Annual Report - Indiabulls Securities - 2009-2010

INDIABULLS SECURITIES LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

To
The Members

Your Directors have pleasure in presenting the Fifteenth Annual Report and
the audited accounts of the Company for the year ended March 31, 2010.



FINANCIAL RESULTS:

The highlights of the financial results for the year ended March 31, 2010
are as under:

Amount (Rs.)

For the year ended For the year ended
March 31, 2010 March 31, 2009

Profit Before Tax and
Depreciation 1,151,597,171 47,412,160

Less: Depreciation 212,153,895 242,220,256

Profit/(Loss) Before Tax 939,443,276 (194,808,096)

Less: Provision for Taxation
& Prior Period Tax Adjustments 327,268,409 (65,977,042)

Profit/(Loss) After Tax and
Prior Period Tax Adjustments 612,174,867 (128,831,054)

Add: Balance of Profit
brought forward 1,594,074,288 2,564,282,211

Amount Available for
Appropriation 2,206,249,155 2,435,451,157

Appropriations:

Dividend on Preference Shares 1,548,328 4,594,632

Proposed Dividend on Equity Shares 459,881,296 506,853,978

Corporate Dividend Tax on:

- Preference Dividend 263,319 780,858

- Proposed Dividend on Equity Shares 76,380,535 86,139,834

Transfer to Capital Redemption
Reserve:

- On buy back of equity shares 46,972,682 -

- On redemption of preference
shares 45,946,335 -

Adjusted against premium paid on
buy back:

Transfer to General Reserve 61,300,000 243,007,567

Proposed Final Dividend for
previous year on Equity Shares
written bach on shares bought back (14,542) -

Corporate Dividend Tax on Proposed
Final Dividend for previous year
on Equity Shares written bach on
shares bought back (2,471) -

Balance of Profit carried forward
to Balance Sheet 1,318,093,629 1,594,074,288

OPERATIONS REVIEW:

The Company's core business is stock and share broking and commodities
broking. It has also recently set up the institutional Equities Business.
To complement these businesses, the Company provides depository services,
equity research services and IPO distribution to its clients. The Company
is a corporate member of the capital market, wholesale debt market and
derivative segment of the National Stock Exchange of India Limited [NSE]
and a corporate member of the capital market and derivative segment of the
Bombay Stock Exchange Limited (BSE).

The total income of the Company during the year stood at Rs. 344.75 crores
with a net profit after tax of Rs. 61.22 crores. The consolidated revenues
of the Company for the year ended March 31, 2010 stood at Rs. 359.79 crores
and the consolidated profit stood at Rs. 67.47 crores respectively.

FUTURE BUSINESS OUTLOOK The Company is focused on building a long term
stable business with emphasis on retail brokerage that does not rely on
highly-leveraged trading clients. The Company's position will be further
strengthened by the set-up of its Institutional Equity business and its
future foray into Portfolio Management, Wealth Management and Investment
Banking,

BUY BACK OF EQUITY SHARES:

In accordance with Sections 77A, 77AA and 77B and all other applicable
provisions, if any, of the Companies Act, 1956 and the Securities and
Exchange Board of India (Buyback of Securities) Regulations, 1998 as
amended, the Company commenced from May 14, 2009 its Offer of Buy back of
Equity Shares of the face value of Rs. 2/- each fully paid up, from its
shareholders from the open market through the electronic trading facilities
of the Bombay Stock Exchange Limited and The National Stock Exchange of
India Limited, at a maximum price of Rs. 33/- per equity share payable in
cash, up to or less than a maximum amount of Rs. 831,796,227. The Buy back
offer dosed on March 5, 2010. The Company has utilised 88.91% of the amount
authorised for the Buy back.

