12th annual report 2006-2007 - corporate.tatateleservices.com · 12th annual report 2006-07...
TRANSCRIPT
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TELESER
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1
COMPLIANCE OFFICER
Mr. Madhav JoshiChief Legal Officer & Company Secretary
Investor Services
Mr. Hiten KoradiaAsst.Manager – Investor RelationsTel 91 22 6661 5152e-mail – [email protected]
STATUTORY AUDITORS
M/s. Deloitte Haskins & SellsChartered Accountants12, Dr. Annie Besant Road,Opp. Shiv Sagar Estate, Worli,Mumbai - 400 018.
REGISTRARS & SHARE TRANSFER AGENTS
TSR Darashaw Limited6-10, Haji Moosa Patrawala Industrial Estate,20, Dr. E. Moses Road,Near Famous Studio, Mahalaxmi,Mumbai 400011.Tel 91 22 66568484Fax 91 22 66568494 / 66568496Email : [email protected] : www.tsrdarashaw.com
REGISTERED OFFICEIspat House, B. G. Kher Marg,Worli, Mumbai – 400 018.Tel 91 22 6661 5445Fax 91 22 6660 5516 / 5517Website: www.tataindicom.come-mail: [email protected]
BOARD OF DIRECTORS
Mr. Ratan N. Tata (Chairman)
Dr. Naushad Forbes
Mr. Arunkumar R. Gandhi
Prof. Ashok Jhunjhunwala
Mr. N. S. Ramachandran
Mr. S. Ramadorai
Mr. Charles Antony (Managing Director)
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
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CONTENTS
AGM Notice ------------------------------------------------------------------------------------------------------------------- 3
Directors’ Report ---------------------------------------------------------------------------------------------------------- 15
Corporate Governance Report -------------------------------------------------------------------------------------- 29
Management’s Discussion and Analysis of Financial Condition and Results of Operations------------- 41
Auditor’s Report ----------------------------------------------------------------------------------------------------------- 47
Balance Sheet ---------------------------------------------------------------------------------------------------------------- 50
Profit & Loss Account ---------------------------------------------------------------------------------------------------- 51
Schedules forming part of the Balance Sheet and Profit & Loss Account ------------------------ 52
Cash Flow Statement ----------------------------------------------------------------------------------------------------- 70
Balance Sheet abstract and general business profile ------------------------------------------------------ 71
Attendance Slip & Proxy Form
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NOTICENotice is hereby given that the 12th Annual General Meeting of Tata Teleservices (Maharashtra) Limitedwill be held on Friday, August 24, 2007 at 1530 hours at Bombay House Auditorium, Bombay House, 24,Homi Mody Street, Fort, Mumbai 400 001 to transact the following business:
ORDINARY BUSINESS
1. To receive, consider and adopt the audited accounts for the Financial year ended March 31, 2007 alongwiththe Report of auditors thereon as well as the Directors’ Report and for that purpose to consider and, ifthought fit, to pass, with or without modifications, if any, the following as an ORDINARY RESOLUTION:
“RESOLVED THAT the Company’s audited Balance Sheet as at March 31, 2007, the audited Profit and LossAccount and the audited Cash Flow Statement for the financial year ended on that date together withDirectors’ and Auditors’ Report thereon be and are hereby approved and adopted.”
2. To consider and, if thought fit, to pass, with or without modifications, if any, the following as an ORDINARYRESOLUTION:
“RESOLVED THAT M/s Deloitte Haskins & Sells, Chartered Accountants, retiring auditors of the Company,be and are hereby re-appointed as the Auditors of the Company to hold office from the conclusion of thismeeting until the conclusion of the next Annual General Meeting of the Company on remuneration to bedecided by the Board of Directors.”
3. To consider and, if thought fit, to pass, with or without modifications, if any, the following as an ORDINARYRESOLUTION:
“RESOLVED THAT Mr. N. S. Ramachandran, who retires from the office of Director by rotation in this AnnualGeneral Meeting be and is hereby re-elected a Director of the Company, whose office shall be liable toretirement by rotation.”
4. To consider and, if thought fit, to pass, with or without modifications, if any, the following as an ORDINARYRESOLUTION:
“RESOLVED THAT the vacancy caused on the Board of Directors of the Company due to the retirement ofDr. Naushad Forbes, a Director of the Company who was liable to retire by rotation at this Annual GeneralMeeting and who does not seek re-election, be not filled.”
SPECIAL BUSINESS
5. To consider and, if thought fit, to pass, with or without modifications, if any, the following as an ORDINARYRESOLUTION:
“RESOLVED THAT Prof. Ashok Jhunjhunwala, an Additional Director, who ceases to hold office at thisAnnual General Meeting and in respect of whom the Company has received a notice pursuant to Section257 of the Companies Act, 1956, be and is hereby appointed a Director of the Company, whose officeshall be liable to retirement by rotation.”
6. To consider and, if thought fit, to pass, with or without modifications, if any, the following as a SPECIALRESOLUTION:
“RESOLVED THAT pursuant to section 163 of the Companies Act, 1956, and other applicable provisions, ifany, of the Companies Act, 1956, the Register of Members, Index of Members, Register of Debentureholders,Index of Debentureholders and copies of all annual returns prepared under section 159 together withcopies of certificates and documents required to be annexed thereto under section 161, shall be kept atthe following address instead of at the registered office of the Company:
TSR Darashaw Limited6-10, Haji Moosa Patrawala Industrial Estate,20, Dr. E. Moses Road,Near Famous Studio,Mahalaxmi,
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
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Mumbai – 400 011.
RESOLVED FURTHER THAT the Company Secretary and/or any officer of the Company appointed by theBoard of Directors be and is/are hereby authorised to take all the necessary steps in order to give effect tothis resolution.”
7. To consider and, if thought fit, to pass, with or without modifications, if any, the following as a SPECIALRESOLUTION:
“RESOLVED THAT pursuant to the provisions of Section 31 and other applicable provisions, if any, of theCompanies Act, 1956, the Articles of Association of the Company be and are hereby altered in the mannerstated below:
The following Article 60A be inserted after the existing Article 60 of the Articles of Association of theCompany:
‘60A. The Board may seek approval of Members for any business by way of Ordinary/Special Resolution/sthrough postal ballot after complying with the requirements stipulated from time to time under the Companies(Passing of the Resolution by Postal Ballot) Rules, 2001 whether or not such business is specified as themandatory business under Rule 4 of the said Rules (as amended from time to time).’”
8. To consider and if thought fit, to pass, with or without modifications, if any, the following resolution as aSPECIAL RESOLUTION:
“RESOLVED THAT in partial modification of the resolution passed in the Annual General Meeting of theCompany held on August 5, 2005, consent of the Company be and is hereby accorded pursuant to theprovisions of Section 198, 269, 309, 310, 314, 316, 317 and other applicable provisions, if any, of theCompanies Act, 1956, to the re-appointment of Mr. Charles Antony as the Managing Director of theCompany for a period of 3 years w.e.f. 1st October 2007 (“the Proposed Term”).
RESOLVED FURTHER THAT pursuant to Section 198, 269, 309, 310, 314, 316, 317 and other applicableprovisions, if any, of the Companies Act, 1956 and any other applicable laws and regulations, Mr. CharlesAntony, be paid remuneration as follows w.e.f. October 1, 2007:
1. Basic Salary: Rs. 2,35,000 per month in the grade of Rs.125,000/- to Rs.4,00,000/- p.m. The Board ofDirectors or any committee thereof (hereinafter ‘the Board’) in its discretion may allow appropriateannual increment, the first increment being due on April 1, 2008.
2. Special Allowance: 33% of Basic Salary
3. Performance Bonus: Such remuneration by way of performance bonus up to 36 months of Basic Salary,in addition to Basic Salary, perquisites and allowance payable calculated with reference to theperformance of the Company for each financial year and the appointee’s performance during the yearas evaluated by the Board. This amount would be subject to the overall ceilings stipulated in Sections198, 309 and other applicable provisions of the Companies Act, 1956.
4. Perquisites and Allowances:
a) Residential Accommodation: The Company shall provide Company owned/leased accommodationto the appointee, and undertake its maintenance. The Company shall also pay for society chargesand provide and pay for utilities such as gas, electricity, water etc. The perquisite value of theresidential accommodation will be calculated as per the Income Tax Rules.
OR,
House Rent Allowance at 60% of Basic Salary; House Maintenance Allowance at 25% of BasicSalary.
b) In addition to residential accommodation, the appointee shall be entitled to other perquisites andallowances of the value of 18% of the appointee’s annual Basic Salary to cover the following:furniture, leave travel concession for self, wife and dependent children; normal medical reimbursement
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for self, wife and dependent children; and utilities.
c) Membership of Fort Medical Society [this is a Trust to take care of any exceptional medical expensesnot covered in 4(b)] for self and for family when residing in India.
d) The Company will pay fees of one club. This will not include admission and life membership fees.
e) Payment of premium for appropriate medical insurance for hospitalization for self, wife anddependent children, provision of a Company car for official duties, provision of telephone at residenceand cell phone (including payment of local calls and long distance official calls) and US HealthInsurance for family with premium upto Rs.6,00,000/- p.a. shall not be included in the computationof perquisites for the purpose of calculating the ceiling mentioned in para 4(b) above.
f) The Company’s contribution to Provident Fund and Superannuation or Annuity Fund, if any, to theextent these either singly or together are not taxable under the Income Tax Act, gratuity payableas per the rules of the Company and encashment of leave at the end of the tenure, shall not beincluded in the computation of the limit referred to in para 4(b) above. In case the aggregatecontribution of Provident Fund and Superannuation Fund is less than 27% of Basic Salary, theSpecial Allowance referred to in para 2 above shall be increased to that extent.
g) Minimum Remuneration: Notwithstanding anything to the contrary herein contained, where in anyfinancial year during the currency of the appointee’s tenure, the Company has no profits or theprofits are inadequate, the Company shall pay Basic Salary, perquisites, performance bonus andallowances as specified above as minimum remuneration.
Subject to the provisions of the Companies Act, 1956 and other applicable laws and subject toreceipt of requisite consents and approvals, Mr. Antony would be eligible to avail of any otherbenefits in addition to the above, as per Company policies prevailing from time to time.
5. Other Terms and conditions:
(a) The remuneration and other terms and conditions of this appointment may be varied/enhanced fromtime to time by the Board of Directors as it may in its discretion deem fit within the maximum amountspayable to the Managing Director as per Schedule XIII to the Companies Act, 1956 or within the limitspermitted by Central Government whichever is higher, so as to conform with the provisions of theCompanies Act, 1956.
(b) The appointment may be terminated by either party giving to the other party six months’ notice or theCompany paying six months’ Basic Salary in lieu thereof.
(c) If at any time, Mr. Antony ceases to be a Director of the Company for any cause whatsoever, hisappointment as Managing Director shall stand terminated forthwith. Moreover, if Mr. Antony ceases tobe in the employment of the Company for any reason whatsoever, he shall also cease to be a Directorof the Company.
RESOLVED FURTHER THAT the Board of Directors (including any Committee and/or delegates thereof)be and are hereby authorized to give effect to this resolution and to do such acts, thing and deeds inthis connection as they may deem necessary or expedient.”
9. To consider and if thought fit, to pass with or without modifications, if any, the following resolution as aSPECIAL RESOLUTION:
“RESOLVED THAT in partial modification of the resolutions passed earlier by the Company in general meetingand subject to the Company obtaining the requisite approvals including the approval of the CentralGovernment under Section 269, 310, 311 and other applicable provisions if any of the Companies Act,1956, an amount of Rs.5,59,828/- (Rupees Five Lakhs Fifty Nine Thousand Eight Hundred and TwentyEight only) be paid to Mr. Charles Antony, Managing Director of the Company towards the remunerationfor the year ended March 31, 2007 in addition to payment of amount of Rs.1,37,19,126/- p.a. (plusreimbursement of entertainment expenses) as previously approved by the shareholders of the Company
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
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and by the Central Government.
RESOLVED FURTHER THAT the Board of Directors (including any Committee and/or delegates thereof) beand are hereby authorized to give effect to this resolution and to do such acts, thing and deeds in thisconnection as they may deem necessary or expedient.”
10. To consider, and, if thought fit, to pass, with or without modifications, the following resolution as aSpecial Resolution:
“(a) RESOLVED THAT pursuant to Section 81 and all other applicable provisions of the Companies Act,1956 (including any modification or re-enactment thereof, for the time being in force), subject to allapplicable laws and in accordance with all relevant provisions of the Memorandum and Articles ofAssociation of the Company and the listing agreements entered into by the Company with the stockexchanges where the Company’s shares are listed and subject to such approvals, consents, permissionsand/or sanctions of the Central Government, Reserve Bank of India and/or any other appropriateauthorities, including banks, financial institutions or other lenders/creditors or holders of foreign currencyconvertible bonds issued by the Company earlier, as may be necessary, and subject to such conditionsas may be prescribed by any of them while granting any such approval, consent, permission, or sanction,and which may be agreed to by the Board of Directors of the Company (hereinafter referred to as the“Board” which expression shall be deemed to include any Committee or authorized representative/sthereof), the consent of the Company be and is hereby accorded to the Board to offer, issue and allot,in the course of international offering(s) to eligible foreign investors (whether or not such investors aremembers of the Company) by way of circulation of an offering circular or prospectus or by way ofprivate placement, foreign currency convertible bonds upto the aggregate principal amount equivalentto United States Dollars 200 million (hereinafter referred to as “Securities”), secured or unsecured, to besubscribed in one or more foreign currency/ies, which, at the option of the holders of the Securitiesand/or at the option of the Company may be converted into equity shares of the Company, such offer,issue and allotment to be made in one or more tranches, on such terms and conditions as may bedecided and deemed appropriate by the Board at the time of offer, issue or allotment.
(b) RESOLVED FURTHER that without prejudice to the generality of the above and subject to all applicablelaws and regulations, the aforesaid issue of Securities may have all or any terms or combination ofterms in accordance with international practices including but not limited to conditions in relation topayment of interest, additional interest, premium on redemption, prepayment and any other debtservice payments whatsoever, and all such terms as are provided in issue of securities of this natureinternationally including terms for issue of equity shares upon conversion of the Securities or variationof the conversion price of the Securities during the term of the Securities and the Company is alsoentitled to enter into and execute all such arrangements/agreements as the case may be with any leadmanagers, managers, underwriters, advisors, guarantors, depositories, custodians and all such agenciesas may be involved or concerned in such offerings of Securities and to remunerate all such agenciesincluding the payment of commissions, brokerage, fees or the like, and also to seek the listing of suchSecurities or securities representing the same on one or more stock exchanges outside India.
(c) RESOLVED FURTHER that the Securities issued in foreign markets shall be deemed to have beenmade abroad and/or in the international market and/or at the place of issue of the Securities in theinternational market and may be governed by applicable foreign laws.
(d) RESOLVED FURTHER that the Board be and is hereby authorised to issue and allot such number ofequity shares as may be required to be issued and allotted upon conversion of any Securities referredto in paragraph (a) above or as may be necessary in accordance with the terms of the offering, all suchequity shares being pari passu with the then existing equity shares of the Company in all respects.
(e) RESOLVED FURTHER that for the purpose of giving effect to any offer, issue or allotment of Securitiesor securities representing the same or equity shares, as described herein above, the Board be and ishereby authorised on behalf of the Company to do all such acts, deeds, matters and things as it may
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at its discretion deem necessary or desirable for such purpose, including without limitation to determinethe terms and timing(s) of the issue(s), the class of investors to whom the Securities (or securitiesrepresenting the same or equity shares, as described herein above) are to be issued, number of Securities(or securities representing the same or equity shares, as described herein above) to be issued in eachtranche, issue price, face value, premium amount on issue / conversion of Securities, rate of interest,redemption period, etc. the utilization of issue proceeds, entering into of underwriting, marketing anddepository arrangements, and with power on behalf of the Company to settle any questions, difficultiesor doubts that may arise in regard to any such issue or allotment as it may in its absolute discretiondeem fit.
(f) RESOLVED FURTHER that the Board be and is hereby authorised to delegate all or any of the powersherein conferred to any Committee of Directors or Managing Director or any Director or any otherOfficer or Officers of the Company to give effect to the aforesaid resolution.”
By order of the BoardFor Tata Teleservices (Maharashtra) Limited
Madhav JoshiChief Legal Officer & Company Secretary
Registered Office:Ispat House,B. G. Kher Marg,Worli, Mumbai 400 018.
Dated: July 11, 2007
Notes:
1. A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE ATTHE MEETING INSTEAD OF HIMSELF AND A PROXY NEED NOT BE A MEMBER. A proxy, in order to be effective,should be deposited at the registered office of the Company not less than 48 hours before thecommencement of the meeting.
2. The Explanatory Statement pursuant to section 173(2) of the Companies Act, 1956, is annexed hereto andforms part of this Notice.
3. All documents referred to in the accompanying Notice and Explanatory Statement are open for inspectionby the Members at the registered office of the Company on all working days between 11.00 a.m. to 1.00p.m. up to the date of Annual General Meeting.
4. The Register of Members and Share Transfer Books of the Company will remain closed from Tuesday,August 7, 2007 to Friday, August 24, 2007 (both days inclusive).
5. Members who hold shares in the dematerialised form are requested to bring their Client ID and DP IDnumbers for easy identification of attendance at the Annual General Meeting.
6. A circular on the Nomination facility is available on the Company’s web-site www.tataindicom.com underthe link “TTML” under the “About Us” link. The shareholders holding shares in physical mode only arerequested to go through the circular and appoint nominee/s, if any, in respect of their physical shareholdingsat the earliest.
7. Members may kindly note that, for security reasons, no handbags or parcels of any kind will be allowedinside the Bombay House Auditorium and those will have to be deposited outside the Auditorium on thecounter provided, at the Member’s own risk.
