Firstsource Solutions - Annual Director's Report - 2008-2009

FIRSTSOURCE SOLUTIONS LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

To
The Members

Dear Members,

The Directors take great pleasure in presenting their Eighth Annual Report
on the business and operations of the Company and the audited financial
statements for the year ended March 31, 2009.

FINANCIAL RESULTS:

The performance of the Company for the financial year 2008-09 is summarised
below:

(Rs. in million)

Particulars Consolidated Standalone

Fiscal Fiscal Fiscal Fiscal
2009 2008 2009 2008

Total Income 17,791.9 13,337.2 5,993.9 5,046.9

Profit Before
Interest and
Depreciation 2,496.5 2,658.7 1,323.1 1,124.8

Interest 1,028.3 366.0 668.7 123.2

Depreciation 961.3 860.8 522.5 532.8

Profit Before Tax 506.9 1,431.9 131.9 468.8

Provision for
Taxation (including
Deferred Tax
Charge/Credit) 199.1 126.5 (19.2) (107.6)

Profit After Tax
Before Minority
Interest 307.8 1,305.4 151.1 576.4

Minority Interest 1.1 (10.2) - -

Net Profit After
Tax 306.7 1,315.6 151.1 576.4

Balance Brought
Forward 2,607.1 1,296.9 1,460.6 884.2

Appropriations - 5.4 - -

Accumulated Balance
in Profit & Loss
Account 2,913.8 2,607.1 1,611.7 1,460.6

Earning Per Share
(Rs.) - Basic 0.72 3.09 0.35 1.35

Earning Per Share
(Rs.) - Diluted 0.72 2.83 0.35 1.24

RESULT OF OPERATIONS:

The consolidated total income increased from Rs. 13,337.2 million to
Rs.17,791.9 million, a growth of 33.4% over the previous financial year.
The consolidated Net Profit After Tax declined from Rs. 1,315.6 million to
Rs.306.7 million, down by 76.69% over the previous financial year. The
detailed analysis to the consolidated results forms part of the MD&A report
provided separately as part of the Annual Report.

The standalone total income increased from Rs.5,046.9 million to Rs.5,993.9
million, a growth of 18.76% over the previous financial year. The
standalone Profit After Tax declined from Rs.576.4 million to Rs.151.1
million, down by 73.79% over the previous financial year. The decline in
Net Profit is mainly on account of non-cash mark to market loss on Foreign
Currency Convertible Bonds (FCCBs) amounting to Rs.778.2 million and mark
to market Foreign exchange loss on undesignated derivative financial
instruments of Rs.236.2 million in fiscal 2009. There was also a net gain
of Rs.635 million on account of FCCBs buy-back of USD 49.7 million in
fiscal 2009.

There was also an overall increase in the cost of operations of the Company
mainly due to the addition of over 7,000 employees and eight new facilities
primarily towards increasing its business from Indian domestic market, the
gains from which, the Directors' believe, will accrue to the shareholders'
in future.

Given the growth requirements of the business, it is necessary for the
Company to plough back its profits into the business, and hence the
Directors do not recommend any dividend for fiscal 2009.

INCREASE IN SHARE CAPITAL:

During the year, the Company issued 876,718 equity shares of the face value
of Rs.10 each on the exercise of stock options under the Employee Stock
Option Schemes of the Company. Consequently, the outstanding issued,
subscribed and paid-up equity share capital of the Company increased from
427,312,964 shares to 428,189,682 shares of Rs.10 each as of March 31,
2009.

REORGANISATION:

During the year, the Company reorganised its business units into four
largely independent business units/verticals viz. Healthcare, Telecoms and
Media, Banking, Financial Services & Insurance (BFSI) and Asia Strategic
Business Unit. While the first three business verticals have been organised
around industries, the fourth is organised by geography, due to different
characteristics of the business.

The new organisation structure is expected to facilitate development of a
business strategy that mirrors industry opportunities and dynamics, renewed
focus on strengthening the domain expertise, acquiring new capabilities and
a more client-driven approach to sales and business development.

Under this structure, Business unit heads are responsible for market
strategy, development of products and services, deployment of resources to
capture market share, revenue growth and profitability goals. The heads of
these business units would set a market vision based on business demand and
define a services portfolio keeping in mind customer needs.

REPURCHASE OF FOREIGN CURRENCY CONVERTIBLE BONDS:

The Company had issued Zero Coupon Foreign Currency Convertible Bonds
(FCCBs) of USD 275 million in December 2007. The FCCBs have a maturity
period of 5 years and 1 day. The FCCBs are listed on Singapore Exchange
Securities Trading Limited.

Upto March 31, 2009, the Company had repurchased and cancelled its FCCBs of
the nominal amount of USD 49.7 million to avail the benefits of the
prevailing discount in the rates of FCCBs. The repurchase was made at an
average discount of 52% and was funded out of External Commercial Borrowing
(ECB) from ICICI Bank, UK. The nominal amount of Bonds outstanding after
cancellation is USD 225.3 million.

GLOBAL DELIVERY FOOTPRINT:

The Company on a consolidated basis has increased the number of its global
delivery centers from 36 as of March 31, 2008 to 43 as of March 31, 2009.
The centers are located across India, USA, UK, Argentina and Philippines.
25 of the Company's delivery centers are located in 15 cities in India, 14
are in the USA (including seven operational hubs of MedAssist), 2 are in
the UK and 1 center each in Argentina and Philippines. The Company's
established global delivery footprint enables it to deliver wide range of
services and deepen relationships with existing customers.

During the year, the Company incurred capital expenditure of Rs.1,053.9
million (including increase in leased assets of Rs. 80.5 million) mainly
towards leasehold improvements, furniture and fixtures, equipments,
computers & software and fixed assets in connection with the establishment
of the Company's delivery centers in India.

QUALITY INITIATIVES:

The Company follows the global best practices for process excellence and is
certified by COPC (Customer Operations Performance Center). During the
year, the Company's delivery centers at Chennai (Tidel Park), Bangalore
(Millers Road) and Bangalore (RMZ) have been certified with version 4.1
COPC 2000(R) Standard for Healthcare and Publishing verticals, Inbound
Customer Service vertical and Inbound Customer Service and BPO (Non-Media
and Entertainment) respectively. The Company also follows process
improvement methodologies like SIX SIGMA, Lean and Kaizen.

AWARDS AND ACCOLADES:

The Company received the following awards and accolades during the year:

* Secured first position in the 'Best Service & Transaction Process
Improvement Project' category at International Quality and Productivity
Center (IQPC) Process Excellence Awards at London, UK.

* Stood Finalists in the 'Best Start up Program' and 'Master Black Belt of
the Year' categories at IQPC Process Excellence Awards, Orlando Summit, US.

* Recognised amongst the Top 3 companies globally at the ERE 2009
Recruiting Excellence Awards in the 'Best Recruiting Department of the
year' category.

* Winner of the Everest Group Outsourcing Excellence Award 2008 for the
Most Flexible Partnership.

* Winner of the IEXcellence Awards for Workforce Deployment (Europe, Middle
East and Africa region) in two categories-Single Site Process Improvement
and Multi Site Best Practice.

* Secured first position in the 'Professional Excellence of the Year'
category at Indiatimes BPO 2008 awards, New Delhi, India.

* Secured Runners up in the 'DMAIC (Define Measure Analyze Improve Control)
Services' category at Sakaal Lean & Six Sigma Excellence Awards '08
organised by Symbiosis Centre for Management & Human Resource Development
(SCMHRD), Pune, India.

* Recognised amongst the top 25 companies in India by Institute of Company
Secretaries of India (ICSI) in 2008 for Excellence in Corporate Governance.

HUMAN RESOURCES:

On a consolidated basis, the Company has grown from 17,369 full-time
employees as of March 31, 2008 to 21,570 employees as of March 31, 2009.
The statement of particulars required pursuant to Section 217 (2A) of the
Companies Act, 1956 read with the Companies (Particulars of Employees)
(Amendment) Rules, 2002, forms part of the Report. However, as permitted
under the Companies Act, 1956, the Report and Accounts are being sent to
all members and other entitled persons excluding the above statement. Those
interested in obtaining a copy of the said statement may write to the
Company Secretary at the registered office. The statement is also available
for inspection at the registered office, during working hours upto the date
of the forthcoming Annual General Meeting (AGM).

PUBLIC DEPOSITS:

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

DIRECTORS:

Dr. Shailesh J. Mehta, Mrs. Lalita D. Gupte and Mrs. Shikha Sharma retire
by rotation at the forthcoming AGM and are eligible for re-appointment.

During the year, Mr. Mohit Bhandari was appointed as Director, representing
equity investor Aranda Investment (Mauritius) Pte. Limited (Aranda) in
place of Mr. Dinesh Vaswani. Mr. Mohit Bhandari has also been appointed as
a member of the Audit Committee, Shareholders'/Investors' Grievance
Committee and Committee for Issue of Securities (FCCBs) of the Board of the
Company in place of Mr. Dinesh Vaswani. Mr. Mohit Bhandari, 32 years, is a
Director of Temasek Holdings Advisors India Private Limited. He has
completed Computer Engineering from Mumbai University and MBA from MM
Calcutta. Temasek is the holding Company of Aranda. He had been with DSP
Merrill Lynch as part of the Investment Banking/M & A team for 8 years.

Further, Mr. Raju Venkatraman, Jt. Managing Director and COO has resigned
w.e.f. April 1, 2009. The Board places on record its appreciation for the
valuable services rendered by Mr. Dinesh Vaswani and Mr. Raju Venkatraman
during their tenure as Directors.

EMPLOYEES STOCK OPTION SCHEME:

With a view to provide an opportunity to the employees of the Company to
share the growth of the Company and to create Long-term wealth, the Company
has an Employees Stock Option Scheme (ESOS), namely, the Firstsource
Solutions Employees Stock Option Scheme, 2003 (ESOS 2003). The earlier ESOS
introduced in 2002 is in force for the limited purpose of exercise of
options granted pursuant to the scheme.

Disclosures in compliance with Clause 12 of the Securities and Exchange
Board of India (Employee Stock Option Scheme and Employee Stock Purchase
Scheme) Guidelines, 1999, as amended, are set below:

Description : ESOS 2003

1. Total number of options under : 68,373,547
the Plan

2. Options granted during the year : 7,770,000
2008-2009

3. Pricing formula : The 'Pricing formula' or 'Exercise
Price' for the purpose of the grant
of Options shall be the 'market
price' within the meaning set out in
the SEBI (Employee Stock Option
Scheme & Employee Stock Purchase
Scheme) Guidelines, 1999 i.e., the
latest available closing price,
prior to the date when options are
granted/shares are issued, on that
Stock Exchange where there is
highest trading volume on the said
date. The Compensation Committee has
the power to change/modify the
exercise price or pricing formula
and fix the exercise price at such
discount to the market price of the
equity shares as may be deemed
appropriate provided that the
grant/exercise price shall not be
below the face value of the shares
and shall be in accordance with the
applicable laws in this regard.

4. Options vested during the year : 12,058,843
2008-2009

5. Options exercised during the : 2008-2009 ''''' ' ' 865,468
year

6. Total number of shares arising : 865,468
as a result of exercise of options
during the year 2008-2009

7. Options lapsed during the year : 23,073,097*
2008-2009

8. Variation of terms of options : Nil
during the year 2008-2009

9. Money realised by exercise of : 23,259,337
options during the year 2008-2009
(Amount in Rs.)

10. Total number of options in force : 55,662,413

11. Employee wise details of options
granted to:

i) Senior Managerial personnel : Michael Shea 1,200,000
during the year 2008-2009
Carl Saldanha 1,000,000

Frank Stellato 700,000

Thomas Watters 500,000

Anthony J. Pino 250,000

Farid Kazani 200,000

Sandeep Bhalla 175,000

Dinesh Jain 150,000

Joseph Fazzini 125,000

Namit Kaushal 100,000

ii) Any other employee, who has been : Nil
granted options amounting to 5% or
more of options granted during the
year 2008-2009.

iii) Identified employees who were : Nil
granted options, equal to or
exceeding 1% of the issued capital
of the Company during the year
2008-2009.

2. Diluted Earnings Per Share : Standalone EPS - Rs.0.35 per share
(EPS) pursuant to issue of shares
on exercise of options calculated Consolidated EPS - Rs.0.72 per share
in accordance with Accounting
Standard (AS) 20 - 'Earnings Per
Share'

13. Where the Company has calculated : Please refer to Schedule No. 20 of
the employee compensation cost using the Standalone Financial Statements.
the intrinsic value of the stock
options, the difference between the
employee compensation cost so
computed and the employee
compensation cost that shall have
been recognised if it had used the
fair value of the options. The
impact of this difference on
profits and on EPS of the Company.

14. Weighted average exercise price : Weighted average exercise price -
and weighted average fair value of Rs. 43.38 per option.**
options separately for options
whose exercise price either equals Weighted average fair value as per
or exceeds or is less than the the Black Scholes Model -
market price of the stock. Rs. 14.75 per option.

