HTIL-AR-2000-01.pdf - Tata Teleservices Ltd.

S i x t h A n n u a l R e p o r t 2 0 0 0 - 2 0 0 1

HUGHES COV 1-4&2 26/06/2001, 12:11 PM3

SERVICE EXCELLENCE

We believe our differentiator is not justproviding customised telecom solutions -But is Service Excellence.

This has been at the core of our efforts inall spheres. It is the reason we havethousands of satisfied customers.

Whether it is world class technology orcustomer friendly service centres that workround the clock, or customer centeredprocesses, all our strategies have the goalof not just achieving, but surpassingCustomer Satisfaction.

HUGHES COV 1-4&2 26/06/2001, 12:11 PM4

Contents

Board of Directors 2

Directors’ Report 3

Corporate Governance Report 14

Management’s Discussion and Analysis of Financial Condition

and Results of Operation 24

Auditors’ Report 31

Balance Sheet 34

Profit & Loss Account 35

Schedules forming part of the balance sheet and profit and loss account 36

Cash Flow Statement 44

Balance sheet abstract and general business profile 46

HUGHES COV 1-4&2 26/06/2001, 12:11 PM5

Annual Report 2000 - 2001

BOARD OF DIRECTORS

Mr. Pramod Mittal (Chairman)

Mr. Pradman Kaul (Vice Chairman)

Mr. Jack Shaw

Mr. Francis X. Frantz

Mr. V.K. Mittal

Mr. James Lucchese

Mr. Pradeep Kaul

Mr. Alok Gupta

Mr. Vijay Dhar

Mr. Vivek Sett

Mr. Arun Kumar (Alternate to Mr. Jack Shaw)

Mr. Madhav Joshi (Alternate to Mr. Pradman Kaul)

Mr. Sanjay Chaudhary (Alternate to Mr. Francis X.Frantz)

Mr. Pranav Roach (Alternate to Mr. James Lucchese)

Mr. Partho Banerjee (Alternate to Mr. Pradeep Kaul)

PRESIDENT & CHIEF EXECUTIVE OFFICERMr. Prakash C. Bajpai

COMPLIANCE OFFICERMr. Madhav JoshiChief Legal Officer & Company Secretary

STATUTORY AUDITORS

M/s. Deloitte Haskins & Sells

Chartered Accountants

Mafatlal House,

Backbay Reclamation,

Mumbai 400 020.

REGISTRARS & SHARE TRANSFER AGENTS

Computech International Limited

Sri Padmavathi Bhavan, Plot No. 93,

Road No. 16, M.I.D.C.,

Andheri (East), Mumbai 400 093.

REGISTERED OFFICE

Ispat House,

B. G. Kher Marg,

Worli,

Mumbai 400 018.

Members are requested to bring their copies of the Annual Report to the Annual General Meetiing.

Members are requested to send their queries, if any, relating to the Accounts of the Company, at least 4 days before themeeting so that the necessary information can be made available at the Annual General Meeting.

Board of Directors

2

HUGHES COV 1-4&2 26/06/2001, 12:12 PM6

Annual Report 2000 - 2001 3

Dear Members,

Your Directors present their Sixth Report together with

the Audited Accounts of your Company for the

financial year ended 31st March, 2001. This is the first

report after the public issue of your Company in

September 2000. Your Directors extend a warm

welcome to the new shareholders who have joined

the Hughes Tele.com family.

Financial Highlights(Rs. Million)

PreviousYear ended year ended on

Particulars 31st March, 31st March,2001 2000

Total Income 1,950.16 670.10

Total Expenditure 1,964.10 1,695.21

EBITDA (-) (13.94) (1,025.11)

Finance & Treasury Charges 1,284.30 975.50Depreciation & MiscellaneousExpenditure written off 790.83 700.79

Profit / (Loss) before tax (2,089.07) (2,701.40)

Provision for taxation (-) (1.15) 0.03

Net Profit / (Loss) (2,087.92) (2,701.43)

Total Income has recorded an impressive growth of

191% clocking Rs.1.95 billion for the current year

(previous year Rs. 670 million). Of this, the revenue

from provision of telephone services was Rs.1.39 billion

(previous year Rs. 0.6 billion). In addition, your

Company earned other income of Rs. 558 million

(previous year Rs. 32 million).

After taking into account depreciation of Rs. 727 million

(previous year Rs. 600 million) and other expenditure,

your Company incurred a loss of Rs. 2.09 billion (previous

year Rs. 2.70 billion) during this period which is lower

than the projection of a loss of Rs. 2.21 billion given at

the time of Initial Public Offering (IPO) of shares.

Dividend

Your Directors regret their inability to recommend any

dividend for the year under consideration.

Appropriations

No appropriations are proposed to be made for the

year under consideration.

PROJECT IMPLEMENTATION

Current Status

Your Company grew at a healthy pace during the year.

In the process, it extended its operations to three more

pivotal cities. Your Company’s services are now offered

to customers in Panaji, Nagpur and Nasik in addition to

Mumbai, Navi Mumbai and Pune. The subscribers are

serviced through 8 telephone exchanges at Turbhe (Navi

Mumbai), Worli (Mumbai), Nariman Point (Mumbai),

Marol (Mumbai), Pune, Nasik, Panaji and Nagpur. One

more exchange is scheduled to be commissioned at

Kolhapur shortly.

Your Company expanded its network considerably and

added close to 50,000 lines during the year. Your

Company currently serves about 75,000 satisfied

subscribers through the above telephone exchanges

supported by a state-of-the-art telecommunications

infrastructure consisting of fixed Wireless in Local Loop

(WLL) and fixed wire-line access & transmission facilities

to provide basic telecommunications services.

Your Company believes in providing competitive world

class telecom services to its valued customers and

believes that its strong customer orientation places

Directors’ Report

HUGHESDIR.PM65 26/06/2001, 10:50 AM3

4Annual Report 2000 - 2001

it in a unique position to maintain and sustain its

competitive advantage.

Future Plans

Your Company seeks to expand its product offerings

in order to provide its customers with an integrated

suite of telecommunications products and services

to service their increasingly complex and rapidly

changing needs for telecommunications solutions.

These services include “last-mile” broadband

connections for high-speed data and Internet access

services, enhanced value-added services such as

pre-paid calling cards, data application services, such

as VPN, web hosting and VSAT connectivity. Your

Company also plans to enhance its product offerings

by activating data centers and providing products

such as e-mail, directory & toll-free services.

Your Company continues to expand its

state-of-the-art fibre optic cable based network, which

is capable of supporting the high-bandwidth

applications of its predominantly business subscribers,

and the interconnection of all of your Company’s

existing and new markets with its own fiber optic

facilities. Once fully deployed, your Company’s fiber

optic telecommunications network will significantly

enhance your Company’s ability to originate its

customers’ communications traffic over its networks

and to deliver your Company’s full line of

communications services offerings. Your Company

also intends to use extensively Digital Subscriber Line

(“DSL”) technology to deliver bundled voice and data

product offerings. This technology will represent

another cost-effective, high-bandwidth option to deliver

communications services over your Company’s own

network. Your Company has become the first provider

of broadband telecommunication services in the State

of Maharashtra.

Your Company plans to expand its coverage in the

existing cities and towns and also introduce the

services in other major cities and towns in

Maharashtra and Goa.

Licence for provision of Internet

Services (ISP)

Your Company has recently been awarded a Category

A (National) Licence to provide internet access and

content services, which will enable it to offer a broad

range of Internet-related product offerings well-suited

to its customers’ needs and expectations and to

complement your Company ’s other product

offerings. The preparations are in progress to launch

ISP services.

Project Financing

The total project cost for the Project is estimated to

be Rs. 38.74 billion and is expected to be completed

by March 2004. It is proposed to be funded by way

of Equity (Rs.15.53 billion) and debt (Rs. 19.32 billion)

and balance by way of internal accruals (including

subscribers deposits).

The equity requirement is fully funded consequent

to the Public Issue of Rs. 7.49 billion in September

2000. Of the debt portion, Rs. 8.54 billion is

underwritten by ICICI Limited. ICICI Limited, together

with the Company is syndicating the debt through

Indian Financial Institutions & banks and loan

sanction letters have been received from ICICI

(Rs. 3.50 billion), IDBI (Rs.2.50 billion), UTI (Rs.0.5

Directors’ Report

HUGHESDIR.PM65 26/06/2001, 10:50 AM4


billion) and Jammu & Kashmir Bank (Rs.0. 5 billion).

Sanction letters from other banks for the balance are

expected shortly. Debt of Rs. 10.78 billion is proposed

to be financed by way of vendor credit to be provided

by your Company’s vendors viz. Hughes Network

Systems (Rs. 3.15 billion) and Lucent Technologies

Hindustan Limited (Rs. 7.63 billion). Your Company is

at an advanced stage of negotiations with the vendors

in respect of these facilities.

REGULATORY ENVIRONMENT

New Telecom Policy, 1999

The Government of India (GoI), on 26th March, 1999,

announced a new National Telecom Policy, 1999

(NTP ‘99). This was necessitated due to failure of the

National Telecom Policy 1994 (NTP 1994) announced

in May 1994 in achieving spread of telecom services

and the lack of progress in privatisation of telecom

services.

The NTP ‘99 provided for a shift from the fixed licence

fee regime to a revenue share regime under a

multipoly environment and setting up of Universal

Service Obligations (USO) levy fund for achieving

coverage of 2.9 lac villages and also other social

obligations.

The Department of Telecommunications (DoT) vide

its letter of 22nd July, 1999 offered a Package of

Migration to all existing private telecom licensees

giving them an opportunity to migrate to the NTP

’99 regime. Your Company accepted the Package and

complied with all the conditions stipulated

thereunder. Unfortunately, the NTP ‘99 and the

migration package have not yet been fully

implemented by GoI. A new licence agreement

incorporating the NTP ‘99 provisions has still not

been finalised for the existing licencees including

your Company. Despite recovery of maximum

financial penalties provided under the Licence

Agreement for non achievement of number of lines

and Village Public Telephones (VPTs) stipulated in

the licence, DoT is still insisting that VPTs should be

deployed by your Company and other fixed service

licencees and despite the provisions of NTP ‘99, no

reimbursement of costs would be allowed out of

USO fund. The Telecom Regulatory Authority of India

(TRAI) has also emphasized the need of

reimbursement out of USO fund. Your Board expects

that the matter would be resolved soon when TRAI

comes out with USO recommendations.

New Licencing Guidelines

◆ GoI, in January 2001, announced the revised

guidelines for issue of new basic telecom service

licences. Despite repeated recommendations by

TRAI, DoT has fixed a disproportionately lower

entry fee for the new entrants without providing

for a level playing field for the existing licencees

including your Company. DoT has so far issued

48 Letters of Intent (LOI) under the new

guidelines which include 4 LOIs for Maharashtra

Circle. The new entrants would not have any VPT

obligation. Some other terms of the proposed

new licences are also more favourable. Your

Company and the Association of Basic Telecom

Operators (ABTO) had taken up the matter

repeatedly with GoI. However as the issue

remained unresolved and as LOIs with new

Directors’ Report

HUGHESDIR.PM65 26/06/2001, 10:50 AM5


terms were issued to 4 applicants for

Maharashtra Telecom Circle, your Company had

no alternative but to file a petition before

Telecom Dispute Settlement Appellate Tribunal

(TDSAT) which has been done in May 2001 and

its outcome is awaited.

◆ The licence fee has been fixed @ 12% of revenue

(net of interconnect charges) as against the

provisional rate of 15%. An additional revenue

share of 2% of revenue (net of interconnect

charges) from WLL subscribers would also be

payable as charge for allocation of spectrum.

Material Developments

◆ Competition in National Long Distance

Services Sector

A major policy shift was brought about in August 2000

with the opening up of the National Long Distance

sector to private enterprise. The GoI offered licences

in three categories, for provision of National Long

Distance Services (NLD Services), for provision of

long distance bandwidth (Infrastructure Provider II,

IP-II) and for provision of dark fibre and other

infrastructure (Infrastructure Provider I, IP-I). NLD

Service Operators (NLDOs) are required to enter into

arrangements with Basic Service Operators (BSOs)

to carry intra-circle long distance traffic. The

subscribers would have a choice of selecting the long

distance carrier for inter circle calls. To the

extent technically possible, subscribers would be

provided a choice to select other BSOs to carry their

intra-circle calls.

