Hotel Leelaventures, Nagarjuna Constructions, IVRCL, Madhucon Projects, AIA Engineering, Suzlon Energy, Voltamp Transformers, PVR, HT Media

Hotel Leelaventures, Nagarjuna Constructions, IVRCL, Madhucon Projects, AIA Engineering, Suzlon Energy, Voltamp Transformers, PVR, HT Media

Reliance Infratel IPO to be deferred

Anil Ambani group firm Reliance Infratel is likely to defer its IPO plans as Sebi’s go ahead for the issue is set to expire soon, making it the third major IPO deferment after that of commodity exchange MCX and mutual fund house UTI AMC.
Sebi had issued observation on the IPO of Reliance Infratel, the telecom infrastructure division of Reliance Communications, on 12 May. As per the regulations, a company is required to close the IPO within 90 days of issuance of Sebi’s observation on the draft red herring prospectus (DRHP)—the period which ends on 11 August .
When contacted Reliance Infratel officials declined to comment.
Meanwhile, Reliance ADAG chairman Anil Ambani on 31 July had said, “We have received the approvals on the red herring prospectus... The volatility in global and Indian capital markets is what we are watching. A decision would be taken at an appropriate time.”
“When we find an appropriate time, I am sure that we will proceed both with Globalcom and Reliance Infratel,” Ambani added.
Reliance Infratel builds, owns and operates telecom towers and related assets at designated sites. It also offers these passive telecom infrastructure assets on a shared basis to wireless service providers and other communications service providers under long-term contracts.
Earlier, the IPO of MCX and that of UTI Asset Management, were deferred due to volatile market conditions.
MCX is believed to be reviving the process of its initial public offer and may file a new draft prospectus with the market regulator Sebi by the middle of this month.

Grey Market Premiums - Austral Coke

Vishal Information Technologies 140 to 150 3 to 5

NU TEK India Ltd. 170 to 192 6 to 8

Austral Coke & Projects 164 to 196 20 to 22

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Commodities Watch - Aug 1 2008

Commodities Watch - Aug 1 2008

Tata Motors - 2007-2008 Annual Report

TATA MOTORS LIMITED

ANNUAL REPORT 2007-2008

DIRECTOR'S REPORT

TO THE MEMBERS OF TATA MOTORS LIMITED

The Directors present their Sixty-Third Annual Report and the Audited Statement of Accounts for the year ended March 31, 2008.

1. FINANCIAL RESULTS Financial Year (Rs. in crores) 2007-2008 2006-2007

(i) Gross Revenue 33093.93 31819.48

(ii) Net Revenue (excluding excise duty) 28730.82 27470.03

(iii) Total Expenditure 25638.50 24157.66

(iv) Operating Profit 3092.32 3312.37

(v) Other Income 483.18 245.19

(vi) Profit before Depreciation Interest and Tax 3575.50 3557.56

(vii) Interest and Discounting Charges

(a) Gross Interest and Discounting Charges 541.56 389.86

(b) Transfer to Capital Account/Interest Received (259.19) (76.79)

(c) Net Interest and Discounting Charges 282.37 313.07

(viii) Product Development Expenses 64.35 85.02 (ix) Depreciation 652.31 586.29 (x) Profit Before Tax 2576.47 2573.18 (xi) Tax Expense 547.55 659.72 (xii) Profit After Tax 2028.92 1913.46

(xiii) Balance Brought Forward from Previous Year 1013.83 776.76 (xiv) Amount Available for Appropriation 3042.75 2690.22 APPROPRIATIONS (a) General Reserve 1000.00 1000.00 (b) Dividend (including tax) 659.68 676.32 (c) Residual dividend paid for 2005-06(including tax) - 0.07

(d) Balance carried to Balance Sheet 1383.07 1013.83

Note: Figures for the previous year have been regrouped/reclassified where necessary

2. DIVIDEND

Considering the Company's financial performance and growth plans, the Directors have recommended payment of a dividend of Rs.15/- per share on 38,56,18,723 Ordinary Shares fully paid up for the Financial Year 2007-08 (previous year- Rs.15/- per share).

3. OPERATING RESULTS AND PROFITS

The year 2007-08 was a historic year for the Company marked with two significant events viz.,the unveiling of Tata Nano -the world's least expensive car and the signing of the definitive agreement with Ford Motor Company for purchase of Jaguar and Land Rover, which has since been completed on June 2,2008.

During the year, the Company recorded its highest ever sale of 5,85,649 vehicles and grew its turnover to Rs. 33,094 crores to remain as India's largest automobile company by revenue.The Company maintained its leadership position in the commercial vehicle segment and was among the top three players in the passenger vehicle segment,although it lost some market share.A number of new products were launched during the later half of the fiscal year which would help the Company regain its lost market share.

The Company's margins were under pressure during the year due to rising interest rates, constraints in availability of vehicle financing from outside sources and un precedented increase in prices of raw materials. The EBIDTA margin at 10.8% was lower than last year as increase in input costs could only be partially absorbed by the market.The Profit Before-Tax at Rs.2,576 crores was 0.1 % higher than last year, The Profit After Tax at Rs.2,029 crores,was 6.1 % higher than last year.

4. COMMERCIAL VEHICLES

The commercial vehicle industry (including exports) witnessed a moderation in growth in FY 07-08. The domestic market which accounts for nearly 90% of total commercial vehicle sales was impacted by reduction in economic activity, poor credit availability, hardening of interest rates and increase in fuel prices. It grew by 6.9% as compared to 33% growth in the previous year.

The Company reported a total sale of 3,52,785 commercial vehicles in the domestic and overseas markets representing a growth of 5.5% over last fiscal. However, the Company's market share in the domestic commercial vehicle market declined by 1.3% to 62.7% due to non availability of certain components/ parts in the earlier part of the year and constraints in the availability of vehicle finance from banks and NBFCs. Though in-house vehicle financing was strengthened, the Company was unable to fully offset the decrease in credit availability from outside sources.

In the M&HCV segment,the Company revamped its commercial vehicles portfolio and introduced a wide range of new products such as multi axle and heavy duty trucks, tractor trailers and fully built solutions like tip trailers,customised factory built load bodies etc.in the second half of the year. These introductions helped the Company to gain market share in the tractor trailer and multi axle vehicle sub-segments and the full potential of these new products would be realized going forward. The Company also developed new products for the M&HCV passenger carrier sub-segment and displayed in the Auto Expo 2008, a 28 seater bus and an air conditioned low floor bus developed through its joint venture - Tata Marcopolo Motors Limited.

In the LCV segment, the Company introduced two new products - Magic and Winger, which hold a strong potential to shape the future of commercial passenger transportation in India. Magic is expected to emerge as a safe and comfortable mode of public transport in urban and rural areas. Along-with the goods carrier version, Magic helped the Company to achieve a sale of over 1,00,000 vehicles on the Ace platform in a year for the first time since the inception of Ace. Winger, India's only maxi van offering could become the preferred mode for intra-city and long distance passenger transportation in coming years. The Company also unveiled the 1 Ton and CNG variant of Ace,Cargo Panel van,Xenon XT-a lifestyle pickup truck and Winger Executive office concept vehicle in the Auto Expo 2008 and commenced production of TATA Ace from its manufacturing facility at Uttarakhand. Though the Company's market share in the LCV segment declined by 1.1% to 64.3%, introduction of new products would help the Company to grow its market share in the coming years.

The Company showcased its new range of tactical and armoured vehicles for military and para-military forces in the Defence Expo 2008.These include TATA Light Specialist Vehicle,Light Armoured Troop Carrier, TATA 8x8 HMV and the armoured TATA Safari.

The Company's commercial vehicle exports grew by 11.8% to 39,850 vehicles. M&HCV exports accounting for 35% of the Company's total commercial vehicle exports grew by 13%. In March'08, the Company introduced TATA Xenon- 1 Ton pickup truck in Thailand through its subsidiary Tata Motors (Thailand) Ltd. This vehicle is assembled in Thailand and is distributed through a network of over 20 authorised dealers. The Company's non-vehicular business recorded a 32% growth in revenues mainly due to growth in the spare parts business. The Company's Commercial Vehicle Pune plant received Rajiv Gandhi National Quality Award for the year 2007.

5. PASSENGER VEHICLES

In a challenging year for the Company, sales declined by 5.4% after six consecutive years of growth. The Company recorded a sale of 2,32,864 vehicles (including 3,297 Fiat cars) in the domestic and overseas markets and continued to be amongst the top three players in the Indian passenger vehicle market with a market share of 14.2%.The market share declined from 16.6% in the previous year mainly on account of launch of several new introductions by competition (the Car Industry volumes, infact, declined by 4.4%, excluding new products introduced) and the delays in the introduction of the Company's new Indica, which is now due for launch later this year. The Company's passenger vehicle exports at 14,809 nos. declined by 16.9% over the previous year mainly due to softening of some key markets. However the year 2007-08 was a milestone year for the car business as the one millionth passenger car rolled off from the Indica platform in the ninth year since commencement of production.

The TATA Indica sales at 1,35,642 nos. declined marginally over the previous year due to the car being in the mature phase of its life cycle and new launches by competition. Despite its maturity, the Indica remained the second largest selling car in the industry. During the year, the Company expanded the Indica range by introducing a new variant of the current Indica with dual airbags and ABS (Anti lock Braking System) and adding a DICOR (Direct Injection Common Rail) diesel engine variant. The Company displayed the next generation Indica in the Auto Expo 2008 which received an exciting response.

The TATA Indigo range witnessed the introduction of the Indigo XL Classic variant and the Indigo CS (Compact Sedan).The Indigo CS is a sub 4 meter sedan with a foot print and price point of a large hatchback but the appeal of a sedan and has been received very well in the market post its launch in the last quarter of the year. The TATA Indigo range with a total sale of 31,416 nos. continued as the highest selling brand in the entry mid size segment in its sixth year of launch, despite new launches from competition, although it continued to decline in a slow segment.

The new products to be launched in the Indica and Indigo range have been delayed,whilst the Indigo CS and the XL CIassic Variant were launched in the last quarter of the year the new Indica is being introduced i n FY 2008-09.

The TATA Safari a nd TATA Sumo recorded a sale of 47,700 nos. during the year. The Company expanded its Utility Vehicle range by launching a new 2.2L Safari DICOR, Sumo Victa DI and the Sumo Grande during the year. Safari, achieved its highest ever sale of 19,078 vehicles during the year.

The Company's sales of Fiat branded products increased by 148.3% to 3,297 vehicles aided by the launch of the face-lifted Palio and later the multi-jet diesel version in the last quarter. In October'07,the Company concluded its joint venture with Fiat for the manufacture of passenger cars,engines and transmission. The venture has planned a total investment of over Rs 4,000 crores. The Company took the lead in supporting the Magic India Discovery Drive initiative of Ferrari along-with other TATA companies and Fiat.

The Company continued to figure as the most trusted car company for the third year in succession in the Readers' Digest survey. The Indica and the Sumo continue to stand out among the' Most Trusted Brands' in the annual survey of the Economic Times Brand Equity. The Passenger Car Business Unit of the Company was conferred the' Handa Golden Key Award 2007'for the 'Best Value Engineering Organization' by the Indian National Value Engineering Society.

6. TATA NANO

The Company unveiled the TATA Nano, the world's least expensive car to an overwhelming response at the Auto Expo 2008 in New Delhi. Subsequently, the car was also unveiled at the Geneva Motor Show and received international acclaim. The development of the TATA Nano has given the Tata Group the 6t' rank in the Business Week-B&G 2008 listing of the world's 25 most innovative Companies. The construction of a manufacturing facility for the Tata Nano at Singur is in progress.

7. ACQUISITION OF JAGUAR AND LAND ROVER

On June 2, 2008,Tata Motors completed the acquisition of businesses of Jaguar and Land Rover (part of Premier Automotive Group of Ford Motor Co.) for US$ 2.3 billion (on a cash free, debt free basis). Both are iconic British brands purchased by Ford in 1989 and 2000 respectively. Out of the purchase consideration paid to Ford, Ford has contributed around US$ 600 million into the Jaguar Land Rover pension schemes (in UK).

Jaguar and Land Rover (JLR) are in the business of development, manufacture and sale of high end luxury cars and SUVs respectively. JLR has 3 manufacturing plants, 1 component manufacturing facility and 2 state of the art design and engineering centers in the UK,with 16,000 employees across the world, sales in more than 100 countries and have over 2,200 dealers. Their combined volume for the calendar year 2007 was around 288,000 vehicles. JLR achieved revenues of US$ 14.94 billion for the year ended December 31, 2007 with a PBIT (excluding special items) of US$ 650 million. For the quarter ended March 31, 2008, with the launch of the acclaimed XF model by Jaguar in January 2008, JLR business achieved revenues of US$ 4.15 billion (against revenues of US$ 3.54 billion for the corresponding period in 2007) and PBIT (excluding special items) of US$ 417 million (as against PBIT of US$ 289 million for the corresponding period in 2007).

Acquisition of JLR provides the Company with a strategic opportunity to acquire iconic brands with a great heritage and global presence, and increase the Company's business diversity across markets and product segments.

8. TATA MOTOR FINANCE - CUSTOMER FINANCING INITIATIVES

Tata Motors Finance Limited and the Vehicle financing division of the Company which operate under the brand name'Tata Motor finance (TMF)'financed 1,77,437 new vehicles,a growth of 7.3% over 1,65,376 in the previous year.

With disbursals of Rs.9,620 crores, a growth of 2.2% over Rs.9,415 crores in the previous year,TMF emerged as the second largest commercial vehicle financer in the domestic market.