15. A description of the method and : Please refer to Schedule No. 20 of
significant assumptions used during the Standalone Financial Statements.
the year to estimate the fair
values of options, including the
following weighted average
information:

a) risk free interest rate

b) expected life

c) expected volatility

d) expected dividends and

e) the price of the underlying
share in market at the time of
option grant

* The stock options which are cancelled/lapsed/forfeited can be re-issued
by the Company.

** Prior to the Initial Public Offering (IPO), the Company has granted
options to employees at the fair market value, as certified by an
independent valuer. Post IPO, the exercise price of the options granted
equals the market price of the stock i.e. the latest available closing
price, prior to the date when options are granted/shares are issued, on
that Stock Exchange where there is highest trading volume on the said date.

Information on ESOS 2002:

Description ESOS 2002

Total number of options under the Plan 2,408,125

Options granted during the year 2008-2009 Nil

Options vested during the year 2008-2009 Nil

Options exercised during the year 2008-2009 11,250

Total number of shares arising as a result of exercise of
option during the year 2008-2009 11,250

Options lapsed during the year 2008-2009 10,000

Variation of terms of options during the year 2008-2009 Nil

Money realised by exercise of options during the year
2008-2009 (Amount in Rs.) 128,537

Total number of options in force 99,375

SUBSIDIARY COMPANIES:

As on March 31, 2009, the Company had 13 subsidiaries:

Domestic subsidiaries:

1. RevIT Systems Private Limited

2. Pipal Research Analytics and Information Services India Private Limited
(A wholly owned subsidiary of Pipal Researcl Corporation, USA).

International subsidiaries:

1. Firstsource Solutions USA Inc.

2. Firstsource Solutions UK Limited

3. Firstsource Solutions S.A., Argentina

4. FirstRing Inc., USA

5. Firstsource Advantage LLC, USA (A subsidiary of FirstRing Inc.)

6. Pipal Research Corporation, USA

7. MedAssist Holding, Inc., USA

8. MedAssist Intermediate Holding, Inc., USA (A subsidiary of MedAssist
Holding, Inc.)

9. MedAssist, Incorporated, USA (A subsidiary of MedAssist Intermediate
Holding, Inc.)

10. Firstsource Financial Solutions Inc., USA (A subsidiary of MedAssist,
Incorporated)*

11. Twin Medical Transaction Services, Inc., USA (A subsidiary of
MedAssist, Incorporated)

* The name of Firstsource Healthcare Advantage, Inc. has been changed to
Firstsource Financial Solutions Inc. w.e.f. April 15, 2009.

Pursuant to internal Corporate restructuring in January 2009, Business
Process Management, Inc., MedPlans 2000, Inc., MedPlans Partners, Inc. and
Sherpa Business Solutions, Inc., step down subsidiaries of the Company in
USA, have eventually merged with Firstsource Solutions USA Inc., wholly
owned subsidiary of the Company. The Merger is effective w.e.f. February 1,
2009 and the said merged entities have ceased to be in existence w.e.f. the
said date.

PARTICULARS UNDER SECTION 212 OF THE COMPANIES ACT:

In terms of the approval received from the Central Government vide their
letter dated April 13, 2009 under Section 212(8) of the Companies Act,
1956, the Balance Sheet, Profit and Loss Account, Reports of the Board of
Directors and Auditors of the subsidiaries have not been attached with the
Balance Sheet of the Company. However, as directed by the Central
Government, the financial data of the subsidiaries have been furnished
under 'Details of Subsidiaries' forming part of the Annual Report. Further,
pursuant to Accounting Standard AS-21 issued by the Institute of Chartered
Accountants of India, Consolidated Financial Statements of the Company and
its subsidiaries for the year ended March 31, 2009, together with reports
of Auditors thereon and the statement pursuant to Section 212 of the
Companies Act, 1956, are attached. The financial statements of subsidiaries
will be available on a request made by any member of the Company and will
also be available for inspection by any member at the registered/head
office of the Company and that of the subsidiary concerned.

CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION AND ANALYSIS REPORT:

Reports on Corporate Governance and Management Discussion and Analysis as
stipulated under Clause 49 of the Listing Agreement are separately given
and form part of the Annual Report.

STATUTORY DISCLOURES OF PARTICULARS:

A) Conservation of Energy:

The Company has embarked on a journey to make its delivery centers energy
efficient. The Company has embraced the use of Thin Clients' across all its
delivery centers set up during the year. Energy conservation is being
driven across the Company. The Company's delivery center at Bangalore has
been certified to confirm to the Environmental Management System Standard,
ISO 14001 : 2004. Practices such as daily monitoring and analysis of the
units consumed at the key centers of the Company for ensuring optimal
running of utilities and awareness through stickers/posters for energy
conservation has led to reduction in energy consumption upto 5%.

B) Absorption of Technology:

The Company is committed to 'Technological Innovation'. During the year,
the key centers of the Company in USA has received ISO 27001 certification.
The Company continues to use virtual desktop technology for its operations
in Tier II cities to improve security and availability of IT infrastructure
at these locations.

C) Foreign Exchange Earnings and Outgo:

Activities relating to exports, initiatives taken to increase exports,
development of new export markets for services and export plans:

The Company's income is diversified across a range of geographies and
industries. During the year, 62.71% of the Company's revenues was derived
from exports. The Company provides BPO services mostly to clients in North
America, UK and Asia Pacific regions. The Company has established direct
marketing network around the world to boost its exports.

Foreign Exchange earned and used:

The Company's foreign exchange earnings and outgo were as under:

(Standalone figures in Rs. millions)

Particulars Fiscal 2009 Fiscal 2008

Foreign exchange earnings 3,601.2 3,710.7

Foreign exchange outgo 188.6 243.3
(including capital goods and imports)

AUDITORS:

M/s. BSR & Co., Chartered Accountants, who were appointed as the Statutory
Auditors of the Company by shareholders at their previous AGM, shall be
retiring on conclusion of the forthcoming AGM and are eligible for re-
appointment. Members are requested to consider their re-appointment for the
financial year ending March 31, 2009 at a remuneration to be decided by the

Board of Directors or Committee thereof. The Company has received written
confirmation from M/s. BSR& Co., to the effect that their appointment, if
made, will be within the limits of Section 224(1 B) of the Companies Act,
1956.

AUDITORS' REPORT:

With regard to the qualifications contained in the Auditors' Report, the
Board gives the following information and explanations:

1. (a) The auditors have opined that the financial statements comply with
the Accounting Standards referred to in sub-section (3C) of Section 211 of
the the Companies Act, 1956 (Act), except for the matters stated in
paragraph 2 of their report.

(b) Paragraph 2 of their report refers to the fact that as stated in
Schedule 30 to the financial statements, the Company has made early
adoption of Accounting Standard (AS) 30 read with AS 31, issued by the
Institute of Chartered Accountants of India. The Auditors have opined that
'AS 30 is not yet notified/prescribed under the Companies (Accounting
Standards) Rules, 2006 and therefore, can be applied only to the extent
that it does not conflict with other accounting standards notified /
prescribed under the said Rules'.

(c) The Board does not agree with the Auditors' Opinion for the following
reasons:

(i) Sub-section (3C) of Section 211 of the Act defines 'Accounting
Standards' as the standards prescribed by the Central Government and the
proviso to that sub-section states that the standards specified by the
Institute of Chartered Accountants of India 'shall be deemed to be the
Accounting Standards until the Accounting Standards are prescribed by the
Central Government under this sub-section'. Therefore, until equivalent
standards are prescribed by the Central Government, AS 30 and AS 31 have
the same force as standards prescribed by the Central Government.

(ii) Though AS 30 and AS 31 are not yet notified to be in force, early
application of the standards is recommended and the Company has acted on
that recommendation.

(iii) An early application of a standard must have the same effect as if
the standard has come into force as otherwise the early application would
be meaningless.

2. (a) The Auditors have qualified their opinion in paragraph (f) as
'subject to paragraph 3 above and consequent adjustments, if any'.

(b) Paragraph 3 of the Auditors' Report invites attention to the fact as
explained in Schedule 21 to the standalone financial statements that 'an
application has been made to the Central Government seeking approval for
remuneration to the Managing Director & CEO and the Jt. Managing Director &
COO in excess of the limits prescribed under the Act, for which approval is
awaited'.

(c) The full facts have been disclosed in Schedule 21.

DIRECTORS' RESPONSIBILITY STATEMENT:

The Directors confirm:

1. That in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures, if any;

2. That the Directors had selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit or loss of the
Company for that period;

3. That the Directors had 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

4. That the annual accounts were prepared on a going-concern basis.

ACKNOWLEDGEMENTS:

The Board of Directors thanks the Company's customers, vendors, bankers and
business associates for their support and assistance. The Company also
expresses its gratitude to the Ministry of Telecommunications, Collector of
Customs and Excise, Director - Software Technology Parks of India and
various Governmental departments and organisations for their help and co-
operation.

The Board places on record its appreciation to all the employees for their
dedicated service. The Board appreciates and values the contributions made
by every member across the world and is confident that with their continued
support the Company will achieve its objectives and emerge stronger in the
coming years.

For and on behalf of the Board of Directors

Dr. Ashok S. Ganguly
Chairman
Place : Mumbai
Date : April 28, 2009

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:

The following discussion and analysis should be read in conjunction with
the Company's financial statements included herein and the notes thereto.
The financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956 and Generally Accepted Accounting
Principles (GAAP) in India. The Company's management accepts responsibility
for the integrity and objectivity of these financial statements, as well as
for various estimates and judgments used therein. The estimates and
judgments 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 reasonably
present the Company's state of affairs and profits for the year. Investors
are cautioned that this discussion contains forward looking statements that
involve risks and uncertainties. When used in this discussion, words like
'will', 'shall', 'anticipate', 'believe', 'estimate', 'intend' and 'expect'
and other similar expressions as they relate to the Company or its business
are intended to identify such forward-looking statements. The Company
undertakes no obligations to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise. Actual results, performances or achievements could differ
materially from those expressed or implied in such statements. Factors that
could cause or contribute to such differences include those described under
the heading 'Risk factors' in the Company's prospectus filed with the
Securities and Exchange Board of India (SEBI) as well as factors discussed
elsewhere in this report. Readers are cautioned not to place undue reliance
on the forward-looking statements as they speak only as of their dates.

Information provided in this MD&A pertains to Firstsource Solutions Limited
and its subsidiaries (the Company) on a consolidated basis, unless
otherwise stated.

INDUSTRY STRUCTURE, DEVELOPMENTS AND OUTLOOK:

The meltdown in the U.S. financial markets that first emerged in mid-2007
transformed itself into a wide-spread global financial crisis in 2008. As
the crisis intensified, there was a rapid deterioration in the global
macroeconomic conditions and a sharp moderation in the economic activity.
There was a very high aversion to risks which in turn sent credit spreads
soaring, equity markets tumbling, exchange rates falling and capital flows
declining. The situation further worsened in mid-2008, with the collapse of
several venerable financial institutions in the United States and raising
fears that escalating financial pressures could pose a systemic risk to the
international financial system. What started off as turmoil in the
financial sector of the advanced economies has snowballed into a massive
financial and economic crisis of the last 60 years. As investors
repatriated overseas assets and credit conditions were tightened, firms
around the world had to scale-back production and postpone capital spending
plans. With unemployment rates too rising across the globe, consumers
curbed spending, further bringing down demand for consumer goods,
automobiles and the like. The speed at which the crisis has spread has
called into question several fundamental assumptions and beliefs governing
economic resilience and financial stability.

All countries have been affected by the recessionary environment and global
GDP is projected to contract for the first time since World War II,
anywhere between 0.5 and 1.0 per cent, according to the March 2009 forecast
of the International Monetary Fund (IMF). The World Trade Organisation
(WTO) has forecast that global trade volume will contract by 9.0 per cent
in 2009. As per World Bank's March 2009 estimates, global GDP is expected
to contract by 1.7 percent in 2009. Governments and central banks around
the world have responded to the crisis through both conventional and
unconventional fiscal and monetary measures. The global financial situation
remains uncertain and the global economy continues to cause anxiety for
several reasons. There is as yet no clear estimate of the quantum of
troubled assets, and doubts still remain on whether the initiatives
underway are sufficient to restore the stability of the financial system.
Many major central banks have nearly or totally exhausted their
conventional weaponry of calibrating policy interest rates and are now
resorting to unconventional measures such as quantitative and credit
easing.

