Annual Report - HOV Services - 2009-2010

HOV SERVICES LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

To
The Members

Your Directors are pleased to present the Company's Twenty- Second Annual
Report on the Business and Operations of HOV Services Ltd (the 'Company' or
'HOVS') together with the Audited Statement of Accounts for the year end
March 31, 2010.



HOVS is one of the largest end-to-end BPO companies, providing healthcare,
finance and accounting, e-content management, document lifecycle,
presentment, HR assist, and strategic consulting services across key
verticals such as BFSI, Healthcare, Government, Telco, Publishing, Retail,
Commercial and Industrial Manufacturing industries.

FINANICAL RESULTS AND OPERATIONS:

In the financial year 2009-10, your Company recorded consolidated revenue
of Rs. 8,483.93 million and loss after tax was Rs. 758.40 million. The
brief financial highlights with comparison of previous year are as below:

Particulars For the year end March 31,
Rs. In Million

Consolidated Standalone
2010 2009 2010 2009

INCOME:

Income from Operation 8,483.93 8,970.72 74.91 43.77

Other Income 14.74 21.72 2.90 2.99

8,498.67 8,992.44 77.81 46.76

EXPENDITURE:

Staff Cost 4,474.60 4,518.83 32.14 37.27

General and
Administrative
Expenses 4,133.09* 3,325.84 7.61 17.77

8,607.69 7,844.67 39.75 55.04

Profit/(Loss)
before Interest,
Depreciation,
Tax & Minority
Interest (109.02) 1,144.77 38.06 (8.28)

Less: Interest 336.25 444.78 - 0.14

Less: Depreciation 252.17 236.53 3.51 3.78

Profit/(Loss) before
Tax & Minority
Interest (697.44) 466.46 34.55 (12.20)

Less: Provisions for
taxes:

Current Tax 48.78 13.86 6.10 -

Deferred Tax 15.10 (15.85) (0.78) 3.30

Fringe Benefit Tax - 4.92 - 0.26

Profit/(Loss) after
Tax & before:

Minority Interest (761.32) 463.53 29.23 (15.75)

Less: Minority
Interest (2.92) (0.34) - -

Profit/(Loss) after
Tax & Minority
Interest (758.40) 463.87 29.23 (15.75)

*Includes Exceptional items of Rs. 1327.64 Million.

1. RESULTS OF OPERATIONS:

Performance on Consolidated basis:

* The consolidated total income decreased by 5.43% in the current fiscal
year, to Rs. 8,483.93 million from Rs. 8,970.72 million in the
corresponding last fiscal year 2008-09.

* EBIDTA before exceptional item increased by 2.33% for the current FY to
Rs.1,206.86 million from Rs. 1,176.44 million over the corresponding last
fiscal year 2008-09.

* Net Profit decreased by 263.61% for the current FY to Rs. (758.40)
million from Rs. 463.53 million over the corresponding last fiscal year
2008-09.

* The basic and diluted Earnings per share (EPS) before exceptional item
are Rs. 45.57 for the current FY.

Performance on Standalone basis:

* Total Income for the current FY increased 71.15% to Rs. 74.91 million
from Rs 43.77 million for the corresponding last fiscal year 2008-09.

* EBITDA increased by 412.03% for the current FY to Rs 35.17 million from
Rs (11.27) million over the corresponding last fiscal year 2008-09.

* Net Profit increased by 285.62% for the current FY to Rs 29.23 million
from Rs (15.75) million over the corresponding last fiscal year 2008-09.

* The basic and diluted Earnings per share (EPS) before exceptional item
are Rs. 2.34 for the current FY.

2. SIGNIFICANT DEVELOPMENTS:

(a) Key Highlights during the year were:

* Employee headcount at 8,900+ associates.

* Added over US $9.9 million in customer contracts in the fourth Fiscal
Quarter 2009-10, and $68.8 million for the Fiscal Year ended March 31,
2010.

* Top 100 clients represent over 79% of total revenues with the largest
customer representing only 17% of total revenues.

