Annual Report - HCC - 2009-2010

HINDUSTAN CONSTRUCTION COMPANY LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

To,
The Members of
Hindustan Construction Co. Ltd.

1. Report:

Your Directors are pleased to present the 84th Annual Report together with
the Audited Accounts for the year ended March 31, 2010

2. Financial Highlights:

Particulars Year ended Year ended
March 31, 2010 March 31, 2009
Rs. Crore Rs. Crore

Turnover 3862.97 3518.32

Profit before Interest, 440.89 490.27
Depreciation and Tax

Less: i) Interest 205.15 210.50

ii) Depreciation 113.90 319.05 115.22 325.72

Profit before Tax 121.84 164.55

Less: Provision for

Current Tax 20.96 18.61
Provision for Deferred Tax 40.15 36.51
Provision for Fringe Benefit Tax - 2.40

MAT- Credit Entitlement (20.71) 40.40 (18.32) 39.20

Profit after Tax 81.44 125.35

Add: Balance brought forward 279.90 207.95
from last year

Add: Transferred from Debenture 5.41 8.50
Redemption Reserve

Amount available for 366.75 341.80
Appropriation

Less: Appropriations

a) Proposed Dividend 24.26 20.50

b) Tax on Proposed Dividend 4.12 3.48

c) Debenture Redemption Reserve 8.75 12.92

d) Transferred to General Reserve 10.00 25.00

47.13 61.90

Balance Carried to Balance Sheet 319.62 279.90

3. Dividend:

Your Directors are pleased to recommend a dividend of Re.0.80 per Equity
Share of Re.1/- each for the financial year ended March 31, 2010 (Previous
year -Re.0.80 per Equity Share of Re.1/-each) aggregating to Rs. 24.26
crore.

4. Operations:

The turnover of the Company at Rs. 3862.97 crore has shown an increase of
9.8% as compared to Rs. 3518.32 crore for the previous year. The profit
before tax is Rs. 121.84 crore as compared to Rs. 164.55 crore for the
previous year.

Your Directors are pleased to inform that during the year under report, the
Company has secured the following major contracts.

* Dagachhu Hydro Power Plant (Civil Works), 114 MW, Bhutan
Contract Value: 388 crore

* Gosikhurd Hydel Scheme, 24 MW, Maharashtra
Contract Value: 229 crore

* Pare Hydro Electric Projects 10 MW, Arunachal Pradesh
Contract Value: 276 crore

* Pumped Water Supply scheme from Kesaria to Sonaria, Gujarat (NC-25)
Contract Value: 168 crore

* Elevated Road Corridor from Park Circus to E.M. Bypass, Kolkata
Contract Value: 318 crore

* Cavern for Crude oil storage, Padur, Karnataka
Contract Value: 375 crore

* POT Shell fabrication works for Aditya Aluminium project, Orissa
Contract Value: 109 crore

* Four-laning of Bahrampore-Farraka section of NH-34 in West Bengal on
Design, Build, Finance, Operate and Transfer Toll basis under NHDP-
IIKPackage No.NHDP-III/BOT/WB/03)

* Four-laning of Farraka-Raiganj section of NH-34 in West Bengal on Design,
Build, Finance, Operate and Transfer Toll basis under NHDP-III(Package
No.NHDP-III/BOT/WB/04)

* Four-laning of Raiganj-Dalkhola section of NH-34 in West Bengal on
Design, Build, Finance, Operate and Transfer Toll basis under NHDP-
III(Package No.NHDP-III/BOT/WB/05)

* POT Superstructure fabrication works for Aditya Aluminium project, Orissa
Contract Value: 100 crore

* Civil and Piling works for Aditya Aluminium Project, Orissa
Contract Value: 199 crore

* Single Line Tunnel No.1 between Dholakal and Kalmai, Assam Contract
Value: 118 crore Reconstruction of Dry Dock at Naval Dockyard,
Mumbai
Contract Value: 608 crore

The total balance value of works on hand as on March 31, 2010 is Rs.18,810
crore including Company's share in integrated joint venture projects and
Sawalkot project.

Decisions are awaited from various clients for tenders submitted by the
Company (Directly or in JV) for 24 projects amounting to about Rs.9,520
crore. Tenders for various packages for 23 projects worth about Rs.14,630
crore are expected to be submitted in the near future. The Company has also
submitted prequalification bids for 11 projects worth over Rs.6,170 crore,
which are currently under evaluation. The Company is confident of securing
a sizeable share of these new projects.

Subsidiaries Operations

(i) Lavasa Corporation Ltd. - Integrated Urban Development & Management

Lavasa is free India's first planned hill city being developed by Lavasa
Corporation Ltd., subsidiary company of HCC. Located in the Western region
of India in the picturesque landscape of the Sahayadri Mountains, it is set
amidst 7 hills and 60 km. of lakefront. A three hour drive from Mumbai and
an hour's drive from Pune, the city is one fourth of the size of Mumbai.

The master plan of Lavasa (current development plan-18,000 acres) is
developed by internationally renowned design consultant HOK, USA. The
master plan, recipient of many international awards, is based on the
principles of New Urbanism that brings together all the components
essential to daily life in a more organized manner. Lavasa has many firsts
to its credit - technology leadership, e-Governance, India's first e-city,
the first Indian city developed using Geographical Information System
(GIS), etc. In association with The Biomimicry Guild (USA), the science of
Biomimicry is used at Lavasa where learnings from nature are seamlessly
integrated in the master planning of Lavasa.

Lavasa is planned for a permanent population of around 3 lakh residents and
a tourist inflow that is envisaged at 20 lakh per annum. It aims to provide
a perfect work - life balance with an unique combination of technology and
infrastructure advancements. The city will have a 365 day economy with a
host of non polluting industries being the main economic driver; these
include R&D and training centres, IT and biotech industry, KPOs and those
related to art, fashion and animation.

The tie ups continued though 2009 - 10. In the hospitality space partners
such as Accor Hospitality with three brands - Mercure, Novotel and Pullman
are all getting ready to launch in the next 12 months with Mercure opening
first in April 2010. Accor Hospitality is also managing the Lavasa
International Convention Centre which opened its doors in March 2010.
Hilton, Ramada, Velvett Country, Oakwood, two Langham properties, Holiday
Inn and many more are to follow in quick succession giving Lavasa a new
hotel property every 6 months.

An equal amount of progress has been made in the education space with the
Ecole Hoteliere Lavasa opening in July 2009 followed by Educomp with an IB
school and Euro kids with a primary and pre-primary school.

The Institute of International Business Relations Germany is ready to
launch their programs in the next 12 months. NSHM Knowledge Campus of
Kolkata, Symbiosis of Pune and Christ University of Bangalore are also to
follow with their campuses over the next 18 months.

Professional and Executive Education has also taken off in Lavasa in a big
way with MIT having conducted their pilot program based on Airport and
Airline Systems, Planning and Management. This has prepared a platform for
them to conduct similar programmes at Lavasa in the future. In addition,
The Biomimicry Guild, USA also held its first executive education at
Lavasa.

The focus on branding and communication activities at the consumer
continued with momentum through 2009-10. The communication activities were
targeted at the various stakeholders and clearly positioned Lavasa as a
future city in the making. A thought leadership platform -Lavasa Future
Cities was launched in association with the Times of India group. The key
objective was to trigger a thought process amongst public as well as key
decision makers on not only the need to push for creation of more urban
centres for the rapidly migrating Indian populace but also to push forth
the need for better and more workable governance structures. This intensive
5 month campaign was planned and executed across, various media (print,
radio, internet, on-ground events) and included a Citizen Connect
initiative.

During the year, Lavasa Corporation Ltd. has registered impressive
performance with turnover of Rs. 481.60 crore as compared to Rs. 212 crore
in the previous year. The profit before tax is at Rs. 209.50 crore as
compared to Rs. 135.10 crore in the previous year.

(ii) HCC Real Estate Ltd.

HCC is developing its real estate business through its wholly owned
subsidiary HCC Real Estate Ltd. (HREL). The focus of HREL has been on
acquiring and developing real-estate assets that provide unique value
propositions to customers. Consequently, instead of building large land
banks, HREL has been focusing on developing projects that are 'one of a
kind' in India.

During the financial year 2009-10, 247 Park at Vikhroli (West) was
completed. Inspite of recessionary period, 247 Park has got good response
from the various clients and is now leased to the extent of more than 75%
of the overall leasable area. Considering the interest expressed by
potential clients, we are confident of leasing out the balance area during
the 1st quarter.

247 Park was awarded the prestigious 'LEED' certification for Green
Building. It was also awarded by CNBC Awaaz-CRISIL as 'The Best Commercial
Building in Western Region of India'.

For the Township projects in the areas of Thane, Pune & Nashik, the Company
is consolidating its position in respect of land titles and other
documentation. The progress on this front is satisfactory.

Charosa Wineries Ltd., a 100% subsidiary of HREL, established in 2008-09
for setting up world-class vineyard and ultra-modern winery in Nashik
district has already acquired more than 200 acres of land. All the
infrastructural work for vineyard is already completed. The first crop of
wine grapes has already been cultivated for captive use Company plans to
complete the construction and commission the winery during the year 2010-11
Company has also plans to promote wine tourism considering the increasing
wine consumption ii the region.

During the year, HREL formed a 100% subsidiary under the name HCC Realty
Limited to undertake certain projects.

Dholera Project:

The Company has received an extension of two years to the MOU with Gujarat
Government to develop a Water Front City at Dholera on 4,000 acres as the
master plan for the same is being finalized by the Consultants appointed by
the Government. The Water Front City will be developed with proposed total
investment of Rs. 40,000 crore in Dholera Special Investment Region (SIR)
located at the Gulf of Cambay about 130 km from Ahmadabad. Dholera is in
the influence area of the Delhi-Mumbai Industrial Corridor (DMIC) project
which has witnessed substantial progress in the last one year. Company has
continued with the next steps of preparation of concept development report
and is expected to receive the site options from Gujarat Infrastructure
Development Board (GIDB), the nodal agency for Dholera SIR by June 2010.

(iii) HCC Infrastructure Ltd.:


HCC Infrastructure Ltd., the company formed as a separate wholly owned
subsidiary in the financial year 2007-08 to develop infrastructure projects
has during the year under review gathered rapid momentum and grown its
portfolio from Rs. 2307 crore in last fiscal to Rs. 5539 crore in 2009-10.

During the year HCC Infrastructure concentrated mainly on National Highways
Authority of India (NHAI) projects on a public private partnership basis
with the support of an excellent team that has special DNA that leverages
its in - house construction expertise and quality, while opportunistically
defining its own legacy as an asset manager.