Like all emerging economies, the Indian economy has also been impacted by
the recessionary trends, with a slowdown in GDP growth to six to seven per
cent levels for FY2009 after clocking an annual growth of 8.9 per cent on
an average over the last five years (2003-08). The services sector, which
has been the country's prime growth engine for the last five years, is
slowing. Dampened demand has impacted corporate margins while the
uncertainty surrounding the crisis has affected business confidence.
Investment demand has also decelerated. However, despite the adverse impact
as noted above, there are several comforting fundamental factors that have
helped India isolate the severity of the crisis. Indian financial markets,
particularly banks, have continued to function normally. India's
comfortable foreign exchange reserves provide confidence and ability to
manage balance of payments notwithstanding lower export demand and dampened
capital flows. Headline inflation has declined sharply and domestic
consumption specially, rural demand continues to be robust. Notwithstanding
the contraction of global demand, growth prospects in India continue to
remain favourable compared to most other countries. The median forecast of
real GDP growth, according to the Reserve Bank of India's latest
professional forecasters' survey, for FY2010 is 5.7 per cent, which though
lower compared to previous years, is still significantly higher compared to
most other countries.

Despite the global recessionary environment, the Indian Business Process
Outsourcing (BPO) industry has continued its positive growth momentum over
the past one year, albeit at a slower pace. FY2009 was a transformational
year for the Business Process Outsourcing (BPO) industry, as it began to
re-engineer itself to face the challenges presented by an unprecedented
macro-economic environment. In addition to near term volume reductions and
pricing pressures, additional challenges during the year were cross
currency fluctuation, terror attacks, corporate governance and some
protectionist tendencies impacting short-term growth. However, there were
some positives too including the extension of the STPI scheme, lower
inflation and wage moderation. While many of the challenges faced by the
sector still persist and there is likely to be some turbulence in the short
term, the Indian BPO has demonstrated its ability to overcome them and
reinforce the conviction in its fundamentally strong and sustainable value
proposition.

The current environment provides BPO industry an ideal opportunity to
transform business globally by providing superior value and improved cost
efficiencies. From a fundamental point of view, despite the tough global
conditions, the drivers for global sourcing remain strong in the near
future. Through innovative business models, the BPO industry will also
capture growth from currently untapped markets by expanding its service
offerings and diversifying into newer geographies. The Company believes
that the current global slowdown that is being witnessed should not have
any long term negative impact on the BPO industry as:

* Offshore BPO market is highly under penetrated.

* BPO services are sticky in nature as these are processes which in any
case need to be performed by the customers.

* BPO spending is an operating expense and not a capital expenditure for
the customers, hence BPO decisions are neither discretionary in nature and
nor subject to annual budget increases.

The Company hence believes that the current global slowdown that is being
witnessed should not have any long term negative impact on the BPO industry
and the Company. Infact pressure to cut costs and streamline operations
will eventually lead clients to outsource more work however, in the short
run, customers are preoccupied in dealing with internal issues such as new
business growth and risk management and hence there will be some delays in
outsourcing decisions. This is likely to result in moderating industry and
company's growth rates in next 2-3 years.

According to the NASSCOM - Perspective 2020 report, Business Services (i.e.
BPO) will overtake technology services and become the largest export
oriented opportunity with a total addressable export market of USD 615-670
billion by 2020. In addition to that, domestic BPO opportunity of USD 280-
310 billion is estimated to emerge in new geographies such as BRIC
countries (Brazil, Russia, India and China), taking the overall global
sourcing and domestic BPO opportunity to USD 895-980 billion.

Of the USD 615-670 billion export opportunity, 'Core addressable business
services or BPO market' is estimated to be between USD 340-360 billion by
2020, twice as large as the core technology services market opportunity by
then. Core markets are markets that have been the prime focus of the global
sourcing industry so far, i.e. enterprises from North America and Western
Europe in verticals such as BFSI, telecom, manufacturing, retail, travel
and pharmaceuticals. Remaining export opportunity of USD 275-310 billion is
expected to come from markets those are not core today, such as new
verticals in developed countries (i.e. Healthcare provider, public sector
etc.) or new customer segments (i.e. small and medium businesses).
Specifically, total addressable BPO market for healthcare provider vertical
is estimated to be USD 50-55 billion. Of the USD 280-310 billion domestic
BPO opportunity, India domestic BPO addressable market is estimated to be
USD 60-65 billion. Current penetration levels, both for export and India
domestic BPO opportunity is extremely low and that presents a huge
opportunity for Indian BPO service providers. The estimated size of the
India's BPO export and domestic BPO market is USD 1 2.8 billion and USD 2.0
billion, respectively in fiscal 2009 signifying a huge untapped potential.

NASSCOM-Everest India BPO Study, conducted by Everest Research Institute
and NASSCOM in 2008, estimated overall BPO export to reach to USD 30
billion by 2012, implying a 30% CAGR. However, subsequently NASSCOM in
February, 2009 had separately revised the BPO industry growth forecast to
15% for FY09-11 compared to earlier projected 30 + % growth levels, chiefly
due to the impact of the US economic slowdown and other recessionary
factors and pressures across the globe, though assuring that there are no
concerns for long term growth which still remain robust.

The key verticals the Company focuses on and has built strong operating
skills and domain expertise are Banking, Financial Services and Insurance
(BFSI); Telecommunications and Media; and Healthcare. As per the NASSCOM-
Perspective 2020 study. Banking and Financial services, Insurance and
Telecommunications industries are expected to be approximately 51-54% of
the total core addressable opportunity of USD 340-360 billion. Again
vertical-specific services relating to the core business of companies in
industries such as BFSI, Insurance, Manufacturing, Retail, Travel,
Telecommunications etc. are estimated to constitute 70% of the opportunity
while horizontal-specific services like Finance and Accounting (F&A), Human
Resource Management (HR), Payroll Processing, Procurement Services etc. are
expected at constitute 30%.

The above again is aside from the domestic BPO opportunity from India of
USD 60-65 billion and the Healthcare provider addressable market of USD 50-
55 billion, both of which the company operates in.

Some of the key industry trends in the BFSI, telecommunications and media,
and healthcare industries are summarised below:

Banking, Financial Services and Insurance (BFSI):

The BFSI vertical represents a large BPO opportunity. According to the
NASSCOM-Perspective 2020 study, the addressable export opportunity for
Banking for Indian BPO service providers is estimated to be USD 125-135
billion and Insurance is estimated to be USD 30 billion and is two of the
largest addressable segments of the global offshore BPO market.

The financial services industry pioneered offshoring in the early 90s and
since then, more and more financial institutions have embraced offshoring
as a part of their business strategy. With the growing maturity of vendors,
functions with increasing complexity are being off-shored. Moreover as new
destinations emerge, offshoring will spread beyond the preferred
destinations of today.

This large market with current low penetration levels offers large growth
potential to BPO service providers. The key industry trends being witnessed
in the company's target BFSI segments are as under:

Credit cards:

Increasing levels of unemployment and pressure on US salaries have resulted
in increasing delinquencies, Liquidation rates continue to remain soft.

Retail banking:

Twenty-five US banks have failed in 2008, far more than in the previous
five years combined. Governments and central banks across the globe are
intervening to try and fix the problem through radical restructuring
initiatives. It is still premature to ascertain the long term impact and
structural changes that this will bring about in this segment.

Mortgages:

Gross mortgage landing has fallen 2/3rd over last six quarters in the
Company's key market - UK. This segment is witnessing fewer lenders now
taking bulk of the market share. Origination work continues to be low.

General insurance:

Aggregators and price comparison websites are increasingly becoming
dominant. Slow down in new car sales and lower consumer spending due to
recessionary trends has impacted growth.

Telecommunications and Media:

According to the NASSCOM-Perspective 2020 study, the addressable
opportunity for Telecommunications far Indian BPO service providers is
estimated to be USD 20-25 billion. Technology has radically transformed
this Industry and telecom service providers in advanced markets are in the
process of upgrading their networks to data intensive 3G wireless networks
which will facilitate the provision of complex data services. The key
industry trends being witnessed in the company's target telecommunications
and media segments are as under:

Mobile/Wireless:

Top-line growth and Average Revenues Per User (ARPU) are tapering off with
players now focusing on consolidation and efficiencies through
re-engineering initiatives and cost reductions. Outsourcing/right-shoring
is finding increased interest.

Broadband/High speed internet:

With new customer additions having slowed down, time for land-grab is over
and ISPs are now focusing on margin expansion.

Fixed/Wireline:

Enterprise revenues are showing some decline in line with current economic
environment.

DTH/Pay TV:

Under the current recessionary environment, the segment is gaining
importance as customers are cutting back on going out and prefer to stay at
home resulting in higher service usage. There is also a demand for bundled
packages and triple play. Business volumes are showing a positive trend.

Healthcare:

Within the Healthcare vertical, the Company serves the payer market
represented by the Insurance companies and the provider market represented
by hospitals. According to the NASSCOM-Perspective 2020 study, the
addressable opportunity for Healthcare providers for Indian BPO service
providers is estimated to be USD 50-55 billion. Additionally, the
addressable opportunity for Insurance (including Health insurance or payer
market) for Indian BPO service providers is estimated to be USD 30 billion.

US healthcare reforms are a key priority for the new US administration.
Cost of healthcare is a concern shared by government, consumers and
businesses, the latter of which is now faced with loss of competitiveness
as healthcare consumes more of the profits. Although a number of healthcare
reform models are under discussion, there is little debate that some type
of change must occur.

This vertical is relatively recession proof due to the very nature of the
spends not being entirely discretionary. The key industry trends being
witnessed in the company's target segments in this vertical are as under:

Healthcare provider:

On the healthcare provider side, where the company works with hospitals and
physician groups towards enabling them getting reimbursements from the
state governments towards the treatments rendered to uninsured or
underinsured patients, payments cycles from state governments have of late
increased sharply primarily due to budgetary pressures faced by them on
account of lower tax receipts.

Healthcare payer:

On the healthcare payer side too, there has been a reduction in the overall
insurance claim volumes due to increasing unemployment and the resultant
increase in the underinsured and uninsured population. US healthcare
reforms, which is key priority for the new US administration, should
present opportunities in the medium to long-term.

Asia:

The Company continues to sharpen its focus and strengthen its value
proposition for the emerging Indian domestic market which it believes is a
large growth opportunity. According to the NASSCOM-Perspective 2020 study,
the addressable opportunity for Domestic BPO in India is estimated to be
USD 60-65 billion.

The India outsourcing landscape is showing positive growth despite global
slow down with telecom and BFSI maintaining growth trajectory. Several
other segments of industry are yet to start outsourcing and that presents a
large and nascent market opportunity. Outsourcing is relatively an emerging
industry in India and there is clearly a gradual shift from cost focus to
value based service from tier-1 service providers. There is also a
simultaneous move to innovative outcome based pricing models as opposed to
input based pricing. Clients are also deepening reach to tier II cities and
beyond and a compelling service proposition and competitive pricing will be
the critical success factors to grow in this segment.

COMPANY OVERVIEW:

The Company is a leading global provider of BPO services to clients
primarily in the BFSI, Telecommunications and Media, and Healthcare
industries. The Company provides BPO services mostly to clients in North
America, the United Kingdom and Asia Pacific regions. The Company's clients
include 5 of the Top 10 U.S. banks, 7 of the Top 10 general purpose credit
card issuers in the U.S., largest bank and mortgage lender in the U.K., one
of the Top 3 motor insurers in the U.K., 2 of the Top 10 U.S. telecom
companies, 2 of the Top 5 mobile service providers in the U.K., largest pay
TV operator in the U.K., 3 of the Top 5 mobile service providers in India,
5 of the Top 10 health insurers and managed care companies in the U.S. and
over 800 hospitals in the U.S. Based on the annual rankings by NASSCOM, the
Company was the seventh largest BPO provider in India in fiscal 2008 in
terms of revenues and is amongst the top 'pure-play' BPO provider (BPO
providers that are not affiliated with information technology companies).

The Company provides a comprehensive range of services to clients across
the customer life cycle in each of its focus industries. The Company has
in-depth domain knowledge in these industries with proven expertise in
transferring business operations from its clients to its delivery centres
and in administering, managing and further improving these processes for
its clients. The Company's key service offerings across its target
verticals are depicted in the adjacent page:

Banking, Financial Services and Insurance (BFSI):

The Company services its clients through its global delivery capabilities
both onshore and offshore. The Company has 43 delivery centres across
India, US, UK, Argentina and the Philippines supported by a robust and
scalable infrastructure network that can be tailored to meet its clients'
specific needs. 25 of the Company's global delivery centres are located in
fifteen cities in India, fourteen are in the United States (including seven
operational hubs of Med Assist), two are in the United Kingdom, one is
located in Argentina and one is located in Philippines. This gives the
Company proximity to its clients, multi-lingual capabilities and access to
a global talent pool. The Company's right-shoring model uses locations most
appropriate for delivering services and provides the best mix of skills and
infrastructure to its clients.

The Company has grown from 2,188 full-time employees as of March 31, 2003
to 21,570 as of March 31, 2009. As of March 31, 2008, the Company had
17,369 employees. As of March 31, 2009, 16,859 of the Company's employees
are based out of India, 2,961 are based out of the U.S., 1,278 are based
out of the U.K., 245 are based out of Argentina and 227 are based out of
Philippines. In addition, The Company uses trained personnel who are
contracted on an as-needed basis.

