from being appointed as adirector in terms of clause (g) of sub-section (1) of Section 274 of the Act;

(f) In our opinion and to the best of our information and according to the explanations given to us, thesaid financial statements together with the notes thereon and attached thereto give in the prescribedmanner the information required by the Act and give a true and fair view in conformity with the accountingprinciples generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2006

(ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Anuradha TuliPartnerMembership Number F 85611For and on behalf of

New Delhi PRICE WATERHOUSEJune 7, 2006 Chartered Accountants

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MOSER BAER INDIA LIMITEDBALANCE SHEET AS AT MARCH 31, 2006

Schedule As at 31.03.2006 As at 31.03.2005Rs. Rs.

SOURCES OF FUNDS:

SHAREHOLDERS’ FUNDS:Capital 1 1,115,129,440 1,115,129,440Share Warrants - 181,440,000(Refer Note 15 of Schedule 20- Part B)Reserves and Surplus 2 18,933,398,325 18,832,449,804

20,048,527,765 20,129,019,244LOAN FUNDS:Secured Loans 3 16,465,401,035 16,037,934,262Unsecured Loans 4 89,240,000 168,278,740

Deferred Tax Liability (Net) - 14,045,000(Refer Note 7 of Schedule 20- PartB)TOTAL 36,603,168,800 36,349,277,246

APPLICATION OF FUNDS:

FIXED ASSETS: 5Gross Block 34,936,740,065 31,919,622,736Less: Depreciation 10,617,357,936 7,447,934,031Net Block 24,319,382,129 24,471,688,705Capital Work-in-progress 5 1,279,446,637 418,357,109

25,598,828,766 24,890,045,814

INVESTMENTS 6 879,474,170 2,075,173,709

CURRENT ASSETS, LOANSAND ADVANCES:Inventories 7 4,469,864,241 3,435,355,685Sundry Debtors 8 3,798,874,698 3,315,436,156Cash and Bank 9 2,837,200,891 4,589,941,611Other Current Assets 10 171,419,324 195,499,634Loans and Advances 11 1,490,206,189 600,909,056

12,767,565,343 12,137,142,142

Less: CURRENT LIABILITIESAND PROVISIONS: 12Current Liabilities 2,370,734,903 2,508,962,252Provisions 271,964,576 244,122,167

2,642,699,479 2,753,084,419Net Current Assets 10,124,865,864 9,384,057,723

TOTAL 36,603,168,800 36,349,277,246

ACCOUNTING POLICIES AND NOTES 20TO ACCOUNTS

This is the Balance Sheet referred to in our The schedules referred to above form anreport of even date. integral part of the Balance Sheet.

By order of the Boardfor and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Harnam D. Wahi Minni KatariyaPartner Chairman and Director Company SecretaryMembership Number-F-85611 Managing DirectorFor and on behalf ofPRICE WATERHOUSEChartered Accountants

Yogesh Mathur Karandeep SinghGroup CFO Vice President -

Place: New Delhi Financial Planning andDate: June 07, 2006 Control

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MOSER BAER INDIA LIMITEDPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Schedule Year ended 31.03.2006 Year ended 31.03.2005Rs. Rs.

INCOME:Gross Sales 17,319,141,334 13,528,572,918Less: Excise Duty 13 354,905,432 404,450,114Less: Countervailing duty 323,033,660 320,089,896

16,641,202,242 12,804,032,908Other Income 14 606,874,185 674,884,214Increase in stock ofFinished Goods/Work in Progress 15 550,083,960 869,081,448

17,798,160,387 14,347,998,570EXPENDITURE:Purchase of Finished Goods 11,465,411 -Raw Materials and Components Consumed 7,862,238,001 5,325,164,241Packing Material Consumed 1,903,880,519 1,858,046,484Stores, Spares and Tools Consumed 632,020,268 560,009,428Personnel Expenses 16 1,035,857,587 725,988,445Administration & Other Expenses 17 2,216,679,301 1,962,963,863Interest & Finance Charges 18 935,497,197 736,245,568Depreciation 19 3,167,598,400 2,820,504,533

17,765,236,684 13,988,922,562

Profit before Tax and Prior Period Items 32,923,703 359,076,008Prior Period (Income) / Expense (Net) (6,596,259) 56,687,369(Refer Note 6 of Schedule 20-PartB)Profit before Tax and after Prior Period Items 39,519,962 302,388,639

Tax Expense:Current Tax [net of provision written back inrespect of earlier years of Rs. 7,010,518(Previous year Rs. Nil) and includingWealth Tax Rs 79,530 (Previous Year Rs. 174,982)] (6,334,263) 26,256,277Deferred Tax (Refer Note 7 of Schedule 20-PartB) (14,045,000) (331,099,000)Fringe Benefit Tax 13,238,070 -Net Profit after Tax 46,661,155 607,231,362Add:- Profit carried forward from last year 480,078,728 -Profit available for appropriation 526,739,883 607,231,362

APPROPRIATIONS:Proposed Dividend: -on Equity Shares 111,512,944 111,512,944Corporate Tax on Proposed Dividend 15,639,690 15,639,690Balance carried to Balance Sheet 399,587,249 480,078,728Total 526,739,883 607,231,362

Earnings Per Share (Face Value of Rs. 10 each)Basic and Diluted: 0.42 5.45(Refer Note 10 of Schedule 20-Part B)

ACCOUNTING POLICIES AND NOTES 20TO ACCOUNTSThis is the Profit and Loss Account referred to in our The schedules referred to above form anreport of even date. integral part of the Profit and Loss Account.

By order of the Boardfor and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Harnam D. Wahi Minni KatariyaPartner Chairman and Director Company SecretaryMembership Number-F-85611 Managing DirectorFor and on behalf ofPRICE WATERHOUSEChartered Accountants

Yogesh Mathur Karandeep SinghGroup CFO Vice President -

Place: New Delhi Financial Planning andDate: June 07, 2006 Control

Moser 70-92 COL.p65 7/6/2006, 7:46 PM71

72

MOSER BAER INDIA LIMITEDCASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006

Year ended 31.03.2006 Year ended 31.03.2005Rs. Rs.

Cash flow from operating activities:Net profit before tax but after prior period items 39,519,962 302,388,639

Adjustments for:Depreciation 3,167,598,400 2,820,504,533Interest Expense 874,310,935 665,763,931Interest Income (187,012,440) (279,964,145)Income from Investment - Dividends (62,434,244) (49,593,596)Lease Rent - Finance Lease 28,580 268,411(Profit)/Loss on Fixed Assets sold (70,000) 17,942(Profit)/Loss on sale of Investments (417,759) (3,500,381)Debts / Advances Written off 698,988 23,189,990Liability no longer required written back (13,753,857) (100,439,736)Provision for Gratuity & Leave Encashment 26,894,220 8,073,704Stock written off 23,877 5,114,866Provision for diminution in value of Investments - 4,268Unrealised foreign exchange (gain) /loss (83,316,513) (134,830,455)Prior Period Expenses/(Income) (Net) (6,596,259) 56,687,369

Operating profit before working capital changes 3,755,473,890 3,313,685,340

Adjustments for changes in working capital :(Increase)/Decrease in Sundry Debtors (507,291,203) (155,559,904)(Increase)/Decrease in Other Receivables (925,440,183) 108,617,848(Increase)/Decrease in Inventories (1,034,532,433) (1,455,494,127)Increase/(Decrease) in Trade and Other Payables 540,825,538 (667,104,060)

Cash generated from operations 1,829,035,609 1,144,145,097

Taxes (Paid) / Received (Net of TDS) (4,104,721) (59,479,104)Prior Period (Expenses)/Income (Net) 6,596,259 (56,687,369)

Net cash from operating activities 1,831,527,147 1,027,978,624

Cash flow from Investing activities:

Purchase of fixed assets (4,565,155,663) (3,525,638,390)Proceeds from Sale of fixed assets 70,000 1,369,697Proceeds from Sale of Investments 3,807,414,363 4,053,194,253Purchase of investments (2,280,548,910) (5,576,145,834)Investment in Subsidiary companies (330,748,155) -Interest Received 224,169,621 232,805,997Dividend Received 62,434,244 49,593,596

Net cash used in investing activities (3,082,364,500) (4,764,820,681)

Contd...

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Cash flow from financing activities:

Proceeds from long term borrowingsReceipts, excludes Gain on account of exchangefluctuation of Rs.179,853,336 2,812,809,033 2,943,540,490(Previous year (Loss) Rs. 305,229,483)on reinstatement of foreign currency loansPayments (2,883,012,252) (2,921,176,880)Proceeds from short term borrowings (Net) 582,673,696 1,291,078,304Interest on Finance Lease (28,580) (268,411)Interest Paid (886,831,220) (716,247,305)Dividend Paid (111,874,354) (167,421,803)Dividend Tax Paid (15,639,690) (21,431,394)Net cash used in financing activities (501,903,367) 408,073,001

Net Increase/(Decrease) in Cash & Cash Equivalents (1,752,740,720) (3,328,769,056)Cash and cash equivalents at beginning of the year 4,589,941,611 7,918,710,667Cash and cash equivalents at end of the year 2,837,200,891 4,589,941,611

Cash and cash equivalents compriseCash, Cheques & Drafts (in hand) and Remittances in transit 10,570,859 79,523,373Fixed Deposits 2,707,682,109 4,315,915,078Balance with Scheduled Banks 118,947,923 194,503,160

Notes :1. The above Cash flow statement has been prepared under the indirect method set out in AS-3 issued by the Institute of Chartered

Accountants of India.2. Figures in brackets indicate cash outgo.3. Cash and cash equivalents includes Rs. 508,575,698 (Previous Year Rs.688,548,853) which are not available for use by the

Company. (Refer schedule 9 in the accounts)

This is the Cash Flow Statement referred to in our By order of the Boardreport of even date. for and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Harnam D. Wahi Minni KatariyaPartner Chairman and Director Company SecretaryMembership Number-F-85611 Managing DirectorFor and on behalf ofPRICE WATERHOUSEChartered Accountants

Yogesh Mathur Karandeep SinghGroup CFO Vice President -

Place: New Delhi Financial Planning andDate: June 07, 2006 Control

MOSER BAER INDIA LIMITEDCASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006

Year ended 31.03.2006 Year ended 31.03.2005Rs. Rs.

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MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006 As at 31.03.2005Rs. Rs.

SCHEDULE 1 - CAPITAL:

Authorised:142,500,000 (Previous Year 142,500,000) Equity Shares of Rs.10 each 1,425,000,000 1,425,000,000

750,000 (Previous Year 750,000) Preference Shares of Rs.100 each 75,000,000 75,000,000

1,500,000,000 1,500,000,000Issued, Subscribed and Paid-up:111,512,944 (Previous year 111,512,944)Equity Shares of Rs.10 each fully paid 1,115,129,440 1,115,129,440

TOTAL 1,115,129,440 1,115,129,440

SCHEDULE 2 - RESERVES AND SURPLUS:

Capital Reserve:Share Warrants Forfeited (Refer Note 15 of Schedule 20-Part B) 181,440,000 -State Capital Investment Subsidy - 1,000,000Less: Transferred to General Reserve - 1,000,000

181,440,000 -

Share Premium Account:

As per last Balance Sheet 8,891,620,004 8,891,620,004

Profit and Loss Account Balance 399,587,249 480,078,728

General Reserve:As per last Balance Sheet 9,460,751,072 9,459,751,072Add: State Capital Investment Subsidy transferred - 1,000,000

9,460,751,072 9,460,751,072

TOTAL 18,933,398,325 18,832,449,804

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MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006 As at 31.03.2005Rs. Rs.

SCHEDULE 3- SECURED LOANS:

Term Loans (Refer notes below)

From Banks:Rupee Loans, including interest accrued and due Rs. 22,662,800 8,576,805,156 6,442,303,348(Previous Year Rs. 7,607,246)Foreign Currency Loans 2,986,720,655 4,839,745,708

11,563,525,811 11,282,049,056

From Others:Foreign Currency Loans 676,375,000 1,192,852,754

12,239,900,811 12,474,901,810

Other Loans:Short Term Loans from Banks:Secured by hypothecation of stock-in-trade and book debts 4,031,142,586 3,410,793,514Including interest accrued and due Rs.755,336 (Previous Year Rs. NIL)Secured by lien on Fixed Deposits 193,234,233 150,498,341

From Others:Secured by hypothecation of specific vehicles 1,123,405 1,740,597

4,225,500,224 3,563,032,452

TOTAL 16,465,401,035 16,037,934,262

Notes:

1 Rupee Term loans from State Bank of India, Canara Bank, Federal Bank, Union Bank of India, Syndicate Bank, United Bank ofIndia, State Bank of Saurashtra, Indian Bank, State Bank of Mysore, State Bank of Indore, Vijaya Bank, Punjab National Bank, StateBank of Travancore, Oriental Bank of Commerce, EXIM Bank R&D Loans and Foreign currency loans from banks / financialinstitutions are secured by way of first mortgage and charge on all the immovable properties and movable fixed assets, present andfuture, of the Company (subject to prior charge on specified movables as otherwise stated, including in favour of the company’sbankers by way of security for the borrowing for working capital), ranking pari-passu with charges for the Term Loans.

2 Rupee Term loans from UCO Bank and State Bank of Patiala are secured by way of first charge on whole of the movable fixedassets.

3 Short Term loans from HSBC Bank, The Bank of Nova Scotia, State Bank of India, State Bank of Bikaner and Jaipur, State Bank ofPatiala, State Bank of Travancore, Union Bank of India are further secured by way of second charge on all the immovable proper-ties.

4 Term Loans repayable within one year Rs. 3,662,374,088 (Previous year Rs. 2,892,286,064). Other Loans repayable within oneyear Rs.1,123,405 (Previous year Rs. 617,192).

SCHEDULE 4 - UNSECURED LOANS

Short term loans from BankForeign Currency Loan 89,240,000 168,278,740USD 2,000,000 (Previous Year USD 3,664,117 & Euro 123,493)

TOTAL 89,240,000 168,278,740

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Moser 70-92 COL.p65 7/6/2006, 7:46 PM76

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MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006 As at 31.03.2005

Rs. Rs. Rs. Rs.SCHEDULE 6 - INVESTMENTS:

Long Term

Unquoted (Non Trade):Investment in SubsidiariesEuropean Optic Media Technology GMBHShare Capital of • 2,025,000 205,268,201 135,520,046Includes share application money of Rs. 94,004,451(Previous Year Rs. 24,256,296)Moser Baer Photo Voltaic Ltd.26,050,000 Equity Shares of Rs. 10/- each 260,500,000 -Moser Baer SEZ Developer Ltd.50,000 Equity Shares of Rs 10/- each 500,000 466,268,201 - 135,520,046

Investments in OthersCAPCO LUXEMBOURG S.a.r.l.1 Equity share of Euro 125 each 4,961 4,96163,366 Preferred Equity Certificates of Euro 125 each 320,668,823 320,673,784 320,668,823 320,673,784Global Data Media FZ-LLC (Associate)7,194 Shares of AED 1,000 each 92,532,185 92,532,185Short TermCurrent (Unquoted - Others)(Refer Note 4 of Schedule 20- Part B)Investment in Mutual Funds - 1,526,451,962Less: Diminution in value of investment - - 4,268 1,526,447,694

Total (aggregate value of unquoted investments) 879,474,170 2,075,173,709

SCHEDULE 7 - INVENTORIES:Stores and spare parts 519,591,872 419,856,237including in transit Rs. 4,539,840(Previous Year Rs. 11,125,523)-net of provision for non-moving stock Rs. 232,201 (Previous Year Rs 1,160,013)Raw Materials and Components 1,626,244,619 1,253,790,136including in transit Rs. 578,514,319(Previous Year Rs. 344,038,127)Packing Material 111,423,502 103,806,561including in transit Rs. 93,868,444(Previous Year Rs. 960,935)-net of provision for non-moving stock Rs.4,153,529(Previous Year Rs. 3,907,365)Work in Progress 899,748,788 684,391,766Manufactured Finished Goods 1,304,059,683 972,378,704Traded Goods 8,795,777 1,132,281

TOTAL 4,469,864,241 3,435,355,685

SCHEDULE 8- SUNDRY DEBTORS:(Unsecured - Considered Good, unless otherwise stated):

Debts outstanding for a period exceeding six monthsConsidered Good 279,811,970 279,338,783Considered Doubtful 53,852,778 55,091,689

333,664,748 334,430,472Less: Provision for Doubtful Debts 53,852,778 279,811,970 55,091,689 279,338,783Other DebtsConsidered Good 3,519,062,728 3,036,097,373Considered Doubtful - 343,790

3,519,062,728 3,036,441,163Less: Provision for Doubtful Debts - 3,519,062,728 343,790 3,036,097,373

TOTAL 3,798,874,698 3,315,436,156

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MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006 As at 31.03.2005

Rs. Rs. Rs. Rs.SCHEDULE 9 - CASH AND BANK:Cash on hand including cheques/drafts 8,064,149 33,233,192Remittance in Transit 2,506,710 46,290,181Balances with Scheduled Banks:Current Accounts 114,097,111 189,305,308Fixed Deposit Accounts 2,707,682,109 4,315,915,078Unpaid Dividend Account 4,598,302 4,965,262E.E.F.C. Accounts 252,510 232,590

2,826,630,032 4,510,418,238TOTAL 2,837,200,891 4,589,941,611

Note:Fixed Deposits shown above include Rs. 503,977,396(Previous Year Rs. 683,583,591) which aresubject to lien with the bankers.