During the year under review, HCC Infrastructure qualified for 27 road
projects, and focused its bids only for three projects with 100% success.
That expressed discipline, creativity and highly patient investment
strategy. In February 2010, the NHAI awarded three contiguous sections of
approximately 256 km. for the development of existing two lanes to four
lanes between Baharampore to Dalkhola on NH-34 in the state of West
Bengal.These concessions were awarded on a Design, Build, Finance, Operate,
and Transfer (DBFOT) Toll basis with a cumulative grant of Rs. 1033 crore.
The first section is from Baharampore to Farakka (103 km), the second is
from Farakka to Raiganj (103 km) and the third is between Raiganj and
Dalkhola (50 km). These projects are proposed to be implemented by three
separate special purpose vehicles (SPVs) viz. Baharampore-Farakka Highways
Ltd. (BFHL), Farakka-Raiganj Highways Ltd. (FRHL) and Raiganj-Dalkhola
Highways Limited (RDHL) respectively.

The 4 lane Dhule-Palasner Road project on NH-3 from 168.500 km. to 265.000
km. in the State of

Maharashtra under DBFOT basis won last year in a consortium with two other
partners namely John Laing, (U.K.) and Sadbhav Engineering, (India) has
achieved Financial Closure within the minimum possible time frame and also
has reached to 10% physical completion. This project is being implemented
by a special purpose vehicle (SPV), Dhule- Palesner Tollway Ltd. (DPTL).

The prestigious ongoing 6 lane Badarpur-Faridabad Elevated Highway project
from 16.100 km. to 20.500 km. on Delhi-Agra Section of NH-2 has also
reached to 67% completion within 15 months and expected to be commercially
operational in next year. This project is being implemented by a special
purpose vehicle (SPV), Badarpur-Faridabad Tollway Ltd. (BFTL) Also during
the year under review, Nirmal BOT Road project of 278.000 km. (Kadthal) to
308.000 km. (Armur) of NH-7 in the State of Andhra Pradesh under North-
South Corridor (NHDP Phase-II) on BOT (Annuity) Basis is now fully
operational with in-house O&M team and has achieved Commercial Operation
Date 100 days ahead of schedule which entitles an early project completion
bonus of Rs.13.22 crore. This project is being implemented by a special
purpose vehicle (SPV), Nirmal BOT Ltd. (NBL).

5. Subsidiary Companies

At the beginning of the year, the Company had 36 subsidiary companies.
During the year the following changes have taken place.

a) Your Company has promoted following wholly owned subsidiary/subsidiary
companies for promoting Company's other businesses at opportune times and
for specific infrastructure development projects.

Name of the Company Date of
Incorporation

Highbar Technologies Limited 25.11.2009

Baharampore-Farakka Highways 11.03.2010
Limited

Farakka-Raiganj Highways Limited 11.03.2010

Raiganj-Dalkhola Highways 11.03.2010
Limited

b) HCC Real Estate Limited (the wholly owned subsidiary) has promoted the
following wholly owned subsidiary company, making it a subsidiary of your
Company from the date of its incorporation.

Name of the Company Date of
Incorporation

HCC Realty Limited 18.02.2010

c) Lavasa Corporation Limited has promoted the following companies making
them subsidiaries of your Company from the day of their
incorporation.

Name of the Company Date of
Incorporation

Green Hills Residences Limited 06.05.2009
My City Technology Limited 04.08.2009
Reasonable Housing Limited 23.09.2009
Minfur Interior Technologies 30.11.2009
Limited
Verzon Hospitality Limited 08.01.2010
Rhapsody Hospitality Limited 14.01.2010
Valley View Entertainment Limited 20.01.2010
Andromeda Hotels Limited 22.01.2010
Sirrah Palace Hotels Limited 25.01.2010
Whistling Thrush Facilities
Services Limited 27.01.2010
Warasgaon Tourism Limited 25.02.2010
Our Home Service Apartments
Limited 10.03.2010
Sahyadri City Management
Limited 12.03.2010
Warasgaon Power Supply Limited 12.03.2010
Hill City Service Apartments
Limited 26.03.2010

Baharampore-Farakka Highways Limited, Farakka-Raiganj Highways Limited,
Raiganj-Dalkhola Highways Limited the direct subsidiaries of the Company
shall close their first financial year on March 31, 2011 and therefore no
accounts have been prepared by these companies for the period ended March
31, 2010.

HCC Realty Limited subsidiary of HCC Real Estate Limited shall close its
first financial year on March 31, 2011 and therefore no accounts have been
prepared by this company for the period ended March 31, 2010.

Verzon Hospitality Limited, Rhapsody Hospitality Limited, Valley View
Entertainment Limited, Andromeda Hotels Limited, Sirrah Palace Hotels
Limited, Whistling Thrush Facilities Services Limited, Warasgaon Tourism
Limited, Our Home Service Apartments Limited, Sahyadri City Management
Limited, Warasgaon Power Supply Limited, Hill City Service Apartments
Limited which are the direct subsidiaries of Lavasa Corporation Limited
shall close their first financial year on March 31, 2011 and therefore no
accounts have been prepared by these companies for the period ended March
31, 2010.

A Statement pursuant to Section 212 of the Companies Act, 1956 containing
the details of subsidiaries of the Company, forms part of the Annual
Report.

In terms of the approval granted by the Central Government under Section
212(8) of the Companies Act, 1956, vide its letter bearing number
47/156/2010-CL-III dated March 19, 2010 the copies of the Balance Sheet,
Profit and Loss Account, Reports of the Board of Directors and the
Auditors' of the Subsidiary Companies for the year ended March 31, 2010 are
not attached to the Balance Sheet of the Company. The Company will make
available the annual accounts and other related detailed information of the
following subsidiaries upon request by any member / investor of the Company
/ Subsidiary Companies:

1. Hincon Technoconsult Ltd
2. Western Securities Ltd
3. Pune Paud Toll Road Company Ltd
4. Nirmal BOT Ltd
5. Badarpur Faridabad Tollway Ltd
6. HCC Infrastructure Ltd
7. HCC Aviation Ltd
8. Panchkutir Developers Ltd
9. Highbar Technologies Ltd
10. HCC Construction Ltd
11. HCC Mauritius Enterprises Ltd
12. HCC Singapore Enterprises Pte. Ltd
13. HCC Real Estate Ltd
14. HRL Township Developers Ltd
15. HRL (Thane) Real Estate Ltd
16. Nashik Township Developers Ltd
17. Maan Township Developers Ltd
18. Charosa Wineries Ltd
19. Powai Real Estate Developers Ltd
20. Lavasa Corporation Ltd
21. Lavasa Hotel Ltd
22. Warasgaon Lake View Hotels Ltd (formerly known as Lavasa Star Hotel
Ltd)
23. Apollo Lavasa Health Corporation Ltd
24. Lakeshore Watersports Company Ltd
25. Dasve Convention Centre Ltd
26. Dasve Business Hotel Ltd
27. Ecomotel Hotel Ltd
28. Dasve Hospitality Institutes Ltd
29. Lakeview Clubs Ltd
30. Dasve Retail Ltd
31. Full Spectrum Adventure Ltd
32. Spotless Laundry Services Ltd
33. Lavasa Bamboocrafts Ltd
34. Knowledge Vistas Ltd
35. Green Hill Residences Ltd
36. My City Technology Ltd
37. Reasonable Housing Ltd
38. Minfur Interior Technologies Ltd

Further, the annual accounts of the subsidiary companies will also be kept
for inspection by any member / investor at the Company's Registered Office.
The Company has presented the Audited Consolidated Financial Statements and
the same have been prepared in compliance with the Accounting Standard AS-
21 issued by the Institute of Chartered Accountants of India (ICAI).

6. Acquisition of Controlling Stake in Karl Steiner AG, Switzerland:

In March 2010, your Company agreed to acquire controlling stake i.e. 66%
equity stake in Karl Steiner AG, Switzerland (KSAG), the second largest
total services contractor in the Swiss Real Estate market. This is the
Company's first international acquisition. KSAG specialises in turnkey
development of new buildings and refurbishments and offers services in all
facets of real estate construction.

KSAG was founded in 1915 and during its rich history, KSAG has constructed
over 1,200 residential projects, 540 office buildings, 45 hotels and 150
social infrastructure buildings which include universities, schools,
hospitals, prisons and nursing homes. Among KSAG's many clients, for which
the company has realized or renovated headquarters are Nestle, Helvetia,
Merck-Serono, Sanofi - Pasteur and the World Economic Forum. KSAG has also
built laboratories for companies like IBM and the Federal Institute of
Technology. In Zurich, KSAG has constructed/renovated the Park Hyatt,
Radisson Blu, and The Savoy Hotels. Other significant accomplishments for
the company include Sihl City (a CHF 500 million integrated development
including a hotel, shopping center, offices and a residential complex).
Terminal A of the Zurich Airport, portions of the Geneva airport, the Swiss
Re convention center and the home of Google Europe. In the past ten years,
KSAG has completed nearly CHF 10 billion worth of real estate construction,
which translates to approximately 32 million square feet of development.

Your Company agreed to acquire 66% stake by way of issuance of new shares
in consideration for CHF 35 million cash investment in KSAG. KSAG shall use
the funds raised by the capital increase for its Swiss operations and the
growth of the Company's core business in India's growing residential and
commercial construction market

In 2014, in line with the envisaged succession process, KSAG's sole owner
Mr. Peter Steiner will sell his remaining shares to the Company. The shares
will be sold at a pre-agreed price based on KSAG's earnings achieved
between 2010 and 2013.

The acquisition of KSAG shall bring a rich experience of constructing world
class integrated buildings to your company.

Apart from this, the acquisition of KSAG shall bring the following benefits
to HCC:-

* Entry into the lucrative integrated building construction market in
India, which is estimated at Rs.65, 000 to Rs.75, 000 crores annually.

* Total solutions ability for a facility at a single source.

* Implementation of new technologies to support sustainable and green
development.

* Safe and fast construction processes.

* Access to many world class, cutting edge European technologies that will
augment EPC offerings in India and other markets.

The transaction is subject to regulatory approvals in Switzerland and India
and shall close in the first quarter of the FY 2010 -2011.

7. Employee Stock Option Scheme (ESOP):

In accordance with the approval of the Board of Directors and the
Shareholders of the Company, the ESOP Compensation Committee at its Meeting
held on July 20, 2009 re-priced the 41,31,600 number of Options (after
adjusting for Options lapsed) already granted by the Company on April 25,
2008 under HCC Employee Stock Option Scheme at Rs.104.05 per Option
(earlier Rs.132.50 per Option).

Further, out of total 43,25,350 Options granted (in force) 7,70,880 number
of Options have been vested with the employees during the year.

The particulars with regard to the Stock Options as required to be
disclosed pursuant to the provision of Clause 12 of SEBI (Employee Stock
Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999, as
amended as on March 31, 2010 are set out in the Annexure I to this Report.