◆ Competition in International Long Distance

Services Sector

In September 2000, the GoI also indicated that Videsh

Sanchar Nigam Limited’s (VSNL) monopoly on

international long distance services will end by 2002

instead of 2004 as envisaged earlier. However, despite

the provisions of NTP ’99, BSOs (including your

Company) have been denied the right of direct

connectivity with VSNL which was due in year 2000.

Your Company has made representations to GoI to

seek redressal.

◆ Limited Mobility

In January 2001, the GoI permitted your Company

and other BSOs to provide limited mobility within

a Short Distance Charging Area (SDCA) using the

WLL technology while concurrently allowing

Cellular Mobile Service providers to offer fixed

telecom services by utilizing their GSM networks.

This decision has been challenged by Cellular

operators before TDSAT. The GoI then referred the

issue to the high powered Group on Telecom & IT

Convergence (GOT-IT) which inter al ia

recommended that the BSOs be allowed to provide

limited mobility services on certain specified

conditions.

◆ ISP Sector

Dur ing the year, the GoI a lso announced

guidel ines for ISPs to establ ish submarine

landing stations. ISPs are already allowed to set

up their own international gateways subject to

security clearance tests to be undertaken by the

DoT/GoI.

Directors’ Report

HUGHESDIR.PM65 26/06/2001, 10:50 AM6


Directors’ Responsibility StatementPursuant to the provisions of Section 217 (2AA) of

the Companies Act, 1956, the Board hereby certifies

and confirms that:

(i) in the preparation of the annual accounts, the

applicable accounting standards have been

followed along with proper explanation relating

to material departures;

(ii) the Directors have selected such accounting

policies and applied them consistently and

made judgements and estimates that are

reasonable and prudent so as to give a true and

fair view of the state of affairs of your Company

at the end of the financial year and of the profit

or loss of your Company for that period;

(iii) the Directors have taken proper and sufficient

care for the maintenance of adequate

accounting records in accordance with the

provisions of this Act for safeguarding the

assets of your Company and for preventing and

detecting fraud and other irregularities; and

(iv) the Directors have prepared the annual

accounts on a going concern basis.

Share Capital

Consequent to the public issue of your Company in

September 2000, the paid-up capital of your

Company increased from Rs.6,666,600,700/- to

Rs. 14,053,266,610/-.

Fixed Deposits

Your Company has not accepted any deposits within

the meaning of Section 58A of the Companies Act,

1956 and the rules made thereunder.

Balance Sheet Abstract and

Company’s General Business Profile

Information pursuant to Department of Company

Affairs notification dated 15th May, 1995, relating to

the Balance Sheet Abstract and Company’s General

Business Profile is given in the Annual Report for

information of the shareholders.

Directors

Mr. Vinod Shukla resigned from your Company’s

directorship w.e.f. 10th January 2001. Your

Directors place on record their appreciation of the

services rendered by him especially during the

formative years of your Company’s project. The

Board appointed Mr. Pradeep Kaul as Director in

the casual vacancy arising out of Mr. Shukla’s

resignation.

During the year, the Board appointed M/s. Partho

Banerjee, Arun Kumar and Pranav Roach as Alternate

Directors to M/s. Pradeep Kaul, Jack Shaw and James

Lucchese respectively.

Further, as a part of the Corporate Governance

initiatives, your Company appointed Mr. Alok Gupta

as an Additional Director. Mr. Gupta is an Independent

Director as regards your Company.

Mr. Gupta will cease to hold office at the ensuing

Annual General Meeting. Your Company has received

a notice pursuant to Section 257 of the Companies

Act, 1956 from a member signifying his intention to

propose Mr. Gupta as a candidate for the office of

Director. Mr. Gupta is therefore eligible for

appointment to the office of Director at the ensuing

Annual General Meeting.

Directors’ Report

HUGHESDIR.PM65 26/06/2001, 10:50 AM7


M/s. V. K. Mittal, Francis X. Frantz and Pradman Kaul,

Directors retire at this meeting by rotation and being

eligible, offer themselves for re-appointment. Your

Directors recommend their re-appointment in the

interests of your Company.

Auditors

M/s. Deloitte Haskins & Sells, Chartered Accountants,

the present statutory auditors retire at this meeting

and are eligible for re-appointment. The Audit

Committee and your Board recommend their

re-appointment.

Conservation of Energy, Technology

Absorption and Foreign Exchange

Earnings and Outgo

The disclosures as required under the Companies

(Disclosure of Particulars in the Report of the Board

of Directors) Rules, 1988 are given below:

(i) Energy Conservation : Not Applicable

(ii) Technology Absorption :

Your Company has not imported technical

know-how. Your Company has not yet

established separate R & D facilities.

(iii) Foreign Exchange Earnings and Outgo:

(In Rupees Million)

Earnings Nil

Outgo 446.763

Insurance

Your Company’s assets continue to be fully insured

against the risk of fire, riot, earthquake, terrorism etc.

and the risk of loss of profits. In addition to this

coverage, a Public Liability Insurance Policy has been

taken to cover any public liability arising out of the

Company’s business operations.

Human Resources

Your Company ’s 750 employees keep your

Company going and growing. It ’s been the

commitment of our employees that has built our

brand, preserved our quality and kept our

customers satisfied. The employees are

committed, their morale is high and employee-

turnover is amongst the lowest in the Industry. Your

Company gives considerable importance to training

and employee development, emphasising on

technical, behavioural and customer sensitivity/

orientation programs.

Consistent with your Company ’s intent on

inculcating a sense of ownership amongst the

employees towards your Company and creation of

wealth for the employees through Shareholder value,

an Employees’ Stock Option Plan was introduced

during the year and about 415 employees have

already been granted warrants under the plan in the

first two phases.

The information as required by the provisions of

Section 217(2A) of the Companies Act, 1956, read

with the Companies (Particulars of Employees)

Rules, 1975 is annexed hereto as Annexure I and

forms part of this report.

Further, the information as required to be

disclosed in the Annual Report pursuant to the

Securities & Exchange Board of India (Employees’

Stock Option Scheme and Employees’ Stock

Directors’ Report

HUGHESDIR.PM65 26/06/2001, 10:50 AM8


Purchase Scheme) Guidelines, 1999 is also annexed

to this Directors’ Report as Annexure II and forms

part of this report.

A certificate from M/s. Deloitte Haskins & Sells,

Chartered Accountants, Statutory Auditors, with

regard to the implementation of your Company’s

Employees’ Stock Option Plan, would be placed

before the members in the ensuing Annual General

Meeting (AGM).

Donation to Prime Minister‘s National

Relief Fund

On 26th January, 2001, a massive earthquake hit

Gujarat. The tragedy has few parallels in the recent

past.

Pursuant to the appea l made by the

management to lend a helping hand to the

v ic t ims of the Gu ja ra t Ear thquake, your

Company’s employees donated one day’s salary

to the Prime Minister’s National Relief Fund. This

was supplemented by a matching contribution

from your Company. Thus, an amount of Rs. 1

million was contributed to this noble cause by

the Hughes Tele.com family.

Promise v/s Performance

Your Company, during the Financial Year, raised a

sum of Rs. 8.86 billion by way of issue of equity

shares through its IPO and issue of shares to

Promoters.

The Promise versus Performance comparison for the

financial year ending on 31st March, 2001 is as under:

(Rs. Million)Sr. Particulars Projections ActualsNo.1. Income

Revenue from Telephone

Service 1,857.6 1,392.3

Other Income — 557.9

Total Income 1,857.6 1,950.2

2. Expenditure

Employees Remuneration

& Benefits 157.7 209.2

Administration & other

Expenses 460.6 959.1

Selling and Distribution

Expenses 75.3 19.9

DoT Access Fees 431.9 512.2

Revenue Share to DoT 213.9 96.3

Other Expense 320.3 230.0

Interest 1,133.5 842.6

Depreciation & Amortisation 1,274.7 1,168.8

Total Expenditure 4,067.9 4,038.1

3. Net Profit/(Loss) (2,210.3) (2,087.9)

4. Expenditure to be

incurred/incurred onthe project 9,360.0 7,763.5

The shortfall in Telephone Service Revenues is

principally due to initial delays in rollout due to funding

constraints and other factors beyond the control of

your Company. However, the number of telephone

lines at the end of March 2001 was close to

projections due to intensive efforts in the last quarter

of the year. In spite of the revenue shortfall, the net

loss was within the projected estimates principally

due to interest earnings on cash balance consequent

to the public issue as also lower interest, depreciation

Directors’ Report

HUGHESDIR.PM65 26/06/2001, 10:50 AM9


and certain other expenses as a result of the delayed

roll out. Your Company also benefited from the fixation

of the revenue share at 12% by the DoT and

retrospective credit on operation support and other

services negotiated with the vendors.

Corporate Governance

A report on Corporate Governance appears after this

report. A certificate from M/s. Deloitte Haskins & Sells,

Chartered Accountants, Statutory Auditors, with

regard to compliance of the corporate governance

code by your Company is annexed hereto as Annexure

III and forms part of this report.

Acknowledgements

Your Directors wish to place on record their sincere

appreciation of the assistance and support extended

by customers, financial institutions, banks, vendors,

employees, municipal authorities, electricity boards,

public works department, Government of

Maharashtra, Government of Goa, DoT and other

departments of Government of India, TRAI, Bharat

Sanchar Nigam Limited (BSNL), Mahanagar

Telephone Nigam Limited (MTNL), ABTO and others

associated with the activities of your Company. Your

Directors record their sincere appreciation for the

untiring efforts of the representatives of promoter

companies at all levels working as a team for the

implementation of the project.

For and on behalf of the Board of Directors

Pramod MittalChairman

London,17th May, 2001

Directors’ Report

HUGHESDIR.PM65 26/06/2001, 10:50 AM10


ANNEXURE IPARTICULARS OF EMPLOYEES PURSUANT TO SECTION 217(2A) OF THE COMPANIES ACT, 1956, READWITH THE COMPANIES (PARTICULARS OF EMPLOYEES) RULES, 1975

Annexure to Directors’ Report

a) Employed throughout the financial year and in receipt of remuneration exceeding Rs. 12 lacs per annum.

Sr. Name Age Designation Qualifications Date of Prior Remun- Particulars of Last Employment HeldJoining Experience eration

ReceivedRs.

1. Mr. Birjoo H. Mehta 43 Director - Product Management B.Tech 2-Mar-98 18 Years 1,602,069 Matrix Paging (I) Pvt Ltd. , Sr. VicePresident (Tech)

2. Mr. Chandrashekhar R Nene 46 Vice President - Information Technology B.E., D.S/W.T. 22-Apr-98 23 Years 1,866,232 Birla AT&T Communications Ltd. ,Vice President - Info Systems

3. Mr. D.V. Iyer 47 Director - Administration B.Com., MAM 5-Oct-98 21 Years 1,355,466 Airfreight Limited , Deputy General Manager

4. Mr. Dilip C. Modi 57 Vice President - Program Management & B.Sc. Engg 2-Mar-98 31 Years 1,818,859 British Telecomm Plc. , Vice PresidentNetwork Implementation

5. Mr. Gautam M. Chainani 39 Vice President - Human Resources B.Sc., MMS 27-Jan-98 16 Years 2,103,575 BPL Mobile Communications Ltd. , Head - HR

6. Mr. George Varghese 39 Senior Executive Vice President B.Sc., MBA 1-Apr-98 19 Years 4,173,188 Indian Express Newspapers (Bombay) Ltd. ,Chief General Manager (Mktg.)