The total numbers of Equity shares bought back under the Buy back offer
were 23,486,341, at an average price of Rs. 31.49 per equity share. The
said shares got extinguished, consequent to which the paid-up equity share
capital of the Company stands reduced from Rs. 506,853,978 (comprising of
253,426,989 equity shares of Rs. 2/- each) to Rs. 459,881,296 (comprising
of 229,940,648 equity shares of Rs.2/- each).

DIVIDEND:

In keeping with Company's policy of rewarding its shareholders, your
Directors recommend a dividend of Rs. 2/- per equity share (i.e. 100% on
the face value of Rs. 2/- per equity share) for FY 2009-10, which if
approved at the ensuing Annual General Meeting, will be paid to (i) all
those Members whose names appear in the Register of Members as on June 5,
2010 and (ii) all those Members whose names appear on that date as
beneficial owners of shares In the beneficial holder data as furnished by
National Securities Depository Limited and Central Depository Services
(India) Limited.

The proposed equity dividend along with the Corporate Dividend Tax would
consume an aggregate amount of Rs. 536,261,831.

In addition to the above, the Company has paid preference dividend @>10%
aggregating Rs. 1,548,328 to Oberon Limited, a foreign entity, as per the
agreed terms.

EMPLOYEE STOCK OPTIONS:

With a view to reward performance and to retain talented employees of the
Company and its subsidiaries, a new scheme was launched titled Indiabulls
Securities Limited Employees Stock Option Scheme - 2009', covering 20 mn
stock options, convertible into equal number of equity shares of face value
Rs. 2/- each. The Compensation Committee has granted 10,00 mn options to
the eligible employees under the said scheme during the Financial Year
ended March 31, 2010.

The disclosures as required under Clause 12.1 of the Securities and
Exchange Board of India (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999, in respect of schemes of the Company viz
- Indiabulls Securities Limited Employees Stock Option Scheme - 2008 and
Indiabulls Securities Limited Employees Stock Option Scheme - 2009 are set
out in the Annexure to this Report.

DIRECTORS:

In accordance with the provisions of Section 255 and 256 of the Companies
Act, 1956 and Articles of Association of the Company, Mr. Prem Prakash
Mirdha and Brig. Labh Singh Sitara retire by rotation at the ensuing Annual
General Meeting of the Company and being eligible offer themselves for
reappointment.

Brief resume of the Directors proposed to be reappointed, nature of their
expertise in specific functional areas and names of companies in which they
hold directorships and memberships/chairmanships of Board Committees, as
stipulated under Clause 49 of Listing Agreement with the Stock Exchanges in
india, are provided in the Report on Corporate Governance forming part of
the Annual Report.

The resignations of Mr. Rajiv Rattan and Mr. Saurabh K. Mittal who had
resigned from the office of directorship of the Company w.e.f, August 05,
2009 are not yet effective. The same shall be effective upon receipt of
approval from the membership departments of NSE & BSE as the Company is a
member of these Exchanges.

FIXED DEPOSITS:

The Company has not accepted any deposits from the public during the year
under review.

SUBSIDIARIES:

The statement pursuant to Section 212(1) (e) of the Companies Act, 1956
relating to subsidiary companies forms a part of the financial statements.

In terms of approval granted by the Ministry of Corporate Affairs,
Government of India vide letter No. 47/399/2010-CL-III dated May 04, 2010,
under Section 212(8) of the Companies Act, 1956, copies of the Balance
Sheet, Profit and Loss Account, Reports of the Board of Directors and
Auditors of the subsidiaries of the Company as of March 31, 2010 have not
been attached with the Balance Sheet of the Company. These documents and
the related detailed information will be made available upon request by any
Member of the Company and its subsidiaries interested in obtaining the
same. The annual accounts of the subsidiary companies are also kept at the
registered office of the Company and that of its subsidiaries for
inspection by any member. The details of subsidiary companies accounts are
also put up on the website of the Company. Further, as directed by the
Ministry of Corporate Affairs, the financial data of the subsidiaries have
been furnished under 'Details of Subsidiary Companies' forming part of the
Annual Report. Further, pursuant to Accounting Standard (AS) 21 as notified
under the Companies (Accounting Standards) Rules, 2006, Consolidated
Financial Statements presented by the Company includes financial
information of its subsidiaries.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT:

Management Discussion and Analysis Report for the year under review, as
stipulated under Clause 49 of the Listing Agreement with the Stock
Exchanges in india, is presented in a separate section forming part of the
Annual Report.