8.a) Raising of Funds through Qualified Institutional Placement and
Increase in Paid-up Equity Share Capital:

During the year under review, your Company successfully raised funds
aggregating Rs. 4,80,10,50,000/- (Rupees four hundred eighty crore ten
lakhs fifty thousand only) through Qualified Institutional Placement of
4,70,00,000 Equity Shares of nominal / face value Re. 1/- each at an issue
price of Rs. 102.15 per Equity Share (inclusive of premium of Rs. 101.15
per Equity Share).

This has resulted in increasing the Paid up Equity Share Capital of the
Company from 25,62,49,600 Equity Shares of Re. 1/- each aggregating
Rs.25,62,49,600/- (Rupees twenty five crore sixty two lakhs forty nine
thousand six hundred only) to 30,32,49,600 Equity Shares of Re. 1/- each
aggregating Rs. 30,32,49,600/- (Rupees thirty crore thirty two lakhs forty
nine thousand six hundred only).

The entire issue proceeds aggregating Rs.480.11 crore have been utilized by
the Company towards financing of capital expenditure, meeting the working
capital requirements of the Company and repayment of loans in terms of the
objects of the issue.

b) Status of GDSs/FCCBs & Utilisation of Proceeds:

During the financial year 2005-06, the Company had made a combined offering
of Global Depository Shares (GDSs) and Foreign Convertible Bonds (FCCBs)
for an aggregate amount of USD 200 million. The FCCBs and underlying equity
shares of GDSs have been allotted on March 29, 2006. As at March 31, 2010,
out of 2,69,54,200 underlying equity shares of GDSs, 1,40,146 GDSs have
remained outstanding which forms part of the existing paid up capital of
the Company.

During the year under review, none of the bond holders have exercised their
option for conversion of FCCBs into equity shares. However, the Company had
re-purchased and cancelled 3.4% of its outstanding Zero Coupon Foreign
Currency Convertible Bonds (FCCBs) due 2011 of USD 1,00,000 each
aggregating to USD 3.4 million (Nominal Value) in accordance with the
Guidelines prescribed by Reserve Bank of India. As at March 31, 2010, 966
FCCBs of the nominal value of USD 1,00,000/- each aggregating to USD 96.60
million have remained outstanding.

The entire issue proceeds from aforesaid issue of GDSs & FCCB aggregating
to Rs.869.54 crore have been utilized by the Company towards financing of
capital expenditure and for meeting the working capital requirements of the
Company in terms of the objects of the issue.

9. Constitution of Selection Committee:

The Company formed a Selection committee during the financial year 2009-10
as per the requirements of Directors' Relatives (Office or Place of Profit)
Rules, 2003 to deal with matters concerning the appointment and
remuneration of relatives of Director for holding office or place of profit
in the Company. The Committee comprises of three Directors; namely, Mr.
Nirmal P. Bhogilal, Chairman and Independent Director, Mr. Ram P. Gandhi,
Independent Director, Mr. Anil Singhvi, Independent Director and one Mr.
Ashish Singh, an expert who is MBA (Harvard Business School) & B.A.
Economics (Harvard College), the Managing Director of Bain & Co., India
with significant experience in organization redesign, across multiple
industries.

Pursuant to the provisions of Section 314(IB) of the Companies Act, 1956
and rules made thereon, the Selection Committee & the Board of Directors in
its meeting held on October 23, 2009 and Shareholders of the Company
through Postal Ballot had approved the appointment and remuneration of Mr.
Arjun Dhawan, a relative (son-in-law) of Mr. Ajit Gulabchand, Chairman &
Managing Director of the Company, to hold and continue to hold an office or
Place of Profit as a President-HCC Infrastructure Business of the Company
with effect from November 01,2009, remuneration being subject to the
approval of the Central Government.

10. Consolidated Financial Statements:

As stipulated by Clause 32 of the Listing Agreement with the Stock
Exchanges, the attached consolidated financial statements have been
prepared in accordance with the Accounting Standard AS-21 & AS-27 read with
Accounting Standard AS-23 on Accounting for Investments in Associates.

11. Corporate Governance:

A separate section titled 'Corporate Governance' including a certificate
from the Auditors of the Company confirming compliance of the conditions of
Corporate Governance as stipulated under Clause 49 of the Listing Agreement
is annexed hereto and forms part of the Report.

12. Directors Retirement by rotation:

As per the provisions of the Companies Act, 1956 read with Article 152 of
the Articles of Association of the Company Mr. D.M. Popat and Mr. Y.H.
Malegam are the Directors of the Company to retire by rotation and being
eligible, offer themselves for re-appointment.

Appointment of the Directors of the Company Mr. K. G. Tendulkar

The tenure of Mr. K. G. Tendulkar as Deputy Managing Director of the
Company expired on November 7, 2009. The Board of Directors place on record
its appreciation of the contributions made and the valuable services
rendered by him during his tenure as Executive Director (Operations) and
Deputy Managing Director of the Company.

The Board of Director of the Company at its Meeting held on October 23,
2009 appointed Mr. K. G. Tendulkar as an Additional Director of the Company
with effect from November 8, 2009, who holds office upto the date of the
forthcoming Annual General Meeting and is eligible for appointment as a
Director of the Company.

Mr. Anil C. Singhvi:

Mr. Anil C. Singhvi, was appointed as a Director of the Company by the
Board of Directors at its Meeting held on July 27, 2007 to fill in the
casual vacancy caused in the Board due to the resignation by Mr. R. G.
Vartak, who holds office upto the date of the forthcoming Annual General
Meeting and is eligible for appointment as a Director of the Company.

All these directors have filed Form DD-A with the Company as required
under the Companies (Disqualification of Directors under Section
274(1)(g) of the Companies Act, 1956) Rules, 2003.

Brief particulars and expertise of these Directors and their other
directorship and committee membership have been given in the Report on the
Corporate Governance and in the Notice of the ensuing Annual General
Meeting of the Company.

13. Directors' Responsibility Statement:

In accordance with the provisions of Section 217(2AA) of the Companies Act,
1956, with regard to the Directors' responsibility statement, the Board of
Directors confirms that:

a) in the preparation of the annual accounts, the applicable accounting
standards have been followed and there has been no material departure;

b) the selected accounting policies were applied consistently and the
Directors 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
at March 31, 2010 and of the profits of the Company for the year ended on
that date.

c) proper and sufficient care has been taken 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.

d) the annual accounts have been prepared on a going concern basis.

14. Industrial Relations:

The industrial relations continue to be generally peaceful and cordial.

15. Transfer to Investor Education and Protection Fund (IEPF):

The Company has, during the year under review, transferred a sum of Rs.7.94
lacs to Investor Education and Protection Fund, in compliance with the
provisions of Section 205C of the Companies Act, 1956. The said amount
represents dividend, debentures and interest on debentures which remained
unclaimed by the shareholders / debenture holders of the Company for a
period exceeding 7 years from their respective due dates of payment.

16. Particulars of Employees and other additional information.:

The information required under Section 217 (2A) of the Companies Act, 1956
and the Rules made there under of the Report. However, in terms of Section
219(1)(b)(iv) of the Companies Act, 1956, the Report and Accounts are being
sent to the shareholders excluding the aforesaid Annexure. Any Shareholder
interested in obtaining copy of the same may write to the Company Secretary
at the Registered Office of the Company.

17. Conservation of Energy, technology absorption and foreign exchange
earnings and outgo:

The information relating to the conservation of energy, technology
absorption and foreign exchange earnings and outgo as required to be
disclosed under the Companies (Disclosure of particulars in the Report of
the Board of Directors) Rules 1988, is given in the Annexure II forming
part of this Report.

18. Auditors:

M/s K.S. Aiyar & Co., Chartered Accountants, Mumbai, Auditors of the
Company, bearing ICAI Registration No. 100186W retire at the ensuing Annual
General Meeting and are eligible for reappointment. They have furnished a
certificate to the effect that their proposed appointment, if made will be
in accordance with the limits specified under section 2240-B) of the
Companies Act, 1956.

19. Auditors' Report:

The Auditors' Report to the shareholders does not contain any
qualification.

20. Acknowledgements:

Your Directors would like to express their sincere appreciation to the
Financial Institutions, Banks, Central and State Governments and the
Company's valued investors for their continued co-operation and support.

Your Directors also take this opportunity to acknowledge the dedicated
efforts made by workers, staff, and officers at all level for their
contribution to the success achieved by the Company.

For and on behalf of the Board of Directors

AJIT GULABCHAND
Chairman & Managing Director
Registered Office:
Hincon House
Lai Bahadur Shastri Marg
Vikhroli (West) Mumbai-400 083

Place: Mumbai
Dated: April 30, 2010

Annexure to the Directors' Report: I

Disclosure pursuant to the provisions of Securities and Exchange Board of
India, (Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 as on March 31, 2010.

Employees Stock Option Scheme

a) Options granted 46,52,550

b) The Pricing formula The Closing market price on the Stock
Exchange, which recorded the highest Trading
Volume in the Company's share prior to the
date of the Meeting of ESOP Compensation
Committee in which Options were granted/
re-priced.

c) Options vested 7,70,880

d) Options exercised Nil

e) Total No. of shares Nil
arising as a result of
exercise of Options

f) Options lapsed 3,27,200

g) Variation of terms of In accordance with the approval of the Board
Options of Directors and the Shareholders of the
Company, ESOP Compensation Committee at its
Meeting held on July 20, 2009 had re-priced
the 41,31,600 Options already granted by the
Company at Rs.104.05 per Option (earlier
Rs.132.50 per Option).

h) Money realized by Nil
exercisable Options

i) Total No. of Options 43,25,350
in force

j) Employee wise details
of Options granted to:

Sr. Directors & Senior Personnel Number of
No. Managerial Names Designations Options granted

1. Mr. Y.H. Malegam Director 34,300

2. Mr. Rajas R. Doshi Director 34,300

3. Mr. D. M. Popat Director 34,300

4. Mr. Ram P. Gandhi Director 34,300

5. Prof. Fred Moavenzadeh Director 34,300

6. Mr. Sharad M. Kulkarni Director 34,300

7. Mr. Nirmal P. Bhogilal Director 34,300

8. Mr. Anil Singhvi Director 34,300

9. Mr. K. G. Tendulkar* Director 6,17,600

10. Mr. Vinayak Deshpande President & COO - HCC (E & C) 1,93,750

11. Mr. Rajgopal Nogja President - Lavasa & HREL 1,71,600

12. Mr. P. Chakrapani Executive Vice-President- 76,900
HCC Infrastructure

13. Mr. Praveen Sood* Group Chief Financial 2,74,500
Officer

14. Mr. Arun Karambe* Group Executive Vice- 2,74,500
President-Integrated
Resources Management

15. Mr. Aditya Jain Group Executive Vice- 2,00,300
President-Human Resources

16. Mr. S.K. Dharmadhikari* Executive Vice-President- 3,43,200
& Construction Solutions Business Development

17. Mr. N.R. Acharyulu* Executive Vice-President- 3,43,200
Water Business

18. Mr. Parvez Alam* Vice President-Hydro & 3,43,200
Transport

19. Mr. D.M. Kudtarkar* Vice President-Tendering 3,43,200
& Construction Solutions

20. Mr. K.R. Visvanath* Vice President-Nuclear & 2,28,700
Thermal & Special Projects
Business

21. Mr. S.W. Gaitonde* Vice President-EPC 2,28,700
(Kishanganga HEP)

22. Mr. V.P. Kulkarni Company Secretary 1,37,200

23. Mr. Jimmy Mogal Vice President-Corporate 1,37,200
Communications

24. Mr. Satish Pendse Chief Information Officer 1,37,200

Total No. of Options outstanding 43,25,350

Identified employees who were granted Options, during Nil
any one year, equal to or exceeding 1% of the issued
capital of the Company at the time of grant.

