CMC - Annual Report - 2008-2009

CMC LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

TO
THE MEMBERS OF
CMC LIMITED

Your Directors have pleasure in presenting the 33rd Annual Report and the
Audited Statement of Accounts for the year ended March 31, 2009.

1. FINANCIAL RESULTS:

(Rs. in Crore)
Particulars 2008-09 2007-08

Income from Sales and Services 820.45 977.19

Other Income 19.81 11.90

Total Income 840.26 989.09

Operating Expenses 701.42 863.75

Profit before Depreciation, Interest and Tax 138.84 125.34

Depreciation 9.29 7.87

Interest 1.88 0.36

Profit before Tax 127.67 117.11

Provision for Taxation (incl. deferred income tax) 22.10 28.89

Profit after Tax 105.57 88.22

Add: Profit brought forward from previous year 270.52 210.62

Amount available for appropriations 376.09 298.84

Appropriations

Proposed Dividend 22.73 16.67

Tax on Proposed Dividend 3.86 2.83

Transfer to General Reserve 10.55 8.82

Balance carried forward to Balance Sheet 338.95 270.52

376.09 298.84

1.1 OPERATING RESULTS:

During the year, your Company earned total revenue of Rs. 840.26 crore
compared with Rs. 989.09 crore during the previous year, registering a
decline of 15% primarily due to a 40% reduction in sale of low margin
equipments. The income from Sales and Services is Rs. 820.45 crore as
compared to Rs 977.19 crore earned in the last year.

The profit before tax at Rs. 127.67 crore registered an increase of 9% over
the previous year mainly on account of improvement in business mix towards
more service and international business accompanied by improvement in
operating efficiencies. The Company made a provision of tax totalling to
Rs. 22.10 crore, inclusive of Fringe Benefit Tax amounting to Rs. 1.62
crore. The Profit after Tax stood at Rs. 105.57 crore registering an
increase of 20% over the previous year.

2. DIVIDEND:

In view of the improvement in profits of the Company, your Directors
recommend for approval of the Members an enhanced dividend at 150% (Rs.
15.00 per equity share) of the paid-up equity share capital as at March 31,
2009.

3. TRANSFER TO RESERVES:

The Company proposes to transfer Rs. 10.55 crore to the General Reserve out
of the amount available for appropriation, and an amount of Rs. 338.95
crore is proposed to be retained in Profit and Loss Account.

4. BUSINESS OPERATIONS:

The business operation of the Company is divided into four Strategic
Business Units(SBUs):

4.1. Customer Services (CS):

The CS SBU undertakes activities related to IT infrastructure including
infrastructure architecture, design and consulting services; turnkey system
integration of large network and data centre infrastructures including
supply of associated equipment and software; on-site and remote facilities
management of multi-location infrastructures of domestic and international
clients.

The CS SBU earned a revenue of Rs. 383.44 crore during the year compared to
Rs. 573.55 crore during the previous year. The drop in revenue is
attributable to our strategy of defocusing from low margin equipment sale
business.

Continued focus on Infrastructure Services enabled the CS SBU to get into
deeper engagement with existing customers and win large domestic service
deals in facility management, nationwide application rollout and helpdesk
services.

4.2 Systems Integration (SI):

The SI SBU undertakes the activities of solution deployment that includes
embedded systems, software development, software maintenance and support,
turnkey project implementation and systems consultancy. The SI SBU earned
revenue of Rs. 312.05 crore during the year compared with Rs. 297.84 crore
earned in the previous year.

In the domestic market the SI SBU continues to be a strong player in
general insurance sector, defence, securities, transport, games management
and e-Governance space. During the year, the SBU won new orders with
private insurance companies. CMC has strongly focussed on the private
sector for new business and accordingly has steadily built ERP capabilities
over the past few years. In the global market, SI SBU won significant new
orders in the financial information services sector.

4.3 IT enabled Services (ITeS):

The ITeS SBU undertakes business process outsourcing services including
total front-office/back-office outsourcing with specific business domain
expertise and on-demand software services; office records digitization and
document management; recruitment and examination results management; legacy
data migration management; working as state-level agency for Election
Commission. The ITeS SBU earned a revenue of Rs. 72.29 crore during the
year compared to Rs. 64.99 crore in the previous year. The ITeS SBU
extended its reach into additional verticals like media research,
insurance, banking, legal, logistics, and publishing domains in the global
market with its KPO offerings.

4.4 Education & Training (E&T):

The E&T SBU of the Company offers courses on information technology and
allied areas including professional courses, career development courses
etc.