* Developed and launched four new hosted services to expand our presence in
Healthcare, e-learning and F&A services.

* The Company maintained strong liquidity position with DSO of 53 days,
Debt to Equity Ratio of 1.4:1 and Net Bank Debt of US $102.8 million at
March 31, 2010, down $16.3 million from March 31, 2009.

(b) Key Accomplishment and Noteworthy Items:

International Association of Outsourcing Professionals (IAOP) ranked us:

a. Best 20 Leaders by Industry Focus: Health Care;

b. Best 10 Companies by Service Offered: Document Management;

c. Best 10 Leaders by Service Offered: Financial Management;

d. Best 20 Leaders by Region Served: India;

e. Best 20 Leaders by Region Served: Canada;

(c) Material Transaction by HOV Services, LLC:

During the Year 2009-10, the Company's Board of Directors approved the
action of its wholly owned subsidiary, HOV Services, LLC to enter into a
Material Transaction in order to focus on end-to-end high growth and margin
services, improve operational efficiency and streamline the decision making
process by selling certain assets: 100% interest in Bay Area Credit
Services, LLC, 100% interest in HOV AR Management Services Private Limited
and its 30% minority interests in TRAC Holdings, LLC (TRAC) and SAM
Holdings, LLC (SAM), to Rustic Canyon, LLC, an Associate, (which already
has 70% ownership interest in TRAC & SAM) for $12 million USD in cash
(approximately Rs. 5,563 Lakhs). Details related to the impact of this
transaction have been provided in the Management Discussion & Analysis
section.

(d) Buyback of Equity Shares:

During the year under review, the Buy-back offer of the Company through an
open market stock exchange route was successfully completed. The details of
this are as follows:

Structural details of the buyback program:

Date of Board Resolution : January 13, 2009
for approval of Buy back

Date of Public Notice cum : January 13, 2009
Public Announcement

Maximum Offer size : 10,00,000 Equity Shares

Minimum Offer size : 2,50,000 Equity Shares

Maximum Offer Price : Rs. 50/- Per Equity Share (Aggregate Amount
Not more than Rs. 5.00 Crores).

Date of Opening of the : February 2, 2009
Buy back:

Duration of the Buy back : Up to January 12, 2010 (12 months from the
date of Board resolution)

Execution method : Open Market Purchases through Stock
Exchanges.

Sources from which buy : Share Capital And Free Reserves
back is financed:

FY March FY March Total
31, 2010 31, 2009

Number of shares
bought back: 20,000 43,023 63,023

Details of the shares 20,000 Equity 43,023 Equity 63,023 Equity
bought back: shares at shares at shares at
average rate average rate average rate
of Rs. 32.62 of Rs. 28.67 of Rs. 29.92
per share per share per share

Buyback price and 20,000 Equity 43,023 Equity 63,023 Equity
the aggregate shares at shares at shares at
amount paid on buyback: average rate average rate average rate
of Rs. 32.62 of Rs. 28.67 of Rs. 29.92
per share; per share; per share;
aggregating aggregating aggregating
amount amount amount
Rs. 6,52,400 Rs. 12,33,280 Rs. 18,85,680

Amount by which the Total share Total share Total share
share capital capital and capital and capital and
and free reserves free reserves free reserves free reserves
including share including share including share including
premium are reduced premium are premium are share premium
on account of buyback reduced by reduced by are reduced by
of the shares: Rs. 2,00,000 Rs. 4,30,230 Rs. 6,30,230
and and and
Rs. 4,55,360 Rs. 8,09,568 Rs. 12,64,928
respectively respectively respectively

Cancelled shares: 20,000 43,023 63,023

Amount transferred to
Capital Redemption
Reserve Account Rs. 2,00,000 Rs. 4,30,230 Rs. 6,30,230

(e) Appropriations:

(i) Dividend:

Your Board of Directors at the meeting held on May 24, 2010 recommended a
final dividend of Rs. 2/- per fully paid up equity share of Rs. 10/- each
for the financial year 2009-10.