During the year, TMF extended support to the Company's vehicle sales by financing 34% of the total domestic sales, compared to 31.4% in the previous year. Given this growth,TMF is on course to become a strong captive financing arm to support the vehicle sales business as well as to de-risk the cyclical revenue stream of the automotive business. The extensive network of TMF will also complement the dealer network of vehicles sales, thus widening the reach of the Company. In the Commercial vehicle financing, TMF achieved a market share of 34%, with total disbursements at Rs.6,300 crores, recording a 2.9% growth and financed 1,07,668 units, an increase of 7.6% over the previous year. In the Passenger Vehicle financing segment,TMF achieved a market share of 32.5%, with total disbursements at Rs.2,228 crores, recording a 7.8% growth and financed 69,769 units, an increase of 6.9% over the previous year. With a view to focus on its core business of financing of TATA commercial and passenger vehicles, the Construction Equipment financing activity together with loan portfolio was sold by the Company in September, 2007.

9. HUMAN RESOURCES & INDUSTRIAL RELATIONS

During the year, the Company entered into a three year wage settlement with its unions at Jamshedpur and Pune, Passenger Car Business.The negotiation for wage settlement at Lucknow plant is under-way and is expected to be signed shortly. Company's cordial industrial relations were maintained at all of the Company's plants and offices. There has been consistent improvement in productivity across all the plants.

The permanent employees' strength of the Company as on March 31, 2008 was 23,230, while that of the Company's subsidiaries was 9,972. Recruitments across all levels, extensive training and skill enhancement activities were carried out especially at the new locations, in line with the Company's expansion and growth plans.

The Company was given the award of India's Best Managed Company for 2007-08 in the automotive sector by Business Today based on a study conducted by Ernst and Young.

10. FINANCE

With significant increase in the Company's capital expenditure programmes and the growing business requirement, the overall borrowings of the Company stood at Rs.6,280.52 crores at a Debt: Equity ratio of 0.80:1.

During the year, the Company successfully raised US$ 490 million via the issue of Convertible Alternate Reference Securities which is an innovative convertible instrument and would enable the Company to offer the investors a right to convert these into differential voting shares and/or other qualifying securities.

The Company has managed the currency risks on exports amidst sharp appreciation of the Rupee in 07-08. Due to the appreciation of the rupee, the net foreign exchange gain on revaluation of foreign currency borrowings, deposits and loans given stood at Rs.137.61 crores for FY 07-08 as against Rs.65.21 crores in the previous year.

JLR is being acquired through special purpose vehicles incorporated in UK and Singapore and the acquisition cost is being financed upfront through a syndicated bridge loan facility of US$ 3 billion. The Company has issued a Corporate Guarantee in favour of its said UK SPV for this purpose. The repayment of the said facility is proposed to be undertaken through a long term funding plan involving, amongst others, a right issue of equity/equity related instrument to its shareholders, and issue of securities in the international market. The Company is undertaking a Postal Ballot to obtain the approval of the members to enable the Company to raise these resources, the details of which are included in the Corporate Governance Report.

Post the JLR announcement and subsequently, the Company's rating for foreign currency borrowings was revised by Standard & Poor from BB +/Stable to BB/Negative and by Moodys' from Bat to Bat. For borrowing in local currency the rating was revised from AA+/Stable to AA Negative/Stable by Crisil and from LAA+/Stable to LAA/Negative by ICRA.

11. INFORMATION TECHNOLOGY AND RESEARCH AND DEVELOPMENT INITIATIVES

The Company continued to strengthen the IT capabilities in all areas of its business which were used extensively in design, manufacuturing and customer interface functions. The Company used Digital Product Development, Digital Manufacturing Solutions and better integration with vendors in order to improve significantly its product development processes and capabilities. During the year the ERP system SAP was also deployed in some of its subsidiaries and the Fiat joint venture. Significant improvements and use of analytics were also incorporated in the Company's CRM/Dealer Management Systems.

The Company continued to pursue research and development initiatives in product development, environmental technology and vehicle safety areas. The Company widened the scope of its research and development activity from inhouse product and technology development to managing research and development process across various internal and external agencies, including its research and development centres in Korea, Spain and the United Kingdom, as well as at various aggregate parts suppliers and outsourcing partners. The Company's reasearch and development initiatives include developing vehicles running on alternative fuels, including CNG, LPG and bio-diesel and pursuing alternative fuel options such as ethanol blending and development of vehicles fuelled by hydrogen. The Company is also pursuing various initiatives in engine management systems,vehicle network architecture, vehicle tracking and telematics.

12. SUBSIDIARY AND ASSOCIATE COMPANIES

SUBSIDIARY COMPANIES

For the Financial Year ended March 31, 2008, the Company's subsidiaries, on an aggregate basis, have significantly improved on their financial performance. A brief profile of the subsidiary companies and their main financial parameters for 2007-08, are provided in the Annexure hereto. Brief details of the Company's existing subsidiaries are given below. In respect of foreign subsidiary companies, figures in Rupees are converted from applicable respective foreign currencies at appropriate rates at the year end.

Concorde Motors (India) Limited (CMIL), a 100% subsidiary of the Company engaged in sales and service of TATA and FIAT passenger cars recorded a turnover of Rs.625.20 crores (Previous year: Rs.623.27 crores) and Profit After Tax of Rs.5.33 crores (Previous year: Rs.11.76 crores).CMIL has declared a dividend of Rs. 2.50 per share for the FY 2007-08 (previous year Rs. 7.50 per share) and Rs. 7/- per share for the FY 2007-08 on the 7% Cumulative Redeemable Preference Shares.

HV Transmissions Limited (HVTL) and HV Axles Limited (HVAL),85% subsidiary companies of the Company, are engaged in the business of manufacture of gear boxes and axles for Heavy & Medium commercial vehicles (M&HCV), with production facilities and infrastructure based at Jamshedpur. Major capacity expansion and modernisation initiatives have been undertaken at HVTL and HVAL to meet the growing demand for gear boxes and axles for M&HCVs over the years. Both HVTL and HVAL have manufactured new variants of gear boxes and axles during the year for application in the Company's new products.

HVTL recorded a turnover of Rs.191.98 crores (an increase of 9.39%), a PAT of Rs.47.44 crores (an increase of 5.53%) and has declared a dividend of Rs.5/- per share for the FY 2007-08 (previous year Rs. 5/- per share). HVAL recorded a turnover of Rs. 203.24 crores (an increase of 3.34%), a PAT of Rs.63.41 crores (an increase of 9.52%) and has declared a dividend of Rs. 5/- per share for the FY 2007-08 (previous year Rs. 5/- per share).

During the year, the Company divested 15% of its stake in HVTL and HVAL to Tata Capital Limited for an aggregate consideration of Rs. 164.25 crores and also sold the Intellectual Property Rights (IPR) for technology/design to HVTL and HVAL, which will facilitate these companies in pursuing their strategic growth through further development of technology and products for the Company and other customers in a focused manner.

Sheba Properties Limited is a 100% owned investment Company. The income of the Company was Rs. 21.37 crores (Previous Year: Rs.19.97 crores) and Profit After Tax was Rs.16.22 crores (Previous Year: Rs.13.50 crores).

TAIL Manufacturing Solutions Limited (TAL) is a 100% subsidiary of the Company engaged in the business of Machine tools, Equipments, Material handling systems and Fluid power solutions. During the year, it has ventured into the Aerospace business by signing an agreement with Boeing Corporation, USA for manufacturing structural components for Boeing's 787 Dreamliner airplane program at a state of-the-art manufacturing facility being set-up in Nagpur, India. In one of its key achievement of the year, TAL has signed sales and service agreement with HELLER, Germany, a global renowned manufacturer of high-end Machining centers. During the year TAL recorded a turnover of Rs.220.58 crores (Previous Year: Rs.143.94 crores) and a Profit after Tax of Rs.12.02 crores (Previous Year: Rs.8.31 crores), a growth of 45%. TAL has wiped out its accumulated losses during the year and carried forward a profit of Rs.1.05 crores.

Tata Daewoo Commercial Vehicle Company Limited(TDCV), Korea, a 100% subsidiary of the Company is the second largest manufacturer of heavy and medium commercial vehicles in Korea. During the year under review,TDCV registered further growth both in the domestic market and exports. In volume terms, sales of 11,899 units in FY 07-08 were higher by 38% compared to that of 8,588 units in FY 06-07.This enabled TDCV to improve its market share from 24.3% to 32.3% in the HCV segment and from 28.2% to 34.8% in the MCV segment.TDCV exported 3,000 units of HCVs in FY 08 (2,715 units previous year) and continued to be the largest exporter from Korea in this segment.

TDCV recorded a turnover of Rs.2,865.02 crores which was higher by 45% compared to Rs.2,248.81 crores for the previous year.The Profit before Tax at Rs. 212.03 crores registered an increase of 81 % compared to Rs.133.31 crores. After providing for tax, the profit was Rs.153.11 crores against Rs.97.46 crores in the previous year, an increase of 78%. In March 2008, TDCV paid an interim dividend at 20% on common shares. This was followed by a final dividend at 80% on common shares for FY 2007-08.

Tata Marcopolo Motors Ltd. (TMML) is engaged in the business of manufacture and sale of fully built buses and coaches in which the Company has a 51% holding with the balance 49% being held by Marcopolo S. A., Brazil. The Company started its commercial production from November 2007 and has sold 190 low entry CNG buses. TMML recorded a net turnover of Rs.6.57 crores and loss after tax is Rs.3.83 crores.

Tata Motors (SA) Proprietary Limited (TMSA), a joint venture company was incorporated during the year in which the Company holds 60% with the balance 40% being held by the Tata Africa Holdings (SA) (Pte.) Limited.TMSA has been formed for manufacturing and assembly operations of the Company's Light and Heavy Commercial Vehicles and Passenger Cars in South Africa.TMSA is yet to start operations.

Tata Motors (Thailand) Limited (TMTL) is a 70:30 joint venture between the Company and Thonburi Automotive Assembly Plant Co., for manufacture, assembly and marketing pickup trucks. The joint venture enables the Company to address the ASEAN and Thailand markets, the later being the second largest pickup market in the world after the USA. While TMTL has begun setting up operations in the FY 2007-08, the manufacturing of vehicles began only during March '08 with revenues from sales and other income at Thai Baht 7 million (equivalent to Rs.0.90 crore) for the period ended March 31, 2008.

Tata Motors European Technical Centre Pic. (TMETC), a 100% subsidiary of the Company is engaged in the business of design engineering and development of products for the automotive industry. Working synergistically with the Company TMETC provides it with design engineering support and development services, complementing and strengthening the Company's skill sets and providing European standards of delivery to the Company's passenger vehicles. During the year ended March 31, 2008,TMETC earned gross revenues of Rs.127.95 crores (2006-07: Rs.60.34 crores) and an operating profit of Rs.11.43 crores (2006-07: Rs. 7.08 crores).

Tata Motors Finance Limited (TMFL), a wholly owned subsidiary of the Company, is registered with RBI under Section 45-IA of the RBI Act 1934, as a Non- Banking Finance Company and has been classified as an 'Asset Finance Company'.The name of TMFL was changed from 'TML Financial Services Limited' to 'Tata Motors Finance Limited'with effect from August 28, 2007.Total Income at Rs.836.95 crores during the year under review was 423% higher than in 2006-07 and Profit Before Tax at Rs. 50.26 crores was 150% more than the previous period. As commencement of the operations started from September 1, 2006, these figures are not comparable. With a view to focus on its core business of financing of Tata Commercial and Passenger Vehicles,TMFL transfered its activities pertaining to construction equipment financing and small and medium enterprises financing.

Tata Motors Insurance Broking & Advisory Services Limited (TMIBASL), [formerly known as Tata Motors Insurance Services Limited], a 100% subsidiary of the Company, proposes to undertake the business of direct insurance broking. TMIBASL has received a License from the Insurance Regulatory and Development Authority (IRDA) to act as a Direct Broker under the IRDA Act on May 13, 2008. In compliance with the regulations of the IRDA, its name was changed to 'Tata Motors Insurance Broking & Advisory Services Ltd.' on April 30, 2008. Pending the issue of license by the IRDA and other formalities relating thereto, no business activity was carried out during the period from October 2005 to March 2008. For the year under review,TMIBASL earned revenues of Rs.0.10 crore (2006-07: Rs.0.08 crore) and recorded a Loss of Rs.0.04 crore (2006-07: loss of Rs.0.16 crore).

Tata Technologies Limited (TTL), in which the Company has a 81.71% holding, provides through its operating companies, INCAT and Tata Technologies iKS, specialized Engineering & Design Services (E&D), Product Lifecycle Management (PLM) and product-centric IT services to leading global manufacturers. It responds to customers' needs through its 13 subsidiary companies in three continents and through its three offshore development centers. Its customers are among the world's premier automotive, aerospace and consumer durable manufacturers. The year marks an important milestone in the growth history of the Company with consolidated revenues crossing the Rs.1000 crores threshold.

INCAT is the world's leading independent provider of E&D, Product & Information Lifecycle Management, Enterprise Solutions and Plant Automation. INCAT's services include product design, analysis and production engineering, Knowledge Based Engineering, PLM, Enterprise Resource Planning and Customer Relationship Management systems. INCAT also distributes, implements and supports PLM products from leading solution providers in the world such as Dassault Systems, UGS and Autodesk. With a combined global workforce of more than 3,000 employees, INCAT has operations in the United States (Novi, Michigan), Germany (Stuttgart) and India (Pune).

Tata Technologies KS is a global leader in engineering knowledge transformation technology. For over 15 years, iKS has enabled engineering knowledge transformation through'i get it; which is the only web application in the world offering 1,00,000 hours of engineering knowledge for AutoCAD, INVENTOR, Solid Works, Solid Edge, UG/NX, Teamcenter, COSMOS Works, and CATIA on a single delivery platform application.

TTL had 13 subsidiary companies as at March 31, 2008. A few companies out of these subsidiaries are being wound-up, liquidated or merged as also various restructuring initiatives are being taken with the objective of bringing in operating efficiencies by sharpening focus on its services and product business, fixing territorial responsibility for top and bottom line growth and establishing a global delivery centre supporting the overall business. The consolidated revenue for the TTL Group was Rs. 1100 crores, an increase of 15% against Rs. 957 crores in the previous year. The profit before tax was Rs. 51 crores as against Rs.25 crores in the previous year, recording a growth of 104%.The profit after tax was Rs.30 crores against Rs.16.28 crores in the previous year.