SCHEDULE 10- OTHER CURRENT ASSETS:Interest Accrued on Fixed Deposits 35,946,331 73,103,512Other Receivables 135,472,993 122,396,122TOTAL 171,419,324 195,499,634

SCHEDULE 11- LOANS AND ADVANCES:(Unsecured - Considered Good, unless otherwise stated):Due from Subsidiary Companies 26,812,629 -Advances recoverable in cash or kind or for value to be received 320,189,711 215,390,218Advance to Suppliers 899,504,444 194,411,611Balance with Excise Authorities 55,266,052 19,789,092Earnest Money/Security Deposits 31,949,085 12,982,970Advance Tax/Tax Deducted at Source 156,484,268 158,335,165TOTAL 1,490,206,189 600,909,056

Note:Amount due from a Director as at March 31, 2006 - Rs. 9,209(Previous year Rs. Nil). Maximum Balance due at any time duringthe year from Director and Officer of the Company wasRs. 9,209 (Previous year Rs. 2,700).

SCHEDULE 12- CURRENT LIABILITIES AND PROVISIONS:

A. Current Liabilities:Acceptances 420,444,296 371,852,342Sundry Creditors - Total outstanding dues to Small Scale Industrial Undertakings 12,806,668 15,475,769 - Total outstanding dues of creditors other than Small Scale Industrial Undertakings 1,718,505,874 1,866,569,895

1,731,312,542 1,882,045,664Advances from Customers 669,147 5,748,206Unclaimed Dividend * 4,591,508 4,952,918Other Liabilities 142,605,213 142,922,107Book Overdraft 423,559 6,071,528Security Deposits 40,163,911 53,729,526Interest accrued but not due on Loans 30,524,727 41,639,961Total 2,370,734,903 2,508,962,252

*The above amount will be credited to Investor Education and Protection Fund as and when due.

B. Provisions:Provision for taxation 99,469,001 98,520,812Proposed Dividend 111,512,944 111,512,944Corporate tax on Dividend 15,639,690 15,639,690Staff Benefit Schemes 45,342,941 18,448,721

Total 271,964,576 244,122,167

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MOSER BAER INDIA LIMITEDSCHEDULES ANNEXED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Year ended 31.03.2006 Year ended 31.03.2005

Rs. Rs. Rs. Rs.SCHEDULE 13- EXCISE DUTY:Excise Duty paid 359,522,969 405,506,640Less: Excise duty on Closing Stock 6,136,081 1,518,544Add: Excise duty on Opening Stock 1,518,544 462,018

TOTAL 354,905,432 404,450,114

SCHEDULE 14- OTHER INCOME:

Interest Received (Gross):

a) On Deposits with banks 187,012,440 279,964,145b) On Income Tax Refunds 4,584,137 -c) On Staff Loan - 7,731Tax Deducted at Source Rs. 45,252,233(Previous Year Rs. 48,995,892) 191,596,577 279,971,876Excess provisions and unclaimed creditBalances written back 13,753,857 100,439,736Exchange Fluctuation (Net) 59,944,355 -Profit on cancellation of forward contracts (Net) 66,244,811 117,293,774Profit on sale of Fixed Asset 70,000 -Profit on sale of Current Investment (others) 417,759 3,500,381Dividend from -Long Term Investments (associate) 48,685,333 - -Current Investments (others) 13,748,911 49,593,596

62,434,244 49,593,596Miscellaneous Income 212,412,582 124,084,851

TOTAL 606,874,185 674,884,214

SCHEDULE 15-INCREASE/(DECREASE) IN STOCKOF FINISHED GOODS AND WORK IN PROGRESS:

Closing Stock:Finished Goods 1,304,059,683 972,378,704Work in Progress 899,748,788 684,391,766Traded Goods 8,795,777 1,132,281

2,212,604,248 1,657,902,751Less: Opening Stock:Finished Goods 972,378,704 435,567,182Work in Progress 684,391,766 351,034,267Traded Goods 1,132,281 1,163,328

1,657,902,751 787,764,777

Excise duty on Increase/ (Decrease) of Finished Goods (4,617,537) (1,056,526)

TOTAL INCREASE 550,083,960 869,081,448

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MOSER BAER INDIA LIMITEDSCHEDULES ANNEXED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31,2006

Year ended 31.03.2006 Year ended 31.03.2005

Rs. Rs.

SCHEDULE 16- PERSONNEL EXPENSES:Salaries, Allowances and Bonus 870,823,162 620,018,544Contribution to Provident and other funds 72,293,713 46,039,485Employee Welfare Expenses 76,895,479 51,530,059Leave Encashment 15,845,233 8,400,357

TOTAL 1,035,857,587 725,988,445

SCHEDULE 17- ADMINISTRATION & OTHER EXPENSES:Power and Fuel 822,513,755 566,443,586Commission on Sales 1,556,613 3,720,597Rent (Including Lease Rent) 52,677,367 57,039,707Repairs & Maintenance:- Building 1,008,883 1,482,565- Plant & Machinery 16,406,901 11,780,539- Others 37,402,032 26,794,006Freight and Forwarding (Net) 482,495,586 386,573,997Insurance 114,352,872 113,368,920Rates and Taxes 8,815,284 4,466,061Director’s Sitting Fees 1,120,000 1,100,000Donation 5,039,125 3,309,708Remuneration to Auditors 12,694,359 9,878,275Royalty 315,478,020 377,317,928Travelling and Conveyance 144,717,377 132,846,888Bad Debts 159,825 -Advances Written Off 539,163 23,189,990Research and Development Expenses 193,034 1,780,000Miscellaneous Expenses 199,485,228 210,577,913Stock Written Off 23,877 5,069,632Dimunition in value of Investments - 4,268Exchange Fluctuation (Net) - 26,201,341Loss on sale of Fixed Asset (Net) - 17,942

TOTAL 2,216,679,301 1,962,963,863

SCHEDULE 18- INTEREST & FINANCE CHARGES:Interest:

On Fixed Loans 713,089,298 594,579,717Others 161,221,637 71,184,214

Finance Charges 31,345,186 25,281,326Bank Charges 29,841,076 45,200,311

TOTAL 935,497,197 736,245,568

SCHEDULE 19- DEPRECIATION:Depreciation on Fixed Assets (Refer Schedule 5) 3,170,023,472 2,820,504,533Less: Depreciation on assets used for Trial Run /

Testing transferred to expenditure pendingallocation (Refer Note 5 of Schedule 20-PartB) 2,425,072 -

Depreciation charged to Profit and Loss 3,167,598,400 2,820,504,533

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MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

Part-A SIGNIFICANT ACCOUNTING POLICIES

1A METHOD OF ACCOUNTINGThe financial statements are prepared in accordance with the historical cost convention on an accrual basis of accounting and inaccordance with generally accepted accounting practices in India and conform to the applicable Accounting Standards issued bythe Institute of Chartered Accountants of India and relevant provisions of the Companies Act, 1956.

1B USE OF ESTIMATESThe preparation of financial statements requires the management of the Company to make estimates and assumptions that affectthe reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financialstatements and reported amounts of income and expenses during the period. Example of such estimates include provisions fordoubtful debts, employee retirement benefit plans, provision for income taxes and the useful lives of fixed assets.

2 REVENUE RECOGNITIONRevenue from sale of goods is recognised on transfer of significant risks and rewards of ownership to the customer and when nosignificant uncertainty exists regarding realisation of the consideration. Sales are recorded net of sales returns, rebates and tradediscounts and price differences and are inclusive of excise duty and countervailing duty imposed by the Council of the EuropeanUnion.

Interest is accounted for based on a time proportion basis taking into account the amount invested and the rate of interest.

Dividend is recognised as and when the right of the company to receive payment is established.

3 FIXED ASSETSTangible Fixed Assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specificallyattributable to its acquisition and bringing it to its working condition for its intended use.

Expenditure pending allocation, are allocated to productive fixed assets in the year of commencement of the related project.

Intangible assets are stated at cost less accumulated amortisation.

4 DEPRECIATION / AMORTISATIONDepreciation on tangible fixed assets is provided under the straight-line method on a pro-rata basis at the rates and in the mannerspecified in Schedule XIV to the Companies Act, 1956, other than on certain Plant and Machinery at the Magnetic Media manufac-turing units, which is depreciated at the rate of 7.42% (10.34% upto last year) based on management’s estimate of useful life of theassets and is in accordance with the rate specified in Schedule XIV to the Companies Act,1956.

In respect of assets whose useful life has been revised, the unamortised depreciable amount has been charged over the revisedremaining useful life.

Intangible assets are amortised on equated basis over their estimated economic life not exceeding 10 years.

Leasehold Land and improvement to the leased premises are amortised over the period of the lease.

The assets taken on finance lease are depreciated over the lease period.

5 INVESTMENTSLong term investments are stated at cost of acquisition inclusive of expenditure incidental to acquisition. A provision for diminutionis made to recognise a decline, other than temporary in the value of long term investments.

Current investments are stated at lower of cost and fair value determined on an individual basis.

6 INVENTORY VALUATIONFinished Goods, Work in progress, Goods held for resale At lower of cost and net

Raw Materials, Packing Materials and Stores and Spares realisable value

Cost of Raw material, goods held for resale, packing materials and stores and spares is determined on the basis of weightedaverage method.

Cost of Work in progress and finished goods is determined by considering direct material costs, labour costs and appropriateportion of overheads.

Liability for excise duty in respect of goods manufactured by the company, other than for exports, is accounted upon completion ofmanufacture.

7 GOVERNMENT GRANTSGrants in the nature of contribution towards capital cost of setting up projects are treated as Capital Reserve and grants in respectof specific fixed assets are adjusted from the cost of the related fixed assets.

}

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8 BORROWING COSTSBorrowing costs directly attributable to the acquisition of qualifying assets are capitalised as part of the cost of assets till the date ofcommencement of commercial use of the asset. All other borrowing costs are charged to the Profit and Loss Account.

9 RETIREMENT BENEFITSLiability towards gratuity payable on death/retirement of employees is accrued based on an actuarial valuation at year end, andcovered by funding/premium as determined by Life Insurance Corporation of India.

Provision for leave encashment benefit for the employees is based on an actuarial valuation as at the balance sheet date.

10 FOREIGN CURRENCY TRANSACTIONSTransactions in foreign currency are converted at the exchange rate prevailing at the date of the transaction. Foreign currencymonetary assets and liabilities not covered by forward exchange contracts are restated at the year end rates and the resultant gainsor losses are recognised in the Profit and Loss Account, except exchange differences arising on settlement and/or translation offoreign currency liabilities relating to acquisition of fixed assets which are adjusted against the carrying costs of respective fixedassets.

In respect of foreign branches, all revenues, expenses, monetary assets/liabilities and fixed assets are accounted at the exchangerate prevailing on the date of the transaction. Monetary assets and liabilities are restated at the year end rates and resultant gainsor losses are recognised in the Profit and Loss Account.

Gains and losses on foreign exchange forward contracts are recognised in the Profit and Loss Account over the life of the contract,except in respect of liabilities incurred for acquiring fixed assets, in which case such difference is adjusted to the carrying amountof the respective fixed assets. Any profit or loss arising on cancellation of a forward contract is recognised as income or expense forthe period.

11 TAXATION

Current Tax:Provision is made for current income tax liability based on the applicable provisions of the Income Tax Act 1961, for the incomechargeable under the said Act and as per the applicable overseas laws relating to the foreign branch.

Deferred Tax:Deferred tax assets (DTA) and liabilities are computed on the timing differences at the Balance sheet date between the carryingamount of assets and liabilities and their respective tax basis. DTA is recognised based on management estimates of reasonable/virtual certainty that sufficient future taxable income will be available against which such DTA can be realised. The deferred taxcharge or credit is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balancesheet date.

12 LEASESAssets acquired under finance leases are recognised as an Asset and a Liability at the lower of the fair value of the leased assetsat inception of the lease and the present value of minimum lease payments. Lease payments are apportioned between the financecharge and the reduction of the outstanding liability. The finance charge is allocated to periods during the lease term so as toproduce a constant periodic rate of interest on the remaining balance of the liability and charge to the profit and loss account.

Payment made under operating leases are charged to Profit and Loss Account on a straight line basis over the period of the lease.

13 STOCK OPTION PLANSStock options grants to the employees and to the non-executive Directors who accepted the grant under the Company’s StockOption Plan are accounted in accordance with Securities and Exchange Board of India (Employees Stock Option Scheme andEmployees Stock Purchase Scheme) Guidelines, 1999. Accordingly, the excess, if any, of the market price of the underlying equityshares as of the date of the grant of the option over the exercise price of the option, is recognised as employee compensation costand amortised on straight line basis over the vesting period.

14 IMPAIRMENT OF ASSETSAt each balance sheet date, the Company assesses whether there is any indication that an asset may be impaired. If any suchindication exists, the Company estimates the recoverable amount. If the carrying amount of the asset exceeds its recoverableamount, an impairment loss is recognised in the profit and loss account to the extent the carrying amount exceeds recoverableamount. Where there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longerexist or may have decreased, the Company books a reversal of the impairment loss not exceeding the carrying amount that wouldhave been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accountingperiods.

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

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Part -B NOTES TO ACCOUNTS

1 Contingent Liabilities

In respect of:-

1.1 Corporate guarantee given on behalf of the Subsidiary Company: Rs. 450,000,000 (Previous Year Rs. Nil).

1.2 Legal costs contingent upon the outcome of a court case which could be in the range of Rs. 2,705,500 to Rs. 5,411,000.

1.3 Disputed demands in respect of:- 2005-06 2004-05 (Rs.) (Rs.)

Entry tax (excluding interest) 110,117,456 108,744,806

Service tax 68,825,596 65,417,192

Sales Tax 6,706,074 1,310,000

Custom duty and Excise duty 2,761,250 5,414,214

Total 188,410,376 180,886,212

1.4 Claims against the Company not acknowledged as debts: Rs. 18,412,975 (Previous Year Rs. 18,850,002).

1.5 The Company has received a notice from the Uttar Pradesh Sales Tax authorities demanding sales tax of Rs. 198,390,609 inrespect of non-submission of ‘C’ Forms. The company has untill July 31, 2006 to deposit the ‘C’ Forms. As on the date of thesefinancial statements, ‘C’ Forms amounting to a sales tax of Rs. 190,438,045 have been collected and are pending to be depos-ited. The management is reasonably certain of collecting the remaining ‘C’ Forms amounting to a sales tax of Rs. 7,952,564 byJuly31, 2006. Accordingly the above amount of Rs. 198,390,609 has not been considered as a Contingent Liability.

2 2.1 Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances): Rs.939,195,856(Previous Year Rs. 1,406,499,426).

2.2 Letters of Credit opened by banks on behalf of the Company: Rs.1,349,373,002 (Previous Year Rs. 947,349,519).

3 Lease Obligations

a) Total of minimum future lease payments under non-cancellable operating leases for various periods are as follows:-

Amount (Rs.) Amount (Rs.)2005-06 2004-05

Amount payable not later than one year 17,442,073 14,948,359

Amount payable later than one year but not later than five years 75,042,807 68,296,177

Amount payable later than five years 24,812,895 42,752,590

Total 117,297,775 125,997,126

Total lease payments recognized in the statement of Profit and Loss Account: Rs. 19,018,200 (Previous year Rs. 30,348,865).

The company has entered into operating leases for its offices, employees’ residences and for vehicles that are renewable ona periodic basis and cancellable at company’s option. Except for its Office, the company has not entered into subleaseagreements with others. The total rent recovered on sub lease of its office during the year Rs. 347,076 (Previous yearRs. 338,736).

b) Reconciliation of minimum lease payments and their present value in respect of vehicles taken on finance lease, is as under:

Minimum Lease Present value of Lease chargespayments minimum

lease payments

Rs. Rs. Rs.

Amount paid upto 31.3.2006 4,181,202 2,691,376 1,489,826

Amount payable not later than one year 1,230,881 1,123,405 107,476

Total 5,412,083 3,814,781 1,597,302

Previous year 5,263,939 3,814,781 1,449,158

Total cost of leased vehicles and their carrying amount as at 31st March 2006 are Rs. 3,846,372 (Previous Year Rs. 3,846,372)and Rs. 503,803 (Previous Year Rs. 1,234,614) respectively.

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

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4 Movements in Other Investments2005-2006 2004-2005

Current Investments (Unquoted) No. Cost (Rs.) No. Cost (Rs.)(Mutual fund units of the face value ofRs. 10 each except for units in FranklinTempleton mutual fund which are of Rs.1,000 each.)