7. Mr. Gopal Srinivasa Pai 44 Director - Sales B.E., PGDM 29-Oct-98 20 Years 1,322,946 Pagepoint Services India Ltd , Deputy GeneralManager

8. Mr. Haridev Khosla 44 Vice President - Network Operations B.E. 2-Mar-98 23 Years 1,635,324 Mahanagar Telephone Nigam Limited ,Deputy General Manager

9. Mr. Kishore Mukund Saletore 35 Treasurer & Head - Business Development B.Com, ACA, 24-Nov-97 10 Years 1,950,943 ITC Limited , Exec Asst. toPGDM Dy Chairman

10. Mr. Louis D’Souza 47 Director - Sites & Material Logistics B.Com, DMS 1-Aug-97 24 Years 1,481,909 Hutchison Max Telecom Ltd ,Sr. Manager, Materials

11. Mr. Madhav Joshi 48 Chief Legal Officer and Company Secretary B.Com.,LLB,FCS 1-Sep-98 29 Years 3,684,259 Bayer Industries Limited , Director andSecretary

12. Mr. Mulky Srinivas Rao 45 Director - Network Implementation B.Tech 2-Mar-98 22 Years 1,498,167 GEIL Products & Services (I) Ltd. ,Sr. Vice President (Project Services)

13. Mr. Navin Chander Bhasin 52 Assistant Vice President - Customer M.Tech.,MBA, 16-Jun-98 31 Years 1,640,476 Archana Technology ResourceService & Revenue Assurance DCM Park, Vice President

14. Mr. Prakash Bajpai 45 President & Chief Executive Officer B.E. 15-Nov-99 20 Years 7,987,449 Tata Lucent Technologies Ltd , Vice President -Marketing & Sales

15. Mr. Shishir Kumar 47 Director - Transmission B.E. 14-Jul-98 27 Years 1,203,068 Hindustan Cables Ltd. , General Manager

16. Mr. Sridhar Ranganathan 42 Financial Controller B.Com, ACA 15-Dec-97 17 Years 1,622,579 Gujarat Ambuja Cements Ltd. , GeneralManager - Accounts

17. Mr. Suneel Unni 41 Director - Sales M.A.(Hons), 2-Mar-98 16 Years 1,334,021 Sterling Holiday Resorts (I) Ltd.,PGDBM General Manager (West)

18. Mr. T.C. Raghavan 64 Chief Technical Advisor (Telecom) B.E. 1-Nov-97 38 Years 2,004,654 Haris Telecommunications , Advisor, IndiaOperations

19. Mr. U P Joglekar 54 Director - Network Operations B.E., MBA 5-Oct-98 32 Years 1,351,988 Modicom Networks Pvt. Ltd. , General Manager

b) Employed for part of the financial year (Drawing not less than Rs. 1,00,000/- per month).

Sr. Name Age Designation Qualifications Date of Prior Remun- Particulars of Last Employment HeldJoining Experience eration

ReceivedRs.

1. Mr. Dhananjay Saheba 46 Chief Technical Officer B. Tech 19-Jun-00 22 Years 3,171,400 Lucent Technologies , Sr Manager - BusinessDevelopment

2. Mr. Sunil Mohindra 36 Director - Investor Relations B.E., MIB 15-Feb-01 10 Years 404,185 Powergen India Ltd , Project DevelopmentManager

Notes :1. Remuneration includes Salary, Allowance, Contribution to Gratuity and Superannuation scheme with LIC and taxable value of perquisites.2. All appointments are contractual and terminable by notice on either side.3. None of the above employees is related to any of the Directors.

HUGHESDIR.PM65 28/06/2001, 08:29 PM11


Sr. No. Name Designation No. of Options

1. Mr. George Varghese Senior Executive Vice President 15,000

2. Mr. H. D. Khosla Vice President - Network Operations 10,000

3. Mr. Madhav Joshi Chief Legal Officer & Company Secretary 8,000

4. Mr. Dhananjay Saheba Chief Technical Officer 25,000

ANNEXURE IIPARTICULARS PURSUANT TO THE SECURITIES & EXCHANGE BOARD OF INDIA (EMPLOYEES’ STOCKOPTION SCHEME AND EMPLOYEES’ STOCK PURCHASE SCHEME) GUIDELINES, 1999

Options granted:(i) Cumulative (cum.) 17,02,750

(ii) During the year 2000-01 4,63,150

Pricing formula At par i.e. Rs. 10/- per share.

Options vested (cum.) 4,73,100

Options exercised (cum.) Nil

Options lapsed (cum.) 1,60,000

Total number of shares arising as a result of exercise of options (cum.) Nil

Variation of terms of options Not varied

Money realised by exercise of options (cum.) Nil

Total number of options in force 15,42,750

Options granted to Senior managerial personnel during year 2000-2001:


Any other Employees to whom 5% or more of the total options have been granted during the year None

Identified employees to whom options have been granted equal to 1% or more of the issued capital(excluding outstanding warrants & conversions) of the Company at the time of grant None

Diluted Earnings Per Share (EPS) pursuant to issue of shares onexercise of option calculated in accordance with InternationalAccounting Standard (IAS 33) Rs. (1.99)

Number of employees to whom options have been granted 415

HUGHESDIR.PM65 26/06/2001, 10:50 AM12


ANNEXURE IIIThe Board of Directors

Hughes Tele.com (India) Limited

Re. : Auditors’ Certificate on Corporate Governance

As required by you, we have reviewed the Company’s procedures for compliance with the provisions ofClause 49 of the Listing Agreements with the Stock Exchanges.

On the basis of our review and according to the information and explanations given to us and therepresentations made to us by the Directors and the Management, we state that to the best of our knowledgeand belief, the Company has complied in all material respects with the conditions of corporate governancestipulated in Clause 49 of the Listing Agreements with Stock Exchanges.

For DELOITTE HASKINS & SELLS,Chartered Accountants

P. B. PARDIWALLANew Delhi, Partner17th May, 2001


HUGHESDIR.PM65 26/06/2001, 10:51 AM13


STATEMENT OF COMPANY’S PHILOSOPHY ON CORPORATE GOVERNANCE

Your Company believes in setting the highest standards in good and ethical corporate governance practices.

The day to day management of your Company is fully delegated to the President & C.E.O. who reports

to the Board. The President & C.E.O. is assisted by a team of highly qualified & experienced professionals.

Corporate Code of Conduct

Your Company is committed to integrity as the cornerstone of the way it does business. Your Company and its

employees have a commitment to its customers, sub-contractors, suppliers, competitors, local communities,

shareholders and the nation to conduct business in an ethical and legal manner. This includes :

• conduct of all dealings with your Company’s customers and suppliers with honesty and integrity;

• respect for the rights of all employees to fair treatment and equal opportunity, free from discrimination

or harassment of any type;

• knowledge, understanding and compliance with all laws, regulations and codes of conduct governing

the operations of your Company’s business;

• ensuring that all transactions are handled honestly and recorded accurately;

• protection of information that belongs to your Company or customers, suppliers and fellow workers;

• avoidance of conflict of interest, both real and perceived; and

• recognition of the reputation of your Company and acting accordingly.

BOARD OF DIRECTORS

Composition

Your Company’s Board of Directors comprises of 10 Directors, all of them are Non-Executive and 2 of

them are Independent Directors*. The Board Structure is as under:

Director Non-Executive (NE)/Independent

Mr. Pramod Mittal NEMr. Pradman Kaul NEMr. Vijay Dhar NE & IndependentMr. Francis X. Frantz NEMr. Alok Gupta NE & IndependentMr. Pradeep Kaul NEMr. James Lucchese NEMr. V. K. Mittal NEMr. Vivek Sett NEMr. Jack Shaw NE

* An Independent Director is one who, apart from receiving director’s remuneration, does not have any other material pecuniaryrelationship or transactions with your Company, its promoters, its management or its subsidiaries, which in judgement of yourBoard, may affect independence of judgement of the Director.

Corporate Governance Report

HUGHESDIR.PM65 26/06/2001, 10:51 AM14


In addition, the Board has also appointed 5 Alternate Directors as under:

Name Alternate To

Mr. Partho Banerjee Mr. Pradeep Kaul

Mr. Sanjay Chaudhary Mr. Francis X. Frantz

Mr. Madhav Joshi Mr. Pradman Kaul

Mr. Arun Kumar Mr. Jack Shaw

Mr. Pranav Roach Mr. James Lucchese

Mr. Pramod Mittal and Mr. Pradman Kaul are Chairman and Vice-Chairman respectively. Since the Board

is chaired by a Non-Executive Chairman, the Corporate Governance guidelines issued by SEBI require at

least one-third i.e. 4 Directors to be Independent Directors. Your Company currently has 2 Independent

Directors on its Board and proposes to appoint, 2 more Independent Directors who could be Nominees

of financial institutions and banks participating in the financing of your Company’s project. Such appointments

of nominee Directors would be necessary in terms of loan sanction letters and would take total number

of Independent Directors to 4 to meet the Board composition requirements.

None of the non-executive Directors has had any pecuniary relationship or transaction vis-à-vis your

Company during the year.

Participation and Interest of Directors

Since the last Annual General Meeting, a total of 6 Board Meetings (as against the minimum requirements

of 4 meetings) were held on the following dates viz, 19th June, 2000, 25th September, 2000, 18th October,

2000, 10th January, 2001, 4th April, 2001 and 17th May, 2001. The maximum time gap between two board

meetings was not more than three calendar months, The following table gives details of participation and

interests of directors :


HUGHESDIR.PM65 26/06/2001, 10:51 AM15


Participation and Interest of Directors

Director Participation of Directors Interests of Directors

Board Last AGM Other Committee CommitteeMeetings# Directorships@ Memberships Chairmanships

Mr. Pramod Mittal 3 No 12 1 -Mr. Pradman Kaul 3 No 5 2 -Mr. Vijay Dhar 5 No 9 2 -Mr. Francis X. Frantz 1 No 11 - -Mr. Alok Gupta 4 No - - -Mr. Pradeep Kaul 1 No 2 - -Mr. James Lucchese 2 No 2 - -Mr. V. K. Mittal 4 No 18 1 -Mr. Vivek Sett 6 Yes 10 3 -Mr. Jack Shaw 1 Yes 5 2 -Mr. Partho Banerjee 1 No - - -(Alternate toMr. Pradeep Kaul)Mr. Sanjay Chaudhary 4 No 1 - -(Alternate toMr. Francis X. Frantz)Mr. Madhav Joshi 3 Yes - - -(Alternate toMr. Pradman Kaul)Mr. Arun Kumar 1 No 4 - -(Alternate toMr. Jack Shaw)Mr. Pranav Roach 2 Yes 4 - -(Alternate toMr. James Lucchese)

# In the event, Directors are unable to attend meetings, they participate through a teleconference or the meeting is attended bythe Alternate Director.

@ Includes directorships in private companiesNone of the Directors is a member in more than 10 committees and acts as a Chairman in more than 5 committees across allcompanies in which he is a director.

AUDIT COMMITTEE

The Board of Directors at its meeting held on 10th January, 2001, appointed the Audit Committee in

compliance of the Corporate Governance requirements.

Composition

The Audit Committee of the Board of your Company presently comprises of 4 members all of whom are

Non-Executive Directors and out of which 2 are Independent Directors. The Committee functions under

the Chairmanship of Mr. Vijay Dhar who is an Independent Director. Mr. Madhav Joshi, Chief Legal


HUGHESDIR.PM65 26/06/2001, 10:51 AM16


Officer & Company Secretary, acts as the Secretary to the Committee. The composition of the Committee

is as follows:

Name of Member Category/Position

Mr. Vijay Dhar Independent DirectorMr. Vivek Sett Non-Executive DirectorMr. Alok Gupta Independent DirectorMr. James Lucchese Non-Executive DirectorICICI Nominee (proposed) Independent DirectorMr. Madhav Joshi Secretary

Mr. Vivek Sett, a Chartered Accountant, who is a member of the Committee, has financial and accounting

knowledge and possesses an experience of more than 20 years in the field of finance and accounts.

Terms of Reference

The terms of reference for the Committee as laid down by the Board include the following:

a) Overseeing of your Company’s financial reporting process and the disclosure of its financial information

to ensure that the financial statements are correct, sufficient and credible.

b) Recommending the appointment and removal of external auditor, fixation of audit fee and also

approval for payment for any other services.

c) Reviewing with management, the half yearly and annual financial statements before submission to

the board, focusing primarily on:

(i) any changes in accounting policies and practices

(ii) major accounting entries based on exercise of judgement by management

(iii) qualifications in draft audit report

(iv) significant adjustments arising out of audit

(v) the going concern assumption

(vi) compliance with accounting standards

(vii) compliance with stock exchange and legal requirements concerning financial statements

(viii) any related party transactions i.e. transactions of your Company of material nature, with

promoters or the management, their subsidiaries or relatives etc., that may have potential

conflict with the interests of Company at large.

d) Reviewing with the management, external and internal auditors, the adequacy of internal control

systems and ensuring compliance therewith.