The E&T SBU earned a revenue of Rs. 44.47 crore compared to Rs. 47.27 crore
in the previous year. The revenue was lower as the companies reduced
outsourcing of induction programmes owing to the downturn trend in
international business scenario. E&T SBU continues to be a preferred vendor
for a large number of IT and ITES companies both for induction programmes
as well as refresher programmes.

5. SPECIAL ECONOMIC ZONE:

The Company is setting up of an IT and ITeS Sector specific Special
Economic Zone (SEZ), named Synergy Park at its Campus at Gachibowli,
Hyderabad. The project is progressing well. Phase I of the project with
seating capacity of around 2700 in three ODCs is now fully functional. The
Company has spent Rs. 40.19 crore on this project till March 31, 2009.

6. CREDIT RATING:

ICRA Limited has carried out a credit rating assessment of the Company both
for short term and long term exposures, in compliance with BASEL II norms
implemented by Reserve Bank of India for all banking facilities. ICRA has
reaffirmed A1+ rating for short term debt instruments up to Rs. 100 crore
and LAA rating for long term exposure (both fund based as well as non fund
based) for a total amount of Rs. 250 crore. This will enable the Company to
access banking services at low costs and reflects the improvement in
margins, working capital management and cash flows of the Company.

7. SUBSIDIARY COMPANY:

Your Company has a wholly owned subsidiary CMC Americas Inc. in USA. Copies
of the Balance Sheet, Profit & Loss Account and Report of the Auditors of
the Subsidiary Company have not been attached as per approval granted by
the Ministry of Corporate Affairs, Government of India under Section 212(8)
of the Companies Act, 1956. However, as per the terms of the exemption
letter, a statement containing brief financial details of the Subsidiary
Company for the year ended March 31, 2009 is included in the Annual Report.
As required under the Listing Agreements with the Stock Exchanges, the
Company has prepared the Consolidated Financial Statements of the Company
and its Subsidiary as per Accounting Standard (AS)21 - 'Consolidated
Financial Statements' and form part of the Annual Report and Accounts.

The Annual Accounts of the Subsidiary Company and related detailed
information will be made available to the Shareholders of the Company
seeking such information. The Annual Accounts of the Subsidiary Company are
also kept for inspection by investors at the Registered Office of your
Company.

8. FIXED DEPOSIT:

During the year, the Company has not accepted any fixed deposits under
Section 58A of the Companies Act, 1956.

9. LISTING:

The equity shares of the Company are listed with Bombay Stock Exchange,
National Stock Exchange and Calcutta Stock Exchange. There are no arrears
on account of payment of listing fees to the Stock Exchanges.

10. DIRECTORS:

Mr Shardul Shroff stepped down from the Board with effect from March 5,
2009. The Board records its appreciation of the contribution made by Mr
Shroff during the tenure as a Director. Mr S Ramadorai and and Mr Ishaat
Hussain, Directors, retire by rotation and being eligible, have offered
themselves for re-appointment.

11. COMMUNITY DEVELOPMENT:

The Company actively promotes and supports its staff members to volunteer
for activities related to community services. The Company has chosen to
focus its efforts towards helping the under privileged and physically
challenged children to overcome their shortcomings by organizing medical
check up, sports activities and also helping their institutions with
volunteers and financial support.

Community Development is an integral part of work-ethics. During the year,
the Company organized various programmes such as eye camps, cultural events
for Hospice, Relief for Bihar Flood victims, aid to Flood Victims of
Midnapore etc.

12. BUSINESS EXCELLENCE AND QUALITY INITIATIVES:

Your Company continues to strive for performance excellence and customer
centric quality. The operational processes are periodically reviewed to
ensure that they meet the changing business and market requirements.
Feedback from customers as well as internal learning is used to identify
improvement opportunities. During the year under review, Company's STP at
Kolkata was certified for ISO 27001 for its information security management
system. CMC Centre at Hyderabad was recertified for ISO 9000:2000 in June
2008 for software services as well as Embedded System services.

These performance improvement initiatives are taken under the continuing
framework of Tata Business Excellence Model (TBEM), which was adopted by
your Company five years back. To reinforce the focus on performance
excellence, the Company formed cross-functional teams for each category
under the TBEM framework to drive all-round improvements in critical areas
such as leadership system, strategic planning and HR. These teams are led
by members of the executive management team and are empowered to invest in
sustainable success in the market place.

13. CORPORATE GOVERNANCE:

As required under Clause 49 of the Listing Agreement with the Stock
Exchanges, the report on Management Discussion and Analysis, Corporate
Governance, the Auditors' Certificate regarding compliance to Corporate
Governance form part of the Annual Report. Your Company is adhering to the
Secretarial Standard norms issued by the Institute of Company Secretaries
of India.

14. TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

Information as required under the Companies (Disclosure of particulars in
the Report of Board of Directors) Rules, 1988 in respect of energy
conservation, technology absorption and foreign exchange earnings and outgo
is given in Annexure to this Report.

15. DIRECTORS' RESPONSIBILITY STATEMENT:

Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956,
the Directors based on the information and representations received from
the operating management confirm that:

i) In the preparation of the Annual Accounts, the applicable Accounting
Standards have been followed with no material departures;

ii) The Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent, so as to give a true and fair view of the state of affairs of the
Company as on March 31, 2009 and of the profit of the Company for that
period;

iii) The Directors 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; and

iv) The Directors have prepared the Annual Accounts on a going concern
basis.

16. AUDITORS:

M/s Deloitte Haskins & Sells., the Statutory Auditors of the Company, hold
office until the ensuing Annual General Meeting. The said Auditors have
under Section 224(1-B) of the Companies Act, 1956, furnished the
Certificate regarding their eligibility for re-appointment.

17. PARTICULARS OF STAFF:

Information as required under section 217(2A) of the Companies Act, 1956,
read with Companies (Particulars of Employees) Rules, 1975, as amended, is
set out in the Annexure to this report. The Ministry of Corporate Affairs
has amended the Companies (Particulars of Employees) Rules, 1975 to the
effect that the particulars of the employees of the Companies engaged in
Information Technology Sector, posted and working outside India, not being
Directors or their relatives, need not be included in the statement but,
such particulars shall be furnished to the Registrar of Companies.
Accordingly, the statement included in this report does not contain the
particulars of employees who are posted and working outside India.

18. ACKNOWLEDGEMENTS:

The Directors convey their appreciation to business associates for their
support and contribution during the year. The Directors would also like to
thank the employees, shareholders, customers, suppliers and bankers for
their continued support and confidence in the management.

For and on behalf of the Board

Place: Mumbai S RAMADORAI
Date : 13 April, 2009 Chairman

Annexure to the Directors' Report:

Particulars of Conservation of energy, Technology absorption and Foreign
exchange earnings and outgo in terms of Section 217(1)(e) of the Companies
Act, 1956 read with the Companies (Disclosure of Particulars in the Report
of Directors) Rules, 1988 forming part of the Directors' Report for the
year ended March 31, 2009

A. CONSERVATION OF ENERGY:

a. The operations of the Company being IT related require normal
consumption of electricity. However, the Company is taking every necessary
step to reduce the consumption of energy.

b. Your Company is not an industry as listed in Schedule to Rule 2 of the
Companies (Disclosure of Particulars in the Report of Board of Directors)
Rule, 1988.

B. TECHNOLOGY ABSORPTION:

Efforts made in technology absorption - as per Form B given below:

FORM B:

1. Research and Development (R&D):

a. Specific areas in which Research and Development (R&D) is being carried
out by the Company

i. GPS Technology

ii. Mobile Technology

iii. Biometric Technology

iv. SCADA Technology

v. Digitisation

vi. Shipping and Port Solutions

vii. Games and Event Management

viii. System Architecture

b. Benefits derived as a result of R&D

i. The investment in digitization area has resulted in the Company's USP in
document processing area. The technology developed continues to help CMC in
customer acquisition in international market and also improve the
operational efficiency and profitability.

ii. GPS, Mobile and Biometric technologies have crossed early adoption
state of technology and are finding application in every domain. Investment
in these technology areas has improved the Company's technology portfolio
and offer feature and function rich solution to the customer, specifically
in domains of Transportation, Insurance and Banking. It has also helped
offer product upgrades to existing customers and ensures customer
retention.

iii. The investment in SCADA technology has helped the Company in offering
state-of-the-art products to customers in Power and utilities domain,
Realty sector as well as Railways.

iv. System architecture significantly impacts the productivity and cycle
time of development. Investment in this area has resulted in a highly
configurable framework for non-life Insurance segment in which the Company
has retained its leadership position.

v. Your Company continues to invest in productizing and enhancing Shipping
and Port as well as Games Management solutions.

c. Future Plan of Action:

i. Company will continue to develop competence in identified areas to keep
pace with these fast changing technologies. This will help the Company to
retain its technology edge and agility to meet market requirements in
increasingly competitive situation.

ii. Company will also develop solutions for various market segments
integrating these technologies. More specifically some of key solution
development initiatives are:

1. Integration of mobile technology in Company's Insurance offering.

2. Use of Biometrics technology in civilian applications.

3. Development of Mobile technology based solutions for Retail and Banking
sector.

4. Technology upgrades for existing SCADA and GPS products.

5. Investment in our ITeS and Digitization solutions.

d. Expenditure on R&D:

(Rs. in crore)
Particulars 2008-09 2007-08

A. Capital 0.19 0.26

B. Recurring 6.64 7.70

C. Total 6.83 7.96

D. Total R&D Expenditure as a Percentage
of Turnover 0.83 0.80

2. Technology absorption, adaptation and innovation:

a. Efforts made towards technology absorption, adaptation and innovation:

i. CMC proactively uses new and emerging technologies for conceptualizing
solutions to meet its business needs. The expertise gained in early usage
results in developing/enhancing our offerings and provides us an advantage
in differentiating our Company from others.

ii. Apart from its own investment in various technologies, CMC constantly
interacts with technology leaders and reputed academic institutes such as
IITs to understand and absorb new developments in technologies and
offerings.

iii. CMC also periodically scans the market for innovative offerings and
products across the world. After due diligence, these are either integrated
with CMC's offerings or used to enhance CMC's solutions portfolio.

iv. CMC encourages its employees to participate in Tata Group level
innovation program - Innovista. It also has equivalent internal programs
which recognises and rewards improvements and innovation.

b. Benefits derived as a result of the above efforts

i. CMC's current assets have retained their technological edge in fast
changing market.

ii. New and innovative products and services in the area of mobile banking,
talent management and messaging security

iii. Ability to respond to unique requirements of the customers and system
engineers a solution with building blocks obtained internally or from third
parties.

c. Information regarding imported technology:

Your Company has not imported any technology.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO:

1. Activities Relating to Exports, Initiatives to increase exports,
Development of new export markets for products and services & export plan

As a part of its core strategy, the Company is focusing on increasing
exports of its services by leveraging wide marketing reach of its holding
Company, Tata Consultancy Services Limited. The Company has established
itself as a major supplier of EmbeddedSystem Services and software
solutions in key industry verticals and e-Governance space.

2. Total Foreign Exchange Earnings & Outgoings:

The foreign exchange earnings of the Company during the year were Rs.171.92
crore while the outgoings were Rs. 115.39 crore.

For and on behalf of the Board

Place: Mumbai S RAMADORAI
Date : 13 April, 2009 Chairman

MANAGEMENT DISCUSSION AND ANALYSIS:

Overview:

The financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956 and Generally Accepted Accounting
Principles (GAAP) in India. There are no material departures from
prescribed accounting standards in the adoption of these standards. The
management of CMC Limited accepts responsibility for the integrity and
objectivity of these financial statements, as well as for various estimates
and the judgements used therein. These estimates and the judgements
relating to the financial statements have been made on a prudent and
reasonable basis, in order that the financial statements reflect in a true
and fair manner, the form and substance of transactions and the state of
affairs and profits for the year.

Industry Structure and Development:

The world economies are going through unprecedented crisis, the full
ramifications of which are still to be understood and all industries
including IT industry is significantly impacted by the same.

Indian IT industry, which depends on US for more than 60% of its business,
has not escaped the impact of these events. The financial sector, which is
central to the current crisis, is one of the major users of IT and spends
about 9.5% of its revenue on IT, compared to other sectors such as
manufacturing (about 3.5%) and retail about (5%). All other industries
directly and indirectly depend on financial sector for their growth. As a
natural consequence of downturn in financial sector, several other
industries- notably Realty, Retail and Automotive - have curtailed their IT
budgets adversely affecting the prospects of Indian IT Industry. Gartner
expects shrinking of about 3.8% in IT spending in 2009 against a growth of
about 6.1% in 2008.

As per the early estimates of NASSCOM, the Indian IT industry is estimated
to have grown by about 16% in FY 2008-09 to US$ 71.7 billion. Although
international markets such as USA, Europe and Japan are in crippling
recessions, Indian economy's own growth story continues although at a
reduced growth rate. IDC projects India's domestic IT/ITeS market to grow
at about 13.4% in 2009. The growth in domestic ITeS market is likely to be
about 40.8% - far higher than that in the IT segment of about 11.4%.
NASSCOM has projected Indian IT industry to grow 15 percent annually till
2010-11.

Opportunities and Threats:

Opportunities:

Despite turmoil in the global economy, India has been affected and is
expected to remain as one of the fastest growing economies of the world.
The Company sees new opportunities arising out of this situation as the
Company believes that:

* Indian state and central governments' focus on infrastructure and e-
Governance will continue and foresees large IT investment by Government
departments such as Railways, Defence and Finance. With synergistic
relationship with TCS, CMC is gearing itself to tap these opportunities.