One of the key factors for the Company's revenue growth over years has been
its ability to successfully grow its existing clients. As of March 31,
2009, the Company had nine clients with annual billing of over Rs. 500
million compared to seven as of March 31, 2008 and none as of March 31,
2003. The Company's client concentration has continued to diversify. For
fiscal 2009, the largest client contribution was at 10.3% of total income
from services as compared to 14.4% in fiscal 2008 and 41.6% in fiscal 2003.
The contribution from top 5 clients was at 31.2% of total income from
services in fiscal 2009 as compared to 37.4% in fiscal 2008 and 82.5% in
fiscal 2003.

The Company's total income has grown at a compound annual growth rate of
69% from 771.5 million in fiscal 2003 to Rs. 17,791.9 million in fiscal
2009. Over the same period of time, the profits after tax have increased
from a loss of Rs. 109.5 million in fiscal 2003 to a profit of Rs. 306.7
million in fiscal 2009. The Y-o-Y growth in Total income of the Company in
fiscal 2009 over fiscal 2008 is 33.4%. The growth in income is attributed
to increased outsourcing by the Company's existing clients, both through
increases in the volumes of work that they outsource to the Company under
existing processes and the outsourcing of new processes and service lines
to it (primarily as a result of the Company cross-selling new services to
them) as well as business that the Company has won from new clients. 96.8%
of the Company's income from services during fiscal 2009 was derived from
existing clients (clients existing as on March 31, 2009).

Fiscal 2009 has been a significant year in the Company's evolution. Key
developments in fiscal 2009 are:

* Continued expansion of delivery footprint with setting up of eight new
centres in India and addition of 3,943 seats.

* Continue to scale operations:

- Added 4,201 employees during the year. 3,700 additions in India and 501
additions outside India.

- Expanding relationship with existing clients. Seven of the top 10 clients
have grown during fiscal 2009.

- Added marquee client logos those have significant growth potential such
as Leading Australian, UK and Indian telecom service providers; new wins in
Healthcare (provider) and BFSI (Collections)

* Reorganisation - Getting vertically aligned

- Reorganised into four independent business units - Healthcare industry
vertical, Telecoms & Media industry vertical, Banking, Financial Services &
Insurance (BFSI) industry vertical, and Asia Strategic Business Unit (ASBU)
effective March 2009.

- The new organisation structure is expected to further strengthen the
company's domain expertise and facilitate development of a business
strategy that mirrors industry opportunities and dynamics.

* FCCB Buyback:

- Bought back USD 49.7 million face value of FCCBs, outstanding FCCB is now
at USD 225.3 million compared to original issue of USD 275 million

- Opportunistic buy back, funded through fresh ECB:

* Buyback executed at attractive discount.

* Repayment obligation is spread over a longer time frame.

* Significant awards and recognition:

- Recognised amongst the Top 3 companies globally at the ERE 2009 as
Recruitment Department of the Year.

- Winner of the Everest Group Outsourcing Excellence Award 2008 for the
Most Flexible Partnership.

- Finalists in Master Black Belt of the year and Best Startup Program
categories at the IQPC Six Sigma Excellence Awards, Orlando.

- Winner of the IEXcellence Awards for Workforce Deployment (Europe, Middle
East and Africa region) in two categories - Single Site Process Improvement
and Multi Site Best Practice.

- Finalist in 5 categories at The Global Six Sigma Awards (TGSSA) 2009,
Orlando.

- Winner in Transaction & Services Category at IQPC Six Sigma Excellence
Awards, London.

- Recognized as among the top 25 companies in India by Institute of Company
Secretaries of India (ICSI) for Excellence in Corporate Governance 2008.

Competitive Strengths:

The Company believes the following business strengths allow it to compete
successfully in the BPO industry.

* Offshore BPO market leadership:

As an early mover in the BPO industry, the Company has been able to achieve
critical mass, attract senior and middle-management talent, establish key
client relationships and a track record of operational excellence as well
as develop robust and scalable global delivery systems. Based on the annual
rankings by NASSCOM, the Company was the seventh largest BPO provider in
India in fiscal 2008 in terms of revenues and amongst the top 'pure-play'
BPO provider (BPO providers that are not affiliated with information
technology companies).

* Diversified business model:

The Company's income is diversified across a range of geographies and
industries and the Company is not overly reliant on a small number of
customers. The company's earns revenues from the US, UK and APAC
geographies and chiefly services the BFSI, Telecommunication and Media and
Healthcare industries.

* Early entrant in to Indian domestic BPO market:

The Company has been an early mover in the Indian BPO market, which is very
nascent and has significant growth potential. During fiscal 2009, Income
from services from India grew 40% compared to previous fiscal and currently
contributes 10.8% of the company's income from services.

* Strategic positioning in the target industry sectors:

The Company is strategically positioned to benefit from the growth
opportunities in its key target industries - BFSI, Telecommunications and
Media, and Healthcare. The Company's key strengths within these sectors are
its size, deep domain expertise, proven track record, ability to provide
end-to-end services, multi-shore capabilities and its marquee client base.

* Unique value proposition and leadership position in the healthcare
industry.

* The Company has a very unique portfolio of services addressing end-to-end
customer life cycle requirements in U.S. healthcare industry for both payer
as well as provider segments. The Company's depth of services, marquee
clients, scale, reach and delivery capabilities in the healthcare industry
provides it a leadership position among offshore BPO players. For the year
ended March 31, 2009, 39.9% of the Company's income from services came from
the healthcare industry.

* Multi-shore delivery model:

The Company has established a truly global delivery base for its services,
with 43 delivery centres, including 25 located in fifteen different cities
in India, fourteen in the United States, two in the United Kingdom, one
delivery centre in Argentina and one delivery centre in Philippines. The
company has over this fiscal year diversified into Tier II delivery
locations across India. Most customers today are looking for a service
partner who can provide a combination of onshore and diversified offshore
delivery capabilities and the Company believes its early move in creating
this will create competitive advantage.

* Established relationships with large global companies:

The Company works with over 1000 clients as of March 31, 2009, including
over 800 hospitals in the US, of which over 25 are 'Fortune Global 500',
'Fortune 500' and 'FTSE 100' companies. Many of these relationships have
strengthened over time as the Company obtains ongoing work from these
clients and gains a greater share of their processing expenditure.

* Experienced management team:

The experience of the Company's management team is a key competitive
advantage. Its management team has a track record of managing high growth
businesses, possesses domain knowledge in the industries the Company serves
and has relevant experience in the geographies in which it operates.

* Ability to manage aggressive growth:

The Company has a demonstrated track record in managing growth in its
business both through organic and inorganic means. The Company's total
income has grown at a compounded annual growth rate of 69% from fiscal 2003
to fiscal 2009 which is significantly higher than industry growth rate.

Business Strategy:

The Company believes that the BPO industry is a global industry and its
strategic vision is to leverage the strong position it has built in the
offshore BPO industry to become a significant global BPO player. The
Company's strategies to achieve this goal are as follows.

* Continue to strengthen domain expertise:

Domain expertise in the client's industry is a key differentiator in the
BPO industry. The Company is extremely focused on strengthening its domain
expertise in Healthcare, Telecom and media and healthcare industry.
Reorganization towards a vertical structure is a step in that direction.
Additionally the company continues to invest heavily in industry and client
specific trainings and, establishing knowledge management system towards
the same.

* Strong focus on existing client relationships:

Existing client relationships are extremely crucial as existing clients
contributes majority of the revenues. In fiscal 2009, 96.8% of the
company's income from services was derived from existing clients. In the
current turbulent times, the company's focus is to work with its existing
clients to address their business challenges as a partner in the crisis and
not just as a service provider. The company believe that this will lead to
increased business opportunities for the company from its existing client
base.

* Expand into new markets including the Indian domestic market:

Historically, the outsourcing market in India has been export focused and
most participants have been focusing their energies in building businesses
catering to US and European clients. However, with the emergence of India
as one of the largest economies in the world, the Indian domestic
outsourcing market is also emerging as an attractive target market. The
Company believes that it is the right time for it to expand in the growing
Indian market with more and more companies embracing outsourcing. According
to the NASSCOM-Perspective 2020 study, the addressable opportunity for
Domestic BPO in India is estimated to be USD 60-65 billion.

* Maintain focus on process excellence:

The Company uses structured process management systems to establish
dashboards and metrics from the Customer Operations Performance Centre,
Inc. (COPC) standards to measure performance for both its processes and its
employees. In addition, the Company believes its ongoing programs to map
and optimise customer processes using tools such as Six Sigma and TQM
increases its value proposition to the customer.

* Invest in middle management:

VAN employees are important to the Company and it believes that its middle
management is particularly critical to its business, as they are
responsible for managing teams, understanding its clients' expectations and
its contractual obligations to clients, ensuring consistent and quality
service delivery and deploying the Company's process excellence framework.
The Company intends to continue to invest in developing and grooming its
middle management talent.

* Continue to invest in proprietary technology platforms:

The Company believes that outsourcing companies with significant process
and domain knowledge will be in the best position to provide efficient and
effective outsourcing solutions to their customers. The Company intends to
continue to invest in developing its own proprietary technology platforms
and develop capabilities around technology platforms through strategic
partnerships.

Human Resources:

The Company is committed to attaining organizational excellence by
developing and inspiring the true potential of human capital and providing
opportunities for growth, innovation and enrichment. The emphasis is on
creating a value based organization by inculcating a culture of learning,
creativity and aligning business priorities with the aspirations of its
people. The Company's corporate values of respect, teamwork, people
centricity, integrity, transparency and fun are woven into every aspect of
human resource management.

The focus during the year was not only on integrating human capital
initiatives across the globe but also on creating motivated human capital
business partners in each business vertical. The Company continued to
strengthen its human resource practices and systems along with developing
staff excellence through training and coaching. Towards this endeavour, the
Firstsource Leaders' Program was held for the top performers and high
potential pool of employees in the company, followed by an intensive
coaching initiative. PeopleSoft has been rolled-out in India and
Philippines and is currently being used as the company's HRMS. The
performance management system was revamped to manage organizational and
individual performance. The Company continues to strengthen its market
position globally and leverage the power of the diverse employee base; the
employee strength went up from 17,369 to 21,570 during fiscal 2009.

The Company constantly renews its practices and innovates in order to make
a difference to every single Firstsource employee. This year the Company
was recognized amongst the Top 3 companies globally at the ERE 2009
Recruiting Excellence Awards in the 'Best Recruiting Department of the
Year' category. The Company was also recognized for its innovative
recruitment initiatives like the 'Career On Wheels' (Mobile Recruitment
Van), 'The Career Hubs initiative', 'The Talent Scout Program' and the
'TOMTOM Portal' at the 'Employer Branding Awards 2009'. The Company strives
to remain committed to pushing its boundaries and moving from Good to
Great.

OPPORTUNITIES AND THREATS:

The Industry Structure, Development and Outlook section has described the
potential of the BPO industry. It is important to note that the industry is
still at a very nascent stage with less than 5% of the total addressable
market being captured.

Key growth drivers and opportunities for the company for profitable growth
include:

* Cost pressures in current economic environment.

* Strong growth in Global BPO spend generating continuing demand for its
services.

* Increasing number of organizations globally are outsourcing business
processes in an effort to simplify their organization, create flexibility
and increase efficiencies.

* Increasing customer focuses on servicing customers, creating new and
innovative products and services and reduce time-to-market their products
and services.

* Increasing focus on accuracy and timeliness of processing thereby
reducing transaction costs.

The Company believes the following business strengths would allow it to
compete and grow successfully in the BPO industry:

* Clients are more comfortable partnering with large players with scale and
operational expertise with a continuous focus on quality of service
delivery, ability to manage aggressive growth and stringent security norms.
The Company's believes its BPO market leadership is key to help it tap the
growth potential of the industry. The Company's diversified business model
with established relationships with large global companies, including over
25 'Fortune Global 500', 'Fortune 500' and 'FTSE 100' companies also puts
it at a competitive advantage compared to other offshore BPO providers.

* In order to successfully leverage the global BPO opportunity, flexibility
in geographical delivery is an important factor. Some processes can't be
offshored due to process complexities and regulatory requirements. Clients
increasingly look for business partners who can deliver services across
different geographies. The Company's established global delivery footprint
enables it to deliver a wide range of services and deepen relationships
with existing customers.

* As per the NASSCOM-Perspective 2020 study, Banking and Financial
services, Insurance and Telecommunications industries are expected to be
approximately 51% to 54% of the total addressable export opportunity of USD
340-360 billion. The above again is aside from the domestic BPO opportunity
from India of USD 60-65 billion and the Healthcare provider addressable
market of USD 50-55 billion, both of which the company operates in. The
Company's strategic positioning and scale in its target industry sectors of
BFSI, telecommunications and media, healthcare and specific focus on India
Domestic market as well puts it in a strong position for capitalizing on
the growth potential.