CORPORATE GOVERNANCE REPORT:

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a
detailed report on Corporate Governance is included in the Annual Report, A
Practicing Company Secretary's Certificate certifying the Company's
compliance with the requirements of Corporate Governance in relation to
Clause 49 of the Listing Agreement is attached with the Corporate
Governance Report.

DIRECTORS' RESPONSIBILITY STATEMENT:

As required under Section 217 (2AA) of the Companies Act, 1956 your
Directors confirm that:

1. in the preparation of the annual accounts, the applicable accounting
standards have been followed and that there are no material departures from
the same;

2. the Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as at March 31, 2010 and the profit of the Company for the year
ended on that date;

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

4. the Directors have prepared the Annual Accounts of the Company on a
'going concern' basis.

AUDITORS AND AUDITORS' REPORT:

M/s Deloitte Haskins & Sells, Chartered Accountants, Auditors of the
Company will retire at the conclusion of the ensuing Annual General Meeting
and being eligible offer themselves for reappointment. The Company has
received a certificate from the Auditors to the effect that their
reappointment, if made, would be in accordance with Section 224(113) of the
Companies Act 1956. The Board recommends their re-appointment.

The Notes to the Accounts referred to in the Auditors' Report are self-
explanatory and therefore do not call for any further explanation.

INFORMATION PURSUANT TO SECTION 217 OF THE COMPANIES ACT, 1956:

The information required to be disclosed under 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 with respect to;
Conservation of Energy, Technology Absorption and Foreign Exchange Earnings
and Outgo, is given in the Annexure and forms a part of this Report.

In terms of the provisions of Section 217 (2A) of the Companies Act, 1956
read with the Companies (Particulars of Employees) Rules, 1975 as amended,
the names and other particulars of the employees are required to be set out
in the Annexure to the Directors' Report. However, as per the provisions of
Section 219(1) (b)(iv) of the said Act, the Annual Report excluding the
aforesaid information is being sent to all the Members of the Company and
others entitled thereto. Any Member who is interested in obtaining such
particulars may write to the Company Secretary at the Registered Office of
the Company.

ACKNOWLEDGEMENT:

Your Directors wish to express their gratitude for the continuous
assistance and support received from the investors, clients, bankers,
regulatory and government authorities during the year. Your Directors also
wish to place on record their deep sense of appreciation for the
contributions made and committed services rendered by the employees of the
Company.

For and on behalf of the Board of Directors

Divyesh B. Shah Ashok Sharma
Whole-Time Director Whole-Time Director

Date : May 17, 2010
Place : New Delhi

Annexure:

ANNEXURE FORMING PART OF THE DIRECTORS' REPORT PURSUANT TO 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 IN
RESPECT OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN
EXCHANGE EARNINGS AND OUTGO:

A. ENERGY CONSERVATION:

The Company uses electric energy for its equipment, such as office
equipment, computers, lighting and utilities in the work premises. As an
ongoing process, the following measures are undertaken to conserve energy:

a. Implementation of viable energy saving proposals.

b. Installation of automatic power controllers to save maximum demand
charges and energy.

c. Training front end operational personnel on opportunities of energy
conservation.

d. Awareness and training sessions for maintenance personnel conducted by
experts.