Earlier, your Board of Directors in their meeting held on January 28, 2010
had declared an interim Dividend of Rs. 2/- per share of Rs. 10/- each for
the year ended March 31, 2010 and it was paid to the shareholders on
February 18, 2010.

For the financial year 2009-10 the Company does not have any unpaid
dividend meant to be transferred to the Investor Education Protection Fund
under Section 205C of the Companies Act, 1956.

(ii) Transfer to Reserve:

a. Your Company proposes to transfer Rs 29,23,466/- to the general reserve.

b. Pursuant to the section 77 AA of the Companies Act, 1956 a sum equal to
nominal value of the shares bought back is required to transfer to Capital
Redemption Reserve account. The Company as of February 12, 2010, up to the
closure of its Buy-back offer had bought back 20,000 equity shares.
Therefore an amount of Rs 2,00,000/- is transferred to Capital Redemption
Reserve Account during the year under review.

3. Conservation of Energy, Technology Absorption, and Foreign Exchange:

Particulars furnished pursuant to Companies (Disclosures of Particulars in
the Report of Board of Directors) Rules, 1998:

Conservation of Energy: The operation of Company is not energy intensive.
The Company conducted energy audit in some of the units and has implemented
recommendations such as keeping a spare stock of energy efficient compact
fluorescent lamps (CFL) instead of conventional incandescent light bulbs,
changing or cleaning the filters on air conditioners in the beginning of
summer and increasing temperature settings from 210C to 240C on thermostats
in a phased manner. This has resulted in reduction of energy consumption
during this financial year.

Research and Development: The Company has not undertaken any R&D activity
in any specific area during the year under review, and hence no cost has
been incurred towards the same. However, the Company believes technology is
strategic to its growth and has invested heavily in hosted platforms,
automation, capture, presentation and analytics. The Company has
development teams in US, India and Mexico implementing this vision.

Technology Absorption, Adaptation and Innovation: The Company has been
focused on providing state-of-the-art end-to-end BPO services to Clients.

In carrying out this mission, HOVS has invested heavily in technology
innovation, while leveraging its global footprint that is no longer
confined by traditional borders through the use of a globally stable and
secure network infrastructure that conforms to the highest international
standards including ISO, HIPAA and SAS70. The Company has adopted Six Sigma
practices and LEAN techniques in a majority of its centers and processes; a
significant number of our team member have gone through Six Sigma training
and are certified at higher levels of competency. The Company is constantly
developing and adopting modern technologies and standards to grow its
competitive advantage, to better serve its clients, retain employees and
improve productivity and performance.

Foreign Exchange Earnings and Outgo: Almost the entire earnings of the
Company are from the export of services since the Company has no domestic
business. The foreign exchange earnings and outgo is contained in the Note
number 17(b) of schedule 14B to the Accounts of the Annual Report.

4. Particulars of Employees:

Information as per Section 217(2A) of the Companies Act, 1956, read with
the Companies (Particulars of Employees) Rules, 1975, and forming part of
the Directors' report for the year ended March 31, 2010 is set out in the
Annexure I to the Director's Report.

5. Human Resources:

During the year the Company has taken utmost care of its employees deployed
in wideranging cultures across the globe. The Company has well defined
Human Resource Policies, excellent training facilities and a well
established, healthy working environment. The Company organizes regular
health checkups through recognized medical centers and the relationship of
HOVS with its employees remains cordial throughout the year.

6. Directors Responsibility Statement:

As stipulated in Section 217(2AA) of Companies Act, 1956, your Directors
subscribe to the 'Directors Responsibility Statement' and confirm as under:

a) that in preparation of Annual Accounts, the applicable accounting
standards have been followed along with proper explanation relating to
material departures; and

b) that 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 at the end of the financial year and of the profit and loss account
of the Company for that period; and

c) that the directors have taken proper and sufficient care of the
maintenance of adequate accounting records in accordance with the
provisions of this Act for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and

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

7. Fixed Deposit:

The Company has not accepted any deposits from the public within the
meaning of Section 58A of the Companies Act, 1956, during the year under
review.

