Annual Report - CMC - 2009-2010

CMC LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

TO
THE MEMBERS OF
CMC LIMITED

Your Directors have pleasure in presenting the 34th Annual Report and the
Audited Statement of Accounts for the year ended March 31, 2010.



1. FINANCIAL RESULTS

(Rs. in Crore)
Particulars 2009-10 2008-09

Income from Sales and Services 690.01 820.45
Other Income 18.75 19.81
Total Income 708.76 840.26
Operating Expenses 549.46 701.42
Profit before Depreciation, Interest and Tax 159.30 138.84
Depreciation 9.82 9.29
Interest 2.65 1.88
Profit before Tax 146.83 127.67

Provision for Taxation
(incl. deferred income tax) 17.25 22.10

Profit after Tax 129.58 105.57

Add: Profit brought forward
from previous year 338.95 270.52

Amount available for appropriations 468.53 376.09

Appropriations

Proposed Dividend 30.30 22.73
Tax on Proposed Dividend 5.15 3.86
Transfer to General Reserve 12.96 10.55
Balance carried forward to Balance Sheet 420.12 338.95
468.53 376.09
1.1 OPERATING RESULTS

During the year, your Company earned total revenue of Rs. 708.76 crore
compared with Rs. 840.26 crore during the previous year, registering a
decline of 16% primarily due to reduction in sale of low margin equipments.
The income from Sales and Services is Rs. 690.01 crore as compared to Rs.
820.45 crore earned in the last year.

The profit before tax at Rs. 146.83 crore registered an increase of 15%
over the previous year mainly on account of improvement in business mix
towards more service and international business accompanied by improvement
in operating efficiencies. The Company made a provision of tax totalling to
Rs. 17.25 crore.

The Profit after Tax stood at Rs. 129.58 crore registering an increase of
22.7% over the previous year.

2. DIVIDEND

In view of the improvement in profits of the Company, your Directors
recommend for approval of the Members an enhanced dividend at the rate of
Rs. 20 per equity share of Rs. 10 each on the paid-up equity share capital
as at March 31, 2010.

3. TRANSFER TO RESERVES

The Company proposes to transfer Rs. 12.96 crore to the General Reserve out
of the amount available for appropriation, and an amount of Rs. 420.12
crore is proposed to be retained in Profit and Loss Account.

4. BUSINESS OPERATIONS

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

4.1. Customer Services (CS)

The CS SBU undertakes activities related to IT infrastructure including
infrastructure architecture, design and consulting services; turnkey system
integration of large network and data centre infrastructures including
supply of associated equipment and software; on-site and remote facilities
management of multi-location infrastructures of domestic and international
clients. The CS SBU earned revenue of Rs. 241.23 crore during the year
compared to Rs. 383.44 crore during the previous year. The drop in revenue
by 37% is attributable to decrease in the low margin equipment business.

Your Company continued with its strategy of defocusing from low margin TPP
business this year as well. At the same time, your Company focussed on
enabling and winning infrastructure business in CS SBU. Among other areas,
your Company won more business by introducing new services, such as,
National rollout and Help Desk Facility Management. Also, it has
strategically invested on enabling infrastructure, to grow the Remote
Infrastructure Management Business and emerging areas related to Security
Infrastructure and Video Surveillance.

4.2 Systems Integration (SI)

The SI SBU undertakes the activities of solution deployment that includes
embedded systems, software development, software maintenance and support,
turnkey project implementation and systems consultancy.

The SI SBU earned revenue of Rs. 290.40 crore during the year compared with
Rs. 312.05 crore earned in the previous year. The drop in revenue is
primarily due to change in billing to Subsidiary Company from gross billing
to net billing under which onsite living expenses are borne and paid by the
Subsidiary Company.

In the domestic market, the SI SBU continues to be a strong player in
general insurance sector, defence, securities, transport and e-Governance
space.

During the current year, the SI SBU continued to grow in several
significant industry verticals both in domestic and international. Your
Company has continued to make more solutions available through its critical
investments in Defence Sector, where it has been a solution supplier for
several years. Your Company has further strengthened its position with the
existing clients in the BFSI Sector, Space, ERP, e-Governance and
Biometrics areas. Your Company continued to invest and grow its solution
asset base during the year so that it can offer innovative solutions around
the core IPs' of these assets. This includes enhancements of Biometrics
based Assets for identity management, mining assets for mining solutions,
transportation assets, insurance & financial solution assets and e-
Governance assets.