Telco Construction Equipment Company Limited (Telcon) is engaged in the business of development, manufacture and sale of construction equipment and allied services in which the Company has a 60% holding with the balance 40% being held by Hitachi Construction Machinery Company Limited, Japan. With the increase in economic activity especially in the infrastructure sector, Telcon recorded its best performance to date having sold 7,698 machines (5,360 machines in 2006-07) with a gross revenue of Rs. 2,735 crores (Previous Year: Rs.1,828 crores), a Profit After Tax of Rs.324 crores (Previous Year: Rs.184 crores),an increase of 76% and declared an interim dividend of Rs.5/- per share and a final dividend of Rs. 3/- per share (PreviousYear: Final dividend of Rs.4/- per share). In April 2008,Telcon acquired two Spanish Companies, namely Serviplem S.A and Comoplesa Lebrero S.A by acquiring 79% and 60% shares of the respective companies.

TML Distribution Company Limited (TDCL), a 100% subsidiary of the Company incorporated on March 28, 2008 would be engaged in the business of dealing and providing logistics support for distribution of the Company's products throughout the Country.TDCL is yet to start operations.

ASSOCIATE COMPANIES

As on March 31, 2008, the Company had the following major associate companies:

Automobile Corporation of Goa Limited (ACGL) in which the Company has a 37.79% shareholding, was incorporated in 1980, jointly with EDC Limited (a Government of Goa enterprise). ACGL is a listed company engaged in manufacturing sheet metal components, assemblies and bus coaches and is the largest supplier of buses (mainly for exports) to the Company.

Fiat India Automobiles Private Limited (FIAPL), is a Joint Venture with Fiat Auto S.p.A., Italy, to manufacture Fiat and Tata cars and powertrains at Ranjangaon. The new facility was inaugurated on April 2, 2008 and is one more step towards confirming the strong motivation and understanding between the partners towards developing new opportunities in India and abroad.

Hispano Carrocera S.A.(HC),a well-known Spanish bus manufacturing company in which the Company had acquired a 21 % stake in March 2005 was another major step in the Company's plans for globalization. Hispano has two manufacturing units, one in Spain which caters to the European market and the other one in Casablanca which caters to the Moroccan and other North African markets. HC is present in both the city bus and coach market segment in both the geographies. HC reported a production of 375 buses during the fiscal year 2007 on a consolidated basis.

Nita Co. Ltd., Bangladesh, in which the Company holds 40% equity, is engaged in the assembly of TATA vehicles for the Bangladesh market.

Tata AutoComp Systems Limited (TACO) is a holding company for promoting domestic and foreign joint ventures in auto components and systems and is also engaged in engineering services, supply chain management and after market operations for the auto industry. The Company's shareholding in TACO is 50%.

Tata Cummins Limited (TCL), in which the Company has a 50% shareholding, with Cummins Engine Co. Inc., USA holding the balance. TCL is engaged in the manufacture and sale of high horse power engines used in the Company's range of M/HCVs.

Tata Precision Industries Pte. Ltd., Singapore, in which the Company has a 49.99% shareholding is engaged in the manufacture and sale of high precision tooling and equipment for the computer and electronics industry.

13. In accordance with the Statement of Accounting Standard on Consolidated Financial Statements (AS 21), Accounting Standard on Accounting for Investments in Associates (AS 23) and Accounting Standard on Accounting for Joint Ventures (AS 27), issued by the Institute of Chartered Accountants of India (ICAI), the above mentioned subsidiaries, associates and Joint Venture have been considered in the Consolidated Financial Statements of the Company. As may be seen from the consolidated statements, the consolidated revenue (net of excise) was Rs. 35,651.48 crores, an increase of 10.2% as against Rs.32,361.20 crores in the previous year. The Profit Before-Tax was Rs.3,086.29 crores as against Rs. 3,088.00 crores in the previous year. The consolidated Profit After Tax, after considering an amount of Rs. 851.54 crores (Previous Year: Rs.883.21 crores) towards current and deferred tax, adjustment for share of minority interest and profit in associate companies, was Rs.2,167.70 crores as against Rs.2,169.99 crores in the previous year.

14. On an application made by the Company under Section 212(8) of the Companies Act 1956, the Central Government exempted the Company from attaching a copy of the Balance Sheet and the Profit and Loss Account of the subsidiary companies and other documents from being attached to the Annual Report of the Company. Accordingly, the said documents are not being attached with the Balance Sheet of the Company. A gist of the financial performance of the subsidiary companies is contained in the report. The Annual Accounts of the subsidiary companies are open for inspection by any member/investor and the Company will make available these documents/details upon request by any Member of the Company or to any investor of its subsidiary companies who may be interested in obtaining the same. Further, the annual accounts of the subsidiary companies will also be kept for inspection by any investor at Registered Office of the Company and at the Head Offices of the subsidiary company concerned.

15. ENERGY, TECHNOLOGY & FOREIGN EXCHANGE

Details of energy conservation and research and development activities undertaken by the Company along with the information in accordance with the provisions of Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are given as an Annexure to the Directors' Report.

16. DIRECTORS

Mr. Praveen P Kadle, who was the Executive Director (Finance & Corporate Affairs) of the Company, relinquished office on September 18, 2007, in view of his appointment as the Managing Director of Tata Capital Limited,a company promoted byTata Sons Limited in the financial services space. Mr. Kadle joined the Company as Sr. Vice President (Finance & Corporate Affairs) in October 1996 and was inducted on the Board of the Company in October 2001. Mr. Kadle was also a Member of various Board Committees of the Company as also a representative of the Company on the Boards of some of the subsidiaries, associates and joint ventures. The Directors place on record their appreciation of the significant contributions made by Mr. Kadle during his tenure as Executive Director (Finance & Corporate Affairs), the strategic direction he provided in the management of financial, IT and other Corporate matters and his role in the turnaround and growth of the Company.

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Company, Mr. Ratan N Tata and Mr. R Gopalakrishnan are liable to retire by rotation and are eligible for reappointment.

Dr. R A Mashelkar was appointed as an Additional Director, effective August 28, 2007. In accordance with the provisions of the Companies Act, 1956, Dr. Mashelkar, in his capacity as an Additional Director, will cease to hold office at the forthcoming Annual General Meeting and is eligible for appointment.

Attention of the Members is invited to the relevant items in the Notice of the Annual General Meeting and the Explanatory Statement thereto.

17. CORPORATE GOVERNANCE

A separate section on Corporate Governance forming part of the Directors' Report and the certificate from the Company's auditors confirming compliance of Corporate Governance norms as stipulated in Clause 49 of the Listing Agreement with the Indian Stock Exchanges is included in the Annual Report.

18. PARTICULARS OF EMPLOYEES

Information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, and forming part of the Directors' Report for the year ended March 31, 2008, is also given as an Annexure to this Report.

19. AUDIT

Messrs Deloitte Haskins & Sells (DHS),who are the Statutory Auditors of the Company hold office until the ensuing Annual General Meeting. It is proposed to re-appoint them to examine and audit the accounts of the Company for the Financial Year 2008-09. DHS have, under Section 224(1) of the Companies Act, 1956, furnished a certificate of their eligibility for re-appointment.

Cost Audit

As per the requirement of the Central Government and pursuant to Section 233B of the Companies Act, 1956, the Company carries out an audit of cost accounts relating to motor vehicles every year. Subject to the approval of the Central Government, the Company has appointed M/s Mani & Co. to audit the cost accounts relating to motor vehicles for the Financial Year 2008-09.

20. DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 217 (2AA) of the Companies Act, 1956, the Directors, based on the representation received from the Operating Management, confirm that:-

- In the preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures therefrom;

- They have, in the selection of the accounting policies, consulted the Statutory Auditors and have applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

- They have taken proper and sufficient care, to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; - They have prepared the annual accounts on a going concern basis.

21. ACKNOWLEDGEMENTS

The Directors wish to convey their appreciation to all of the Company's employees for their enormous personal efforts as well as their collective contribution to the Company's record performance. The Directors would also like to thank the employee unions, shareholders, customers, dealers, suppliers, bankers and all the other business associates for the continuous support given by them to the Company and their confidence in its management.

On behalf of the Board of Directors

RATA N TATA Chairman

Mumbai,June 3, 2008

ANNEXURE TO THE DIRECTORS' REPORT (Additional information given in terms of Notification 1029 of 31-12-1988 issued by the Department of Company Affairs)

A. Conservation of Energy

The Company has always been conscious of the need for conservation of energy and has been steadily making progress towards this end. Energy conservation measures have been implemented at all the Plants and offices of the Company and special efforts are being put on undertaking specific Energy Conservation Projects like installation of various Energy Efficient Pumps, Blowers, LED lamps, Wind Ventilators, Natural Draft Cooling Towers, etc. These changes have resulted in cost savings for the Company, aggregating approximately to Rs.23.38 crores. The Company's Jamshedpur Plant was awarded National Energy Management Award by CII and declared 'Energy Efficient Unit 2007'The Jamshedpur Plant has also won a Trophy & Certificate for Outstanding Performance by CII - ER Energy Conservation (ENCON) Award 2007-08 contest. The Company's endeavour for tapping wind energy has also made significant contributions. The Company undertook a CDM Wind Power project of capacity 20.58 MW which was successfully registered with UNFCCC in September, 2007 resulting in issue of 1.67 lacs Carbon Emission Reductions (CERs), which were later auctioned for Rs 14.45 crores.

B. Technology Absorption

The Company has continued its endeavor to absorb best of the technologies for its product range to meet the requirements of globally competitive markets. All of the Company's vehicles and engines are compliant with prevalent regulatory norms in India as also in the countries to which the vehicles are exported. The Company has also undertaken programmes for development of vehicles which would run on alternate fuels like CNG, LPG, bio-diesel, electric traction etc.

Major technology absorption projects undertaken in the last year include the following:-

Technology for Technology Provider Status

Development of body panels IAV Germany Completed

Vehicle Styling TRILIX, Italy In process

Vehicle NVH LMS International, Belgium In process

Transmission technology TOROTRACK, UK In process

Engine Development FEV,Germany In process

In keeping with the requirement of technological upgradation of its Engines'development facility the Company has added facilities such as Transient Dynamometers with state of the art low emission measurement facility for full flow and partial flow measurement, engine port flow characterization equipment, combustion analysers etc. For crash and safety test set up, the Company has installed a pendulum impact test facility and a Hydraulic sled decelerator. The Company has set up a HVAC Bench Test Facility for evaluating cooling and heating performance, power consumption by AC compressor and measuring performance of automotive HVAC (Heating Ventilation and Air Conditioning) system. The Company has developed and is in the implementation phase of the following new technology for its passenger cars and commercial vehicles: a) CAN based in vehicle networking system b) Transponder & encrypted technology based anti-theft system. The Company has gained significant advantage in rapid proto typing by deploying Nylon Vacuum Casting Facility. During the year the Company has filed 175 patent applications. 11 patents were granted to the Company for application filed in earlier years.

Technology imported during the last five years:

Technology for Imported from Year of Import Status

Design and Development Stile Bertone, Italy 2002-03 }of modular cabs for }commercial vehicles } }Design and Development Institute of Development in 2003-04 }of Passenger vehicles Automotive Engineering } S.p.A, Italy } }Direct Inject Common AVL List GmbH, Austria; 2004-05 }Rail Euro IV Engines Delphi }for passenger vehicles Diesel System, France } }Design & Development Institute of Development in 2004-05 } Underof passenger vehicles Automotive Engineering } S.p.A, Italy } Imple }Safety and NVH MIRA Ltd,UK 2004-05 } mentationIntegration in }Passenger Vehicles } }Design and development Ricardo UK Ltd, UK 2006-07 }of New Generation }Engine } }Design & Development AVL List GmbH,Austria; 2007-08 }of new generation Delphi Diesel System,France }engine for ICV/MCV } }Design and Development M/s Torotrak (Holding) 2007-08 }of Infinitely Variable Limited,UK }Transmission based on }Full Toroidal Traction- }Drive Variators'for }various vehicle }platforms. } }Design and Development, Wagon SAS, France 2007-08 }of 'Flush Sliding }Window/Plug in Window' }

The Company spent Rs. 1,195.97 crores on Research and Development activities including expenditure on capital assets purchased for Research and Development which was 4.2% of the net turnover.

C. Foreign Exchange Earnings and Outgo Rs. in crores Earnings in foreign exchange 2844.12

Expenditure in foreign currency (including dividend remittance) 3244.42

MANAGEMENT DISCUSSION AND ANALYSIS

1. Business Overview

The Indian economy remained in high growth phase but witnessed moderation in GDP growth to 90/ in FY 07-08 as compared to over 9% growth achieved in the previous two years. The commercial vehicle industry which grew by over 33% in FY 06-07 was impacted by moderation in economic growth as wet as substantial reduction in vehicle financing and posted a 8.1% growth this fiscal. The passenger vehicle industry also witnessed a slowdown but managed to grow by 11.1 % by increasing discounts on mature products, launching new models and due to reduction in excise duty announced by the government in Budget during February'08.Vehicle exports also grew,albeit at a slightly lower rate of 11.9% as compared to 14.8% witnessed in the previous year.

The Company recorded a sale of 5,85,649 vehicles, a growth of 0.9% over last year. Introduction of a new range of products and impressive performance of TATA Ace helped the Company to grow by 5.5% in commercial vehicles. In passenger vehicles, the Company witnessed a 5.4% decline due to ageing of some products and increase in the intensity of competition in the car segment. The Company's vehicle exports grew by 2.2% to 54,659 vehicles during the year.