HUGHESDIR.PM65 26/06/2001, 10:51 AM17


e) Reviewing the adequacy of internal audit function, including the structure of the internal audit

department, staffing and seniority of the official heading the department, reporting structure, coverage

and frequency of internal audit.

f) Discussing with internal auditors any significant findings and follow up thereon.

g) Reviewing the findings of any internal investigations by the internal auditors into matters where

there is suspected fraud or irregularity or a failure of internal control systems of a material nature

and reporting the matter to the Board.

h) Discussion with external auditors before commencement of the audit on the nature and scope of

audit as well as post-audit discussions to ascertain areas of concern.

i) Reviewing your Company’s financial and risk management policies.

j) Looking into the reasons for substantial defaults in the payment to the depositors, debenture

holders, shareholders (in case of non payment of declared dividends) and creditors.

k) Reviewing the half-yearly and annual financial statements before submission to the Board of Directors.

Committee Meetings

3 meetings of the Committee have been held since its constitution in January 2001. The details of the

same are as follows:

Date Venue

10th January, 2001 Mumbai4th April, 2001 Mumbai17th May, 2001 New Delhi

The Attendance of the Committee Members at the above meetings is as follows:

Member Committee Meetings

Held Attended

Mr. Vijay Dhar 3 3Mr. Vivek Sett 3 3Mr. Alok Gupta 3 3Mr. James Lucchese 3 1

REMUNERATION COMMITTEE

Your Company has not constituted such a Remuneration Committee since your Company has not employed

any Executive or Whole-time Directors. Your Company has not paid sitting fees or any remuneration to any

of the Directors.


HUGHESDIR.PM65 26/06/2001, 10:51 AM18


INVESTORS’ GRIEVANCES COMMITTEE

Composition

Your Company has, at its meeting held on 10th January, 2001, constituted the Investors’ Grievances

Committee comprising of Mr. Vivek Sett and Mr. Madhav Joshi. The Committee functions under the

chairmanship of Mr. Vivek Sett who is a Non-Executive Director.

Terms of Reference

The Committee would look into the redressal of the shareholders complaints in respect of any matter

including transfer of shares, non-receipt of Annual Report, non-receipt of declared dividends, dematerialisation

of shares, IPO refunds & complaints, etc.

Compliance Officer

Your Company has designated Mr. Madhav Joshi, Chief Legal Officer & Company Secretary as its Compliance

Officer.

Summary of Investors Complaints

The status of Investor Complaints as on 17th May, 2001 was as follows:

Number of Complaints received (cum.) : 949

Number of Complaints not solved to

the satisfaction of shareholders : NIL

Number of pending share transfers : NIL

GENERAL BODY MEETINGS

Your Company’s statutory meeting was held on 24th April, 1995.

Till date your Company has held 5 Annual General Meetings (AGM) and 9 Extra Ordinary General Meetings

of shareholders. The details of the last 3 AGMs are as under:

Particulars Date Venue

3rd Annual General Meeting 29th September, 1998 Mumbai

4th Annual General Meeting 29th September, 1999 Mumbai

5th Annual General Meeting 30th May, 2000 Mumbai

No special resolutions have been put through postal ballot at any of the General Body Meetings and all

the resolutions at these meetings have been passed unanimously. No resolutions are proposed to be

passed by postal ballot at the ensuing Annual General Meeting.


HUGHESDIR.PM65 26/06/2001, 10:51 AM19


RELATED PARTY TRANSACTIONS

There were no materially significant related party transactions during the year that in the opinion of the

Board may have potential conflicts with the interests of your Company at large.

COMPLIANCE WITH LAWS

Your Company has exercised due diligence in complying with all applicable laws in the matter of conduct

of its business and in particular, there has neither been any non-compliance on the part of your Company

on any matter related to capital markets, during the last three years nor have any penalties or strictures

been imposed on your Company in this respect.

FINANCIAL RESULTS

Your Company approved its unaudited financial results for the quarter ended 31st December, 2000 at the

meeting of the Board of Directors held on 10th January, 2001. The same were published in the Financial

Express in English and in Navshakti in Marathi on 12th January, 2001. The financial results as well as all

other official news releases issued by your Company are displayed on its web site www.hughestele.com.

Presentations to institutional investors or analysts whenever made, are displayed on the web site.

MANAGEMENT DISCUSSION & ANALYSIS

The Management Discussion and Analysis is attached and forms part of this Annual Report.

GENERAL SHAREHOLDER INFORMATION

Annual General Meeting

The ensuing Sixth Annual General Meeting is scheduled to be held on Tuesday, 28th August, 2001 at 15.30

hours at Yashwantrao Chavan Pratishtan Auditorium, Y. B. Chavan Centre, Near Mantralaya, Gen. J. Bhosale

Marg, Mumbai 400 021.

Financial Calendar

Your Company follows April – March financial year. The unaudited results for first, second (half yearly) and

third quarter would be published in July, October and January respectively. Annual audit results would be

published in May/June.

Date of Book Closure

The share transfer books & the members register will be closed between 16th August, 2001 and

28th August, 2001 (both days inclusive) for the purposes of the Sixth Annual General Meeting.


HUGHESDIR.PM65 26/06/2001, 10:51 AM20


Listing on Stock Exchanges

Your Company’s shares are listed on The Stock Exchange, Mumbai (BSE) and the National Stock Exchange

of India Limited (NSE).

The addresses of the BSE & NSE are given below for the information of the shareholders:

The Stock Exchange, Mumbai The National Stock Exchange of India Limited

P. J. Towers Trade World, Senapati Bapat MargDalal Street Lower ParelMumbai 400 023 Mumbai 400 013

Your Board confirms that the Annual Listing Fees have been paid to BSE & NSE.

Stock Code

The Stock Codes of your Company’s shares on the BSE are as follows:

(a) Demat Segment Code No. 532371 Scrip ID HUGHESTELE

(b) Normal Segment Code No. 32371 Scrip ID HUGHESTELE

The Stock Code of your Company’s shares on the NSE is HUGHESTELE, Series BT.

Market Price Data

The High & Low price, during each month in the last financial year, of your Company’s shares since its

listing is as follows:

Month BSE (Rs.) NSE (Rs.)

High Low High Low

October 2000 12.20 10.05 12.95 10.00November 2000 12.10 10.20 12.20 10.05December 2000 12.00 10.00 12.40 9.85January 2001 11.70 10.50 11.65 10.25February 2001 12.20 10.90 12.25 10.70March 2001 11.55 7.50 11.70 7.25

Performance of your Company’s Share Price in Comparison to BSE & NSE Indices

The performance of the HTIL Share Price vis-a-vis the broad based BSE & NSE Indices since listing of the

Company’s shares (26th October, 2000) till 31st March, 2001 is as under :

Particulars HTIL Share Price v/s BSE HTIL Share Price v/s NSE

Share Price BSE Share Price NSE(Rs.) (Rs.)

As on 26th October, 2000 11.95 3757.16 11.60 1186.30

As on 30th March, 2001 8.50 3604.38 8.50 1148.20

% Change -40.59 -4.24 -36.47 -33.15


HUGHESDIR.PM65 26/06/2001, 10:51 AM21


Public4%

NRIs/OCBs2%

Promoters56%

ForeignInstitutional

Investors13%

Banks, Institutions,Mutual Funds &

Bodies Corporate25%

Registrar & Share Transfer Agents

Your Company has appointed Computech International Limited (Computech) as its Registrar & Share

Transfer Agents. Shareholders are advised to approach Computech on the following address for any share

& demat related queries and problems:

Computech International Limited

Sri Padmavathi Bhavan, Plot No. 93,Road No. 16, M.I.D.C.,Andheri (East), Mumbai 400 093Contact Person: Mr. C. S. VyasTel : 821 6753/55/62/76/79Fax : 820 7910E-mail : [email protected]

Share Transfer System

All physical share transfers are handled by Computech. The transferee is required to furnish the transfer

deed duly complete in all respects together with the share certificates to Computech at the abovesaid

address in order to enable Computech to process the transfer. After approving the transfer, the transferee

is sent a option form for receiving shares in dematerialized form.

As regard transfers of dematerialized shares, the same can be effected through the demat accounts of

the transferor/s and transferee/s maintained with recognized Depository Participants.

Distribution of Shareholding

The broad shareholding distribution of your Company as on 31st March, 2001 was as follows:


HUGHESDIR.PM65 26/06/2001, 10:51 AM22


Dematerialization of Shares & Liquidity

Approximately 93% of the shares issued by your Company have been dematerialized as on date.

The trading in your Company’s shares is compulsorily in dematerialized form. In order to afford full liquidity

and efficient transfer mechanisms to the investor community, your Company has tied up with the National

Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Thus, the

investors can exercise dematerialization and transfer actions through a recognized Depository Participant

(DP) who is connected to NSDL or CDSL.

Outstanding Employee Stock Options, GDRs, ADRs, etc,

Your Company has not issued any GDRs/ADRs/Warrants or any convertible instrument except 12,000,000

Employee Stock Options for one share each issued to Hughes Ispat Limited Employees’ Stock Option Plan

Trust. These options are convertible into Equity Shares of your Company on payment by the employees

of the Exercise Prices stipulated for the particular options. No shares have so far been issued against such

options. Please refer Annexure II of the Report of the Board of Directors for further details.

Telephone Exchange Locations

Your Company provides services through its telephone exchanges located at Turbhe (Navi Mumbai), Worli

(Mumbai), Nariman Point (Mumbai), Marol (Mumbai), Pune, Nasik, Panaji and Nagpur.

Address for correspondence

Shareholders are requested to direct all share-related correspondence to Computech and only the

non-share related correspondence and complaints regarding Computech to the Compliance Officer at the

registered office of your Company.

Shareholders holding shares in electronic (dematerialized) mode should address all share related

correspondence to their respective Depository Participants.

Auditors’ Certificate

The certificate dated 17th May, 2001 issued by M/s. Delloite Haskins & Sells, Chartered Accountants,

Statutory Auditors on compliance of the Corporate Governance requirements by your Company is annexed

to the Directors’ Report.


HUGHESDIR.PM65 26/06/2001, 10:51 AM23


Basis of preparation of financial statements

The financial statements have been prepared in

compliance with the requirements of the Companies

Act, 1956, and Indian Generally Accepted Accounting

Principles (Indian GAAP). In the adoption of the

accounting standards there are no material

departures from the prescribed Indian accounting

standards. Your Company’s management believes

that it has been objective and prudent in making

estimates and judgements relating to the financial

statements and believes that these financial

statements are a fair representation of your

Company’s operations and profits for the year.

Overview

Your Company is India’s premier broadband network

based basic telecommunication service provider. It

is licensed to provide telecommunication services

within the Maharashtra Telecom Circle (MTC), India’s

highest revenue earning telecom circle, which

includes Mumbai and Goa. Your Company’s

sponsors are Hughes Electronics Corporation (HEC),

USA, Alltel Corporation, USA and the Ispat Group of

India and their affiliates.

Your Company was incorporated as Hughes Ispat

Limited on 13th March, 1995 under the Companies

Act, 1956 and was renamed Hughes Tele.com (India)

Limited with effect from 26th April, 2000 to reflect

its unique positioning against the backdrop of the

Internet revolution. Your Company’s shares are now

traded on the Bombay Stock Exchange (BSE) and

the National Stock Exchange (NSE).

Your Company commenced the year with over

22,000 subscriber lines and by the end of March

2001 it had about 70,000 subscriber lines (wireline

and fixed wireless). Your Company has expanded

its network and currently provides

telecommunication services in 6 cities – Mumbai,

Navi Mumbai, Pune, Nasik, Nagpur and Panaji. Your

Company will shortly commence telecommunication

services at Ahmednagar, Kolhapur, Sangli and

Aurangabad. Your Company’s telecommunication

facilities in these cities are ready and are awaiting

interconnectivity with the incumbent operator and

testing by Telecom Engineering Centre (TEC).