4.3 IT enabled Services (ITeS)

The ITeS SBU provides a variety of IT enabled services which include
Business Process Outsourcing for front end and Back office. This SBU has
created specific business domain expertise such as on-demand software
services; office records digitization and document management; recruitment
and examination results management; legacy data migration management. Also,
your Company continues to work for Election Commission as a state-level
agency.

The ITeS SBU earned revenue of Rs. 109.98 crore during the year compared to
Rs. 72.29 crore in the previous year. The ITeS SBU has shown significant
growth in the scope of its offerings and the size of its customer base. By
developing capabilities and providing ITeS services in media research,
insurance, banking, legal, logistics and publishing domains the ITeS SBU
gained new customers this year. Furthermore, the ITeS SBU also extended its
solutions through servicing several customers in India.

4.4 Education & Training (E&T)

The E&T SBU of the Company offers a wide range of courses that vary from
Information Technology to Soft Skills training to integrated career
development programmes. The Company offers integrated Learning Programs for
several corporations, and also conducts inductions and refresher
programmes. In addition to the training programs for employees, it also
delivers various skill enhancement programs for experienced people from the
industry.

The E&T SBU earned revenue of Rs. 41.59 crore compared to Rs. 44.47 crore
in the previous year. The decrease in revenue by 6.48% is primarily
attributable to the change in the revenue recognition for one of the large
customers of E&T.

There is a huge gap in Indian IT industry for highly trained resources. To
bridge this gap, your Company has launched its flagship program, C-JET
under which professionals are imparted with necessary IT skill-sets by
intensive exposure to theoretical and practical work experience which found
favour with several fresh graduates as it trains them and bridges the gap
between academic education they receive from educational institutions and
specific expertise required by the industry. Your Company has also tied up
with various vendors to give their offerings to professionals. E&T SBU
continues to be a preferred vendor for a large number of IT and ITeS
Companies, both for induction programmes as well as for refresher
programmes.

5. SPECIAL ECONOMIC ZONE

The Company is setting up an IT and ITeS Sector specific Special Economic
Zone (SEZ), named Synergy Park, at its Campus at Gachibowli, Hyderabad. The
project is progressing well. The overall project with a seating capacity of
around 9,000 will be completed by the end of 2010-11. Phase I of the
project with a seating capacity of around 2,700 in three ODCs is now fully
functional. The Company has spent Rs 59.11 crore on this project till March
31, 2010.

6. CREDIT RATING

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

7. SUBSIDIARY COMPANY

Your Company has a wholly owned subsidiary CMC Americas Inc. in USA. Copies
of the Balance Sheet, Profit & Loss Account and Report of the Auditors of
the Subsidiary Company have not been attached as per approval granted by
the Ministry of Corporate Affairs, Government of India under Section 212(8)
of the Companies Act, 1956. However, as per the terms of the exemption
letter, a statement containing brief financial details of the Subsidiary
Company for the year ended March 31, 2010 is included in the Annual Report.
As required under the Listing Agreements with the Stock Exchanges, the
Company has prepared the Consolidated Financial Statements of the Company
and its Subsidiary as per Accounting Standard (AS)21-'Consolidated
Financial Statements' and form part of the Annual Report and Accounts.

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

8. FIXED DEPOSIT

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

9. LISTING

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

10. DIRECTORS

Mr S Mahalingam was appointed on the Board of the Company with effect from
January 14, 2010 as an Additional Director. As per provisions of Section
260 of the Companies Act, 1956, Mr S Mahalingam holds office only up to the
date of the forthcoming Annual General Meeting of the Company. The Company
has received a notice under Section 257 of the Act along with the requisite
deposit, in respect of Mr Mahalingam, proposing his appointment as a
Director of the Company.

The Board at its meeting held on December 09, 2009 re-appointed Mr R
Ramanan as Managing Director & CEO with effect from December 13, 2009 to
April 30, 2013 subject to the approval of the Members of the Company. The
resolution on re-appointment and remuneration of Mr R Ramanan has been put
up for consideration and approval of the Members.