8. Corporate Governance:

A separate section on Corporate Governance forming part of the Directors'
Report and the Certificate from the Company's Auditors confirming
compliance of Corporate Governance norms as stipulated under Clause 49 of
the Listing Agreement with the Stock Exchanges is included as a separate
section in this Annual Report.

9. Management Discussion and Analysis:

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

10. Auditors:

The Statutory Auditors M/s Lodha & Co, Chartered Accountants, Mumbai, hold
office till the conclusion of ensuing Annual General Meeting and have
expressed their willingness and being eligible to continue, if re-
appointed. You are requested to consider their re-appointment.

11. Directors:

During the year under review Mr. Prakash Shukla was inducted as an
Additional Director w.e.f. October 26, 2009 and holds office up to the date
of ensuing Annual General Meeting. His appointment requires the approval of
members at the ensuing Annual General Meeting.

The Company has received a notice in writing from a member pursuant to
Section 257 of the Companies Act, 1956 proposing the candidature of Mr.
Prakash Shukla for the office of Director, liable to retire by rotation.

Brief resume of the Director proposed to be appointed, as stipulated in
Clause 49 of the Listing agreement with the stock exchanges is provided in
section of Notice of the Annual General Meeting.

12. Subsidiary companies and consolidation of Accounts:

As per Section 212 of the Companies Act, 1956, the Company is required to
attach the director's report, balance sheet, and profit and loss account of
the subsidiary companies. The application was made to the Central
Government of India for an exemption from such attachment as the Company
presents the audited consolidated financial statements in the Annual
Report. The Government of India has granted exemption to the Company from
complying with section 212 for all the subsidiary companies vide its
approval letter dated February 5, 2010. Pursuant to the conditions of
Government of India approval the statement thereto is annexed to the Annual
Report.

Accordingly, the Annual Report does not contain the financial statements of
the subsidiary companies. We will make available the audited annual
accounts and related information of subsidiary companies, where applicable,
upon request by any of our investors. These documents will also be
available for inspection during business hours at our registered office.

13. Employee Stock Option Plan (ESOP):

The Company has instituted 'HOVS Stock Option Plan 2007' and 'HOVS Stock
Option Plan 2008' for its employees and for employee's of its subsidiary
companies as detailed below:

Plan Shareholder's No. of No. of Total
Approval Date Options for Options for
employees employees of
of the subsidiary
Company companies

'HOVS Stock Option July 21, 2007 400,000 700,000 1,100,000
Plan 2007'

'HOVS Stock Option September 30, 0 750,000 750,000
Plan 2008' 2008

Options were issued to employees at an exercise price not less than closing
price of the stock exchange where there is highest trading volume, prior to
the date of meeting of the Compensation & Remuneration Committee in which
options are granted. The options will vest in a phased manner within five
years as 10% in each first to four years and balance 60% at the end of
fifth year.

No options have been granted under Plan 2008.

i) The details of grant made and lapsed under Plan 2007 are as below:

Plan 2007

Employees of Employees of Total
the Company the subsidiary
Companies

Options Granted:

Grant in 2007 141,500 526,000 667,500

Grant in 2008 28,150 217,900 246,050

Total Grant 169,650 743,900 913,550

Options Lapsed as
of April 2010 6,650 138,950 145,600

Options in force 163,000 604,950 767,950

Balance options
available 237,000 95,050 332,050

ii) Information of grant made to directors and employees:

Options granted date Directors Other than Total (A+B)
(A) Directors (B)

July 21, 2007 7,500 640,000 647,500
October 25, 2007 0 20,000 20,000
July 30, 2008 7,500 183,550 191,050
October 08, 2008 0 55,000 55,000
Total Granted 15,000 898,550 913,550
Options lapsed 5000 140,600 145,600
Options outstanding 10,000 757,950 767,950

iii) The details of options granted under the two plans are given in the
table:

As of March 31, 2010

Plan Plan
2007 2008

a. Options Granted: 9,13,550 Nil

b. The Pricing formula: Closing price of the Nil
stock exchange
where there is
highest trading
volume, prior to
the date of the
meeting of the
Compensation &
Remuneration
Committee in which
options are granted.

c. Options Vested: Nil Nil

d. Options Exercised: Nil Nil

e. Total number of shares 9,13,550 Nil
arising as a result of
exercise of options:

f. Optioned lapse: 1,45,600 Nil

g. Variation of terms of
option: NA NA

h. Money realized by
exercise of options: NA NA

i. Total number of options
in force: 7,67,950 Nil

j. Employee wise details of Nil
Options granted to:

i. Senior Management personnel: 7,67,950 Nil

ii. Employee receiving 5% or more
of the total number of options
granted during the year: Nil Nil

iii. Employee granted 1% or more
of the issued capital: Nil Nil

k. Diluted EPS on issue of
shares on exercise calculated
in accordance with AS 20. NA NA

14. Acknowledgement:

Your Directors express their appreciation for assistance and co-operation
received from employees, shareholders, customers, suppliers, bankers and
government authorities for their continued support to the Company during
the year.

For and on behalf of the Board of Directors

Place : Chennai Parvinder S. Chadha
Date : May 24, 2010 Chairman & Executive Director

MANAGEMENT DISCUSSION AND ANALYSIS:

Industry Overview:

The IT- Enabled Services (ITES) industry is still in its infancy - with
substantial potential for future growth. Our clients have outsourced a very
small portion of the business that could be outsourced and this is the
biggest opportunity for the Company. Our strategic vision is to leverage
Company's domain expertise and success in current markets which it serves
to the other rapidly growing markets where it has significant presence such
as the growing healthcare and telecom services market in India and China,
the two of the world's fastest growing economies.

It is believed that clients are going to outsource more but to fewer
vendors. This consolidation is inevitable in the industry as scale does
matter for BPO companies. Clients who want to outsource the entire process
will favor based on industries - pay per use or pay per member models. The
obvious examples are healthcare in the emerging markets or the rapidly
growing telecom market in India and China, where core assets and functions
are being outsourced. As scale begins to play a bigger role, smaller
companies are going to look for safety in higher end offerings such as KPO,
business intelligence and emerging BPO services. The larger companies will
either have to acquire these services or build their own platforms to serve
their clients better.

The BPO industry similar to the ITES industry will most likely develop/grow
domestic footprints in the markets affected by the global slowdown by
building a robust local business and delivery model in order to counter the
concern related to recession or government policies.

Current Scenario:

As per NASSCOM press release dated Feb 04, 2010:

* IT-BPO industry domestic market is expected to witness 12% growth in FY
09-10; to reach Rs.662 billion.

* Indian IT-BPO industry continues to dominate the global market place with
51 percent market share.

* Indian IT-BPO industry exports grew by 5.5% to USD 49.7 billion by FY
2010.

* The sector accounted for over 10 percent of total FDI investment in the
last decade.

The BPO market is and has been in a steady state of growth for the past ten
years. As per NASSCOM STRATEGIC REVIEW 2010 IT-BPO industry is estimated to
aggregate revenues of USD 73.1 billion in FY2010, with the IT software and
services industry accounting for USD 63.7 billion of revenues. The BPO
industry remains as the fastest growing segment of the IT services sector,
growing annually at 6% and is estimated to reach USD 12.4 billion in 2010.

As a proportion of national GDP, the sector revenues have grown from 1.2
percent in FY1998 to an estimated 6.1 percent in FY2010. Its share of total
Indian exports (merchandise plus services) increased from less than 4
percent in FY1998 to almost 26 percent in FY2010.

* Geographic focus: The year was characterized by a strong revival in the
US, which increased its market share to 61 percent. Emerging markets of
Asia Pacific also contributed significantly to overall growth.