* Cost savings will top all other priorities for the customer. This urge
for saving cost is expected to counter the increasing protectionism and
opposition to outsourcing visible in several countries - particularly the
USA. The cost imperative will drive a gradual shift away from traditional
labor intensive outsourcing models to asset or framework-centric services
and delivery models based on newer technologies such as cloud computing,
SaaS and virtualization. CMC already has a rich portfolio of industry
specific assets which will allow it to deliver cost effective solutions.

* Additional investment by customers in hardware will show downward trend.
Gartner predicts a 14.9% drop in spending on computing hardware in 2009.
The focus now will be on niche targeted services and maintenance services
to maximize the returns from investments already made. CMC has an
established maintenance portfolio which is being enhanced further through
service offerings like Remote Infrastructure Management etc.

* For cost effective offerings to the customer, ability to partner with
multiple partners will be a critical success factor. CMC already has a
working eco-system of partners which includes not only small outsourcing
partners in small towns in India but also several major IT players.
Strengthening this partner network further to offer cost effective niche
solutions will be CMC's focus next year.

* Increasing demand for productivity and efficiency improvement is likely
to lead to larger investment in training of IT workforce. CMC's Education
and Training business unit will offer courses to meet these requirements
and tap the emerging opportunities.

Threats:

As the opportunities in overseas markets shrink, all major IT players in
India have started focusing on the Indian market. This will significantly
increase competition in the domestic sector. MNCs and large companies are
increasingly eyeing the domestic market and bring with them economies of
scale and end-to-end services capability to bear on the market. In
addition, SMEs are also offering niche services and solutions and offer an
attractive proposition to the customers. The rapid technological
obsolescence and the possibility of cheaper alternatives to
application/solution ownership is a threat to vendors in terms of
investment protection.

The criticality of customer care and relationship management will increase
further. Investment constraints will also lead to lengthening of sales
cycle.

The pressure on attrition - critical pain area for IT industry for last
several years - will ease this year due to downsizing of international
markets. However, the challenge to retain the right talent in increasingly
competitive market will continue.

Financial Performance:

Revenues:

During the year under review, the Company earned total operating revenue of
Rs. 820.45 crore compared with Rs. 977.19 crore during last year,
registering a decline of 16% primarily on account of 40.4% decline in low
margin equipment business. The share of equipment business in total
operating revenue declined from 39.8% last year to 28.3% in the year under
review, with the corresponding improvement in the share of services revenue
from 60.2% to 71.7%, as a part of the strategy of the Company to
continuously improve the revenue mix of services. Similarly the share of
international revenue increased from 29.6% to 31.7%. The other income
increased from Rs. 11.90 crore to Rs. 19.81 crore, primarily on account of
exchange gain of Rs. 9.45 crore due to about 26% rise in the value of US
Dollar against Indian Rupee during the year and higher income from
investment of surplus funds.

The revenue mix of 2008-09 compared with 2007-08 is given below:

Particulars 2008-09 2007-08
(Rs / crore) % (Rs. / crore) %
Equipment 231.96 28.3 389.11 39.8
Services 588.49 71.7 588.08 60.2
Total Operating Revenue 820.45 100.0 977.19 100.0
Domestic 560.07 68.3 688.29 70.4
International 260.38 31.7 288.90 29.6
Total Operating Revenue 820.45 100.0 977.19 100.0

Expenditure:

During the year under review, the operating expenses at Rs. 701.42 crore
decreased by 18.8% compared with Rs. 863.75 crore incurred in the previous
year which was in line with the decline in operating revenue. As a
percentage of total operating revenue, these expenses registered a decline
from 88.4% to 85.5%. Cost of equipment purchase for resale has declined by
40.8% to Rs. 222.89 crore in line with 40.4% decline in revenue from sale
of equipment. Manpower cost has gone up by 10.1% on account of increase in
manpower strength by 2.7% and general increase in level of compensation to
employees. The manpower cost as a percentage of operating revenue has
increased from 19.8% to 25.9% due to higher share of manpower intensive
services business. Living expenses have decreased by 50.3% despite an
increase in international business due to renegotiation of a contract for
international business from gross billing to net billing, under which
onsite living expenses are borne and paid by the client. Other operating
expenses have increased by 6.2% to Rs. 225.20 crore compared with Rs.
212.03 crore in the previous year due to increase in provision for bad and
doubtful debts and other write-offs by Rs. 6.25 crore and increase in
professional and legal fee by Rs. 3.00 crore.

As a result of these changes, Operating Profit (EBITDA) has increased by
4.9% from Rs. 113.45 crore to Rs. 119.03 crore and as a percentage of total
operating revenue, EBITDA margin has increased from 11.6% to 14.5%.