* Employees who have been granted Options amounting to 5% or more of the
total Options granted.

For and on behalf of the Board of Directors

AJIT GULABCHAND
Chairman & Managing Director

Registered Office:

Hincon House
Lal Bahadur Shastri Marg
Vikhroli (West) Mumbai-400 083

Place: Mumbai
Dated: April 30, 2010

Annexure to the Directors' Report: II

Information as per section 217 (1) (e) of the Companies Act, 1956 read with
the Companies (Disclosure of particulars in the Report of the Board of
Directors) Rules, 1988

I. Conservation of Energy:

a) Energy Conservation Measures Taken:

* HCC is continuing with energy saving measures initiated earlier like
usage of Load Sharing System in D.G. plants, APFC (Automatic Power Factor
Controller) panels for GRID Power, FCMA (Flux Compensated Magnetic
Amplifier) Starter for Crusher Motors, Variable Frequency Drive (VFD)
Starting System for Ventilation Fans and Tunnel Excavation Machines (Road
Header)

* In this year we have introduced Solar Water Heating System at Nimoo Bazgo
Project which reduces input power requirement.

b) Additional investment and proposals, if any being implemented for
reduction in consumption of Energy:

* Introduction of Lighting Energy Saver (About 10%) in GRID Power circuit
at Project sites Locations like Camp, Office, Yard & Area Lighting etc.

c) Impact of measures at (a) and (b) above for reduction of Energy
consumption and consequent impact on the production of goods:

Energy conservation measures continue to reduce the production cost per
unit with reference to energy consumption.

d) Total energy consumption and energy consumption per unit as per form -A
of Annexure to the rules of Industries specified in the schedule thereto:

Not Applicable

II. Technology Absorption:

Efforts made in technology absorption as per Form-B of the Annexure to the
Rules.

1. Research and Development (R&D):

Rapid changes in the area of infrastructure creation and management has
resulted in new demands in terms of competitiveness, understanding and
adoption of new construction materials and technology. HCC has been giving
a thrust on research and development activities, which include process
improvement, adoption of new construction materials and technology, and
innovation. Besides the in-house efforts to develop appropriate technology,
efforts are also being made to identify technology in other areas and study
its possible use in the construction.

Innovative work by your Company's engineers has resulted in improvements in
various areas of operations. The areas wherein new technologies are being
examined for application include:

* Use of new construction materials

* Development of new construction methodologies

* Use of IT and communication tools for monitoring and improving
productivity.

* Indigenous Tunnel monitoring software developed and used in Vizag cavern

* Asset utilization and life extension

* The Company has spent Rs.40.34 lakhs towards Research & Development
expenses, and substantial progress to pioneer efforts in Indian Industry is
envisaged.

2. Technology Absorption, Adaptation & Innovation:

a) Efforts made towards technology absorption, adaptation and innovation
during the year 2009-10 are:

* For Kishenganga Hydroelectric project, proposal for adopting double
shield type of Tunnel boring machine is being studied which has advantages
of overcoming adverse geological challenges and continuous segment
erection.

* For Kishenganga Hydroelectric project, proposal for adoption of Concrete
face rockfill dam [CFRD] has been finalized which has got cost advantages
over conventional concrete dams. For the foundation, plastic cut off wall
is being adopted by using modern hydromill equipment.

* For Nimoo Bazgo Hydroelectric project, concreting was done in extremely
cold temperatures by providing thermal blanket to concrete surface for
overcoming temperature drop effect. For concrete, special admixtures were
used to achieve the desired setting within the allowable time in the
extreme cold temperatures

* For Nimoo Bazgo & Chutak Hydroelectric project, aviation turbine fuel was
used as an additive in fuel for equipments working in high altitude.

* For Vizag cavern underground excavation, bulk underground liquid
explosives were used which resulted in reduction in time cycle and better
yield. By adopting this technique, record excavation of 1,00,000 cum/month
was achieved

* For Dagachu Hydroelectric project, in order to speed up construction,
raise boring machine for excavation of pilot hole for surge shaft and for
excavation of full cross section of pressure shaft has been finalized.

* For Dagachu Hydroelectric project, in order to accelerate tunneling
progress, use of ITC tunnel loader in combination with reversible dumper is
being finalized.

* In the past, significant efforts have been made to absorb foreign
technology including methods /equipments for bridge construction and tunnel
construction.

* HCC has deployed specialized self climbing formwork for construction of
tall and slender pylon legs for the pylons of the cable stayed bridges of
the Bandra Worli Sea Link. This formwork has enabled HCC to achieve the
complicated geometry of the pylons with demanding accuracy and the desired
aesthetic appeal has made the pylons as the signature feature of the Bandra
Worli Sea Link.

* HCC engineers have developed capabilities to design complicated segment
casting moulds for the Badarpur Elevated High Way Project. This capability
has been developed with the assistance of a Specialist designer from
Switzerland.

* A beginning has been made to achieve capabilities for in house design of
Launching Girders (at AP8 and Gosikhurd Projects), Traveling form works (at
Chamera and Uri projects).

* HCC has designed and constructed Over Topping Cofferdam using
geosynthetic material and gabion Mattresses to save on re-making cost and
time. This has been successfully adopted at Lohari Nagpala Project.

* Double Shield Tunnel Boring Machine (TBM) is being used at Veligonda
project for excavating large diameter very long water tunnel, with
continuous conveyor for mucking and simultaneous installation of precast
segmental lining.

* New Austrian Tunneling Method (NATM) is being used of Pir Panjal tunnels
in Jammu and Kashmir using Tunnel Version excavators and Road Headers.

b) Benefits derived as a result of the above efforts:

Reduction in cycle time of construction of different components and thereby
increasing of productivity.

Development of Human Resource in use of advanced technology with modern
equipment and technology.

c) Technology Year of Has technology been
Imported import fully absorbed

Use of reverse 2001 Fully absorbed
circulation Drill for
pilling

Use of 55C 15 2003 Absorbed

Fressyinet System for
Prestressing

Hydro jetting 2005 Fully absorbed
technology for
concrete skinning

Computerized 2005 Fully absorbed
boomers

Steel corrugated tunnels 2005 Fully absorbed

Use of free flow 2005 Fully absorbed
(no slump) concrete in
highly congested area

Road Header 2006 Absorbed

De-Dusting System 2006 Absorbed for Road Header

Tunnel version 2006 Absorbed
excavator

Box pushing technique 2007 Absorbed
for construction of
under existing road
without disturbing traffic
on existing road at
Chennai Road Project

Use of Geo textile bags 2007 Absorbed replacing
bouldercrate pitching for
Teesta Diversion scheme

Use of Fly ash for 2008 Absorbed embankment and
RE wall backfilling

Orica Emulsion base 2008 Absorbed explosive &
Powerdet long delay
detonators

Roller Compacted 2008 Under
Concrete Technology at Implementation
Teesta Project

Wassara drilling Equipment 2008 Absorbed
(unique method of drilling
by using water power)

Cold weather concreting 2008 Absorbed
system and Protection
works when atmospheric
temperature is below 50C

III. Foreign Exchange earnings and outgo:

(a) Activities relating to exports, initiative taken to increase exports,
development of new export market for production services and export plans:

Visits are being made by technical and marketing personnel to develop new
export markets from time to time.

(b) Total Foreign Exchange used and earned:

The information on Foreign Exchange earnings and outgo is contained in Note
no. 18 (B) and (D) of Schedule Q forming part of the accounts.

For and on behalf of Board of Directors,

AJIT GULABCHAND
Chairman & Managing Director
Registered Office:
Hincon House
Lal Bahadur Shastri Marg
Vikhroli (West) Mumbai 400 083
Place: Mumbai
Date : April 30, 2010


MANAGEMENT DISCUSSION AND ANALYSIS

The Business Environment:

While there are encouraging signs for the global economy with some
stabilisation in international financial markets and two quarters of
positive growth in the US, much of the developed world still continues to
witness negative or very low real GDP growth. Uncertainties continue to
haunt the global economic landscape. Business sentiments, while better than
before, still remain muted.

The positive is the resilience shown by the Indian economy. To be sure,
growth fell fairly sharp from three years of 9% or more to 6.7% in 2008-09.
However, the upswing started in 2009-10. As matters stand today, the
Central Statistical Organisation is predicting 7.2% GDP growth in 2009-10.
Many believe that it will be bettered. Chart A plots the data. A couple of
points need to be made: First, India has recovered better than any large
economy barring China; Second, growth is still lower than what the nation
had got used to.

Construction activities have a strong correlation with economic growth as
well as investor sentiments. As discussed in last year's Annual Report,
uncertainties about the economy and subdued business sentiment had stalled
large capital outlays in infrastructure development in 2008-09. In
addition, there was a liquidity crunch in the second half, which affected
on-going construction projects. In this milieu, Hindustan Construction
Company's success lay in its ability to grow the order book.

While liquidity conditions improved and the economic outlook started
turning positive in 2009-10, for most of the year the private sector in
India was in a 'watch and wait' phase - assessing the strength of the
economy in light of the global crisis, and not aggressively committing to
large investments in physical infrastructure. That changed from the last
quarter of 2009-10, when infrastructure took off, with investments in
highways an power projects. And it has strengthened further in what we are
seeing of 2010-11.

However, it is fair to say that for 2009-10 as a whole, the year was muted
as far as infrastructure investments we concerned. For instance, the first
quarter of 2009-10 saw the general elections to the Indian Parliament, or
the Lok Sabha. The model code of conduct imposed the Election Commission
prevented any new investment of the Government of India (Gol) until
elections were completed, and a new government sworn in. While investor
confidence improved with the elections resulting in a stable government,
the new ministers naturally took some time to assess the situation and
kick-start the investment process once again.