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
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ANNEXUREEXPLANATORY STATEMENT PURSUANT TO SECTION 173 (2) OF THE COMPANIES ACT, 1956
Item No. 3
Re-election of Mr. N. S. Ramachandran as Director
Mr. N. S. Ramachandran belongs to the Indian Telecommunication Service. He was the Chairman and ManagingDirector of the Mahanagar Telephone Nigam Ltd. during 1995-1997. Prior to that he held many responsiblepositions in the Government, the more important ones being the posts of the chief executive of theTelecommunication department for the state of Karnataka, as General manager of planning and developmentof the telecom network of Delhi and as Director in the Rural Development Task Force of the Dept. of Telecom.He has been a specialist in the field of Telecom Network Planning and Operation and was deeply involved inthe modernisation and digitalisation of Telecom networks.
He has also worked with the International Telecommunication Union (ITU) as a Senior Expert in Rural Networkin Geneva, Maldives, Uganda and Zimbabwe.
When the country set up the Telecom Regulatory Authority of India (TRAI) in 1997, he was appointed as aMember and he held that office up to year 2000.
Mr. Ramachandran has been associated with the Company as an Independent Director since December 2002.Mr. Ramachandran is the Chairman of the Audit Committee, Investors’ Grievance Committee and RemunerationCommittee of the Company’s Board. Apart from being a Director of the Company, Mr. Ramachandran is also aDirector of Tata Teleservices Limited. He is also the Chairman of the Remuneration Committee and member ofAudit Committee and Remuneration Committee of the Board of Directors of Tata Teleservices Limited.
Mr. Ramachandran does not hold any equity shares or any other securities in the Company.
Mr. Ramachandran retires as Director at this Annual General Meeting. The Board recommends the passing ofthis resolution in the interests of the Company. None of the Directors except Mr. N. S. Ramachandran, isdeemed to be concerned or interested, directly or indirectly, in the passing of this resolution.
Item no. 4
Retirement of Dr. Naushad Forbes
Dr. Naushad Forbes retires by rotation at this Annual General Meeting and is eligible for re-election. However,Dr. Forbes has informed the Board of Directors that he would not seek re-election as a Director of the Companyin view of his other commitments.
It is proposed that the vacancy arising due to retirement of Dr. Forbes from the office of Director be not filled.Accordingly, an ordinary resolution to this effect is proposed for the members’ approval. The Board recommendsthe passing of this resolution.
None of the Directors is concerned or interested directly or indirectly, in the passing of this resolution.
Item no. 5
Appointment of Prof. Ashok Jhunjhunwala as Director liable to retire by rotation
Prof. Ashok Jhunjhunwala, who was appointed additional director of the Company on April 12, 2007 andholds office till the date of the ensuing Annual General Meeting. The Company has received a notice anddeposit from a Member proposing Prof. Jhunjhunwala’s name for the office of a director on the Board ofDirectors of the Company.
Prof. Ashok Jhunjhunwala is Professor of the Department of Electrical Engineering, Indian Institute of Technology,Chennai, India and was department Chair till recently. He received his B.Tech degree from IIT, Kanpur, and hisMS and Ph.D degrees from the University of Maine. From 1979 to 1981, he was with Washington StateUniversity as Assistant Professor. Since 1981, he has been teaching at IIT, Madras.
Prof. Jhunjhunwala leads the Telecommunications and Computer Networks group (TeNeT) at IIT Madras. Thisgroup is closely working with industry in the development of a number of Telecommunications and ComputerNetwork Systems. TeNeT group has incubated a number of technology companies, which work in partnershipwith TeNeT group to develop world class Telecom and Banking products for Rural Markets. His Research
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Interests include Telecommunications and Wireless Systems and Technologies for Rural Areas.
Prof. Jhunjhunwala has been awarded Padma Shri in the year 2002. He has been awarded Shanti SwarupBhatnagar Award in 1998, Dr.Vikram Sarabhai Research Award for the year 1997, Millennium Medal at IndianScience Congress in the year 2000 and H. K. Firodia for “Excellence in Science & Technology” for the year2002, Shri Om Prakash Bhasin Foundation Award for Science & Technology for the year 2004, Awarded JawaharlalNehru Birth Centenary Lecture Award by INSA for the year 2006 and IBM Innovation and Leadership ForumAward by IBM for the year 2006. He is a Fellow of INAE, IAS, INSA and NAS.
Prof. Jhunjhunwala is a Director in the Board of State Bank of India. He is also a Board member of severalcompanies like Polaris Software Lab Ltd., Tejas Networks Pvt. Ltd., Sasken Communications Technologies Ltd.,Jataayu Software Pvt. Ltd., Midas Communication Technologies Pvt. Ltd., Vishal Bharat Comnet, National ResearchDevelopment Corporation Ltd., Bharat Electronics Ltd., 3i Infotech Ltd. He is a member of Governing Council ofNational Internet Exchange of India Ltd. and also a Director of Institute for Development & Research in BankingTechnology (IDRBT). He is also a member of Prime Minister’s Scientific Advisory Committee.
Prof. Jhunjhunwala is a member of the Audit Committee of the Board of Directors of the Company. He is amember of Audit Committee of the Boards of Sasken Communications Technologies Ltd., Tejas Networks Pvt.Ltd., Polaris Software Lab Ltd. and Midas Communication Technologies Pvt. Ltd. apart from being member ofInvestor Grievance/Shareholders Committee of Polaris Software Lab Ltd.
Prof. Jhunjhunwala does not hold any equity shares or any other securities in the Company.
The Board recommends the passing of this resolution in the interests of the Company. None of the Directorsexcept Prof. Jhunjhunwala, is deemed to be concerned or interested, directly or indirectly, in passing thisresolution.
Item No. 6
Keeping of certain records at the office of Company’s Registrars & Share Transfer Agents
Your Company has appointed TSR Darashaw Limited (formerly known as Tata Share Registry Limited) as itsRegistrars and Share Transfer Agents for physical as well as dematerialized shareholdings. TSR DarashawLimited is one of the leading R&T agents in India, presently servicing investor population of approximately 4.5million. It is the first registrar in India accredited as an ISO 9001 Company. It is registered with the Securitiesand Exchange Board of India as a Category I Registrar to Issue and Securities Transfer Agent with NSDL & CDSLDepository Connectivity.
The Board seeks the consent of the members for keeping the Register and Index of Members, Register andIndex of Debenture holders and copies of annual returns together with all documents required to be annexedthereto, at the office of TSR Darashaw Limited, 6-10, Haji Moosa Patrawala Industrial Estate, 20, Dr. E. MosesRoad, Near Famous Studio, Mahalaxmi, Mumbai – 400 011.
The above records will be open for inspection from 10.30 a.m. to 1.00 p.m. and from 2.00 p.m. to 4.30 p.m.on all working days (Monday to Friday -excluding bank holidays) on payment of specified fees. Extracts andcopies of the aforesaid records can also be taken on payment of specified fees.
Your Board recommends the passing of this resolution as a special resolution.
None of the Directors is deemed to be concerned or interested, directly or indirectly, in passing this resolution.
Item No. 7
Alteration of Articles of Association
As per the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001, a listed company is required toadopt Resolutions relating to specified businesses only through Postal Ballot. It has freedom to adopt otherResolutions also by Postal Ballot. The proposed amendment seeks to have a flexibility to adopt all resolutionsthrough Postal Ballot.
None of the Directors is deemed to be concerned or interested, directly or indirectly, in passing this resolution.
Item No. 8
Re-appointment of Mr. Charles Antony as Managing Director
The Board of Directors had appointed Mr. Charles Antony as the Managing Director of the Company to hold
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
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such office for a period of 5 years w.e.f. October 1, 2004. However, as mandated under Schedule XIII of theCompanies Act, 1956, the approval of the shareholders and the Central Government, for payment of remunerationto Mr. Antony was obtained for a period of 3 years i.e. upto September 30, 2007.
In partial modification of its previous resolution, the Remuneration Committee of the Board of Directors has,on June 20, 2007, approved payment of remuneration to Mr. Charles Antony as Managing Director of theCompany for a period of 3 years from October 1, 2007 subject to Mr. Antony’s re-appointment as ManagingDirector for the said period being approved by the Company’s shareholders.
Prior to joining the Company in October 2005, Mr. Charles Antony, aged 54 years, was with Tata InfotechLimited as Executive Director (designated as President & Chief Operating Officer).
Mr. Antony has extensive global management exposure in high volume business development, in fast pacedtime sensitive environments. Mr. Antony joined Motorola, USA in 1979 as Electrical Engineer and rose to theposition of Senior Director Operations in 1998. In a career spanning over 25 years in the US with Motorola, Mr.Antony excelled in being result driven. His excellent problem solving skills coupled with his immense experiencein analyzing and streamlining product delivery systems helped him increase productivity across all levels ofresponsibilities held by him. During his tenure with Motorola, he was consistently ranked in the high potentialemployee list.
With clear vision and customer driven approach Mr. Antony led a team which introduced network and supportsystems in Japan, which was instrumental in signing a $1 billion contract; he started the first GSM SystemsEngineering Organization in US; implemented multiple nationwide contracts in the Middle East and Africaworth $250 million; developed the GSM expertise in Asia leading to signing of contracts valuing $200 million;engineered and implemented the first TACS network in China worth $500 million.
Mr. Antony is the Chairperson of the worldwide Systems Engineering Council. He holds a B.Sc. degree inMathematics and B.S. in Electrical Engineering from the US.
With Mr. Antony at the helm, the Company has achieved significant progress and has earned a positive EBITDAof Rs.302.60 crores and cash profit of Rs. 130.84 crores for the financial year ended March 31,2007. TheBoard considers that the Company would continue to be benefited immensely from Mr. Antony’s re-appointmentand therefore recommends his re-appointment.
For the new term of 3 years, Mr. Antony would be paid remuneration approved by the Remuneration Committeeof the Board of Directors of the Company and as set forth in the Special Resolution appearing at serial no. 8 inthe notice. The consent of the Company’s shareholders is now being sought for the same. The Company willapply to Government of India, Ministry of Corporate Affairs after receipt of shareholders’ consent.
In accordance with the provisions of Schedule XIII of the Companies Act, 1956, the particulars as prescribedtherein are enclosed and the approval of the shareholders is sought for payment of such remuneration for aperiod of 3 years from the date of Mr. Antony’s appointment to the office of Managing Director i.e. uptoSeptember 30, 2010.
Mr. Antony does not hold any directorships outside the Company. He is a member of the Investors’ GrievanceCommittee of the Company. Mr. Antony does not hold any equity shares or any other securities in the Companyas of date.
The Board recommends the passing of this resolution in the interests of the Company.
Mr. Antony is interested or concerned to the extent of the remuneration proposed in the aforesaid Resolution.No other Director is deemed to be interested or concerned, directly or indirectly, in the passing of this resolution.
The above may also be treated as an abstract referred to in Section 302 of the Companies Act, 1956.
Item No. 9
Remuneration payable to Mr. Charles Antony for 2006-07
Based on an appraisal of the performance of the Company during the financial year 2006-07, Mr. Antony’scontribution thereto and other relevant factors and circumstances, the Remuneration Committee of the Company’sBoard of Directors has approved payment of remuneration to Mr. Antony for said financial year as follows:
Particulars Amount (Rs.)
Basic Salary & Allowances 61,19,400
Perquisites & Retirals 11,59,554
Performance Bonus 70,00,000
Total 1,42,78,954
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On account of the proposed payment of remuneration as above, the actual remuneration payable to Mr. Antonywould exceed by Rs. 5,59,828/-, the current limit of Rs.1,37,19,126/- p.a. (plus reimbursement of entertainmentexpenses) as previously approved by the Central Government vide letter no. 1/489/2004-CL.VII dated 10 th May2005 (as amended). Therefore, in accordance with the provisions of Sec. 309, 310, 311 and other applicableprovisions, if any, of the Companies Act, 1956, consent of the shareholders is being sought for payment of theadditional remuneration of Rs.5,59,828/- as aforesaid which is in excess of the already approved limit. Uponreceipt of shareholders’ consent, the Company shall seek Central Government’s prior approval for making paymentof the amount of the proposed additional remuneration.
The Board recommends the passing of this resolution in the interests of the Company.
Mr. Antony is interested or concerned to the extent of the remuneration proposed in the aforesaid Resolution.No other Director is deemed to be interested or concerned, directly or indirectly, in the passing of this resolution.
Item No. 10
Consent for Issue of Foreign Currency Convertible Bonds
The Company’s expansion plans would continue in the years to come. It would be necessary to raise financialresources for funding the said plans. Foreign Currency Convertible Bonds (FCCBs) have emerged as an alternative,which allows the Company to raise equity at a substantial premium to current market prices at a very lowcost. Therefore the Company proposes to issue FCCBs in the near future to meet its additional equity requirementsas per its business plan. These FCCBs may be listed on one or more foreign stock exchanges and will beconvertible into equity shares of the Company at the option of the FCCB holders and/or at the option of theCompany at conversion price/s to be decided at the time of issue of FCCBs.
The Company earlier completed an issuance of FCCBs worth US$ 125 million (approx Rs. 575 crores) in June2004. As on March 31, 2007, FCCBs of US$ 63.41 million have been converted into equity shares.
Any issue of FCCBs with an option of conversion into equity shares, to persons who may not be members ofthe Company, requires the consent of the Company’s shareholders. Considering that the window for availingof FCCBs on best terms is typically very short in view of continuous market fluctuations, the Board seeks theconsent of shareholders by passing a resolution for issue of FCCBs not exceeding an amount equivalent to US$200 million (irrespective of the foreign currency in which the FCCBs are/are to be subscribed) and consequentissue of equity shares arising on conversion of FCCBs to the extent opted by FCCB holders or by the Company.While the terms of the offer would be finalised at the time of issue of FCCBs, the issue will be structured in amanner such that the Company’s promoters would, at all times, continue to hold a majority of the Company’spaid up Equity Capital. Shareholders’ approval will enable the Board to complete the issue of FCCBs during anywindow of opportunity when favourable terms can be obtained from foreign investors.
Approval of the members of the Company is being sought pursuant to Section 81 (1A) and other applicableprovisions of the Companies Act, 1956 for such issue.
The Directors recommend the passing of this SPECIAL RESOLUTION in the interests of the Company. The Directorsof the Company may be deemed to be concerned or interested in the Resolution to the extent of Securitiesthat may subscribed to by the companies/institutions of which they are Directors or members.
By order of the BoardFor Tata Teleservices (Maharashtra) Limited
Madhav JoshiChief Legal Officer & Company Secretary
Registered Office:
Ispat House,B. G. Kher Marg,Worli, Mumbai 400 018.
Dated: July 11, 2007
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Disclosures Pursuant to sub-clause (iv) under the proviso to sub-paragraph (C) of Paragraph 1 underSection II of Part II of Schedule XIII
Nature of industry The Company operates in the TelecommunicationServices Industry. This industry is very competitivein India. Major growth is coming in mobilesegment in which there are four to six operatorsin each telecom circle. There are two types oftechnologies i.e. GSM and CDMA being used formobile telephony. GSM technology basedoperators are offering mobile service in India forlast 12 years while CDMA operators were allowedto offer full mobility since November 2003. TheCompany has created wireline base in initial yearsin cities like Mumbai and Pune. Incumbentoperators i.e. BSNL and MTNL have dominantmarket share in wireline segment. The Companyprovides fixed wireless service by using CDMAtechnology. It is market leader in this segment.The Company provides mobility services since laterhalf of 2003 and has established itself in themarket. The industry is a technology driven industryand experiences constant technological andregulatory changes.
Due to very high degree of competition the tariffsare falling continuously and are the lowest in theworld.
Date or expected date of December 18, 1998commencement of commercial production
Financial performance based on given indicators duringthe financial year ended March 31, 2007 Rs. Crores
Total Income 1421.86
Expenses 1737.25
Loss (315.39)
EPS (1.94)
P/E Ratio Not applicable
Total Assets 4252.24
Accumulated Losses 2544.58
Export performance and net foreign exchange The Company is licensed to offer services in thecollaborations states of Maharashtra and Goa. The incoming
foreign calls are received through international longdistance operators who receive the foreignexchange. The Company thus has made no directexports till date. The Company had foreignexchange outgo of Rs. 28.57 crores during thefinancial year 2006-07.
Foreign investments or collaborators, if any As on March 31, 2007 the Tata Companies owns68.82% of the Company’s paid-up share capital.Foreign equity holdings constitute 2.36% of theCompany’s paid up capital.
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Information about Mr. Charles Antony, Managing Director
Background details Mr. Charles Antony was appointed as Director andManaging Director of the Company for a period of5 years w.e.f. October 1, 2004. His appointmentand remuneration for a period of 3 years wasapproved in 10th Annual General Meeting of theCompany on August 5, 2005. Approval ofMembers is now sought for the re-appointment ofMr. Antony as Managing Director for a period of 3years from October 1, 2007.
Further details are as set out in the ExplanatoryStatement to Item no. 8 of the accompanyingnotice convening the 12th Annual General Meeting.
Annual remuneration with last employer Rs. 1,14,95,996/-(Tata Infotech Limited)
Recognition or awards Mr. Antony has been consistently ranked amongstthe high potential employees throughout his career.Prior to being associated with the Company, Mr.Antony has held senior management positions inMotorola and Tata Infotech Limited.
Job profile and his suitability The Managing Director is responsible for the overalloperations and profitability of the Company. He isexpected to help achieve the organization’s short-term and long- term targets.
The MD is instrumental in setting and reviewingperformance of all units/departments of theCompany. He ensures performance compliance inaccordance with the Company’s stated businessplans and policies. In this regard, the MD isexpected to give proper direction to the thoughtprocess and activities carried out by the variousunits/departments of the Company.
The MD heads a senior management team and isresponsible for taking business decisions in a highlycompetitive and fast-paced environment keepingin mind that the telecom industry is characterizedby continuous technological and regulatorychanges.
The MD is also expected to ensure that stakeholderinterests are met with leading to a balanced andsustainable growth for the Company.
Mr. Antony has all the requisite qualifications,experience and attributes to meet the aboverequirements.
Mr. Antony’s contribution to the Company hasbeen immense and he has been instrumental inturning around the Company’s financialperformance. Under his leadership, the Companyhas been consistently improving its market share,increasing revenues and optimization of costs and
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has thereby earned a positive EBITDA of Rs.302.60crores and a cash profit of Rs.130.84 crores forthe financial year 2006-07.