Mr Ishaat Hussain stepped down from the Board with effect from January 04,
2010. The Board records its appreciation of the rich and valuable
contributions of Mr Ishaat Hussain during his tenure as a Director.

Mr Surendra Singh and Dr KRS Murthy, Directors, retire by rotation and
being eligible, have offered themselves for re-appointment.

11. CORPORATE SUSTAINABILITY

Corporate Sustainability (CS) is near to CMC's heart and forms an integral
part of its business. CS implies environment friendly corporate behavior
ensuring Business Operations which holistically address the needs of
multiple stakeholders and communities they serve in.

CMC has formed a voluntary association comprised of its employees and their
families called Maitree' to address large scale societal problems, through
active employee participation.

Maitree works as a common platform for taking measures to safeguard Health,
education and express concern for the environment. Maitree organises
workshops and through in-house doctors improves employees' health and
assist in stress management.

Maitree focused its efforts towards helping under privileged and physically
challenged children to overcome their difficulties by organizing medical
checkups, sports activities, and also by helping their supportinstitutions
with volunteers and financial assistance. During the year under review,
Maitree organised cataract operations camp for the underprivileged, blood
donation camps, distribution of course material to convicts, organised
dental camp for schools, aid to flood victims of Yalavatti in Gadag
district etc.

Your Company regards climate change mitigation and environmental
improvement as essential elements of the company's sustainable business
philosophy. Company has prepared a full fledged plan to Greening Customer's
IT Operations (Green Data Centres) by using energy saving IT assets, cost
optimization of Data centre assets. Greening Customer's Business Operations
using IT solutions like Carbon Audit, Process Optimisation, ERP & Document
Management for paperless operations, Green buildings etc.

12. BUSINESS EXCELLENCE AND QUALITY INITIATIVES

Your Company continues to strive towards operational and delivery
excellence and customer centricity with a renewed focus on the path of
business excellence using the Tata Business Excellence Model (TBEM). Your
Company was subject to an external assessment for TBEM and also
participated in the Tata group Management of Business Ethics survey
covering all workforce segments and suppliers, action plans to
addressfindings are underway. In line with new areas of emphasis in the
TBEM model, CMC also launched C-Green initiatives towards social and
environment sustainability.

During the year, CMC Center at Hyderabad was assessed at SEI CMMI Level 5
and was also recertified for ISO 9000, upgrading to ISO 9001:2008 standards
covering software services as well as embedded system services. Your
Company intends to progressively increase the scope of such assessments to
other locations / regions and functions.

13. CORPORATE GOVERNANCE

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

14. TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

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

15. DIRECTORS' RESPONSIBILITY STATEMENT

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

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

ii) The Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent, so as to give a true and fair view of the state of affairs of the
Company as on March 31, 2010 and of the profit of the Company for that
period;

iii) The Directors have taken proper and sufficient care to the best of
their knowledge and ability for the maintenance of adequate accounting
records in accordance with the provisions of the Companies Act, 1956 for
safeguarding the assets of the Company and for preventing and detecting
fraud and other irregularities; and

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

16. AUDITORS

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

17. PARTICULARS OF STAFF

Information as required under section 217(2A) of the Companies Act, 1956,
read with Companies (Particulars of Employees) Rules, 1975 will be made
available on request by the Members.

18. ACKNOWLEDGEMENTS

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

For and on behalf of the Board

Mumbai S RAMADORAI
15 April, 2010 Chairman

ANNEXURE TO THE DIRECTORS' REPORT

Particulars of Conservation of energy, Technology absorption and Foreign
exchange earnings and outgo in terms of Section 217(1)(e) of the Companies
Act, 1956 read with the Companies (Disclosure of Particulars in the Report
of Directors) Rules, 1988 forming part of the Directors' Report for the
year ended March 31, 2010

A. CONSERVATION OF ENERGY

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

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

B. TECHNOLOGY ABSORPTION

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

FORM - B

1. Research and Development (R&D)

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

The Company continues to invest in innovating and developing state of the
art technologies that are core to providing key solutions in different
industry verticals of interest. This includes critical investments in:

- Insurance Technology & solutions

- Biometrics Technology

- SCADA Technology

- Mobile Technology

- GPS Technology

- Technology for more efficient digitization

- Technology & Solutions for Shipping & Ports

- Improving assets in the e-Governance Space

b. Benefits derived as a result of R&D

I. The investments made in GPS, Mobile and Biometrics technology have
helped the company win new orders and position it for rich solutions in a
variety of industry verticals. It has also helped the Company offer product
upgrades and enhanced solution capabilities to its existing customers.