Thankfully, Gol investments in infrastructure took off from the second half
of 2009-10, especially in highways power and urban infrastructure - the
more so in the last quarter of the financial year. These positive
development have definitely increased the order books for the
infrastructure and construction industry. However, as yet, these have not
translated into full-fledged project execution. Hence, there was not much
positive impact on the profit and loss for 2009-10 something that ought to
occur more significantly in 2010-11.

The slowdown in 2008-09 and 2009-10 is evident from Chart B, which plots
real growth in construction activities. While there is a slight improvement
in growth from 5.9% in 2008-09 to 6.5% in 2009-10, the level is f below the
double-digit growth rates recorded in the three years prior to 2008-09,
when the Indian economy grew at an annual rate of over 9%.

2009-10: Performance Highlights:

Being a leader in the Indian construction industry that operates across a
wide spectrum of sectors, the performance of Hindustan Construction
Company's ('HCC' or 'the Company') in 2009-10 was also affected by these
external exigencies. The financial highlights of HCC's performance on a
stand-alone basis are:

* Order Book increased by 14.7% from Rs.16,400 crore in 2008-09 to
Rs.18,810 crore in 2009-10

* Revenue from operations increased by 9.8% from Rs.3,518 crore in 2008-09
to Rs.3,863 crore in 2010

* EBITDA (before profits from JV and other income) grew by 2.7% from
Rs.431.4 crore in 2008-09 to Rs.442.9 crore in 2009-10

* PAT (including profit from JVs and other income) of Rs.81.4 crore is not
comparable to previous year due to one-time write-offs of Rs. 43 crore
during 2009-10, and extraordinary gains in the previous year

Given the business environment discussed in the earlier paragraphs,
sluggishness in top-line growth and lower profits were to be expected.
There were some external uncertainties that also came into play which
further affected the Company's revenue growth and net profits.

One was Andhra Pradesh. First, there was the sudden death of chief minister
Mr. Y.S.R. Reddy, which created a political vacuum and uncertainty. Then,
there were instances of civil disorder and violence relating to the
politics of a separate state of Telengana. Given the uncertain environment,
HCC slowed down execution of its government projects in Andhra Pradesh. The
Company carefully assessed the situation and focused on cash collections
and working capital management. This had an adverse impact on H CC's
revenues for 2009-10.

Subsequently, the Government of Andhra Pradesh has' placed ongoing projects
in the state into three categories, based on funding and priority of
execution. Most of HCC's projects are in the top two categories. On the
basis of this classification, and in consultation with the state
government, the Company has now got back to its higher project work
execution plan. The proportion of irrigation orders in Andhra Pradesh has
reduced from 26% as on 31st March, 2009 to 18% as on 31st March, 2010. HCC
has also succeeded in getting payments for work done till January 2010,
indicating substantial improvement in pending receivables, and consequent
working capital requirements.

Profit Before Tax and Profit After Tax in 2009-10 are not comparable with
the previous year. While in 2008-09, there was a one-time profit booked
from sale of land, in 2009-10, there were one-time write-offs of Rs. 43
crore on account of Bandra-Worli Sea Link inauguration expenses, political
donations, loss on account of final settlement in Nathpa Jhakhri JV with
the client and loss on sale of assets. If the impact of these extraordinary
items is removed, on a like-to-like basis, financial performance in 2009-10
has improved compared to 2008-09.

Here, it is worth noting that HCC continued to successfully grow its order
book. While increments in the order book in a given year typically do not
raise revenues or profits in that year, these certainly define the future
course of the Company. It is the growth in, and composition of, the order
book which reflect signs of a paradigm shift in HCC's strategic
positioning.

Since 2008-09, EPC contracts have become a sizable component in the
Company's order book. Such orders have continued to grow. Besides, the
private sector including HCC's own infrastructure JVs - has been a major
source of HCC's project order book.

Strategic Developments:

HCC firmly endorses India's growth potential. The slowdown in 2008-09 and
2009-10 was due to the external shock of the global economic meltdown. The
country recovered remarkably quickly; is already on a higher growth trend;
and most economic forecasts suggest that India will grow at over 80/o
annual rate in the next few years.

However, as has been pointed out in the past Annual Reports, infrastructure
growth has not been in line with the requirements of such a rapidly growing
economy. The problem has been of poor implementation. While there was some
improvement in the pace of execution in 2009-10, there is much left to be
desired. Take the case of power and highways. Chart C shows the achievement
against plan for the year in terms of new capacities created in power
generation. There was a shortfall of 3,896 MW of planned thermal power
capacity creation; 806 MW of hydroelectric capacity; and 220 MW of nuclear
power capacity.

Similarly, in highways, 55% of planned 12,901 km of NHDP V, 81% of 6,500 km
of NHDP VI, the entire 1,000 km of NHDP VII, and 42% of the port
connectivity roads are yet to be awarded to anyone for construction.

To be fair, there have been some positive signals, especially since the
last quarter of 2009-10. Mr. Kamal Nath, the Union Cabinet Minister for
Road Transport and Highways has announced a plan to increase the rate of
road construction from around 9 krr a day to 20 km, and to do so by
launching mega project; with larger package sizes. There have been some
developments in the power sector as well, and especial for larger
capacities. What is important to note in these developments is the growing
role of the private sector. Most government projects are through public-
private partnerships (PPP. And, in some projects, especially in power, the
private sector is playing a more direct role.

HCC had anticipated these trends and realised the massive opportunities
that infrastructure offers to the private sector, given the government's
resource constraints. However, competencies and capabilities had to be
built to leverage this opportunity. This is what the Company has been doing
over the past few years.

Broadly speaking, infrastructure development and = management has four
elements. These are vision, execution, maintenance and the customer
relationship. Having excelled in executing projects on a contract basis
over decades, HCC has been gradually but surely developing its internal
expertise across the entire infrastructure value chain.

Historically, HCC's execution contracts were those in which engineering and
procurement was done either by the client or other agencies. Over the last
few years, the Company has been focusing on bidding for and securing
complete Engineering Procurement and Construction (EPC) contracts.

Initially, HCC participated in some small projects through this route to
gain experience. Then, in 2008-09, it created a separate vertical within
the projects division that focused exclusively on EPC projects. It has
borne fruit. Today, HCC is managing the largest EPC hydroelectric project
in India, the Kishanganga Project, which is progressing according to the
plan.

The EPC platform continued to grow in 2009-10. A major development during
the year was the Company's entry into the industrial sector. Three
contracts were secured from Hindalco Industries for their Aditya Aluminium
Smelter Project at Sambalpur, Orissa. The work involves fabrication of the
smelter pot shells, the pot superstructure and civil works. The Company
also secured a contract for civil, electrical and mechanical services for
constructing a new dry dock for the Indian Navy in Mumbai.

Not only has HCC secured such orders, but it has also gained certification
from a global technology major in doing these kinds of projects. The
Company continues to develop its EPC capabilities by forging alliances with
global technology majors such as heavy civil majors like EMEC and Halcrow
of the UK, and Vinci Construction Grands Projets of France.

HCC has also started moving towards complete infrastructure development. In
urban infrastructure development and management, it has been a pioneer in
India with the development of the hill city of Lavasa, the largest real
estate development of its kind in India.

Lavasa's progress has been rapid. In 2009-10, it started delivering healthy
financial returns. This is value being created through investments by HCC,
whose financial benefits are not reflected in the stand-alone financial
results of the Company. Details of developments at Lavasa are given in
subsequent sections.

In the Company's infrastructure business, HCC Infrastructure was
established two years ago to develop a premium portfolio of DBFOT (Design,
Build, Finance, Operate and Transfer) assets that generate stable,
diversified and growing cash flow streams with a high return on equity. The
focus is on roads and hydro power, with potentially opportunistic plays in
water, airports and ports.

These characteristics have come into play, and have driven HCC
Infrastructure to create a portfolio of Rs. 5,539 crore within 2 years,
details of which are given in the subsequent sections.

With this diversified growth objective, in July 2009, HCC raised Rs. 480.1
crore through the issue of 4.7 crore shares to Qualified Institutions
Buyers (QIBs) through private placement, at an issue price of Rs.102.15 per
share. After the issue of shares, the paid-up share capital of the Company
increased from Rs. 25.63 crore to Rs. 30.33 crore. With this infusion of
capital, HCC has strengthened its balance sheet and reduced financial
leveraging risks.

In addition to these internal developments, in March 2010, H CC made its
first international acquisition by taking a controlling stake in Karl
Steiner AG (Switzerland).

International Acquisition: Karl Steiner AG (AG):

KSAG, is part of the Switzerland based Steiner Group. It is a total
services contractor, and is engaged in planning and developing real estate
projects, as well as undertaking construction and renovation work. With a
heritage of 95 years, primarily in the European market, KSAG has several
landmark works to its credit, including the headquarters of Nestle, Google,
World Economic Forum, Terminal T3 of Geneva airport, and several hotels and
residential buildings. It is the second largest total service contractor in
the Swiss market.

HCC has agreed to acquire a 66% stake by issuance of new shares in
consideration for a CHF 35 million cash investment in KSAG. In turn, KSAG
will use the funds for its Swiss operations and growth of the Company's
core business in India's growing residential and commercial construction
market.

KSAG's sole owner, Peter Steiner, will sell his remaining shares to HCC in
2014. Until that time, he will remain a minority shareholder and fully
support HCC's management of KSAG as Vice-Chairman.

The strategic fit of this transaction is that it helps HCC to capture the
local market opportunity and provides the Company with a presence for
European expansion. KSAG's rich expertise in total services contracting
will allow HCC to undertake the development and construction of world-class
residential and commercial spaces on a turnkey basis in India. This is one
of the fastest growing segments in the country, and the Company intends to
create a niche for itself by addressing the Indian customer's needs for top
class, green and well integrated spaces for living, work and leisure. This
strategic fit also opens the Swiss and European market to HCC's Engineering
and Construction (E&C) business and will help procure greater access to
technology and EPC capability.

Highlights of the acquisition rationale are:

* Entry into the integrated building construction market in India, which is
estimated at Rs.65,000 to Rs.75,000 crore annually

* Total solutions capability for a facility at a single source

* Implementation of new technologies to support sustainable and green
development

* Safe and fast construction processes

* Access to world-class, cutting-edge European technologies that will
augment EPC offerings in India and other markets

Essentially, HCC is in a transformation phase. Some of the building blocks
it was putting in place to occupy a wider space in the infrastructure
development world have recently started to generate results. The
metamorphosis from a blue chip construction contractor to a diversified
infrastructure group is under way. 2009-10 is yet another small step in
this direction. While undertaking this journey, the Company is aware of the
challenges and possible pitfalls. Therefore, it remains disciplined and
cautious in its approach.

Developments in the businesses of - Engineering and Construction (E & C),
Infrastructure Development, Integrated Urban Development and Management and
Real Estate - are reported in the next few sections, along with key
activities that were undertaken in the Support Functions.