Remuneration proposed As detailed in the Special Resolution under Itemno. 8 of the accompanying notice convening the12th Annual General Meeting
Comparative remuneration profile with respect to industry, Comparative remuneration profile withsize of the Company, profile of the Company, the respect to industry & size of the Companyrelevant details would be w.r.t. the country of origin) Information about remuneration of managing
directors of telecom companies of comparablesize and business profile is not available in publicdomain. The proposal is for re-appointment. Theproposed remuneration is in line with theremuneration already approved by theGovernment for the previous term of 3 years. Theappointee has worked abroad for 25 years andhis remuneration is commensurate with hisqualif ications, experience and challengesconfronting the telecom sector in general and theCompany in particular.
Profile of the Position: As set out above
Profile of the Person: Mr. Antony is a citizen ofUnited States having worked there for more than25 years. He is also a registered Overseas IndianCitizen. His detailed profile appears in theexplanatory statement to item no. 8 in theaccompanying notice convening the 12th AnnualGeneral Meeting.
Pecuniary relationship directly or indirectly with the Apart from holding the offices of Director andCompany, or relationship with the managerial personnel, Managing Director of the Company, Mr. Antonyif any has no pecuniary relationship with the Company.
The Company has not appointed any managerialpersonnel except Mr. Antony.
Other Information
Reasons of loss or inadequate profits Please refer to the Management Discussion &Analysis appearing elsewhere in this Annual Report.
Steps taken on proposed to be taken for improvement Please refer to the Management Discussion &Analysis appearing elsewhere in this AnnualReport.
Expected increase in productivity and profits in Please refer to the Management Discussion &measurable terms Analysis appearing elsewhere in this Annual
Report.
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DIRECTORS’ REPORTDear Members,
The Directors have pleasure in presenting the 12th Annual Report together with the audited financial statementsof the Company for the year ended March 31, 2007 and other accompanying reports, notes and certificates.
Financial Results
The financial results of the Company’s operations during the year are given below:
(Rs. Crores)
Particulars 2006-07 2005-06
Telecom Revenue 1406.98 1095.13
Other Income 14.88 1.66
Total Income 1421.86 1096.79
Expenditure 1119.26 972.08
EBIDTA 302.60 124.71
Finance & Treasury Charges (Net) 171.76 145.77
Depreciation 446.23 471.90
Loss before Extraordinary item and tax 315.39 492.96
Extraordinary item (5.48) 47.25
Loss before tax 309.91 540.21
Fringe Benefit tax 0.70 0.85
Loss after tax 310.61 541.06
The revenue growth was commensurate with the growth in subscriber base amidst falling ARPU/tariffs. Costoptimization efforts ensured a lower rate of increase of 15% in operating expenses, compared with 28%increase in revenues. The Company reported a positive EBIDTA of Rs. 302.60 crores, representing a significantimprovement over the previous year’s EBIDTA of Rs.124.71 crores.
Indian Telecom comes of age
The Indian telecom sector continued its rapid growth with a total of 66.51 million subscribers being addedduring the financial year 2006-07 as compared to 41.91 million in 2005-06, registering an increase of 58% inannual growth. This is the highest ever increase in the subscriber base during a financial year after the openingup of the telecom sector for competition.
The total telephone subscriber base was 206 million (fixed plus mobile) at the end of March 2007. The wirelesssubscriber base grew to 166.05 million while the wireline base declined marginally to 40.78 million. Teledensityincreased from 12.8% to 18.31%. This growth, however, was concentrated mainly in urban areas, while ruralteledensity remained low at less than 4%. Despite a steady fall in the average revenue per user (ARPU) withever declining tariffs (Indian telecommunication tariffs are the lowest in the world) Indian telecom companieshave been expanding their networks, and increasing their coverage of hitherto “dark” areas in rural India.
During the year, the Government of India amended the Indian Telegraph Act, 1885, to give private mobileoperators access to the Universal Service Obligation (USO) fund; each operator contributes 5% of its adjustedgross revenue to the USO fund which is intended to provide subsidies towards addressing operating lossesincurred by the telecom operators in providing telecom services in the rural areas. The Department ofTelecommunications (DoT) floated a tender for providing subsidies under the USO fund to telecom operatorsfor the creation of shared infrastructure in rural areas. In a surprising twist, some operators submitted bids with
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negative subsidy amounts, implying that instead of seeking support from the USO fund, they were willing topay the Government to let them provide rural services. Going forward, it is anticipated that competitive forceswill ensure rapid extension of mobile connectivity to rural areas.
The Company’s performance
The Company holds two Unified Access (basic + cellular) Services Licences (“UASL”), one for Mumbai Metro andthe other for the Rest of Maharashtra and Goa.
During the year, the Company consolidated its position in the market by increasing its share of new additionsin the wireless market (i.e. fixed wireless and mobile) to 15.2 %. The subscriber base of the Company registeredalmost 70% growth with the year-end subscriber base reaching 3.074 million.
Despite regulatory issues as described later in this report, the Company retained its market leadership positionin the fixed wireless segment.
Products and Services
During the year, the Company focused on increasing its retail presence to penetrate the market better with itsvarious products and services. The Company increased its subscriber base in the mobile and fixed wirelesscategories apart from enhancing its offerings of value added services.
The mobile subscriber base more than doubled from 0.79 million to 1.64 million. This growth was fueled bythe increase in network coverage, accompanied by the introduction of new handsets at attractive prices, andtariff related actions such as the reduction of roaming tariffs, and the introduction of creative tariffs such asthe One India plan.
The Company has reciprocal roaming arrangements with Tata Teleservices Limited (TTSL), which offers servicesin 18 other telecom circles, and thus the Company’s subscribers enjoy pan-India mobility. The Company alsoentered into arrangements with overseas telecom operators to provide international roaming facilities to itssubscribers.
The fixed wireless service subscriber base increased by 36% from 0.83 million to 1.13 million. The Companyintroduced Walky Prepaid and also launched Indicom10 (ten digit numbering fixed wireless service) in ruralMaharashtra during the year. The Company is the market leader in this service.
Following is a comparative summary of subscriber numbers achieved by the Company as at the end of theyear under review vis-à-vis the previous year:
[Figures in Mn.]
Particulars As on March 31, 2006 As on March 31, 2007
Mobile Subscribers 0.79 1.64
Fixed Wireless Subscribers 0.83 1.13
Wireline Subscribers 0.22 0.30
Total 1.84 3.07
The Company, using the franchisee model, opened a large number of True Value Shops to display its range ofservices and offer a better user experience to its customers.
The Company continued to focus on value added service (VAS) offerings. The launch of Welcome Tunes(Caller Ringback Tunes), video streaming and other data services and content brought in improved revenues.
The Company is a Category A (National) ISP Licensee and offers a broad range of Internet-related productofferings including DSL, lease lines and dial-up internet access.
The Company, along with TTSL, has a national footprint for its popular Tata Indicom conference call serviceand has 15 Points of Presence across the country for providing local access to conference bridges.
During the year, the Company launched a first of its kind web based online retail store called ‘i-Choose’
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whereby anybody can buy a handset along with the tariff plan chosen by him/her simply by making an on-linepayment. The device ordered is delivered at the customer’s home.
New Customer Offerings
During the year, the Company launched several value-for-money propositions to delight its customers.
• In August 2006, the Company brought down the STD tariff for its Walky customers to Rs.1.20 for 3minutes.
• The Company launched the “One Nation” plan in November 2006 with a monthly rental of Rs.180 underwhich the customer could make local and STD calls to anywhere in India @ Re. 1 per minute and local andSTD calls to any Tata Indicom Phone across India @ Re. 1 per 3 minute respectively.
• The Company commenced international roaming services in partnership with US based Verizon in November2006. Now, the Company’s customers can experience seamless roaming in the US.
• The Company introduced the ‘Go Colour’ Value for Money offer on colour mobile handsets in September2006. The Company celebrated the festive season of Diwali with attractive offers for prepaid customers.
• In November 2006, BEST, which provides bus services within Mumbai city, permitted the Company to offerits PCO service on BEST buses. With this facility, commuters can make calls from BEST buses through coinoperated PCOs.
Network Infrastructure
During the year, the Company’s infrastructure cell rolled out CDMA wireless services in 186 new towns inMaharashtra and Goa. It now offers services in 357 towns and also along the major national highways linkingvarious towns in Maharashtra and Goa. The Company’s subscribers are therefore able to enjoy uninterruptedservices while traveling by road and rail along the major travel routes in Maharashtra and Goa.
The Company had participated in 2004 in an open bidding process for providing fixed phones in non-urbanareas through support from the Universal Services Obligation (USO) fund. It won bids in 43 SDCAs, and startedproviding services in many rural villages in the interiors of Maharashtra. Till date, over 2 lakh rural lines havebeen provided by the Company, for which it is eligible to get subsidies towards meeting part of the capitalexpenditure and operating costs incurred for every line installed and operational at these locations.
The Company’s network successfully coped with the very high traffic generated on the day of the serial bombblasts in suburban trains in Mumbai in July 2006.
The Company implemented cost efficiency measures by optimizing its infrastructure, increasing utilizationfactors, and through the use of power saving equipment. The Company, in co-operation with other privateoperators, focused on increasing the sharing of passive infrastructure like towers, duct space and site equipmentamongst the operators, with a view to optimizing network costs and operating expenses.
Quality and Processes
The Company has undertaken ISO 9001:2000 certification to demonstrate its capability to consistently provideservices that enhance customer satisfaction through effective deployment of a quality management system.The Company became the first basic telecommunication provider to get the coveted ISO 9001: 2000 certificationin August 2002. In the recent ISO Surveillance Audit conducted by Intertek Quality Registrar inDecember 2006, the Company was awarded a Certificate of Continuation for ISO 9001:2000 with Zero NonConformance.
The Company completed training and certification programs across all customer-facing units to ensure consistentand superior customer experience. Internal Quality Audit is used as a management tool for independent assessmentof the effectiveness of the Quality Management System, and to keep processes current with business needsand directions. The Company’s Quality Assurance Team conducted Internal Quality Audits, the findings ofwhich were discussed in Management review meetings. Conformance levels of the Company’s processes werecontinuously evaluated and corrective action taken towards improving products and services thereby ensuringimproved customer satisfaction.
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Regulatory Developments
• Spectrum
(a) TRAI recommendation on allocation and pricing of Spectrum for 3G and Broadband Wireless Access
Based on DoT’s request, TRAI floated a consultation paper on 3G allocation and pricing and broadbandwireless access on June 12, 2006. Subsequently, on September 27, 2006, TRAI released its recommendations.The key highlights included (a) auction of spectrum, with a reserve price for spectrum in the 2.1 GHz band,and 50% of the reserve price for spectrum in the 450 MHz band, (b) annual spectrum fees @ 1% of AGR afterthe first year, mixed band trials to establish co-existence of CDMA in the 1900 MHz band with WCDMA inthe 2100 MHz band, and (c) carving out a 15th carrier in the 20 MHz slot earmarked for CDMA operators.
DoT has authorized the CDMA operators’ association, AUSPI, to conduct trials in the 1900 MHz band, andthe Company is hopeful that these trials would pave the way for allocation of spectrum in the 1900 MHzband to CDMA operators.
DoT is yet to announce a comprehensive spectrum policy.
(b) Guidelines for allocation of additional Spectrum
The UASL license provides for allotment of spectrum of upto 5+5 MHz i.e. 4 carriers, to CDMA operators;GSM operators are offered upto 6.2 + 6.2 MHz. However, DoT, without devising a comprehensive spectrumpolicy, notified norms in March 2006 for the allotment of 5 th and 6th carriers to CDMA operators, and upto15 MHz to GSM operators, without any additional payment. Besides denying the Government revenues forthe allocation of scarce spectrum, the norms discriminate between GSM and CDMA operators by allottingspectrum in a 2:1 ratio based on the mistaken presumption that CDMA technology is more spectrumefficient and enables CDMA operators to serve twice as many subscribers with the same amount ofspectrum as compared to GSM technology. The Company has made various representations to theGovernment that these norms violate the principles adopted by TRAI, namely:
• Upfront allotment of adequate spectrum to all licenced operators.
• Technology neutrality.
• Pricing of spectrum.
The Company has requested that the DoT’s notification be kept on hold until a comprehensive spectrumpolicy is formulated, after transparent inputs from the stakeholders.
• Push to Talk (PTT)
The Company, after holding discussions with the Telecom Regulatory Authority of India (TRAI), launched inNovember 2004 the innovative Push-To-Talk (PTT) service on a non-chargeable basis. PTT enables subscribersto form groups and instantly connect with multiple persons across the country, who require short bursts ofinformation thus increasing productivity and efficiency while simultaneously reducing costs. CommencingJanuary 2005, DoT and TRAI sought some information which was furnished, after which they directed theCompany in February 2005 to discontinue the service. DoT thereafter levied a penalty of Rs.50 crores onthe Company in January 2006, for alleged violation of license conditions; this was challenged by theCompany at the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), and currently, while thehearings continue, the demand has been stayed.
• Walky ADC Case
The Company is a market leader in fixed wireless phones (FWPs) offered under the brand name ’TataIndicom Walky’. As mentioned in last year’s report, BSNL unilaterally treated these FWPs as mobile phonesand raised demands for payment of Access Deficit Charge (ADC). TDSAT upheld these demands, and theCompany went in appeal to the Supreme Court. Effective March 2006, the ADC is to be calculated as apercentage of revenues, and hence this dispute is now confined to demands for the relevant past periods.
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• Changes in Foreign Direct Investment guidelines
In December 2005, the Government of India vide Press Note No. 5 of 2005, permitted foreign equityparticipation in the telecom sector up to 74% (up from 49%); however, it also stipulated stiff conditions onnew as well as existing licensees, including conditions that the majority of the Directors on the Board andChairman, Managing Director, CEO, CTO and CFO would be required to be resident Indian citizens. Theseamendments also required the licensees to include a clause in their Memorandum of Association providingthat the licencee would cease to carry on business in case of violation of the license conditions introducedby the December 2005 amendments.
Based on several representations made by the Company to the Government for re-consideration of theseonerous conditions, in the interest of the telecom sector, the Government, vide its Press Note No. 3 of2007, issued a revised amendment to the license conditions, which allows companies to increase FDI to74%. The earlier stringent restrictions on even those telecom companies that did not opt to increase theirFDI beyond the earlier limit of 49% have been relaxed to a certain extent. The Company no longer needs tohave a resident Indian citizen as its MD, CEO or CFO. Also, the Company does not need to have provisionsin its Memorandum and Articles of Association with regard to compliance with the license conditions.Consequential amendments to the UASL have also been made to reflect the above changes.
• Subscriber Verification
DoT had vide its letter dated November 22, 2006, reiterated that the telecom service licensee(s) neededto ensure that the required documentation pertaining to their subscribers was in place before activation ofa SIM card/connection. The order further stated that 100% document re-verification of existing subscriberswas to be completed by March 31, 2007 after which no subscriber without due verification should becontinued on the network. Post March 31, 2007, if any subscriber is found without proper documents, theoperator would face a penalty of Rs.1,000/-, per non-conforming subscriber, besides immediate disconnectionof the subscriber. Though the time frame given for re-verification of the existing subscriber base by DoTwas very short, the Company, in particular, and the industry in general, made huge efforts to comply withthe DoT’s directives.
On May 15, 2007, DoT issued show cause notices to all the operators, including the Company, asking whypenalties should not be imposed for alleged violations of the subscriber verification norms. The basis ofeach notice was a limited sample check conducted by DoT. The Company has requested DoT to providethe details of the alleged deficiencies uncovered, so that the Company is able to respond appropriately.
• Fulfillment of Roll-out Obligations
As a Unified Access Service Licensee, the Company was required to complete certain rollout obligationswithin 1 and 3 years from the effective date of its license(s). The coverage had to be certified by theTelecommunication Engineering Center (TEC). Due to reasons not in the control of any of the UASL operators,the first year norms could not be met by them.
Despite various representations from the industry and the Company, DoT on June 4, 2007 issued showcause notices to the Company and other operators alleging non-fulfillment of the stipulated rollout obligationsat the end of first year. The notices require the Company to explain to DoT why liquidated damages of Rs.14 crores (i.e. 7 crores each for Mumbai and Maharashtra circle) should not be recovered from the Companyfor the alleged failure. The Company has received legal opinion that the demands are invalid under law.
• Universal Service Obligation (USO)
The Government of India amended the Indian Telegraph Act, 1885, to give mobile players access to theUniversal Service Obligation (USO) fund. Each operator contributes 5% of its adjusted gross revenue to theUSO fund, which is used and is intended to be used to provide subsidies for providing telecom services inrural areas.
The USO Administrator floated a tender for setting up and managing 7,871 infrastructure sites in specified
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rural and remote areas comprising of 81 clusters with subsidies from USO Fund. The Company had submittedits bid but was not successful. Curiously, some operators submitted bids with negative subsidy amounts,indicating their willingness to forego subsidy support from the USO fund.
The Company, in 2004, won the tender for provision of Rural DELs in 43 SDCAs. As on March 31, 2007, theCompany had serviced 2.09 lakhs RDELs. The RDEL scheme ended on March 31, 2007; in view of thedelays in allocation of access spectrum and provision of Points of Interconnection by BSNL, several operators,including the Company, have requested the government for an extension of the scheme upto March 31,2009.
The focus of the Government in the coming year will be on the growth of voice and broadband services inthe rural areas. The Government has targeted 500 million telephone connections by 2010, of which 150million are intended in rural areas. In line with the above, the USO Administrator plans to float two tenders,one for setting up and managing 10,000 infrastructure sites and the second for provision of broadbandservices in rural areas at speeds of over 512 kbps and above. Subsidies will be provided to successfulbidders out of the corpus of over Rs. 7,000 crores already available with the USO Fund.
• TRAI
During the year under review, the Telecom Regulatory Authority of India (TRAI) released its recommendationsto DoT on Infrastructure Sharing, Spectrum Pricing, Components for Computation of Adjusted Gross Revenue(AGR), and Terms and Conditions for Resale in International Private Leased Circuits (IPLC) Segment. Theserecommendations are yet to be accepted by DoT.