B. TECHNOLOGY ABSORPTION:

The nature of business being carried out by the Company entails an
extensive use of effective information technology so as to ensure that its
services reach the end users i.e. its clients without any loss of time.
What has enabled the Company to stay ahead of its competitors is the fact
that it continuously encourages the introduction and use of latest
available innovations in the field of information technology so that its
clients can have the latest information instantly available to them at the
mere push of a button, enabling them to stay updated and well informed at
ail points of time.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO:

While there were no earnings in foreign exchange during the year under
review, the foreign exchange outgo on account of various heads is depicted
in the table given below:

Amount in Rs.

Particulars Year ended
March, 31 2010

Interim Dividend paid on Preference shares 2,681,251
Dividend paid on Equity Shares 25,620,286

ANNEXURE TO THE DIRECTORS' REPORT REGARDING THE ESOP ISSUE UNDER
'INDIABULLS SECURITIES LIMITED EMPLOYEES STOCK OPTION SCHEME 2008', AS ON
MARCH 31, 2010:

Particulars

a. Options granted : 20,000,000

b. Exercise price : Rs. 17.40

c. Options vested : 2,761,474

d. Options exercised : Nil

e. The total number of shares arising
as a result of exercise of option : Nil

f. Options lapsed* : 1,852,675

g. Variation in terms of options : Nil

h. Money realised by exercise of options : Nil

i. Total number of options in force : 18,147,325

j. Employee wise details of options
granted to:

i. senior management personnel : Mr. Divyesh B. Shah 2,500,000

ii. any other employee who received a
grant in any one year of option
amounting to 5% or more of option
granted during that year : Nil

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

k. Diluted Earnings Per Share (DEPS) : 2.34 per share
pursuant to issue of shares on
exercise of option calculated in
accordance with [Accounting Standard
(AS) 20 'Earnings Per Share']

l. Where the Company has calculated : Refer to Schedule 'O' Part B
the employee compensation cost using Notes to Accounts forming part
the intrinsic value of the stock of the Annual Report,
options, the difference between the
employee compensation cost so computed
and the employee compensation cost
that shall have been recognised if it
had used the fair value of the
options, shall be disclosed. The
impact of this difference on profits
and on EPS of the Company shall also
be disclosed

* Available for regrant

m. Weighted average exercise prices : Weighted average exercise
and weighted average fair values of Price: Rs. 7.40 per option
options shall be disclosed separately
for options whose exercise price either : Weighted average Fair value:
equals or exceeds or is less than the Rs. 0.84 per option
market price of the stock.

n. A description of the method and : Refer to Schedule 'O' Part B
significant assumptions used during the Notes to Accounts forming part
year to estimate the fair values of of the Annual Report.
options, including the following
weighted average information

i. risk free interest rate

ii. expected life

iii. expected volatility

iv. expected dividends, and

v. the Price of the underlying share
in market at the time of option grant

ANNEXURE TO THE DIRECTORS' REPORT REGARDING THE ESOP ISSUE UNDER
'INDIABULLS SECURITIES LIMITED EMPLOYEES STOCK OPTION SCHEME 2009', AS ON
MARCH 31, 2010:

Particulars

a. Options granted : 10,000,000

b. Exercise price : Rs. 35.25

c. Options vested : Nil

d. Options exercised : Nil

e. The total number of shares arising
as a result of exercise of option : Nil

f. Options lapsed : Nil

g. Variation in terms of options : Nil

h. Money realised by exercise of options : Nil

i. Total number of options in force : 20,000,000

j. Employee wise details of options
granted to:

i. Senior Management personnel : Mr Ajay Bhatia 10,000,000

ii. any other employee who received a
grant in any one year of option : Nil
amounting to 5% or more of option
granted during that year

iii. identified employees who were : Mr Ajay Bhatia 10,000,000
granted option during any one year,
equal to or exceeding 1% of the issued
capital of the Company at the time of
grant.