II. The investment in digitization solution has improved the accuracy of
solution delivery and enabled the Company to win more business through a
unique combination of technology and process.

III. Similarly, the enhancement of technology and solution assets for
insurance sector has helped the Company provide more solution options to
its existing customer and also helped win newer orders.

IV. The Company also continues to win more business in shipping and ports
area because of the investment it made in the technology architecture of
its assets in this particular domain.

V. Keeping in view the heavy investment in power sector and Railways, the
Company's investment in SCADA technologies has not only helped it win new
order but also positioned it for winning more business in the years to
come.

c. Future Plan of Action

I. While the Company continues to develop competence in identified areas to
keep pace with the fast changing technologies, we are in the process of
revamping our products and services roadmaps considering various critical
factors including voiceof the customer, the current market technology
trends and feedback from alliances.

II. This process will help the Company retain its technology edge and
agility to meet market requirements in increasingly competitive situation.

III. Company will also develop solutions for various market segments
integrating these technologies. More specifically some of being planned
development initiatives are:

1. Insurance solutions

2. e-Governance Solutions

3. Biometrics based solutions

4. Mobile technology based solutions

5. SCADA solutions

6. GPS Solutions

7. ITeS and Digitization solutions

d. Expenditure on R&D
(Rs. in crore)
Particulars 2009-10 2008-09

A Capital 0.09 0.19
B Recurring 7.35 6.64
C Total 7.44 6.83
D Total R&D Expenditure as a percentage of Turnover 1.08 0.83

2. Technology Absorption, Adaptation and Innovation

a. Efforts made towards technology absorption, adaptation and innovation

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

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

III. Your Company conducts periodic internal meetings including the CEO,
COO, Chief Architects and product teams to discuss action plans for product
and technology upgrades and shortlist teams for Research & Development
initiatives.

IV. Your Company ensures the readiness of its employees through ongoing
Training and Skill Development to handle projects demanding new technology
and skill set requirements.

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

VI. Your Company encourages its employees to participate in Tata Group
level innovation program - Innovista. It also has equivalent internal
programs which recognize and reward improvements and innovation.

b. Benefits derived as a result of the above efforts

I. Increased business opportunities where the upgraded CMC products and
solutions are in demand.

II. Your Company continues to be a valued solution provider for complex
projects in the market.

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

IV. Ability to respond to unique requirements of the customers and system
engineers.

c. Information regarding Importing Technology

The Company has not imported any technology.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO

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

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

2. Total Foreign Exchange Earnings & Outgoings

The foreign exchange earnings of the Company during the year were Rs.193.40
crore while the outgoings were Rs. 41.89 crore.

For and on behalf of the Board

Mumbai S RAMADORAI
15 April, 2010 Chairman

MANAGEMENT DISCUSSION AND ANALYSIS

Overview:

The financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956 and Generally Accepted Accounting
Principles (GAAP) in India. There are no material departures from
prescribed accounting standards in the adoption of these standards. The
management of CMC Limited accepts responsibility for the integrity and
objectivity of these financial statements, as well as for various estimates
and judgments used therein. These estimates and the 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 the state of affairs and profits
for the year.

Industry Structure and Development

The financial crisis that began in the later part of 2008 continued to cast
its shadow on global economy throughout last financial year. Although there
were occasional green shoots, business confidence continued to be low
globally. India however managed the situation effectively through a

combination of financial stimulus and other policies that supported the
inherent strength of Indian economy. Towards later part of the financial
year 2009-10, India's GDP growth appears to have stabilized. Even globally,
the projections of future are reflecting optimism and worst seems to be a
past for the economy.