The industry performance during FY 07-08 and the Company's share is given below:-

Category A B C D E F G H

Commercial Vehicles* 558977 517327 8.1% 352785 334238 5.5% 63.2% 64.7%

Passenger Vehicles 1750347 1575235 11.1% 232864 246042 -5.4% 13.3% 15.6%

Total 2309324 2092562 10.4% 585649 580280 0.9% 25.4% 27.8%

A = Total Industry Sales (Nos.) 2007-08B = Total Industry Sales (Nos.) 2006-07C = Total Industry Sales (Nos.) Growth D = Total Company Sales (Nos.) 2007-08E = Total Company Sales (Nos.) 2006-07F = Total Company Sales (Nos.) Growth G = Company Market Share (%) 2007-08H = Company Market Share (%) 2006-07

* including Magic & Winger sales Source: Society of Indian Automobile Manufacturers report and Company Analysis

2. Industry Structure and Developments

a. Commercial Vehicles

The domestic commercial vehicle industry grew by 6.9% as compared to over 33% growth achieved in the last fiscal.The commercial vehicle sales were impacted by slowdown in economic growth, poor credit availability for purchasing vehicles, hardening of interest rates and increase in fuel prices.

The industry performance during FY 07-08 and the Company's share is given below:-

Domestic Industry Sales (Nos.) Company Sales (Nos.) Company Market Share (%)Category 2007-08 2006-07 Growth 2007-08 2006-07 Growth 2007-08 2006-07

M&HCV 2,70,994 2,75,556 -1.7% 1,65,619 1,72,842 -4.2% 61.3% 62.9%

LCV* 2,28,984 1,92,234 19.1% 1,47,316 1,25,744 17.2% 64.3% 65.4%

Total CV 4,99,978 4,67,790 6.9% 3,12,935 2,98,586 4.8% 62.7% 64.0%

* including Magic & Winger sales Source: Society of Indian Automobile Manufacturers report and CompanyAnalysis

The Company achieved an all time high commercial vehicle sale of 3,12,935 Vehicles,an increase of 4.8% over the previous year.

The M&HCV segment witnessed contraction due to adverse economic trend, lack of financing as mentioned above and due to depletion of one time demand created last year by strict enforcement of overloading restrictions. The Company, being the largest player in this segment, was impacted by these factors and constraints in supply of certain components/parts in the earlier part of the year Strengthening of in-house vehicle financing by the Company could not fully offset the decrease in credit availability from outside sources. The Company launched many new M&HCV products during the year which would enable the Company to improve its position going forward. In the LCV segment the continuing strong performance of the TATA Ace, launch of 1Ton and CNG versions in the goods carrier segment and introduction of two new passenger carrier products - Magic and Winger helped the Company to grow its sales by 17.2%.

The Company is enhancing its production capabilities at its 3 existing plants and is setting up capacities at Uttarakhand for Ace as also through joint ventures with international partners-Marcopolo SA, Brazil (new plant at Dharwad) and Thornburi (plant atThailand).The sales and service network set-up, which is the largest in India today, is also been expanded in line with product requirements.

b. Passenger Vehicles

Amidst moderation in economic growth, a high interest rate regime and tightening of the liquidity position, the domestic passenger vehicle industry was able to grow by 11.3% to an all time high of over 1.5 million vehicles,albeit at a lower growth rate than 21% of the last fiscal.The Industry's growth rate in fact fell to single digit in the last four months of the fiscal. Growth was primarily driven by new launches and discounts on existing volume models. Along with two wheelers, entry level cars (price point below Rs 3 lacs) declined by 2%.The luxury segment however doubled in size to over 5,000 vehicles and was immune to the slowing market conditions. Of over 90 models in the industry the top 10 constitute 65% of the industry sales.

The industry performance during FY 07-08 and the Company's share is given below:-

Domestic A B C D E F G H Category

Small car (Mini +Compact) 928690 832172 11.6% 138916 146018 -4.9% 15.0 17.5

Entry Midsize car 97033 88056 10.2% 31439 34310 -8.4% 32.4 39.0

Utility Vehicle/SUV 237724 216960 9.6% 47700 47892 -0.4% 20.1 22.1

Total Passenger Vehicles# 1531929 1376783 11.3% 218055 228220 -4.5% 14.2 16.6

A = Total Industry Sales (Nos.) 2007-08B = Total Industry Sales (Nos.) 2006-07C = Total Industry Sales (Nos.) Growth D = Total Company Sales (Nos.) 2007-08E = Total Company Sales (Nos.) 2006-07F = Total Company Sales (Nos.) Growth G = Company Market Share (%) 2007-08H = Company Market Share (%) 2006-07

# including all segments * including Fiat branded cars

Source: Society of Indian Automobile Manufacturers report and Company Analysis

After six years of consecutive growth, the Company's passenger vehicle sales decreased marginally by 4.5% to 2,18,055 vehicles (including 3,297 Fiat branded vehicles) and the Company had a 14.2% share in the passenger vehicle market between TATA and Fiat branded vehicles.

The number of models in the Small car segment nearly doubled with several new launches to a play of 14 models and grew by 11.6%. It continues to hold over 60% of share of the industry. All incumbent models which saw no product intervention registered decline in volume and market share, including the Indica, whose sales declined by 6.3%.The segment benefited from a reduction in excise duty by the Government from 16% to 12%. Indica's market share at 14.6% was augmented by an increase in Fiat Palio's share to 0.4% in the segment. The Company's position weakened on account of delay in the actual launching of its new hatchback which is due to be introduced in the current financial year.

The Entry mid size segment which had seen decline for two years grew by 10.2%,aided by new launches by competition. The Indigo range held on to a 32.4% of the market and continued in a leadership position despite a decline in sales of 8.4%, which has been arrested in the last quarter.

The Utility Vehicle segment witnessed a 9.6% growth to 2,37,724 vehicles this year. The Company's Utility Vehicle sales were flat at 47,700 vehicles and could have been higher but for constraints of initial production ramp up of the Sumo Grande. The Company ended with a 20.1% market share in the year. Safari sales grew by 20.6% to an all time high of 19,078 nos. during the year due to an encouraging response to the new Indigo CS.

The Company unveiled TATA Nano - the world's least expensive car to the Indian and the International Audience in 2008.The production facility at Singur, West Bengal is under construction and is expected to commence commercial production in the last quarter of 2008. The Company will introduce several products from its own portfolio as well as from the Fiat stable in the coming years to address the market demand and consolidate its position.

3. Opportunities and Threats

a) Opportunities

Road development: Continued improvement in road infrastructure in coming years is expected to have a positive effect on automobile sales. The Golden Quadrilateral road project was 97% complete as on March increase in price of input materials could have a negative impact on the demand in the domestic market and/or could severely impact the Company's profitability to the extent that the same are not absorbed by the market through price realisation.

Government Regulations: Stringent emission norms and safety regulations could bring new complexities and cost increases for automotive industry impacting the Company's business. WTO, Free Trade Agreements and other similar policies could make the market more competitive for local manufacturers.

Global Competition: India continues to be an attractive destination for the global automotive players. The global automotive manufacturers present in India have been expanding their product portfolio and enhancing their production capacities. To counter the threat of growing global competition, the Company has planned to bridge the quality gap between its products and foreign offerings while maintaining its low cost product development/sourcing advantage.

Growing consumer awareness: Growing awareness amongst consumers is driving up expectations from automobile companies in terms of providing world class features and technology for which adequate price realization is not always possible.

Growth in Mass Transit Systems: The domestic passenger vehicle demand could be impacted by the growth of road and rail based mass transit systems. However, the Company would benefit from the road based mass transit system due to its wide range of commercial passenger carriers.

4. Outlook

Fiscal 2007-08, the first year of 11 t' Five Year Plan saw a marginal fall in GDP growth rate of 9%. In view of the slow down in economy, increase in inflation, poor credit availability, hardening of interest rates, rise in prices of input materials, proposed increase in fuel prices and volatility in foreign exchange rates, the commercial and passenger vehicle industry has a challenging year ahead, with pressure on volumes and margins.

In this background, the Company has initiated various marketing activities to improve its market share in various segments. In commercial vehicles, the Company has planned growth by introducing new products in M&HCV and LCV segments. A wide range of products were introduced in the latter half of FY07-08 and more would be introduced in the coming year. ln passenger vehicles the Company introduced new products in a few segments in FY 07-08 and has planned to introduce the next generation Indica and the Nano in this year. The Company has also planned to further strengthen the in-house vehicle financing to make up for the lack of finance from external sources. The Company has also planned various cost reduction measures to offset, at least partially, the increase in price of input materials.

5. Financial Performance as a measure of Operational Performance

In a challenging environment, the Company has been able to marginally grow its revenues and profits. Whilst the Company's profit after tax improved to Rs.2,028.92 crores from Rs.1,913.46crores in the previous year, the margins were under pressure mainly due to the rising input costs and lower volume growth. The following table sets forth the breakup of the Company's expenses as part of the net revenue.

Percentage of turnover March 31,2008 March 31,2007

Turnover net of excise duty 100 100

Expenditure:Material (including change in stock and processing charges) 73.4 72.3 Employee Cost 5.4 5.0 Manufacturing and other expenses (net) 10.5 10.7

Total Expenditure 89.2 87.9

Other Income 1.7 0.9

Profit before Depreciation, Interest and Tax 12.4 13.0

Depreciation (including product development expenditure) 2.5 2.4

Interest and Discounting Charges (Net) 1.0 1.1

Profit before Tax 9.0 9.4

Turnover, net of excise duties increased by 4.6% to another record high of Rs. 28,730.82 crores from Rs.27,470.03 crores in FY 2006-07.The total number of vehicles sold during the year increased by 0.9% to 585,649 units from 580,280 units in FY 2006-07.The domestic volumes increased by 0.8% to 530,990 units from 526,806 units in FY 2006-07,while export volumes increased by 2.22% to 54,659 units in FY 2007-08 from 53,474 units in FY 2006-07.

Net Raw Material consumption inclusive of processing charges increased by 6.2%to Rs.21,082.10 crores in FY 2007-08,from Rs.19,849.04 crores in FY 2006-07. Material Cost as a % of net turnover has increased to 73.4% from 72.3% for the last year. This was largely a result of increase in prices of steel, aluminum, nickel, copper and natural rubber. However, the Company managed to lower the impact through its on going cost reduction programme with initiatives like global sourcing, vendor rationalization and value engineering.

Employee Cost increased by 12.9% during the year to Rs. 1,544.57 crores from Rs. 1,368.09 crores registered in the previous year mainly inline with trends in industry and economy. The manpower increased marginally to 23,230 from 22,349 with increases also in flexible manpower.

Manufacturing and Other Expenses increased by 2.4% to Rs. 3,011.83 crores in FY 2007-08 from Rs.2,940.53 crores in FY 2006-07.These were 10.5% of net turnover for the year as compared to 10.7% for the previous year.

Profit before depreciation, interest and tax increased by 0.5% to Rs.3,575.50 crores from Rs.3,557.56 crores in FY 2006-07.The margin decreased to 12.4% from 13% in FY 2006-07.

Depreciation (including product development expenditure) for 2007-08 increased by 6.8% to Rs. 716.66 crores from Rs.671.31 crores in FY 2006-07 on account of increase in fixed assets. It represents 2.5% of net turnover as compared to 2.4% for FY 2006-07.

Net interest cost decreased to Rs. 282.37 crores in FY 2007-08 from Rs.313.07 crores in FY 2006-07. Despite increase in interest rates and increase in capital expenditure,the reduction was mainly on account of significant reduction in the Company's vehicle financing portfolio (on account of securitisation), better working capital management, interest earnings and larger capitalisation of interest in line with the increase in capital expenditure.

Profit Before Tax (PBT) of the Company increased by 0.13% to Rs. 2,576.47 crores from Rs. 2,573.18 crores in FY 2006-07.

Profit After Tax (PAT) increased by 6.03% to Rs. 2,028.92 crores from Rs.1,913.46 crores in FY 2006-07. This was mainly on account of a lower tax provision owing to the increase in spend on Research and Development and income from capital gains, which is subject to a lower tax rate. Basic Earning Per Share (EPS) increased by 5.79% to Rs.52.64 as compared to Rs.49.76 last year.

Balance Sheet size of the Company increased to Rs. 15,095.74 crores in FY 2007-08 from Rs. 11,665.72 crores in FY 2006-07.This increase is attributed to significant capital expenditure incurred by the Company on new products and programmes and strategic investments. As on March 31, 2008, the Ordinary Share Capital of the Company stood at Rs.385.54 crores as compared to Rs.385.41 crores as on March 31,2007.

Gross debt (total of secured and unsecured loans) increased to Rs.6,280.52 crores as on March 31, 2008 as compared to Rs.4,009.14 crores as on March 31, 2007 as a consequence of higher capital expenditure and investments.

Net debt (gross debt reduced by available cash and bank balances and in mutual fund investments) stood at Rs.3,616.99 crores as on March 31,2008 as compared to Rs.3,545.99 crores as on March 31,2007.

Fixed Assets including Capital Work in Progress increased to Rs. 10,452.27 crores in FY 2007-08 from Rs.6,394.58 crores in FY 2006-07.

Investments increased to Rs.4,910.27 crores in FY 2007-08 from Rs.2,477.00 crores in FY 2006-07. During the year, the Company continued to make additional long term and strategic investments. The Company further invested Rs.600 crores in its 100% subsidiary Tata Motors Finance Limited to further strengthen the vehicle financing activities. The Company also invested Rs. 601.59 crores in Fiat India Automobiles Private Limited for manufacturing Fiat and Tata cars and Fiat power trains. The Company invested Rs.179.50 crores in the rights issue of securities of Tata Steel Limited. The amount invested in various mutual funds as at March 31, 2008 was Rs. 790.79 crores as against Rs. 51.99 crores as at March 31, 2007 representing surplus cash parked for future use.

Net Current Assets decreased to (Rs.272.85 crores) as at March 31, 2008 from Rs. 2,784.05 crores as at March 31, 2007.The Current assets, loans and advances have decreased by Rs.128.27 crores as compared as at March 31, 2007.The increase in Sundry debtors and Cash and Bank balances,due to higher year end sale and parking of short funds pending utilization, respectively, has been offset by reduction in finance receivables. The Current liabilities have increased by Rs.2,928.63 crores due to higher volumes at the year end, change in the credit period and increase in the provision for premium for redemption of securities issued during the year.