Acquired and sold during the year

Birla Sun Life Mutual Fund 57,681,210 577,673,816 48,210,143 500,878,765Prudential ICICI Mutual Fund 89,762,993 1,064,047,119 51,049,769 604,886,530SBI Mutual Fund 13,272,569 133,157,051 30,137,600 301,800,159Franklin Templeton Treasury Management Fund - - 403,870 403,898,991ING Vysya Liquid Fund - - 25,122,021 251,275,190Deutsche Floating Rate Fund 23,528 235,736 14,936,407 152,428,726Kotak Floater Short Term - - 57,269,609 573,300,799Reliance Floating Rate Fund 68,117 684,542 30,078,928 301,527,030HDFC Floating Rate Income Fund - - 30,208,035 302,849,184ING Vysya Floating Rate Fund 5,067,232 50,684,986 40,180,138 402,064,332HSBC Cash Fund - - 25,477,702 254,784,166Reliance Treasury Plan 14,416,911 220,242,826 - -DSP ML Floating Rate Fund 23,303,449 233,822,834 - -Total 203,596,009 2,280,548,910 353,074,222 4,049,693,872(Mutual fund units of the face value of Rs. 10 each)Sold during the yearPrudential ICICI Mutual Fund 25,586,862 303,242,694 - -Deutsche Insta Cash Plus — Institutional Plus 9,982,271 100,017,361 - -DSP ML Floating Rate Fund 30,578,267 306,425,745 - -SBI Magnum Institutional Income Savings 30,530,833 306,300,585 - -Reliance Floating Rate Fund 10,327,697 103,715,850 - -ING Vysya Floating Rate Fund 40,665,193 406,749,727 - -Total 147,671,123 1,526,451,962 - -Acquired during the year and outstanding as at year endPrudential ICICI Mutual Fund - - 25,586,862 303,242,694Deutsche Insta Cash Plus—Institutional Plus - - 9,982,271 100,017,361DSP ML Floating Rate Fund - - 30,578,267 306,425,745SBI Magnum Institutional Income Savings - - 30,530,833 306,300,585Reliance Floating Rate Fund - - 10,327,697 103,715,850ING Vysya Floating Rate Fund - - 40,665,193 406,749,727Total - - 147,671,123 1,526,451,962

5 Expenditure pending allocationDetails of expenditure pending allocation are as follows:

As at 31.03.2006 As at 31.03.2005(Rs.) (Rs.)

Salaries and Wages 5,825,296 10,177,846Travelling Expenses 1,108,999 -Freight and Cartage 22,689,608 1,808,094Interest 4,627,463 17,109,924Difference in exchange rate - 4,463,453Raw Material cost- Trial run 10,058,499 -Power & Fuel 391,606 -Stores spares & consumables 203,925 -Legal and Professional 528,000 -Depreciation 2,425,072 -Loss on cancellation of Forward Contract 17,130,436 -Total 64,988,904 33,559,317

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

Part -B NOTES TO ACCOUNTS

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6 Prior period expenses/(income) (Net)Details of prior period expenditure/(income) are as follows:

2005-06 2004-05(Rs.) (Rs.)

Salaries and Wages - 1,350,051

Sales promotion - 2,666,049

Financial charges - 4,383,720

Stores, spares and consumables - 28,378,683

Packing Material - 401,724

Staff Welfare - 122,380

Rent - 8,781,147

Price Variance on sales - 13,652,843

Travelling expenses 1,083,174 -

Repairs & Maintenance 2,003,714 -

Annual Maintenance Contract 185,828 -

Total of prior period expenses 3,272,716 59,736,597

Less: Prior Period Income:

Miscellaneous Income (9,868,975) (3,049,228)

Total of prior period (income)/expense (Net) (6,596,259) 56,687,369

7 Taxation

Provision for taxation has been made based on Minimum Alternate Tax as applicable to the company for the current year inaccordance with the relevant provisions of the Income Tax Act,1961.

The deferred tax expense for the year is adjusted for deferred tax liability in respect of undertakings enjoying tax benefits undersection 10A and section 10B of the Income Tax Act,1961 and also on account of adjusting deferred tax assets and liabilities atsubstantively enacted rates of depreciation and Income Tax rates as on the balance sheet date.

The Break up of net deferred tax liability is as under: (Amount in Rupees)Particulars of As at Movements during As at

Timing Differences March 31,2005 the year March 31,2006

Deferred tax Liability

Depreciation 1,246,707,000 122,596,302 1,369,303,302

Deferred tax Assets

Unabsorbed Depreciation 1,223,109,000 145,371,498 1,368,480,498

Brought Forward Losses 9,553,000 (8,730,196) 822,804

Total 1,232,662,000 136,641,302 1,369,303,302

Net deferred tax liability 14,045,000 (14,045,000) -

Previous year 345,144,000 (331,099,000) 14,045,000

8 Employees Stock Option Plan (ESOP) and Directors’ Stock Option Plan (DSOP)

The company has granted options to its employees and non-executive directors, to be settled through issue of equity shares, atexercise prices that are equal to the market price of the share on the date of the grant. The Options granted vest over a period ofmaximum of four years from the date of grant. As at the date of balance sheet no option has been exercised by any employee ornon-executive director.

Part -B NOTES TO ACCOUNTS

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

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Number of options granted, exercised and forfeited during the year

2005-06 2004-05

Number Weighted Number WeightedAverage Price Average Price

Options outstanding at beginning of year 2,165,300 226.94 2,030,300 342.00

Add : Options Granted 1,108,200 220.49 2,065,300 221.37

Less : Options Exercised - - - -

Options Cancelled - - 1,553,500 342.00

Options Forfeited - - - -

Options Lapsed 295,800 261.42 376,800 342.00

Options outstanding at the end of year 2,977,700 221.12 2,165,300 226.94

Option exercisable at the end of year 484,825 221.23 100,000 342.00

The options outstanding at the end of the year had exercise prices in the range of Rs 196.60 to Rs 234.75 and a weighted averageremaining contractual life of 3.19 years.

9 ADDITIONAL INFORMATION PURSUANT TO REQUIREMENTS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT,1956 AND OTHER DISCLOSURES

9.1 Licensed Capacity Not Applicable for any product of the company

9.2 Installed Capacity *Installed Capacity Actual Production

2005-06 2004-05 2005-06 2004-05

Storage Media (Nos.) 4,292,803,400 3,612,563,400 3,198,166,193 2,753,706,325

(Inclusive of installed capacities for jewel box and cake boxes)

* (As certified by the management and on which auditors have placed reliance, this being a technical matter).

9.3 In terms of order no.46/05/2006-CL-III. dated 28.2.2006 issued by Department of Company Affairs under Section 211(4) ofthe Companies Act, 1956 disclosure has not been made for the quantitative details for the accounting year 2005-06, inrespect of details pursuant to paras 3 (i) (a) and 3(ii) (a) (1) and (2) of part II of Schedule VI to the Companies Act, 1956 (asamended vide Notification No GSR 494 (E) dated 30th October,1973).

9.4 Composition of raw material, packing material

stores,spares and consumables consumed:

Raw Material and Packing Material Stores, Spares and Consumables

2005-06 2004-05 2005-06 2004-05

Imported

Percentage 81.57 71.49 74.80 67.25

Value (Rs.) 7,965,872,062 5,135,246,000 472,780,118 376,614,462

Indigenous

Percentage 18.43 28.51 25.20 32.75

Value (Rs.) 1,800,246,458 2,047,964,725 159,240,150 183,394,966

Total 100.00 100.00 100.00 100.00

9,766,118,520 7,183,210,725 632,020,268 560,009,428

Part -B NOTES TO ACCOUNTS

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

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9.5 Foreign Currency Transactions:

9.5.1 Value of Imports on CIF Basis: 2005-06 2004-05(Rs.) (Rs.)

Purchase of Finished Goods 11,465,411 3,024,036

Raw Material, including in transit Rs. 581,022,524(Previous year Rs. 344,259,430) 7,660,367,132 5,481,759,131

Capital Goods, including in transit and Capitalwork in progress Rs. 835,723,596(Previous Year Rs. 78,785,226) 4,137,024,260 3,102,998,159

Stores, Spares and Consumables,including in transit Rs. 4,882,235(Previous Year Rs. 11,125,523) 626,012,312 524,045,359

Packing Material, including in transit Rs. 97,171,033(Previous Year Rs. 960,935) 626,380,235 24,329,190

Total 13,061,249,350 9,136,155,875

9.5.2 Expenditure in foreign currency (on payment basis) : 2005-06 2004-05(Rs.) (Rs.)

Travel 9,212,975 6,070,854

Interest 165,791,735 191,911,565

Royalty/Technical Know-how Fees (including advance royalty) 409,113,868 521,876,604

Directors Sitting Fees 460,000 350,000

Legal and Professional 12,558,239 14,998,527

Other expenditure 35,433,953 34,475,004

Expenditure of Foreign Branch:

Staff Welfare 513,321 2,616,687

Rent/Lease Rent 3,009,852 14,837,502

Freight and Forwarding - 15,606,861

Legal and Professional 6,290,657 6,927,888

Miscellaneous Expenses 41,181,257 26,327,589

Financial Charges - 5,956,762

Insurance 375,559 131,864

Salaries and Wages 42,799,352 35,620,531

Repairs and Maintenance 2,024,535 142,912

Commission on Sales (other selling agents) - 713,676

Total 728,765,303 878,564,826

9.5.3 Earnings in Foreign Exchange: 2005-06 2004-05(Rs.) (Rs.)

Value of Exports on FOB basis 14,045,740,379 10,028,340,237

Services - 6,756,500

Interest 10,331 227,582

Duty Refund - 4,449,983

Others:

-Insurance Claim Received 302,345 -

-Dividend 48,685,333 -

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

Part -B NOTES TO ACCOUNTS

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9.5.4 Amount remitted in Foreign Currencies for Dividend :

Dividend remitted on fully paid-up equity shares of Rs.10 each 2005-06 2004-05

Number of Non Resident Shareholders 1 2

Number of Shares held 135,000 6,775,230

Year to which it relates 2004-05 2003-04

Dividend remitted in (Rs.) 135,000 10,162,845

9.6 Managerial Remuneration (Remuneration to Directors):

(figures in bracket are for the previous year)(Amount in Rupees)

DEEPAK PURI NITA PURI RATUL PURI Total

Managing Whole time WholetimeDirector Director Director

Salaries, allowances and bonus 18,956,256 454,800 11,321,964 30,733,020

(19,781,250) (454,800) (11,816,964) (32,053,014)

Contribution to Provident Fund 1,698,751 36,000 1,013,036 2,747,787

(1,698,750) (36,000) (1,013,036) (2,747,786)

Perquisites 166,593 106,800 166,600 439,993

(166,599) (103,756) (166,599) (436,954)

Total 20,821,600 597,600 12,501,600 33,920,800

(21,646,599) (594,556) (12,996,599) (35,237,754)

Note - Provision for leave encashment: Rs.3,034,472 (Previous year Rs. 1,709,347) and Gratuity: Rs. 813,025 (Previous yearRs. 986,121) made during the year have not been included above.

9.7 Related Party Transactions:

In accordance with the requirements of Accounting Standard - 18 ‘Related Party Disclosures’ the names of the related partywhere control/ability to exercise significant influence exists, along with the aggregate amount of transactions and year endbalances with them as identified and certified by the management are given below:

9.7.1 Nature of relationship Name of the related party Share Holding

Subsidiary European Optic Media Technology GmbH 100%

Subsidiary Moser Baer Photo Voltaic Ltd 100%

Subsidiary Moser Baer SEZ Developer Ltd 100%

Associate Company Global Data Media FZ LLC 49%

Key Management Personnel

Managing Director Mr. Deepak Puri

Whole Time Directors Mrs. Nita Puri, Mr. Ratul Puri

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

Part -B NOTES TO ACCOUNTS

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9.7.2 Details of Transactions with the Related Parties in the ordinary course of business:(figures in brackets are for the previous year)

(Amount in Rupees)

Particulars European Moser Baer Global Data Moser Baer SEZ Key TotalOptic Media Photo Media Developer Ltd ManagementTechnology Voltaic Ltd Personnel(Subsidiary) (Subsidiary) (Associate) (Subsidiary)

Sales of Finished goods – – 7,998,784,035 – – 7,998,784,035

(–) (–) (5,243,135,648) (–) (–) (5,243,135,648)

Expenses charged to other companies – 26,791,427 29,488,616 21,202 – 56,301,245

(–) (–) (38,012,434) (–) (–) (38,012,434)

Expenses charged by other companies – – 25,224,537 – – 25,224,537

( – ) ( – ) (45,649,342) (–) (–) (45,649,342)

Dividend received – – 48,685,333 – – 48,685,333

(–) (–) (–) (–) (–) (–)

Directors Remuneration – – – – 33,920,800 33,920,800

(Refer Note 9.6 above) (–) (–) (–) (–) (35,237,754) (35,237,754)

Share Application Money 69,748,149 – – – – 69,748,149

(–) (–) (–) (–) (–) (–)

Investments – 260,500,000 – 500,000 – 261,000,000

(–) (–) (–) (–) (–) (–)

Outstanding receivables

–In respect of sales – – 3,065,593,385 – – 3,065,593,385

(–) (–) (1,817,573,077) (–) (–) (1,817,573,077)

–In respect of expenses – 26,791,427 23,986,812 21,202 9,209 50,808,650

(–) (–) (–) (–) (–) (–)

Outstanding payable

–In respect of expenses – – 33,308,145 – – 33,308,145

(–) (–) (7,038,690) (–) (–) (7,038,690)

–In respect of Managerial Remuneration – – – – 10,111,392 10,111,392

(–) (–) (–) (–) (11,937,513) (11,937,513)

9.8 Remuneration To Auditors:2005-2006 2004-2005

(Rs.) (Rs.)

For Statutory Audit 7,500,000 5,000,000

For Limited Review 4,500,000 3,500,000

For Certification / Other Reports 584,031 330,000

For Reimbursement of out of pocket expenses and service tax 428,058 1,048,275

Total 13,012,089 9,878,275

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

Part -B NOTES TO ACCOUNTS

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10 Earnings per share

a) Calculation of Weighted Average number of equity shares

1. For Basic EPS 2005-2006 2004-2005

No. of Shares at the beginning of the year 111,512,944 111,512,944

Total number of equity shares outstanding at the end of the year 111,512,944 111,512,944

Weighted Average number of equity sharesoutstanding during the year 111,512,944 111,512,944

2. For Diluted EPS

Weighted Average number of equity shares outstandingduring the year as computed above 111,512,944 111,512,944

Weighted average number of stock options outstandingfor 230 days (Previous year 64 days) 255,429 19,156

Weighted Average number of equity shares outstandingduring the year for Diluted EPS 111,673,899 111,516,303

b) Net Profit after tax available for equity shareholders 46,661,155 607,231,362Earnings per share (face value per share Rs. 10 each)Basic and Diluted 0.42 5.45

11 Commission to Directors:

Computation of Net Profits in accordance with the provisions of Section 349 of the Companies Act,1956

2005-2006

Net Profit Before Tax as per Profit & Loss Account 39,519,962

Add: Directors’ Remuneration 34,014,123

Depreciation as per books 3,167,598,400

Directors sitting Fees 1,120,000

3,242,252,485

Less:Profit on sale of Investments 417,759

Depreciation as per Section 350 of the Companies Act,1956 3,167,598,400

Profit on sale of Fixed Assets 70,000

Net Profit in terms of section 349 74,166,326

Net Profit for the purpose of Section 309 74,166,326

Commission to non-executive Directors u/s 309(4) @ 1% (restricted to 0.2%of Profit after tax in terms of resolution dated 24th June 2005) 93,323

12 Due to change in estimated useful life of certain plant and machinery located at one of the plants (NSEZ) the depreciation rateshave been revised. If the rate of depreciation as applicable for the previous year had been applied, the depreciation for the yearwould have higher by Rs.9,572,841 and profit for the year lower by the same amount.

13 Segment information

Considering the nature of the company’s business, its activities, production facilities being located in a single geographical location,the internal financial reporting, element of risk and returns and its predominant product being storage media, there are no business/geographical segments within the meaning of AS-17 ‘Segment Reporting’, issued by the Institute of Chartered Accountants ofIndia.

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

Part -B NOTES TO ACCOUNTS

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MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

Part -B NOTES TO ACCOUNTS

14 Creditors comprising Small Scale Industrial Undertakings to which the company owes amounts outstanding for more than 30 days(as per information available with the management) are as under:

Alpna Packaging Pvt. Ltd. Globe Machine ToolsAKS Packaging Co Pvt Ltd Premier Packaging Pvt LtdAvon Containers Pvt. Ltd. Khemka Containers Pvt LtdAdvance System Inc Usha salesBertech Engineering Co Ltd.

15 On September 28, 2005 Woodgreen Investment Ltd. (WIL) did not exercise the option to convert at the exercise price of Rs.336,5,400,000 Share Warrants issued to them on preferential basis by the Company pursuant to an agreement dated March 25, 2004.Rs.181.44 million, the upfront money received against these Share Warrants has been forfeited and accordingly taken to ‘ Reserveand Surplus’.

16 Corresponding figures for the previous year have been regrouped/rearranged, wherever necessary to conform to current yearclassification.