Global IT industry is an infrastructure industry and economy trends get
projected through the performance of IT industry. Against a drop of about
5.2% in worldwide IT spending in 2009, Gartner expects the growth of about
3.3% in 2010. Revenue levels of 2008 are expected to be reached only by
2012. IT services and software segments are expected to grow by about 4.5%
and 4.8% respectively in 2010 while hardware segment is expected to remain
flat.

With Indian economy projected to grow at 7.98% (IMF projection Oct-2009),
the domestic IT market is likely to grow by about 13% in 2010 as per IDC.
Hardware segment, which declined by about 4% in 2009 is expected to bounce
back with projected growth of about 11%. The services and software segment
has grown by 15.4% and 14.1% respectively. With established presence in
hardware segment and increased focus on services, CMC is well poised to
benefit from this growth.

Opportunities and Threats

Opportunities:

Recovery and growth of economy as well as significant technology changes
are presenting several opportunities to CMC.

* Cloud computing is emerging as a major disruptive force for both IT
vendors and users. Cloud computing is Internetbased computing, whereby
shared resources, software and information are provided to computers and
other devices ondemand, like a public utility. Ability to effectively
manage the cost without compromise on performance and several other
benefits such as reliability and flexibility is making cloud computing an
attractive proposition for enterprises. Gartner predicts that up to 20% of
companies will own no IT assets of their own by 2012. Recognizing the
potential of this trend, CMC is developing competency as well as alliances
in this technology and services area.

* Another key technological change is the domination of smart phones over
traditional desktops and laptops. By 2013, number of mobile phones could
easily surpass PCs, as preferred way to access the net. This will be
opening up several opportunities for mobile friendly applications as well
as revamping of web sites to make them easier to surf on a mobile gadget.

* Enhanced awareness and concern for global warming is leading all
enterprises to look for ways to reduce their carbon footprint without
compromise on business growth and potential. CMC is readying itself with
services in the area of Green IT as well an IT for green. An eco-system of
partners and alliances is being set up to address this opportunity.

* Improving fortunes of IT industry is increasing the demand for IT
professionals and large scale recruitment. The Education and Training SBU
of CMC is offering courses and programs in both retail and corporate
segment to address this need.

Threats:

As Indian economy continues to outpace developed economies in the world,
India continues to be an attractive market for major IT players. This
enhanced focus on India continues to exert competitive pressure on CMC's
performance in domestic market.

The growth in the economy and IT industry is expected to lead to increase
in attrition next year. This pressure on attrition as well as fast changing
technology landscape will necessitate increased investment in its people
and innovative approaches to retain and develop right talent.

Financial Performance

Revenues:

During the year under review, the Company earned total operating revenue of
Rs. 690.01 crore compared with Rs. 820.45 crore during last year,
registering a decline of 15.9% primarily on account of a 56.5% drop in low
margin equipment business. The share of equipment business in total
operating revenue declined from 28.3% last year to 14.6% in the year under
review, with the corresponding improvement in the share of services revenue
from 71.7% to 85.4%, as a part of the strategy of the Company to
continuously improve the revenue mix. Similarly the share of international
revenue increased from 31.7% to 36.9%. The other income decreased
marginally from Rs. 19.81 crore to Rs. 18.75 crore. The Company had earned
exchange gain of Rs. 9.45 crore due to about 26% rise in value of US Dollar
against India Rupee during last year, while the Company incurred an
exchange loss of Rs. 6.01 crore during the year under review, which has
been included in operating and other expenses. However the Company
increased its earnings from investment of surplus funds from Rs. 4.71 crore
in the previous year to Rs. 9.01 crore during the year under review.