The TRAI also notified various regulations, viz IN (Intelligent Network) Regulations, Interconnection (PortCharges) Regulations, and Interconnection (ADC) Regulations. Some of the recommendations / regulationsof TRAI impacting the Company are summarized below:
(a) Recommendations
(i) Infrastructure Sharing
On November 29, 2006, TRAI issued a consultation paper on infrastructure sharing. Based on commentsreceived from stakeholders and open house discussions, on April 11, 2007, TRAI released itsrecommendations, which inter alia included a recommendation to permit Unified Access Service and CellularMobile Service Licensees to share some elements of active infrastructure with each other. However, TRAIrecommended that sharing of allocated spectrum should not be permitted at this stage. Therecommendations also suggested that to incentivise infrastructure sharing in rural areas, DoT should givesubsidies for erecting towers to those service providers (including infrastructure provider category-I (IP-I)entities) who were not beneficiaries under the first Universal Service Obligation Fund (USOF) tender forsharing of rural towers.
(ii) Computation of Adjusted Gross Revenue (AGR) for Licence Fee Payment
Pursuant to the directions of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) in the matterof finalization of AGR definition, TRAI came out with its recommendations on components of AGR. TDSATin its detailed judgement had clearly laid down the principle that revenues accruing from non-licensedactivities should not attract Licence Fee. TRAI in its recommendations excluded most of the items of non-licensed revenues, which had been wrongly included by DoT for computation of Licence Fees (this hasbeen contested by the Company and the industry). The matter is currently pending before TDSAT.
(b) Regulations
(i) Interconnection for Intelligent Network based services
TRAI issued a Regulation on Interconnection amongst all telecom service providers for Intelligent Network(IN) based Services. The regulation mandated all service providers to provide interconnection such thatsubscribers would have a choice of using the IN based services of other service providers.
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(ii) Port Charges
The regulation envisaged reduction in the Port charges payable by private operators to BSNL/MTNL byabout 23% to 29% for various slabs. This has been challenged by BSNL and MTNL in TDSAT.
(iii) Tariff Order – Reduction in Roaming tariffs
During the year, TRAI amended its Telecommunication Tariff Order (TTO) vide its 44 th Amendment datedJanuary 24, 2007 in which it specified ceiling tariffs for roaming resulting in the reduction of roaming tariffsto the extent of 22% to 56% compared with the then existing market rates.
(iv) Access Deficit Charges (ADC)
The ADC regime, which was simplified in the previous year by way of migration to a revenue share basis,was further amended with effect from April 1, 2007, wherein the percentage of ADC was reduced by 50%i.e., to 0.75% from 1.50%.
ADC on outgoing international calls has been removed and that on incoming international calls has beenreduced from Rs. 1.60 per minute to Rs. 1 per minute. BSNL has challenged the reduction of ADC rates inTDSAT.
Dividend
In view of losses, the Directors regret their inability to recommend any dividend for the year under consideration.
Appropriations
No appropriations are proposed to be made for the year under consideration.
Share Capital
During the year, the Company issued an aggregate of 28,89,11,242 equity shares of Rs.10/- each at a premiumof Rs. 7/- per equity share under the Rights Issue.
Due to the above, the paid-up share capital of the Company now stands increased from Rs.1,520.59 crores toRs.1,809.50 crores. As of March 31, 2007, the Company has utilized the entire proceeds of the right issueaggregating to Rs.491.15 crores for the purposes set out in the Letter of Offer issued in connection with theissue.
Directors
Mr. N. S. Ramachandran, Dr. Naushad Forbes and Prof. Ashok Jhunjhunwala are Independent Directors.
In the last Annual General Meeting held on August 10, 2006, the Company’s shareholders approved, withregret, the cessation of the services of Mr. Kishor A. Chaukar and Mr. R. Gopalakrishnan as Directors of theCompany. In the same meeting, Mr. S. Ramadorai and Mr. Arunkumar R. Gandhi were appointed as Directors ofthe Company, whose offices shall be liable to retirement by rotation.
Mr. N. S. Ramachandran, retires by rotation and offers himself for re-election, which the Directors consider tobe in the best interests of the Company and therefore commend for the approval of the shareholders.
Dr. Naushad Forbes, who is retiring by rotation at the ensuing Annual General Meeting, has informed theCompany that he does not seek re-election as Director due to his other commitments. The Board records itssincere appreciation of the valuable services rendered and the guidance provided by Dr. Forbes to the Boardand the management of the Company.
The Company has received a notice pursuant to Section 257 of the Companies Act, 1956 from a membersignifying an intention to propose Prof. Ashok Jhunjhunwala as a candidate for the office of Director. Accordingly,a resolution has been proposed in the enclosed notice of the 12 th Annual General Meeting (‘the AGM’) forappointment of Prof. Ashok Jhunjhunwala as Director whose office shall be liable to retirement by rotation. TheBoard recommends the appointment in the interests of the Company.
In the ensuing 12th Annual General Meeting, the consent of the shareholders is also being sought for re-appointment of Mr. Charles Antony as Managing Director of the Company for a period of 3 years with effectfrom October 1, 2007 and for payment of remuneration to him for the said tenure. The Board recommends there-appointment in the interests of the Company.
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
22
Human Resources
The Company is working towards institutionalizing a performance-oriented culture. The HR systems e.g.recruitment, performance management system, and rewards & recognition, have been aligned with the businessobjectives of the Company. The Company attaches considerable importance to training and employeedevelopment with a focus on customer sensitivity, processes and ISO training. A regular communicationchannel is maintained with the employees through Town halls, Departmental meets and other such fora. TheCompany has aligned its employee policies with those of TTSL in order to ensure uniformity.
The Board of Directors sincerely thanks all the employees who have put in hard work and helped the Companyto increase substantially its subscriber base during the year and to increase the EBIDTA by more than 100%.
Social Responsibility
Social responsibility is a way of life in every Tata Group Company. A number of community initiatives wereundertaken by the Company during the year.
Company Volunteers participated in rural health and hygiene awareness camps in backward villages like thosein Mokhada Taluka. Blood donation camps were organized. Collection of clothes and their distribution to theneedy were regularly done. Various SOS/NGO organizations were helped by mailing their donation requestsalong with TTML bills. The Mother Teresa Foundation Trust, Ramkrishna Mission, Prem Dham and D Y Patil KalaKreeda Anil Sanskrutik Trust are some of the NGOs the Company is actively associated with.
AuditorsŸ Internal Auditors
The Board has re-appointed M/s. Axis Risk Consulting Services Private Limited as the Internal Auditors,effective April 1, 2007.
Ÿ Statutory Auditors
M/s Deloitte Haskins & Sells, Chartered Accountants, the present statutory auditors retire at this meetingand are eligible for re-appointment. The Audit Committee and the Board recommend their re-appointment.
Statutory Disclosures
Ÿ Directors’ Responsibility Statement
Pursuant to the provisions of Section 217 (2AA) of the Companies Act, 1956, the Directors, based on therepresentations received from the operating management, confirm that;
1. In the preparation of the annual accounts, the applicable accounting standards have been followed andthere are no material departures;
2. They have, in the selection of the accounting policies, consulted the Statutory Auditors, and have appliedthem consistently and made judgements and estimates that are reasonable and prudent so as to give atrue and fair view of the state of affairs of the Company at the end of the financial year and of the loss ofthe Company for the period;
3. They have taken proper and sufficient care, to the best of their knowledge and ability, for the maintenanceof adequate accounting records in accordance with the provisions of the Companies Act, 1956, forsafeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
4. They have prepared the annual accounts on a going concern basis.
Ÿ Auditors’ Observations
Attention is invited to paragraph xi in the Annexure to the Auditors’ Report wherein the auditors haveobserved as follows:
‘In our opinion, and according to the information and explanations given to us, the accumulated losses ofthe Company, at the end of the financial year are more than fifty percent of its net worth. The Company hasnot incurred cash losses in the current year. However, the Company has incurred cash losses in theimmediately preceding financial year.’
23
Directors’ Comments
Attention is invited to the following note 26 in Schedule 15 forming part of the Balance Sheet and Profit andLoss Account, which is self-explanatory and is reproduced below:
‘26. Going Concern
The accumulated losses of the Company at the close of the year exceeded its paid up capital and reserves.This, however, is not an uncommon feature for telecommunication service providers in their initial years ofcommercial operations due to high operation costs of heavy infrastructure and high capital requirementfor building the network. The Company has started making cash profits and had adequate commitmentsfrom its lenders for meeting its operating and financial requirements and continues to grow its network.The Company is therefore being viewed as a going concern and accounts have accordingly been preparedunder the going concern assumption.’
Ÿ Fixed Deposits
The Company has not accepted any deposits within the meaning of Section 58A of the Companies Act,1956 and the rules made thereunder.
Ÿ Balance Sheet Abstract and Company’s General Business Profile
Information pursuant to Department of Company Affairs’ notification dated May 15, 1995, relating to theBalance Sheet Abstract and Company’s General Business Profile is given in the Annual Report for informationof the shareholders.
Ÿ Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo
The disclosures as required under the Companies (Disclosure of Particulars in the Report of the Board ofDirectors) Rules, 1988 are given below:
(i) Energy Conservation: Electricity is used for the working of the Company’s telephone exchanges and othernetwork infrastructure equipment. The Company regularly reviews power consumption patterns across itsnetworks and implements requisite improvements/changes in the network or processes in order to optimizepower consumption and thereby achieve cost savings.
(ii) Technology Absorption: The Company has not imported any technology. The Company has not yetestablished separate R & D facilities.
(iii) Foreign Exchange Earnings and Outgo :
(Rs. Crores)
Current Year PreviousYear
Earnings NIL NIL
Outgo 28.57 17.68
Capital Goods 467.48 237.63
Ÿ Particulars of Employees and Stock Options
The Company had issued stock options during the period 1999-2001. The information as required by theprovisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars ofEmployees) Rules, 1975 is annexed hereto as Annexure I and forms part of this report.
Further, the information as required to be disclosed in the Annual Report pursuant to the Securities &Exchange Board of India (Employees’ Stock Option Schemes and Employees’ Stock Purchase Scheme)Guidelines, 1999 is also annexed to this Directors’ Report as Annexure II and forms part of this report.
A certificate from M/s Deloitte Haskins & Sells, Chartered Accountants, Statutory Auditors, with regard tothe implementation of the Company’s Employees’ Stock Option Plan, would be placed before the membersin the ensuing Annual General Meeting (“AGM”).
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
24
Ÿ Corporate Governance
A report on Corporate Governance appears after this report. A certificate from M/s. Deloitte Haskins &Sells (DHS), Chartered Accountants, Statutory Auditors, with regard to compliance with the corporategovernance code by the Company is annexed hereto as Annexure III and forms part of this report.
The Company has fully complied with all mandatory requirements prescribed under Clause 49 of listingagreements with Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited(NSE). The Company has also implemented some of the non-mandatory provisions.
Acknowledgements
The Directors wish to place on record their sincere appreciation of the assistance and support extended bycustomers, financial institutions, banks, vendors, Government and others associated with the activities of theCompany.
For and on behalf of the Board of Directors
Place : Mumbai Ratan N. TataDate: July 11, 2007 Chairman
25
AN
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12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
26
b) Em
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27
ANNEXURE IIPARTICULARS PURSUANT TO THE SECURITIES & EXCHANGE BOARD OF INDIA (EMPLOYEES’ STOCKOPTION SCHEMES AND EMPLOYEES’ STOCK PURCHASE SCHEME) GUIDELINES, 1999
Options granted:(i) Cumulative (cum.) 37,33,550(ii) During the year 2006-07 Nil
Pricing formula Not ApplicableOptions vested (cum.) 25,13,630Options exercised (cum.) 24,36,805Options lapsed (cum.) 12,46,195Total number of shares arising as a result of exercise of options (cum.) 24,36,805Variation of terms of options Not variedMoney realised by exercise of options (cum.) Rs. 2,43,68,050/-Total number of options in force 50,550Options granted to Senior managerial personnel during year 2006-2007: NILAny other Employees to whom 5% or more of the total options have been granted during the year NoneIdentified employees to whom options have been granted equal to 1% or more of the issuedcapital (excluding outstanding warrants & conversions) of the Company at the time of grant NoneDiluted Earning Per Share (EPS) pursuant to issue of shares on exercise of option calculatedin accordance with International Accounting Standard (IAS 33)
- with extra ordinary item Rs. (1.94)- without extra ordinary item Rs. (1.97)
Number of employees to whom options have been granted:(i) Cumulative* till March 31, 2007 349(ii) during F.Y. 2006-2007 Nil
* Also includes employees who have since left the employment of the Company
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
28
ANNEXURE III
AUDITOR’S CERTIFICATE
The Board of DirectorsTata Teleservices (Maharashtra) Limited
We have examined the compliance of conditions of Corporate Governance by Tata Teleservices(Maharashtra) Limited for the year ended on March 31, 2007 as stipulated in Clause 49 of the ListingAgreement of the said Company with the stock exchanges.
The compliance of conditions of Corporate Governance is the responsibility of the management. Ourexamination was limited to procedures and implementation thereof, adopted by the Company for ensuringcompliance of the conditions of Corporate Governance. It is neither an audit nor an expression ofopinion on the financial statements of the Company.
In our opinion and to the best of our information and according to the explanations given to us, wecertify that the Company has complied with the conditions of Corporate Governance as stipulated inthe above mentioned Listing Agreement.
We state that no investor grievance is pending for a period exceeding one month against the Companybased on the records maintained by the Investors Services department and as certified by the Complianceofficer of the Company.
We further state that such compliance is neither an assurance as to the future viability of the Companynor the efficiency or effectiveness with which the management has conducted the affairs of the Company.
For Deloitte Haskins & SellsChartered Accountants
A. B. JaniPartner
Membership No: 46488
Mumbai, dated May 15, 2007
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CORPORATE GOVERNANCE REPORTSTATEMENT OF COMPANY’S PHILOSOPHY ON CORPORATE GOVERNANCE
The Company believes in setting the highest standards in good and ethical corporate governance practices.The Company is managed by the Managing Director under the supervision and control of the Board of Directors.The MD is assisted by a team of highly qualified and experienced professionals.
CORPORATE CODE OF CONDUCT
The activities and conduct of the Company and its employees are governed by the Tata Code of Conduct,which lays down the basic rules of good management practices, and ethical conduct. The major salutaryprinciples prescribed by the Tata Code of Conduct are:
(a) conduct of business in consonance with National interest,
(b) fair and accurate presentation of financial statements,
(c) being a Equal Opportunities employer,
(d) prohibition on taking of gifts and donations which can be perceived to obtain business or uncompetitivefavours,
(e) practicing political non-alignment,
(f) maintaining quality of products and services,
(g) being a good Corporate Citizen,
(h) ethical Conduct, and
(i) commitment to enhancement of shareholder value and statutory compliance
PROMOTERS
The promoters of the Company are Tata Teleservices Limited, Tata Sons Limited and The Tata Power CompanyLimited. As on March 31, 2007, the Company’s Promoters together held 68.79% of the Company’s paid-upshare capital. The break-up of your Promoter’s shareholdings in the Company as on March 31, 2007 was asfollows:
Name of Promoter Holding(% of paid-up capital)
Tata Teleservices Limited 39.48
Tata Sons Limited 18.68
The Tata Power Company Limited 10.63
Total 68.79
BOARD OF DIRECTORS
Composition
The Company’s Board of Directors comprises of 7 Directors, 6 of them are Non-Executive, and 3 of them areIndependent Directors. The Board composition is as under:
Director Non-Executive(NE) / Independent
Mr. Ratan N. Tata NE
Dr. Naushad Forbes NE & Independent
Mr. N. S. Ramachandran NE & Independent
Mr. Arunkumar R. Gandhi NE
Mr. S. Ramadorai NE
Prof. Ashok Jhunjhunwala NE & Independent (Appointed w.e.f. April 12,’07)
Mr. Charles Antony Executive
Mr. Ratan N. Tata and Mr. Charles Antony are Non-Executive Chairman and Managing Director respectively.
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
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The Managing Director is an Executive Director and paid remuneration by the Company as per details givenunder the Section “Directors’ Remuneration”.
The non-executive Directors have no material pecuniary relationship or transaction vis-à-vis the Company intheir personal capacity during the year. Sitting fees are paid to Directors for attending meetings of the Boardand Committees. None of the Directors have been issued any stock options by the Company during the year.
Participation and Interest of Directors
Since the commencement of the financial year 2006-2007 till March 31, 2007, a total of 6 Board Meetingswere held on the following dates viz. May 18, 2006, June 16, 2006, July 26, 2006, October 27, 2006, January19, 2007 & March 23, 2007. The maximum time gap between two board meetings did not exceed the limitsprescribed in Clause 49 of the listing agreement. The following table gives details of participation of thedirectors of the Company during the financial year ended March 31, 2007 in Board Meetings and AGM of theCompany and interests of these directors as on March 31, 2007:
Director Participation Interests of Directorsof Directors
Board Last Directorships@ Committee CommitteeMeetings AGM Memberships# $ Chairmanships#
Mr. Ratan N. Tata 4 Yes 14 (12) 0 0
Mr. Kishor A. Chaukar* 3 Yes NA NA NA
Dr. Naushad Forbes 3 No 4 2 1
Mr. R. Gopalakrishnan* 2 Yes NA NA NA
Mr. Pradman Kaul* 0 No NA NA NA
Mr. N. S. Ramachandran 5 Yes 2 3 2
Mr. Charles Antony 6 Yes 1 1 0
Mr. Arunkumar R. Gandhi* 3 NA 8 4 1
Mr. S. Ramadorai* 2 NA 12 (2) 4 1
Notes:
Figures mentioned in the brackets indicate the no. of companies in which each director is also the Chairperson
@ Excludes directorships and chairmanships of private companies and bodies corporate incorporated outsideIndia but includes directorships and chairmanships of the Company.
NA : Not Applicable
# Includes memberships and chairmanships of audit committees and investors’ grievances committees ofBoards across all public limited companies (listed as well as unlisted).
$ Includes committees in which a individual holds chairmanship.
* Member of Board for part of the financial year 2006-2007.
Prof. Ashok Jhunjhunwala was appointed as Additional Director w.e.f. April 12, 2007 and hence his details donot appear above.