k. Diluted Earnings Per Share (DEPS) : 2.34 per share
pursuant to issue of shares on
exercise of option calculated in
accordance with [Accounting Standard
(AS) 20 'Earnings Per Share']

l. Where the Company has calculated the : Refer to Schedule 'O' Part B
employee compensation cost using the Notes to Accounts forming part
intrinsic value of the stock options, of the Annual Report.
the difference between the employee
compensation cost so computed and the
employee compensation cost that shall
have been recognised if it had used the
fair value of the options, shall be
disclosed. The impact of this difference
on profits and on EPS of the Company
shall also be disclosed.

m. Weighted average exercise prices : Weighted average exercise
and weighted average fair values of price : Rs 35.25 per option
options shall be disclosed separately
For options whose exercise price either : Weighted average fair value:
equals or exceeds or is less than the Rs. 6.48 per option
market price of the stock.

n. A description of the method and : Refer to Schedule 'O' Part B
significant assumptions used during the Notes to Accounts forming part
year to estimate the fair values of of the Annual Report
options, including the following
weighted average information:

i. risk free interest rate

ii. expected life

iii. expected volatility

iv. expected dividends and

v. the option of the underlying share
in market at the time of option grant

MANAGEMENT DISCUSSION AND ANALYSIS

ECONOMIC REVIEW:

The FY 2009-10 began on a positive note with the economies world over
showing signs of recovery from the serious recessionary effects which had
crippled it for greater part of FY 2008-09 with each sector of the '
economy getting seriously affected.

For the Indian economy, which had witnessed severe downturn during the
recessionary phase, FY 2009-10 was a challenging year. The significant
deceleration in the second half of FY 2008-09, brought the real GDP growth
down to 6.7%, from an average of over 9% in the preceding three years.
India was among the first few countries in the world to implement a broad-
based counter-cyclic policy package which included a substantial fiscal
expansion along with liberal monetary policy support to respond to the
negative fallout of the global slowdown.

The effectiveness of these policy measures became evident with fast paced
recovery. The economy stabilised in the first quarter of FY 2009-10 itself,
when it docked a GDP growth of 6.1%, as against 5.8% in the fourth quarter
of the preceding year. It registered a strong rebound in the second
quarter, when the growth rate rose to 7.9%. This recovery is very
encouraging for it has come about despite a slackened economic growth. More
importantly, it is the result of a renewed momentum in the manufacturing
sector. There are also signs of a turnaround in the merchandise exports
with a positive growth after a decline of about twelve successive months.

With the GDP growth having stabilised and projections for the future
reflecting optimism, we can say with confidence that India has weathered
the crisis well and the Indian economy now is in a far better position than
it was a year ago.

INDUSTRY OVERVIEW:

The Indian Capital Market which had witnessed a bull phase between FY 2004-
05 to FY 2007-08 experienced a severe setback during FY 2008-09, triggered
by the global financial market meltdown and worsened by the rising
inflationary pressures in the domestic economy, The dislocation in the
financial and capital market seriously impacted the financial performance
of the domestic brokerage houses.

With the brokerage income getting adversely impacted and the turnover
declining with falling stock prices and average brokerage yield, the
brokerage houses profitability was severely impacted and they were faced
with the challenge of protecting their capital from erosion in the adverse
capital market movement.

The FY 2009-10, however, saw a turnaround in the fortunes of the Capital
Markets in India.

On the back of easing global concerns, stable government at the centre and
improving market sentiments, the industry turnover registered a strong
performance marking a huge improvement over the position in FY 2008-09.

Going forward there is a need for exercise of caution as the market
volatility, both in terms of stock prices and trading turnover, is expected
to continue and the pressure on profitability is likely to persist.

The industry needs to stay vigilant on risks by conducting stress testing
periodic intervals to ascertain capital requirements for maintaining
adequate margins and financial resources to withstand any systemic shocks
including delay in margin payments by clients.