* Vertical markets: The industry's vertical market mix is well balanced
across several mature and emerging sectors. The year 2009 witnessed
increased adoption of outsourcing from our biggest segment the Banking,
Financial Services and Insurance (BFSI), and Telemarketing to new emerging
verticals of retail, healthcare and utilities.

Domestic market: Domestic IT-BPO revenues are growing at almost 8.5 percent
to reach INR 1,088 billion in FY2010. Rise of Indian corporations facing
competitive market conditions through an increasingly globalised Indian
market, increased spend by the government in several e-Governance
initiatives, enhanced connectivity and increased levels of IT spending are
key factors, which make the domestic market lucrative today. The growth is
also fueled by large deals in the telecom and BFSI space.

Outlook: The Indian IT is on the growth trajectory lead by IT-BPO industry.
As per Nasscom, Indian IT-BPO industry continues to dominate the global
market place with 51 percent market share and APAC is the fastest growing
geography with an estimated growth of 10%.

COMPANY SUMMARY:

HOV Services Limited (the 'Company' or 'HOVS'), one of the largest end-to-
end BPO Company headquartered in Chennai, India provides healthcare,
finance and accounting, e-content, document management and business
intelligence services across key industries such as BFSI, Healthcare,
Government, Telecom, Publishing, Retail, Commercial and Industrial
Manufacturing. HOVS' RightShore delivery centers are strategically located
in India, North America, China and Mexico with over (8900+) associates with
over 36 delivery centers servicing over 50% of the FORTUNE 100r and some of
the other largest companies in the industries served.

As a leader in the Global KPO space, HOVS develops fully integrated
solutions that combine best-of-breed technology, leading-edge
infrastructure and domain expertise to give customers the most streamlined
process. HOVS applies LEAN Six Sigma technique to improve quality, reduce
cost and improve cycle time of its customer's business processes.

The Company offers a diverse range of services including healthcare payer /
provider services, strategic consulting and construction services,
employment verification services, finance and accounting services, content
transformation and document lifecycle solutions.

Below is a highlight of some of the key services offered:

Our Strategy and Key Differentiators:

HOVS strategy weaves many items to help us differentiate and position the
Company for success and a sample of some of key differentiators are:

(1) Innovation - continuous enhancement of delivery of services by
combining domain expertise and technology;

(2) Business model by service type to create win-win partnership between
HOVS clients and the Company. For example, pay per member or by outcome
based;

(3) Hosted services combined with delivery from right shore locations;

(4) The best customer experience from initial engagement to deployment;

(5) Continuous improvements and delivering highest end-to-end process
quality; and

(6) Better overall cost of ownership.

Value Creation:

HOVS mission is to create value that benefits Customers, Employees and
Shareholders:

Key Stakeholder Deliverable Value Creation

CUSTOMERS * Provides quality * Enhances their ability
products and services to operate business

* Delivered reliably
and cost effectively

EMPLOYEES * Conduct business * Innovation
ethically

* Equal opportunities * Higher retention rate
and career enhancement

* Rewards for competence * Infusion of high
caliber individuals

* Performance and
dedication to our
customers

* Personal growth

* Innovation

SHAREHOLDERS * Prudent investment * Higher shareholders
value

* Professional business * Better returns on
management investment

* Strategy and execution
honed by experience

Product and Service delivery Architecture:

HOVS provides complete end to end technology based solutions to enhance and
integrate its process with the existing setup prevailing at client's place.
HOVS combines various best-of-breed technology, leading-edge infrastructure
and domain expertise to give its clients the most streamlined process
available benefiting clients to reduce cycle time and operation cost.

Delivery Model:

HOVS endeavor to deliver services to clients in the most efficient manner
and customized the engagement based on the specific needs. HOVS recommended
approach is geared towards delivering significant ROI with functions fully
outsourced. An example of various delivery models below highlights various
steps involved and responsibility of the parties.