The interest cost increased to Rs. 1.88 crore during the year under review
compared with Rs. 0.36 crore incurred in the previous year as a result of
increase in borrowing for SEZ project in Hyderabad and substantial
capitalization of those assets. Depreciation charge increased by 18.0% from
Rs. 7.87 crore to Rs. 9.29 crore primarily due to capitalization of assets
worth Rs. 23.28 crore during the year.

As a result, Profit Before Tax (PBT) has increased by 9.0% from Rs. 117.11
crore to Rs. 127.67 crore and as a percentage of total revenue PBT margin
has increased from 11.8% to 15.2% of total revenue.

The provision for taxation (including deferred tax and fringe benefit tax)
decreased to Rs. 22.10 crore from Rs. 28.89 crore in the previous year
primarily due to increase in revenue from International business, dividend
from Mutual Fund investments and exchange gains, most of which is
attributable to STP business, which is exempt from Income Tax. The
effective tax rate for the Company has decreased from 24.7% to 17.3%.

Profit After Tax (PAT) has increased from Rs. 88.22 crore to Rs. 105.57
crore, an increase of 19.7% over the previous year. PAT as a percentage of
total revenue has increased from 8.9% to 12.6%.

Financial Position:

Fixed Assets:

The Company's gross fixed assets as at 31st March, 2009 was Rs. 174.69
crore (including Capital WIP) compared with Rs. 161.31 crore as at the
beginning of the year, resulting in an increase of 8.3% during the year,
mainly on account of Rs. 10.92 crore spent during the year on ongoing
project of setting up Special Economic Zone (SEZ) at Gachibowli Campus of
the Company at Hyderabad.

Investments:

Investments increased from Rs. 103.81 crore as at 31st March, 2008 to Rs.
128.06 crore as at 31st March, 2009, on account of increase in investment
of surplus funds in short term instruments of Mutual Funds.

Working Capital:

Net current assets as at 31st March, 2009 increased to Rs. 189.11 crore
compared to Rs. 140.30 crore at the beginning of the year, mainly on
account of increase in current assets from Rs. 470.09 crore to Rs. 486.35
crore and decrease in current liabilities & provisions from Rs. 329.80
crore to Rs. 297.24 crore. Increase in current assets is attributed mainly
to increase in loans and advances and cash balance. Loans and advances have
increased from Rs. 93.33 crore to Rs. 110.72 crore, primarily on account of
increase of Rs. 21.13 crore in advance tax and tax deducted at source to be
set-off against income tax provisions on completion of assessment process.
Sundry debtors have increased marginally from Rs. 223.53 crore to Rs.227.25
crore due to certain customer orders with longer payment terms. Unbilled
revenue has decreased from Rs. 109.95 crore to Rs. 98.97 crore due to focus
on achieving billing milestones. The level of debtors in terms of number of
days has increased from 83 days to 101 days. Debtors over six months (net
of provisioning) have decreased marginally from Rs. 47.42 crore (21% of
total debtors) to Rs. 46.06 crore (20% of total debtors). Of the remaining
Rs.181.19 crore, debtors less than 30 days are Rs. 116.47 crore (52% of
total debtors). The level of accrued debtors has increased from 41 days to
44 days. Total debtors days have thus increased from 124 days to 145 days
due to lower revenue base.

Capital Structure:

Net worth of the Company as at 31st March, 2009 was Rs. 382.51 crore
compared with Rs. 303.53 crore at the beginning of the year resulting in an
increase of 26% during the year mainly on account of profit after tax
earned during the year. Loan funds as at 31st March, 2009 were Rs. 34.49
crore borrowed from TCS for construction of SEZ at Gachibowli, Hyderabad
compared with Rs. 28.93 crore as at 31st March, 2008.

The debt equity ratio has remained at the same level at 0.9:1.

Segment-wise Review:

Customer Services:

The Customer Services (CS) SBU earned a revenue of Rs. 383.44 crore during
the year under review compared to Rs. 573.55 crore in the previous year,
registering a decline of 33.1%, primarily on account of defocus from low
margin equipment business. The share of CS SBU revenue in total revenue was
45.6% during the year under review compared to 58.0% in the previous year.
The Profit Before Interest and Tax (PBIT) earned by CS SBU during the year
under review was Rs. 20.96 crore, a decrease of 55.9% over Rs. 47.55 crore
earned in the previous year, primarily due to loss in equipment business
and depreciation of Indian Rupees against US Dollar. CS SBU's contribution
to total PBIT has declined from 40.5% to 16.2% during the year under
review. The profitability of CS SBU declined from 8.3% to 5.5%.