The cash generated from operations before working capital changes and before considering the deployment in the vehicle financing business was Rs.2,760.15 crores as compared to Rs.3,152.53 crores in the previous year. After considering the impact of working capital changes and inflows on account of securitisation of financing loan portfolio (net of deployment), the net cash generated from operations was Rs.6,174.50 crores as compared to Rs.2,210.13 crores in the previous year.

6. Risks and concerns

Interest rates and credit availability: Consumer interest rates witnessed an upward movement in the second half of FY 07-08. Further tightening of the liquidity position, non-availability of vehicle finance and firming up of interest rates would affect vehicle demand, which could impact the Company's revenues and profits.

Exchange rates: The Company's exports constitute 9.8% of the turnover and imports constitute 4.6% of material consumption. Further the Company has large foreign currency borrowings in the form of foreign currency convertible securities. Movements in exchange rates and volatility in the foreign exchange markets could significantly impact profits.

Freight Rates: Moderation in industrial activity, slowdown in freight movement and increase in fuel price would adversely impact vehicle operators margins to the extent not recovered through increase in freight rates. This would have an adverse impact on commercial vehicle demand.

Railways: Railways renewed focus on cementand steel movement and container movement and planned nationwide rail freight corridor connecting major cities could impact the demand of commercial vehicles for goods transportation. However, it is expected that with the growth in road infrastructure and increase in vehicle penetration and with product offerings suitable for different applications, road transport would continue to have a dominant role and offer flexible, speedy and point-to-point service.

Domestic market:The commercial vehicle industry due to its strong linkages with the economy would be impacted by slowdown in economic growth. The Company has strengthened its less cyclical businesses like passenger carriers, small and light trucks and passenger cars as well as its spare parts and other service offerings to counter moderation in demand. The increasing trend of offering price discounts in the market could also affect the Company's margins.

Overseas markets: In the overseas markets, many of which have stricter norms of vehicle regulations related to emission, safety, noise, technology, etc., the Company competes with international players which have global brand image, larger financial capability and multiple product platforms. These factors may impact the demand of the Company's products in overseas markets.

Manufacturing: The Company manufactures its products at multiple locations and its operations could be affected by disruption in its supply chain due to any natural calamities and work stoppages at its suppliers end due to load shedding, labour problems, etc.

New Competition: Intensity of competition has increased in almost all the segments of the Indian automotive market due to entry of new players and expansion plans of existing ones. The Company is aware of the increasing competition and is taking measures to remain competitive in the market place.

New projects: The Company is undertaking a variety of new projects ranging from the launch of a small car to the development of a new truck model. These projects are in various stages of execution. Though the Company employs sophisticated techniques and processes to forecast the demand of new products, yet the same is subject to margin of error. Timely introduction of new products, their acceptability in the market place and managing complexity of operations across various manufacturing locations would be the key to sustain competitiveness.

7. Internal Control Systems and their adequacy

The Company has in place adequate system of internal control. lt has documented procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliances with regulations and for ensuring reliability of financial reporting. The Company has continued its efforts to align all its processes and controls with global best practices in these areas as well.

Some significant features of the internal control systems are: Corporate policies on accounting and major processes;

Well-defined processes for formulating and reviewing annual and long term business plans; Preparation and monitoring of annual budgets for all operating and service functions;

State-of-the-art ERP, Supplier Relations Management and Customer Relations Management, connect its different locations, dealers and vendors for efficient and seamless information exchange;

An on-going program for reinforcement of the Tata Code of Conduct. The Code covers integrity of financial reporting, ethical conduct, regulatory compliance, conflict of interests review and reporting of concerns. All employees of the Company are regularly exposed to communications under this program;

Bi-monthly meeting of the management committee at apex level to review operations and plans in key business areas;

A well established multi disciplinary Internal Audit team, which reviews and reports to management and the Audit Committee about the compliance with internal controls and the efficiency and effectiveness of operations and the key process risks;

Audit Committee of the Board of Directors, comprising independent directors, which is functional since August 1988, regularly reviews the audit plans, significant audit findings, adequacy of internal controls, compliance with Accounting Standards as well as reasons for changes in accounting policies and practices, if any;

A comprehensive information security policy and continuous upgrades to IT system;

Documenting major business processes and testing thereof including financial closing, computer controls and entity level controls as part of compliance with Sarbanes-Oxley Act;

Anti-fraud programme.

The Board takes responsibility for the total process of risk management in the organisation. The Audit Committee reviews reports covering operational, financial and other business risk areas. Through an Enterprise Risk Management programme,each Business Unit addresses opportunities and the attendant risks through an institutionalized approach that is aligned to the Company's objectives. This is also facilitated by internal audit. The business risks is managed through cross functional involvement and intense communication across businesses. Results of the risk assessment and residual risks are presented to the senior management.

8. Material Developments in Human Resources/Industrial Relations

A cordial industrial relations environment prevailed at a II the manufacturing units of the Company during the year. The Company entered into a three year wage settlement with its Unions at Jamshedpur and Passenger Car Business, Pune. The permanent employees strength of the Company as on March 31, 2008 was 23,230.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations may be 'forward-looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company's operations include, among others, economic conditions affecting demand/ supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.

IDFC - 2007-2008 Annual Report

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INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED

ANNUAL REPORT 2007-2008

DIRECTOR'S REPORT

TO THE SHAREHOLDERS

Your directors have pleasure in presenting the Eleventh Annual Report together with the audited accounts for the year ended March 31, 2008.

FINANCIAL RESULTS

PARTICULARS (FIGURES IN RS. MILLION) FY 2007-08 FY 2006-07

OPERATING INCOME 25,237 15,005OTHER INCOME 117 52TOTAL INCOME 25,354 15,057LESS ADMINISTRATIVE EXPENSES* 1,133 614LESS PROVISION FOR ASSETS AND LOSSES 688 174LESS INTEREST AND OTHER CHARGES 14,802 8,554PROFIT BEFORE TAX 8,731 5,715LESS PROVISION FOR TAX ** 2,039 1,086PROFIT AFTER TAX 6,692 4,629

* Administrative expenses include staff expenses; travelling & conveyance; postage telephone & telex; establishment expenses; other expenses and depreciation

** Provision for Tax is net of Deferred Tax

INCOME FROM OPERATIONS increased by 68% from Rs.15,005 million in 200607 to Rs.25,237 million in 2007-08. IDFC's total income, increased by 68% from Rs.15,057 million in 2006-07 to Rs. 25,354 million in 2007-08.

Profit Before Tax (PBT) increased by 53% from Rs.5,715 million in 2006-07 to Rs.8,731 million in 2007-08. Profit After Tax (PAT) increased by 45% from Rs.4,62 million in 2006-07 to Rs.6,692 million in 2007-08.

IDFC's quality of assets continued to be good with 0.03% Net NPAs as on March 31, 2008.

DIVIDEND

Your Directors are pleased to recommend a dividend of 12% for the year ended March 31, 2008. OPERATIONS REVIEW

Leveraging the opportunities provided by a growing economy, the Company continues to see healthy growth in its lending activities. Gross approvals increased by 56% from Rs.130,530 million in 2006-07 to Rs.203,090 million in 2007-08, while net approvals increased by 104% from Rs.78,530 million in 2006-07 to Rs.159,900 million in 2007-08. Gross disbursements, increased by 67% from Rs.72,070 million in 2006-07 to Rs.120,060 million in 2007-08, while net disbursements increased by 85% from Rs.41,910 million in 2006-07 to Rs.77,550 million in 2007-08.

As on March 31, 2008, IDFC's total exposure to infrastructure projects was Rs.340,000 million of which Energy was the highest (36.9%), followed by Transportation (23.3%) and Telecommunication & IT (15.8%). IDFC's exposure to Commercial and Industrial sector was at 9.8%.

IDFC continued to strengthen its proprietary equity business and in 200708, net approvals were Rs.7,480 million, while net disbursements were Rs.3,080 million.

While the investment strategy for treasury operations continues to ensure adequate levels of liquidity to support core business requirements, it has started focusing on optimizing levels of return and functioning as a profit centre investing in fixed income securities, while maintaining prudent safety norms. Net interest income from treasury operations increased by 249% from Rs. 370 million in 2006-07 to Rs. 1,290 million in 2007-08.

With the acquisition of SSKI there has been a structural shift in its advisory services practice. The Company's entire suite of advisory services ranging from debt syndication, structured finance to equity and debt market services has been brought under one platform to supplement the existing stock broking and investment banking services already existing within SSKI.

The Policy Advisory Group continued to contribute to IDFC's mandate of leading private capital to infrastructure projects, by providing impetus to rationalisation of policy and regulatory frameworks.

In private equity, the Company is in the process of funding the first tranche for the landmark US $1.25 billion project equity fund being developed by IDFC along with Citigroup and IIFCL.

During the year, fee income increased substantially on account of increasing focus on asset management business and structured deals in debt syndication and private equity placement.

Detailed analysis of the performance of the Company and its businesses, including initiatives in the area of Human Resources, Information Technology and Risk Management, has been presented in the section on Management Discussion and Analysis of this Annual Report

SUBSIDIARY COMPANIES

As the Company expanded its business domain, it has also increased its subsidiary companies. IDFC has eight direct subsidiary companies - IDFC Private Equity Company Limited, IDFC Trustee Company Limited, IDFC Investment Advisors Ltd, IDFC-SSKI Securities Limited, IDFC Project Equity Company Limited, IDFC PPP Trusteeship Company Limited, IDFC Capital Company Limited and Feedback First Urban Infrastructure Development Company Limited. IDFC-SSKI Private Limited and IDFC-SSKI Stock Broking Limited are subsidiaries of IDFC-SSKI Securities Limited. Similarly, Feedback First Urban Infrastructure Development Company Limited has further floated a subsidiary called IDFC Projects Limited, which will be a stand-alone infrastructure developer.

A statement of particulars of IDFC's subsidiaries is annexed to this report.

JOINT VENTURES

IDFC has two joint ventures Infrastructure Development Corporation (Karnataka) Limited (iDeCK) in the state of Karnataka and Uttaranchal Infrastructure Development Company Limited (UDeC) in the state of Uttaranchal. These jointventure companies are engaged in advisory and project development work in the area of infrastructure at respective state level.

PARTICULARS OF EMPLOYEES

IDFC had 199 employees as on March 31, 2008. Particulars of employees as required to be furnished pursuant to Section 217(2A) of the Companies Act, 1956, read with the rules there under, forms part of this Report. However, as per the provision of Section 219(1)(b)(iv) of the Companies Act, 1956, the reports and accounts are being sent to all the shareholders of the Company excluding the statement of particulars of employees. Any shareholder interested in obtaining a copy may write to the Company Secretary of the Company.

EMPLOYEES STOCK OPTION SCHEME (ESOS)

Pursuant to the resolution passed by the members at the Extra- Ordinary General Meeting held on August 2, 2006, IDFC has introduced Employee Stock Option Scheme 2007 (referred to as 'the scheme') to enable the employees of IDFC and its subsidiaries to participate in the future growth and financial success of the Company. Out of the 7,194,683 options outstanding at the beginning of the year, 388,164 options lapsed on account of resignations and 3,016,583 options were exercised during the year.

Additionally, during 2007-08, 2,486,203 options were granted to eligible employees under the Scheme. Accordingly, 6,276,139 options remain outstanding as of March 31, 2008.

All options vest over 3 years - 30% each vest after first and second year of the grant and 40% vest after the third year. The Company has used the intrinsic value method to account for the compensation cost of option to employees of the Company. Intrinsic value is the amount by which the quoted market price of the underlying share on the date prior to the date of the grant exceeds the exercise price on the option.

Disclosures as required by Clause 12 of the SEBI Employees Stock Option SchemE and Employee Stock Purchase Scheme Guidelines, 1999 are annexed to this report.

CORPORATE GOVERNANCE

Separate detailed chapters on Corporate Governance, Additional Shareholder Information and Management Discussion and Analysis are attached herewith and forms part of this annual report.

PUBLIC DEPOSITS

During 2007-08, your Company has not accepted any deposits from the public within the meaning of the provisions of the Non-Banking Financial Companies (Reserve Bank) Directions, 1998.

FOREIGN EXCHANGE

The particulars regarding foreign exchange expenditure and earnings are furnished at Item No. 15 & 16 in the Notes to the Accounts. Since the Compam does not own any manufacturing facility, the other particulars in the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1998 are not applicable.

RAISING OF FUNDS

The Company raied Rs. 21,000 million byway of QIP during the year. The funds have been used for the purpose of genera business of the Company. The Company is also seeking an enabling resolution to raise US$ 750 million over next 12 - 18 months.

DIRECTORS

The Board, at its meeting held on July 25, 2007, appointed Mr. Abdul Rahim Abu Bakar as Director with effect from July 25, 2007 and he holds office up to the date of the ensuing Annual General Meeting (AGM).

Mr. Mohan Rajasooria, Alternate Director for Mr. Abdul Rahim Abu Bakar, resigned with effect from November 23, 2007. The Board wishes to place on record its sincere appreciation of his valuable contribution to the Company.

Mr. Vinod Rai, Secretary (Financial Services), Ministry of Finance, Government of India, ceased to be Director with effect from January 3, 2008. The Board wishes to place on record its sincere appreciation of his valuable contribution to the Company.

The Board, at its meeting held on February 19, 2008, appointed Mr. Arun Ramanathan, Secretary (Financial Sevices), Ministry of Finance, Government of India, as Director with effect from February 19, 2008 and he holds office up to the date of the ensuing Annual General Meeting.

In accordance with the Articles of Association of the Company and provisions of the Companies Act, 1956, Mr. Dimitris Tsitsiragos, Dr. Omkar Goswami and Mr. Shardul Shroff retire by rotation and being eligible, offer themselves for re-appointment at the ensuing AGM.

INTERNAL CONTROL SYSTEMS

The Company has in place adequate systems of Internal Control to ensure compliance with policies and procedures. Internal Audits of all the units of the Company are regularly carried out to review the internal control systems. The Internal Audit Reports along with implementation and recommendations contained therein are constantly reviewed by the Audit Committee of the Board.