The revenue mix of 2009-10 compared with 2008-09 is given below:

Particulars 2009-10 2008-09
(Rs / crore) % (Rs / crore) %

Equipment 101.01 14.6 231.96 28.3
Services 589.00 85.4 588.49 71.7
Total Operating Revenue 690.01 100 820.45 100
Domestic 435.41 63.1 560.07 68.3
International 254.60 36.9 260.38 31.7
Total Operating Revenue 690.01 100 820.45 100

Expenditure:

During the year under review, the operating expenses at Rs 549.46 crore
decreased by 21.7% compared with Rs. 701.42 crore incurred in the previous
year in line with variation in operating revenue. As a percentage of total
operating revenue, these expenses registered a decline to 79.6% from 85.5%.
Cost of equipment purchase for resale has declined by 56.32% to Rs. 97.36
crore in line with 56.5% decline in revenue from sale of equipments.
Manpower cost has gone up by 6% on account of increase in manpower strength
by 3.1% and general increase in level of compensation to employees. The
manpower cost as a percentage of operating revenue has increased from 25.9%
to 32.7% due to higher share of manpower intensive services business.
Living expenses have decreased by 81.23% due to change in billings to the
Subsidiary Company, CMC Americas, Inc. from Gross billing to net billing,
under which the onsite living expenses are borne and paid by CMC Americas,
Inc. Components and spares cost has gone down by 24.5% to Rs. 21 crore due
to 6.9% decline in Maintenance Services business and improved efficiencies
in execution. The cost of sub-contracts/outsourcing services has gone up by
7.1% primarily due to increase in ITES revenue by 52.1%. Other operating
expenses have decreased by 3.9% to Rs. 115.48 crore compared with Rs.
120.17 crore due to various cost control measures.

As a result, Operating Profit (EBITDA) has increased by 18.1% from
Rs.119.03 crore to Rs. 140.55 crore and as a percentage of total operating
revenue, EBITDA margin has increased from 14.5% to 20.4%.

The interest cost increased to Rs. 2.65 crore during the current year
compared with Rs. 1.88 crore incurred in the last year as a result of full
year impact of borrowing for SEZ project in Hyderabad. Depreciation charge
increased marginally by 5.7% from Rs. 9.29 crore to Rs. 9.82 crore
primarily due to capitalization of assets worth Rs. 21.30 crore during the
year.

As a result, Profit before Tax (PBT) has increased by 15.0% from Rs. 127.67
crore to Rs. 146.83 crore and as a percentage of total revenue PBT margin
has increased from 15.2% to 20.7%.

The provision for taxation (including deferred tax and taxes levied in
foreign countries) reduced to Rs. 17.25 crore from Rs. 22.10 crore in the
last year primarily due to tax concession available on increased revenue
from International business, rental income from SEZ and dividend from
Mutual Funds. The effective tax rate for the Company has decreased from
17.3% to 11.7%. The Company got covered under the provisions of Minimum
Alternative Tax (MAT) during the year. However the Company has taken a MAT
credit entitlement amounting to Rs. 5.08 crore.

Profit after Tax (PAT) has increased from Rs. 105.57 crore to Rs. 129.58
crore, an increase of 22.74% over the previous year. PAT as a percentage of
total revenue has increased from 12.6% to 18.3%.

Financial Position

Fixed Assets

The Company's gross fixed assets as at 31st March, 2010 was Rs. 190.25
crore (including capital WIP) compared to Rs. 174.69 crore as at the
beginning of the year, resulting in an increase of 8.9% during the year,
mainly on account of Rs. 18.54 crore spent during the year on ongoing
project of setting up Special Economic Zone (SEZ) at Gachibowli Campus of
the Company at Hyderabad.

Investments

Investments increased from Rs. 128.06 crore as at 31st March, 2009 to
Rs.203.50 crore as at 31st March, 2010, on account of increase in
investment of surplus funds in debt based funds run by various mutual
funds.

Working Capital

Net current assets as at 31st March, 2010 declined to Rs. 153.62 crore
compared to Rs. 189.11 crore at the beginning of the year, mainly on
account of decline in current assets from Rs. 486.35 crore to Rs. 416.05
crore and decrease in current liabilities provisions from Rs. 297.24 crore
to Rs. 262.43 crore. Loans and advances have increased from Rs. 110.72
crore to Rs. 114.01 crore, primarily on account of advances paid to
Contractors for construction of the SEZ. Sundry debtors have decreased
substantially from Rs. 227.25 crore to Rs. 166.16 crore. Of Rs. 166.16
crore of debtors, Rs. 56.76 crore is due over 6 months. The level of
debtors in terms of number of days has decreased from 101 days to 88 days
sales. The level of accrued debtors has increased from 44 days to 57 days
sales. Total debtors days have remained flat at 145 days.