Industry Structure and Developments

The Indian telecommunication services industry can

be broadly divided into the following segments

• Basic (wireline and WLL based wireless)

• Cellular (GSM)

• Long Distance (National and International)

• Data communications

• Internet services

Your Company currently provides basic

telecommunication services and high-speed data

communications in the MTC. Shortly, your Company

intends to offer Internet services leveraging on its

high-speed broadband network in its license area.

India has been divided into a number of

Management’s Discussionand Analysis of Financial Condition and Results of Operations

HUGHESDIR.PM65 26/06/2001, 10:52 AM24


telecommunication circles mostly contiguous with

the state boundaries. Besides the incumbents,

MTNL and BSNL, there are six (including your

Company) basic telecommunication service

providers operating in different telecommunication

circles in India. In the MTC your Company currently

competes with MTNL in Mumbai and with BSNL

in the rest of the circle. Recently the DoT has

issued LoI’s to 4 other companies to enable them

to obtain l icences to provide basic

telecommunication services (including WLL with

limited mobility) in the MTC. Please also refer to

the Regulatory Environment section in the

Directors’ report.

Opportunities and Threats

Please refer to the Regulatory Environment and

Material Developments sections in the Directors’

Report.

Product-wise performance

Your Company provides telecommunication

services, which are discussed in detail under

Results of Operations section below. Your

Company received the Internet Service Provider

(ISP) license (Category ‘A’ i.e. National) during

February 2001 and preparations are in progress

to launch ISP services.

Outlook

Please refer to the Future Plans section in the

Directors’ Report.

Risks and Concerns

The management believes that your Company’s

business is subject to a number of risks.

1. Business risks

2. Regulatory risks

3. Competition risks

4. Technology risks

5. Financing risks

Business risks

Please refer to the Directors’ Report section on

Material Developments.

Regulatory risks

Your Company has developed its business plan

based on its view of the evolving regulatory

framework. Many of the components of the

regulatory regime are yet to be established or

articulated by the relevant regulatory authorities,

including DoT and TRAI and the regulatory

framework is relatively new. In the event that the

assumptions used in the business plan are different

from the existing regulations, there would be an

impact on your Company’s business. Please also

refer to Directors’ Report especially sections on

Regulatory Environment and Material Developments.

Competition in the Company’s lines of business:

Competition in Voice Telephony business:

Your Company faces competition from the

incumbent basic telecommunication service


HUGHESDIR.PM65 26/06/2001, 10:52 AM25


operators, who have significant financial resources,

well-established brand names, large and existing

installed customer base, the potential to subsidize

competitive services with revenues from a variety

of business services and benefit from regulations

that still favour incumbents over your Company in

certain respects. Additionally, the TRAI has the

powers to stipulate conditions conducive to a healthy

competition among operators, which may impact

private telecom operators like your Company.

Competition from ISPs and other value-added

internet service providers:

Your Company’s proposed internet access service

will face significant competition from other ISPs,

including VSNL and MTNL. Please also refer to

Directors’ Report especially sections on Regulatory

Environment and Material Developments.

Risk of rapid technological changes

The telecommunications industry is characterized

by rapid technological changes and significant capital

requirements. Given the fast pace of technological

innovation in the telecommunication sector, your

Company may need to upgrade its networks

continuously. Further, in case there is convergence

of the various forms of communications such as

voice, data and video, your Company would face

competition from a larger set of players like fixed-

line and cellular telephony companies, ISPs and cable

TV operators.


However, your Company is building a state-of-the-

art broadband communications network and is

prepared to face increasing competition and is also

ready to take advantage of any business

opportunities that arise due to technological change

or convergence in communications.

Financing Risks

Please refer to the Directors’ Report section on

Project Financing.

Internal control systems and their adequacy

Your Company has an adequate internal control system

in place. Internal Audit & Control Assurance is

organized as an apex corporate function having direct

reporting relationship to the Chief Financial Officer &

the Audit Committee. It conducts independent

reviews & evaluation of all activities and operations

as per the approved audit plans. An Audit Committee

of the Board of Directors has been constituted as

per provisions of Section 292A of the Companies

Act, 1956 & Corporate Governance requirements

specified by the stock exchanges. The Internal

Auditor’s Reports dealing with the internal control

systems are considered by the Audit Committee and

appropriate actions are taken, wherever deemed

necessary.

Financial Performance

Total Income

Total income comprises revenues from

telecommunication services and other income. Total

income increased by 191% to Rs. 1,950.1 million

HUGHESDIR.PM65 26/06/2001, 10:52 AM26


for the financial year ended 31st March, 2001 as

compared to Rs. 670.1 million during the previous

financial year ending 31st March, 2000. The break

up of total income is depicted in the table below:

(Rs. Million)

Income Year Ending Year ending

31st March, 31st March,

2001 2000

Revenues from

Telecommunication

Services 1,392.2 638.1

Other Income 557.9 32.0

Total Income 1,950.1 670.1

Revenues from Telecommunication Services

Revenues from telecommunication services

include usage charges for outgoing local calls,

long distance domestic cal ls (STD), long

distance international calls (ISD), fixed monthly

rentals on regular and leased data lines and

installation charges for new subscriber lines.

Revenues from telecommunication services

increased by 118% to Rs. 1,392.2 million for

the year from Rs. 638.1 million during the

previous year. This growth has been achieved

due to the 203% increase in the number of

subscriber lines to 69,599 at end of the year as

compared to the 22,913 subscriber lines at the

end of the previous year.

Other Income

Other income grew to Rs. 557.9 million during the

year as compared to Rs. 32.0 million during the

previous year. This was largely due to interest

income of Rs. 311.7 million (previous year Rs. 30.9

million) earned on short-term investments of

temporary surplus of funds received due to the IPO.

In addition, there was a Rs. 169.8 million credit of

part of the operating system fees paid during earlier

years, consequent to the renegotiation of the

Operation Support System (“OSS”) contract with

Alltel Information (India) Private Limited (“Alltel”).

Operating Expenses

The major operating expenses consist of network

operation expenses which include Interconnection

and other access costs, the Operation Support

System (OSS) fees and expenses, revenue share

fee payable to Department of Telecommunications

(DoT); employee related expenses and

administration and other expenses.

Network Operation costs

These are costs incurred to operate and maintain

your Company’s networks, interconnect and other

access costs, Department of Telecommunication

fees, OSS expenses, power, etc.

Network Operation expenses decreased to Rs. 846.6

million (60.8% of telecommunication service

revenue) during the year from Rs. 851.6 million

(133.4% of telecommunication service revenue)


HUGHESDIR.PM65 26/06/2001, 10:52 AM27


during the previous year. This decline was primarily

due to a reduction in the OSS fees pursuant to the

renegotiation of the OSS contract. Additionally,

during the previous year your Company had incurred

a non-recurring expense for training fees.

Interconnection and other access costs

Interconnect and other access costs include charges

incurred for use of BSNL and MTNL networks for

carrying domestic and international long distance

calls, leased line charges and wireless spectrum

fee payable by your Company to allow it to use

wireless telecommunication equipment.

These costs increased to Rs. 574.9 million (41.3%

of telecommunication service revenue) for the year

from Rs. 276.7 million (43.4% of telecommunication

service revenue) for the previous year reflecting the

growth in long distance call revenues and the

network and subscriber lines of your Company.

Fee payable to Department of Telecommunications

Post migration to NTP 99, with effect from August

1, 1999, Basic Telecom Service Providers including

your Company are required to pay a revenue share

based fee @ 12% of revenues (net of interconnect

access charges). The revenue share based fee has

increased to Rs. 96.3 million (6.9% of

telecommunication service revenue) for the year


service revenue) paid for 8 months during the

previous year. (1st August, 1999 till 31st March, 2000)

and are commensurate with the growth in revenues

of your Company.

Operation Support System (OSS) fees and

expenses

Your Company has installed a sophisticated,

comprehensive and state-of-the-art Operation

Support System provided by Alltel. The OSS is vital

to your Company’s growth and its ability to monitor

costs, revenues, bill customers accurately and on a

timely basis and achieve overall operational and

financial efficiency.

OSS expenses decreased to Rs. 71.2 million (5.1%



service revenue) for the previous year. During the

year, the OSS contract between Alltel and your

Company was renegotiated to reduce/realign the

cost to your Company’s revised line roll-out and

other requirements. Consequent to the reduction in

the contractual fees, your Company received a credit

of Rs. 169.8 million from Alltel, being the difference

between the past fees paid and the fees payable

under the renegotiated contract.

Employee related expenses

The employee related expenses increased to

Rs. 209.0 million (15.0% of telecommunication

service revenue) for the year from Rs. 101.3 million

(15.8% of telecommunication service revenue) for


HUGHESDIR.PM65 26/06/2001, 10:52 AM28


the previous year. This is due to the increase in

number of employees to 734 at the end of the year

from 424 at the end of the previous year. These

incremental employees have been deployed primarily

to man the additional exchanges, cell sites and

customer service facilities consequent to the

significant growth in operations of your Company.

Administrative and other expenses

The major expenses are related to rent, rates and

taxes, insurance, repair and maintenance of

buildings, plant and machinery, communication

costs, electricity, travel and conveyance, legal and

professional services, software, advertisement

and promotion.

These charges increased to Rs. 908.4 million (65.2%



service revenue) for the previous year and reflect

the expanding scale of operations of your Company.

Finance and Treasury Charges

Total finance and treasury charges increased to

Rs. 1284.3 million (92.2% of telecommunication

service revenue) for the year from Rs. 975.5 million

(152.8% of telecommunication service revenue) for

the previous year. The previous year’s figure

includes interest of Rs. 795.3 million paid to the

DoT due to your Company’s delay in paying the

one-time entry fee as part of the migration package

under the NTP’ 99.

The availability of the IPO funds reduced your

Company’s dependence on borrowed funds, leading

to a decrease in interest expenses to Rs. 735.8

million for the year from Rs. 935.4 million for the

previous year. However expenses on loan

arrangement and other bank charges increased to

Rs. 457.5 million for the year from Rs. 19.2 million

for the previous year.

Depreciation and amortization of fixed assets

Depreciation on tangible and fixed assets other than

leasehold assets is provided for on Straight Line

basis at the rates specified in Schedule XIV to the

Companies Act, 1956. Leasehold land and premises

are amortized over the period of lease. Depreciation

on intangible fixed assets is provided as under:

The fixed license fees of Rs. 5,325.4 million paid for

the period upto 31st July, 1999 is amortized equally

(i.e. Rs. 266.3 million each year) over the license

period of 20 years.

Computer software is amortized uniformly over its

estimated useful life.

Total depreciation expenses increased to Rs. 727.1

million (52.2% of telecommunication service

revenue) for the year from Rs. 600.2 million (94.1%

of telecommunication service revenue) for the

previous year. This increase was the result of the

increased capital investment incurred by your

Company on expansion of its network assets during

the year.


HUGHESDIR.PM65 26/06/2001, 10:52 AM29


Taxes

Your Company had no taxable profits and therefore

no income tax liability for the current and previous

years. During the year Rs. 1.1 million has been written

back on account of excess income tax provision made

in previous years. Your Company has provided for

Rs. 0.043 million towards wealth tax for the current

year as compared to Rs. 0.034 million towards wealth

tax for the previous year.

Net Loss

Your Company’s net loss decreased to Rs. 2,087.9

million for the year as compared to a net loss of

Rs. 2,701.4 million for the previous year. The current

year’s loss was lower than the Rs. 2,210.3 million

projected in the offer document and prospectus

issued in September 2000 at the time of the IPO.

Most large greenfield infrastructure telecom projects

incur losses during the initial few years of the project

implementation.

Liquidity and Capital Resources

As a result of the cash flow arising from the

successful IPO during September 2000, your

Company’s liquidity improved considerably. At

the end of the year, your Company was left

with cash and cash equivalents and deposits

aggregating to Rs. 3,677.2 million as compared

to Rs. 223.7 million at the end of the previous

year.

Human Resources

Please refer to this section in the Directors’ Report.