AUDITORS

Messrs. Deloitte Haskins and Sells, Chartered Acountants, will retire as the statutory auditors of the Company at the ensuing AGM. The Board, at its meeting held on April 28, 2008, has proposed their re-appointment as Auditors to audit the accounts of the Company for the financial year ending March 31, 2009.

Messrs. Deloitte Haskins and Sells, the retiring auditors, have confirmed that their re-appointment, if made, would be in conformity with the provisions of Sections 224 and 226 of the Companies Act, 1956, as also indicated their willingness to be re-appointed.

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm that:

- in the preparation of the annual accounts, the applicable accounting standards have been followed;

- they 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 the Company at the end of the financial year and of the profits of the Company for the year;

- they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

- they have prepared the annual accounts on a going concern basis.

ACKNOWLEDGEMENTS

IDFC has developed close relationships with the Ministry of Finance (MoF), Financial Services Division (MoF), Ministry of Surface Transport, National Highways Authority of India, Ministry of Power, Department of Telecommunications, Ministry of Petroleum and other Ministries of the Government of India involved with infrastructure development; the Reserve Bank of India and regulatory bodies, TRAI, the Central Electricity Regulatory Commission and State Electricity Regulatory Commission; the Planning Commission; ITT (Kanpur); IIM (Ahmedabad); the State Governments and all IDFC's Shareholders. The Board of Directors wishes to gratefully acknowledge the assistance and guidance received from all of them. IDFC could make the progress it has in these years due to the dedication and creativity of its staff at all levels. The Board of Directors wishes to place on record its warm appreciation for these efforts.

For and on behalf of the Board

DEEPAK S. PAREKH Chairman Mumbai,June 7, 2008

ANNEXURE

PARTICULARS OF DISCLOSURE AS REQUIRED UNDER SEBI (EMPLOYEE STOCK OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME) GUIDELINES, 1999

PARTICULARS 2007-2008

1. Options outstanding as at the beginning of the year 7,194,683

2. Options granted during the year 2,486,203

Options maybe granted at a price not less 3. Pricing Formula than the face value per share. Options have been granted at Rs.17.48 and at Rs.146.06.

4. Options Vested* 3,016,683

5. Options Exercised* 3,016,683

6. Total no. of shares arising as result of exercise of Options 3,016,683

7. Options lapsed** 388,164

8. Variation in terms of Options None

9. Money realised by exerise of options (Rs. in million) 52.73

10. Total number of options in force* 6,276,139

* The number of options have been reported as on 31.03.2008

** Lapsed Options includes options cancelled/lapsed.

11. Employeewise details of options granted to:

- Senior Management 150,000

- any other employee who receives a grant in any one year of option amounting to 5% or more of option granted during that year None

- employees who were granted options, during any one year, equal to or exceeding 1% of the lone issued capital (excluding warrants and conversions)) of the Company at the time of grant None

12. Diluted Earnings Per Share pursuant to issue of shares on exercise of option calculated in 5.34accordance with AS 2. Earnings Per Share (Rs.)

13. Pro Forma Adjusted Net Income and Earnings Per Share

PARTICULARS RUPEES (IN MILLION)

Net IncomeReported 6,691.74Add: Intrinsic Value Compensation Cost 29.42Less: Fair Value Compensation Cost 32.16Adjusted Pro Forma Net Income 6,689.00Earning Per Share: BasicAs Reported (Rs.) 5.36Adjusted Pro Forma (Rs.) 5.36Earring per Share DilutedAs Reported (Rs.)) 5.34Adjusted Pro Forma (Rs.) 5.34

14. Weighted average exercise price of Options granted during the year whose:

(a) Exercise price equals market price NA(b) Exercise price is greater than market price NA(c) Exercise price is less than market price 117.81

15. Weighted average fair value of Options granted during the year whose:

(a) Exercise price equals market price NA(b) Exercise price is greater than market price NA(c) Exercise price is less than market price 95.96

ANNEXURE

PARTICULARS OF DISCLOSURE AS REQUIRED UNDER SEBI (EMPLOYEE STOCK OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME) GUIDELINES, 1999 (continued):

PARTICULARS 2007-2008

The fair value of the options granted has been estimated using the Black-Scholes option pricing Model. Each tranche of16. Description of method and vesting have been considered as a significant assumptions used to separate grant for the purpose of estimate the fair value of options valuation. The assumptions used in the estimation of the same has been detailed below:

VARIABLES Weighted average values for all grants made during the year Stock Price (Rs.) 176.72Volatility 47.02%Risk free Rate 7.51%Exercise Price (Rs.) 117.81Time To Maturity 3.60Dividend yield 1.42%Weighted Average Value (Rs.) 96.06

Stock Price: Closing price on NSE as on the date of grant has been considered for valuing the grants.

Volatility: There is no adequate price history for the shares since the Listing of the shares of the Company on a recognized stock exchange. We have not adopted the volatility of a peer group company as recommended by the guidelines as there are no such peer group companies. For the options granted after the listing of the shares the historical volatility till the date of grant has been considered to calculate the fair value.

Risk-free rate of return: The risk-free interest rate being considered for the calculation is the interest rate applicable for a maturity equal to the expected life of the options based on the zero-coupon yield curve for Government Securities.

Exercise Price: Options have been granted at a price of Rs. 17.48 arrived by the independent valuer pre-listing except for one grant where the price is Rs. 146.06

Time to Maturity: Time to Maturity / Expected Life of options is the period for which the Company expects the options to be live. The minimum life of a stock option is the minimum period before which the options cannot be exercised and the maximum life is the period after which the options cannot be exercised.

Expected divided yield: Expected dividend yield has been calculated as an average of dividend yields for the two financial years preceding the date of the grant. MANAGEMENT DISCUSSION AND ANALYSIS

Infrastructure Development Finance Company Limited (IDFC' or the Company') finances the infrastructure needs of India. Its success over the last few years - especially as a listed entity after its initial public offering in July 2005 - has been due to the combination of many factors. The key ones are: the sheer demand for infrastructure in the country, IDFC's acknowledged expertise in all areas of infrastructure, the Company's ability to tap global as well as Indian financial resources, its strategy to be a one-stop shop' for infrastructure and a strong synergy between the Company's professional Management and its Board of Directors and key shareholders that allows it to expeditiously pursue opportunities for yet more profitable growth.

IDFC HAS SEEN ACCELERATED GROWTH

in 2007-08 both in revenues and profits. The size of the Company's consolidated balance sheet increased by 57% - from Rs.183,840 million in 2006-07 to Rs.289,400 million in 2007-08. This quantum jump brings with it economies of scale and an increase in scope of opportunities. It transforms IDFC's positioning from being a niche player to a powerhouse among Indian financial intermediaries.

Not only does the Company now have a large asset base but it is also of very good quality. IDFC has 0.03% net Non-Performing Assets (NPAs) and only 0.17% gross NPAs.

THE SCENARIO: GLOBAL AND INDIAN

IDFC's growth in business and profits is even more credible given the bearish scenario in global as well as Indian markets in the second half of 2007-08.

THE GLOBAL SITUATION AND OUTLOOK The US It is best to begin with the US. For a nation whose people save little or nothing, a very large part of consumer spending in the US has been predicated upon home equity values. Since the mid-1980s, the US consumers have relied more and more on drawing credit lines based on the value of their housing assets to meet consumption and other needs. This home equity-based consumption growth started being threatened by the state of the housing market, which began to go downhill since December 2006. According to the S&P Case-Shiller housing prices index, there has been a sharp drop in the housing price inflation rate: from 15.4% in November 2004 to (-)14% in March 2008. As yet, there is no sign of an upturn.

This fall in home prices has significantly increased debt defaults - especially for borrowers who took the 2/28' mortgage loans, which carried a low fixed rate for the first two years, and floating rates for the next 28. With resets to floating rates taking place, many have failed to pay their loan obligations. This is not limited to the sub-prime borrowers but has spread in varying measures to other categories as well. Up to July 2005, the long-term average monthly foreclosures was around 79,000. That number has gone up to 234,685 in March 2008-indicating a 57% growth in foreclosures in a year. It is estimated that 2008 and 2009 together will see an extra two million home loan foreclosures.

Fall in home equity and foreclosures have severely dampened consumer sentiments in the US. As if these were not enough, gasoline prices have sky-rocketed and, in effect, have imposed a tax equivalent to 2% of US household disposable income. From a peak growth rate of 5.2% in June 2007 (over June 2006), non-gasoline retail sales growth in the US was down to 0.6% in March 2008. Consequently, in January March 2008, de-seasonalised growth in personal consumption expenditure fell to 1 % over the previous quarter-the lowest growth of real personal consumption expenditure in the last 27 quarters.

That US GDP growth in Q1 2008 was not negative is just a mirage. The 0.6% sequential growth of GDP in Q1 2008 was entirely due to an unnatural rise in inventories in January-March 2008. Net of the sharp spike in inventories, US growth had already moved into negative territory. And almost every economist predicts a full blown recession in Q2 2008.

It is difficult to predict how long the US recession will last. For one, housing prices are not expected to come back to an even keel (out of negative to zero inflation) until October-December 2008, if not a quarter later. For another, if crude oil prices continue remaining in triple digits, there is little to expect in terms of a consumer demand recovery over the next few quarters.

To be sure, there are some positives in the horizon. The US Federal Reserve has moved with exceptional agility, foresight and decisiveness. Today, 3-month US interest rates are down to 1.91 % and the yield on 10-year treasury bills is ruling at 3.86% - among the lowest in the developed world. The Fed's decisive action in facilitating J.P. Morgan's bail-out of Bear Stearns has also instilled much needed confidence in a shattered financial system and the steadily depreciating dollar has boosted US exports and finally begun to reduce the country's massive current account deficit.

However, there is still a great deal of pain left in the US economy and its financial markets. If UBS's, Citigroup's and Merrill Lynch's Q1 2008 losses are a harbinger of things to come, then write-downs from the sub-prime crisis are expected to continue. In fact, the IMF has estimated losses from the US financial crisis at a staggering US $945 billion.

The UK and the Euro zone

The UK, too, is in trouble. Also beset by housing sector worries and poor retail spending, GDP growth from the UK is expected to reduce to somewhere between 1.5% and 1.8% in 2008. In fact, the normally laissez faire Bank of England offered to swap government bonds for mortgage securities to kickstart bank lending; and in April 2008, it cut the benchmark interest rate by 25 basis points to 5%- its second rate cut since December 2007.

The Euro zone is also in a worse shape than before. With a slowdown in growth and a rise in consumer price inflation, the European Central Bank (ECB) is caught in a bind. As of now, it has maintained its anti-inflationary stance by remaining firm with its interest rate. That has kept the euro at uncompetitive levels vis-a-vis most currencies, especially in relation with the US dollar. But with the spectre of lower growth in France, Italy and Germany, and the possibility of a serious real estate sector-driven financial crisis in Spain, it may be a matter of time before the ECB has to jump into the fray. The Euro zone is expected to witness at least a 1 percentage point decline in GDP growth compared to 2007 -achieving 1.5% to 1.7% growth in 2008.

All this bodes ill for the supply of global capital. Banks, private equity and hedge funds, and other suppliers of capital have suffered throughout 2007, and have significantly lower risk appetite compared to a couple of years ago. This has increased the cost of global capital, either as debt or equity. Moreover, the recent depreciation of the rupee vis-avis the US dollar and the euro - down by 7.6% versus the dollar between January and mid-May 2008, and 12.1 % versus the euro - has increased the effective cost of international borrowings. In addition, restrictions by the Reserve Bank of India (RBI) on external commercial borrowings has almost blocked off the possibility of taking on greater foreign debt.

India

India's GDP growth is also slowing down - but not like the US, the Euro zone or the UK. After two consecutive years of 9% and 9.7% growth, it looks as if GDP growth for 2007-08 will be marginally lower at 8.7%. That is not a cause of concern. What is, however, worth noting is that GDP growth for 2008-09 will be lower still. The estimates vary between 7.5% and 8% - less than before, but still making India the second fastest growing large economy, after China.

While 7.5% growth will still be creditable, especially in an overall bearish milieu, there are concerns about growth in infrastructure spending. This is showing up in the slowing down of construction activity. Until July-September 2007, the construction sector achieved at least 10% annualised growth for 18 straight quarters. In October-December 2007, it grew by 8.4% -which is significantly less than its average performance over the last four years.

In fact, despite impressive GDP growth right up to 2007-08, the pace of infrastructure development in India remains a matter of concern. Chart B shows that, in the last three years, growth in infrastructure, as measured by the Indian infrastructure index, has lagged behind GDP growth. In 2007-08, the difference has been particularly sharp. A key economic and governance issue is how India can raise this growth to equal, if not exceed, GDP growth-without which it will be difficult to raise India's growth rate on a sustainable basis. It is a matter of concern for all policy-makers and players in the infrastructure space, including IDFC.

OUR BUSINESS STRATEGY

Each sizeable infrastructure project can be divided into different elements that are distributed across different timelines, with each having its own risk and return profile. Diverse risk-return profiles have varying implications for providers of capital, be it equity or debt. Thus, a single infrastructure project can be disaggregated to provide value propositions for different players across the project lifecycle. IDFC's core competitive edge lies in its ability to comprehend the different incentives and successfully create disaggregated, yet interconnected, packages that meet each of the many objectives, and provide win-win solutions for the client and the Company.

In line with its strategy outlined over the last two years' annual reports, IDFC continued to focus on enhancing its services as a 'one-stop shop' for financial intermediation into the infrastructure sector. The objective is to become India's specialist infrastructure bank, spanning the entire value chain. In doing so, IDFC focuses on working with sponsors right from inception to fruition of infrastructure projects. This requires the Company to offer a suite of services and products that not only captures the entire mind-space of sponsors so that whenever they think of infrastructure, they think of IDFC, but one that makes financial and long term strategic sense for the Company.