Technology Innovations:

* Technology deployment is strategic to growth and the Company has invested
heavily in automation, capture, presentation and analytics to grow its
competitive advantages, better serve its clients, retain employees and
improve productivity and performance.

* Effective use of technology to improve operations efficiency will
continue to lead to better, faster, and cheaper solutions for clients.

* The Company is leveraging its global footprint to take advantage of
shrinking distances and blur traditional borders bypassed by global,
stable, secure network infrastructure all while conforming to international
standards including ISO, HIPAA , HITECH, PCI and SAS70.

HOVS new technologies developed in last 2 years to enable:

* Optical character recognition technologies platforms - ACE, TurboScan, O-
Coding

* Data Capture Platforms - Firefly Platform for Healthcare and F&A.

* Enhanced Services in healthcare - Provider Management Portal for
converting paper claims to EDI claims, PCHTM paper to paperless claims
platform.

* Komodo business rule engines deployed to enable HOVS rules and Customer
Rules for very rapid deployment by customer by project

* HMS - productivity and quality tracking by employee worldwide,
utilization of assets, management of assets, employee communications,
secure portal for company and employees. HMS has been rolled out across all
sites US, India and China where healthcare is processed.

* HR Assistance - on-boarding, background checks, learning management,
employee portal, HR record management and online induction platform.

HOVS' new technology platform has been developed to address the following
issues:

* To make the Company less dependent on offshore and address US business
that cannot be sent offshore, HOVS undertook development of new workflow,
business rule engines, and redesigned processes to launch enhanced services
in Healthcare and A/P with work underway for additional verticals.

* Faster deployment of new business.

* Faster and better change management making the Company more responsive.

* Improve productivity to reverse the increasing headcount and utilization.

Human Resources:

HOVS employee remunerations, rewards and recognition policies are directly
linked to performance, incentivizing productivity and efficiency
throughout. All exceptional services are duly recognized and awarded
through an employee recognition and awareness program. Adequate training is
provided both in-house and using external faculties and facilities at all
levels. Management staffs are also considered for relevant training by
sponsoring to various seminars, lectures, communication and other soft
skill development programs, stress busting programs etc. Facilities solicit
and display employee artwork and employees at all levels are exposed to the
benefits of Yoga which is available thro' a trained Yoga consultant. There
is also an in-house e-magazine to bring out important happenings and to
encourage in-house talents.

An employee communication portal pushes for regular corporate and
management communication. Once a month all employees are addressed by
Senior Management and apprised of the developments taking place during that
period. The Company follows open policy to redress the grievances if any.

Career Progress has been drawn up for all levels and there is clarity of
growth opportunities within the Company. Employees are encouraged to refer
their friends for any positions to be filled in and also paid adequately if
such referred persons are appointed. The employee relations with the
Company are cordial at all locations and the Management is actively
involved in making sure the Company meets the law of the land and set the
high standards for all to achieve.

Internal Controls:

* HOVS has a well defined internal control systems and well documented
procedures. There are adequate checks and balances at all levels. The
mandate goes beyond financial transactions to even review all other
functions of various departments, viz Purchase, Sales and Marketing,
Operations, Payroll, HR and may others.

* The Internal Audit is both outsourced to professional firms and team of
internal auditors who reviews all the policies, procedures and also audits
most of the transactions.

* The reports submitted every quarter is reviewed by the Management and
Board of Directors and if needed corrective actions are taken.

* Additionally, pursuant to the Clause 49, the Corporate Governance of the
listing agreement with stock exchanges, the Company is required to comply
with additional standards. These standards include a certification by
Company's Chief Executive Officer and Chief Financial Officer upon the
effectiveness and deficiencies of internal controls and the certificate is
placed before the Audit Committee meeting every quarter.

Threats & Risk:

* HOVS challenge is to leverage its domain experience and success in
current markets it serve, to other rapidly growing markets where HOVS have
significant presence such as growing healthcare services market in India
and China, two of the world's fastest growing economies.