Engineering and Construction Business:

The Company's Order Book stands at Rs.18,810 crore as on 31st March, 2010,
against Rs.16,400 crore on 31st March, 2009. While broader issues such as
developments on the EPC and DBFOT fronts have already been discussed, there
are two other issues that the projects division has started tackling
aggressively.

First, HCC is now consciously working on a strategy for equipment. Given
the pace of growth, there is a fine balance that needs to be created
between investing in equipment that support efficient project delivery and
delivering strong returns on the existing base of equipment by increasing
its utilisation. Consequently, machines have been classified into two
groups. One group includes special purpose machines and equipment that are
essential for maintaining quality in construction. These are machines that
HCC will invest it The other group comprises machines that are routine and
commodity-like in nature. These will be outsourced. The Company is working
on developing quality subcontractors and leasing partners.

Second, with the huge number of projects, HCC's working capital increased
significantly. While some of this is inherent given the business mix, the
Company is laying stress on expediting claims, speeding up dispute
resolutions and accelerating the cash cycle collections. As of 31st March,
2010, H CC was executing 56 projects. Developments across the different
project sectors are given below.

Power:

Power (hydro, nuclear and thermal) is the largest sector in HCC's projects
portfolio. The Company maintained its leadership in the hydro power sector
by securing another three contracts in 2009-10. These were Gosikhurd Hydel
Power Scheme in Maharashtra, Pare Hydro-electric Project (HEP) in Arunachal
Pradesh, and Dagachhu HEP (civil works) in Bhutan. HCC is also executing
six projects for NHPC Ltd., which are progressing well.

Some of the major projects under execution are:

Kishanganga Hydro-electric Project, Jammu and Kashmir

This Rs. 2,725 crore turnkey construction contract is for a 3 x 110 MW
hydro-electric power plant. Work has commenced at site and will pick up
speed in 2010-11.

Chutak Hydro-electric Power Project, Kargil, Jammu and Kashmir:

HCC is constructing the 4 x 11 MW, Rs. 411 crore Chutak Hydro-electric
Project at Kargil in Jammu and Kashmir. All excavation works have been
completed. At present, concrete works for the tunnel, barrage and
underground powerhouse cavern are in progress.

Nimoo Bazgo Hydro-electric Power Project, Leh, Jammu and Kashmir:

The 3 x 15 MW Nimoo Bazgo Hydro-electric Power Project worth Rs. 384 crore
is under execution in the Leh-Ladakh area. Concrete works are in progress,
and the dam and powerhouse units are about 70% complete.

Uri-II Hydro-electric Project, Jammu and Kashmir:

The project involves civil works for a 4 x 60 MW Uri Hydro Power Plant. At
present, concreting of the mull powerhouse is nearing completion.

Chainnera Hydro-electric Power Project, Stage III, Himachal Pradesh:

The Company is carrying out civil works of this 3 x 77 MW power project.
Excavation works are complete and concreting of tunnels and dam is at an
advanced stage.

Teesta Low Dam HEP - Stage IV, West Bengal:

This Rs.396 crore project involves civil works for a 4 x 40 MW hydro-
electric project. 68% of concrete work in the power dam has been completed.

Dagachhu Hydro Power Plant, Bhutan:

The Company secured the EPC contract for this 114 MW hydro power plant
valued at Rs.388 crore from Dagachhu Hydro Power Corporation Ltd.

Kashang Hydro-electric Project, Stage I, Himachal Pradesh:

This Rs. 296 crore project by Himachal Pradesh Power Corporation Ltd. is
for constructing a 3 x 65 MW power plant. Excavation for the river
diversion and underground works are under progress.

Pare Hydro-electric Project, Arunachal Pradesh:

Work has commenced on this 2 x 55 MW power project for North Eastern
Electric Power Corporation (NEEPCO). The contract value is Rs.276 crore.

Punatsangchhu-1 Hydro-electric Project, Bhutan:

This Rs.688 crore contract from Punatsangchhu Hydro- electric Power
Authority involves all civil and hydro-mechanical works for the 1,200 MW
hydro-electric power plant. Work has commenced for the powerhouse and
tunnels.

Teesta Hydro-electric Project Stage VI, Sikkim:

The Company is executing two packages for Teesta HEP Stage VI for Lanco
Infratech. One package is for an 8.25 km twin head race tunnel. The second
package is for an underground powerhouse and allied underground works. Work
on both the packages is progressing well.

Kudankulam Nuclear Power Project, Tamil Nadu:

HCC is executing two packages for this 2 x 1,000 MW power project for
Nuclear Power Corporation of India Ltd. (NPCIL). Package III involves
construction of the reactor and auxiliary buildings for the two units; and
package C6 comprises a 2 km long breakwater and intake works. Work on both
the packages is nearing completion.

Transportation:

HCC continues to be a crucial player in the transport sector with its
involvement in highway development projects, bridges, tunnels and metros.

The landmark Bandra-Worli Sea Link Project is complete and both the
carriageways are open to traffic. The sea link was awarded the 'Most
Outstanding Bridge - National Award' by the Indian Institution of Bridge
Engineers (IIBE) in 2009.

The Company was awarded the EPC contract for 256 kms of contiguous stretch
of NH-34 in West Bengal, which is being developed by HCC Infrastructure.
The project cost is approximately Rs.2,860 crore. It is expected that HCC
Infrastructure's DBFOT business will contribute Rs.3,000 crore to Rs.4,000
crore of road projects annually to the projects division. HCC was also
awarded two additional projects, which include an elevated road corridor in
Kolkata from Park Circus to the EM Bypass and a single line broad gauge
tunnel between Dholakal and Kalmai in Assam for the NF Railway.

The Company has also completed construction of three road projects during
the year under review. These are (i) the World Bank aided Allahabad Bypass
Package II, (ii) the North-South Corridor Project Package NS2/BOT/AP-8, and
(iii) the Paradip Port Road connectivity project. The second of these, the
AP-8 BOT road project was operational 100 days ahead of schedule. The
DMRC's Airport Metro Express Line packages C1 and C6 are also nearing
completion.

Some of the major projects under execution are:

Chennai Bypass, Tamil Nadu:

This Rs.404 crore, 32.5 km four-lane road shall interconnect three national
highways, namely NH-4, NH-5 and NH-45. Phase I of this project is complete
and Phase I I is at an advanced stage of completion.

Mughal Road, Jammu and Kashmir:

The Company is involved in connecting Bafliaz (Poonch) to Shopian (near
Srinagar) through the Fir Panjal Pass by building an 83 km two-lane asphalt
road. With this road, approximately 550 km of an additional, circuitous
commute shall be reduced, thus improving connectivity in Jammu and Kashmir.
The road excavation is nearing completion.

MP-Dhule Road on NH-3, Maharashtra:

Construction has commenced on this 96.5 km long DBFOT road for the four-
laning of Maharashtra Border-Dhule Section of NH-3 under NHDP Phase III.

Lucknow-Muzaffarpur National Highway, Packages LMNHP-EW II (WB)-1 to 4,
Uttar Pradesh:

Four consecutive packages on the Lucknow-Gorakhpur section of the World
Bank aided Lucknow-Muzaffarpur National Highway Project are under
construction.

The work involves four-laning of a 156 km. stretch by strengthening the
existing two lanes of asphalt pavement and constructing two new lanes of
concrete pavement. At present, 124 km four-lane carriageway and 31 km of
service road have been completed.

Udhampur-Srinagar-Baramulla Railway Line Project, Jammu and Kashmir:

An 11 km tunnel on the Laole-Qazigund section of Udhampur-Srinagar-
Baramulla Railway Line Project is being executed by HCC. The excavation of
a 7.1 km tunnel and 5 km of concrete lining has been completed.

Water Supply and Irrigation:

The Company is executing various water supply and irrigation projects in
Maharashtra, Gujarat and Andhra Pradesh. HCC has secured the 62.28 km
pumped water supply scheme from Kesaria to Sonaria in Gujarat (Package NC-
25), for the Gujarat Water Infrastructure Ltd.

Some of the major projects under execution are:

JCR Devadula Lift Irrigation Scheme, Andhra Pradesh:

HCC is involved in all the three phases of the JCR Devadula Godavari Lift
Irrigation Scheme. This is the second largest scheme of this kind in the
world and shall cater to the irrigation and drinking water requirement of
647,000 acres of land,

In the second phase, trials for the water system in the 38 km pipeline from
its intake to the first Bhimghanpur tank were successfully conducted. In
the third phase, HCC is involved in two packages for three rows of 38 km
pipeline and 55 km long tunnel. Work is proceeding well in both the
packages.

IV Mumbai (Middle Vaitarana) Water Supply Project, Section-II, Maharashtra:

This is a 15.7 km pipeline project which shall aid Municipal Corporation of
Greater Mumbai to augment Mumbai's water supply by 455 million litres per
day. Pipe laying is nearing completion.

Maroshi Ruparel Tunnel Contract ARFC 2, Maharashtra:

The Rs.415 crore project entails constructing a 12.4 km tunnel positioned
at a depth of about 65 metres below the ground level. Tunnel boring on the
VakolaMaroshi section has been completed, and is in progress in the Vakola-
Mahim section.

Miscellaneous:

In addition to the above projects, HCC has entered the industrial
construction space. Apart from the smelter projects in EPC, the Company
also secured a contract for the construction of a crude oil storage cavern
at Padur in Karnataka from Indian Strategic Petroleum Reserves Limited
(ISPRL. The contract is valued at Rs.375 crore. A similar contract for
civil works of storage caverns by ISPRL at Vizag (Andhra Pradesh) is under
execution.

Infrastructure Development:

HCC Infrastructure remains committed to developing a premium portfolio of
infrastructure assets that will serve India's needs while creating
shareholder value for the Company by generating stable, diversified and
growing cash flow streams over the long-term.

HCC's decision to enter the Design, Build, Finance, Operate and Transfer
(DBFOT) business as a developer is part of a larger business plan. While
investing in infrastructure assets is a natural progression of HCC's
inherent ability to operate in most domains of engineering construction, it
must be noted that asset development and management requires different
kinds of expertise that extend to concept innovation, evaluation of risk
and return, and in delivering the brand promise to the customer over the
life of the asset.

The HCC Infrastructure team is building such expertise by leveraging its
in-house construction knowledge while creating its own bandwidth as an
asset manager.

Since its inception two years ago, HCC Infrastructure has grown its
portfolio from Rs.2,307 crore in 2008-09 to Rs.5,539 crore in 2009-10.

The assets under management include six NHAI road concessions, of which one
is operational. The Company plans to grow its road portfolio to Rs.15,000
crore in the next 24 to 30 months, and will ensure adequate financial tie-
ups to fund the equity requirements of such projects and also bid for the
newer mega-highway projects.