By order of the Boardfor and on behalf of MOSER BAER INDIA LIMITED

Deepak Puri Harnam D. Wahi Minni Katariya Yogesh Mathur Karandeep SinghChairman and Director Company Secretary Group CFO Vice President -Managing Director Financial Planning

and Control

Place: New DelhiDate: June 07, 2006

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MOSER BAER INDIA LIMITEDBALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I Registration Details

Registration No : 15418 State Code: 55Balance Sheet Date: 31.03.2006

II Capital Raised during the year (Amount in Rs.Thousands)

Public Issue : NIL Right Issue : NILBonus issue : NIL Private Placement: NIL

III Position of Mobilisation and Deployment of Funds (Amount in Rs.Thousands)

Total Liabilities: 36,603,169 Total Assets: 36,603,169

SOURCE OF FUNDS:

Paid up Capital: 1,115,129 Reserves & Surplus : 18,933,399Share Warrant: NIL Unsecured Loans : 89,240Secured Loans : 16,465,401 Deferred Tax Laiblity: NIL

APPLICATION OF FUNDS:

Net Fixed Assets : 25,598,829 Investments : 879,474Net Current Assets : 10,124,866 Misc.Expenditure : NILAccumulated Losses: NIL

IV Performance of Company (Amount in Rs.Thousands)

Turnover : 17,926,016 Total Expenditure : 17,886,496Profit Before Tax : 39,520 Profit After Tax : 46,661Earning per share in Rs: 0.42 Dividend Rate : 10%

V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)

Item Code No: (ITC Code) 852320Product Description: MAGNETIC DISKItem Code No: (ITC Code) 852390Product Description: COMPACT DISK RECORDABLEItem Code No: (ITC Code) 847193.09Product Description: STORAGE UNITS

By order of the BoardDeepak Puri Harnam D. Wahi Minni Katariya Yogesh Mathur Karandeep SinghChairman and Director Company Secretary Group CFO Vice President -Managing Director Financial Planning

and Control

Place: New DelhiDate: June 07, 2006

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To the member,

The Directors are pleased to present their report and thefinancial statements for the year ended 31 March, 2006. Asummary of the financial results is as follows:-

Particulars Amount (In Euros)

Other Interest and Similar Incomeand Other Operating Income 2,821

Expenditure 1,401,059

Loss for the year (1,398,238)

Other taxes 327

Net Loss (1,398,565)

Operations

During the year under review, the Company continued to explorenew business ventures and new technologies in Europe,including setting up of optical media manufacturing facilities.

Capital infusion

During the year under review, the Company received an amountaggregating to Euros 1,300,557 from its holding Company,namely- Moser Baer India Limited towards Reserve Capital.

Auditors

The accounts have been audited by Price Waterhouse, India.

Particulars of Employees

There was one employee on board till the 31 March, 2006.

Place: New Delhi V. J. PrakashDate : June 7, 2006 Managing Director

D i r e c t o r s ’ R e p o r t - D i r e c t o r s ’ R e p o r t - D i r e c t o r s ’ R e p o r t - D i r e c t o r s ’ R e p o r t - D i r e c t o r s ’ R e p o r t - E u r o p e a n O p t i c M e d i a T e c h n o l o g y G m b HE u r o p e a n O p t i c M e d i a T e c h n o l o g y G m b HE u r o p e a n O p t i c M e d i a T e c h n o l o g y G m b HE u r o p e a n O p t i c M e d i a T e c h n o l o g y G m b HE u r o p e a n O p t i c M e d i a T e c h n o l o g y G m b H

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We have audited the accompanying Balance Sheet as at March 31, 2006, and the related Profit & Loss Account of European OpticMedia Technology GmbH (‘the Company’) for the year ended on that date. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentationof the financial information of the Company. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at March 31,2006 and the results of its operations for the year then ended in accordance with generally accepted accounting principles.

Anuradha TuliPartnerMembership Number F 85611For and on behalf of

Place : New Delhi Price WaterhouseDate : June 7, 2006 Chartered Accountants

Auditors’ Report to the shareholders of European Optic Media Technology GmbH

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EUROPEAN OPTIC MEDIA TECHNOLOGY GmbHBALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006 As at 31.03.2005 Euro Euro

SOURCES OF FUNDS

Share Capital 2,025,000 2,025,000(Authorised Capital - Euro 2,025,000)

RESERVES AND SURPLUS

Reserve Capital 1,764,557 464,000

(Refer Note 2.2 to Notes to the Accounts)

Opening Balance (833,202) (195,706)Profit/ (Loss) during the period (1,398,565) (2,231,767) (637,496) (833,202)

Total 1,557,790 1,655,798

APPLICATION OF FUNDSAssetsProject Expenses 504,000 1,626,693(Refer Note 2.1 to Notes to the Accounts)

Current AssetsBank Balances 188,633 48,051VAT receivable 11,857 20,770Loans 875,379 -

1,075,869 68,821Less: Current Liabilities & Provisions 22,079 1,053,790 39,716 29,105

Total 1,557,790 1,655,798

This is the Balance Sheet referred to in ourreport of even date.

Anuradha TuliPartner V.J. PRAKASHMembership Number-F-85611 Managing DirectorFor and on behalf ofPRICE WATERHOUSEChartered Accountants

Place: New DelhiDate: June 07, 2006

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EUROPEAN OPTIC MEDIA TECHNOLOGY GMBHPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Year ended 31.03.2006 Year ended 31.03.2005 Euro Euro

INCOME:Other interest and similar income 1,320 7,699Other operating income 1,501 1,207Miscellaneous - 497

Total Income (A) 2,821 9,403

EXPENDITURE:Accountancy Fees 2,938 2,184Audit Fees 9,278 5,000Bank Charges 2,024 61,818Entertainment Expenses 54 86Interest and similar expenses - 10,103Legal and Professional charges 67,223 133,760Office Rent (234) 6,307Other Operating Costs 241 4,319Outsourced Work - 15,198Personnel Expenses 120,336 80,139Postage - 19Project Expenses charged off 1,186,193 321,425(Refer Note 3.1 to Notes to the Accounts)Telephone Expenses 2,039 1,832Travelling Expenses 10,967 4,709

Total Expenses (B) 1,401,059 646,899

(Loss) for the year (A)-(B) (1,398,238) (637,496)Other Taxes 327 -

Net (loss) for the year (1,398,565) (637,496)

This is the Profit and Loss Account referred to in ourreport of even date.

Anuradha TuliPartner V.J. PRAKASHMembership Number-F-85611 Managing DirectorFor and on behalf ofPRICE WATERHOUSEChartered Accountants

Place: New DelhiDate: June 07, 2006

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EUROPEAN OPTIC MEDIA TECHNOLOGY GMBH

Notes to the Accounts for the year ended March 31, 2006

1 Accounting and Valuation Methods

1.1 The financial statements are prepared in accordance with historical cost convention on accrual basis of accounting.

1.2 Other receivables contain receivables resulting from VAT credits.

1.3 Other accruals include all identifiable risks and uncertain liabilities.

1.4 Liabilities were stated at repayment amounts.

2 Notes to the Balance Sheet

2.1 Project Expenses include construction cost Euro 504,000 which consist of basic and detailed engineering costs.Based on areview carried out by the Company in consultation with project experts, the management is of the opinion that the futureeconomic benefits in respect of such expenses shall continue to be derived even if the project is relocated to another countrywithin the European Union.

2.2 The reserve capital has increased to Euro 1,764,557 on account of additional investment of Euro 1,300,557 during the yearby Moser Baer India Limited, the Holding Company.

3 Notes to the income statement

3.1 Given the Company’s decision to relocate its proposed project for setting up manufacturing facility to another location withinEU, project expenses amounting to Euro 1,186,193 have been charged off to Profit and Loss account.

Place: New Delhi V.J. PRAKASHDate: June 07, 2006 Managing Director

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To ,The Members of Moser Baer Photo Voltaic Limited,

Your Directors are pleased to present the 1st Directors’ reportfor the period from 7 December, 2005 to 31 March, 2006.

Financial Results

Particulars (Amount in Rs.)

Other Income 24,594Loss Before Tax 22,871,020Less: Fringe Benefit Tax 14,427Loss After Tax Carriedto Balance Sheet 22,885,447

Operations

Your Company, a 100% subsidiary of Moser Baer India Limitedand which has been set-up with the object to manufacture,design, buy, sell, import and export all kinds of photovoltaiccells, modules and systems, was incorporated on 7 December,2005 and received the Certificate for Commencement ofBusiness on 4 January, 2006.

The Company has undertaken many steps to initiate thecommercial operations of the Company, some of which are asfollows:-

1. Moser Baer India Limited has made an initial equity capitalinvestment of Rs. 260.50 million in your Company.

2. The Company expects to be able to house its proposedunit for manufacture of photovoltaic cells, modules and

systems in the Special Economic Zone proposed to be setup by its holding company- Moser Baer India Limited or asuitable Special Purpose Vehicle.

3. Plant and machinery needed for the manufacturing activitiesof photovoltaic cells have been ordered and will be erectedand commissioned at site during the financial year2006-07.

4. Your Company has entered into agreements with leadinguniversities, research laboratories and organisations tocooperate on the development of PV technology.

5. Detailed design and engineering has been completed forthe facilites, products and equipment to facilitate a smoothstart-up for manufacturing.

Dividend

As the Company has not yet commenced its commercialoperations, the Board of Directors of the Company do notrecommend any dividend for the financial year ended on31 March, 2006.

Reserves

As the Company has no profits, the Board of Directors of theCompany does not recommend any amount to be carried tothe Reserves.

Directors

Mr. Deepak Puri, Mr. Ratul Puri and Mr. Harnam Dass Wahiare the First Directors of the Company, as per its Articles of

D i r e c t o r s ’ R e p o r t -D i r e c t o r s ’ R e p o r t -D i r e c t o r s ’ R e p o r t -D i r e c t o r s ’ R e p o r t -D i r e c t o r s ’ R e p o r t - M o s e r B a e r P h o t o V o l t a i c L i m i t e d M o s e r B a e r P h o t o V o l t a i c L i m i t e d M o s e r B a e r P h o t o V o l t a i c L i m i t e d M o s e r B a e r P h o t o V o l t a i c L i m i t e d M o s e r B a e r P h o t o V o l t a i c L i m i t e d

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Association. Pursuant to the provisions of the Companies Act,1956 read with the Articles of Association of the Company, theirrespective tenures will come to end at the ensuing AnnualGeneral Meeting. The Board of Directors recommends theirappointment as the Directors of the Company.

In terms of provisions of Section 260 of the Companies Act,1956, the Board had co-opted Mr. Rajesh Khanna, Mr. PrakashKarnik, Mr. John Levack and Mr. Bernard Gallus as theAdditional Directors of the Company at the Board Meeting heldon 24 January, 2006 and their respective tenures as AdditionalDirectors will expire at the ensuing Annual General Meeting.The Company has received notices under Section 257 of theCompanies Act, 1956 proposing their candidature for the officeof Directors.

Auditors

Pursuant to the provisions of Section 224 of the CompaniesAct, 1956, the Board of Directors of the Company had, at itsmeeting held on 23 December, 2005, appointed PriceWaterhouse, Chartered Accountants as the Statutory Auditorsof the Company to hold the office upto the conclusion of theensuing Annual General Meeting.

Price Waterhouse, Chartered Accountants, have offeredthemselves for re-appointment and a certificate has beenreceived from the Auditors to the effect that the re-appointment,if made, would be within the limits prescribed under Section224 (1B) of the Companies Act, 1956.

Particulars of Employees

There are no employees of the category mentioned in Section217(2A) of the Companies Act, 1956 read with the Companies(Particulars of Employees) Rules, 1975, as amended.

Conservation of Energy, Research and Development,Technology Absorption, Foreign Exchange Earnings andOutgo.

The information pertaining to conservation of energy, researchand development, technology absorption, foreign exchangeearnings and outgo, as required under Section 217(1)(e) of theCompanies Act, 1956 read with the Companies (Disclosure ofparticulars in the report of the Board of Directors) Rules, 1988is not applicable as the Company has not commenced itsoperations during the period under review.

Fixed Deposits

During the year under review, the Company has not acceptedany deposit under Section 58A of the Companies Act, 1956read with Companies (Acceptance of Deposits) Rules, 1975.

Directors’ Responsibility Statement

Your Directors state:-

(i) that in the preparation of the annual accounts, the applicableaccounting standards have been followed;

(ii) that we have selected such accounting policies and appliedthem consistently and made judgments and estimates thatare reasonable and prudent so as to give a true and fairview of the state of affairs of the Company at the end of thefinancial year 2005-2006 and of the loss of the Companyfor that year;

(iii) that we have taken proper and sufficient care for themaintenance of adequate accounting records in accordancewith the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventingand detecting fraud and other irregularities; and

(iv) that we have prepared the annual accounts on a goingconcern basis.

Conclusion

Your Directors place on record their appreciation for theoverwhelming co-operation and assistance received from theholding company, namely- Moser Baer India Limited, bankers,vendors, regulatory and government authorities. Your Directorsalso thank the employees at all levels, who through theirdedication, co-operation, support and smart work, are enablingthe Company to make rapid progress.

For and on behalf of the Board of Directors

Sd/-

Place: New Delhi Deepak PuriDate: 7 June, 2006 Chairman & Managing Director

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Auditors’ Report to the members of Moser Baer Photo Voltaic Limited

1. We have audited the attached Balance Sheet of Moser Baer Photo Voltaic Limited, as at March 31, 2006, and the related Profitand Loss Account and Cash Flow Statement for the period ended on that date annexed thereto, which we have signed underreference to this report. These financial statements are the responsibility of the company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government of India in terms of sub-section(4A) of Section 227 of ‘The Companies Act, 1956’ of India (the ‘Act’) and on the basis of such checks of the books and records ofthe company as we considered appropriate and according to the information and explanations given to us, we further report that:

3.1 As the company has not acquired any fixed asset during the period, clauses (i)(a), (i)(b) and (i)(c) of paragraph 4 of theCompanies (Auditor’s Report) Order, 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004are not applicable to the Company for the current period.

3.2 As the company does not have inventories at the period end, clauses (ii)(a), (ii)(b) and (ii)(c) of paragraph 4 of the Companies(Auditor’s Report) Order 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004, are not applicablefor the current period.

3.3 The company has not granted or taken any loans, secured or unsecured, to or from companies, firms or other partiescovered in the register maintained under Section 301 of the Act. As the Company has not granted or taken any loans,secured or unsecured, to or from companies, firms or other parties covered in the register maintained under Section 301 ofthe Act, clauses (iii)(b), (iii)(c), (iii)(d), (iii)(e), (iii)(f) and (iii)(g) of the paragraph 4 of the Companies (Auditor’s Report) Order,2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004 are not applicable to the Company forthe current period.

3.4 In our opinion and according to the information and explanations given to us, having regard to the explanation that certainitems purchased are of special nature for which suitable alternative sources do not exist for obtaining comparative quotations,there is an adequate internal control system commensurate with the size of the company and the nature of its business forthe purchase of fixed assets. Further, on the basis of our examination of the books and records of the company, andaccording to the information and explanations given to us, we have neither come across nor have been informed of anycontinuing failure to correct major weaknesses in the aforesaid internal control system.

3.5 (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangementsreferred to in Section 301 of the Act have been entered in the register required to be maintained under that section.

(b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance ofsuch contracts or arrangements and exceeding the value of Rupees Five Lakhs in respect of any party during theperiod have been made at prices which are reasonable having regard to the prevailing market prices at the relevanttime except for purchase of services aggregating to Rs. 267.91 lakhs as there are no market prices comparable forsuch services, which however, are considered to be of special nature as explained by the management of the Company.

3.6 The company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA or any otherrelevant provisions of the Act and the rules framed there under.

3.7 As the company is not listed on any stock exchange or the paid-up capital and reserves as at the commencement of thefinancial period did not exceed Rupees Fifty Lakhs or the average annual turnover for a period of three consecutive financialyears immediately preceding the financial year did not exceed Rupees Five Crores, clause (vii) of paragraph 4 of theCompanies (Auditor’s Report) Order, 2003 is not applicable to the company for the current period.

3.8 As the company has not yet commenced any manufacturing or sale of photovoltaic modules or cells, the provisions ofclause (viii) of paragraph 4 of the Companies (Auditor’s Report) Order, 2003 are not applicable to the company for thecurrent period.

3.9 (a) According to the information and explanations given to us and the records of the company examined by us, in ouropinion, the company is generally regular in depositing the undisputed statutory dues including provident fund, income-tax, service tax, cess and other material statutory dues as applicable with the appropriate authorities.

(b) According to the information and explanations given to us and the records of the company examined by us, there areno dues of income-tax, service tax and cess as at March 31, 2006 which have not been deposited on account of adispute.

3.10 As the company is registered for a period less than five years, clause (x) of paragraph 4 of the Companies (Auditor’s Report)Order, 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004, is not applicable to the companyfor the current period.

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3.11 As the company has not availed any loan during the period, clause (xi) of paragraph 4 of the Companies (Auditor’s Report)Order, 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004, is not applicable to the companyfor the current period.

3.12 The company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures andother securities.

3.13 The provisions of any special statute applicable to chit fund/nidhi/mutual benefit fund/societies are not applicable to thecompany.

3.14 In our opinion, the company is not a dealer or trader in shares, securities, debentures and other investments.

3.15 In our opinion, and according to the information and explanations given to us, the company has not given any guarantee forloans taken by others from banks or financial institutions during the period.

3.16 The company has not obtained any term loans.

3.17 On the basis of an overall examination of the balance sheet of the company, in our opinion and according to the informationand explanations given to us, there are no funds raised on a short-term basis which have been used for long-term investment.

3.18 As the company has not made preferential allotment of shares to parties and companies covered in the register maintainedunder Section 301 of the Act during the period, provision of clause (xviii) of paragraph 4 of the Companies (Auditor’s Report)Order, 2003 is not applicable to the company for the current period.