Competition:

The market for BPO services is rapidly evolving and is highly competitive.
The Company expects that the competition it faces will continue to
intensify. The Company faces competition from:

* offshore BPO providers, particularly in India;

* BPO providers competing in the Indian domestic market;

* the BPO divisions of global IT companies and global 'pure play' BPO
providers located in the United States;

* the BPO divisions of IT companies located in India; and

* companies, including certain of its clients, that choose to perform their
own business processes internally through offshore captive business
processing units established specifically for this purpose.

A number of the Company's international competitors are setting up
operations in India. Further, many of the Company's other international
competitors with existing operations in India are expanding these
operations, which have become an important element of their delivery
strategy. This has resulted in increased employee attrition among Indian
BPO services companies and increased wage pressure to retain skilled
employees especially in metropolitan cities.

Some of the Company's clients may, for various reasons including to
diversify geographical risk, seek to reduce their dependence on any one
country and may seek to outsource their operations to countries such as
China and the Philippines. In addition, some of the Company's clients have
sought to outsource their operations to onshore BPOs. Although the Company
operates onshore facilities for certain of its clients in the United States
and the United Kingdom, a significant increase in 'onshoring' would reduce
the competitive advantages the Company derives from operating out of India.

The Company however believes that the overall market size is very large and
it has a strong competitive position due to the following factors:

* Deep domain expertise in its key focus industries.

* End to End service offerings in key focus industries including onshore,
near shore and offshore execution capabilities.

* Marquee list of satisfied customers and track record of managing large
customer relationships.

* Strong and experienced management team.

* Continuous focus on process excellence and operational results.

RISKS & CONCERNS, RISK MITIGATION:

These have been discussed in detail in the Risk Management report in this
annual report.

DISCUSSION ON FINANCIAL PERFORMANCE RELATING TO OPERATIONAL PERFORMANCE
FINANCIAL POSITION:

Shareholders funds:

Share Capital. The authorized share capital of the Company is Rs. 8,500
million, divided into 600 million Equity shares of Rs. 10 each and 250
million participatory optionally convertible preference shares of Rs.10
each. The paid up share capital at March 31, 2009 stands at Rs. 4,281.9
million compared to Rs. 4,273.1 million at March 31, 2008.

The details of increase in equity share capital by Rs. 8.8 million from
Rs.4,273.1 million as at March 31, 2008 to Rs. 4,281.9 million as at March
31, 2009, is as below.

Number of Shares Amount
(million) (Rs. million)

Shares issued by way of conversion
of Options to Employees under
ESOP scheme 0.88 8.8

0.88 8.8

Reserves and Surplus:

The Reserves and surplus of the Company increased from Rs. 3,127.3 million
to Rs. 9,512.4 million. The details of increase in Reserves and surplus by
Rs. 6,385.1 million, is as below:

Amount
(Rs. million)

Increase on account of:

Profit for the year less appropriations 306.7

Premium on shares issued during the year 14.6

Premium payable on redemption of FCCB accounted
up-front entirely last year reversed for period post 4,095.8

March 31, 2008 due to change in accounting policy to
amortise the premium payable pro-rata each year
Premium payable on redemption of FCCB reversed on
FCCB buyback 44.8

Increase in General reserve due to transition
adjustment on adoption of AS 30 667.9

Increase in Translation Reserve due to exchange
difference on consolidation of non-integral subsidiaries, 1,959.4
net of exchange difference on FCCB translation

Decrease on account of:

Hedging Reserve Account as per AS 30 8.0

Premium payable on redemption of FCCB for the year 696.1

Net Increase in Reserves and surplus 6,385.1

Minority Interest:

Minority interest is created on account of 51% consolidation of Pipal
Research Corporation, ('Pipal') a subsidiary of Firstsource Solutions
Limited, incorporated under the laws of the State of Illinois, USA and
Pipal Research Analytics and Information Services India Private Limited
('PRAISE') (formerly known as Satvik Research and Analytics India Private
Limited), a subsidiary of Pipal Research Corporation, incorporated under
the laws of India.

Minority interest as at March 31, 2009 increased to Rs. 54.7 million from
Rs. 36.4 million as at March 31, 2008.

Loan funds:

Secured loans represents balance amount payable under External commercial
borrowings (ECB), finance lease obligation, term loan and other secured
debts. Unsecured loans represent mainly working capital demand loan, term
loan, FCCB and debt from others. Secured loans outstanding as at March 31,
2009 was Rs. 1,855.6 million as compared to Rs. 596.6 million as at March
31, 2008. The increase in secured loans was on account of ECB raised for
FCCB buyback net of earlier ECB repayment Rs. 1,161.7 million and Increase
in finance lease and term loans offset partly by reduction in other secured
debts of Rs. 97.3 million.

Unsecured loans outstanding as at March 31, 2009 was Rs. 12,090.0 million
as compared to Rs. 11,955.2 million as at March 31, 2008. The increase in
unsecured loans was due to the restatement of Foreign Currency Convertible
Bonds on account of variation in exchange rates, net of FCCB buyback of USD
49.7 million, amounting to Rs. 863.9 million which was partially offset by
the reduction in term loan by Rs. 803.8 million, increase in Working
capital demand loan by Rs. 41.8 million and increase in debt from others by
Rs. 32.9 million.

Goodwill:

Goodwill as at March 31, 2009 was Rs. 22,875.6 million as compared to
Rs.18,880.0 million as at March 31, 2008.

The increase in Goodwill during the year was Rs. 3,995.6 million. This
increase was primarily due to the restatement of goodwill on non-integral
subsidiaries at year end exchange rates and an adjustment to deferred taxes
and a correspondent increase in goodwill on MedAssist acquisition. There
was also a compensation paid to erstwhile members of BPM based on
performance criterion achievement as stipulated in the SPA of Rs. 196.1
million and an additional payment of Rs. 6.2 million made to erstwhile
shareholders of MedAssist.

Fixed Assets:

The net block of fixed assets and capital work-in-progress was Rs. 2,261.0
million as at March 31, 2009 as compared to Rs. 2,226.1 million as at March
31, 2008, representing an increase of Rs. 34.9 million. This increase
constituted of capital expenditure incurred by the Company during the year
of Rs. 1,053.9 million (including increase in leased assets of Rs. 80.5
million), net assets deleted amounting to Rs. 57.7 million, and
depreciation for the year Rs. 961.3 million. The major items of capital
expenditure during fiscal 2009 were Leasehold improvements, furniture and
fixtures, equipments, computers and software, including fixed assets
purchased in connection with the establishment of the Company's delivery
centres in Airoli, Bhubaneshwar, Jalandhar, Siliguri, Coimbatore,
Bangalore, Chennai and other Tier II centres in India added towards the end
of previous fiscal.

Investments:

The Company had investments amounting to Rs. 18.2 million as at March 31,
2009 as compared to Rs. 221.2 million as at March 31, 2008. All the
company's investments as at March 31, 2009 are non-trade investments which
are short term in nature and constitute investments in liquid debt market
mutual funds. The decrease is due to liquidation of investments utilised
chiefly towards repayment of the company's loans.

Deferred Tax Asset:

Deferred tax asset, net as at March 31, 2009 was Rs. 140.5 million as
compared to Rs. 184.5 as at March 31, 2008. The significant component of
deferred tax asset is business losses carried forward, difference between
tax and book value of fixed assets, accrued expenses and provision for
doubtful debts. Deferred tax asset on business losses carried forward has
been recognized only to the extent that there is virtual certainty of the
realization of the assets in the future. Deferred tax asset is net of
deferred tax liability. There was an increase in deferred tax liability too
due to the full year impact of amortisation of goodwill of MedAssist.

Current assets, loans and advances:

Sundry Debtors and unbilled revenues. Sundry debtors amount to Rs. 2,379.5
million (net of provision for doubtful debts amounting to Rs. 143.7
million) as at March 31, 2009 as compared to Rs. 2,053.8 million (net of
provision for doubtful debts amounting to Rs. 44.0 million) as at March 31,
2008. These debtors are considered good and realisable.

The need for provisions is assessed based on various factors including
collectability of specific dues, risk perceptions of the industry in which
the customer operates and general economic factors which could affect the
Company's ability to settle. Provisions are generally made for all debtors
outstanding for more than 180 days as also for others, depending on the
management's perception of the risk.

Debtors' days as at March 31, 2009 (calculated based on per-day sales in
the last quarter) were 46 days, compared to 49 days as at March 31, 2008.

Unbilled revenues represent costs incurred and revenues recognized on
contracts not billed as of year end and to be billed in subsequent periods
as per the terms of the contract. The unbilled revenues as at March 31,
2009 and 2008 amounted to Rs 605.0 million and Rs. 400.2 million
respectively. Including the unbilled revenues, debtors represented an
outstanding of 57 days as at March 31, 2009 as compared to 59 days as at
March 31, 2008.

The Company constantly focuses on reducing its receivables period by
improving its collection efforts.

Cash and bank balances. Cash balance represents balance in cash with the
Company to meet its petty cash expenditure. The bank balances in India
include both Rupee accounts and foreign currency accounts. The bank
balances in overseas current accounts are maintained to meet the
expenditure of the overseas subsidiaries and branches. The cash and bank
balance as at March 31, 2009 was Rs. 966.9 million as compared to
Rs.1,024.7 million as at March 31, 2008.

Loans and advances. Loans and advances as at March 31, 2009 were Rs.1,187.1
million as compared to Rs. 1,050.6 million as at March 31, 2008.
Significant items of loans and advances include payment towards security
deposits for various rental premises, loans to employees, prepaid expenses,
advances paid for value and services to be received in future, Lease
rentals, advance income tax paid, minimum alternate tax credit, unamortised
cost and accrued interest on loans and deposits. The increase in loans and
advances of Rs. 136.5 million was chiefly on account of increase in advance
Income tax of Rs. 132.3 million, increase in unamortised cost Rs. 93.1
million, (refer schedule 32 of the consolidated financial statements),
increase in prepaid expenses Rs. 34.3 million, minimum alternative tax
credit carried forward Rs. 25.0 million offset by decrease in advances
recoverable of Rs. 145.3 million and others Rs. 2.9 million.

Current liabilities and provisions:

Current liabilities. Current liabilities as at March 31, 2009 was
Rs.2,167.8 million as compared to Rs. 1,432.7 million as at March 31, 2008,
representing an increase of Rs. 735.1 million. This increase was chiefly
contributed by an increase in sundry creditors for expenses and capital
goods by Rs. 522.6 million, increase in exchange loss on derivatives by
Rs.207.9 million and other current liabilities (net of increases and
decreases) increase by an amount of Rs. 4.6 million.

Provisions. Provisions include provisions for taxation, gratuity, leave
encashment and Premium payable on redemption of FCCB.

Provision for taxation represents estimated income tax liabilities both in
India and abroad. Provision for taxation as at March 31, 2009 was Rs.330.0
million as compared to 185.0 million as at March 31, 2008. This increase
was chiefly due to an increase in the Company's overseas operations in
taxable jurisdictions.

In accordance with Indian regulations, the Indian entities have adopted a
policy to provide for gratuity, a defined benefit retirement plan, covering
all its eligible employees. Provision in respect of gratuity is determined
based on actuarial valuation by an independent actuary at balance sheet
date. Provision for leave encashment cost has been made based on actuarial
valuation by an independent actuary at balance sheet date. Provision for
gratuity valued on an actuarial basis as at March 31, 2009 was Rs. 74.7
million as compared to Rs. 51.7 million as at March 31, 2008. Provision for
leave encashment valued on ar actuarial basis as at March 31, 2009 was
Rs.66.7 million as compared to Rs. 39.3 million as at March 31, 2008. The
increase in the actuarial valuation amounts was chiefly on account of
increase in the number of employees in India from over 13,000 employees as
at end of fiscal 2008 to around 17,000 employees as at end of fiscal 2009.

During the year, the Company has adopted AS 30 and changed its accounting
policy relating to premium payable on redemption of FCCB. Accordingly, the
premium payable on redemption is amortised on pro-rata basis over the
period of the bonds by debiting Securities premium account for the year (as
permitted by Section 78 of the Companies Act, 1956) as against the earlier
policy of charging the entire premium payable on redemption to the
Securities premium Account upfront in the year of issue of bonds. Also, the
pro-rata credit or accrued premium is reflected as part of Foreign currency
convertible bonds (FCCB) under Unsecured loans. Accordingly the provision
of Rs. 4,343.7 million as at March 31, 2008 reflected under provisions is
reversed in fiscal 2009 and reflected as Nil as at March 31, 2009, with the
pro-rata premium payable included as part of FCCB under unsecured loans.