None of the Directors is a member in more than 10 mandatory committees nor acts as a Chairman in more than5 mandatory committees across all listed companies in which he is a Director.
Directors’ Remuneration
The Company’s Board of Directors comprises of 5 Non-Executive directors and 1 Executive Director. The
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details of remuneration paid by the Company to its Directors during the financial year 2006-2007 is as follows:
Name Salary Allowances Retirals & Performance Stock Sitting Total(Rs.) (Rs.) Perquisites Pay Options Fees
(Rs.) (number) (Rs.)
Mr. Ratan N. Tata 0 0 0 0 0 0 0
Mr. Kishor A. Chaukar 0 0 0 0 0 25,000 25,000
Dr. Naushad Forbes 0 0 0 0 0 61,000 61,000
Mr. R. Gopalakrishnan 0 0 0 0 0 10,000 10,000
Mr. Pradman Kaul 0 0 0 0 0 0 0
Mr. N. S. Ramachandran 0 0 0 0 0 95,000 95,000
Mr. S. Ramadorai 0 0 0 0 0 10,000 10,000
Mr. Arunkumar R. Gandhi 0 0 0 0 0 30,000 30,000
Mr. Charles Antony 25,80,000 35,39,400 11,59,555 51,50,000 0 0 1,24,28,955
Prof. Ashok Jhunjhunwala was appointed as Additional Director w.e.f. April 12, 2007 and hence his details donot appear above.
Mr. Charles Antony is not entitled to payment of any sitting fees for any Board or Committee meetings. Mr.Antony’s appointment can be terminated by either party by giving six months’ notice or by the Companypaying six months’ basic salary in lieu thereof.
The Board has approved the payment of sitting fees to non-executive directors as follows:
a) independent directors – Rs. 8000/- plus out of pocket expenses for every meeting of the Board and AuditCommittee and Rs. 5,000/- per meeting of Remuneration Committee and any other committee of theBoard.
b) Non-independent directors – Rs. 5000/- for every meeting of the Board and any committee of Board.
As on March 31, 2007, none of the directors of the Company held any equity shares or convertible instrumentsof the Company.
Except as disclosed in this Annual Report, there are no pecuniary relationship or transactions of Non-ExecutiveDirectors vis-à-vis the Company.
Information placed before Board of Directors
The Company has laid down procedures to inform Board members about the risk assessment and minimizationprocedures. The Board also periodically reviews compliance reports of all laws applicable to the Company,prepared by the Company as well as steps taken by the Company to rectify instances of non-compliances. Allinformation, which required to be placed before the Board of Directors under Clause 49 of the listing agreementswith stock exchanges, has been duly placed before the Board of Directors during the year.
AUDIT COMMITTEE
Composition (As of May 15, 2007)
The Audit Committee of the Board of the Company presently comprises of 4 members all of whom are Non-Executive Directors and of them, 3 are Independent Directors. The Committee functions under the Chairmanshipof Mr. N. S. Ramachandran who is an Independent Director. Mr. Madhav Joshi, Chief Legal Officer & CompanySecretary, acts as the Secretary to the Committee. The composition of the Committee is as follows:
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
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Name of Member Category / Position
Mr. N. S. Ramachandran Independent Director / Chairman
Dr. Naushad Forbes Independent Director / Member
Mr. Arunkumar R. Gandhi* Non-Executive Director / Member
Prof. Ashok Jhunjhunwala# Independent Director / Member
* Mr. A. R. Gandhi, a fellow member of the Institute of Chartered Accountants of England and Wales, and thatof India as well as an associate member of the Chartered Institute of Taxation, London, is a well-knownfinancial and accounting expert and possesses rich and varied experience of more than 38 years in thefield of finance, accounts, audit, taxation, mergers and acquisitions.
# Appointed as member of the Committee w.e.f. April 12, 2007
Terms of Reference
The terms of reference for the Committee as laid down by the Board include the following:
a) Overseeing the Company’s financial reporting process and the disclosure of its financial information toensure that the financial statements are correct, sufficient and credible.
b) Recommending the appointment and removal of external auditor, fixation of audit fee and also approvalfor payment for any other services.
c) Reviewing with management, the quarterly, half yearly and annual financial statements before submissionto the board, focusing primarily on:
(i) any changes in accounting policies and practices
(ii) major accounting entries based on exercise of judgement by management
(iii) qualifications in draft audit report
(iv) significant adjustments arising out of audit
(v) the going concern assumption
(vi) compliance with accounting standards
(vii) compliance with stock exchange and legal requirements concerning financial statements
(viii) any related party transactions i.e. transactions of the Company of material nature, with promoters orthe management, their subsidiaries or relatives etc., that may have potential conflict with the interestsof Company at large.
d) Reviewing with the management, external and internal auditors, the adequacy of internal control systemsand ensuring compliance therewith.
e) Reviewing the adequacy of internal audit function, including the structure of the internal audit department,staffing and seniority of the official heading the department, reporting structure coverage and frequencyof internal audit.
f) Discussing with internal auditors any significant findings and follow up thereon.
g) Reviewing the findings of any internal investigations by the internal auditors into matters where there issuspected fraud or irregularity or a failure of internal control systems of a material nature and reporting thematter to the Board.
h) Discussions with external auditors before the commencement of the audit about the nature and scope ofaudit as well as have post-audit discussion to ascertain any areas of concern.
i) Reviewing the Company’s financial and risk management policies.
j) Looking into the reasons for substantial defaults in the payment to the depositors, debenture holders,shareholders (in case of non payment of declared dividends) and creditors.
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k) To review the functioning of the Whistle Blower Policy adopted by the Company.
l) To review report on Management Discussion & Analysis of Financial Condition and Results of Operation, tobe included in the Company’s Annual Report to its shareholders .
Management Discussion & Analysis of Financial Condition and Results of Operations, statements of relatedparty transactions, internal audit reports, fraud-related reports, quarterly results, management letters fromAuditors, proposals and terms of appointment of internal auditors, statements on utilization of proceeds ofissue of equity shares as a part of financial results statements, have been regularly placed before the AuditCommittee for review during the financial year 2006-07.
Audit Committee Meetings
Five meetings of the Committee have been held since the commencement of the financial year 2006-2007 tillMarch 31, 2007. The details of the same are as follows:
Date Venue
May 18, 2006 Mumbai
July 26, 2006 Mumbai
October 27, 2006 Mumbai
January 9, 2007 Pune
March 9, 2007 Mumbai
The maximum time gap between two consecutive Audit Committee meetings held during the year has neverexceeded 4 months.
The Attendance of the Committee Members at the above meetings is as follows:
Member Committee Meetings
Held Attended
Mr. N. S. Ramachandran 5 5
Mr. Kishor A. Chaukar* 2 2
Dr. Naushad Forbes 5 4
Mr. Arunkumar R. Gandhi* 3 1
* Director and Committee Member for part of the financial year 2006-07
Prof. Ashok Jhunjhunwala was appointed a member of the Committee in April 2007 and hence his attendancedetails do not appear above.
INVESTORS’ GRIEVANCES COMMITTEE
Composition
The Investors’ Grievances Committee comprises of Mr. N. S. Ramachandran, Mr. Charles Antony and the CompanySecretary. The Committee functions under the chairmanship of Mr. N. S. Ramachandran.
Name of the Member Category / Position
Mr. N. S. Ramachandran Independent Director / Chairman
Mr. Charles Antony Executive Director / Member
During the financial year 2006-07, the Committee met once i.e. on August 10, 2006 in Mumbai. The positionof outstanding investors’ complaints is reported to the Board every quarter.
Terms of Reference
The Committee is charged with the responsibility to look into the redressal of the shareholders’ complaints in
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
34
respect of any matter including transfer of shares, non-receipt of Annual Report, non-receipt of declareddividends, dematerialisation of shares, IPO refunds and complaints, approve issue of duplicates and renewedshare certificates, etc. The Committee is authorized to delegate its powers to officers and employees of theCompany and/or of the Company’s Registrar and Share Transfer Agent. The delegates regularly attend toshare transfer formalities at least once every 15 days.
Compliance Officer
The Company has designated Mr. Madhav Joshi, Chief Legal Officer & Company Secretary as its ComplianceOfficer.
Summary of Investors’ Complaints
The status of Investors’ Complaints as on March 31, 2007 is as follows:
Number of aggregate Complaints received (cum.) during the year 2006-2007 : 261
Number of Complaints not solved to the Satisfaction of shareholders : 1*
Number of pending share transfers : 3*
* These have been since been resolved/ registered.
During the year no share transfer/ complaints remained pending for more than 30 days.
RISK MANAGEMENT
The Company has devised a formal Risk Management Framework for risk assessment and minimisation. Further,the Company assesses the risk management framework every year. The scope of the Audit Committee includesreview of Company’s financial and risk management policies.
GENERAL BODY MEETINGS
The Company’s statutory meeting was held on April 24, 1995. Further, till date, the Company has held 11Annual General Meetings (AGMs) and 12 Extra Ordinary General Meetings of shareholders. The details of thelast 3 AGMs are as under:
Particulars Date Venue
9th Annual General Meeting August 10, 2004 Mumbai
10th Annual General Meeting August 5, 2005 Mumbai
11th Annual General Meeting August 10, 2006 Mumbai
Details of special resolutions passed in the above referred meetings are as under:
Particulars of the Section under which PurposeAGM special resolution was passed
10th AGM held on Section 198, 269, 309, 310, 314, Appointment of Mr . Char les AntonyAugust 5, 2005 316, 317 of Companies Act, 1956 alongwith the remuneration paid for the
period of 3 years from the date of hisappointment as Managing Director of theCompany
Section 31 of Companies Act, 1956 Amendment to Article of Associationpertaining to Common Seal andExecution of Documents
Section 81 of Companies Act, 1956 Amendment to Article of Associationpertaining to Further issue of Capital byway of Foreign Currency Convertible Bonds
An Extraordinary General Meeting (EGM) of the shareholders of the Company was held on March 2, 2006 toconsider (i) alteration to Memorandum of Association by adding a Clause after the existing Clause V in the
35
Memorandum of Association, such alteration to take effect from a date* to be decided by the Board ofDirectors, (ii) addition of a Article after the existing Article 120 in the Company’s Articles of Association, thesaid alteration to take effect from a date* to be decided by the Board of Directors and (iii) alteration ofCompany’s Articles of Association by adding sub-clause after the existing sub-clause (b) of Article 82 authorisingthe Company to represent and initiate legal proceedings against government directives. All these specialresolutions were passed by the requisite majority. ( *The date has not yet been fixed by the Board.)
POSTAL BALLOT
The provisions relating to postal ballot will be complied as per the provisions of the Companies Act, 1956 asand when situation may arise. No special resolution was passed by Postal Ballot during the financial year2006-07. Similarly, no business is required to be transacted through postal ballot at the forthcoming AnnualGeneral Meeting.
RELATED PARTY TRANSACTIONS
There were no materially significant related party transactions during the year that in the opinion of the Boardmay have potential conflicts with the interests of the Company at large. Apart from paying sitting fees, therewas no pecuniary transaction undertaken by the Company with the independent/ non-executive directorsduring the year ended March 31, 2007. Transactions with related parties are disclosed in Note no 18 ofSchedule 16 to the Accounts in the Annual Report.
COMPLIANCE WITH LAWS
The Company has exercised due diligence in complying with all applicable laws in the matter of conduct of itsbusiness and in particular, there has neither been any non-compliance on the part of the Company on anymatter related to capital markets, during the last three years nor have any penalties or strictures been imposedon the Company in this respect.
The Board periodically reviews compliance reports of applicable laws as prepared by the management as wellas steps taken by the Company to rectify instances of non-compliances (if any).
As required under Clause 49 of the listing agreement, for the financial year 2006-07, the Company has submittedto the BSE and NSE, quarterly compliance reports signed by the Compliance Officer of the Company, confirmingcompliance with the mandatory requirements of the said Clause.
FINANCIAL RESULTS
The Company approved its unaudited financial results for the quarter ended December 31, 2006 at the meetingof the Board of Directors held on January 19, 2007. The same were published in Mumbai editions of the ‘FreePress Journal’ in English and in ‘Navshakti’ in Marathi on Saturday, January 20, 2007. The financial results as wellas all other official news releases issued by the Company can be accessed on the website www.tataindicom.comby choosing the link “TTML” under the “About Us” link on the home page of the website. Presentations toinstitutional investors or analysts whenever made, are displayed on the website.
CERTIFICATION WITH RESPECT TO FINANCIAL STATEMENTS
The certificate furnished by the Managing Director and the Chief Financial Officer of the Company to the Boardof Directors of the Company with respect to accuracy of financial statements and adequacy of internal controlsas required under Clause 49 of the listing agreement, is reproduced elsewhere in this Annual Report for theinformation of the shareholders.
CODE OF CONDUCT FOR PREVENTION OF INSIDER TRADING
In compliance with the Securities & Exchange Board of India (Prevention of Insider Trading) Regulations, 1992,the Company has framed a Code of Conduct for prevention of insider trading by Company insiders in line withother Tata Companies. The Company has also put in place a Corporate Disclosure Policy in order to ensuretimely disclosures of all material price sensitive information in a transparent manner. The above documentswere taken on record by your Board at its meeting held on July 19, 2004. In terms of the said Code of Conduct,the employees of the Company are prohibited from dealing in the securities of the Company during the period
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
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when the Trading Window is closed. The Trading Window for dealing in Securities of the Company shall beclosed for the following purposes namely (a) declaration of financial results (quarterly, half-yearly and annual),(b) declaration of dividends (interim and final), (c) issue of Securities by way of public/rights/bonus etc., (d) anymajor expansion plans or execution of new projects, (e) amalgamation, mergers, takeovers and buy-back, (f)disposal of whole or substantially whole of the undertaking, and (g) any significant changes in policies, plansor operations of the Company. In respect of declaration of financial results, the Trading Window shall remainclosed from the end of the respective quarter, half-year or financial year, as the case may be. As regardsdeclaration of interim dividend and other matters referred to in (c) to (g) above, the Managing Director/ ChiefExecutive Officer is required, well before initiation of such activity/ project, to form a core team of DesignatedEmployees and/or Designated Group Persons who would work on such assignment. The Managing Director/Chief Executive Officer is also required to designate a senior Employee who would be in-charge of the project.Such team members are required to execute an undertaking not to deal in the Securities of the Company tillthe Price Sensitive Information regarding the activity /project is made public or the activity/project is abandonedand the Trading Window would be regarded as closed for them. The Trading Window is opened 24 (Twenty-four) hours after the information referred to above is made public.
CODE OF CONDUCT
The Company’s Board of Directors has adopted the Tata Code of Conduct and the Tata Code of Conduct forNon-Executive Directors which govern the conduct of executive directors/employees and non-executive directorsof the Company respectively. Text of both these Codes is available on the Company’s websitewww.tataindicom.com. All Directors and senior management personnel have affirmed compliance with therespective codes for the financial year ended March 31, 2007. Please refer to the Managing Director’s declarationin this respect, as appearing elsewhere in this Annual Report.
LIMITS ON RESPONSIBILITY OF NON-EXECUTIVE DIRECTORS OF THE COMPANY
In view of the rising trend in criminal prosecutions initiated against Non-Executive Directors on the Boards ofthe Company even for alleged minor technical infractions of law by the Company, and in line with other TataCompanies, the Board of Directors of the Company has confirmed that Mr. Ratan N. Tata, Mr. A. R. Gandhi, Mr.S. Ramadorai, Mr. N. S. Ramachandran, Dr. Naushad Forbes and Prof. Ashok Jhunjhunwala, are Directors appointedin the non-executive capacity and hence none of them has been and would be responsible for the day-to-dayaffairs of the Company.
The above practice would continue to be adopted in the future as well. It is felt that this practice would helpthe Company to challenge any prosecutions initiated against its Non-Executive Directors.
IMPLEMENTATION OF NON-MANDATORY CORPORATE GOVERNANCE REQUIREMENTS
The Company has implementation the following non-mandatory requirements prescribed under Clause 49 ofthe listing agreement with stock exchanges with respect to corporate governance.
(i) Remuneration Committee
The Company has constituted a Remuneration Committee for the purpose of approving from time to time,the remuneration payable to the Managing Director and executive director/s and to discharge any otherstatutory duties and functions as may be specified under the law, or to perform such task/s as may beentrusted by the Board of Directors from time to time. The Company pays sitting fees to non-executivedirectors. The Company also reimburses out-of-pocket expenses incurred by the Independent Directors inconnection with attending Board Meetings and Committee Meetings. The Company’s RemunerationCommittee comprises of 3 Directors, all of them are Non-Executive and 2 of them are Independent Directors.The committee composition is as under:
Name of the Member Category / Position
Mr. N. S. Ramachandran Independent Director / Chairman
Dr. Naushad Forbes Independent Director / Member
Mr. Ratan N. Tata Non-Executive Director / Member
During the financial year 2006-07, Committee met once, i.e. on July 26, 2006, in Mumbai. The meeting wasattended by all members of the Committee viz. Mr. N. S. Ramachandran, Dr. Naushad Forbes andMr. Ratan N. Tata.
37
(ii) Whistle Blower Policy
The Tata Code of Conduct mandates that every employee of a Tata company shall promptly report to themanagement any actual or possible violation of the said Code, or an event he or she becomes aware ofthat could affect the business or reputation of his/her or any other Tata company.
Recently, the Securities & Exchange Board of India has also prescribed the adoption by all listed companies,of a Whistle Blower Policy as a non-mandatory requirement. The Company has adopted a Whistle BlowerPolicy, which affords protection and confidentiality to whistle blowers. The Audit Committee Chairman isauthorized to receive Protected Disclosures under this Policy. The Audit Committee is also authorized tosupervise the conduct of investigations of any disclosures made by whistle blowers in accordance withpolicy.
No personnel have been denied access to the Audit Committee.
MANAGEMENT DISCUSSION & ANALYSIS
The Management Discussion and Analysis is attached and forms part of this Annual Report.
GENERAL SHAREHOLDER INFORMATION
Annual General Meeting
The ensuing Twelfth Annual General Meeting is scheduled to be held on Friday, August 24, 2007 at 1530hours at Bombay House Auditorium, Bombay House, 24, Homi Mody Street, Fort, Mumbai 400 001.