HUGHESDIR.PM65 26/06/2001, 10:52 AM30


TO THE SHAREHOLDERS

We have audited the attached balance sheet of

Hughes Tele.com (India) Limited as at 31st March,

2001 and the profit and loss account of the Company

for the year ended on that date annexed thereto,

and report that:

1. As required by the Manufacturing and Other

Companies (Auditor’s Report) Order, 1988,

issued by the Central Government in terms of

Section 227 (4A) of the Companies Act, 1956,

we give in the Annexure, a Statement on the

matters specified in paragraphs 4 and 5 of the

said Order.

2. Further to our comments in the Annexure

referred to in paragraph 1 above, we report that:

a) We have obtained all information and

explanation which to the best of our

knowledge and belief were necessary for

the purposes of our audit.

b) In our opinion, proper books of account

as required by law have been kept by the

Company so far as appears from our

examination of the books.

c) The balance sheet and the profit and loss

account dealt with by this report are in

agreement with the above books of

account.

d) In our opinion, the balance sheet and profit

and loss account comply with the

accounting standards referred to in

sub-section (3C) of Section 211 of the

Companies Act, 1956.

e) On the basis of the written representations

received from the directors of the

Company, and taken on record by the

Board of Directors, we report that none

of the directors is disqualified as at 31st

March, 2001 from being appointed as a

director in terms of clause (g) of

sub-section (1) of Section 274 of the


f) In our opinion, and to the best of our

information and according to the

explanations given to us, the said

accounts, read together with the notes

thereon, give the information required by

the Companies Act, 1956 in the manner

so required and give a true and fair view:

(i) In the case of the balance sheet, of

the state of affairs of the Company,

as at 31st March, 2001, and

(ii) In the case of the profit and loss

account, of the loss for the year

ended on that date.

For DELOITTE HASKINS & SELLS


P. B. PARDIWALLA

Partner

New Delhi

17th May, 2001

Auditors’ Report

HUGHESDIR.PM65 26/06/2001, 10:52 AM31


1. The Company has maintained proper records

showing full particulars including quantitative

details and the situation of fixed assets. All the

assets have not been physically verified by the

management during the year but there is a

regular programme of verification which, in our

opinion, is reasonable having regard to the size

of the Company and the nature of its assets.

Accordingly, the physical verification of fixed

assets has been carried out by the

management during the year. We are informed

that no material discrepancies were noticed

on such verification as compared with the

records of fixed assets.

2. The fixed assets have not been revalued during

the year.

3. The Company holds an inventory of machinery

spares, which are essentially capital in nature

and are carried in the books under Capital Work

in Progress. Such spares are, when required,

also used for replacement, at which time they

are charged to revenue. As the Company does

not hold inventories as defined in Accounting

Standard 2 on Valuation of Inventories, issued

by the Institute of Chartered Accountants of

India, items (iii), (iv), (v), (vi) and (xii) of Clause

A of paragraph 4 of the Order are not applicable

to the Company.

4. The Company has not taken/granted any loans

from/to companies, firms or other parties listed

in the register maintained under Section 301

of the Companies Act, 1956 and from/to

companies under the same management within

the meaning of Section 370 (1B) of the


5. The Company has given to its employees,

interest free as well as interest bearing loans.

In respect of loans given to employees, where

the principal amounts have fallen due for

repayment during the year, the employees have

repaid the loans as stipulated. In respect of

those loans where the Company charges

interest, the employees have been regular in

the repayment of interest.

6. In our opinion and according to the information

and explanations given to us, there are

adequate internal control procedures

commensurate with the size of the Company

and the nature of its business with regards to

purchase of plant and machinery, equipment

and other assets.

7. According to the information and explanations

given to us, there are no transactions for

purchase of goods and materials and sale of

goods, materials and services made in

pursuance of contracts or arrangements

entered in the register maintained under

Section 301 of the Companies Act, 1956 and

aggregating during the year to Rs. 50,000/- or

more in respect of each party.

8. The Company has not accepted any deposits

from the public.

Referred to in Paragraph 1 of our report of even date.Referred to in Paragraph 1 of our report of even date.Referred to in Paragraph 1 of our report of even date.Referred to in Paragraph 1 of our report of even date.Referred to in Paragraph 1 of our report of even date.

Annexure to Auditors’ Report

HUGHESDIR.PM65 26/06/2001, 10:52 AM32


9. The Company does not generate any

disposable by-product or scrap.

10. In our opinion the internal audit system of the

Company is commensurate with the size and

nature of its business.

11. The maintenance of cost records has not been

prescribed by the Central Government under

Section 209 (1) (d) of the Companies Act, 1956

for the business carried on by the Company.

12. The Company has regularly deposited Provident

Fund and Employees State Insurance dues with

the appropriate authority.


given to us, there are no undisputed amounts

payable in respect of income tax, wealth tax,

sales tax, customs duty and excise duty

outstanding for a period of more than six

months as at 31st March, 2001 from the date

they became payable.


given to us, no personal expenses of

employees or directors have been charged to

revenue account, other than those payable

under contractual obligations, or in accordance

with generally accepted business practice.

15. The Company is not a sick industrial company

within the meaning of Clause (o) of sub-section

(1) of Section 3 of the Sick Industrial Companies

(Special Provisions) Act, 1985.

16. The nature of the service activities carried on

by the Company does not require a system of

recording receipts, issues and consumption of

materials and stores and allocating materials

consumed and labour of jobs. Further, the

question of having a system of authorisation

and internal control on issue of stores and

allocation of stores and labour to jobs does

not arise.

For DELOITTE HASKINS & SELLS


P. B. PARDIWALLA

Partner

New Delhi

17th May, 2001

Annexure to Auditors’ Report

HUGHESDIR.PM65 26/06/2001, 10:52 AM33


Schedule As at As at31st March, 2001 31st March, 2000

Rs. ‘000 Rs. ‘000

SOURCES OF FUNDS

Shareholders’ FundsShare Capital ........................................................................ 1 14,053,267 6,666,601Advance against Equity ........................................................ — 59,387Reserves and Surplus ............................................................ 2 1,147,144 —

15,200,411 6,725,988Loan Funds

Secured Loans ...................................................................... 3 2,722,164 1,205,575Unsecured Loans ................................................................. 4 795,100 2,130,391

3,517,264 3,335,966Total ..................................................................................... 18,717,675 10,061,954

APPLICATION OF FUNDS

Fixed Assets 5Gross Block.......................................................................... 16,257,170 11,707,434Less : Accumulated Depreciation ......................................... 1,807,724 1,080,956Net Block ............................................................................. 14,449,446 10,626,478

Capital Work-In-Progress ...................................................... 2,748,252 1,138,544

17,197,698 11,765,022

Investments ................................................................................. 6 175,167 —Current Assets, Loans and Advances

Cash and Bank Balances ...................................................... 7 852,117 223,761Sundry Debtors .................................................................... 8 238,167 99,879Loans and Advances ............................................................ 9 2,931,539 284,323

4,021,823 607,963

Less : Current Liabilities and Provisions ....................................... 10 8,269,103 6,108,951

Net Current Liabilities ................................................................. (4,247,280) (5,500,988)

Miscellaneous Expenditure .......................................................... 11 178,910 472,660(To the extent not written off or adjusted)

Profit and Loss Account ............................................................... 5,413,180 3,325,260

Total 18,717,675 10,061,954

Notes to Financial Statements 15

Balance Sheetas at 31st March, 2001

As per our attached report of even date.

For Deloitte Haskins & SellsChartered Accountants

P.B. Pardiwalla(Partner)

New Delhi17th May, 2001

For and on behalf of the Board

Alok Gupta

Vivek SettDirectors}

Madhav Joshi

Chief Legal Officer & Company Secretary

HUGHESFINAN.PM65 26/06/2001, 12:15 PM34


Schedule 2000-2001 1999-2000Rs. ‘000 Rs. ‘000

INCOME :

Telecommunication Services ................................................ 1,392,282 638,148Other Income....................................................................... 12 557,883 31,958

Total .................................................................................... 1,950,165 670,106

EXPENDITURE :

Operation and Other Expenses ............................................. 13 1,964,101 1,695,211

Finance and Treasury Charges .............................................. 14 1,284,306 975,507

Miscellaneous Expenditure written off .................................. 63,684 100,505

Depreciation ........................................................................ 727,146 600,280

Total .................................................................................... 4,039,237 3,371,503

Loss before Tax ............................................................................ (2,089,072) (2,701,397)

Provision for Wealth Tax .............................................................. (43) (34)

Excess Provision for Income tax in respect of earlier years ............ 1,195 —

Loss for the year ........................................................................... (2,087,920) (2,701,431)

Balance as per last account .......................................................... (3,325,260) (623,829)

Balance carried to Balance Sheet ................................................ (5,413,180) (3,325,260)

Earnings Per Share - Basic and Diluted ................................... (Rs.) (1.99) (4.05)

Notes to Financial Statements ...................................................... 15






Alok Gupta


Profit & Loss Accountfor the year ended 31st March, 2001

Madhav Joshi




Schedulesforming part of the balance sheet

As at As at31st March, 2001 31st March, 2000

Rs. ‘000 Rs. ‘000

SCHEDULE - 1 : SHARE CAPITAL

Authorised1,600,000,000 (Previous year 1,500,000,000)Equity Shares of Rs.10 each..................................................................... 16,000,000 15,000,000

16,000,000 15,000,000Issued and Subscribed1,405,326,661(Previous year 666,660,070)Equity Shares of Rs.10 each fully paid up ................................................ 14,053,267 6,666,601

14,053,267 6,666,601

SCHEDULE - 2 : RESERVES AND SURPLUS

Securities premium accountReceived during the year on issue of shares ............................................ 1,477,333 —Less : Share Issue expenses ...................................................................... 330,189 —

1,147,144 —

SCHEDULE - 3 : SECURED LOANS

From a Financial InstitutionTerm Loans (Refer Note 1 below) ............................................................ 2,200,000 1,200,000

From BanksBridge loan (Refer Note 2 below) ............................................................ 500,000 —Interest Accrued and due thereon ............................................................ 18,075 —

518,075 —

Deferred payment credits ( Refer Note 3 below) ...................................... 4,089 5,575(of the above Rs.1,960 thousand is due for repayment within a year) ...... 522,164 5,575

2,722,164 1,205,575Notes :

1. Secured by first mortgage of all assets of the Company including movable and immovable properties, both present andfuture, subject to a pari passu charge on movable properties in favour of Industrial Development Bank of India (IDBI) forguarantee assistance of Rs. 75 crores. To be further secured by assignment of the Telecom Licence and proceeds on saleof network in the event of cancellation of the licence, in favour of the Institution.

2. To be secured by a pari passu first mortgage on all the assets of the Company including movable and immovable properties,both present and future subject to approval of ICICI Ltd. and IDBI.

3. Secured by hypothecation of Vehicles acquired out of the Loans.

SCHEDULE - 4 : UNSECURED LOANS

7,951,000, 13.75% floating rate (Previous year 13.50%) Non-ConvertibleDebentures of Rs. 100/- each redeemable on the expiry of 84 days from thedate of allotment, i.e. 10th January, 2001 (Previous year 10th January, 2000) 795,100 795,100From a Financial Institution ..................................................................... — 1,245,629Bank Overdraft ........................................................................................ — 89,662

795,100 2,130,391



SCHEDULE - 5 : FIXED ASSETS

(Rs. ‘000)

PARTICULARS GROSS BLOCK DEPRECIATION NET BLOCK

Notes As at Additions Deletions/ As at Upto For the Deletions Upto As at As at1st April, during Transfers 31st March, 1st April, year 31st March, 31st March, 31st March,

2000 the year during 2001 2000 2001 2001 2000the year

Tangible AssetsLeasehold assetsLand ( a ) 61,466 576 — 62,042 2,768 948 — 3,716 58,326 58,698

Office premises 68,583 — — 68,583 2,100 1,145 — 3,245 65,338 66,483

Buildings 19,881 — — 19,881 850 664 — 1,514 18,367 19,031Plant & Machinery ( b ) 5,817,334 4,462,893 15 10,280,212 351,426 413,929 1 765,354 9,514,858 5,465,908

Furniture, Fixtures &Office Equipment 286,108 76,281 68 362,321 44,747 35,755 6 80,496 281,825 241,361

Vehicles ( c ) 12,876 6,934 1,765 18,045 1,995 1,583 371 3,207 14,838 10,881Intangible AssetsLicence 5,325,479 — — 5,325,479 666,050 266,274 — 932,324 4,393,155 4,659,429

Computer Software 115,707 4,900 — 120,607 11,020 6,848 — 17,868 102,739 104,687

11,707,434 4,551,584 1,848 16,257,170 1,080,956 727,146 378 1,807,724 14,449,446 10,626,478

Previous Year 10,486,467 1,222,452 1,485 11,707,434 480,853 600,280 177 1,080,956 10,626,478

Notes :(a) Includes Rs. 5,866 thousand (Previous year Rs. 57,974 thousand) for which lease deeds are pending for execution.(b) Additions during the year include net exchange differences of Rs.157,607 thousand (Previous year Rs. 54,679 thousand)

adjusted in the carrying values of the assets.(c) Includes Rs. 8,972 thousand (Previous year Rs. 2,342 thousand) for vehicles acquired on hire purchase basis. Rs. 3,363

thousand (Previous year Rs. 722 thousand) has been paid by the Company till date.