Capital Structure

Net worth of the Company as at 31st March, 2010 was Rs. 476.59 crore
compared with Rs. 382.51 crore at the beginning of the year resulting in an
increase of 24.6% during the year mainly on account of profit after tax
earned during the year.

Loan funds as at 31st March, 2010 were Nil, as compared with Rs. 34.49
crore at 31st March, 2009. The Company repaid the whole of the outstanding
loan to TCS. As a result the debt equity ratio has come down to 0.00:1.

Segment-wise Review

Customer Services

The Customer Services (CS) SBU earned revenue of Rs. 241.23 crore during
the year under review compared to Rs. 383.44 crore in the previous year,
registering a decline of 37%, primarily on account of defocus from low
margin equipment business. The share of CS SBU revenue in total revenue was
34% during the year under review compared to 45.6% in the previous year.
The Profit Before Interest and Tax (PBIT) earned by CS SBU during the year
under review was Rs. 20.66 crore, a decrease of 1.43% over Rs. 20.96 crore
earned in the previous year in line with decline in revenue. However the
PBIT margin improved to 8.6% during the year under review compared to 5.5%
during the previous year due to focus on more value added business. CS
SBU's contribution to total PBIT has declined from 16.2% to 14.1% during
the year under review.

Systems Integration

The Systems Integration (SI) SBU earned revenue of Rs. 290.40 crore during
the year under review compared to Rs. 312.05 crore in the previous year,
registering a decline of 6.9%, due to change in billings to the Subsidiary
Company CMC Americas, Inc. from gross billing to net billing in respect of
onsite projects. The share of SI SBU revenue in total revenue increased to
41% during the year under review as compared to 37.1% in the previous year.
The Profit Before Interest and Tax (PBIT) earned by SI SBU during the year
under review was Rs. 116.13 crore, an increase of 1.8% over Rs. 114.12
crore earned in the previous year. PBIT Margin of SI SBU increased to 40%
during the year under review compared to 36.6% during the previous year due
to improvement in revenue mix. SI SBU's contribution to total PBIT has
decreased from 88.1% to 77.7% during the year under review.

IT enabled Services

The IT enabled Services (ITeS) SBU earned revenue of Rs. 109.98 crore
during the year under review compared to Rs. 72.29 crore in the previous
year, registering an increase of 52.1%, primarily on account of growth in
domestic and international projects. The share of ITeS SBU revenue in total
revenue increased to 15.5% during the year under review as compared to 8.6%
in the previous year. The Profit Before Interest and Tax (PBIT) earned by
ITeS SBU during the year under review was Rs. 39.64 crore, an increase of
159.8% over Rs. 15.26 crore earned in the previous year. PBIT Margin of
ITeS SBU increased to 36% during the year under review compared to 21.1%
during the previous year due to improvement in revenue mix. ITeS SBU's
contribution to total PBIT has increased from 11.8% to 26.5% during the
year under review.

Education & Training

The Education and Training (E&T) SBU earned revenue of Rs. 41.59 crore
during the year under review compared to Rs. 44.47 crore in the previous
year, registering a decline of 6.5%, primarily due to decline in general
market conditions. The share of E&T SBU revenue in total revenue increased
to 6% during the year under review compared to 5.3% in the previous year.
The Profit Before Interest and Tax (PBIT) earned by E&T SBU during the year
under review was Rs. 4.49 crore, a decline of 10.2% over Rs. 5 crore earned
in the previous year, due to decline in revenue. E&T SBU's contribution to
total PBIT has declined from 3.9% to 3% during the year under review.

Future Outlook

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

Risks and concerns

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

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

1. Business risks

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

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

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

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

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

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

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

2. Financial risks

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

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

The Company enjoys exemption from levy of income tax on profits earned by

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

3. Legal risks

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

4. Internal process risks

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

Risk management processes at the operational level are a key requirement
for reducing uncertainty in delivering highquality software solutions to
clients within budgeted time and cost. Adoption of quality assurance
frameworks has ensured that risks are identified and measures are taken to
mitigate these at the project plan stage itself.