SEBI has taken several measures to improve the integrity of the secondary
marker. Legislative and regulatory changes have facilitated the
corporatisation of stockbrokers. Capital adequacy norms have been
prescribed and are being enforced. A mark-to-margin and intraday trading
limit have also been imposed. Further, the stock exchanges have put in
place circuit breakers, which are applied in times of excessive volatility.
The disclosure of short sales and long purchases is now required at the end
of the day to reduce price volatility and further enhance the integrity of
the secondary market. While there is still a lot to be done to make capital
markets more efficient in mobilising and allocating capital and additional
steps to increase investor protection and improvement in transparency,
corporate governance and monitoring will be necessary to enhance investors'
confidence in the capital market, however very good progress has been made.

BUSINESS REVIEW:

The Company's core business is stock and share broking and commodities
broking. It has also recently set-up an institutional Equities team. To
complement these businesses, the Company provides depository services,
equity research services and IPO distribution to its clients. The Company
is a corporate member of the capital market, wholesale debt market and
derivative segment of the NSE and a corporate member of the capital market
and Derivative segment of the BSE. The Company had over 6.20 lacs client
relationships as on March 31, 2010.

The turnaround in the fortunes of the broking industry, brought about by
easing global concerns, a stable government and improving market
sentiments, helped the Company to strengthen further.

The Company has during the year completed its Buy back offer on March 5,
2010. The total numbers of Equity Shares bought back under the Buy back
offer were 23,486,341, at an average price of Rs, 31.49/- per Equity share.
The said shares got extinguished, consequent to which the paid-up Equity
Share Capital of the Company stands reduced from Rs 506,853,978/-
(comprising of 253,426,989 Equity Shares of Rs.2/- each) to
Rs.459,881,296/- (comprising of 229,940,648 Equity Shares of Rs. 2/- each).

The Company's maxim is to consistently reward its shareholders. Keeping
this intact, the Company has recommended a dividend of Rs. 2/- per Equity
Share i.e. 100% of the face value of Rs. 2/- per Equity Share, out of
current year profits, amounting to a total dividend payout of Rs. 53,63
crore including Corporate Dividend tax.

STRENGTHS:

Equity, Debt and Derivative Brokerage The Company's retail equity business
primarily covers secondary market equity broking and mainly targets retail
investors. It offers automated on-line investing trading facilities as well
as broker assisted trade execution to its customers. Investors have full
access to personalised portfolio tracking, charting and quote applications,
real-time market commentary, and real-time quotes and news. The Company
also offers brokerage services for debt and derivatives markets.

Online Trading Channels:

At the core of the Company's on-line trading system is an in-house
developed application that interfaces with the exchanges on a satellite-
based network, which allows investors to carry out stock transactions on-
line, The Company was one of the first companies to develop an in-house
real-time link with the NSE, On-line trading can occur either on indiabulls
Group Professional Network, a browser-based network accessible via the
internet, or via a specialised advanced trading platform which has direct
connectivity with the Company, Power, Indiabulls. On-line trading is
convenient for clients and also minimises the typical off-line costs
incurred in responding to and processing routine client transactions.

The Company has also introduced a seamless funds transfer platform to its
clients where-in the clients can transfer funds from their own bank
accounts to Indiabulls Securities Limited Bank accounts through payment
Gateways. The credit for the same is given instantly to the client's linked
Trading Account.

Indiabulls Group Professional Network:

Indiabulls Group Professional Network is an on-line trading portal which is
accessed through IBSL's website. Clients can execute the sale and purchase
of securities, with or without the assistance of off-line relationship
managers. Once a client sends a trade request, it is routed through the
Risk Management System. The Risk Management System verifies that there are
sufficient funds in the client account for the trade, and a confirmation
reference number for the trade will be sent to the client. The trade
request is then sent via high speed links to the NSE or the BSE where the
trade is executed. On trade execution, the client receives confirmation.