* The appreciation of the Indian Rupee against the US Dollar can affect
margins.

* Competition from global companies setting shops in India, China and
Mexico as well as domestic BPO companies pose threat by price and margin
erosion.

* Competition from other developing Countries is also a threat. However,
HOVS' root in technology and adherence to existing and emerging standards,
delivering the highest quality, global delivery platform enable HOVS to
compete well against some deeply entrenched companies.

* The rising inflation and salaries along with high attrition among
associates is a threat. This is planned to be offset with increased
productivity and increased use of technology to reduce the dependence on
manpower.

Impact of Financial Performances:

i) Impact of Material transaction:

The Company's wholly owned subsidiary, HOV Services, LLC sold certain
assets: 100% interest in Bay Area Credit Services, LLC, 100% interest in
HOV AR Management Services Private Limited, and its 30% minority interests
in TRAC Holdings, LLC and SAM Holdings, LLC for $12 million USD in cash
(approximately Rs. 56 Cr), which resulted in an exceptional loss of 132.8
Cr.

Below are the proforma results for the year ended March 31, 2010 and the
Fourth Quarter and year to date excluding the ARM business for the related
period:

Rs. In Million's

Particulars A B C D E F

TOTAL INCOME 7353.04 7288.57 0.9% 1843.52 1815.20 1.6%

EBITDA 1349.26 1193.08 13.1% 342.41 329.70 3.9%

EBITDA % 18.3% 16.4% 18.6% 18.2%

PAT 762.29 641.44 18.8% 197.50 191.50 3.1%

PAT % 10.4% 8.8% 10.7% 10.5%

Excluding ARM
Impact Basic
and Diluted EPS 61.02 51.27 15.81 15.31

A = Year ended March 31, 2009-10 - EXCLUDING ARM
B = Year ended March 31, 2008-09 - EXCLUDING ARM
C = % Change
D = Quarter ended March 31, 2009-10
E = Quarter ended December 31, 2009-10 - EXCLUDING ARM
F = % Change

Consolidated Financial Proforma Performance for the Fiscal Year ended March
31, 2010, excluding the Material Transaction:

* Consolidated total Income for the FY2010 increased by 0.9% to Rs 7,353.0
million from Rs 7,288.6 million for the fiscal year 2008-09.

* EBITDA increased by 13.1% for the FY2010 to Rs 1,349.3 million from
Rs.1,193.1 million over the last fiscal year 2008-09 and EBITDA margins
increased from 16.4% to 18.3%.

* Net Profit increased by 18.8% for the FY2010 to Rs 762.3 million from
Rs.641.4 million over the fiscal year 2008-09.

* Basic and diluted Earnings per Share (EPS) are Rs 61.02 for the fiscal
year.

* Pro forma diluted EPS is Rs 33.19 after giving effect to all shares that
would be issued.

Consolidated Financial Proforma Performance for the Fourth Quarter ended
March 31, 2010, excluding the Material Transaction:

* Total Income for the fourth quarter increased 1.6% to Rs 1,843.5 million
from Rs 1,815.0 million over the third quarter FY2010.

* EBITDA increased by 3.9% for the fourth quarter to Rs 342.4 million from
Rs 329.7 million over the third quarter FY 2009-10 and EBITDA margins
increased from 18.2% to 18.6%.

* Net Profit increased by 3.1% to Rs.197.5 million from Rs. 191.57 million
over the third quarter FY 2009-10.

* The basic and diluted EPS for this three month period is Rs 15.81 per
share.

ii) Impact of Dividend declaration:

The Board of Directors had declared an interim Dividend of Rs. 2/- per
share of Rs. 10/- each for the year ended March 31, 2010 and was paid to
the shareholders on February 18, 2010.

Keeping in view the long term interest of the shareholders, the Board of
Directors at the meeting held on May 24, 2010 recommended a final dividend
of Rs.2/- per fully paid up equity share of Rs. 10/- each for the financial
year 2009-10. This commend yours' approval for declaration.