3.19 The company has not issued debentures during the period.

3.20 The company has not raised any money by public issues during the period.

3.21 During the course of our examination of the books and records of the company, carried out in accordance with the generallyaccepted auditing practices in India, and according to the information and explanations given to us, we have neither comeacross any instance of fraud on or by the company, noticed or reported during the period, nor have we been informed ofsuch case by the management.

4. Further to our comments in paragraph 3 above, we report that:

(a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary forthe purposes of our audit;

(b) In our opinion, proper books of account as required by law have been kept by the company so far as appears from ourexamination of those books;

(c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with thebooks of account;

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply withthe accounting standards referred to in sub-section (3C) of Section 211 of the Act;

(e) On the basis of written representations received from the directors, as on March 31, 2006 and taken on record by the Boardof Directors, none of the directors is disqualified as on March 31, 2006 from being appointed as a director in terms of clause(g) of sub-section (1) of Section 274 of the Act;

(f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statementstogether with the notes thereon and attached thereto give in the prescribed manner the information required by the Act andgive a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the company as at March 31, 2006;

(ii) in the case of the Profit and Loss Account, of the loss for the period ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows for the period ended on that date.

Anuradha TuliPartnerMembership Number - F 85611For and on behalf of

Place : New Delhi Price WaterhouseDate : June 7, 2006 Chartered Accountants

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MOSER BAER PHOTO VOLTAIC LIMITEDBALANCE SHEET AS AT MARCH 31, 2006

Schedule As at 31.03.2006Rs.

SOURCES OF FUNDS:

SHAREHOLDERS’ FUNDS:Share Capital 1 260,500,000

TOTAL 260,500,000

APPLICATION OF FUNDS:

FIXED ASSETS:Capital Work-in-progress (Capital advances) 206,779,500

Incidental expenditure pending capitalisation 2 12,605,821

CURRENT ASSETS, LOANSAND ADVANCES:Cash and Bank 3 52,086,513Other Current Assets 4 19,075Loans and Advances 5 278,733

52,384,321

Less: CURRENT LIABILITIESAND PROVISIONS: 6Current Liabilities 34,005,858Provisions 149,231

34,155,089

Net Current Assets 18,229,232

Profit and Loss Account 22,885,447

TOTAL 260,500,000

ACCOUNTING POLICIES AND NOTES 9TO ACCOUNTS

This is the Balance Sheet referred to in our The schedules referred to above form anreport of even date. integral part of the Balance Sheet.

By order of the BoardFor and on behalf of MOSER BAER PHOTO VOLTAIC LIMITED

Anuradha Tuli Deepak Puri Harnam D.WahiPartner Managing Director DirectorMembership Number-F-85611For and on behalf ofPRICE WATERHOUSEChartered Accountants Saurabh Mathur

Company Secretary

Place: New DelhiDate: June 7, 2006

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MOSER BAER PHOTO VOLTAIC LIMITEDPROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED MARCH 31, 2006

Schedule For the Periodended 31.03.2006

Rs.INCOME:Other IncomeInterest Received on Fixed Deposit with Banks (Gross) 24,594(Tax deducted at source Rs. 5,519)

24,594EXPENDITURE:Personnel Expenses 7 6,134,447Administration & Other Expenses 8 16,761,167

22,895,614

Loss before Tax 22,871,020

Less : Tax ExpenseFringe Benefit Tax 14,427

Loss carried to Balance Sheet 22,885,447

Earnings Per Share (Face Value of Rs.10 each fully paid up)Basic and Diluted: (6.16)(Refer Note 5 of Schedule 9-Part B)

ACCOUNTING POLICIES AND NOTES 9TO ACCOUNTS

This is the Profit and Loss Account referred to in our The schedules referred to above form anreport of even date. integral part of the Profit and Loss Account.

By order of the BoardFor and on behalf of MOSER BAER PHOTO VOLTAIC LIMITED

Anuradha Tuli Deepak Puri Harnam D.WahiPartner Managing Director DirectorMembership Number-F-85611For and on behalf ofPRICE WATERHOUSEChartered Accountants Saurabh Mathur

Company Secretary

Place: New DelhiDate: June 7, 2006

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MOSER BAER PHOTO VOLTAIC LIMITEDCASH FLOW STATEMENT FOR THE PERIOD ENDED MARCH 31, 2006

For the Periodended 31.03.2006

Rs.Cash flow from operating activities:Net Profit/ (Loss) before tax (22,871,020)

Adjustments for:Interest Income (24,594)Provision for Gratuity & Leave Encashment 4,330

Operating profit before working capital changes (22,891,284)

Adjustments for changes in working capital :(Increase)/ Decrease in Other Receivables (273,214)Increase/ (Decrease) in Trade and Other Payables 34,005,858

Net cash from operating activities A 10,841,360

Cash flow from Investing activities:Capital Advance (206,779,500)Incidental Expenditure Pending Capitalisation (12,475,347)

Net cash used in investing activities B (219,254,847)

Cash flow from financing activities:

Proceeds from fresh issue of Share Capital 260,500,000

Net cash used in financing activities C 260,500,000

Net Increase/(Decrease) in Cash & Cash Equivalents (A+B+C) 52,086,513

Cash and cash equivalents at beginning of the year -

Cash and cash equivalents at end of the year 52,086,513

Cash and cash equivalents compriseCash 7,023Balance with Scheduled Banks 4,455,490Fixed Deposits(Refer Note 3 below) 47,624,000

Total 52,086,513

Notes :1. The above Cash flow statement has been prepared under the indirect method set out in AS-3 issued by the Institute of Chartered

Accountants of India.2. Figures in brackets indicate cash outgo.3. Cash and cash equivalents includes Rs.36,234,000 which are not available for use by the Company. (Refer Schedule 3 of the

Balance Sheet).

This is the Cash Flow Statement referred to in our The schedules referred to above form anreport of even date. integral part of the Cash Flow Statement.

By order of the BoardFor and on behalf of MOSER BAER PHOTO VOLTAIC LIMITED

Anuradha Tuli Deepak Puri Harnam D.WahiPartner Managing Director DirectorMembership Number-F-85611For and on behalf ofPRICE WATERHOUSEChartered Accountants Saurabh Mathur

Company Secretary

Place: New DelhiDate: June 7, 2006

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MOSER BAER PHOTO VOLTAIC LIMITEDSCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006Rs.

SCHEDULE 1 - SHARE CAPITAL:

Authorised:3,00,00,000 Equity Shares of Rs.10 each 300,000,000

300,000,000

Issued, Subscribed and Paid-up:2,60,50,000 Equity Shares of Rs.10 each fully paid in cash 260,500,000(Refer Note 1 on Schedule 9 - Part B)

TOTAL 260,500,000

SCHEDULE 2 - INCIDENTAL EXPENDITURE PENDINGCAPITALISATION

Salaries,allowances and other benefits:Salaries and Allowances 7,698,824Contribution to Provident and Other Funds 119,567

7,818,391

Staff Welfare 47,464Travelling Expenses 2,325,031Miscellaneous expenses 2,466,441Legal and Professional charges 991,445Insurance 219,299

13,868,071Less : Gain on Exchange Fluctuation 1,262,250

TOTAL 12,605,821

SCHEDULE 3 - CASH AND BANK:

Cash in hand 7,023

Balances with Scheduled Banks:Current Accounts 4,455,490Fixed Deposit Accounts (Includes Rs.36,234,000 held underlien with various authorities) 47,624,000

52,079,490

TOTAL 52,086,513

SCHEDULE 4- OTHER CURRENT ASSETS:Accrued Interest on Fixed Deposits 19,075

TOTAL 19,075

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MOSER BAER PHOTO VOLTAIC LIMITEDSCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006Rs.

SCHEDULE 5- LOANS AND ADVANCES:(Unsecured - Considered Good)

Advances recoverable in cash or in kind or for value to be received 223,214Security Deposits 50,000Advance Tax/Tax Deducted at Source 5,519

TOTAL 278,733

SCHEDULE 6 - CURRENT LIABILITIES & PROVISIONS:

A Current Liabilities:Sundry Creditors- Total outstanding dues to Small Scale Industrial Undertakings -- Total outstanding dues of creditors other than Small 33,741,478 Scale Industrial Undertakings(Includes Rs. 26,791,427 due to the holding company)Other Liabilities 264,380

TOTAL 34,005,858

B Provisions:Provision for Staff Benefits 134,804Provision for Fringe Benefit Tax 14,427

TOTAL 149,231

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MOSER BAER PHOTO VOLTAIC LIMITEDSCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT

FOR THE PERIOD ENDED ON MARCH 31, 2006

For the Periodended 31.03.2006

Rs.SCHEDULE 7- PERSONNEL EXPENSES:(Refer Note 4 on Schedule 9 - Part A)

Salaries, Allowances and Bonus 6,130,117Gratuity 2,250Leave Encashment 2,080

TOTAL 6,134,447

SCHEDULE 8- ADMINISTRATION & OTHER EXPENSES:(Refer Note 7 on Schedule 9 - Part A)

Printing & Stationery 19,770Registration & Filing fee 2,271,845Director’s Sitting fee 30,000Travelling Expenses 3,061,348Remuneration to Auditors 505,080Legal and Professional 10,080,448Conveyance 19,319Books & Periodicals 164,923Postage, Telephone & Telegraph 34,336Business Development 435,337Bank Charges 21,130Entertainment Expenses 104,498Miscellaneous Expenses 13,133

TOTAL 16,761,167

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Part-A SIGNIFICANT ACCOUNTING POLICIES

1 METHOD OF ACCOUNTING

The financial statements are prepared in accordance with the historical cost convention on an accrual basis of accounting and inaccordance with generally accepted accounting practices in India and conform to the applicable Accounting Standards issued bythe Institute of Chartered Accountants of India and relevant provisions of the Companies Act, 1956.

2 FIXED ASSETS

Tangible Fixed Assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specificallyattributable to its acquisition and bringing it to its working condition for its intended use.

Incidental Expediture pending allocation, will be allocated to productive fixed assets in the year of commencement of the relatedproject.

3 DEPRECIATION / AMORTISATION

Depreciation on tangible fixed assets is provided on straight-line method on pro-rata basis at rates specified in Schedule XIV to theCompanies Act, 1956. Assets individually costing less than Rs.5,000 are fully depreciated in the year of purchase.

4 RETIREMENT BENEFITS

Liability towards leave encashment and gratuity is accrued based on the assumption that such benefits are payable to all employeesas at the period end and is not determined actuarially.

Company’s contribution to Provident Fund is accrued as per terms of contracts with the employees and provisions of EmployeeProvident Fund and Miscellaneous Provisions Act,1952.

5 FOREIGN CURRENCY TRANSACTIONS

Transactions in foreign currency are converted at the exchange rate prevailing at the date of the transaction. Foreign currencymonetary assets and liabilities not covered by forward exchange contracts are restated at the year end rates and the resultant gainsor losses are recognised in the Profit and Loss Account, except exchange differences arising on settlement and/or translation offoreign currency liabilities relating to acquisition of fixed assets which are adjusted against the carrying costs of respective fixedassets.

6 TAXATION

Income Tax:

Provision is made for current tax liability based on the current rate of tax in accordance with the provisions of Income Tax Act, 1961.

Deferred Tax:

Deferred tax assets (DTA) and liabilities are computed on the timing differences at the balance sheet date between the carryingamount of assets and liabilities and their respective tax bases. DTA is recognised based on management estimates of reasonable/virtual certainty that sufficient future taxable income will be available against which such DTA can be realised. The deferred taxcharge or credit is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balancesheet date.

7 PRELIMINARY EXPENSES

Preliminary expenses are charged to the Profit and Loss Account in the year when these are incurred.

Part-B NOTES TO ACCOUNTS

1 Legal Status and ActivitiesThe Company was incorporated on December 7, 2005 under the Companies Act, 1956. On December 23, 2005, the Companyissued 50,000 equity shares of Rs. 10 each fully paid-up to 7 subscribers and on January 24, 2006, and March 30, 2006, theCompany further issued 2,00,00,000 and 60,00,000 respectively, equity shares of Rs. 10 each fully paid up to Moser Baer IndiaLimited. The Company is a subsidiary of Moser Baer India Limited. The Company is primarily engaged in the business of manufacturingand sale of photovoltaic cells and modules and these are the first financial statements of the Company for the period since inceptioni.e December 7, 2005 to March 31, 2006 and accordingly no comparative figures are available.

2 Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances) - Rs.767,200,500.

MOSER BAER PHOTO VOLTAIC LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE PERIOD ENDED MARCH 31, 2006

SCHEDULE 9 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

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Part-B NOTES TO ACCOUNTS

3 Related Party Transactions:

In accordance with the requirements of Accounting Standard - 18, ‘Related Party Disclosures’, the names of the related partieswhere control/ability to exercise significant influence exists, along with the aggregate amount of transactions and year end balanceswith them, as identified and certified by the management, are given below:

3.1 Nature of relationship Name of the related partyHolding Company Moser Baer India Limited

Fellow Subsidiaries European Optic Media Technology GmbH,Moser Baer SEZ Developer Limited

Key Management Personnel Mr. Deepak Puri

3.2 Details of significant transactions with the Related Parties in the ordinary course of business:

(Amount in Rupees)

Particulars Holding Company Total

Expense for services rendered 26,791,427 26,791,427

Share Capital 260,500,000 260,500,000

Outstanding payable

-In respect of expenses 26,791,427 26,791,427

4 Segment information

As the company has yet to commence commercial production, there are no reportable segments for the period under audit.

5 Earnings Per Share (EPS)

a) Calculation of Weighted Average number of equityshares of Rs.10 each fully paid upEquity Shares issued on December 23, 2005 50,000Equity Shares issued on January 24, 2006 20,000,000Equity Shares issued on March 30, 2006 6,000,000Total number of equity shares outstanding at the end of the period 26,050,000Weighted Average number of equity shares outstanding during the period 3,717,671

b) Loss after tax available for equity share holders (Rs.) 22,885,447Basic & Diluted Earnings Per Share (Rs.) (6.16)

6 In view of there being no taxable profit under the Income Tax Act, 1961, no provision for Income Tax is considered necessary for thecurrent period. In absence of virtual certainty of realisability of unabsorbed losses assessable under the Income Tax Act, 1961,deferred tax asset has not been created for the period.

7 Remuneration To Auditors

For Statutory Audit (including Service Tax) 505,080

Total 505,080

8 Based on information provided by the Company, there are no dues to Small Scale Industrial undertakings as at March 31, 2006.

9 As the Company has not commenced commercial operations during the period ended March 31, 2006, the other disclosurerequirements under paragraph 3 & 4 of Part II of Schedule VI of the Companies Act, 1956 are not applicable for the period.

By order of the BoardFor and on behalf of MOSER BAER PHOTO VOLTAIC LIMITED

Deepak Puri Harnam D. Wahi Saurabh MathurManaging Director Director Company Secretary

Place: New DelhiDate: June 07, 2006

MOSER BAER PHOTO VOLTAIC LIMITEDSCHEDULES FORMING PART OF THE ACCOUNTS FOR THE PERIOD ENDED MARCH 31, 2006

SCHEDULE 9 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (CONTD.)

For the period ended31.03.2006

(Nos.)

Rs.

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MOSER BAER PHOTO VOLTAIC LIMITEDBALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I Registration Details

Registration No : U40106DL2005PLC143431 State Code: 55Balance Sheet Date: 31.03.2006

II Capital Raised during the year (Amount in Rs.Thousands)

Public Issue : NIL Right Issue : NILBonus issue : NIL Private Placement: 260500

III Position of Mobilisation and Deployment of Funds (Amount in Rs.Thousands)

Total Liabilities: 260,500 Total Assets: 260,500

SOURCE OF FUNDS:

Paid up Capital: 260,500 Reserves & Surplus : NILShare Warrant NIL Unsecured Loans : NILSecured Loans : NIL Deferred Tax Laiblity NIL

APPLICATION OF FUNDS:

Net Fixed Assets : 219,386 Investments : NILNet Current Assets : 18,229 Misc.Expenditure : NILAccumulated Losses: 22,885

IV Performance of Company (Amount in Rs.Thousands)

Turnover : 25 Total Expenditure : 22,896Loss Before Tax : 22,871 Loss After Tax : 22,885Earning per share in Rs: (6.16) Dividend Rate : NIL

V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)

Item Code No: (ITC Code) 8541.40Product Description: Photovoltaic Cells and Modules

Deepak Puri Harnam D. Wahi Saurabh MathurManaging Director Director Company Secretary

Place: New DelhiDate: June 07, 2006

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1 Name European Optic Moser Baer Moser BaerMedia Technology Photo Voltaic SEZ Developer

GmbH Limited Limited

2 Financial Year of the subsidiary company 31 March, 2006 31 March, 2006 31 March, 2006

3 Holding Company’s interest in the Subsidiary 100% of Equity 100% of Equity 100% of EquityCompany Share Capital Share Capital Share Capital

4 Net aggregate amount of the Profit/(Loss) of thesubsidiary company (concerning the members ofMoser Baer India Limited) not dealt with or providedfor in the accounts of Moser Baer India Limited

(a) For the current year (Euro 1,398,565)* (Rs. 22,885,447) (Rs. 21,202)(Rs. 75,436,205)

(b) For the previous years since it became a (Euro 833,202)* N.A N.Asubsidiary (Rs. 42,003,763)

5 Net aggregate amount of the Profit/(Loss) of thesubsidiary company (concerning the members ofMoser Baer India Limited) dealt with or provided forin the accounts of Moser Baer India Limited

(a) For the current year Nil Nil Nil

(b) For the previous years since it became asubsidiary Nil Nil Nil

*Converted at the respective year-end exchange rate.