RESULTS OF OPERATIONS:

The table below sets forth, for the periods indicated, certain income and
expense items for the Company's consolidated operations:

PARTICULARS Fiscal Fiscal
2009 2008

INCOME Rs. million % of Rs. million % of
Income Income

Income from services 17,525.2 100.1% 12,406.1 95.5%
Other operating income (31.5) -0.1% 581.8 4.5%
Revenue from Operations 17,493.7 100.0% 12,987.9 100.0%

EXPENDITURE:

Personnel costs 10,252.9 58.6% 7,120.4 54.8%
Operating costs 5,042.5 28.8% 3,558.1 27.4%

Operating EBITDA
(Earnings before
Interest, Tax and
Depreciation) 2,198.3 12.6% 2,309.4 17.8%

Depreciation and
amortization 961.3 5.5% 860.8 6.6%

Operating EBIT
(Earnings before
Interest and Tax) 1,237.0 7.1% 1,448.6 11.2%

Finance charges, net 1,028.3 5.9% 366.0 2.8%

Other Income 298.2 1.7% 349.3 2.7%

Profit before tax 506.9 2.9% 1,431.9 11.0%

Provision for taxation:

- Current tax expense
(including foreign taxes) 268.7 1.5% 287.7 2.2%

- Deferred tax charge
/(release) (69.9) -0.4% (184.4) -1.4%

- Fringe benefits tax 25.3 0.1% 23.2 0.2%

- Minimum alternate tax
credit entitlement (25.0) -0.1%

Profit after tax before
minority interest 307.8 1.8% 1,305.4 10.0%

Minority interest 1.1 0.0% (10.2) -0.1%

Profit after tax 306.7 1.8% 1,315.6 10.1%

Income:

Income from services. Income from services increased 41.3% to Rs. 17,525.2
million in fiscal 2009 from Rs. 12,406.1 million in fiscal 2008. The
Company attributes the growth in its income to full year impact of
MedAssist acquisition in fiscal 2008, increased work from its existing
clients, both through increases in the volumes of work that they outsource
to the Company under existing processes and the outsourcing of new
processes and service lines to it (partly as a result of the Company cross-
selling new services to its existing clients). The average exchange rate
for USD and GBP in fiscal 2009 was Rs. 46.47 per USD and Rs. 79.13 per GBP
as compared to Rs. 40.29 per USD and Rs. 80.87 per GBP in fiscal 2008.

Consolidated Revenues by Geography. The Company serves clients mainly in
North America (USA and Canada, although income from Canada accounted for
less than 1%) United Kingdom and India. Clients from United States
accounted for 63.0% (fiscal 2008 - 54.0%) and clients from United Kingdom
accounted for 26.0% (fiscal 2008 - 35.0%) of the income from services in -
seal 2009. Clients in India accounted for 10.8% (fiscal 2008 - 10.8%) of
the income from services in fiscal 2009.

The following table sets out a geographic breakdown of the income from
services for the periods indicated.

(Rs. million)

Fiscal Year

2009 2008

North America (USA and Canada) 11,034.0 6,705.2

UK 4,550.9 4,338.8

India 1,885.0 1,344.5

Rest of the world 55.3 17.6

Total 17,525.2 12.406.1

Revenues from India grew more than 40% in this fiscal and domestic business
now constitutes a sizeable portion of the company's business and would
continue to be a key focus area for the company. There was an increase in
the proportion of the income from North America primarily due to the full
year impact of MedAssist acquisition in September 2007. The above two
reasons have resulted in the UK business falling in percentage terms,
though there has been a growth in Rupee terms of 4.9% in business from UK
clients as well.

Consolidated Revenues by Industry. Healthcare, Telecommunications and
Media, and BFSI accounted for 39.9%, 32.4% and 25.2% of its income from
services, respectively, in fiscal 2009 and 29.8%, 36.0%, 30.8% of its
income from services, respectively, in fiscal 2008.

The following table sets out a breakdown of its income from services for
the periods indicated.

(Rs. million)

Fiscal Year

2009 2008

Healthcare 6,988.2 3,691.4

Telecommunications and Media 5,682.2 4.468.9

BFSI 4,408.7 3,820.9

Others 446.2 424.9

Total 17,525.2 12,406.1

The Healthcare vertical is now a sizeable proportion of the company's
business with the acquisition of MedAssist in previous fiscal and growth in
business from existing customers in the payer segment. MedAssist is a
leading provider in revenue cycle management in the healthcare industry in
the U.S. MedAssist's service offerings addresses the entire revenue cycle
for healthcare providers. Target clients include integrated delivery
systems, hospital management companies, academic medical centres, single
site hospitals, alternate site facilities and hospitals. The company
earlier had strong presence on the payer side of the Healthcare market,
which is the health insurance companies' side where the company provides
end to end claims management. The company works for three Fortune 100
Health Insurance companies on the payer side and over 800 hospitals and
physician groups on the provider side.

On the Telecommunications and Media front, the company works across all
service lines from Mobile, wireless and fixed lines to Broadband, High
speed internet, DTH and Pay TV. The increase in the income from clients
within the Telecommunications and Media sector between fiscal 2009 and
fiscal 2008 was attributable to companies within this industry outsourcing
more processes generally to support growth in their core businesses, as
well as its increased penetration of this market with a larger suite of
service offerings. Also the increase in India domestic business in fiscal
2009 was primarily contributed by this industry.

Within the BFSI vertical, the Credit card collections business of the
company continues to see lower revenues due to increased delinquencies and
lower liquidation rates on credit cards in the US. The pressure on
profitability continues due to lower liquidation rates. On the non-
collections BFSI side, the company continues to see delays in decision
making resulting in deferral of programs, which the company feels, will
continue for some time till the US economy turns around. The company
however believes that the value proposition for companies to outsource
still remains as compelling and it is only a matter of time before growth
would return in this vertical.

Client Concentration. The following table shows the Company's client
concentration by presenting income from its top and top five clients as a
percentage of its income from services for the periods indicated:

Fiscal 2009 Fiscal 2008

Rs. million % of Rs. million % of
Income Income

Top client 1,807.5 10.3 1,787.9 14.4
5 largest clients 5,473.4 31.2 4,643.8 37.4
All clients 17,525.2 100.0 12,406.1 100.0

In fiscal 2009, the Company had one client contributing over 10.0% of its
income from services. This client accounted for 10.3% of the income from
services in fiscal 2009. In fiscal 2008, the Company had one client
contributing over 10.0% of its income from services. This client accounted
for 14.4% of the income from services in fiscal 2008.

The Company derives a significant portion of its income from a limited
number of large clients. In fiscal 2009, the company had nine clients
contributing over Rs. 500 million in annual revenues as compared to seven
clients in fiscal 2008. In fiscal 2009 and 2008, income from the Company's
five largest clients amounted to Rs. 5,473.4 million and Rs. 4,643.8
million, respectively, accounting for 31.2% and 37.4% of its income from
services, respectively. Income for services performed for ICICI Bank, the
Company's promoter shareholder, and its affiliates, including overseas
subsidiaries, amounted to Rs. 426.7 million or 2.4% of its income from
services, in fiscal 2009. Although the Company continues to increase and
diversify its client base, it expects that a significant portion of its
income will continue to be contributed by a limited number of large clients
in the near future.

Other operating income. Other Operating income of Rs. (31.5) million in
fiscal 2009 pertains to operating income in the nature of a grant received
in relation to the Company's business in Northern Ireland of Rs. 45.9
million and exchange loss realised on debtors of Rs. 77.4 million. The
fiscal 2008 Other Operating Income of Rs. 581.8 million consisted of grant
income of Rs. 552.6 million and exchange gain realised on debtors of
Rs.29.2 million.

Expenditure:

Personnel costs. Personnel costs for fiscal 2009 amounted to 58.6% of the
Income for that period, as compared to 54.8% of income in fiscal 2008.
Personnel costs increased by 44.0% to Rs. 10,252.9 million in fiscal 2009
from Rs. 7,120.4 million in fiscal 2008. Personnel costs in fiscal 2009 as
a percentage of income was higher primarily due to the full year impact of
acquisition of MedAssist in September 2007 and large ramps in domestic
business from India. The Company's number of employees increased to 21,570
as of March 31, 2009 from 17,369 as of March 31, 2008, principally to
service its increased business volumes and additions due to acquisition of
MedAssist. As at March 31, 2009, 4,711 employees were employed outside
India as compared to 4,210 employees as at end of Fiscal 2008. The
Company's average wage levels were also higher in fiscal 2009 as compared
to fiscal 2008.

Operating costs. Operating costs for fiscal 2009 amounted to 28.8% of the
income for that period, as compared to 27.4% of income in fiscal 2008.
Operating costs increased by 41.7% to Rs. 5,042.5 million in fiscal 2009
from Rs. 3,558.1 million in fiscal 2008, generally in line with increase in
the income. Most components of operating costs increased at rates lower
than, or generally in line with, increase in the revenues, with the
exception of Rent, repairs and maintenance, Insurance and electricity
charges which increased by 47.0% from Rs. 1,223.3 million to Rs. 1,798.1
million, primarily due to additions of centres across Tier II cities in
India to cater to the large ramps in domestic business.

Operating EBITDA (Earnings before Interest, Tax and Depreciation):

Operating EBITDA. As a result of the foregoing, operating EBITDA decreased
by 4.8% to Rs. 2,198.3 million in fiscal 2009 from Rs. 2,309.4 million in
fiscal 2008. Operating EBITDA in fiscal 2009 was 12.6% of income, as
compared to 17.8% of income in fiscal 2008.

Depreciation:

Depreciation costs for fiscal 2009 amounted to 5.5% of the income for that
period, as compared to 6.6% of income for fiscal 2008. Depreciation
increased by 12% to Rs. 961.3 million in fiscal 2009 from Rs. 860.8 million
in fiscal 2008. Depreciation as a percentage to income is lower on account
of full year impact of MedAssist acquisition, which has a relatively lower
depreciation, coupled with an upward revision in useful life of assets as
reviewed by the management.

Operating EBIT (Earnings before Interest and Tax):

Operating EBIT. Operating Earnings before Interest and Tax (EBIT) decreased
by 14.6% to Rs. 1,237.0 million in fiscal 2009 from Rs. 1,448.6 million in
fiscal 2008. Operating EBIT in fiscal 2009 was 7.1% of income, as compared
to 11.2% of income in fiscal 2008.

Finance charges, net. Finance charges, net of Interest income for fiscal
2009 amounted to 5.9% of income, as compared to 2.8% of income in fiscal
2008. Net finance charges increased by 181.0% to Rs. 1,028.3 million in
fiscal 2009 from Rs. 366.0 million in fiscal 2008. Non-cash mark-to-market
exchange loss on revaluation of the Foreign Currency Convertible Bonds
(FCCB) for the period April 1, 2008 to June 30, 2008, prior to treating it
as a net investment in a non-integral subsidiary and consequently adjusting
the same in Reserves and Surplus in the Balance sheet, was Rs. 778.2
million in fiscal 2009 as compared to Rs. 192.5 million in fiscal 2008.
Amortised cost on fair value of FCCB for fiscal 2009 was Rs. 113.9 million
as compared to Nil in fiscal 2008. Excluding the impact of the above two
components, finance charges for fiscal 2009 amounted to Rs. 136.2 million
as compared to Rs. 173.5 million in fiscal 2008. The other components of
finance charges in fiscal 2009 were chiefly an Interest expense of Rs.157.5
million on ECBs, term loan and Working Capital demand loan, Interest income
on deposits with banks and others of Rs. 39.8 million and a net exchange
loss on foreign currency loans other than FCCB of Rs 18.5 million. The
other components of finance charges in fiscal 2008 were chiefly an Interest
expense of Rs. 315.8 million on ECBs, term loan and Working Capital demand
loan. Interest income on deposits with banks and others of Rs. 100.2
million and a net exchange gain on foreign currency loans other than FCCB
of Rs. 42.1 million.

Other income. Other income decreased to Rs. 298.2 million in fiscal 2009
from Rs. 349.2 million in fiscal 2008. The components of other income in
fiscal 2009 were net gain on FCCB buyback of Rs. 635.0 million, income from
the sale and redemption of non-trade investments in the amount of Rs. 12.8
million, dividend income of Rs. 9.3 million, gain on sale of fixed assets
of Rs. 1.5 million and other miscellaneous income and write backs of
Rs.10.4 million. This was partly offset by foreign exchange loss Rs. 370.8
million. Net foreign exchange loss included exchange gain of Rs. 97.3
million recognised on account of translation of financial statements of
foreign integral subsidiaries for the purpose of preparation of these
consolidated financial statements and an exchange loss of Rs. 235.2 million
on account of undesignated derivative instruments. The components of other
income in fiscal 2008 were profit on sale and redemption of non-trade
investments in the amount of Rs. 42.1 million, dividend income of Rs. 34.5
million, foreign exchange gain primarily on consolidation of subsidiaries
of Rs. 257.4 million, gain on sale of fixed assets of Rs. 0.9 million and
other miscellaneous income, and write backs of Rs. 14.3 million.