Financial Calendar
The Company follows April – March financial year. The unaudited financial results for first, second (half yearly)and third quarter are generally published in July, October and January respectively. Annual audited financialresults are generally published in May/June.
All statements of financial results are uploaded on the Company’s website and can be accessed by choosingthe link “TTML” under the “About Us” link on the home page of the website.
The same are also uploaded on the website of Securities & Exchange Board of India viz. www.sebi.gov.in viathe Electronic Data Information Filing and Retrieval System and are available for public viewing via the link“EDIFAR” appearing on the home page of the said website.
Date of Book Closure
The share transfer books & the members’ register will be closed between Tuesday, August 7, 2007 and Friday,August 24, 2007 (both days inclusive) for the purposes of the Twelfth Annual General Meeting.
Listing on Stock Exchanges
The Company’s shares are listed on the Bombay Stock Exchange Limited (BSE) and The National Stock Exchangeof India Limited (NSE).
The addresses of the BSE & NSE are given below for the information of the shareholders:
Bombay Stock Exchange Limited The National Stock Exchange of India Limited(BSE) (NSE)
P. J. Towers Exchange Plaza, 5th floorDalal Street Plot No. C/1, ‘G’ Block,Mumbai - 400 023. Bandra-Kurla Complex,
Bandra (E), Mumbai - 400 051.
Your Board confirms that the Annual Listing Fees have been paid to both the stock exchanges where theCompany’s shares are listed i.e. BSE & NSE.
During the financial year 2006-2007, the Company received listing approvals from BSE & NSE for listing of anaggregate of 28,89,11,242 fully paid equity shares consequent to the Rights Issue at a premium of Rs. 7/- per
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
38
equity share. All these shares have been duly issued and are currently tradable on both the stock exchanges.
The Foreign Currency Convertible Bonds (FCCBs) issued by the Company in June 2004 are listed on the SingaporeStock Exchange (SGX).
Stock Code
The Stock Codes of the Company’s shares on the BSE are as follows:
(a) Demat Segment Code No. 532371 Scrip ID TTML
(b) Normal Segment Code No. 32371 Scrip ID TTML
The Stock Code of the Company’s shares on the NSE is TTML, Series EQ.
Market Price Data
The High & Low price, during each month in the last financial year, of the Company’s shares is as follows:
Month BSE NSE
High Low High Low(Rs.) (Rs.) (Rs.) (Rs.)
April 2006 25.60 22.50 25.55 22.00
May 2006 28.05 18.80 28.50 18.00
June 2006 24.00 15.45 23.60 15.40
July 2006 21.20 18.50 21.30 18.15
August 2006 20.60 18.20 20.60 18.20
September 2006 21.30 18.35 21.25 18.35
October 2006 20.75 18.00 20.75 18.80
November 2006 20.25 17.40 20.20 17.35
December 2006 19.90 16.75 20.00 16.75
January 2007 24.35 18.70 24.30 18.65
February 2007 28.20 20.05 32.00 20.25
March 2007 22.75 19.30 22.75 19.30
Performance of The Company’s Share Price in comparison to BSE and NSE Indices
The performance of TTML Share Price vis-à-vis the broad based BSE and NSE Indices during the financial year2006-2007 is as under:
Particulars TTML Share Price v/s BSE TTML Share Price v/s NSE
Share Price (Rs.) BSE Sensex Share Price(Rs.) NSE Nifty
As on April 1, 2006 24.25 11564.36 24.25 3473.30
As on April 1, 2007 20.60 12455.37 20.60 3633.60
% Change -15.05 7.70 -15.05 4.62
The above does not take into consideration dilutive effect of the rights issue in the ratio of 19:100 in January2007.
Registrar and Share Transfer Agents
The Company has appointed TSR Darashaw Limited (formerly Tata Share Registry Limited) as its Registrar &Share Transfer Agents. Shareholders are advised to approach TSR Darashaw Limited on the following addressfor any share & demat related queries and problems:
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TSR Darashaw Limited(formerly known as Tata Share Registry Limited)6-10, Haji Moosa Patrawala Industrial Estate,20, Dr. E. Moses Road, Near Famous Studio,Mahalaxmi, Mumbai – 400 011.Tel.: 91 22 6656 8484Fax: 91 22 6656 8496E-mail: [email protected]: www.tatashare.com
Share Transfer System
All physical share transfers are handled by TSR Darashaw Limited. The transferee is required to furnishthe transfer deed duly complete in all respects together with the share certificates to TSR DarashawLimited at the above said address in order to enable TSR Darashaw Limited to process the transfer.As regard transfers of dematerialized shares, the same can be effected through the demat accountsof the transferor/s and transferee/s maintained with recognized Depository Participants.
Distribution of Shareholding
The broad shareholding distribution of the Company as on March 31, 2007 with respect to categories ofinvestors was as follows:
Category of Investors Percentage of Shareholding
As on March 31, 2007 As on March 31, 2006
Promoters 68.79 65.46
International Investors (FIIs/NRIs/OCBs/Foreign Banks) 2.37 1.41
Indian Financial Institutions/Banks/Mutual Funds 2.89 4.12
Private Bodies Corporate 3.89 5.40
Individuals 22.06 23.61
TOTAL 100.00 100.00
The broad shareholding distribution of the Company as on March 31, 2007 with respect to size of holdingswas as follows:
Range (No. of Shares) % of Paid-up Capital % of Total No. of Shareholders
1 to 500 3.24 62.06
501 to 1000 3.34 19.19
1001 to 2000 3.08 9.74
2001 to 3000 1.69 3.22
3001 to 4000 1.04 1.42
4001 to 5000 1.28 1.33
5001 to 10000 2.65 1.77
10001 and above 83.68 1.27
Total 100.00 100.00
The Company had a total of 3,60,443 shareholders as on March 31, 2007.
The quarterly shareholding pattern filed with the stock exchanges are also uploaded on the website of Securities& Exchange Board of India viz. www.sebi.gov.in via the Electronic Data Information Filing and Retrieval Systemand are available for public viewing via the link “EDIFAR” appearing on the home page of the said website.
Dematerialization of Shares & Liquidity
As of March 31, 2007, 99.79% of the total equity shares issued by the Company have been dematerialised.The trading in the Company’s equity shares is compulsorily in dematerialized form. In order to afford full
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liquidity and efficient transfer mechanisms to the investor community, the Company has tied up with theNational Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Thus, theinvestors can exercise dematerialization and transfer actions through a recognized Depository Participant (DP)who is connected to NSDL or CDSL.
Outstanding Employee Stock Options, GDRs, ADRs, etc.
The Company has not issued any GDRs/ADRs/Warrants or any convertible instrument except 1,20,00,000Employee Stock Options for one equity share each issued to Tata Teleservices (Maharashtra) Limited (formerlyknown as Hughes Tele.com (India) Limited) Employees’ Stock Option Plan Trust. These options are convertibleinto Equity Shares of the Company on payment by the option holders of the stipulated conversion prices.Please refer Annexure II of the Report of the Board of Directors for further details regarding the Employee StockOptions.
In June 2004, the Company issued Foreign Currency Convertible Bonds (FCCBs) aggregating US$ 125 million toforeign investors. Of these, FCCBs with aggregate principal value of US$ 63.41 million have been convertedinto equity shares of the Company at a conversion price of Rs. 24.96 per share (including a premium of Rs.14.96 per share). FCCBs with aggregate principal value of US$ 61.59 million are outstanding as on March 31,2007. No FCCBs were converted into equity shares during the year. Post Rights Issue of equity shares, theconversion price has been adjusted to Rs.24.49 per equity share w.e.f. October 28, 2006 (previous conversionprice : Rs.24.96 per equity share).
Where we offer service
The Company provides services in about 357 towns and cities in the States of Maharashtra and Goa throughits telephone exchanges located at Turbhe (Navi Mumbai), Nariman Point (Mumbai), Marol (Mumbai), Andheri(Mumbai), Pune, Nasik, Panaji, Nagpur, Kolhapur.
Address for correspondence
Shareholders are requested to direct all share-related correspondence to TSR Darashaw Limited (formerlyknown as Tata Share Registry Limited) and only the non-share related correspondence and complaints regardingTSR Darashaw Limited to the Compliance Officer at the registered office of the Company. Shareholders holdingshares in electronic mode (dematerialized) should address all shares-related correspondence to their respectivedepository participants only.
Auditors’ Certificate
The certificate dated May 15, 2007 issued by M/s Deloitte Haskins & Sells, Chartered Accountants, StatutoryAuditors on compliance of the Corporate Governance requirements by the Company is annexed to the Directors’Report.
DECLARATION
ToThe Company SecretaryTata Teleservices (Maharashtra) LimitedIspat House, B. G. Kher Marg, Worli,Mumbai 400 018
Pursuant to the requirements of Clause 49 of the listing agreement, I hereby confirm that:
1. the undersigned and senior management personnel (as defined in the above-said Clause 49) of the Companyhave affirmed that they have been in compliance with the ‘Tata Code of Conduct’ during the financial yearended March 31, 2007; and
2. all Non-Executive Directors of the Company have affirmed that they have been in compliance with the‘Tata Code of Conduct for Non-Executive Directors’ during the financial year ended March 31, 2007.
Please arrange to include this confirmation in the Annual Report for the year 2006-07.
Charles AntonyManaging DirectorPlace: MumbaiDate: April 19, 2007
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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS
COMPANY BACKGROUND
The Company was incorporated on March 13, 1995 as Hughes Ispat Ltd., and was later renamed HughesTele.com (India) Ltd., effective April 26, 2000. Consequent to the takeover of the Company by Tata TeleservicesLimited, the Company was renamed Tata Teleservices (Maharashtra) Limited.
The Company is licensed to provide basic telecommunication services in Maharashtra Circle (including Mumbaiand Goa). Effective November 14, 2003, the Company migrated to the Unified Access (Basic & Cellular) ServicesLicence (UASL), which authorizes the Company to provide fixed as well as mobile services within the States ofMaharashtra and Goa. The Company now holds 2 UASLs – one for Mumbai Metro Area and another for Rest ofMaharashtra and Goa. The Company also holds an all-India Internet Service (including Internet Telephony)licence.
During the financial year ended March 31, 2007, the Company’s subscriber base crossed 3 million.
INDUSTRY STRUCTURE AND DEVELOPMENTS
In India, there are various kinds of telecom service licences, including access licences i.e. basic/fixed service,cellular, Unified Access (basic + cellular) service; carrier licences i.e. national long distance and internationallong distance; licences for internet services; VSAT licences; IP-1 registration for passive infrastructure (towers,ducts, fibre) and IP-2 licences for bandwidth. As per recent amendments, UASL operators like the Company canprovide internet, internet telephony and broadband services under their UASL licence. Unrestricted competitionis allowed in all the categories.
The Indian Telecom Services Sector has witnessed tremendous growth in the recent past, primarily driven byintense competition, falling tariffs, and reforms in the regulatory set-up. Major Indian business houses haveinvested substantially in this sector. The past year or so have been very exciting for the industry. Details ofmajor developments on the business and regulatory front have been given in the Directors’ Report.
OPPORTUNITIES AND THREATS
The rapid pace of technological development in the telecom hardware and software sectors has made itpossible for the Company to provide a variety of services to its subscribers in a spectrum-efficient and cost-efficient manner.
The year witnessed the introduction of some value added services, which are expected to deliver a growingpart of the Company’s revenues in the years ahead. The Company proposes to launch exciting new servicesand features on its network in the near future, as a part of its endeavour to achieve Customer Delight.
While the Company would aggressively focus on the provision of fixed wireless and mobile telecom services,it will also continue to deploy wireline services.
A write up on the various threats to which the Company is exposed, is provided under the section “Risks andConcerns”.
SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE
The Company is engaged in the business of provision of telecommunication services consisting of basicservices, cellular services, and broadband services for retail and enterprise. The Company expanded its networkthroughout the States of Maharashtra and Goa by covering 357 towns by the end of the financial year 2006-07. Details of various products and services are provided in the Directors’ Report.
OUTLOOK
The outlook for the Company appears bright on a long-term basis, as the Company will benefit from itsassociation with Tata Teleservices Limited (TTSL), which has licences to provide telecom services in 18 circles.With the national teledensity still hovering around the 18% mark, and considering the teledensity of other
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regions and countries in Asia (49% in China, 120% in Japan and 176% in Hongkong), there is a vast marketwaiting to be tapped and the Company will take all the necessary initiatives to become a major player in itschosen areas of operation.
RISKS AND CONCERNS
As is the case with any infrastructure project, the Company is exposed to a number of risks. Key risks include:
Regulatory Risks
The Indian telecommunications industry is subject to extensive Government regulation, especially as regardsallocation of spectrum and introduction of new services. However, the industry is being liberalised and theCompany would endeavour to take advantage of the new opportunities afforded by regulatory changes, suchas the proposed introduction of 3G and WiMAX services, which could allow the Company to provide all typesof high speed communication and convergence services.
The Company’s telecommunications licenses reserve broad discretion for the Government to influence theconduct of the Company’s businesses by giving it the right to modify, at any time, the terms and conditionsof the licenses and take over the entire services, equipment and networks or terminate or suspend the licenses,if necessary or expedient, in the public interest or in the interest of national security or in the event of anational emergency, war or similar situation.
In some cases in the past, clarifications and directives (instead of amendments to licences) were issued by theGovernment, which imposed unforeseen liabilities on the licencees.
Licence amendments are also made unilaterally by the Government and are not negotiated or subject to anyprior consultation process.
The Company’s licenses are for fixed periods and are renewable for additional terms at the discretion of theGovernment. There can be no assurance that any of the Company’s licenses will be renewed at all or renewedon the same or better terms.
The future growth of the Company’s business is dependent on its ability to expand its network capacity. Thecapacity of the network is limited, amongst other things, by the amount of the frequency spectrum availablefor its use. The Company’s network expansion plans and introduction of new value added services may bematerially affected or delayed if it is unable to obtain additional spectrum.
Technological Risks
Changes in technology may render the Company’s current technologies obsolete or require it to make substantialcapital investments for upgradation. The telecommunications industry has seen rapid changes in technology.Although the Company strives to keep its technology up to date in accordance with the latest internationaltechnological standards, the technology currently employed by it may become obsolete or subject tocompetition from new technologies in the future.
Financing Risks
Like all infrastructure projects, the Company too requires significant amounts of capital to fund its project,especially the expansion under implementation and its working capital requirements. About half of the projectcost is funded by way of debt. The completion of the financing is subject to a number of terms and conditions,including periodic review of the business plan. The implementation of the project would be materially affectedif these debt facilities are not raised in a timely manner.
Interconnection Risks
For calls which originate or terminate outside the Company’s network, its ability to provide telecommunicationsservices is dependent on access to and the development, quality and maintenance of the competitors’ networks,and their willingness to cooperate with the Company in interconnection arrangements. If for any reason theseinterconnection arrangements are disrupted, or if grant of points of interconnection (PoIs) or their augmentationare delayed, one or more of the Company’s services may be delayed, interrupted or stopped, the quality of the
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Company’s services may suffer and the customer dissatisfaction and churn may increase, each of which couldadversely affect the Company’s business.
Competition Risks
The Indian telecommunications industry has recently witnessed intense competition with the entry of moreoperators, falling tariffs, and the liberalization of the regulatory environment. The operations of the Companyare restricted to two telecom circles and thus it has some operational disadvantages vis-à-vis national operators.To match the competitors, the Company has to provide subsidy on handsets sold by its distributors toprospective customers. Entry of new international operators and existing operators obtaining licences forMumbai would intensify the competition further leading to lowering of tariffs.
Dependency on Tata Teleservices Limited (“TTSL”)
The Company has closely aligned and integrated its business operations and strategies with those of TTSL andalso shares certain infrastructure (e.g. billing platform, intelligent network platform etc.) and activities (e.g.procurement) with TTSL. The Company benefits from the goodwill associated with the Tata Indicom brand thatTata Sons Limited has permitted the Company to use for marketing its products and services. The Company’sCentralised Services sharing arrangements with TTSL allow it to jointly negotiate with equipment suppliersand service providers and benefit from economies of scale. In addition, the Company offers roaming servicesto its CDMA mobile subscribers, who can roam in the Service Areas where the TTSL network is operational andvice versa. Although all the above positively impact the Company’s performance, if the Company is viewed asa stand alone enterprise, this inter-dependency may be perceived to be an area of concern.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
An Audit Committee of the Board of Directors has been constituted as per the provisions of Section 292A ofthe Companies Act, 1956 and Corporate Governance requirements specified by the Stock Exchanges.
The internal audit function is looked after by an independent firm, which conducts reviews and evaluation andpresents its reports to the Audit Committee and the management at regular intervals.
The Internal Auditor’s Reports dealing with Internal Control Systems are considered by the Audit Committeeand appropriate actions are taken, wherever deemed necessary.
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial statements have been prepared in accordance with the requirements of the Companies Act,1956, the Indian Generally Accepted Accounting Principles (Indian GAAP) and the Accounting Standards asprescribed by the Institute of Chartered Accountants of India.
The Board believes that it has been objective and prudent in making estimates and judgements relating to thefinancial statements and confirms that these financial statements are a true and fair presentation of the Company’soperations and loss for the year.
DEVELOPMENTS ON HUMAN RESOURCES FRONT
The Company had 1,213 employees on its rolls as on March 31, 2007. A detailed write-up appears in theaccompanying Directors’ Report under the paragraph titled “Human Resources”.
FINANCIAL PERFORMANCE
The accumulated losses of the Company at the close of the year exceeded its paid up capital and reserves.This, however, is not uncommon for telecommunication service providers in their initial years of commercialoperations, due to high operation costs of heavy infrastructure and high capital requirement for building thenetwork. During the year, the Company secured fresh equity funds aggregating to Rs. 491.14 crores (inclusiveof securities premium) via issue of equity shares on rights basis at premium. With the support of the Company’spromoters, the issue was fully subscribed. The Company has started making cash profits, and has adequatecommitments from its lenders for meeting its operating and financial requirements, and continues to grow itsnetwork. The Company is therefore viewed as a ‘going concern’ and the accounts have accordingly been
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prepared under the going concern assumption.