STATEMENT UNDER SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIES.

Deepak Puri Harnam D. Wahi Minni Katariya Yogesh Mathur Karandeep SinghChairman and Director Company Secretary Group CFO Vice President -Managing Director Financial Planning and Control

Place: New DelhiDate: June 07, 2006

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MOSER BAER INDIA LIMITEDCONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006

Schedule As at 31.03.2006 As at 31.03.2005Rs. Rs.

SOURCES OF FUNDS:

SHAREHOLDERS’ FUNDS:Capital 1 1,115,129,440 1,115,129,440Share Warrants - 181,440,000(Refer Note 13 of Schedule 20- PartB)Reserves and Surplus 2 18,772,809,741 18,786,427,211

19,887,939,181 20,082,996,651

LOAN FUNDS:Secured Loans 3 16,465,401,035 16,037,934,262Unsecured Loans 4 89,240,000 168,278,740Deferred Tax Liability (Net) - 14,045,000(Refer Note 7 of Schedule 20- PartB)

TOTAL 36,442,580,216 36,303,254,653

APPLICATION OF FUNDS:FIXED ASSETS: 5Gross Block 34,936,740,065 31,919,622,736Less: Depreciation 10,617,357,936 7,447,934,031Net Block 24,319,382,129 24,471,688,705Capital Work-in-progress 5 1,526,078,198 510,232,739

25,845,460,327 24,981,921,444

INVESTMENTS 6 396,579,180 1,935,634,833

CURRENT ASSETS, LOANSAND ADVANCES:Inventories 7 4,469,864,241 3,435,355,685Sundry Debtors 8 3,798,874,698 3,315,436,156Cash and Bank 9 2,899,984,934 4,592,655,544Other Current Assets 10 172,079,386 196,637,287Loans and Advances 11 1,510,995,277 600,944,476

12,851,798,536 12,141,029,148Less: CURRENT LIABILITIESAND PROVISIONS: 12Current Liabilities 2,379,144,020 2,511,208,605Provisions 272,113,807 244,122,167

2,651,257,827 2,755,330,772Net Current Assets 10,200,540,709 9,385,698,376TOTAL 36,442,580,216 36,303,254,653ACCOUNTING POLICIES AND NOTES 20TO ACCOUNTS

This is the Balance Sheet referred to in our The schedules referred to above form anreport of even date. integral part of the Balance Sheet.

By order of the Boardfor and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Harnam D. Wahi Minni KatariyaPartner Chairman and Director Company SecretaryMembership Number-F-85611 Managing DirectorFor and on behalf ofPRICE WATERHOUSEChartered Accountants

Yogesh Mathur Karandeep SinghGroup CFO Vice President -

Place: New Delhi Financial Planning andDate: June 07, 2006 Control

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MOSER BAER INDIA LIMITEDCONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Schedule Year ended 31.03.2006 Year ended 31.03.2005Rs. Rs.

INCOME:Gross Sales 17,319,141,334 13,528,572,918Less: Excise Duty 13 354,905,432 404,450,114Less: Countervailing duty 323,033,660 320,089,896

16,641,202,242 12,804,032,908Other Income 14 558,365,591 675,388,044Increase in stock ofFinished Goods/Work in Progress 15 550,083,960 869,081,448

17,749,651,793 14,348,502,400EXPENDITURE:Purchase of Finished Goods 11,465,411 -Raw Materials and Components Consumed 7,862,238,001 5,325,164,241Packing Material Consumed 1,903,880,519 1,858,046,484Stores, Spares and Tools Consumed 632,020,268 560,009,428Personnel Expenses 16 1,048,482,770 730,521,889Administration & Other Expenses 17 2,302,411,358 1,990,928,850Interest & Finance Charges 18 935,627,473 740,314,126Depreciation 19 3,167,598,400 2,820,504,533

17,863,724,200 14,025,489,551(Loss)/Profit before Tax and Prior Period Items (114,072,407) 323,012,849Prior Period (Income) / Expense (Net) (6,596,259) 56,687,369(Refer Note 6 of Schedule 20- PartB)(Loss)/Profit before Tax and after Prior Period Items (107,476,148) 266,325,480Tax Expense:Current Tax [net of provision written back in respect ofearlier years of Rs. 7,010,518 (Previous year Rs. Nil) andincluding Wealth Tax Rs. 79,530 (Previous Year Rs. 174,982)] (6,316,613) 26,256,277Deferred Tax (Refer Note 7 of Schedule 20- PartB) (14,045,000) (331,099,000)Fringe Benefit Tax 13,252,497 -(Loss)/Profit after Tax (100,367,032) 571,168,203(Loss)/Profit for the year before share of profit of Associate (100,367,032) 571,168,203Share in Profit of Associate 35,646,181 26,749,815Net (Loss)/Profit for the year (64,720,851) 597,918,018Add:- Profit carried forward from last year 439,996,739 -Profit available for appropriation 375,275,888 597,918,018APPROPRIATIONS:Proposed Dividend:Proposed Dividend on Equity Shares 111,512,944 111,512,944Corporate Tax on Proposed Dividend 15,639,690 15,639,690Transfer to General Reserve - 30,768,645Balance carried to Balance Sheet 248,123,254 439,996,739Total 375,275,888 597,918,018Earnings Per Share (Face Value of Rs. 10 each)Basic and Diluted: (0.58) 5.36(Refer Note 10 of Schedule 20-Part B)

ACCOUNTING POLICIES AND NOTES 20TO ACCOUNTSThis is the Profit and Loss Account referred to in our The schedules referred to above form anreport of even date. integral part of the Profit and Loss Account.

By order of the Boardfor and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Harnam D. Wahi Minni KatariyaPartner Chairman and Director Company SecretaryMembership Number-F-85611 Managing DirectorFor and on behalf ofPRICE WATERHOUSEChartered Accountants

Yogesh Mathur Karandeep SinghGroup CFO Vice President -

Place: New Delhi Financial Planning andDate: June 07, 2006 Control

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MOSER BAER INDIA LIMITEDCONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006

Year ended 31.03.2006 Year ended 31.03.2005Rs. Rs.

Cash flow from operating activities:Net (loss)/profit before tax but after prior period items (107,476,148) 266,325,480

Adjustments for:Depreciation 3,167,598,400 2,820,504,533Interest Expense 874,310,935 666,335,464Interest Income (187,108,243) (280,399,690)Income from Investment - Dividends (13,748,911) (49,593,596)Lease Rent - Finance Lease 28,580 268,411(Profit)/Loss on Fixed Assets sold (70,000) 17,942(Profit)/Loss on sale of Investments (417,759) (3,500,381)Debts / Advances Written off 698,988 23,189,990Liability no longer required written back (13,834,793) (100,508,020)Provision for Gratuity & Leave Encashment 27,029,024 8,073,704Stock written off 23,877 5,114,866Provision for diminution in value of Investments - 4,268Project expenses written off 63,981,264 18,183,012Unrealised foreign exchange (gain) /loss (86,931,692) (127,300,117)Prior Period (Income)/Expenses (Net) (6,596,259) 56,687,369

Operating profit before working capital changes 3,717,487,263 3,303,403,235

Adjustments for changes in working capital :(Increase)/Decrease in Sundry Debtors (507,291,203) (155,559,904)(Increase)/Decrease in Other Receivables (899,332,005) 110,663,095(Increase)/Decrease in Inventories (1,034,532,432) (1,455,494,127)Increase/(Decrease) in Trade and Other Payables 547,069,239 (665,922,530)

Cash generated from operations 1,823,400,862 1,137,089,769Taxes (Paid) / Received (Net of TDS) (4,127,890) (59,479,104)Prior Period Income/(Expenses) (Net) 6,596,259 (56,687,369)

Net cash from operating activities 1,825,869,231 1,020,923,296

Cash flow from Investing activities:

Purchase of fixed assets (4,783,892,858) (3,571,197,054)Proceeds from Sale of fixed assets 70,000 1,369,697Proceeds from Sale of Investments 3,807,414,363 4,053,194,253Purchase of investments (2,231,863,578) (5,576,145,834)Loans given (46,359,661) -Interest Received 224,246,349 233,241,542Dividend Received 13,748,911 49,593,596

Net cash used in investing activities (3,016,636,474) (4,809,943,800)

Conted...

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MOSER BAER INDIA LIMITEDCONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006

Year ended 31.03.2006 Year ended 31.03.2005Rs. Rs.

Cash flow from financing activities:

Proceeds from long term borrowingsReceipts, excludes Gain on account of exchangefluctuation of Rs.179,853,336 2,812,809,033 2,943,540,490(Previous year (Loss) Rs. 305,229,483) on reinstatementof foreign currency loansPayments (2,883,012,252) (2,921,176,880)Proceeds from short term borrowings (Net) 582,673,696 1,291,078,304Interest on Finance Lease (28,580) (268,411)Interest Paid (886,831,220) (716,818,840)Dividend Paid (111,874,354) (167,421,803)Dividend Tax Paid (15,639,690) (21,431,394)Net cash used in financing activities (501,903,367) 407,501,466

Net Increase/(Decrease) in Cash & Cash Equivalents (1,692,670,610) (3,381,519,038)

Cash and cash equivalents at beginning of the year 4,592,655,544 7,974,174,582

Cash and cash equivalents at end of the year 2,899,984,934 4,592,655,544

Cash and cash equivalents comprise

Cash, Cheques & Drafts (in hand) and Remittances in transit 11,077,882 79,523,373Fixed Deposits 2,755,306,109 4,315,915,078Balance with Scheduled Banks 133,600,943 197,217,093

Notes :1. The above Cash flow statement has been prepared under the indirect method set out in AS-3 issued by the Institute of Chartered

Accountants of India.2. Figures in brackets indicate cash outgo.3. Cash and cash equivalents include Rs. 544,809,698 (Previous Year Rs. 688,548,853) which are not available for use by

the Company. (Refer schedule 9 in the accounts)

This is the Cash Flow Statement referred to in our By order of the Boardreport of even date. for and on behalf of MOSER BAER INDIA LIMITED

Anuradha Tuli Deepak Puri Harnam D. Wahi Minni KatariyaPartner Chairman and Director Company SecretaryMembership Number-F-85611 Managing DirectorFor and on behalf ofPRICE WATERHOUSEChartered Accountants

Yogesh Mathur Karandeep SinghGroup CFO Vice President -

Place: New Delhi Financial Planning andDate: June 07, 2006 Control

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117

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006 As at 31.03.2005Rs. Rs.

SCHEDULE 1 - CAPITAL:

Authorised:142,500,000 (Previous Year 142,500,000) Equity Shares of Rs.10 each 1,425,000,000 1,425,000,000

750,000 (Previous Year 750,000) Preference Shares of Rs.100 each 75,000,000 75,000,000

1,500,000,000 1,500,000,000Issued, Subscribed and Paid-up:111,512,944 (Previous year 111,512,944)Equity Shares of Rs.10 each fully paid 1,115,129,440 1,115,129,440

TOTAL 1,115,129,440 1,115,129,440

SCHEDULE 2 - RESERVES AND SURPLUS:

Capital Reserve:Share Warrants Forfeited (Refer Note 13 of Schedule 20-Part B) 181,440,000 -State Capital Investment Subsidy - 1,000,000Less: Transferred to General Reserve - 1,000,000

181,440,000 -

Share Premium Account:

As per last Balance Sheet 8,891,620,004 8,891,620,004

8,891,620,004 8,891,620,004

Profit and Loss Account Balance 248,123,254 439,996,739

General Reserve:As per last Balance Sheet 9,450,180,796 9,418,412,151Add: State Capital Investment Subsidy transferred. - 1,000,000Add: Transferred from profit and loss account during the year - 30,768,645

9,450,180,796 9,450,180,796

Foreign Currency Translation Reserve:As per last Balance Sheet 4,629,672 (2,900,663)Add: Additions during the year (3,183,985) 7,530,335

1,445,687 4,629,672

TOTAL 18,772,809,741 18,786,427,211

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118

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006

As at 31.03.2006 As at 31.03.2005Rs. Rs.

SCHEDULE 3- SECURED LOANS:

Term Loans (Refer notes below)From Banks:Rupee Loans, including interest accrued and due Rs. 22,662,800 8,576,805,156 6,442,303,348(Previous Year Rs. 7,607,246)Foreign Currency Loans 2,986,720,655 4,839,745,708

11,563,525,811 11,282,049,056

From Others:Foreign Currency Loans 676,375,000 1,192,852,754

12,239,900,811 12,474,901,810

Other Loans:Short Term Loans from Banks:Secured by hypothecation of stock-in-trade and book debts 4,031,142,586 3,410,793,514Including interest accrued and due Rs.755,336 (Previous Year Rs. NIL)

Secured by lien on Fixed Deposits 193,234,233 150,498,341

From Others:Secured by hypothecation of specific vehicles 1,123,405 1,740,597

4,225,500,224 3,563,032,452

TOTAL 16,465,401,035 16,037,934,262

Notes:

1 Rupee Term loans from State Bank of India, Canara Bank, Federal Bank, Union Bank of India, Syndicate Bank, United Bank ofIndia, State Bank of Saurashtra, Indian Bank, State Bank of Mysore, State Bank of Indore, Vijaya Bank, Punjab National Bank, StateBank of Travancore, Oriental Bank of Commerce, EXIM Bank R&D Loans and Foreign currency loans from banks / financialinstitutions are secured by way of first mortgage and charge on all the immovable properties and movable fixed assets, present andfuture, of the Company (subject to prior charge on specified movables as otherwise stated, including in favour of the company’sbankers by way of security for the borrowing for working capital), ranking pari-passu with charges for the Term Loans.

2 Rupee Term loans from UCO Bank and State Bank of Patiala are secured by way of first charge on whole of the movable fixedassets.

3 Short Term loans from HSBC Bank, The Bank of Nova Scotia, State Bank of India, State Bank of Bikaner and Jaipur, State Bank ofPatiala, State Bank of Travancore, Union Bank of India are further secured by way of second charge on all the immovable proper-ties.

4 Term Loans repayable within one year Rs. 3,662,374,088 (Previous year Rs. 2,892,286,064). Other Loans repayable within oneyear Rs. 1,123,405 (Previous year Rs. 617,192).

SCHEDULE 4 - UNSECURED LOANS:Short term loans from BankForeign Currency Loan 89,240,000 168,278,740USD 2,000,000 (Previous Year USD 3,664,117 & Euro 123,493)

TOTAL 89,240,000 168,278,740

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120

MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31,2006

As at 31.03.2006 As at 31.03.2005

Rs. Rs. Rs. Rs.SCHEDULE 6 - INVESTMENTS:Long TermUnquoted (Non Trade):

Investments in OthersCAPCO LUXEMBOURG S.a.r.l.1 Equity share of Euro 125 each 4,961 4,96163,366 Preferred Equity Certificates of Euro 125 each 320,668,823 320,668,823

320,673,784 320,673,784Global Data Media FZ-LLC (Associate) 7,194 Shares of AED 1,000 each 75,905,396 88,513,355 (Refer Note 2.2 of Schedule 20 - Part A)

Short TermCurrent (Unquoted - Others)(Refer Note 4 of Schedule 20- PartB)Investment in Mutual Funds - 1,526,451,962Less: Diminution in value of investment - 4,268

- 1,526,447,694

Total (aggregate value of unquoted investments) 396,579,180 1,935,634,833

SCHEDULE 7 - INVENTORIES:

Stores and spare parts 519,591,872 419,856,237[including in transit Rs. 4,539,840 (Previous Year Rs. 11,125,523)net of provision for non-moving stock Rs. 232,201(Previous Year Rs 1,160,013)]Raw Materials and Components 1,626,244,619 1,253,790,136[including in transit Rs. 578,514,319 (Previous Year Rs. 344,038,127)]Packing Material 111,423,502 103,806,561[including in transit Rs. 93,868,444 (Previous Year Rs. 960,935) net of provision for non-moving stock Rs. 4,153,529(Previous Year Rs 3,907,365)]Work in Progress 899,748,788 684,391,766Manufactured Finished Goods 1,304,059,683 972,378,704Traded Goods 8,795,777 1,132,281

TOTAL 4,469,864,241 3,435,355,685

SCHEDULE 8- SUNDRY DEBTORS:(Unsecured - Considered Good, unless otherwise stated):

Debts outstanding for a period exceeding six monthsConsidered Good 279,811,970 279,338,783Considered Doubtful 53,852,778 55,091,689

333,664,748 334,430,472Less: Provision for Doubtful Debts 53,852,778 55,091,689

279,811,970 279,338,783Other DebtsConsidered Good 3,519,062,728 3,036,097,373Considered Doubtful - 343,790

3,519,062,728 3,036,441,163Less: Provision for Doubtful Debts - 343,790

3,519,062,728 3,036,097,373

TOTAL 3,798,874,698 3,315,436,156

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MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT MARCH 31,2006

As at 31.03.2006 As at 31.03.2005

Rs. Rs. Rs. Rs.SCHEDULE 9 - CASH AND BANK:Cash on hand including cheques/drafts 8,571,172 33,233,192Remittance in Transit 2,506,710 46,290,181

Balances with Scheduled Banks:Current Accounts 128,750,131 192,019,241Fixed Deposit Accounts 2,755,306,109 4,315,915,078Unpaid Dividend Account 4,598,302 4,965,262E.E.F.C. Accounts 252,510 232,590

2,888,907,052 4,513,132,171

TOTAL 2,899,984,934 4,592,655,544

Note:Fixed Deposits shown above include Rs. 540,211,396(Previous Year Rs. 683,583,591)which are subject to lien with the bankers

SCHEDULE 10- OTHER CURRENT ASSETS:Accrued Interest on Fixed Deposits 35,965,406 73,103,512Other Receivables 136,113,980 123,533,775

TOTAL 172,079,386 196,637,287

SCHEDULE 11- LOANS AND ADVANCES:(Unsecured - Considered Good):

Advances recoverable in cash or in kind or for value to be received 367,735,909 215,425,638Advance to Suppliers 899,504,444 194,411,611Balance with Excise Authorities 55,266,052 19,789,092Earnest Money/Security Deposits 31,999,085 12,982,970Advance Tax/Tax Deducted at Source 156,489,787 158,335,165

TOTAL 1,510,995,277 600,944,476

Note:Amount due from a Director as at March 31, 2006 - Rs. 9,209(Previous year Rs. Nil). Maximum Balance due at any timeduring the year from Director and Officer of the Company wasRs. 9,209 (Previous year Rs. 2,700).