Profit before tax:

Profit before tax, Profit before tax decreased by 64.6% to Rs. 506.9
million in fiscal 2009 from a profit before tax of Rs. 1,431.9 million in
fiscal 2008. Profit before tax in fiscal 2009 was 2.9% of the income, as
compared to 11.0% of the income in fiscal 2008.

Provision for taxation:

Provision for taxation increased by 57.4% to Rs. 199.1 million in fiscal
2009 from Rs. 126.5 million in fiscal 2008. Income tax expense comprises of
current income tax, the net change in the deferred tax assets and
liabilities in the applicable fiscal period, Fringe benefit tax and Minimum
alternate tax credit entitlement.

Current Income tax expense comprises tax on income from operations in India
and foreign tax jurisdictions. The company has the benefit of tax-holiday
under Sec 10A/10B under the Software Technology Parks (STP) scheme. Current
tax expense for amounted to Rs. 268.7 million in fiscal 2009 as compared to
Rs. 287.7 million in fiscal 2008.

There was a deferred tax asset creation of Rs. 69.9 million in fiscal 2009
compared to a deferred tax charge of Rs. 184.4 million in fiscal 2008. The
significant component of deferred tax asset is business losses carried
forward and difference between tax and book value of fixed assets.

Fringe benefit tax is payable by the company on the value of benefits
provided or deemed to be provided to its employees. Fringe benefit taxes
for fiscal 2009 amounted to Rs. 25.3 million as compared to Rs. 23.2
million for fiscal 2008.

Minimum alternate tax for the ITES industry became applicable effective
fiscal 2009, resulting in the company recording the same as part of the
current tax expense and the credit entitlement has been disclosed
separately. The company has recorded a Minimum alternate tax credit
entitlement of Rs. 25.0 million in fiscal 2009 as compared to nil in fiscal
2008.

Profit after tax before minority interest:

Profit after tax before minority interest. As a result of the foregoing,
profit after tax before minority interest decreased to Rs. 307.8 million
for fiscal 2009 from a profit after tax before minority interest of
Rs.1,305.4 million in fiscal 2008.

Minority interest. Minority interest was Rs. 1.1 million in fiscal 2009 as
compared to Rs. (10.2) million in fiscal 2008. This was due to the
operating profits in Pipal in fiscal 2009 as compared to operating losses
in fiscal 2008.

Profit after tax:

Profit after tax. As a result of the foregoing, profit after tax decreased
by 76.7% to Rs. 306.7 million in fiscal 2009 from a profit after tax of
Rs.1,315.6 million in fiscal 2008. Profit after tax in fiscal 2009 was 1.8%
of the income, as compared to 10.1% of the income in fiscal 2008.

LIQUIDITY AND CAPITAL RESOURCES:

Cash Flows:

The Company needs cash primarily to fund the technology and infrastructure
requirements in its delivery centres, to fund its working capital needs, to
fund acquisitions and for other general corporate purposes. The Company
funds these capital requirements through a variety of sources, including
cash from operations, short and long-term lines of credit and issuances of
share capital. As of March 31, 2009, the Company had cash and cash
equivalents of Rs. 966.9 million. This primarily represents cash and bank
balances with banks in India and abroad.

The Company's summarised statement of consolidated cash flows is set forth
below:

(Rs. million)

Fiscal year

2009 2008

Net Cash flow from Operating activities 1,739.4 2,268.5

Net Cash flow from/(used in) Investing activities (880.3) (14,152.3)

Net Cash flow from/(used in) Financing activities (916.9) 9,898.5

Cash and bank balances at the beginning of the
year/period 1,024.7 3,010.0

Cash and bank balances at the end of the
year/period 966.9 1,024.7

Operating Activities:

Net cash generated from the Company's operating activities in fiscal 2009
amounted to Rs. 1,739.4 million. This consisted of net profit after tax of
Rs. 306.7 million and a net upward adjustment of Rs. 1,966.2 million
relating to various non-cash items and non-operating items including
depreciation of Rs. 961.3 million; a net increase in working capital of
Rs.220.2 million; and income taxes paid of Rs. 281.3 million. The working
capital increase was due to increase in trade and other receivables of
Rs.632.2 million partly offset by an increase in trade and other payables
by Rs. 412.0 million.

Net cash generated from the Company's operating activities in fiscal 2008
amounted to Rs. 2,268,5 million. This consisted of net profit after tax of
Rs. 1,315.6 million, a net upward adjustment of Rs. 1,000.4 million
relating to various non-cash items and non-operating items including
depreciation of Rs. 860.8 million, a net decrease in working capital of
Rs.235.5 million and income taxes paid of Rs. 283.0 million. The working
capital decrease was due to decrease in trade and other receivables of
Rs.311.9 million partly offset by a decrease in trade and other payables of
Rs. 76.4 million.

Investing Activities:

In fiscal 2009, the Company used Rs. 880.3 million of cash in investing
activities. These investing activities primarily included capital
expenditure payments of Rs. 918.1 million, including fixed assets purchased
in connection with the establishment of the Company's delivery centres in
Airoli, Bhubaneshwar, Jalandhar, Siliguri, Coimbatore, Bangalore, Chennai
and other Tier II centres in India added towards the end of previous
fiscal; Rs. 268.9 million towards further payments effected on earlier
business acquisitions of MedAssist, BPM and RevIT, and net sale of money
and debt market mutual funds amounting to Rs. 215.8 million. During the
year, the Company received an interest and dividend amounting to Rs. 31.8
million and sold a few fixed assets for Rs. 59.1 million.

In fiscal 2008, the Company used Rs. 14,152.3 million of cash in investing
activities. These investing activities primarily included Rs. 13,925.6
million (Rs 13,964.4 million, net of cash Rs. 38.8 million) towards the
acquisition of MedAssist; Rs. 53.3 million towards earn out crystalised on
finalisation of arbitration with the erstwhile members of ASG and direct
expenses amounting to Rs. 13.6 million; Rs. 66.5 million paid to the
promoters of RevIT (an earlier acquisition) as per the share purchase
agreement; capital expenditure payments of Rs. 1,224.2 million, including
fixed assets purchased in connection with the establishment of the
Company's delivery centres in Siliguri, Bhubaneshwar, Vashi, Jalandhar,
Tecci Park Chennai and Coimbatore in India; and net sale of money and debt
market mutual funds amounting to Rs. 973.4 million. During the year, the
Company received an interest and dividend amounting to Rs. 146.2 million
and sold a few fixed assets for Rs. 11.4 million.

Financing Activities:

In fiscal 2009 net cash used in financing activities amounted to Rs. 916.9
million. This primarily comprised of repayment of Foreign currency
convertible bonds (FCCB) to investors, including expenses amounting to
Rs.1,257.2 million, repayment of unsecured loans of Rs. 803.8 million,
repayment of secured loans of Rs. 180.0 million and payment of interest of
Rs. 128.9 million. The company received proceeds from issuance of equity
shares of Rs. 23.4 million and from secured loans and unsecured loans
Rs.1,355.0 million and Rs. 74.7 million respectively.

In fiscal 2008 net cash from financing activities amounted to Rs. 9,898.5
million. This was primarily comprised of proceeds from the issuance of
Foreign currency convertible bonds (FCCB) to investors amounting to
Rs.10,840.5 million, proceeds from issuance of equity shares to employees
against ESOP allotment net of expenses relating to IPO paid in Fiscal 2009
and adjustment for FCCB issue expenses amounting to Rs. (214.8) million,
net repayment of secured loans of Rs. 66.5 million and net repayment of
unsecured loans of Rs. 341.7 million. There was an outflow towards interest
on loans in the amount of Rs. 319.0 million.

Cash position:

The Company funds its short-term working capital requirements through cash
flow from operations, working capital overdraft facilities with commercial
banks, medium-term borrowings from banks and commercial financial
institutions and others. As of March 31, 2009, the Company had cash and
bank balances of Rs. 966.9 million as compared to Rs. 1,024.6 million as at
March 31, 2008.

RISK MANAGEMENT REPORT:

This report sets out the enterprise-wide risk management that is practiced
by the Company. Readers are cautioned that the risks outlined here are not
exhaustive and are for information purposes only. This report contains
statements which may be forward-looking in nature. The business model is
subject to uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements.
Readers are requested to exercise their own judgment in assessing the risks
associated with the Company and to refer to the prospectus filed with the
Securities and Exchange Board of India (SEBI) as well as factors discussed
elsewhere in this annual report.

The BPO Industry is currently faced with a challenging environment in terms
of the impact of the overall global economic downturn. The unexpected macro
economic developments in this fiscal have certainly impacted the Company's
ability to sustain the growth momentum as its business depends largely on
the performance of its clients. This in conjunction with other factors like
stringent customer requirements on information and data security, impact of
rapid technological changes, financial exposures due to rapid exchange
fluctuations and tightening liquidity conditions and ever increasing
regulatory compliance requirements demands for an extremely robust risk
management practice to be adopted by global BPO service providers.

The Company continues to emphasize and build on the need to have robust
risk management culture and processes. The Company has already implemented
a comprehensive 'Enterprise Risk Management (ERM)' framework in order to
anticipate, identify, measure, mitigate, monitor and report the risks to
meet the strategic business objectives. During the fiscal, the ERM
framework was further strengthened by capturing various changes that
emerged during the year.

The ERM framework captures the following key elements.

Governance Structure:

Level : Responsibilities

Board of Directors : * Oversees the risk management process
performed by the management in order
to protect and enhance the value to
the stakeholders.

Audit Committee : * Provides oversight on the internal
control environment and review of the
independent assurance activities
performed by the auditors.

Risk Committee (CEO, CFO, COO) : * Continuous assessment of the risks
to the business and review of the
risk management practice to ensure
compliance with the policies.

Risk Management function : * Execution of the risk management
related activities across the
organization as per the direction
given by the risk committee.

: * Provides assistance and guidance to
various business/support functions in
managing the risks within acceptable
levels.

Business Heads : * Ownership of the risks specific to
their business and responsibility to
ensure compliance with the policy.

: * Influence and encourage the
execution of the risk management
practices in their units.

Internal Audit : * Conduct independent review on the
effectiveness of the controls and
reporting to the audit committee to
provide independence assurance to the
management.

Enterprise Risk Management Process:

Stage : Activities

Risk Identification : * Risk identification exercise is
being done in the beginning of the
fiscal year by the risk committee and
the senior management to update the
'Risk register' which captures all
possible risks which can adversely
impact the achievement of the business
objectives.

: * This risk register is reviewed by
the risk committee on periodic basis
to capture the new risks identified
and any change in the inherent risk
levels.

Risk Assessment : * The systemic risk assessment is done
on the basis of likelihood and impact
of each risk parameter.

* All the risks are categorized as
extreme, high, moderate and low risks
in order to prioritise the response
and monitoring.

Risk Response : * The management defines the risk
appetite and risk tolerance levels in
order to decide on the appropriate
response.

: * The overall response strategy is
either, or the combination of
avoidance, acceptance, transfer or
mitigation strategy.

Monitoring and reporting : * Ongoing monitoring is being done by
the risk owners with the help of risk
management function.

* The reporting of the results of the
ongoing assessment as well as the
changes in the risk profiles is done
and reviewed by the risk committee on
monthly basis.

Internal control systems and its adequacy:

* The company and its management have ensured that adequate systems for
internal control commensurate with the company's size are in place. These
ensure that its assets and interests are carefully protected; checks and
balances are in place to determine the accuracy and reliability of
accounting data. Well documented processes have been implemented throughout
the organization to ensure that policies are promoted and adhered to. There
are clear demarcation of roles and responsibilities at various levels of
operations.

* The company has a dedicated internal audit team to examine and evaluate
the adequacy and effectiveness of the internal control system. The audit
team follows 'Risk based audit' approach and appraises periodically about
activities and audit findings to the audit committee, statutory auditors
and senior management. The company has also appointed an external firm to

conduct the periodic internal audit of few areas and provide fair
independent assessment of the effectiveness of the internal controls.

* During fiscal 2009, all audits were completed as per the schedule and
reported to the audit committee. During the fiscal, audits were also
conducted for overseas locations including operations and support functions
there.

The company has a rigorous business planning system to set targets and
parameters for operations, which are reviewed with actual performance to
ensure timely initiation of corrective action if required.

* Additionally, pursuant to clause 49 of the listing agreement with stock
exchanges relating to corporate governance, the company is required to
comply with additional standards. These standards include a certification
by the company's Chief Executive officer and Chief Financial Officer that
they have evaluated the effectiveness of the company's internal control
systems and that they have disclosed to its auditors and its audit
committee any deficiencies in the design or operation of . the company's
internal controls of which they may become aware, as well as any steps
taken or proposed to resolve the deficiencies.