Rs. ‘000 Rs. ‘000

SCHEDULE - 6 : INVESTMENTS (at cost)

Current investments (Unquoted, Other than trade)Balance of Unutilised monies raised by issue of shares investedin units of Mutual Funds

No. of unitsPrudential ICICI Liquid Plan ......................................................... 1,962,118.202 25,167 —Zurich India Liquid Fund Savings Plan ....................................... 13,845,301.828 150,000 —

175,167 —

SCHEDULE - 7 : CASH & BANK BALANCES

Cash on hand ( including cheques on hand Rs. 34 thousand,Previous year Rs. 2,503 thousand) ...................................................................... 355 2,610

Balance with Scheduled Banks in– Current Accounts ........................................................................................ 68,943 68,514– Term Deposit Accounts (including accrued interest Rs. 32,269

thousand, Previous year Rs.1,107 thousand ) .............................................. 782,819 152,637

852,117 223,761





Rs. ‘000 Rs. ‘000

SCHEDULE - 8 : SUNDRY DEBTORS(Unsecured)Outstanding for a period exceeding six months ......................................... 5,671 480Others ....................................................................................................... 234,274 99,941

239,945 100,421Less : Provision ......................................................................................... 1,778 542

238,167 99,879Notes :1. Considered good ............................................................................... 238,167 99,879

Considered doubtful .......................................................................... 1,778 5422. Sundry Debtors comprise of billed trade receivables Rs.154,827 thousand (Previous year Rs. 32,105 thousand) and

unbilled trade receivables, not due Rs. 85,118 thousand (Previous year Rs. 68,316 thousand)

SCHEDULE - 9 : LOANS AND ADVANCES

(Unsecured)Inter corporate deposits with ICICI Ltd. ..................................................... 2,650,000 —Advances recoverable in cash or in kind or for value to be receivedStaff Loans................................................................................................. 12,523 7,839[Includes Rs. 1,800 thousand (Previous year Rs. 1,800 thousand )due from an officer of the Company. Maximum amountoutstanding at any time during the year Rs.1,800 thousand]Deposits .................................................................................................... 164,840 225,134Others ....................................................................................................... 109,976 40,263Tax paid (less Provision) ........................................................................... 2,079 11,087

2,939,418 284,323

Less : Provision ......................................................................................... 7,879 —2,931,539 284,323

Notes :1. Considered good ............................................................................... 2,931,539 284,323

Considered doubtful .......................................................................... 7,879 —

SCHEDULE - 10 : CURRENT LIABILITIES AND PROVISIONSCurrent LiabilitiesSundry Creditors other than small scale industrial undertakings : .............. 7,608,491 6,019,197(Refer Note below)Deposits from Customers .......................................................................... 84,470 40,041Interest accrued but not due on loans ....................................................... 76,142 49,713

ProvisionsProvision for contingencies - Contractual claims/liabilities ........................ 500,000 —Note : Sundry Creditors includes liabilities that are due forpayment after a period of 12 months Rs. 4,479 thousand(Previous year Rs. 1,620 thousand) ........................................................... 8,269,103 6,108,951

SCHEDULE - 11 : MISCELLANEOUS EXPENDITURE(To the extent not written off or adjusted)Preliminary expenses ................................................................................ 52 60Business process engineering expenses ..................................................... 178,858 230,054Expenses for loan arrangement .................................................................. — 242,546

178,910 472,660




2000-2001 1999-2000Rs. ‘000 Rs. ‘000

SCHEDULE - 12 : OTHER INCOME

Interest on deposits ............................................................................................. 311,781 30,926(Tax deducted at source Rs. 64 thousand, Previous year Rs. Nil)Profit on redemption of Units ............................................................................. 12,223 —Refund of Operating Support System fees ........................................................... 169,841 —Gain on foreign exchange fluctuations ................................................................ 62,358 2Miscellaneous Receipts ....................................................................................... 1,680 1,030

557,883 31,958

SCHEDULE - 13 : OPERATION AND OTHER EXPENSES

Network Operation costs :Interconnection and other access costs .................................................. 574,917 276,746Fee payable to Department of Telecommunication .................................. 96,320 49,849Operations Support System costs .............................................................. 71,209 419,093Repairs and Maintenance - Plant and Machinery (including machineryspares consumed Rs. 37,629 thousand, Previous year Nil ) ...................... 65,822 18,457Power ...................................................................................................... 35,066 20,927Network Interface Unit Installation training Fees ............................................. — 66,256Others ........................................................................................................ 3,260 309

846,594 851,637Payments to and Provisions for Employees :Salaries and Bonus ................................................................................. 179,073 85,642Contribution to Provident and other Funds ............................................... 11,185 6,254Staff Welfare ............................................................................................. 18,808 9,476

209,066 101,372Administration and Other expenses :Rent ................................................................................................................... 120,084 95,415Rates and Taxes ................................................................................................... 10,500 10,385Insurance Charges ............................................................................................... 9,136 8,410Repairs and Maintenance

Buildings .......................................................................................... 26,836 3,659Other ............................................................................................... 20,434 11,705

47,270 15,364Communication costs .......................................................................................... 14,213 6,816Electricity ............................................................................................................ 23,895 15,824Travel and conveyance expenses ........................................................................ 38,798 22,528Legal and professional charges ............................................................................ 44,058 31,062Advertisement and business promotion expenses ................................................ 19,917 9,379Miscellaneous expenses ...................................................................................... 68,232 23,882Bad/Doubtful debts and advances ....................................................................... 11,933 2,765Loss on sale of fixed assets (net) .......................................................................... 405 372Contractual claims and liabilities

Bid bond costs ............................................................................................ — 500,000Contingencies ............................................................................................. 500,000 —

1,964,101 1,695,211

SCHEDULE - 14 : FINANCE AND TREASURY CHARGESInterestOn Fixed Term Loans .......................................................................................... 492,417 140,145Others ................................................................................................................. 243,450 795,352

735,867 935,497Expenses for loan arrangement, bank charges etc. ............................................... 457,593 19,279Loss on Foreign exchange fluctuations ................................................................ 90,846 20,731

1,284,306 975,507

Schedulesforming part of the profit and loss account



SCHEDULE - 15 : NOTES TO FINANCIAL STATEMENTS

1. Company backgroundHughes Tele.com (India) Limited (the “Company”) was incorporated on 13th March, 1995 under the name Hughes IspatLimited. The Company changed its name on 26th April, 2000.The Company is licensed to provide basic telecommunication services in the Maharashtra Telecom Circle (i.e. the statesof Maharashtra and Goa). Presently it has 8 exchanges in operation and has plans to progressively cover other areaswithin the Circle.During the year the Company made an Initial Public Offering of 738,666,591 Equity shares of Rs.10/- each at a premiumof Rs. 2/- per Share Amounting to Rs. 8,863,999 thousand and is now listed on two leading stock exchanges of the country.

2. Significant Accounting Policiesa) Basis of preparation of financial statements

The accompanying financial statements have been prepared under the historical cost convention, in accordancewith Indian Generally Accepted Accounting Principles and as per the provisions of the Companies Act, 1956.

b) Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principles requiresestimates and assumptions to be made that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities on the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Differences between actual results and estimates are recognised in theperiods in which the results are known/materialise.

c) Fixed AssetsFixed assets are stated at their historical cost of acquisition or construction, less accumulated depreciation.The Company capitalises software and related implementation costs, where it is reasonably estimated that thesoftware has an enduring useful life. Other application software purchased for internal use are charged to operationson purchase.Expenditure related to and incurred during the construction period of switches and cellsites are capitalised as partof the construction cost and allocated to the relevant fixed assets.

d) Depreciationi) Depreciation on tangible assets other than leasehold assets is provided for on Straight Line basis at the SLM

rates specified in Schedule XIV to the Companies Act, 1956.ii) Leasehold land and premises are amortised over the period of lease.iii) Depreciation on intangible fixed assets is provided for as under :

License fees - Uniformly over the license period.Computer Software - Uniformly over its estimated useful life.

e) Foreign Currency transactionsi) Transactions in foreign currency are recorded at the original rate of exchange in force at the time transactions

are effected.ii) Exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets are

adjusted in the carrying amount of the respective fixed assets. The carrying amount of fixed assets is alsoadjusted at the end of each financial year for any change in the liability arising out of expressing the relatedoutstanding foreign currency liabilities at the closing rates of exchange prevailing at the date of the balancesheet or at the rates specified in the related forward contract.

iii) Monetary liabilities (other than those related to the acquisition of fixed assets) denominated in foreign currencyare restated using the exchange rates prevailing at the date of the balance sheet or rates specified in therelated forward contract. Gains/losses arising on restatement and on settlement of such liabilities are recognisedin the profit and loss account under Other Income/Finance and Treasury Charges respectively.

f) Retirement benefitsContributions to the Provident and Superannuation Funds are charged to revenue.The gratuity liability is funded through a scheme administered by the Life Insurance Corporation (LIC) on the basis ofLIC’s demand which specifies the contribution to be made by the Company. Contributions made are charged to revenue.

g) Stock based CompensationThe compensation cost of stock options granted to employees is measured by the difference between the estimatedfair value of the Company’s shares on the date of grant and the exercise price to be paid by the option holders. Thecompensation expense is amortised uniformly over the vesting period of the options.

Schedulesforming part of the balance sheet and profit and loss account



h) Revenue recognitionRevenue from telecommunication services is recognised as the service is performed on the basis of actual usage ofthe Company’s network/in accordance with contractual obligations.

i) Borrowing costsBorrowing costs attributable to the acquisition of a qualifying asset (as defined in Accounting Standard 16 onBorrowing Costs issued by The Institute of Chartered Accountants of India) are capitalised as part of the cost ofacquisition. Other borrowing costs are expensed as incurred.

j) Miscellaneous expenditurei) Preliminary expenses are amortised over a period of ten years from the year in which the Company commenced

commercial operations.ii) Expenditure incurred in setting up Business Processes, where it is expected that benefits from the outlay will

accrue in future periods, is amortised over a period of five years.k) Earnings per share

The Company reports basic and diluted earnings per share in accordance with Accounting Standard 20 - EarningsPer Share issued by The Institute of Chartered Accountants of India. Basic earnings per share is computed bydividing the net profit or loss for the year by the weighted average number of Equity shares outstanding during theyear. Diluted earnings per share is computed by dividing the net profit or loss for the year by the weighted averagenumber of Equity shares outstanding during the year as adjusted for the effects of all dilutive potential equityshares, except where the results are anti-dilutive.

l) Share issue expensesExpenses on issue of shares are written off to Securities Premium account.

m) Contingent liabilitiesThese are disclosed by way of notes to the accounts. Provision is made in the books for those liabilities which arelikely to materialise after the year end, till the finalisation of accounts and those contractual claims/liabilities whichmay crystalise after negotiations with the concerned parties and which have material effect on the position statedin the balance sheet.