HCC Infrastructure is concurrently evaluating opportunities in hydro power
and water, where HCC has an inherent edge given its EPC capabilities. It is
also evaluating opportunities in airports and ports.

While pursuing this business, HCC is aware that mere creation of a sizeable
portfolio does not imply greater shareholder wealth. Projects must earn
high returns on equity while effectively managing risk and maximising free
cash flow. To achieve these goals, HCC Infrastructure adopts a disciplined
and patient investment strategy. For example, in 2009-10, while HCC
Infrastructure qualified for 27 road projects, it focused bids on only
three projects with higher probability of financial success. Each of HCC's
existing five toll projects meets a high hurdle rate of return, with upside
characteristics.

New Assets under Development: In February 2010, the NHAI awarded three
contiguous sections of approximately 256 km for the development of existing
two lanes to four lanes between Bahrampore to Dalkhola on NH-34 in West
Bengal. These concessions, worth Rs. 3,231 crore, were awarded to HCC
Infrastructure on a DBFOT toll basis with a cumulative grant of Rs.1,033
crore. The first section is from Bahrampore to Farakka (103 km); the second
is from Farakka to Raiganj (103 km); and third is between Raiganj to
Dalkhola (50 km). HCC Infrastructure has already received sanctions for the
financial closure of all three assets at a 10.5% fixed rate through the
construction period.

Update on Existing Assets: The Nirmal BOT Road in Andhra Pradesh from km
278 (Kadthal) to km. 308 (Armur) of NH-7 under the North-South Corridor
(NHDP Phase-II) on a BOT annuity basis is fully operational, and managed by
an in-house operations and maintenance team. Commercial operation was
achieved 100 days ahead of schedule. The six lane Badarpur-Faridabad
Elevated Highway Project from km 16 to km 20 on the Delhi-Agra Section of
NH-2 has also reached 65% completion within 15 months, and is expected to
be commercially operational by December of this year. The four lane Dhule-
Palasner Road Project on NH-3 from km 168 to km 265 in Maharashtra under
DBFOT has achieved financial closure and is due for completion by June
2012.

Lavasa - Integrated Urban Development and Management:

Lavasa is HCC's ambitious project to develop a complete hill city. From
HCC's perspective, this comprehensive urban development and management is a
unique attempt at infrastructure development, and the only private sector
development of its kind in India, and possibly the world. The execution of
this venture continues on schedule, and is currently amongst the largest
construction sites in India.

Set amidst seven hills of the Sahyadri range with a 60 km. lake front,
Lavasa is free India's first planned hill city. It will be a self-
sustaining city built around four principle activities - live, learn, work
and play.

The entire city is being developed with a focus on providing world-class
facilities in each of these domains. It offers a wide range of residential
and commercial facilities, tie-ups with premier national and international
education institutions, an extensive range of tourist activities and family
entertainment opportunities, and several business opportunities across a
range of non-polluting industries.

With the soft inauguration of the city in 2009 and active property sales,
Lavasa has started gaining traction as an independent enterprise. The
subsidiary has been continuously improving its operational performance and
has already completed pre-sales of more than Rs.1,100 crore. During 2009-
10, there were land sales worth Rs. 210 crore and built-up space sales of
Rs. 265 crore.

The financial highlights during 2009-10 are:

* Revenues were Rs.482 crore
* PAT was Rs.140 crore

In other words, Lavasa has evolved from a grand vision to a business
portfolio that is actively generating financial returns. Given its initial
success, HCC has unveiled a new expanded plan for the project. This
envisages development of 18,000 acres versus the earlier plan of 12,500
acres.

The new plan involves the development of 157 million square feet over 12
years, of which 100 million square feet will be residential - implying one
of the largest real estate developments of its kind in India. This covers
five primary towns - Dasve, Mugaon, Dhamanohol, Sakhari-Wadavali and the
central business district (CBD). Through internal funds and borrowing, most
of this expanded plan has achieved financial closure.

As of now, over Rs.1,800 crore has been invested and a substantial part of
the infrastructure is in place. Dasve town is under active implementation,
while the master plan for Mugaon is ready and infrastructure is under
execution. Administratively, healthcare, security and banking facilities
have commenced at Dasve.

Real Estate:

Given the uncertainties in the Indian real estate market, especially in the
commercial segment, HCC has adopted a cautious approach in growing the real
estate business. The focus has been on executing existing projects.

247 Park at Vikhroli (West): The commercial complex, '247 Park' at Vikhroli
(West), was completed in 2009-10. In a depressed commercial real estate
market, '247 Park' has received good response from clients, and more than
75% of the overall leasable area has been leased out. During 2009-10, the
building was awarded Leadership in Energy and Environmental Design (LEED)
Gold Certification - the largest stand-alone building in India to receive
this recognition. It was also awarded by CNBC Awaaz-CRISIL as 'The Best
Commercial Project in the Western Region'.

Development of Vikhroli (E) land parcel: HCC owns a land parcel at Hariyali
village, Vikhroli (E), which was declared a slum under the Slum
Rehabilitation Act of 1973. HCC Real Estate is developing this land parcel
through Panchkutir Developers Ltd., a wholly owned' subsidiary of HCC.
Consent has been received from more than 70% of slum dwellers for
development of this land, and the necessary documentation has been filed
with the statutory authorities seeking an approval of development on this
land parcel. Construction activities are expected to commence in 2010-11.

Operations Support:

The operations of the different businesses are supported by Information
Technology, Management Systems, Intellectual Property Rights, Branding and
Human Resource.

Information Technology (IT):

Operational for over four years, the SAP ERP system is now well established
within HCC. Besides the corporate head office and the engineering workshop
at Tara, 49 of HCC's projects now run under SAP. Moreover, the ERP system
is now extended to subsidiaries including HCC Infrastructure, HCC Real
Estate and Lavasa Corporation. As a part of the Company's continuous
improvement initiatives, the focus is to now leverage the IT platform to
further improve business processes.

The Company is in the process of converting most of the documents within
the system into digital form using SAP's 'Document Management System',
which is seamlessly integrated with the base ERP. Nine critical departments
within HCC are already operating on this system.

Having stabilised the ERP within the Company, HCC has extended the reach of
the automated business practices to its key suppliers and vendors. A
supplier portal, developed using SAP's SRM software components, was
launched in 2009-10. Many suppliers have already started automated
transactions with HCC.

Since the Company operates in several remote areas, there is immense scope
of improving efficiency of logistics and supply chain through the
implementation of mobility based IT solutions. HCC has started realising
the potential of these systems. It has already started using GPS technology
and GPRS networking for this purpose. And, applications such as vehicle
tracking and time-cycle monitoring are being deployed.

With the objective to ensure near real-time updating of material
consumption and production data into SAP for efficient monitoring and
decision making, HCC is now in the process of integrating major equipment
data with SAP. To begin with, batching plants at five projects have been
integrated, and automated data flow from these plants to SAP has started.

All the IT applications are supported at the back-end by a rugged and
scalable infrastructure comprising state-of-the-art wide area network and a
well connected data centre.

Being envisaged as a state-of-the-art modern city, IT is extremely crucial
to the success of Lavasa. A Special Purpose Vehicle (SPV) called MyCity
Technology Ltd. (MyCity) has been formed in partnership with Wipro to
support Lavasa in the areas of e-governance, integrated building management
solutions, telecom, WiFi services, city management solutions and ICT
infrastructure.

The city network design using Gigabit Passive Optical Network (GPON) design
is now complete. MyCity is in the process of completing fibre to home and
structure cabling for various residents and commercial structures at Dasve-
the first town being developed at Lavasa.

MyCity has also signed an MoU with Tata Teleservices Maharashtra Ltd.
(TTML) in January 2010, to provide mobility and non-mobility telecom
services on revenue sharing basis. TTML launched its high speed wireless
Internet services Photon+ at Dasve in February 2010.

It was observed that while the infrastructure sector is rapidly growing in
India, there is relatively low penetration of IT in this industry.
Moreover, the IT industry has a low level of understanding of the nuances
of infrastructure. Having successfully implemented IT solutions within the
Company, HCC realised the business opportunity available due to this gap.
To cater to this requirement, HCC's IT division has transitioned into
'Highbar Technologies Ltd'., a subsidiary of the Company, which is an end-
to-end solution provider for the infrastructure industry, with in-depth
experience in ERP implementation, GPS based tracking solutions,
reinforcement steel optimization etc. among others. Highbar Technologies
has already undertaken IT deployment for its strong customer base of 26
clients over the last 18 months.

Management Systems:

HCC's business operations extend to remote project sites spread across
different states. Creating, establishing and developing best-in-class
processes and systems across these sites are fundamental to developing the
Company's competitive strength.

HCC has adopted an integrated approach towards quality, environment, health
and safety and has incorporated these in business practices. The objective
of an integrated management system (IMS) is to inculcate a culture of
continuous improvement that will enhance quality of the products and
maintain the highest standards of environment protection and safety of the
project team to maximise customer satisfaction. This adheres to the
stringent standards stipulated by ISO 9001:2008 for Quality; ISO 14001:
2004 for Environment; and BS OHSAS 18001:2007 for Occupational Health and
Safety.

On the safety front, HCC focuses on creating a culture that continually
reduces the frequency of incidents to achieve the goal of 'Zero Incidents'
in a time bound manner. The Company is also committed to reducing the
impact on environment during execution of projects. To achieve these
objectives, engineers at various functional levels are trained by

professional agencies to ensure proper operation of processes and systems.
These trained engineers then act as internal auditors to conduct regular
bi-annual internal IMS audits based on a detailed schedule.

There were several IMS-related developments during 2009-2010. During
January-February 2010, M/s TUV NORD, the certifying agency, conducted a
surveillance audit for ISO 14001:2004, BS OHSAS 18001:2007 and a
certification audit for ISO 9001:2008 to verify the status of compliance to
the requirements of these standards. Three of the project sites of the
Company and most of the functions at corporate office were subjected to
these audits. The auditors recommended continuation of certification for
ISO 14001:2004 and BS OHSAS 18001:2007, and have also issued a certificate
for ISO 9001:2008. These certificates are valid up to March 2011.

During the course of this audit, the external auditors observed HCC is the
only Indian company they audited which undertook actions to conserve water
as a part of corporate social responsibility under the United Nations CEO
Water Mandate.

Intellectual Property Rights:

HCC continued to pursue its initiatives for the creation and protection of
Intellectual Property (IP) during 2009-10.

The Patents Act, 1970

HCC completed the formalities under the Patents Act on the following
inventions, which have been submitted to the patenting authority and they
are under examination by the Patent Office.