SCHEDULE 12- CURRENT LIABILITIES AND PROVISIONS:

A.Current Liabilities:Acceptances 420,444,296 371,852,342Sundry Creditors - Total outstanding dues to Small Scale Industrial Undertakings 12,806,668 15,475,769 - Total outstanding dues of creditors other than Small

Scale Industrial Undertakings 1,726,414,433 1,868,474,0431,739,221,101 1,883,949,812

Advances from Customers 669,147 5,748,206Unclaimed Dividend * 4,591,508 4,952,918Other Liabilities 143,105,771 143,264,312Book Overdraft 423,559 6,071,528Security Deposits 40,163,911 53,729,526Interest accrued but not due on Loans 30,524,727 41,639,961

Total 2,379,144,020 2,511,208,605

* The above amount will be credited to Investor Education and Protection Fund as and when due.

B.Provisions:Provision for taxation 99,483,428 98,520,812Proposed Dividend 111,512,944 111,512,944Corporate tax on Dividend 15,639,690 15,639,690Staff Benefit Schemes 45,477,745 18,448,721

Total 272,113,807 244,122,167

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MOSER BAER INDIA LIMITEDSCHEDULES ANNEXED TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED MARCH 31,2006

Year ended 31.03.2006 Year ended 31.03.2005

Rs. Rs. Rs. Rs.

SCHEDULE 13- EXCISE DUTY:

Excise Duty paid 359,522,969 405,506,640Less: Excise duty on Closing Stock 6,136,081 1,518,544Add: Excise duty on Opening Stock 1,518,544 462,018

TOTAL 354,905,432 404,450,114

SCHEDULE 14- OTHER INCOME:

Interest Received (Gross):a) On Deposits with banks 187,108,243 280,399,690b) On Income Tax Refunds 4,584,137 -c) On Staff Loan - 7,731Tax Deducted at Source Rs. 45,257,752 191,692,380 280,407,421 (Previous Year Rs. 48,995,892)Excess provisions and unclaimed creditbalances written back 13,834,793 100,508,021Exchange Fluctuation (Net) 59,944,355 -Profit on cancellation of forward contracts (Net) 66,244,811 117,293,774Profit on sale of Fixed Asset 70,000 -Profit on sale of Current Investment (others) 417,759 3,500,381Dividend from Current Investments (others) 13,748,911 49,593,596Miscellaneous Income 212,412,582 124,084,851

TOTAL 558,365,591 675,388,044

SCHEDULE 15-INCREASE/(DECREASE) IN STOCKOF FINISHED GOODS AND WORK IN PROGRESS:

Closing Stock:Finished Goods 1,304,059,683 972,378,704Work in Progress 899,748,788 684,391,766Traded Goods 8,795,777 1,132,281

2,212,604,248 1,657,902,751Less: Opening Stock:Finished Goods 972,378,704 435,567,182Work in Progress 684,391,766 351,034,267Traded Goods 1,132,281 1,163,328

1,657,902,751 787,764,777

Excise duty on Increase/ (Decrease) of Finished Goods (4,617,537) (1,056,526)

TOTAL INCREASE 550,083,960 869,081,448

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MOSER BAER INDIA LIMITEDSCHEDULES ANNEXED TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED MARCH 31,2006

Year ended 31.03.2006 Year ended 31.03.2005Rs. Rs.

SCHEDULE 16- PERSONNEL EXPENSES:Salaries, Allowances and Bonus 882,886,495 624,167,012Contribution to Provident and other funds 72,293,713 46,039,485Employee Welfare Expenses 77,455,249 51,915,035Leave Encashment 15,847,313 8,400,357

TOTAL 1,048,482,770 730,521,889

SCHEDULE 17- ADMINISTRATION & OTHER EXPENSES:Power and Fuel 822,513,755 566,443,586Commission on Sales 1,556,613 3,720,597Rent (Including Lease Rent) 52,677,367 57,039,707Repairs & Maintenance:- Building 1,008,883 1,482,565- Plant & Machinery 16,406,901 11,780,539- Others 37,402,032 26,794,006Freight and Forwarding (Net) 482,495,586 386,573,997Insurance 114,352,872 113,368,920Registration & Filing fee 2,293,047 -Rates and Taxes 8,815,284 4,466,061Director’s Sitting Fees 1,150,000 1,100,000Donation 5,039,125 3,309,708Remuneration to Auditors 13,199,439 10,161,125Royalty 315,478,020 377,317,928Travelling and Conveyance 148,392,501 133,118,201Bad Debts Written Off 159,825 -Advances Written Off 539,163 23,189,990Research and Development Expenses 193,034 1,780,000Miscellaneous Expenses 214,732,770 219,805,725Stock Written Off 23,877 5,069,632Dimunition in value of Investments - 4,268Exchange Fluctuation (Net) - 26,201,341Project expenses written off 63,981,264 18,183,012Loss on sale of Fixed Asset (Net) - 17,942

TOTAL 2,302,411,358 1,990,928,850

SCHEDULE 18- INTEREST & FINANCE CHARGES:Interest: On Fixed Loans 713,089,298 594,579,717 Others 161,221,637 71,755,747Finance Charges 31,345,186 25,281,326Bank Charges 29,971,352 48,697,336

TOTAL 935,627,473 740,314,126

SCHEDULE 19- DEPRECIATION:Depreciation on Fixed Assets (Refer Schedule 5) 3,170,023,472 2,820,504,533Less: Depreciation on assets used for Trial Run /

Testing transferred to expenditure pendingallocation (Refer Note 5 of Schedule 20-PartB) 2,425,072 -

Depreciation charged to Profit and Loss Account 3,167,598,400 2,820,504,533

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MOSER BAER INDIA LIMITEDSCHEDULES FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

SCHEDULE 20 - ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

Part - A ACCOUNTING POLICIES

1 Basis of Preparation of Consolidated Financial Statements:

1.1 Consolidated Financial Statements (CFS) of the Company (Parent), its subsidiaries and associate are prepared to comply, inall material respects with applicable statutory/ regulatory provisions, applicable Accounting Standards issued by the Instituteof Chartered Accountants of India and generally accepted accounting principles and practices prevailing in India.

1.2 The CFS are prepared under the historical cost convention and on accrual basis.

2 Subsidiaries and Associate:

2.1 The CFS comprise the results of the Parent, its subsidiaries and associate:

2.1.1 Name of Subsidiary Country of Incorporation Proportion of Ownership

European Optic Media Technology GmbH Germany 100%

Moser Baer Photo Voltaic Ltd. India 100%

Moser Baer SEZ Developer Ltd. India 100%

Moser Baer Photo Voltaic Ltd. was incorporated on December 7, 2005 under the Companies Act, 1956. The Companyis primarily engaged in the business of manufacturing and sale of photovoltaic cells and modules.The first accounts ofthe Company have been prepared for the period upto 31st March, 2006.

Moser Baer SEZ Developer Ltd. was incorporated on February 20, 2006 under the Companies Act, 1956. The financialstatements summarised below, have been drawn up for the period ending 31st March, 2006 for consolidation purposes,although the first financial year of the Company ends on 31st March, 2007.

Particulars Amount (Rs.)

Share Capital 500,000

Cheque in hand 500,000

Expenditure 21,202

Loss for the year 21,202

2.1.2 Associate:

The particulars of associate considered in the CFS are as under :

Name of Associate (Overseas) Country of Incorporation Proportion of Ownership

Global Data Media FZ LLC Dubai, United Arab Emirates 49%

2.2 Particulars of Investments in Associate:

S. Particulars As at 31.03.2006 As at 31.03.2005No. (Rs.) (Rs.)

Cost of investment 92,532,185 92,532,185

(a) Carrying value of the investment at the beginning of the year 88,513,355 61,763,540

(b) Add: Share of post acquisition profits/(loss) (Net) * 36,077,374 26,749,815

(c) Less: Dividend Received 48,685,333 -

(d) Carrying value at the end of the year 75,905,396 88,513,355

* Includes exchange fluctuation gain of Rs. 431,193 for the current year

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3 Consolidation Procedure:

3.1 The CFS are prepared in accordance with Accounting Standard (AS-21) “Consolidated Financial Statements” issued by theInstitute of Chartered Accountants of India (ICAI). The financial statements of the Parent and its subsidiaries are combined ona line by line basis by adding together sums of like nature, comprising assets, liabilities, income and expenses and aftereliminating intra-group balances/ transactions.

3.2 The Financial Statements of the subsidiaries and the associate, are prepared by them on the basis of generally acceptedaccounting principles, local laws and regulations as prevalent in their respective countries and such financial statements areconsidered for consolidation. The effect of adjustments on account of variance in accounting policies of the subsidiaries andassociate vis -à-vis those of the parent is not material, and accordingly, not considered. Also, refer para 4.1.15.

3.3 The financial statements of the subsidiaries have been drawn for the period from 1st April, 2005 to 31st March, 2006, exceptas mentioned in Para 2.1.1 above.

3.4 The Parent’s cost of its investment in its subsidiaries has been eliminated against the Parent’s portion of equity of eachsubsidiary as at the year end, instead of Parent’s portion of equity of each subsidiary as on the date on which investment ismade in the subsidiary. The amount of Goodwill/ Capital Reserve on consolidation has not arisen, these being newly formedcompanies.

3.5 For the purpose of compilation of the consolidated financial statements the foreign currency assets, liabilities, income andexpenditure are translated as per Accounting Standard (AS-11) on ‘Accounting for the Effects of Changes in Foreign ExchangeRates’, issued by the Institute of Chartered Accountants of India. Exchange differences arising are recognised in the ForeignCurrency Translation Reserve classified under Reserves and Surplus.

3.6 Investments in associate are accounted for under the Equity Method as per AS-23 “Accounting for Investments in Associatesin Consolidated Financial Statements” issued by The Institute of Chartered Accountants of India based on the financialstatements of the associate upto the year ended on 31st December, 2005.

3.7 Additional Disclosures:

Additional information disclosed in the separate financial statements of the parent and the subsidiaries having no bearing onthe true and fair view of the CFS and not been material, have not been disclosed in the CFS.

4 Significant Accounting Policies and Notes to Accounts:

4.1 Significant Accounting Policies:

4.1.1 METHOD OF ACCOUNTINGA The financial statements are prepared in accordance with the historical cost convention on an accrual basis of

accounting and in accordance with generally accepted accounting practices in India and conform to the applicableAccounting Standards issued by the Institute of Chartered Accountants of India and relevant provisions of theCompanies Act, 1956.

USE OF ESTIMATES

B The preparation of financial statements requires the management of the Company to make estimates and assumptionsthat affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at thedate of the financial statements and reported amounts of income and expenses during the period. Example of suchestimates include provisions for doubtful debts, employee retirement benefit plans, provision for income taxes andthe useful lives of fixed assets.

4.1.2 REVENUE RECOGNITIONRevenue from sale of goods is recognised on transfer of significant risks and rewards of ownership to the customerand when no significant uncertainty exists regarding realisation of the consideration. Sales are recorded net of salesreturns, rebates and trade discounts and price differences and are inclusive of excise duty and countervailing dutyimposed by the Council of the European Union.

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}

Interest is accounted for based on a time proportion basis taking into account the amount invested and the rate ofinterest.

Dividend is recognised as and when the right of the company to receive payment is established.

4.1.3 FIXED ASSETSTangible Fixed Assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct andindirect, specifically attributable to its acquisition and bringing it to its working condition for its intended use.

Expenditure pending allocation, are allocated to productive fixed assets in the year of commencement of the relatedproject.

Intangible assets are stated at cost less accumulated amortisation.

4.1.4 DEPRECIATION / AMORTISATIONDepreciation on tangible fixed assets is provided under the straight-line method on a pro-rata basis at the rates andin the manner specified in Schedule XIV to the Companies Act, 1956, other than on certain Plant and Machinery atthe Magnetic Media manufacturing units, which is depreciated at the rate of 7.42% (10.34% upto last year) based onmanagement’s estimate of useful life of the assets and is in accordance with the rate specified in Schedule XIV to theCompanies Act, 1956.

In respect of assets whose useful life has been revised, the unamortised depreciable amount has been charged overthe revised remaining useful life.

Intangible assets are amortised on equated basis over their estimated economic life not exceeding 10 years.

Leasehold Land and improvement to the leased premises are amortised over the period of the lease.

The assets taken on finance lease are depreciated over the lease period.

4.1.5 INVESTMENTSLong term investments are stated at cost of acquisition inclusive of expenditure incidental to acquisition. A provisionfor diminution is made to recognise a decline, other than temporary in the value of long term investments.

Current investments are stated at lower of cost and fair value determined on an individual basis.

4.1.6 INVENTORY VALUATIONFinished Goods, Work in progress, Goods held for resale, At lower of cost and netRaw Materials, Packing Materials and Stores and Spares realisable value

Cost of Raw material, goods held for resale, packing materials and stores and spares is determined on the basis ofweighted average method.

Cost of Work in process and finished goods is determined by considering direct material costs, labour costs andappropriate portion of overheads.

Liability for excise duty in respect of goods manufactured by the company, other than for exports, is accounted uponcompletion of manufacture.

4.1.7 GOVERNMENT GRANTSGrants of the nature of contribution towards capital cost of setting up projects, are treated as Capital Reserve andgrants in respect of specific fixed assets are adjusted from the cost of the related fixed assets.

4.1.8 BORROWING COSTSBorrowing costs directly attributable to the acquisition of qualifying assets are capitalised as part of the cost of assetstill the date of commencement of commercial use of the asset. All other borrowing costs are charged to the Profit andLoss Account.

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4.1.9 RETIREMENT BENEFITSLiability towards gratuity payable on death/retirement of employees is accrued based on an actuarial valuation atyear end and covered by funding/premium as determined by Life Insurance Corporation of India.

Provision for leave encashment benefit for the employees is based on an acturial valuation as at the balance sheetdate.

4.1.10 FOREIGN CURRENCY TRANSACTIONSTransactions in foreign currency are converted at the exchange rate prevailing at the date of the transactions.Foreign currency monetary assets and liabilities not covered by forward exchange contracts are restated at the yearend rates and the resultant gains or losses are recognised in the Profit and Loss Account, except exchange differencesarising on settlement and/or translation of foreign currency liabilities relating to acquisition of fixed assets which areadjusted against the carrying costs of respective fixed assets.

In respect of foreign branches, all revenues, expenses, monetary assets/liabilities and fixed assets are accounted atthe exchange rate prevailing on the date of the transaction. Monetary assets and liabilities are restated at the yearend rates and resultant gains or losses are recognised in the Profit and Loss Account.

Gains and losses on foreign exchange forward contracts are recognised in the Profit and Loss Account over the lifeof the contract, except in respect of liabilities incurred for acquiring fixed assets, in which case such difference isadjusted to the carrying amount of the respective fixed assets. Any profit or loss arising on cancellation of a forwardcontract is recognised as income or expense for the period.

4.1.11 TAXATIONCurrent Tax:

Provision is made for current income tax liability based on the applicable provisions of the Income Tax Act 1961, forthe income chargeable under the said Act and as per the applicable overseas laws relating to the foreign branch.

Deferred Tax:

Deferred tax assets (DTA) and liabilities are computed on the timing differences at the Balance sheet date betweenthe carrying amount of assets and liabilities and their respective tax basis. DTA is recognised based on managementestimates of reasonable/virtual certainty that sufficient future taxable income will be available against which suchDTA can be realised. The deferred tax charge or credit is recognised using the tax rates and tax laws that have beenenacted or substantively enacted by the balance sheet date.

4.1.12 LEASESAssets acquired under finance leases are recognised as an Asset and a Liability at the lower of the fair value of theleased assets at inception of the lease and the present value of minimum lease payments. Lease payments areapportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocatedto periods during the lease term so as to produce a constant periodic rate of interest on the remaining balance of theliability and charge to the profit and loss account.

Payment made under operating leases are charged to Profit and Loss Account on a straight line basis over theperiod of lease.