Thus, in addition to IDFC's loans, there has been a concerted effort at developing businesses that generate non-interest income from fees and capital gains from investments. These businesses are important on at least two counts. They provide critical support to customers in executing infrastructure projects, by sharing risks and realising gains along with the sponsors. Moreover, they provide a more profitable income source in the long run.

TABLE 1 RETURN ON ASSETS TREE % OF AVERAGE TOTAL ASSETS

PARTICULARS 2007-08 2006-07

INFRASTRUCTURE 2.4% 2.6%TREASURY 0.5% 0.2%NET INTEREST INCOME 2.9% 2.8%PRINCIPAL INVESTMENTS 0.9% 0.9%ASSET MANAGEMENT 0.2% 0.4%IDFC-SSKI 0.8% 0.0%ADVISORY AND OTHER FEES 0.7% 0.5%NON-INTEREST INCOME 2.0% 1.8%OTHER INCOME 0.1% 0.1%TOTAL 5.6% 4.7%

After two years of trial, 2007-08 saw major traction in this area, with a significant growth in the Company's non-fund based businesses. Non-interest income (i.e. income from principal investments, asset management, investment banking, and other fees) grew by 131% in 2007-08. This is no longer high growth over a low base. The share of non-interest income in IDFC's total operating income has increased from 37% in 2006-07 to 47% in 2007-08. Today, these non-interest incomes have attained critical mass in IDFC's portfolio.

To streamline and increase the Company's offerings in non-balance sheet intensive businesses, IDFC made two major strategic acquisitions in 2007-08. These were in SSKI Securities and the Standard Chartered Mutual Fund, India.

It may be recalled that in September 2006, IDFC had acquired 33.33% stake in SSKI Securities. In the middle of 2007, it further increased the stake to 66.66% by buying out the shares held by the founder and, in March 2008, the stakes were increased to 79.80%.

With its leadership position in investment banking in the infrastructure space and a strong institutional brokerage and research platform, SSKI forms a perfect fit for IDFC. With its 80% stake in SSKI, IDFC has now re-organised its corporate finance and advisory business including debt syndication, structured finance and corporate debt and equity market advisory under the IDFCSSKI business platform. In addition, the acquisition has allowed IDFC to enter the institutional equities business, a strong base from which to expand the Company's franchise in the wider investment banking landscape.

In March 2008, Standard Chartered Bank agreed to sell to IDFC, the Standard Chartered Trustee Company Private Limited and the Standard Chartered Asset Management Company, which handles its mutual fund business in India. The acquisition was carried out for a total cash consideration of approximately US$205 million, before deductions for local taxes and deal expenses. This investment is in line with the Company's strategy of broadening its footprint in the asset management business.

This platform will give IDFC entry into the mutual fund space and thereby allow it to scale up fee generating assets under management and regulations permitting to also tap new pools of funding for listed infrastructure companies.

As a financial intermediary, it is important to track the Return On Assets (ROA) generated by the Company. Table 1 shows that with the accelerated growth in noninterest income, IDFC's ROA (net operating income as a ratio of average assets) increased from 4.7% in 2006-07 to 5.6% in 2007-08. While the ROA from net interest income remained stable at around 2.9%, there has been an increase in the ROA from non-interest incomes from 1.8% in 2006-07 to 2.6% in 2007-08.

In July 2007, the Company raised $ 519 million in a QIP. Consequently, the leverage ratio has decreased from 5.1 in 2006-07 to 4.0 in 2007-08. The lower leverage ratio is a temporary phenomenon that gives the Company some running room to continue to expand its balance sheet while maintaining its AAA status with the rating agencies.

OUR BUSINESSES

Today, the Company has a balanced business model, akin to a four-wheel driven car, that can navigate a client through, or direct capital and services to, any part of the entire infrastructure value chain, from the pre-development stage of a project to the construction, operations, refinancing and exit stages of the investment life cycle. The four wheels of the car are the following four business verticals that together give the Company a scalable and diversified revenue stream:

- Project Finance

- Principal Investments and Treasury

- Investment Banking

- Asset Management

IDFC'S FOUR WHEEL DRIVE MODEL can be bifurcated into the front two wheels comprising the capital intensive balance sheet business including the loan book, which give modest returns but provide and scale client reach; and the principal investment and treasury business, which can generate superior ROES but with less predictable revenue streams.

The rear two wheels comprise the Company's capital light businesses investment banking, which has high but volatile returns, and asset management (including private equity, project equity, fund of funds, public market alternatives and mutual fund), which not only has high returns, but can also deliver scalable and more predictable revenue streams.

In addition, the Company also has an advisory group that works closely with the Government of India and various state governments on policy issues and in creating capacities to develop commercial infrastructure and public-private partnerships.

PROJECT FINANCE

IDFC's primary business activity remains providing debt financing for infrastructure projects, and the assets thus created continue to be the largest portion of the Company's asset book. Given the nature and scope of different infrastructure projects, some project finance activities also translate into placement of equity and mezzanine debt products. Project finance also provides IDFC many opportunities to generate fee income from related advisory services. Highlights of project finance for 2007-08 are given below.

The Company provides debt and equity finance primarily to four infrastructure sectors: Energy, Transportation, Telecom & IT, and Commercial & Industrial. IDFC's total exposure to these sectors increased by 54.2% from Rs.220,400 million in 2006-07 to Rs.340,000 million in 2007-08.

As Chart C shows, Energy still comprises the largest exposure, followed by transportation, then Telecom & IT, and finally Commercial and Industrial. There has also been a sizeable increase in share of Others' in 2007-08. This has come about mainly from IDFC's foray into cement and steel which, in its first year, accounted for 2.6% of the Company's total exposure.

Given IDFC's objective to provide equity as well as debt finance, it is not surprising that the share of loans in total exposure reduced from 89.5% in 2006-07 to 86.5% in 2007-08. Even so, loans still constitute over 85 % of the Company's business.

Of the 86.5% share of loans, 52.5% was on account of specific project loans, 26.4% was in the form of corporate loans and 7.6% was loan against shares.

- As on March 31, 2008, IDFC's infra loans increased by 42.4% to Rs.201,533 millionversus Rs.141,503 million a year earlier

- Gross approvals, including equity and non-funded assistance, increased by 56% to Rs.203,090 million in 2007-08, while net approvals grew by 104% to Rs.159,900 million

- Gross disbursements, including equity, increased by 67% to Rs.120,060 million in 2007-08, while net disbursements grew by 85% to Rs.77,550 million

Energy

With rapid economic growth, India continues to witness major power supply problems. Hence, there has been, and will continue to be, a significant ramp up in investments in power in terms of generation, transmission and distribution of power. In addition, unbundling and provision of open access provides a further growth stimulus to this sector. Given below is the Company's performance in the energy sector in 2007-08.

- As on March 31, 2008, IDFC's total exposure in the energy sector was Rs.125,320 million

- Gross approvals including equity and non-funded assistance increased by 22% to Rs.60,640 million in 2007-08; and net approvals grew by 92% to Rs.51,280 million

- Gross disbursements, however, fell by 16% to Rs.24,610 million; net disbursements, too, declined by 41 % to Rs.13,550 million in 2007-08

While there was a fall in disbursement to this sector in 2007-08, most of it is a timing issue. With significant growth in net exposure, there is large business awaiting to be translated to actual disbursements. Chart D plots the data of IDFC's steady growth in energy over the last five years.

IDFC continues to focus on projects that have appropriate risk return profiles in power generation. The Company is focusing on a strategy of developing strong partnerships with different players in the sector, some of whom are also first time participants. The partnering process often extends to arranging equity for the sponsors. While most of the stress is on thermal generation, IDFC is also aggressively pursuing hydro-electric projects in the small and medium scale. Identifying the immense potential in renewable power like wind or solar, IDFC has actively partnered players in the wind energy space. This includes equipment manufacturers and wind farm developers.

Transportation

This sector encompasses the development of roads, civil aviation, airports, ports, container terminals, and gas and oil pipelines. Highlights of IDFC's performance in 2007-08 are:

- As on March 31, 2008, IDFC's total exposure in transportation was Rs.79,150 million

- Gross approvals, including equity and non-funded assistance increased by 121 to reach Rs.47,830 million in 2007-08 and net approvals increased by 115% to Rs.33,500 million

- Gross disbursements grew by 70% to Rs.27,660 million in 2007-08, while net disbursements increased by 35% to Rs.14,060 million

Chart E shows IDFC's gross approvals and disbursements in the transportation sector over the last five years. After the slowdown in 2006-07, gross approvals and disbursements have regained their growth trend in 2007-08.

There have been some significant publicprivate partnership models in the roads sector, with several successes in toll-based road financing. Although these projects have lower margins, there is immense opportunity in this sector and IDFC continues to aggressively partner sponsors in roads, with an emphasis on National Highway Authority of India (NHAI) projects and state level highways.

IDFC has played a lead role in privatisation of airports and continues to leverage opportunities to finance and advise on such projects. The Company has also extended its play in aviation by funding aircraft acquisitions and helping in the consolidation of airlines. Going forward, IDFC expects increased activity on the logistics front, especially with selective opening up of railways and container traffic, and the development of urban mass transportation systems.

Telecom & IT

Telecom & IT today has become a mature business in India. Significant growth has coincided with the consolidation of the industry by a few very large enterprises, each having major internal funding capacity. IDFC, therefore, has re-calibrated its business strategy in the Telecom and IT space, and is now focusing on specific niche areas. Highlights of the Company's performance in 2007-08 are:

- As on March 31, 2008, IDFC's total exposure in Telecom & IT was Rs.53,560 million

- Gross approvals grew by 3% to Rs.33,310 million in 2007-08; net approvals increased by 6% to Rs.26,350 million

- Gross disbursements increased significantly in 2007-08 - rising by almost 210% to Rs.36,670 million. Net disbursements also grew to Rs.25,770 million

Chart F shows IDFC's gross approvals and disbursements in the Telecom & IT sector over the last five years. In 2006-07, there was a massive gap between approvals and disbursements-because majority of the approvals of that year translated into disbursements in 2007-08. The sector is witnessing some new sources of increased demand. This is seen by the fact that even in 2007-08, the Company has managed to grow approvals in this sector, which were already at a very high level in 2006-07.

2007-08 saw new licenses being provided to different players, many of whom are new to the business of telecom. The Company aggressively leveraged this opportunity of partnering new entrants; and much of the jump in exposure in telecom comes from a few large deals.

IDFC continues to finance some of the smaller players, and explore opportunities for funding mergers, acquisitions and consolidation. With severe competition, there is pressure on costs in the industry, which calls for players looking at opportunities to share infrastructure facilities. IDFC believes that this is opening up several opportunities in the telecom infrastructure space, especially in telecom towers. In addition, the Company continues to work with IT-enabled service providers who primarily support telecom companies.

Commercial and Industrial Infrastructure

The commercial and industrial sector primarily includes IT Parks, SEZs, commercial property and hotels. Thanks to the construction and real estate boom over the last few years, this sector has attracted considerable attention and investments. Thus, within a short span of time, it now accounts for over 9.8% of IDFC's exposure. Highlights for 2007-08 are:

- As on March 31, 2008, IDFC's total exposure in commercial and industrial infrastructure was Rs.33,340 million

- Net approvals increased by 168% to Rs.19,480 million in 2007-08

- Net disbursements increased by 34% to Rs.15,300 million in 2007-08

With RBI placing restrictions on banks in financing several areas in this sector, there is an increased opportunity for a NonBanking Financial Companies (NBFC) like IDFC. However, while opportunities are abundant, the Company remains cautious with its activities in this space. IDFC believes that availability of commercial space is starting to outstrip demand and that there will be pressure on rentals and sale prices. Therefore, it invests in commercial development only if it believes that the underlying land price is justifiable and the promoter offers significant collateral. Moreover, with a spurt in hotel development over the last couple of years, hotel room availability will increase and, thus, bring down hotel tariffs. The Company's approach here is to be very selective and focus to the extent possible, on the budget segment in hotels, which is expected to witness lower volatility in room rates.

In addition to these sectors, the Company has also extended its foray [into tourism] and entered into financing of greenfield and expansion projects in steel and cement.

Tourism

- In 2007-08, IDFC's exposure in tourism was Rs.21,020 million, or 6.2% of the total

- Net approvals increased 3.8 times to Rs.9,880 million in 2007-08

- Net disbursements increased by 54% to Rs.2,390 million in 2007-08

Steel and Cement

- IDFC's exposure in 2007-08 was Rs.8,980 million, or 2.6% of the total

- Net approvals were Rs.9,020 million

- Net disbursements were Rs.2,100 million

PRINCIPAL INVESTMENT & TREASURY

IDFC's principal investments include direct investments from the Company's own balance sheet. These are typically of four types:

- INFRASTRUCTURE INVESTMENTS,

where the Company supplements its lending activities by taking direct equity stakes in projects or infrastructure companies. These are generally to build longer term relationships with sponsors, and to support them by offering innovative financing tools and sharing risks. Here, the Company expects to benefit from share value appreciation and have a clear exit route at the appropriate time. In addition, IDFC has seeded IDFC Projects Limited, a subsidiary company that will focus on developing a targeted portfolio of infrastructure assets

- FINANCIAL INVESTMENTS, comprise investments in the financial services space including investments in NSE, STCI and ARCIL to generate returns

- INVESTMENT IN VENTURE CAPITAL UNITS, for third party funds which are sponsored and managed by IDFC

IDFC's principal investments business saw significant growth in 2007-08. This business will be managed to within clearly defined parameters and prudential limits relative to the size of the Company's capital base and balance sheet.