* Pipe joint leak testing device

* A system for automatic accounting of fluids in a vessel, container or
tank

* New capping system for testing concrete and rock cores

* System and method for online monitoring of fuel consumption in
automobiles

* System and method for detecting trespassing below a parked vehicle

* Geotextile Sand Container Mattresses (GSCM) lining for temporary river
bed diversion channels

The Trade Marks Act, 1999:

* HCC has created a trademark 'Highbar' for offering IT services. A multi-
class application for registration of this trademark has been filed before
the Registrar of Trade Marks, Mumbai

* For its trademark 'HCC Real Estate' HCC obtained a certificate of
registration of trademark from the Registrar of Trade Marks, Mumbai in
March 2010

The Copyright Act, 1957:

* HCC obtained a copyright registration certificate from the Copyright
Office, Delhi, for the artistic work contained in '247 Park' logo in
October 2009

Branding:

In the fourth year of HCC's systematic branding initiatives, brand
consciousness within the Company has become much more integrated into the
culture of the enterprise.

Branding is now a consistent part of planning right from the mobilisation
phase of every project site so that the association with HCC is established
even as work begins at a new site. Branding at 17 project sites was
completed. Branded sites now fall under the purview of HCC's IMS systems
and are regularly audited for brand compliance.

'Living the Brand' workshops continued to be initiated at select sites.
These received enthusiastic response and helped instil the resolve to make
HCC a world-class brand. This effort will continue to be extended to all
sites.

HCC also participated in eight trade and industry meets and expositions
during the year, consistently enhancing its brand presence among clients
and business associates as a Company in the forefront of infrastructure
development. These included domestic and international participation in
SAARC and trade events of the hydro power, tunnelling and nuclear power
sectors.

The high point for Brand HCC was the inauguration of HCC's landmark
project, the Bandra-Worli Sea Link, by Smt. Sonia Gandhi, Chairperson of
the UPA in June 2009, Mumbai. The Sea Link, Mumbai's new landmark, provided
touch points for the widest outreach of the Company's brand identity. The
opening of the Sea Link was preceded by a spectacularly orchestrated laser
lights and fireworks show.

Human Resources:

During 2009-10, the focus of human resource management was to improve
internal competencies in the following areas:

* World-class project management
* Innovative construction solutions

In project management, an initiative named 'Project Tree' was launched.
This is aimed at defining the project level organisation structure with a
focus on planning based execution, designing, operations, processes and
work interfaces. Necessary personnel have been inducted in various project
functions to further strengthen the Company's project management skills. An
international firm has been engaged to study HCC's project management
processes, and work with the teams to implement best-in-class processes.

The organisation has also been re-structured with the aim of focusing on
Business Development, Construction Solutions, Integrated Resource
Management, along with the Business Verticals focusing on order acquisition
and execution.

In addition to bridging the skill gaps, the focus of training has been to
enhance competency in strategic areas. Mobile training was introduced,
taking learning to the place of work and giving it practical orientation.
Safety training modules were revamped appropriate to each level of the
managing team.

With some large and medium sized projects being at the mobilisation stage,
there was major thrust on acquiring human resources particularly in the
second half of the year. Performance Management remained a key focus area
and a plan to make the appraisal process on-line is under implementation.

Financial Review:

Table:1 gives the abridged profit and loss for HCC, as a stand-alone
Company, while Table 2 lists the key financial ratios.

Table 1: Abridged Profit anti Loss account of HCC (Rs. crore)
2009-10 2008-09
Revenue

Income from operations 3863.0 3518.3
Less: Income from JVs 218.8 204.6
Net income from operations (a) 3644.2 3313.7
Profit/Loss on integrated JVs (b) (15.0) 0.1
Total (a) + (b) 3629.2 3313.8

Expenditure:

Construction expenses 2647.7 2390.1
Staff costs 394.4 374.9
Other expenditure 159.2 117.3
Interest 205.2 210.5
Depreciation 113.9 115.2

Total 3520.4 3208.0

PBDIT (including profit/loss on 427.9 431.5
integrated JVs)

PBT (including profit/loss on integrated JVs) 108.8 105.8
Other income 13.0 58.8
PBT (including other income and profit/loss 121.8 164.6*
on integrated JVs)
Tax liability 40.4 39.2
PAT 81.4 125.4

* Including one-time profit of Rs. 61.9 crore from sale of land

While net income from operations increased by 10% from Rs.3,314 crore in
2008-09 to Rs. 3,644 crore in 2009-10, PBDIT (including profit/loss on
integrated JVs) reduced by 0.8% from Rs. 431.5 crore in 2008-09 to Rs. 428
crore in 2009-10.

This was primarily due to the reduction in operating margins (PBDIT/net
income) from 13% in 2008-09 to 11.8% in 2009-10 (see Table 2).

Through concerted efforts at rationalising the balance sheet, interest
costs were reduced by 2.50/a from Rs. 211 crore in 2008-09 to Rs. 205 crore
in 2009-10.

As discussed earlier in this report, Profit Before Tax and Profit After Tax
in 2009-10 are not comparable with the previous year. While in 2008-09,
there was a one-time profit booked from sale of land, in 2009-10, one-time
write-offs of Rs. 43 crore on account of Bandra-Worli Sea Link inauguration
expenses, political donations, loss on account of final settlement in
Nathpa Jhakhri JV with the client and loss on sale of assets. If the impact
of these extraordinary items is removed, on a like-to-like basis, financial
performance in 2009-10 has improved compared to 2008-09.

Table 2: Key Financial Ratios
2009-10 2008-09

PBDIT/Net Income 11.8% 13.0%
PBT/Net Income 3.4% 5.0%
PBT/Gross Total Income 3.1% 4.6%
PAT/ Gross Total Income 2.1% 3.5%
RONW 5.4% 12.5%
ROCS 8.6% 11.7%
Basic EPS (Rs.) 2.80 4.89

Internal controls and their adequacy:

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

The internal control is supplemented by an extensive programme of internal
audits, review by management, documented policies, guidelines and
procedures. The internal control is designed to ensure that financial and
other records are reliable for preparing financial information and other
data, and for maintaining accountability of assets.

Corporate Social Responsibility (CSR):

HCC has actively pursued CSR activities. In the process, CSR has evolved
from being passive philanthropy to corporate-community investments, which
take the form of a social partnership initiative by the Company. At
present, HCC is focused on taking its CSR to the next level, where it
becomes an integral part of business functions, goals and strategy.

The areas that the Company works on include H IV/ AIDS, disaster response,
water and education. There is a dedicated team, which plans, executes and
monitors these programmes, and each project site has a CSR representative
who works with the communities around the site.

HIV/AIDS Work Place Intervention Programme:

HIV/AIDS has emerged as a major threat not only to the health system but
also to the economy of the nation. The immediate impact of HIV/AIDS on the
businesses is the loss of working hours and increased cost of production
due to sickness of the workers who require frequent medical care and remain
absent from work.

HCC believes that HIV/AIDS is no longer a social issue but a socio-economic
one. Amongst the groups most affected by HIV/AIDS are migrant workers, sex
workers, injected drug users and truck drivers. In its business operations,
HCC engages more than 30,000 migrant labourers and truck drivers who are
largely vulnerable and 'at risk' of acquiring the HIV infection.

HCC has launched HIV/AIDS Workplace Policy and started the HIV/AIDS
Workplace Intervention (WPI) programmes to educate and raise awareness of
HIV/ AIDS amongst the workforce, and enable them to protect themselves and
their families by minimising the risk of HIV infection. The major thrust of
HIV/AIDS WPI programme is on creating an in-house resource pool by training
the master trainers and peer educators. This programme is then further
disseminated amongst the entire workforce by conducting educational and
awareness sessions, condom demonstration, tool box talk, referring for the
testing and STI services, IEC material distribution, audio-visuals and
street plays.

As of March 2010, some 28,000 workers and employees have been educated and
made aware of these issues.

In addition, 122 core trainers (Master Trainer/Peer Educators) have been
provided training. The total man-hours spent for WPI was 177,952.

Disaster Response:

The Engineering and Construction Disaster Resource Network (E&C DRN) is a
network that enables mobilising the existing capacities of the E&C
community during and after crises to reduce suffering and save lives. It
also helps in safeguarding man, machine and other assets of the Company
during a disaster. HCC's Managing Director, Mr. Ajit Gulabchand is on the
Board of Directors of DRN Global and serves as the Chairman of the Indian
Chapter. Through DRN India, HCC has provided relief for several natural
calamities. In 2009, it helped in the floods in Andhra Pradesh.

HCC conducts 'First Responder Training' and imparts basic knowledge on life
saving skills and disaster management for all the employees, including
workers. Till now, First Responder Training has been conducted at 28 sites,
covering 9,851 employees and 39,404 manhours. HCC also conducts Engineering
in Emergencies (EE), an extensive second level residential training for
selected employees, to form a core team of volunteers who can be sent to
lend support in emergencies. So far, 54 HCC engineers have been so trained.

Water:

Water scarcity is prevalent throughout most parts of the world. Business
surviva(also depends on ensured water availability. There is a compelling
business case to pursue water stewardship and become a water conscious
Company. Therefore, in March 2008, HCC endorsed United Nations Global
Compact's 'The CEO Water Mandate' initiative.

HCC commits to become a water conscious Company by implementing the core
elements of 'The CEO Water Mandate' comprising: (i) water efficiency in its
direct operations, (ll) replenishing watersheds in project areas, (iii)
collective action with other companies and professional bodies for
promoting sewage reuse, (iv) community engagement for improving water
services and water environment and (v) constructive contribution for
improving long-term public policies on water. HCC has published its water
consciousness actions in a public document titled 'Communication on
Progress, 2009'. (www.hccindia.corn)

Water consciousness includes 3R's (Water Recycling, Reuse, Recharge)
actions during business operations. HCC has implemented a 1 million litres
a day re-cycling plant at the Vizag Cavern Project, an artificial water
recharge pond at the Badarpur Elevated Highway Project and rooftop
rainwater harvesting at several sites.

Beyond its own projects, HCC has implemented Ujjivana, an Integrated Water
Environment Enhancement Project at Kihim, in the district of Raigad,
Maharashtra. It is a multi-objective activity that improves water
environment through various ground level actions such as solid waste
management, sanitation, and enhancing the domestic water supply for the
village.

Going forward, HCC plans to adopt measures to enhance India's environmental
and social performance, together with a detailed account of quantitative
results obtained after implementation. The Company is working on its
Sustainability Report (Triple Bottom Line) as per Global Reporting
Initiative's specifications for the year 2009-2010, which will be ready by
mid-2010.

Cautionary Statement:

Statements in this Management Discussion and Analysis describing the
Company's objectives, projections, estimates and expectations may be
'forward looking statements' within the meaning of applicable laws and
regulations. Actual results might differ substantially or materially from
those expressed or implied. Important developments that could affect the
Company's operations include a downtrend in the infrastructure sector,
significant changes in political and economic environment in India,
exchange rate fluctuations, tax laws, litigation, labour relations and

interest costs.