4.1.13 STOCK OPTION PLANSStock options granted to the employees and to the non-executive Directors who accepted the grant under theCompany’s Stock Option Plan are accounted in accordance with Securities and Exchange Board of India (EmployeesStock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999. Accordingly, the excess, if any, ofthe market price of the underlying equity shares as of the date of the grant of the option over the exercise price of theoption, is recognised as employee compensation cost and amortised on straight line basis over the vesting period.

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4.1.14 IMPAIRMENT OF ASSETSAt each balance sheet date, the Company assesses whether there is any indication that an asset may be impaired.If any such indication exists, the Company estimates the recoverable amount. If the carrying amount of the assetexceeds its recoverable amount, an impairment loss is recognised in the profit and loss account to the extent thecarrying amount exceeds recoverable amount. Where there is any indication that an impairment loss recognised foran asset in prior accounting periods may no longer exist or may have decreased, the Company books a reversal ofthe impairment loss not exceeding the carrying amount that would have been determined (net of amortisation ordepreciation) had no impairment loss been recognised for the asset in prior accounting periods.

4.1.15 Global Data Media FZ LLC

Following are the accounting policies adopted by the associate company in preparation of their annual accountswhich are not in consonance with the policies followed by the parent company. No adjustment has been carried outin the CFS as it is not practicable to estimate appropriate adjustments.

InventoriesTraded inventory amounting to Rs.383,854,612 ( Previous year Rs. 252,295,790 ) has been valued at First In FirstOut (FIFO) basis. However, for CFS, inventory have been valued after adjusting the impact of unrealised gainthereon.

Equipment and Motor VehiclesUseful life of equipment and motor vehicles is expected to be three years. Effectively, these assets are beingdepreciated at rates higher than those specified in Schedule XIV to the Companies Act, 1956.

GoodwillGoodwill was amortised using the straight line method over its estimated useful life of 10 years upto 31st December2004. With effect from 1st January 2005, Goodwill is not amortised in accordance with IFRS 3, “Business Combination”.The group will annually assess whether there is any indication of Impairment and assess whether the carryingamount of Goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverableamount.

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Part B - NOTES TO ACCOUNTS

1 Contingent Liabilities

In respect of:1.1 Corporate guarantee given on behalf of the Subsidiary Company: Rs. 450,000,000 (Previous Year Rs. Nil).

1.2 Legal costs contingent upon the outcome of a court case which could be in the range of Rs. 2,705,500 to Rs. 5,411,000.

1.3 Disputed demands in respect of:- 2005-06 2004-05 (Rs.) (Rs.)

Entry tax (excluding interest) 110,117,456 108,744,806

Service tax 68,825,596 65,417,192

Sales Tax 6,706,074 1,310,000

Custom duty and Excise duty 2,761,250 5,414,214

Total 188,410,376 180,886,212

1.4 Claims against the Company not acknowledged as debts: Rs. 18,412,975 (Previous Year Rs.18,850,002)

1.5 The Company has received a notice from the Uttar Pradesh Sales Tax authorities demanding sales tax of Rs. 198,390,609 inrespect of non-submission of ‘C’ Forms. The company has untill July 31, 2006 to deposit the ‘C’ Forms. As on the date of thesefinancial statements, ‘C’ Forms amounting to a sales tax of Rs. 190,438,045 have been collected and are pending to be deposited.The management is reasonably certain of collecting the remaining ‘C’ Forms amounting to a sales tax of Rs. 7,952,564 by July 31,2006. Accordingly the above amount of Rs. 198,390,609 has not been considered as a Contingent Liability.

2 2.1 Estimated value of contracts remaining to be executed on capital account and not provided for (net of advances):Rs.1,706,396,356 (Previous Year Rs. 1,406,499,426).

2.2 Letters of Credit opened by banks on behalf of the Company: Rs.1,349,373,002 (Previous Year Rs. 947,349,519).

3 Lease Obligations

a) Total of minimum future lease payments under non-cancellable operating leases for various periods are as follows:-

Amount (Rs.) Amount (Rs.)2005-06 2004-05

Amount payable not later than one year 17,442,073 14,948,359Amount payable later than one year but not later than five years 75,042,807 68,296,177Amount payable later than five years 24,812,895 42,752,590Total 117,297,775 125,997,126

Total lease payments recognized in the statement of Profit and Loss Account : Rs.19,018,200 (Previous year Rs.30,348,865)

The company has entered into operating leases for its offices, employees’ residences and for vehicles that are renewable ona periodic basis and cancellable at company’s option. Except for its Office, the company has not entered into subleaseagreements with others. The total rent recovered on sub lease of its office during the year Rs. 347,076 (Previous yearRs. 338,736).

b) Reconciliation of minimum lease payments and their present value in respect of vehicles taken on finance lease, is as under:

Minimum Lease Present value of Lease chargespayments minimum

lease payments

Rs. Rs. Rs.

Amount paid upto 31.3.2006 4,181,202 2,691,376 1,489,826

Amount payable not later than one year 1,230,881 1,123,405 107,476

Total 5,412,083 3,814,781 1,597,302

Previous year 5,263,939 3,814,781 1,449,158

Total cost of leased vehicles and their carrying amount as at 31st March 2006 are Rs. 3,846,372 (Previous Year Rs. 3,846,372)and Rs. 503,803 (Previous Year Rs. 1,234,614) respectively.

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4 Movements in Other Investments2005-2006 2004-2005

Current Investments (Unquoted) No. Cost (Rs.) No. Cost (Rs.)(Mutual fund units of the face value of Rs. 10 each except for unitsin Franklin Templeton mutual fund which are of Rs. 1,000 each.)Acquired and sold during the yearBirla Sun Life Mutual Fund 57,681,210 577,673,816 48,210,143 500,878,765Prudential ICICI Mutual Fund 89,762,993 1,064,047,119 51,049,769 604,886,530SBI Mutual Fund 13,272,569 133,157,051 30,137,600 301,800,159Franklin Templeton Treasury Management Fund - - 403,870 403,898,991ING Vysya Liquid Fund - - 25,122,021 251,275,190Deutsche Floating Rate Fund 23,528 235,736 14,936,407 152,428,726Kotak Floater Short Term - - 57,269,609 573,300,799Reliance Floating Rate Fund 68,117 684,542 30,078,928 301,527,030HDFC Floating Rate Income Fund - - 30,208,035 302,849,184ING Vysya Floating Rate Fund 5,067,232 50,684,986 40,180,138 402,064,332HSBC Cash Fund - - 25,477,702 254,784,166Reliance Treasury Plan 14,416,911 220,242,826 - -DSP ML Floating Rate Fund 23,303,449 233,822,834 - -Total 203,596,009 2,280,548,910 353,074,222 4,049,693,872(Mutual fund units of the face value of Rs. 10 each.)Sold during the yearPrudential ICICI Mutual Fund 25,586,862 303,242,694 - -Deutsche Insta Cash Plus - Institutional Plus 9,982,271 100,017,361 - -DSP ML Floating Rate Fund 30,578,267 306,425,745 - -SBI Magnum Institutional Income Savings 30,530,833 306,300,585 - -Reliance Floating Rate Fund 10,327,697 103,715,850 - -ING Vysya Floating Rate Fund 40,665,193 406,749,727 - -Total 147,671,123 1,526,451,962 - -Acquired during the year and outstanding as at year endPrudential ICICI Mutual Fund - - 25,586,862 303,242,694Deutsche Insta Cash Plus - Institutional Plus - - 9,982,271 100,017,361DSP ML Floating Rate Fund - - 30,578,267 306,425,745SBI Magnum Institutional Income Savings - - 30,530,833 306,300,585Reliance Floating Rate Fund - - 10,327,697 103,715,850ING Vysya Floating Rate Fund - - 40,665,193 406,749,727Total - - 147,671,123 1,526,451,962

5 Expenditure pending allocationDetails of expenditure pending allocation are as follows:

As at 31.03.2006 As at 31.03.2005(Rs.) (Rs.)

Salaries and Wages 13,643,687 10,177,846Travelling Expenses 3,434,030 -Freight and Cartage 22,689,608 1,808,094Interest 4,627,463 17,109,924Difference in exchange rate (1,262,250) 41,705,937Raw Material cost- Trial run 10,058,499 4,463,453Power & Fuel 391,606 -Stores spares & consumables 203,925 -Legal and Professional 1,519,445 50,169,693Depreciation 2,425,072 -Loss on cancellation of Forward Contract 17,130,436 -Miscellaneous expenses 2,466,441 -Deferred / Project expenses 27,246,240 -Insurance 219,299 -Staff Welfare 47,464 -Total 104,840,965 125,434,947

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6 Prior period expenses/(income) (Net)

Details of prior period expenditure/(income) are as follows:

2005-06 2004-05(Rs.) (Rs.)

Salaries and Wages - 1,350,051

Sales promotion - 2,666,049

Financial charges - 4,383,720

Stores, spares and consumables - 28,378,683

Packing Material - 401,724

Staff Welfare - 122,380

Rent - 8,781,147

Price Variance on sales - 13,652,843

Travelling expenses 1,083,174 -

Repairs & Maintenance 2,003,714 -

Annual Maintenance Contract 185,828 -

Total of prior period expenses 3,272,716 59,736,597

Less: Prior Period Income:

Miscellaneous Income (9,868,975) (3,049,228)

Total of prior period (income)/expense (Net) (6,596,259) 56,687,369

7 Taxation

Provision for taxation has been made based on Minimum Alternate Tax as applicable to the company for the current year inaccordance with the relevant provisions of the Income Tax Act, 1961.

The deferred tax expense for the year is adjusted for deferred tax liability in respect of undertakings enjoying tax benefits undersection 10A and section 10B of the Income Tax Act,1961 and also on account of adjusting deferred tax assets and liabilities atsubstantively enacted rates of depreciation and Income Tax rates as on the balance sheet date.

The Break up of net deferred tax liability is as under:

(Amount in Rupees)

Particulars of As at Movements during As atTiming Differences March 31,2005 the year March 31,2006

Deferred tax Liability

Depreciation 1,246,707,000 122,596,302 1,369,303,302

Deferred tax Assets

Unabsorbed Depreciation 1,223,109,000 145,371,498 1,368,480,498

Brought Forward Losses 9,553,000 (8,730,196) 822,804

Total 1,232,662,000 136,641,302 1,369,303,302

Net deferred tax liability 14,045,000 (14,045,000) —

Previous year 345,144,000 (331,099,000) 14,045,000

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8 Employees Stock Option Plan (ESOP) and Directors’ Stock Option Plan (DSOP)

The company has granted options to its employees and non-executive directors, to be settled through issue of equity shares, atexercise prices that are equal to the market price of the share on the date of the grant. The Options granted vest over a period ofmaximum of four years from the date of grant. As at the date of balance sheet no option has been exercised by any employee ornon-executive director.

Number of options granted, exercised and forfeited during the year

2005-06 2004-05

Number Weighted Number WeightedAverage Price Average Price

Options outstanding at beginning of year 2,165,300 226.94 2,030,300 342.00

Add : Options Granted 1,108,200 220.49 2,065,300 221.37

Less : Options Exercised - - - -

Options Cancelled - - 1,553,500 342.00

Options Forfeited - - - -

Options Lapsed 295,800 261.42 376,800 342.00

Options outstanding at the end of year 2,977,700 221.12 2,165,300 226.94

Option exercisable at the end of year 484,825 221.23 100,000 342.00

The options outstanding at the end of the year had exercise prices in the range of Rs. 196.60 to Rs. 234.75 and a weighted averageremaining contractual life of 3.19 years.

9 Other Disclosures:

In terms of Accounting Standard Interpretation-15 issued on Accounting Standard - 21 ‘Consolidated Financial Statements’ by theInstitute of Chartered Accountants of India, additional information pursuant to requirements of Part II of Schedule VI to The CompaniesAct, 1956, have not been disclosed in these notes to the CFS.

9.1 Managerial Remuneration (Remuneration to Directors):(figures in bracket are for the previous year)

(Amount in Rupees)

DEEPAK PURI NITA PURI RATUL PURI Total

Managing Whole time WholetimeDirector Director Director

Salaries, allowances and bonus 18,956,256 454,800 11,321,964 30,733,020

(19,781,250) (454,800) (11,816,964) (32,053,014)

Contribution to provident Fund 1,698,751 36,000 1,013,036 2,747,787

(1,698,750) (36,000) (1,013,036) (2,747,786)

Perquisites 166,593 106,800 166,600 439,993

(166,599) (103,756) (166,599) (436,954)

Total 20,821,600 597,600 12,501,600 33,920,800

(21,646,599) (594,556) (12,996,599) (35,237,754)

Note - Provision for leave encashment: Rs. 3,034,472 (Previous year Rs. 1,709,347) and Gratuity:Rs. 813,025 (Previous year Rs. 986,121) made during the year have not been included above.

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9.2 Related Party Transactions:

As required by Accounting Standard 18 - ‘Related Party Disclosures’ issued by the Institute of Chartered Accountants of India,since the CFS presents information about the Parent and its subsidiary as a single reporting enterprise, it is not necessary todisclose intra-group transactions.

In accordance with the requirements of Accounting Standard - 18 ‘Related Party Disclosures’ the names of the related partywhere control/ability to exercise significant influence exists, along with the aggregate amount of transactions and year endbalances with them as identified and certified by the management are given below:

9.2.1 Nature of relationship Name of the related party Share HoldingAssociate Company Global Data Media FZ LLC 49%

9.2.2 Key Management Personnel

Managing Director Mr. Deepak Puri

Whole Time Directors Mrs. Nita Puri, Mr. Ratul Puri

9.2.3 Details of Transactions with the Related Parties in the ordinary course of business:(figures in brackets are for the previous year)

(Amount in Rupees)

Particulars Global Data Key TotalMedia Inc Management

(Associate) PersonnelSales of Finished goods 7,998,784,035 - 7,998,784,035

(5,243,135,648) ( - ) (5,243,135,648)Expenses charged to other companies 29,488,616 - 29,488,616

(38,012,434) ( - ) (38,012,434)Expenses charged by other companies 25,224,537 - 25,224,537

(45,649,342) ( - ) (45,649,342)Directors Remuneration (Refer Note 9.1 above) - 33,920,800 33,920,800

( - ) (35,237,754) (35,237,754)Outstanding receivables:-In respect of sales 3,065,593,385 - 3,065,593,385

(1,817,573,077) ( - ) (1,817,573,077)-In respect of expenses 23,986,812 9,209 23,996,021

( - ) ( - ) ( - )Outstanding payable:-In respect of expenses 33,308,145 - 33,308,145

(7,038,690) ( - ) (7,038,690)-In respect of Managerial Remuneration - 10,111,392 10,111,392

( - ) (11,937,513) (11,937,513)

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10 Earnings per share

a) Calculation of Weighted Average number of equity shares

1. For Basic EPS 2005-2006 2004-2005No. of Shares at the beginning of the year 111,512,944 111,512,944Total number of equity shares outstanding at the end of the year 111,512,944 111,512,944Weighted Average number of equity shares outstanding during the year 111,512,944 111,512,944

2. For Diluted EPSWeighted Average number of equity shares outstandingduring the year as computed above 111,512,944 111,512,944Weighted average number of stock options outstandingfor 230 days (Previous year 64 days) 255,429 19,156Weighted Average number of equity shares outstandingduring the year for Diluted EPS 111,673,899 111,516,303

b) Net Profit after tax available for equity shareholders (64,720,851) 597,918,018

Earnings per share (face value per share Rs. 10 each)

Basic and Diluted (0.58) 5.36

11 Due to change in estimated useful life of certain plant and machinery located at one of the plants of the parent (NSEZ) the depreciationrates have been revised. If the rate of depreciation as applicable for the previous year had been applied, the depreciation for theyear would have higher by Rs.9,572,841 and profit for the year lower by the same amount.

12 Segment information

Considering the nature of the group’s business, its activities, production facilities being located in a single geographical location,the internal financial reporting, element of risk and returns and its predominant product being storage media, with the Photo Voltaicbusiness yet to commence commercial operations, there are no business/geographical segments within the meaning of AS-17‘Segment Reporting’, issued by the Institute of Chartered Accountants of India.

13 On September 28, 2005 Woodgreen Investment Ltd. (WIL) did not exercise the option to convert at the exercise price of Rs.336,5,400,000 Share Warrants issued to them on preferential basis by the Company pursuant to an agreement dated March 25, 2004.Rs.181.44 million, the upfront money received against these Share Warrants has been forfeited and accordingly taken to ‘ Reserveand Surplus’.

14 Incidental expenses include amount incurred by European Optic Media Technology Gmbh (a subsidiary company) for setting up formanufacturing facility in Europe. As the said Company plans to relocate its proposed project for setting up manufacturing facilitiesto another location within Europe, project expenses amounting to Euro 1,186,193 have been charged off to Profit and Loss accountand balance of Euro 504,000 which consists of basic and detail engineering cost have been carried forward since the managementhas been advised by its project consultants that the future economic benefits in respect of such expenses shall continue to bederived even if the project is relocated to such other location.

15 Corresponding figures for the previous year have been regrouped/ rearranged, wherever necessary to conform to current yearclassification.

By order of the Boardfor and on behalf of MOSER BAER INDIA LIMITED

Deepak Puri Harnam D. Wahi Minni Katariya Yogesh Mathur Karandeep SinghChairman and Director Company Secretary Group CFO Vice President -Managing Director Financial Planning

and Control

Place: New DelhiDate: June 07, 2006

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NOTES

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