Systems Integration:

The Systems Integration (SI) SBU earned revenue of Rs. 312.05 crore during
the year under review compared to Rs. 297.84 crore in the previous year,
registering an increase of 4.8%, aided by robust growth in software
solution business in domestic market by 31% and improvement in exchange
rate of US Dollar against Indian Rupee partly offset by renegotiation of a
contract on net billing basis under which the client bears and pays the
onsite living expenses directly. The share of SI SBU revenue in total
revenue increased to 37.1% during the year under review compared to 30.1%
in the previous year. The Profit Before Interest and Tax (PBIT) earned by
SI SBU during the year under review was Rs. 114.12 crore, an increase of
26.4% over Rs. 90.29 crore earned in the previous year. SI SBU's
contribution to total PBIT has increased from 76.9% to 88.1% during the
year under review. The profitability of SI SBU improved from 30.3% to
36.6%.

IT enabled Services:

The IT enabled Services (ITeS) SBU earned revenue of Rs. 72.29 crore during
the year under review compared to Rs. 64.99 crore in the previous year,
registering an increase of 11.2%, primarily on account of 30% growth in
domestic projects. The share of ITeS SBU revenue in total revenue increased
to 8.6% during the year under review compared to 6.6% in the previous year.
The Profit Before Interest and Tax (PBIT) earned by ITeS SBU during the
year under review was Rs. 15.26 crore, an increase of 25.3% over Rs. 12.18
crore earned in the previous year. ITeS SBU's contribution to total PBIT
has increased from 10.4% to 11.8% during the year under review. The
profitability of ITeS SBU improved from 18.7% to 21.1%.

Education & Training:

The Education and Training (E&T) SBU earned revenue of Rs. 44.47 crore
during the year under review compared to Rs. 47.27 crore in the previous
year, registering a decline of 5.9%, primarily due to decline in general
market conditions. The share of E&T SBU revenue in total revenue increased
to 5.3% during the year under review compared to 4.8% in the previous year.
The Profit Before Interest and Tax (PBIT) earned by E&T SBU during the year
under review was Rs. 5.00 crore, a decline of 50.9% over Rs. 10.18 crore
earned in the previous year, due to decline in revenue. E&T SBU's
contribution to total PBIT has declined from 8.7% to 3.9% during the year
under review. The profitability of E&T SBU declined from 21.5% to 11.2%.

Future Outlook:

The Company believes that the current trends in IT spend both domestically
and in the international market presents unprecedented opportunity for
growth. Liberalization and opening up of more infrastructure sectors like
roads, airports and sea ports, national e-Governance initiatives and
implementation of Mission mode projects, recent policy initiatives to make
Indian companies more competitive including new policy on Special Economic
Zone, the focus of Indian corporates to benchmark themselves with leading
global players in terms of quality of processes and competitiveness, is
going to drive an increase in IT spend. The Company is well poised to
exploit the emerging opportunities both in India and global market in
synergy with TCS.

Risks and concerns:

A comprehensive and integrated risk management framework forms the basis of
all the de-risking efforts of the Company. Formal reporting and control
mechanisms ensure timely information availability and facilitate proactive
risk management. These mechanisms are designed to cascade down to the level
of the line managers so that risks at the transactional level are
identified and steps are taken towards mitigation in a decentralised
fashion.

The Board of Directors is responsible for monitoring risk levels on various
parameters and the Managing Director ensures implementation of mitigation
measures. The Audit Committee provides the overall direction on the risk
management policies.

1. Business risks:

Excessive dependence on any single business segment increases risks. The
Company continuously makes efforts to broad base and diversify its revenue
stream to prevent undesirable concentration in any one vertical technology
client or geographic area.

Excessive exposure to a few large clients has the potential to impact
profitability and to increase credit risk. However, large clients and high
repeat business lead to higher revenue growth and lower marketing cost.
Therefore, the Company makes efforts to strike a balance. CMC actively
seeks new business opportunities and clients to reduce client concentration
levels.

Hardware supply and integration is significant part of our revenue for
which the Company depends on OEMs. Any default and delays on the part of
OEMs exposes the Company to the risk of not meeting its commitments to the
Customer. The Company has been making efforts to negotiate better terms
with OEMs. In addition, the Company has reduced its share of such business
and is focusing on increasing value added services business.

A high geographical concentration of business could lead to volatility
because of political and economic factors in target markets. However,
individual markets have distinct characteristics - growth, IT spends,
willingness to outsource, costs of penetration, and price points. Cultural
issues such as language, work culture and ethics, and acceptance of global
talent also come into play. Due to these business considerations, the
company has decided not to impose any rigid limits on geographical
concentration. Exposure to the inherent risks in a specific geography
consists of legal and contractual risks as well as tax related changes. The

company has a process of evaluating country risks by taking legal opinion
from the legal counsel operating/familiar with the geography.