The IBSL website, http://www.indiabulls.com/securities/provides many other
facilities to clients such as objective financial information on the top
400 Indian stocks to assist their investment decisions, streaming real-time
quotes, integrated risk management, and support for trading in equity, debt
& derivatives. Some of these products are provided at an additional cost to
the client. Power Indiabulls Power Indiabulls is an on-line trading system
designed for the high volume traders, which provides enhanced trade
information and order execution on an integrated software-based trading
platform. Power Indiabulls, once installed on the client's computer,
operates like an on-line dealer terminal, and has direct connectivity with
the Company via a dial-up network. It provides integrated market watch for
securities and derivatives, advanced technical analysis of various
securities, risk management reports, single key stroke order entry and two
second order confirmation turnaround time, even in peak hours of trading.

Secur ID:

IBSL has always been at the forefront in introducing cutting edge
technologies to enhance our customers' overall broking experience. As
another step in this direction we launched SecurID, a hardware
authentication device for our customers. This reiterates our constant
commitment towards creating a secure and robust trading platform for our
customers.

The SecurID device generates a new 6 digit 'Security Code' every 30 seconds
and ensures highest level of security for clients' account. Clients, who
have been issued SecurID, need to enter 'Security Code' being displayed in
their SecurID device, along with the 'Client ID' and 'Password' to login
and place orders through their Indiabulls Internet Trading Account/Power
Indiabulls (PIB). These clients are also required to quote this 'Security
Code' while placing orders over phone at their Service Branch. This concept
of SecurID is considered to be most advance and safest mechanism for
trading.

We are thankful to our customers for their overwhelming response to this
pioneering concept. The introduction of SecurID further cements our
position as an innovative and leading brokerage house of the country.

Indiabulls Signature Client:

Indiabulls Signature Client is designed for self-directed experienced
individual investors who want to manage their own portfolios. This service
offers a stock trading account, Indiabulls Signature Account, which assists
clients by allowing them to combine investments and cash in one account and
trade securities on-line. Clients have full access to Indiabulls Equity
Analysis, an objective analysis of stocks, usually available only on
subscription. Other features of the Indiabulls Signature Account include
on-line access to their portfolio statements and dedicated relationship
manager support.

Off-line Trading Channels:

The Company facilitates off-line trading in equity, debt and derivatives
for clients via operator assisted call centres and relationship managers.

Relationship managers act as a single point of contact for the client
whether it is in person or via its call centre facility. Relationship
managers have access to various resources such as objective analysis of
market stocks and other specialists.

Depository Services:

The Company is a depositary participant with the National Securities
Depository Limited ('NSDL') and Central Depository Services (India) Limited
('CDSL') for settlement of dematerialised shares. It performs clearing
services for all securities and commodities transactions. Clients of the
brokerage business are able to use the depositary services to execute
trades through the Company and settle transactions.

Indiabulls Equity Analysis:

Indiabulls Equity Analysis is an analysis of stocks, which can be accessed
online. It provides clients with customised research reports and a rating
system on top Indian companies. Indiabulls Equity Analysis does not provide
a recommendation based upon its own assessment; instead it uses a formula
to track previous historical performance and combines this with 'buy' or
'sell' recommendations from analyst reports to generate a rating.

Centralised Customer Care Helpdesh:

IBSL has a centralised Customer Care helpdesk, equipped with state-of-art
facilities, to resolve customer queries. Customers can get in touch with
Customer Care helpdesk through email, letters and phone.

A phone based customer care channel provides customers with the option to
resolve their queries by either talking to our customer care executives or
by accessing the 24/7 Interactive Voice Response System (IVRS).

CRISIL Broker Grading, Ratings and Opinions:

IBSL is the first brokerage house to be accorded with the highest broker
grading by CRISIL. Our Company's quality of operations and services were
reaffirmed by CRISIL, which once again assigned the highest broker grading
of 'BQ1'.

CHALLENGES:

The Company views the following as the challenges before it:

* Protecting brokerage yield in a highly competitive industry,

* Regulatory risk which could impact the earning profile and bring
structural changes in the industry.

* Continued upgrading of the risk management.

* systems and monitoring policies to mitigate the associated risks
especially during the periods of extreme market volatility.