* Key Business Risks & Mitigation Plan:

1. Weakening global economic outlook:

In the previous fiscal, the economic conditions in the United States had
begun to weaken led by the crisis in the mortgage industry, which had
further led to slow-down across other industries and consumer spending as
well. This trend has further continued in fiscal 2009 in geographies
outside of the US too, resulting in wide spread contraction of economic
activity across the globe. While the initial impact was restricted to the
BFSI vertical, other verticals that the company services are also now
beginning to see some impact in terms of slowdown in forecasted business
volume growth as well as weakness in the business pipeline and its
prospects.

The company's existing business does not have any exposure to the US
mortgage market, which has been the worst impacted in this crisis. The
company, hence, believes that there is no direct adverse impact of the US
mortgage industry meltdown on its existing revenues. However, the company's
credit card collection business has been impacted due to increase in
delinquency rates and lower liquidation which in turn directly impacts the
company's revenues given that the collections revenues are outcome based.
Healthcare industry, which was so far considered recession proof has also
seen some signs of slowdown due to increase in unemployment rates in the US
resulting in lower volumes in the healthcare payer segment due to
increasing underinsured and uninsured population. Also, on the healthcare
provider side, payment cycles from state governments have increased as they
continue to be under budgetary pressures.

Planning and responding to changes in such an uncertain environment without
any business impact is difficult. However, the management has taken some
steps to mitigate the impact of slowdown including deploying various
measures to continuously monitor the changing environment and the impact
that the same would have on the company's business:

a. Continued efforts to rebalance the business portfolio particularly
increasing focus on industries other than BFSI such as Healthcare and
Telecom, which are relatively less affected in the downturn. As a result,
the overall exposure to the BFSI segment has reduced in the fiscal 2009,
which should in turn limit the adverse impact on the company.

% of revenue Fiscal 2006 Fiscal 2008 Fiscal 2009 Trend

BFSI Sector 63.5% 30.8% 25.2% Decrease

b. The company has now laid even greater emphasis than before on rigorous
cost control and productivity improvement initiatives to enhance operating
margins. During the fiscal, the company has launched new initiatives on
cost rationalization projects and also implemented various process re-
engineering initiatives to further enhance the productivity levels and
optimise utilisation of resources, the results of which will be visible in
the future.

2. Revenue concentration risk:

The company relies on a small number of clients for a large proportion of
its income, and loss of any of these clients could adversely affect its
profitability. The company's Top 5 clients accounted for 31.2% of its
income from services in fiscal 2009. Furthermore, major events affecting
the company's clients, such as bankruptcy, change of management, mergers
and acquisitions, change in their business model or environmental factors
could adversely impact its business.

The company has recognized this aspect and had undertaken multiple
initiatives over the last few years to rebalance its exposure. As a result
of these initiatives, the company has managed to reduce the revenue
concentration on few clients.

% of revenue Fiscal 2006 Fiscal 2008 Fiscal 2009 Trend

Top client 16.0% 14.4% 10.3% Decrease
Top 5 clients 50.6% 37.4% 31.2% Decrease

The management believes that it now has a well balanced mix of clients and
industries and moving forward shall continuously endeavour to assess and
address the risk of any over dependency.

3. Offshore outsourcing risk:

With the economic downturn in the US and elsewhere gaining momentum thereby
resulting in job losses and increase in unemployment rates, Offshore
outsourcing risk has gained political significance with many organizations
and public figures expressing concern about a perceived association between
offshore outsourcing providers and the loss of jobs in the United States
and other parts of the globe. Measures aimed at limiting or restricting
offshore outsourcing have been proposed in the United States and there are
legislations pending in several states to curb outsourcing, more
specifically offshoring. While this is against the spirit of free trade and
will also be counter productive to the US industry in the long term, the
issue is more political than anything else. The Company also strongly
believes that the economic benefits of outsourcing and offshoring far
outstrip any curbs imposed including through taxation.

The Company recognized early that to be credible players in the global
Business Process outsourcing (BPO) industry it would be imperative to be
able to deliver services from across the globe and not just from India or
offshore locations. The company focused on establishing a delivery
proposition that transcended offshoring benefits and included the ability
to manage operations and deliver process improvement and efficiency
onshore, nearshore or offshore, wherever processes were best delivered
from. Among the Indian pure-play BPO companies, the Company was the first
to build strong onshore - UK & US operations. Today, with over a dozen
delivery centres in the US, two in the UK, and one each in Manila &
Argentina, the Company has evolved as a global BPO service provider and
advocates the concept of right-shoring. Right-shoring offers client's
increased operational flexibility, more robust Business Continuity
Planning, the ability to optimise operational costs and leverage global
talent. This helps companies remain agile and meet customer service
expectations while remaining competitive. Accordingly the Company today has
the balanced ability to serve its customers from multiple delivery
locations across the globe and is not dependent on a pure offshore delivery
model. In fact, the company's ability to do this is potentially a source of
competitive advantage in the current environment.

4. Foreign currency debt servicing risk:

The company had issued Foreign currency convertible bonds (FCCB) amounting
to USD 275 million in fiscal 2008 to pay off the bridge loan taken to fund
the acquisition of MedAssist in the US healthcare vertical. These bonds are
convertible at a premium to the then prevailing market price of the
company's stock, with a tenure of 5 yrs. and will mature in December 2012.
The FCCB provides the bondholders an option of either converting into
Equity shares at any time during this period at a conversion price of Rs.
92.2933 and if not, the same will be redeemed to the bondholders on the
maturity date at a YTM of 6.75% per annum. However, due to overall economic
downturn and its impact on the stock market, the stock price of the company
has also been adversely impacted and is currently trading at levels much
lower than the conversion price of these bonds. If this trend continues
until maturity, the investors may not opt for the conversion and choose the
repayment option which in turn may result into the risk of the company
having to resort to refinancing to service this obligation.

While the management believes that the current economic situation and
dampening stock prices could reverse by the time of maturity which in turn
could result in the investors opting for the conversion route and the need
to go in for refinancing may not arise, in the interim, the company has
opportunistically bought-back USD 49.7 million bonds at an attractive
discount from the market. This will help in reducing the overall liability.
The buy-back was also funded through an ECB with a longer repayment term.
The management will continue to opportunistically buy-back any further
bonds available at a discount thereby trying to continuously reduce the
overall debt servicing liability and deleverage the balance sheet.

5. Exchange risk:

The exchange rate between the Indian rupee and the Pound sterling and the
Indian rupee and the U.S. dollar has changed substantially in recent years
and may continue to fluctuate significantly in the future. The company
expects that a significant portion of its income will continue to be
generated in foreign currencies and that a significant portion of its
expenses will continue to be denominated in Indian rupees. Accordingly, the
company's operating results have been and will continue to be impacted by
fluctuations in the exchange rate between the Indian rupee and the British
pound and the Indian rupee and the U.S. dollar, as well as exchange rates
with other foreign currencies.

Given that the Company has significant operations delivered form the US and
UK as well where it incurs expenses in USD and GBP, the same acts as a
natural hedge and hence the Company's net exposure overall to foreign
currency is relatively lesser. The Company also actively tracks the
movement in foreign currencies and has an internal risk management policy
of proactively hedging exposures. As per the internal guidelines, the
Company has been judiciously hedging its net exposures on regular basis
through forward cover contracts and Options. As of March 31, 2009, the
Company has outstanding forward covers of USD 98.8 million and GBP 21.0
million. Also during fiscal 2009, the company has continued to expand
operations in India for service offerings to domestic clients, which
essentially results in such related income & expenses denominated in Indian
rupee and hence no exposure to the currency exchange risk.

% of revenue Fiscal 2006 Fiscal 2008 Fiscal 2009 Trend

Domestic business 2.5% 10.8% 10.8% Decrease

6. Highly competitive environment:

The market for BPO services is rapidly evolving and is highly competitive.
The company expects that the competition it faces will continue to
intensify. The company faces competition from offshore Third party Indian
BPO providers, BPO divisions of global IT companies and global 'pure play'
BPO providers. There are also companies that choose to perform their own
business processes internally through offshore captive business processing
units established specifically for this purpose.

The company understands that it needs to retain and grow its leadership
position in the industry and to maintain this competitive edge, the company
realises that it needs to be best in class in operations, delivery, and
quality, apart from ensuring that it has a focused marketing and sales
team. Towards ensuring this, the company makes significant investments in
process excellence, standardization and innovation, apart from adhering to
global operating standards such as ISO 27001, Six Sigma, COPC, SAS 70 etc.,
all of which help in the company retaining its competitive edge.

7. Long selling cycle:

The company has a long selling cycle for its BPO services, which requires
significant investment of capital, resources and time by both clients and
the company. Before committing to use the company's services, potential
clients require it to spend substantial time and resources presenting to
them the value of its services and assessing the feasibility of integrating
the company's systems and processes with theirs. Therefore, the company's
selling cycle, which can range in duration from weeks to months, is subject
to many risks and delays over which the company has little or no control,
including its clients' decision to choose alternatives to its services
(such as other providers or in-house offshore resources) and the timing of
its clients' budget cycles and approval processes.

The company has clearly focused marketing and sales teams with clear goals
who at all times work on a variety of opportunities along with an
aggressive transition methodology that helps transition new wins fairly
quickly into delivery mode. Most of the contracts with existing clients are
on long term basis which ensures sustainable and scalable business from the
existing clients.

8. Risks related to acquisitions:

The company's growth strategy involves gaining new clients and expanding
its service offerings, both organically and through strategic acquisitions.
Historically, the company has relied on expanding some of its service
offerings and gaining new clients through strategic acquisitions. It is
possible that in the future the company may not succeed in identifying
suitable acquisition targets available for sale on reasonable terms, have
access to the capital required to finance potential acquisitions or be able
to consummate any acquisition, which may affect its competitiveness and its
growth prospects. In addition, the company's management may not be able to
successfully integrate any acquired business into its operations and any
acquisition it does complete may not result in long-term benefits to the
company.

The company has a dedicated M&A (Mergers and Acquisitions) assessment team
which constantly evaluates available acquisition opportunities. On short
listing a proposed company or firm for acquisition, the company puts
through stringent due diligence, assessments and evaluations before finally
deciding to consummate the acquisition. The company believes in assessing
all parameters before closing out on a deal, including, but not limited to,
business fit, culture, management quality, delivery engine, customer list
etc. An integration team is then constituted to enable smooth convergence
of the acquired company with your company. The Company has a well
established track record of successfully integrating and creating value
from acquisition in the past and believes this experience will help it in
the future as well.

9. Country level risks:

The company has operations in India, the United States, the United Kingdom,
Argentina and Philippines and it services clients across Europe, North
America and Asia. The company's corporate structure also spans multiple
jurisdictions, with intermediate and operating subsidiaries incorporated in
India, the United States, the United Kingdom, Argentina and Philippines. As
a result, the company is exposed to risks typically associated with
conducting business internationally, many of which are beyond its control.
These risks include geographical, political or regulatory risks.

To mitigate this risk, the company has comprehensive business continuity
plans in place. In all the countries the Company operates, the Company has
local management teams that help it understand country specific operating
level nuances. The company is building deep customer relationships and has
a well diversified geographic spread to mitigate the risks specific to a
country or geography.

10. Regulatory & Compliance related Risk:

The company is exposed to a high level of regulatory and compliance risk as
our operations and clients are spread across geographies and we cater to
clients who are governed by various regulations. Breach of any regulatory
provisions can attract regulatory inspection, notices, penalty, revocation
of permits or licenses etc. which can also result in significant reputation
risk for the company. The management recognizes the importance and need of
strict regulatory compliance and accordingly is fully committed to allocate
the required resources to implement the compliance framework and tools
along with any supervision and monitoring mechanism. The following steps
are being undertaken by the company in order to mitigate the risk of non-
compliance:

* The company has developed and implemented a 'compliance framework' which
addresses all the aspects of compliance risk management and clearly defines
the roles and responsibilities across the functions, the process, ongoing
monitoring and management reporting mechanism.

* The company has a dedicated in-house Legal team comprising of qualified
and experienced legal professionals who identify and interpret all legal
and regulatory provisions applicable at the company level, business line
level process level and contract level. The team also facilitates all other
business and support functions to identify and understand their respective
compliance obligations.

* Additionally, the company has a dedicated centralized compliance team
consisting of experienced professionals, who undertake activities relating
to the ongoing monitoring and management reporting of the status of
compliance and also the status of resolutions towards the identified cases
of breaches, if any.

* The company has laid down all the requirements related to the compliance
obligations at individual level and provides detailed understanding and
training at the time of employee joining as well as ongoing refreshers in
order to maintain complete awareness at all the times.

* The company also has a strong review mechanism whereby the compliance
reporting is being done to the risk committee on a quarterly basis. The
risk committee reviews the efficacy of the controls implemented to mitigate
the risk of non-compliance and also provides overall direction in creating
and maintaining the culture of compliance.

* The company also encourages the use of local managers as well as
consultants, auditors, lawyers, specialists and experts in all countries
where it has a presence to ensure thorough compliance.