It is to be noted that the Company rolled-out its CDMA services in 357 towns till the end of the financial year2006-07 and created huge infrastructure. It also provided coverage on the major highways. The Companyplans to continue its network rollout in more towns in the ensuing financial year 2007-08.
a) Financial Condition
1. Share Capital, Reserves & Surplus
The share capital increased from Rs. 1,520.59 crores to Rs.1,809.50 consequent to issue on a rights basisof equity shares for cash at a premium of Rs. 7/- per equity share by the Company in the ratio of 19 sharesfor every 100 shares held. The Reserves & Surplus consist of Security Premium, which increased from Rs.215.21 crores to Rs. 413.87 crores on issue of equity shares as above.
2. Secured and Unsecured Loans
Secured Loans availed of by the Company as at March 31, 2007 are higher at Rs. 1,696.26 crores ascompared to Rs. 1,080.12 crores as at March 31, 2006. This increase is on account of availment by theCompany of term loans. Unsecured loans have decreased from Rs. 1,031.73 crores as at the end of theprevious year to Rs. 332.61 crores as at the end of current year 2006-07. The decrease is primarily onaccount of repayment by the Company of loans availed from Tata Teleservices Limited and Hughes NetworkSystems, USA.
3. Fixed Assets
The Company continues to grow its network in Mumbai and other cities in Maharashtra and Goa. The year-end gross block increased by Rs. 407.35 crores to Rs. 4,053.52 crores (previous year Rs. 3,646.17 crores).The major increase in the gross block was on account of expansion of the CDMA network by installationof switches, cell sites and backbone.
The year-end net block has decreased from Rs. 2,261.51 crores to Rs. 2,226.67 crores. Year-end CapitalWork–in–Progress is higher at Rs. 203.17 crores (previous year Rs. 175.08 crores) as part of rollout plans ofNetwork infrastructure cell.
4. Investments
The Company temporarily invests its short-term funds surplus in bank deposits and liquid and short-termdebt plans of reputed Mutual Funds. Such surpluses are maintained until the time these are deployed in thenetwork build out. There were no investments at the beginning and at the end of the year.
5. Sundry Debtors
Sundry debtors as a percentage of telecom service revenues reduced to 12% (previous year 14%). Duringthe year, there has been a substantial improvement in the collections, which has resulted in a lowerprovision for doubtful debts at Rs. 23.40 crores (previous year Rs. 49.03 crores).
6. Profit & Loss Account
The accumulated losses of the Company were Rs. 2,544.58 crores as at the end of the financial year.
b) Results of Operations
Revenues for the Company have grown with growth in the subscriber numbers. Sustained growth hasbeen maintained in spite of the increased competition and reducing tariffs. The Company has implementedvarious programs to optimize its costs in the areas of network maintenance, operations and customerservicing. There has been improvement in the collection of debts resulting in lower provisioning of doubtfuldebts.
The overall increased operational efficiency of the Company has resulted in more than doubling of theEBIDTA. Loss before extraordinary items and tax is lower due to the growth in the EBIDTA.
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1. Revenues from Telecommunication Services
During the year, revenues from telecommunication services increased to Rs. 1,406.98 crores (previous yearRs. 1,095.13 crores). This revenue growth was largely driven by the 67% increase in the number ofsubscribers to 30,73,872 at the end of March 2007 (compared to 18,39,842 subscriber lines as at the endof March 2006). The revenue growth is based on the growth in subscriber base, amidst falling tariffs. Thetariffs of prepaid, postpaid and fixed line segments have been reduced to meet increased competition.
2. Other Income
Other income increased to Rs. 14.88 crores (previous Year Rs. 1.66 crores), which includes Subsidiesreceived from Universal Service Obligation Fund towards provision of Rural Household Direct exchangeLines (RDELs) in specified Short Distance Charging Areas (SDCAs) amounting to Rs. 13.50 crores (previousyear Rs 0.88 crores).
3. Operating Expenses
The major operating expenses comprise:
i) Network Operation costs
These are costs incurred to operate and maintain the Company’s network-fees to the Department ofTelecommunication (DoT), repairs and maintenance, rent, power, etc. During the year, Network Operationexpenses increased to Rs. 241.10 crores (previous year Rs. 177.08 crores). This increase was driven byincrease in revenue share pay-out and costs linked to expansion of network, which are proportionate tothe growth in the revenues.
ii) Interconnection and other access costs
As a percentage of telecom service revenues, interconnection and other access costs paid to other operatorsdecreased to 28% (previous year 33%). The new interconnection usage charges regime announced by TRAIwith effect from March 2006, rationalising the carriage charges, and the Company’s expansion of its inter-city connectivity with its own fiber optic network, led to some savings in interconnect charges during partof the year.
iii) Employee related expenses
Employee related expenses of Rs.71 crores (previous year Rs. 52.50 crores) were 5% (previous year 5%) oftelecom service revenues.
iv) Administrative and other expenses
The major expenses under this category are in the nature of rents, rates and taxes, insurance, repair andmaintenance, travel & conveyance, collection / credit verification, customer services and call center, legaland professional services, bad / doubtful debts and advances and other miscellaneous expenses includingOctroi charges. These expenses decreased to Rs.175.35 crores for the year (previous year Rs. 194.19crores) primarily due to reduction in provisions for doubtful debts. The Company’s administrativeinfrastructure is substantially in place and it plans to focus on the prepaid segment and hence, goingforward, administrative expenses are not expected to rise proportionately to the revenues.
v) Marketing and business promotion expenses
During the year, the Company incurred significant expenses on subscriber acquisition and advertisementsand promotions for the CDMA business. As a result, these expenses increased to Rs. 242.05 crores (previousyear Rs. 184.39 crores). The expenses included upfront subsidy incurred by the Company to make theentry price comparable to the competition. This is commensurate with the increase in the Company’ssubscriber base.
5. Finance and Treasury Charges
On a net basis, the charge to the profit and loss account towards interest increased to Rs. 171.76 crores(previous year Rs. 145.77 crores). As a percentage of telecom service revenues, these expenses decreasedto 12% (previous year 13%).
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6. Depreciation
Total depreciation charges decreased by 5% to Rs. 446.23 crores (previous year Rs. 471.90 crores). As apercentage of telecom service revenues, these expenses decreased to 32% (previous year 43%). The decreasein depreciation amount is primarily due to the benefit of waiver of liability by the vendor viz. HughesNetwork Systems, USA. It has reduced the gross block of fixed assets.
7 . Loss before and after Exceptional item and Tax
Loss before Exceptional items and tax decreased to Rs. 315.39 crores (previous year Rs. 492.96 crores).
Exceptional item - Due to the unusual heavy rains and floods in the city of Mumbai and other parts ofMaharashtra and Goa in the previous year, certain fixed assets were seriously damaged. The Company hadin the previous year written off Rs. 47.25 crores being the written down value of these damaged assets,and had disclosed the amount as an “Extraordinary item” in the profit and loss account, since the eventwas clearly distinct from the ordinary activities of the Company and cannot be expected to recur frequentlyor regularly.
During the year, Company has received insurance claim of Rs.5.48 crores against the aforesaid damagedfixed assets as the final settlement for the claim, which has been disclosed as an “Extraordinary item” in theprofit and loss account.
Loss after Exceptional item and tax decreased to Rs. 310.61 crores (previous year Rs. 541.06 crores).
8. Taxes
No provision for current income tax has been made in the accounts, since there were no taxable profits forthe year. No provision for deferred tax has been made in the accounts since the Company estimates thatthe accumulated deferred tax assets will offset the deferred tax liabilities.
Fringe Benefits Tax (FBT) payable under the provisions of Section 115WC of the Income-tax Act, 1961 is inaccordance with the Guidance Note on Accounting for Fringe Benefits Tax issued by the ICAI regarded asan additional income tax and considered in determination of the profits/(losses) for the year.
9. Net Loss
The Company’s net Loss decreased to Rs. 310.61 crores for the year (previous year Rs. 541.06 crores).Generally, it is not uncommon for large greenfield infrastructure telecom projects to incur losses during theinitial few years of project implementation. The Company launched its CDMA wireless business only inAugust 2003 and expanded coverage to 357 towns as at March 31, 2007.
10. Liquidity and Capital Resources
During the year, the Company generated net cash of Rs. 345.15 crores (previous year Rs. 363.01 crores)from its operating activities. At the end of the financial year 2006-07, the Company’s cash and cashequivalent balance increased to Rs. 83.52 crores (previous year Rs. 26.71 crores) on account of the liquidationof investments done by the Company during the year. During the year, the Company secured fresh equityfunds aggregating to Rs. 491.14 crores (inclusive of securities premium) via issue of equity shares on rightsbasis at premium. The Company has started making cash profits and has adequate commitments from itslenders for meeting its operating and financial requirements and continues to grow its network.
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AUDITOR’S REPORTTO THE MEMBERS OF TATA TELESERVICES (MAHARASHTRA) LIMITED
1. We have audited the attached Balance sheet of Tata Teleservices (Maharashtra) Limited as at 31 st March2007 and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date,annexed thereto. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audit.
2. We conducted our audit in accordance with the auditing standards generally accepted in India. ThoseStandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatements. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.
3. As required by Companies (Auditor’s Report) Order, 2003 issued by the Central Government in terms ofsection 227 (4A) of the Companies Act, 1956, we enclose in the Annexure, a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.
4. Further to our comments in the Annexure referred to above, we report that:
a) We have obtained all the information and explanations, which to the best of our knowledge and beliefwere necessary for the purposes of our audit;
b) In our opinion, proper books of account as required by law have been kept by the Company so far asappears from our examination of the books;
c) The Balance sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are inagreement with the books of account;
d) In our opinion, the Balance sheet and Profit and Loss Account dealt with by this report comply with theaccounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;
e) On the basis of written representations received from the directors as on 31 st March, 2007 and taken onrecord by the Board of Directors, we report that none of the directors is disqualified as on 31 st March,2007 from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of theCompanies Act, 1956.
f) In our opinion and to the best of our information, and according to the explanations given to us, the saidaccounts read with the Significant Accounting Policies and notes thereon, give the information required bythe Companies Act, 1956, in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India:
i) in case of the Balance sheet, of the state of affairs of the Company as at 31 st March, 2007;
ii) in case of the Profit and Loss Account, of the loss for the year ended on that date; and
iii) in case of the Cash Flow Statement, of the cash flows for the year ended on that date
For Deloitte Haskins & SellsChartered Accountants
A B JaniPartner
Membership No. 46488
Mumbai, Dated May 15, 2007
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ANNEXURE TO THE AUDITOR’S REPORTRe: Tata Teleservices (Maharashtra) Limited
(Referred to in Paragraph 3 of our report of even date)
i) The nature of the Company’s activities are such that clauses (xiii) and (xiv) of paragraph 4 of the Companies(Auditor’s Report) Order, 2003 are not applicable to the Company for the year.
ii) In respect of its fixed assets
(a) The Company has maintained proper records showing full particulars, including quantitative detailsand situation of fixed assets.
(b) All fixed assets have not been physically verified by the management during the year but there is aregular program of verification which, in our opinion, is reasonable having regard to the size of theCompany and the nature of its assets. No material discrepancies were noticed on such verification.
(c) The Company has not disposed off a substantial part of fixed assets during the year.
iii) In respect of its inventories:
(a) The stocks of trading goods have been physically verified during the year by the management. In ouropinion, the frequency of verification is reasonable.
(b) The procedures of physical verification of stocks followed by the management are reasonable andadequate in relation to the size of the Company and the nature of its business.
(c) The Company has maintained proper records of its inventories and no material discrepancies werenoticed on physical verification.
iv) The Company has not granted or taken any loans, secured or unsecured from companies, firms or otherparties covered in the register maintained under Section 301 of the Companies Act, 1956 and accordinglythe sub-clauses (a) to (g) of clause (iii) of the Order are not applicable to the Company.
v) In our opinion, and according to the information and explanations given to us, there is an adequate internalcontrol system commensurate with the size of the Company and nature of its business with regard topurchase of inventory and fixed assets and sale of goods and services. During the course of our audit wehave not observed any continuing failure to correct major weaknesses in the internal control system.
vi) a) According to the information and explanations given to us, we are of the opinion that the particularsof contracts/arrangements that are needed to be entered into the register maintained under section301 of the Companies Act, 1956 have been so entered.
b) According to the information and explanations given to us, where such transactions are in excess ofRs. 5 lakhs in respect of any party, the transactions have been made at prices which are, prima facie,reasonable having regard to the prevailing market price/ similar transactions with other parties at therelevant time.
vii) The Company has not accepted any deposits from the public.
viii) In our opinion, the Company has an internal audit system commensurate with the size of the Company andthe nature of its business.
ix) We have broadly reviewed the books of account and records maintained by the Company relating totelecommunication activities pursuant to the order made by the Central Government for maintenance ofcost records under clause (d) of sub-section (1) of Section 209 of the Act and are of the opinion that primafacie the prescribed accounts and records have been made and maintained. We have, however, not madea detailed examination of the records with a view to determining whether they are accurate or complete.
x) According to information and explanations given to us in respect of statutory and other dues:
(a) The Company has generally been regular in depositing undisputed statutory dues in respect of Provident
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Fund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth tax, Service tax, Custom duty, cessand any other material statutory dues with the appropriate authorities during the year.
(b) According to information and explanation given to us details of disputed Sales tax / Income-tax /Customs duty / wealth tax / Service tax/ Excise Duty and Cess, which have not been deposited as atMarch 31, 2007, on account of disputes are given below:
Name of statute Nature of the Amount (Rs.) Period to which Forum wheredues the amount relates dispute is pending
The Income-tax Act, Income tax 93,496,852 A.Y. 1998-99, Income Tax1961 demand 1999-2000 Apellate Tribunal
The Central Excise Act, Excise Duty 20,475,810 Not specified in The Customs,1944 demand demand Excise and Service Tax
Apellate Tribunal
xi) In our opinion, and according to the information and explanations given to us, the accumulated lossesof the Company, at the end of the financial year are more than fifty percent of its net worth. TheCompany has not incurred cash losses in the current year. However the Company had incurred cashlosses in the immediately preceding financial year.
xii) In our opinion and according to information and explanations given to us, the Company has not defaultedin repayment of dues payable to a financial institutions and banks.
xiii) According to the information and explanations given to us, the Company has not granted any loans oradvances on the basis of security by way of pledge of shares, debentures and other securities.
xiv) According to the information and explanations given to us, the terms and conditions of the guaranteesgiven by the Company for loans taken by others from banks or financial institutions, are not prima facieprejudicial to the interests of the Company.
xv) According to the information and explanations given to us, the term loans availed by the Companywere, prima facie, applied during the year for the purpose for which the loans were obtained, other thantemporary deployment pending application.
xvi) According to information and explanations given to us and on an overall examination of the balancesheet of the Company, funds raised on short term basis have, prima facie, not been used during the yearfor long term investment.
xvii) According to information and explanations given to us, the Company has not made any preferentialallotment of shares to parties and companies covered in the Register maintained under Section 301 ofthe Companies Act, 1956.
xviii) The Company has not issued any debentures during the year.
xix) The Company has not raised any money by way of public issues during the year.
xx) According to the information and explanations given to us, no fraud on or by the Company was noticedor reported during the year.
For Deloitte Haskins & SellsChartered Accountants
A B JaniPartner
Membership No. 46488
Mumbai, Dated May 15, 2007
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
50
BALANCE SHEET AS AT MARCH 31, 2007Schedule As at As at
March 31, 2007 March 31, 2006Rs. in Crores Rs. in Crores
SOURCES OF FUNDSShareholders’ Funds
Share Capital 1 1,809.50 1,520.59Reserves and Surplus 2 413.87 215.21
---------------------------- ----------------------------2,223.37 1,735.80
Loan FundsSecured Loans 3 1,696.26 1,080.12Unsecured Loans 4 332.61 1,031.73
---------------------------- ----------------------------2,028.87 2,111.85
---------------------------- ----------------------------Total 4,252.24 3,847.65
---------------------------- ----------------------------APPLICATION OF FUNDSFixed Assets 5
Gross Block (at cost) 4,053.52 3,646.17Less : Accumulated Depreciation 1,826.85 1,384.66
---------------------------- ----------------------------Net Block 2,226.67 2,261.51Capital Work - In - Progress 203.17 175.08
---------------------------- ----------------------------2,429.84 2,436.59
Current Assets, Loans and AdvancesCash and Bank Balances 6 83.61 27.39Sundry Debtors 7 170.32 155.80Inventories 8 2.22 -----Loans and Advances 9 171.37 146.59
---------------------------- ----------------------------427.52 329.78
Less : Current Liabilities and ProvisionsCurrent Liabilities 10 1,071.79 1,074.19Provisions 10 77.91 77.94
---------------------------- ----------------------------1,149.70 1,152.13
Net Current Liabilities (722.18) (822.35)Profit and Loss Account 2,544.58 2,233.41
---------------------------- ----------------------------Total 4,252.24 3,847.65
---------------------------- ----------------------------Significant Accounting Policies and Notes to Financial Statements 15
As per our attached report of even date
For Deloitte Haskins & Sells For and on behalf of the BoardChartered Accountants
R. N. TATA Charles AntonyA.B.Jani (Chairman) (Managing Director)Partner
S Venkatesan Madhav J. Joshi
(Chief Financial Officer) (Chief Legal Officer andCompany Secretary)
Place: Mumbai Place: MumbaiDate : May 15, 2007 Date : May 15, 2007
51
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2007Schedule As at As at
March 31, 2007 March 31, 2006Rs. in Crores Rs. in Crores
IncomeTelecommunication Services 11 1,406.98 1,095.13Other Income 12 14.88 1.66
---------------------------- ----------------------------Total 1,421.86 1,096.79ExpenditureOperation and Other Expenses 13 1,119.26 972.08
---------------------------- ----------------------------Profit before Finance and Treasury charges, 302.60 124.71Depreciation, Extraordinary item and TaxFinance and Treasury Charges (Net) 14 171.76 145.77Depreciation 446.23 471.90
---------------------------- ----------------------------Loss before Extraordinary item and tax (315.39) (492.96)Extraordinary item- Damage of Fixed Assets due to flood. (Refer note - (47.25)
24 of schedule 15)- Insurance Claim Received. (Refer note 24 5.48 -
of schedule 15) ---------------------------- ----------------------------
Loss before tax (309.91) (540.21)Provision for Tax- Fringe Benefits Tax 0.70 0.85
---------------------------- ----------------------------Loss after tax (310.61) (541.06)Balance at Commencement (2,233.41) (1,692.35)Charge on account of the transitional provision ofAccounting Standard 15 (Revised) on “Employee Benefits”.( Refer Note 11 of Schedule 15) 0.56 -
---------------------------- ----------------------------(2,233.97) (1,692.35)---------------------------- ----------------------------
Balance carried to Balance Sheet (2,544.58) (2,233.41)---------------------------- ----------------------------
Earnings Per Share - Basic and Diluted (Rs.) (Refer Note19 of Schedule 15)- Including Extraordinary item (1.94) (3.55)- Excluding Extraordinary item (1.97) (3.24)Par Value (Rs.) 10.00 10.00Significant Accounting Policies and Notes to Financial Statements 15
As per our attached report of even date
For Deloitte Haskins & Sells For and on behalf of the BoardChartered Accountants
R. N. TATA Charles AntonyA.B.Jani (Chairman) (Managing Director)Partner
S Venkatesan Madhav J. Joshi
(Chief Financial Officer) (Chief Legal Officer andCompany Secretary)
Place: Mumbai Place: MumbaiDate : May 15, 2007 Date : May 15, 2007
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
52
SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2007As at As at
March 31, 2007 March 31, 2006Rs. in crores Rs. in crores
SCHEDULE - 1
SHARE CAPITAL
Authorised2,500,000,000 Equity Shares of Rs.10/- each 2,500.00 2,500.00
---------------------------- ----------------------------2,500.00 2,500.00
---------------------------- ----------------------------Issued and Subscribed
1,809,496,726 (Previous year 1,520,585,484) Equity Shares 1,809.50 1,520.59of Rs.10/- each fully paid-up ---------------------------- ----------------------------
1,809.50 1,520.59---------------------------- ----------------------------
Notes:
1. Of the above 1,245,259,393 Equity Shares (Previous year 833,832,530 shares) are held up by Tata SonsLimited (the Holding Company) and its Subsidiaries.( Refer note 1 of schedule 15)
2 During the year some employees excercised options issued under the Employee Stock Option Plan resultingin allotment of NIL ( Previous year 342,481) fully paid - up Equity Shares for cash at par amounting to Rs.NIL ( previous year Rs. 0.34 crores) ( Refer note 7 of schedule 15).