Proactively looking for business opportunities in new geographies and
thereby increasing their contribution to total revenues helps manage this
risk.

Vertical domains relate to the industries in which clients operate. CMC has
chosen to focus on several selected vertical segments with a view to
leverage accumulated domain expertise to deliver enhanced value to its
clients.

Being a company exposed to rapid shifts in technology, an undue focus on
any particular technology could adversely affect the risk profile of the
company. Given the rapid pace of technological change, CMC has chosen not
to impose rigid concentration limits. Often, industry characteristics and
market dynamics determine the choice of technology.

2. Financial risks:

The Company is exposed to longer recovery cycles and incidents of defaults
by customers due to its involvement in large turnkey projects
implementation and Government entities in its customer profile resulting in
need to finance higher level of working capital. The Company has been
focusing on improved execution and negotiation of better terms with
customers and vendors and also tightening the collection follow-up process.
These measures have helped Company in significant reduction in collection
cycle and working capital, resulting in cash surplus. The Company is
confident to have adequate funding to finance its working capital
requirements as well as future growth needs.

The volatility in foreign currency rates may impact the profitability of
the company to the extent of its exposure to the International business and
specific currencies. However the Company has been able to use the internal
hedge provided to it due to imports for domestic market and has
demonstrated resilience to impact of increased level of volatility over
last 2 years. The Company also takes forward covers selectively to protect
against movement in foreign currency rates.

The Company enjoys exemption from levy of income tax on profits earned by
the its Software Technology Parks. Any change in tax laws can adversely
affect the profit after tax of the company. The Company is in the process
of setting up a Special Economic Zone (SEZ) in its campus at Gachibowli,
Hyderabad. Export of services from SEZ is eligible for certain tax
exemptions, which will enable the Company to enjoy tax exemptions for
longer term.

3. Legal risks:

Litigation regarding intellectual property rights, patents and copyrights
is significantly high in the software industry. In addition, there are
other general corporate legal risks. The management has clearly charted out
a review and documentation process for all contracts.

4. Internal process risks:

The key resource for CMC is its employees. With increased competition from
Indian and international IT services companies, there is an increased
pressure on salary increases and consequent pressure on margins. As demand
of specified skilled IT personnel outpace supplies, the Company faces
higher risk of attrition. The Company has been focusing on creating a
favorable work environment that encourages innovation and meritocracy to
improve employee retention and to reduce attrition rate. The Company has
also implemented differential pay structure to attract and retain high
performers and employees possessing key skills and domain knowledge.

Risk management processes at the operational level are a key requirement
for reducing uncertainty in delivering high quality software solutions to
clients within budgeted time and cost. Adoption of quality assurance
frameworks has ensured that risks are identified and measures are taken to
mitigate these at the project plan stage itself. The company evaluates
technological obsolescence and the associated risks on a continuing basis
and makes investments accordingly.

Internal Control Systems and their Adequacy:

The Company has an adequate system of internal controls implemented by the
management towards achieving efficiency in operations, optimum utilisation
of resources and effective monitoring thereof and compliance with
applicable laws. The system is continuously reinforced with analysis of
data to strengthen it to meet the changing requirements.

The system comprises well defined organisation structure, pre-identified
authority levels and documented policy guidelines and manuals for
delegation of authority.

A qualified and independent Audit Committee of the Board of Directors
reviews the internal audit reports and the adequacy of internal controls.

Human Resources:

CMC provides a synergistic work culture allowing its employees an open
knowledge sharing environment. The company structural changes brought into
place provide greater delivery excellence, bringing focus and will also
help in optimization of manpower utilization.

The three fold focus of the previous year continues in it's execution of
improving per person productivity through improved utilization by managing
a good balance between regular and outsourced person power, moving focus
from low realization projects to higher realization International projects.

The major thrust continues in the effort to bring about measurable change
in training coverage and effectiveness, increasing the Learning and
Development opportunities for every staff member. Greater thrust has been
given to employee engagement activities during the current year.

Key HR processes have been automated to improve productivity and ensuring
better control on operations. The staff strength of the Company as on 31st
March, 2009 was 5383 (including employees on contract) as compared to 5239
as on 31st March, 2008.

Cautionary Statement:

Statements in the Management Discussion and Analysis describing the
Company's objectives, expectations or predictions may be forward looking
within the meaning of applicable securities, laws and regulations. Actual
results may differ materially from those expressed in the statement.
Important factors that could influence the Company's operations include
change in Government regulations, tax laws, economic & political
developments within and outside the country and such other factors.