The Company evaluates technological obsolescence and the associated risks
on a continuing basis and makes investments accordingly.

Internal control systems and their adequacy

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

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

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

Human Resources

CMC provides a synergistic work culture allowing its employees an open
knowledge sharing environment.

The Company structural changes brought into place provide greater delivery
excellence, bringing focus and will also help in optimization of manpower
utilization.

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

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

Key HR processes have been automated to improve productivity and ensuring
better control on operations.

The staff strength of the Company as on 31st March, 2010 was 5551
(including employees on contract) as compared to 5383 as on 31st March,
2009.

Cautionary Statement

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


SECRETARIAL AUDIT REPORT

Company No. : 01-1970
Nominal Capital : Rs. 35,00,00,000/-

To,
The Shareholders of
CMC Limited

We have audited the relevant books and records of CMC Limited having its
Registered Office at CMC Center, Old Mumbai Highway, Gachibowli, Hyderabad
- 500 032 and Corporate Office at, PTI Building, 5th Floor, 4, Sansad Marg,
New Delhi - 110 001 produced before us by the company and by their
registrar and share transfer agents M/s. Karvy Computershare Private
Limited, for the purpose of our Secretarial Audit Report for the financial
year ended on 31.03.2010 (financial year). In our opinion and to the best
of our information and according to the examinations carried out by us and
explanations furnished to us by the company, its officers and agents, we
certify that in respect of the aforesaid financial year:

1. The company has kept and maintained all registers and records as per the
provisions of the Companies Act, 1956 (the Act) and the rules made there
under and all entries therein have been duly recorded during the year.

2. The company has duly filed the forms and returns with the Registrar of
Companies and the rules made there under during the year.

3. The Company has given proper notice along with the agenda for convening
of Board Meeting, Committee Meetings and Annual General Meeting during the
year.

4. The proceedings of the Meetings were properly recorded in the Minutes
Books during the year.

5. The Board of Directors of the Company is duly constituted during the
year.

6. The Company has obtained all the necessary approvals from the Board and
Shareholders as required by the Act during the year.

7. The Company has not accepted any deposit in terms of section 58A of the
Act read with Companies (Acceptance of Deposit) Rules, 1975 during the
year.

8. The Company has complied with the provisions of section 154 of the Act
during the year.

9. The Company has delivered all the certificates on lodgment thereof for
transfer or any other purpose in accordance with the provisions of the Act
during the year.

10. The Company has declared dividend and paid to the eligible shareholders
in compliance with the provisions of section 205 of the Act during the
year.

11. The Company has transferred the unclaimed/unpaid dividend to Investor
Education and Protection Fund in compliance with the provisions of section
205C of the Act during the year.

12. The Company has paid remuneration to the Managing Director, Commission
to the non-executive independent directors and sitting fees to the
Directors of the Company in terms of section 198, 269,309 read with
Schedule XIII of the Act.

13. The Company has not appointed any sole selling agent in terms of
section 294 of the Act during the year.

14. The Company has not given any loan in terms of section 295 of the Act
during the year.

15. The Company has not entered into any transactions, which falls under
section 297 of the Act during the year.

16. The Directors have disclosed their interest in terms of section 299 of
the Act.

17. The Company has not appointed any person as a place of profit in terms
of section 314 of the Act during the year.

18. The Company has complied with the provisions of section 372A of the
Act.

19. The Company has complied with the applicable provisions of SEBI
(Substantial Acquisition of Shares and Takeover) Regulations, 1997 during
the year.

20. The Company has complied with the applicable provisions of SEBI
(Prohibition of Insider Trading) Regulations, 1992 during the year.

21. The Company has complied with the applicable provisions of SEBI
(Depositories and Participants) Regulations, 1996 during the year.

22. The Company has transferred 167 equity shares lying in the escrow
account to demat suspense account opened with the CDSL in terms of Clause
5A of the Listing Agreement.

23. The company has received 37 investor's complaints/queries during the
year under review and no complaints/ queries were pending for redressal as
on 31.03.2010.

Chandrasekaran Associates
Company Secretaries

Dr. S. Chandrasekaran
Senior Partner
FCS No. 1644
CP No. 715
New Delhi

08 April, 2010