2000-2001 1999-2000Rs. ‘000 Rs. ‘000

3. Estimated amount of contracts remaining to be executed on capitalaccount and not provided for (net) ....................................................... 1,426,570 717,293

4. Counter guarantees given by the Company to Banks ............................ 251,476 3755. Contingent liabilities :

i) Claims against the Company not acknowledged as debts ............ 3,219,482 2,769,707ii) Income-tax demands disputed in appeals .................................... 92,727 93,369iii) The Company has paid during the year, (under protest), a sum of

Rs. 72,000 thousand to the Commissioner of Customs, Mumbai,pursuant to an inquiry carried out by the relevant authorities inconnection with the import of Telecom equipment made by theCompany in earlier years. The Company has till date not receiveda demand/show cause notice from the authorities, which whenreceived will be contested. The amount of contingent liability, ifany, is therefore at present not ascertainable.

6. Managerial Remuneration under Section 198 of the Companies Act, 1956,to the Manager (For the period from 1st April, 2000 to 10th January, 2001)Salary ................................................................................................... 3,582 —Contribution to Provident and other funds ........................................... 352 —Perquisites in cash or in kind ............................................................... 16 —

3,950 —As no commission is payable to the Manager, the computation of netprofits in accordance with Section 309(5) read with Section 349 of theCompanies Act, 1956, has not been given.

7. Payments to Auditors (excluding service tax) :i) Audit fees .................................................................................... 1,150 600ii) Tax Audit fees ............................................................................. 200 83iii) Other matters (certification work etc.) ......................................... 365 19iv) Out of pocket expenses ............................................................... 22 —

1,737 702




2000-2001 1999-2000Rs. ‘000 Rs. ‘000

8. Significant prior period items :Interest ....................................................................................................... 3,013 —Interconnection and other access costs ...................................................... — 2,071Repairs and maintenance ........................................................................... 543 3,021Power ........................................................................................................ — 1,228Others ........................................................................................................ 6,375 1,478

9. As there are no profits, Debenture Redemption Reserve has not been created.

10. Upto 31st March, 2000 expenses incurred for arranging loan facilities werecarried as ‘Miscellaneous Expenditure’ in the balance sheet and capitalisedto the cost of fixed assets/expensed to revenue in future periods on a pro-ratabasis, based on the utilisation of the proceeds of the loan. With effect from1st April, 2000 such expenses are charged to revenue account in the periodin which they are incurred, in accordance with Accounting Standard 16 onBorrowing Costs issued by the Institute of Chartered Accountants of India.Accordingly, the Company has charged to the profit and loss accountRs.189,803 thousand in respect of such expenses incurred during the year.The Company has also fully expensed during the year Rs. 242,546 thousandcarried in the balance sheet on 31st March, 2000 under ‘MiscellaneousExpenditure’ to Finance and Treasury Charges.As a result of this change the loss for the year is higher by Rs. 406,599thousand.

11. Upto 31st March, 2000 fees payable to the Department of Telecommunications(DoT) was calculated at 15% of gross revenues in accordance with the termsof the New Telecom Policy 1999 (NTP 1999) on a provisional basis. On 25th

January, 2001 the Company received a letter from the DoT stating that thefees payable to the DoT are to be calculated at 12% of gross revenues. TheCompany has in the accounts retrospectively adjusted the fees payable toDoT with effect from 1st August, 1999, (i.e. the effective date of migration toNTP 1999). These payments are however subject to the terms of licenceagreement that will be finalised by DoT in accordance with the terms ofMigration Package under NTP 1999 and the Guidelines for Issue of Licencefor Basic Services announced by DoT on 25th January, 2001.

12. Stock Option PlanIn November 1999, the Company established the Employee Stock OptionPlan (ESOP) under which equity shares are reserved for issuance to eligibleemployees of the Company. In terms of the plan 12 million warrants wereissued to Hughes Ispat Limited Employees Stock Option Trust, to be held byit on behalf of the Company for awarding eligible employees, as and whenadvised by the Compensation Committee constituted for the purpose. Eachallotted warrant carries with it a right to purchase one equity share of theCompany at a price of Rs. 10/- per share. Other than 240,000 fully vestedwarrants allotted in the previous year, all allotted warrants vest at the rate of25% on each successive anniversary of the grant date, until fully vested. Theperiod during which the vested warrants may be exercised expires after 10years from the date of the vesting.

The position of the allotted warrants is as follows :(Nos.) (Nos.)

Opening Balance ....................................................................................... 1,239,600 —Issued ........................................................................................................ 463,150 1,239,600Forfeited .................................................................................................... 160,000 —Exercised ................................................................................................... — —Closing Balance ......................................................................................... 1,542,750 1,239,600

Since the estimated fair value of the Company’s shares on the grant dates,according to the Company’s valuation, does not exceed the exercise price ofRs.10/-, no compensation expense has been recorded.




13. In respect of the public issue made by the Company during the year theexpenses incurred upto 31st March, 2001 on the public issue, ongoing capitalexpenditure and additional working capital requirement aggregates toRs. 5,511,958 thousand and the balance of unutilised money aggregating toRs. 3,352,041 thousand is maintained in India in current investments,inter-corporate deposits and term deposits with banks.

14. Value of imports on CIF basis in respect of :Capital goods ............................................................................................. 977,786 563

15. Expenditure in foreign currency on account of :Interest ....................................................................................................... 55,971 10,759Professional fees ........................................................................................ 8,867 14,176Others ........................................................................................................ 4,721 3,104

69,559 28,039

16. Value of Machinery Spares consumed during the year : 2000-2001 1999-2000

Rs. ‘000 % Rs. ‘000 %Indigenous 2,644 7.0 — —Imported 34,985 93.0 — —

37,629 100.0 — —17. Earnings Per Share Data

Basic Dilutive Basic Dilutivea) Reconciliation of the numerator :

Loss for the year and amount used asnumerator – ( Rs. ‘000) 2,087,920 2,087,920 2,701,431 2,701,431

b) Reconciliation of the denominator :Number of Equity Sharesoutstanding during the year 1,047,123,958 1,047,123,958 666,660,070 666,660,070

Effects of Dilutive Potential EquityShares ( Stock Options/Advanceagainst Equity) Not Applicable 473,100 Not Applicable 6,178,661Amount used as denominator(Number of Equity Shares) 1,047,123,958 1,050,331,294 666,660,070 672,689,223

c) Earnings Per Share – (Rs.) (1.99) *(1.99) (4.05) *(4.05)Nominal value of Share – (Rs.) 10 10 10 10

* Effect of dilution ignored since results are antidilutive.

18. Figures of the previous year have been regrouped/reclassified wherever necessary to correspond to figures of the currentyear.

Signatures to Schedules ‘1’ to ‘15’

2000-2001 1999-2000Rs. ‘000 Rs. ‘000







Alok Gupta


Madhav Joshi





Rs. ‘000 Rs. ‘000

A. CASH FLOW FROM OPERATING ACTIVITIES

Net loss before tax ...................................................................................... (2,089,072) (2,701,397)Adjustments for :Depreciation ............................................................................................... 727,146 600,280Loss on sale of fixed assets (net) .................................................................. 405 372Miscellaneous expenditure written off ......................................................... 63,684 100,505Provision for doubtful debts and advances .................................................. 9,115 542Provision for Contingencies......................................................................... 500,000 —Income from Investments ............................................................................ (12,223) —Interest received .......................................................................................... (311,781) (30,926)Gain on foreign exchange fluctuations ........................................................ (62,358) (2)Finance and Treasury charges ...................................................................... 1,284,306 975,507

2,198,294 1,646,278

Operating profit before working capital changes ....................................... 109,222 (1,055,119)

(Increase) in Sundry Debtors ....................................................................... (139,524) (83,762)(Increase)/Decrease in Prepayments and Other Receivables ........................ (14,103) 12,918Increase in Current liabilities ....................................................................... 1,633,723 1,098,890

Cash Generated from Operations ............................................................... 1,589,318 (27,073)

Direct tax refunds/payments (net) ................................................................ 10,161 (324)

Net Cash from Operating Activities ............................................................ 1,599,479 (27,397)

B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of fixed assets ............................................................................... (6,161,292) (1,427,313)Proceeds from Sale of Fixed assets .............................................................. 1,065 936Expenses incurred in setting up Business Processes ..................................... (12,480) (287,568)Intercorporate deposits placed .................................................................... (2,650,000) —Income from Investments ............................................................................ 12,223 —Interest received .......................................................................................... 280,619 34,649

Net Cash from Investing activities .............................................................. (8,529,865) (1,679,296)

C. CASH FROM FINANCING ACTIVITIES

Net proceeds from Initial Public Offering .................................................... 8,474,423 —Net proceeds from long term borrowings .................................................... 1,301,111 3,585,313Repayment of long term borrowings............................................................ (1,337,045) (1,337,279)Finance and Treasury charges paid .............................................................. (735,742) (927,865)

Net cash used in financing activities ........................................................... 7,702,747 1,320,169

Net Increase/(decrease) in cash and cash equivalents ................................ 772,361 (386,524)

Cash and cash equivalents at beginning of period ...................................... 222,654 609,178Cash and cash equivalents at end of period ................................................ 995,015 222,654

772,361 (386,524)

Cash FlowStatement for the year ended 31st March, 2001



AUDITORS’ CERTIFICATE

The Board of Directors,Hughes Tele.com (India) Limited

We have examined the attached Cash Flow Statement of Hughes Tele.com (India) Limited, for the year ended31st March, 2001. The statement has been prepared by the Company in accordance with the requirements of clause32 of the Listing Agreements with stock exchanges and is based on and in agreement with the corresponding profitand loss account and balance sheet of the Company covered by our report of 17th May, 2001 to the members of theCompany.

For DELOITTE HASKINS & SELLSChartered Accountants

P. B. PARDIWALLAPartner


1. Components of Cash and Cash Equivalents includes Cash, Cheques on hand, bank balances in Current and Term

Deposit Accounts and investments in Liquid Schemes of Mutual Funds (Refer Schedules 6 and 7 to the Balance

Sheet)

2. Proceeds from Initial Public Offering is net of Share Issue Expenses.

3. Proceeds from long term borrowings is net of debt arrangement expenses.

4. Purchase of Fixed Assets are inclusive of movements in Capital Work in Progress between the commencement and

end of the year.

5. Expenses incurred in setting up Business Processes bring into existence intangible benefits for an enduring period

of time and have therefore been considered as part of investing activities.

Notesto Cash Flow statement



Alok Gupta


Madhav Joshi




I. Registration Details

Registration No. 11-86354 State Code 11

Balance Sheet Date 31 03 2001

Date Month Year

II. Capital raised during the year ( Rs. ’000)

Public Issue (Including Share Premium) Rights Issue8,863,999 Nil

Bonus Issue Private PlacementNil Nil

III. Position of Mobilisation and Deployment of Funds (Rs. ’000)

Total Liabilities Total Assets26,986,778 26,986,778

Sources of Funds Paid-up Capital Reserves & Surplus14,053,267 1,147,144

Secured Loans Unsecured Loans2,722,164 795,100

Application of Funds Net Fixed Assets (including Capital Work-in-Progress) Investments17,197,698 175,167

Net Current Assets Misc. Expenditure (to the extent not written off)(4,247,280) 178,910

Accumulated Losses5,413,180

IV. Performance of the Company (Rs. ’000)

Turnover Expenditure1,392,282 4,039,237

Loss before tax Loss after tax(2,089,072) (2,087,920)

Earning per share (Rs.) Dividend rate(1.99) —

V. Generic Names of three Principal Products/Services of Company

Item Code No. (ITC Code) Not Applicable

Product Description Basic Telecom Services

Balance Sheetabstract and general business profile






Alok Gupta


Madhav Joshi



Hughes Tele.com (India) Ltd., Ispat house, B.G. Kher Marg, Worli, Mumbai 400 018.Tel.: (022) 461 5445, Fax: (022) 460 5516, 460 5517

C

HUGHES COV 1-4&2 26/06/2001, 12:11 PM2

HTIL-AR-2000-01.pdf - Tata Teleservices Ltd.

Documents

Transcript of HTIL-AR-2000-01.pdf - Tata Teleservices Ltd.