* Maintaining flexible cost structure for protecting profitability in a
market downturn.

BUSINESS STRATEGY:

The Company is focused on capturing significant growth opportunities in the
financial services market and its strategy is driven by the following key
principles:

A. Aggressively grow the client base:

The Company's primary focus is on increasing its client base by:

(i) expanding its geographic presence in new cities as well as increasing
its presence in existing cities by opening new offices;

(ii) increasing sales force to provide persona! attention and improve
customer service; including trained relationship managers operating across
the country, and

(iii) cross selling our various services and wealth management solutions.

The Company has a large and well distributed network of branches across
India, which provides securities broking service. The Company believes that
this network will enable it to offer its services with increased
convenience to the customers and to expand its market share and client
base. This extensive distribution network provides us further opportunities
to cross-sell products and services as we diversify into new business
streams.

B. Institutional Equities:

The Company has in place a high quality institutional equities team. Our
high quality research reports, produced by our 'out of box thinkers',
research analysts sets us apart from the rest of the pack, and has opened
doors for us with various institutional clients, both locals and FII. This
will enable us to garner a significant slice of the Institutional Business,
Our focus would be to expand our research coverage and strive to offer our
clients an unbiased high quality research product in a 'sanitised and
secured' environment.

C. Portfolio Management Services:

The Company plans to expand its operations by providing portfolio
management advisory services to its high net worth clients that offer
superior margins and are complementary to existing operations.

D. Enforce rish management systems:

The Company has fully automated risk management software, which performs
direct monitoring of operational controlling parameters to minimise
delinquency risks. IBSL risk management team performs real time monitoring
of client positions across cash and derivative segments. Clients are
informed about their margin requirements through multiple channels
including automated SMS and e-mail channels. The Company employs strict
risk management standards to reduce delinquency risks and has developed
robust recovery processes. The Company has well managed control systems
working along with the external audit which performs checks at regular
intervals to identify and rectify any discrepancies in the system.

BUSINESS OUTLOOK:

The easing of global concerns, a stable government, and improving market
sentiments augurs well for the Indian Capital Market. The increase in
volumes in the second half of the year indicates the revival of investor
confidence and their faith in the equity market. The markets could well be
set to reach the high levels of the past. The launch of our Institutional
Equities business coupled with scalability of the Company's technological
platform will help consolidate our position further in the market.

HUMAN RESOURCES:

Your Company firmly believes that its employees are the key to driving
performance and developing competitive advantage. The emphasis has been on
proper recruitment of talent and empowerment while devoting resources for
their continuous development.

The structured recruitment process, which the Company employs, focuses on
recruiting people who have the right mindset for working at IBSL, supported
by structured training programmes and internal growth opportunities.

The basic objective has been to unlock the people potential and further
developing their functional operational and behavioural competencies so as
to build a team of dedicated employees who work with passion, zeal and a
sense of belongingness and play a defining role in significantly
accelerating the growth and transformation of the Company, thereby,
consolidating its position in the market as one of the top corporate
brokerage houses in the country.

It is in continuation of this process that the Company has in place,
Employee Stock Option Schemes which aim at rewarding and nurturing talent
so that the Company gets to retain what is best in the industry.

INTERNAL CONTROL SYSTEMS:

The Company has adequate system of strong internal controls for business
processes, with regards to operations, financial reporting, compliance with
applicable laws and regulations, etc. Regular internal audits and checks
ensure that responsibilities are executed effectively. The Audit Committee
of the Board of Directors actively reviews the adequacy and effectiveness
of internal control systems and suggests improvement for strengthening the
existing control system in view of changing business needs from time to
time.

CAUTIONARY STATEMENT:

Statements in this Management Discussion and Analysis Report 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 materially from those either
expressed or implied.

The Company is not under any obligation to publicly amend, modify or revise
any forward looking statements on the basis of any subsequent developments,
information or events.