- In 2007-08, IDFC's equity asset book grew 2.3 times to Rs.13,500 million. Of this, Rs.3,790 million was financial equity, while Rs.8,520 million was infrastructure equity and Rs.1,180 million was in the form of venture capital units

- Income from the Company's principal investments, which includes dividends and capital gains, increased by 62% from Rs.1,330 million in 2006-07 to Rs.2,160 million in 2007-08

- STRATEGIC INVESTMENTS, where IDFC picks up stakes in entities to further strengthen its business offering or for strategic purpose that is central to the Company's long term business objectives, are treated separately. Investments in SSKI and Standard Chartered Mutual Funds were the key such examples in 2007-08

Treasury

Traditionally, the treasury function has been one of liquidity management for the project finance and principal investing business, with the focus on raising adequate funds at optimal costs to the business. Over the years, IDFC has acquired experience and knowledge in this function, and is now leveraging this skillset to convert the treasury function into a profit centre that focuses on fixed income investments. Investment activities are undertaken within the purview of strict and well defined prudential risk-return norms. While profit is now an objective, the core function still remains efficient liquidity management. Consequently, the Company now has a liquidity book that parks funds for providing liquidity for lending activities and a proprietary book that has the fixed income security investments with profits as a key driver.

- Average treasury assets increased by 105% from Rs.22,771 million in 2006-07 to Rs.46,621 million in 2007-08

- Net interest income from treasury operations increased 3.5 times from Rs.370 million in 2006-07 to Rs.1,290 million in 2007-08

INVESTMENT BANKING: IDFC-SSKI

IDFC-SSKI is the platform on which the Company is developing its investment banking and institutional broking business. SSKI has brought with it a powerful research-based equity franchise, strong institutional relationships across the globe and a recognised infrastructure footprint.

While SSKI always had a strong equities business, after IDFC's acquisition, this entity is emerging as a full service investment bank across debt and equity.

As of March 31, 2008, the total employee strength of IDFC-SSKI was 144. Much of the year has been spent in the postacquisition integration process. Even so, the entity continued with its business and was particularly active in the IPO and QIP advisory space. During 2007-08 IDFC-SSKI contributed Rs.1,963 million to the gross income of IDFC.

ASSET MANAGEMENT

Asset management is one of the critical businesses that will drive the Company's long term growth. IDFC leverages its specialised skill-sets and reputation as a leading investor in the infrastructure space to mobilise global and domestic funds and invest these as equity and debt in infrastructure projects, as well as listed and unlisted Indian companies.

The Company benefits in a variety of ways. First, as the quantum of third party assets increase in volume, IDFC generates a steadier stream of incomes in terms of fees. It also receives a share of the gains from their investments as carry profits. Second, given the risk profile of infrastructure projects, often there is need for equity investments. These assets, under IDFC's management, become an important source of providing such equity and increasing the Company's service offerings. Third, IDFC also invests in the various funds under its umbrella and benefits from the successes of these funds. Fourth, there could be coinvestment opportunities where IDFC's balance sheet could come into play.

Broadly speaking, IDFC, today, has four groups of such assets under its management: private equity, project equity, public market alternatives and mutual funds. In addition, IDFC is launching a private equity fund of funds.

Private Equity

IDFC's private equity business focuses on generating attractive returns for investors by providing equity-based risk capital to early stage and rapidly growing infrastructure focused companies. This business is undertaken through its wholly-owned subsidiary, IDFC Private Equity Company Limited (IDFC Private Equity'). IDFC Private Equity acts as investment manager for funds dedicated to investments in the private equity asset class.

Its first fund, India Development Fund, had a corpus of US $190 million and was the first to raise capital entirely from domestic institutional investors. The first fund has been fully invested and has exited four investments - two of which are partial exits. Through these four exits, the fund has already returned the original corpus of US$ 190 million to its investors.

The second fund, IDFC Private Equity Fund II, raised US $440 million, of which over 70% came from overseas investors. This fund is fully committed and is expected to be fully invested by the first quarter of 2008-09.

During 2007-08, IDFC Private Equity started raising its third fund, IDFC Private Equity Fund III and achieved a soft close of US$ 700 million.

As of March 31, 2008, total assets under IDFC Private Equity's management were around US$ 630 million. With the third fund coming on-stream, the value of assets under management will increase to around US $1.3 billion.

Project Equity

IDFC Project Equity is the manager of third party funds that invest equity in infrastructure projects in core sectors like energy and utilities, transportation & telecommunications to provide its investors with long term stable inflation hedged returns. This will be achieved by investing largely in post-construction phase projects or projects where there is sufficient visibility with respect to their cash flows. These investments typically have a lower risk-return profiles compared to the pure private equity play.

IDFC Project Equity, the manager of the India Infrastructure Fund ('IIF') along with the Citigroup, is raising a fund for investments as project equity. IDFC and Citi have each invested US$ 100 million in this fund. As of March 31, 2008, the HE had achieved a soft first close of US $ 522.5 million.

During 2007-08, IDFC, as a consolidated entity, generated asset management fees worth Rs.492 million. This will significantly increase as the quantum of funds rise overtime.

IDFC Global Alternatives

IDFC Global Alternatives (IDFC-GA), based in Singapore, is a global emerging markets private equity fund-of-funds business. IDFC-GA will focus mainly on Asia and the Commonwealth of Independent States (CIS), with a smaller allocation to other emerging markets. It will focus its manager selection on those that provide expansion and buyout capital to middle market companies. It will commit to both established and first generation managers as well as consider making allocations to managers investing in frontier markets in Asia and CIS.

Standard Chartered Mutual Fund, India

IDFC acquired this business in March 2008.This transaction was subject to certain regulatory approvals and is now completed. As of now, IDFC has not internalised the operations of this business with its own operations. As of March 31, 2008, assets under management of this business were Rs.127,335 million.

The Company brings with it seven years of experience, suite of high quality funds with an established track record and staff strength of 65 professionals with deep domain knowledge. While 60% of asset under management are from institutional investors, the rest comes from retail investors. This business should provide a good platform for IDFC to promote its AMC business.

OUR PEOPLE

IDFC prides itself on having one of the best talent pools in India that specialises in the infrastructure finance domain. In addition to regular implementation of Company's objectives, many of them also provide thought leadership to the industry in their specific area of expertise.

In 2007-08, the Company added 131 new employees across the domains of project finance, private equity, investment banking and asset management. These employees bring with them expertise to consolidate and sustain the IDFC's business growth. During the year, the campus recruitment program was redesigned, based on the feedback from earlier batches. There are sixteen fresh MBAs from the top business schools in the country participating in the Company's analyst program involving exposure to various verticals.

As an addition to the variable compensation system, the Company has employee stock options to high performers with an objective to create a core long-term talent group within the IDFC group. This also ensures that performing employees see long term benefit in participating in the growth of the organization. A Hewitt study for fixed compensation benchmarking has been concluded and appropriate changes to salary structures were done.

To nurture key talent at senior levels, IDFC has approached Oxford University's Said Business School to design, develop and deliver a programme for its senior executives. The core objective of the programme is to create a platform for dialogue between senior executives from IDFC and leading thinkers and executive education specialists. The programme called Leadership Excellence in 21st Century' comprises 6 modules and an inter-module project on a leading organizational dilemma. IDFC has also tied up with ISB, Hyderabad, to run training diagnostics and devise programs in areas like leadership, knowledge and managerial excellence. This program addresses talent across levels and functions and covers the whole length and breadth of the organization.

The other important focus area for human resource management at IDFC was the integration of the investment banking arm. This integration process has been completed successfully. IDFC, alongwith IDFC-SSKI had 367 employees as on March 31, 2008.

TABLE 2 ABRIDGED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR IDFC:

Rs. MILLION 2007-08 2006-07

OPERATING & OTHER INCOME 13,236 7,158OF WHICHNET INFRASTRUCTURE BASED INTEREST 5,650 3,920NON-INTEREST INCOME 6,180 2,670NET TREASURY & OTHER INCOME 1,406 568OPERATING EXPENSES 2,532 821OF WHICHSTAFF EXPENSES 1,677 480OTHER EXPENSES 782 297DEPRECIATION AND AMORTISATION 73 44PRE PROVISIONING PROFIT 10,704 6,337PROVISIONS AND CONTINGENCIES 700 175PBT 10,004 6,162PROVISION FOR TAX 2,480 1,241OF WHICHCURRENT TAX 2,485 1,293DEFERRED TAX -113 -63FRINGE BENEFIT TAX 108 11SHARE OF PROFIT OF MINORITY INTEREST -113 -DILUTION EFFECT 13 -SHARE OF PROFIT OF ASSOCIATES (EQUITY METHOD) -2 118PAT NET OF MINORITY INTEREST 7,422 5,039EPS: BASIC (IN RS.) 5.95 4.48EPS: DILUTED (IN RS.) 5.93 4.45

INFORMATION TECHNOLOGY (IT)

IDFC continues to leverage IT to provide services of high standard to its customers. By and large the use of IT at IDFC is to streamline the Company's back office functions and integrate businesses across tasks, departments and geographies. Much of 2007-08 was spent in aligning the IT backbone including infrastructure, application and compliance with the needs of IDFC's rapidly growing businesses and acquisitions.

IDFC completed work on developing a remote state-of-the-art Data Recovery Site, which allows for instant recovery of data. This was completed in June 2007 and all server consolidations and backups are in place. The Company also implemented the concept of virtualisation, which addresses critical issues with adequate redundancy and meets most global standards for disaster recovery sites.

On the application front, the core software for project financing has been revamped with improved functionalities and a completely rebuilt code. The entire revamping project was managed in-house with specialised work being outsourced to vendors. The new product has been showcased in March 2008. It is under testing, and will go live in second quarter of FY 2008.

There was seamless integration with SSKI on the IT front during 2007-08. This was done through detailed gap analysis, and the integration was carried out to the extent necessary for optimal functioning of the Company.

Recognising the need for constant monitoring of IT security and processes, the Company subjects itself to IT audits each year. A reputed external agency undertakes an annual audit of IT infrastructure and applications. This was extended to all subsidiaries in 2007-08. This external audit is in progress and will also cover networks and control access across the Company. It is a matter of pride that in the half yearly ISO surveillance audits, there has been no non-conformity in the last three years.

An information security campaign was undertaken in July 2008 to create awareness within IDFC on issues related to IT security including password control, tracking and shoulder surfing.

FINANCIAL REVIEW

The abridged consolidated profit and loss accounts of IDFC for 2007-08 are presented in Table 2.

IDFC recorded a strong financial performance during 2007-08. IDFC's operating and other income grew by almost 85% in 2007-08 to Rs.13,236 million. Revenues (net of financing costs) from direct infrastructure lending activities grew by 44% to Rs.5,650 million in 2007-08. Non-interest income, which includes fees, capital gains and dividends, increased by 131 % to Rs.6,180 million in 2007-08.

Significant growth in operating income was also accompanied by an increase in operating expenses of 208% to Rs.2532 million. Manpower expenses witnessed a sharp rise-increasing almost 3.5 times from Rs.480 million in 2006-07 to Rs.1,677 million in 2007-08 due to the following factors viz. hiring new people, the additional manpower costs of the new acquisitions and the internal salary revisions that were carried out to align

IDFC's remuneration structures with the top half of the industry.

Expansion in lending activities has been accompanied by an increase in provisioning, to Rs.700 million. IDFC maintains very strict provisioning standards that go beyond stipulated norms. IDFC has 0.03% net NPAs; and its gross NPAs were only 0.17%.

There has been a robust growth in profits. The Company's Profit Before Tax (PBT) grew by 62% to Rs.10,004 million in 200708. Profit After Tax (PAT net of minority interests and associate companies) increased by 47% in the same period, to Rs.7,422 million.

Growth, however, has resulted in a slight decline in profitability ratios, as Table 3 shows. In part, this is a natural shortterm outcome of being in

an accelerated growth phase. Moreover, higher profits and capital raising during the year have significantly increased the Company's reserves and surplus: the total equity base has almost doubled from Rs.29,476 million in 2006-07 to Rs.55,933 million 2007-08. The Company's leverage ratio has decreased from 5.1 in 2006-07 to 4.0 in 2007-08. This has led to a small, albeit temporary, decline in Return On Equity (ROE) from 17.7% in 2006-07 to 15.6% in 2007-08.

RISK MANAGEMENT

IDFC has well-established systems and procedures for risk management which function under the close oversight of an in-house expert committee called the Risk Group. This group is actively engaged in areas of loan portfolio assessment, asset-liability management, and loan pricing. In addition, it focuses on developing various market risk modules.

Regarding portfolio review, the Risk Group comprehensively examines the entire project assets and equity investments on a semi-annual basis. Each credit is analysed individually and then integrated at the portfolio level. The overall portfolio risk report is regularly presented to an independent committee of the Board of Directors.

2007-08 2006-07

PBDT TO TOTAL INCOME 35.9% 39.5%PBT TO TOTAL INCOME 35.6% 39.2%PAT TO TOTAL INCOME 26.4% 32.1%ROE 15.6% 17.7%

The Risk Group also closely focuses on Asset Liability Management (ALM). To further enhance the effectiveness of the current process of regular monitoring of liquidity and interest rate risks, IDFC has sourced a sophisticated software-based ALM system. This will enable the Company to capture data from various disparate platforms, and allow for a more detailed and comprehensive analysis.

Given the rising volatility of interest rates as well as introduction of new products in the treasury portfolio, IDFC has also in creased the level of monitoring of market risk. This involves measuring interest rate risk on a regular basis as well as testing newer models for analysis.

With the regulatory framework for banks and financial institutions currently in transition to a Basel II environment, the risk measurement and monitoring frame work is being accordingly enhanced. IDFC has initiated efforts to align the capital allocation to different asset categories along the Basel II framework suggested under emerging regulatory guidelines.

The Risk Group works in close coordination with the Credit Policy Committee of the Board of Directors through presentations and deliberations on significant issues in risk management. Feedback and advice from the Credit Policy Committee are incorporated in various applications.

INTERNAL CONTROLS AND THEIR ADEQUACY

The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, and that the transactions are authorised, recorded and reported correctly.

Internal controls are supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. These controls are designed to ensure that financial and other records are reliable for preparing financial information and other reports, and for maintaining regular accountability of the Company's assets.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be forward looking statements' within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Company's operations include unavailability of finance at competitive rates-global or domestic or both, reduction in number of viable infrastructure projects, significant changes in political and economic environment in India or key markets abroad, tax laws, litigation, exchange rate fluctuations, interest and other costs.