3. Of the above 288,911,242 ( Previous year NIL ) Equity Shares are issued during the year on rights basis ata premium of Rs.7/-per Equity Share (Refer note 8 of schedule 15)
SCHEDULE - 2
RESERVES AND SURPLUS
Securities Premium account:-
Balance at the beginning of the year 215.21 157.68
Add: On conversion of Foreign Currency Convertible Bonds - 57.53
Add: Received during the year on account of Rights issue(Refer note 8 of schedule 15) 202.24 -
Less: Applied towards Rights issue expenses (Refer note 8 of 3.58 -schedule 15) ---------------------------- ----------------------------
Balance at the end of the year. 413.87 215.21---------------------------- ----------------------------
SCHEDULE - 3
SECURED LOANS
From Banks (Refer note 1 below)
Term Loans 1,398.00 843.00
Cash Credit Accounts 78.29 68.48
Acceptances 219.90 168.50---------------------------- ----------------------------1,696.19 1,079.98
Deferred payment credits (Refer note 2 below) 0.07 0.14---------------------------- ----------------------------1,696.26 1,080.12
---------------------------- ----------------------------
53
SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2007
Notes :
1. Loans from Banks are secured/to be secured by either one or more of the following as per terms of thearrangements with respective banks:
- by first pari pasu charge on the movable and/or immovable assets of the Company,
- by pledge of shares of promoters,
- by assignment of the proceeds on sale of network in the event of cancellation of the telecom license,
- by assignment of telecom license,
- by assignment of insurance policies,
- by hypothecation of present and future book debts and outstanding money receivable,
2. Secured by hypothecation of vehicles acquired out of the loans.
SCHEDULE - 4
UNSECURED LOANS
Foreign Currency Convertible Bonds (FCCB) 267.61 274.80(Refer note 1 below)
From Banks
- Short Term Loans 65.00 522.00
From others - 234.93---------------------------- ----------------------------
(Refer note 2 below) 332.61 1,031.73---------------------------- ----------------------------
Note:
1) During the year ended March 31, 2005, the Company issued FCCB of USD 12.50 crores at an interest rateof 1% per annum (payable semi-annually). The holders of these Bonds have an option to convert the Bondsinto Equity Shares of the Company on or after July 1 2004 at a pre-determined price of Rs.24.96 per EquityShare .Subsequent to rights issue of Equity Shares, the conversion price has been adjusted to Rs.24.49 perEquity Share. The Bonds that are not converted into Equity Shares, are redeemable at a premium of 19.38%at the end of 5 years from the date of issue.
2) Loans - From others include NIL (Previous Year Rs. 46.96 crores) where the lender will have the right toshare assets of the Company mortgaged to secured lenders, in the event of enforcement of the securityand subject to consent of the secured lenders.
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
54
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55
SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2007As at As at
March 31, 2007 March 31, 2006Rs. in crores Rs. in crores
SCHEDULE - 6
CASH AND BANK BALANCES
Cash on hand 0.03 0.01
Balance with Scheduled Banks in
- Current Accounts 38.48 22.30
- Term Deposit Accounts [including accrued interest 45.10 5.08Rs. 0.09 Crores (Previous year Rs. 0.68 crores)]
---------------------------- ----------------------------83.61 27.39
---------------------------- ----------------------------
SCHEDULE - 7
SUNDRY DEBTORS(Unsecured )
Outstanding for a period exceeding six months 231.26 179.35
Others 160.61 174.60---------------------------- ----------------------------
391.87 353.95
Less: Provision 221.55 198.15---------------------------- ----------------------------
170.32 155.80---------------------------- ----------------------------
Note:
Considered good 170.32 155.80
Considered Doubtful 221.55 198.15
The above include:
1) Debts due from companies under the same management Rs 1.72 crores ( Previous year Rs.2.75 crores)includes Tata Teleservices Limited Rs. 0.89 crores. Tata Internet Services Limited Rs. 0.40 crores, TataConsultancy Services Limited Rs. 0.38 crores and CMC Limited Rs. 0.05 crores.
2) Debts due from director/(s) NIL (Previous Year Rs.2,075/-). Maximum amount outstanding during the yearRs. 15,274/- (Previous year Rs. 14,033/-)
SCHEDULE - 8
INVENTORY
Traded Goods
Starter Kits 2.22 ----------------------------- ----------------------------
2.22 -
---------------------------- ----------------------------
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
56
SCHEDULE - 9LOANS AND ADVANCES(Unsecured )Advances recoverable in cash or in kind or for value tobe receivedStaff Loans 0.39 0.42[Includes Rs 0.18 crores ( Previous year Rs. 0.18 crores) due froman officer of the Company. Maximum amount outstanding at anytime during the year is Rs.0.18 crores ( Previous year Rs. 0.18 crores)]Advances to Suppliers 85.34 83.14Premises and other deposits 14.57 11.77Prepayments and Others 72.95 51.86Advance Tax paid 0.74 0.32
---------------------------- ----------------------------173.99 147.51
Less : Provision 2.62 0.92---------------------------- ----------------------------
171.37 146.59---------------------------- ----------------------------
Note :Considered good 171.37 146.59Considered doubtful 2.62 0.92
SCHEDULE - 10CURRENT LIABILITIES AND PROVISIONSCurrent LiabilitiesSundry Creditors (other than small scale industrial undertakings)
- Under Usance Letter of Credit 231.17 179.96- Others 740.70 697.84
---------------------------- ----------------------------971.87 877.80
Deposits from Customers and others 60.87 69.75Interest accrued but not due on loans 5.46 27.08Other liabilities 33.59 99.56
---------------------------- ----------------------------1,071.79 1,074.19
---------------------------- ----------------------------ProvisionsFor Contingencies 16.74 16.74For Retirement benefits 2.71 1.21For Premium on Redemption of FCCB 58.42 59.99For Fringe Benefit Tax (net of advances) 0.04 -
---------------------------- ----------------------------77.91 77.94
---------------------------- ----------------------------Notesa) Other Liabilities includes Nil (Previous year Rs. 61.21 crores) that are due after a period of 12 months.b) Provision for contingencies relate to certain claims by vendors on the Company made in earlier years and
there is no movement in the same during the year.
SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2007As at As at
March 31, 2007 March 31, 2006Rs. in crores Rs. in crores
57
SCHEDULE - 11
TELECOMMUNICATION SERVICES
Telephony 1,261.19 987.08Internet Services 19.34 16.19Interconnection Usage Charges 121.50 91.86Sale of Traded Goods 4.95 -
---------------------------- ----------------------------1,406.98 1,095.13
---------------------------- ----------------------------
SCHEDULE - 12
OTHER INCOME
Miscellaneous Receipts 1.38 0.78Subsidies from Department of Telecommunications (DOT) 13.50 0.88
---------------------------- ----------------------------14.88 1.66
---------------------------- ----------------------------
SCHEDULE - 13
OPERATION AND OTHER EXPENSES
Network Operation costsRevenue Share to DOT 129.47 85.59Repairs and Maintenance -Plant and Machinery [including capital inventory 38.52 31.89consumed Rs.3.34 crores (Previous year Rs.0.36 crores)]Power 36.76 30.17Rent, Rates and taxes 24.62 15.65Others 11.73 13.78
---------------------------- ----------------------------241.10 177.08
Interconnection and Other access costs 389.76 363.92Payments to and Provisions for EmployeesSalaries and Bonus 63.69 47.32Contribution to Provident and other Funds 3.61 2.42Staff Welfare 3.70 2.76
---------------------------- ----------------------------
71.00 52.50Administrative and Other expensesRent, Rates and taxes 19.26 21.71Repairs and Maintenance
Buildings 0.01 0.01Others 3.39 3.70
Travel and conveyance expenses 6.47 5.16Collection / Credit verification charges 24.47 25.70Customer service and call centre cost 41.46 46.80Bad/Doubtful debts and advances 25.10 49.03Insurance Expenses 1.12 2.24Loss on sale of Fixed Assets. 1.35 0.01
SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT FOR THEYEAR ENDED MARCH 31, 2007
2006-07 2005-06Rs. in crores Rs. in crores
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
58
Miscellaneous expenses 52.21 40.18Contractual and other claims and liabilities (Net) 0.51 (0.35)
---------------------------- ----------------------------175.35 194.19
Marketing and business promotion expenses
Advertisement and business promotion expenses 171.05 122.23
Sales Commission and Expenses 67.64 62.16
Traded Goods - Starter Kits
Purchases 5.58 -
Less: Closing Stock 2.22 ----------------------------- ----------------------------
3.36 ----------------------------- ----------------------------
242.05 184.39---------------------------- ----------------------------1,119.26 972.08
---------------------------- ----------------------------SCHEDULE - 14
FINANCE AND TREASURY CHARGES (NET)
Interest
On Fixed Term Loans 118.25 92.42
Others (Refer Note 23 of Schedule 15) 36.55 26.30
Expenses for loan arrangement, bill discounting 22.81 23.30and bank charges
Foreign exchange fluctuations (Net) (3.45) 4.20---------------------------- ----------------------------
174.16 146.22
Less: Interest Income on Term Deposits with Banks 1.93 0.39
Profit on redemption of Units (Current Investment) 0.47 0.06---------------------------- ----------------------------
171.76 145.77---------------------------- ----------------------------
Note:- Interest on others includes Rs. 3.24 Crores (Previous year NIL) pertaining to earlier year.
SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT FOR THEYEAR ENDED MARCH 31, 2007
2006-07 2005-06Rs. in crores Rs. in crores Rs. in crores
59
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT ANDLOSS ACCOUNTSCHEDULE –15
SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS
1 . Company background
Tata Teleservices (Maharashtra) Limited (“the Company”), was incorporated on March 13, 1995. The Com-pany is licensed to provide basic and cellular telecommunication services. The Company presently holdstwo Unified Access (Basic and Cellular) Service Licenses, one for Mumbai Service Area and another forMaharashtra and Goa. The Company also holds the National Internet Service provider – Internet Telephonylicense.
The Company is presently a subsidiary of Tata Sons Limited.
2 . Significant Accounting Policies
a) Basis of preparation of financial statements
The accompanying financial statements have been prepared under the historical cost convention, inaccordance with Indian Generally Accepted Accounting Principles and as per the provisions of theCompanies Act, 1956, (the Act).
b) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principlesrequires estimates and assumptions to be made that affect the reported amounts of assets and liabili-ties and disclosure of contingent liabilities on the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Differences between actual results andestimates are recognised in the periods in which the results are known / materialise.
c) Fixed Assets
Fixed assets are stated at their historical cost of acquisition or construction, less accumulated deprecia-tion. Cost includes all costs incurred to bring the assets to their working condition and location.
The Company capitalises software and related implementation costs, where it is reasonably estimatedthat the software has an enduring useful life.
Expenditure related to and incurred during the construction period of switches and cell sites are capit-alised as part of the construction cost and allocated to the relevant fixed assets.
Capital inventory comprises of switching equipment, field unit cards, and capital stores that are carriedunder Capital Work-In-Progress till such time as they are issued for new installation or replacement.
Assets acquired under finance leases are accounted for at the inception of the lease in accordance withAccounting Standard (AS) 19 on “Leases” at the lower of the fair value of the asset and present value ofminimum lease payments.
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
60
d) Depreciation
i) Fixed assets are depreciated on a straight line basis, based on the following estimates of their usefuleconomic lives:
Useful Life (In years)
Buildings 60
Plant and Machinery
- Network Equipment 12
- Time Division Multiple Access (TDMA) Equipment 9
- Outside Plant 18
- Network Interface Units 5
- Air- Conditioning Equipment 6
- Generators 6
- Electrical Equipments 6
- Computers 3
- Office Equipments 3
- Computer Software 3
Furniture and Fittings 3
Vehicles 5
ii) Leasehold land and premises are amortised uniformly over the period of lease. Assets acquiredunder finance leases are depreciated over the lease term or their useful lives, whichever is shorter.Accordingly, computers and dark fiber acquired under finance lease have been depreciated uni-formly over the respective lease terms of 30 months and 15 years.
iii) Depreciation on License fees is provided for uniformly over the license period of 20 years. Since theCompany has intention of being in business for a period well beyond 10 years and the telecommu-nication business cannot be carried on without the Telecom license, the useful life of the asset willexceed the rebuttable presumption of 10 years under AS 26 on “Intangible Assets”.
iv) Depreciation on additions and deletions to assets during the year is charged to revenue pro rata tothe period of their use.
v) The Company provides for obsolescence of its slow moving capital inventory, by way of deprecia-tion, at the rate of 33.33% p.a. of cost.
e) Foreign Currency transactions
i) Transactions in foreign currency are recorded at the original rates of exchange in force at the timetransactions are effected.
ii) Foreign currency denominated assets and liabilities are reported as follows:
a) Monetary items are translated into rupees at the exchange rates prevailing at the balance sheetdate. Non-Monetary items such as fixed assets, are carried at their historical rupee values.
b) Gains/losses arising on settlement of foreign currency transactions or restatement of foreigncurrency denominated assets and liabilities (monetary items) are recognised in the profit andloss account, except those relating to the acquisition of imported fixed assets, which are ad-justed to the carrying values of the relevant fixed assets.
iii) In case of forward exchange covers, the premium or discount arising at the inception of the contractis amortised as expense or income over the life of the contract, except in respect of the liabilities forthe acquisition of imported fixed assets where such amortization is adjusted in the carrying value ofthe fixed assets.
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
61
f) Retirement benefitsRetirement benefit costs are expensed to revenue as incurred.
Contributions to the Provident and Superannuation Funds are made in accordance with the rules of theFunds.
The Company participates in a group gratuity cum life assurance scheme administered by the Life InsuranceCorporation (LIC). Provision for the year in respect of gratuity is made on the basis of actuarial valuation as atthe end of the year.Leave encashment is provided for on the basis of actual costs the Company expects to pay for the compen-sated absences (Refer Note 11 below).
g) Revenue recognition
Revenue from telecommunication services is recognised as the service is performed on the basis of actualusage of the Company’s network / in accordance with contractual obligations and is recorded net ofservice tax. The amount charged to subscribers for specialised features which entitle them to access thenetwork of the Company and where all other services and products are paid for separately, are recognisedas and when such features are activated.Revenue is recognised when it is earned and no significant uncertainty exists as to its ultimate realisation orcollection.
h) Borrowing costs
Borrowing costs attributable to the acquisition of a qualifying asset, as defined in AS 16 on “BorrowingCosts”, are capitalised as part of the cost of acquisition. Other borrowing costs are expensed as incurred(refer para l below). During the year, there was no such qualifying Asset, hence no Borrowing Costs werecapitalised.
i) Earnings per shareThe Company reports basic and diluted earnings per share in accordance with AS 20 on “Earnings Per Share”.Basic earnings per share is computed by dividing the net profit or loss for the period by the weightedaverage number of Equity shares outstanding during the period. Diluted earnings per share is computed bydividing the net profit or loss for the period by the weighted average number of Equity shares outstandingduring the period as adjusted for the effects of all dilutive potential equity shares, except where the resultsare anti-dilutive.
j) Operating Leases
Assets taken on Lease under which all significant risks and rewards of ownership are effectively retained bythe lessor are classified as Operating Leases. Lease payments under Operating Leases are recognized asexpenses as incurred in accordance with the respective Lease Agreements.
k) Cash Flow Statement
The Cash Flow statement is prepared by the indirect method set out in AS 3 on “Cash Flow Statements” andpresents Cash flows by operating, investing and financing activities of the Company.
l) Bond Expenses
Premium payable on Redemption of Bonds is fully provided for on issue of the bonds. The Securities PremiumAccount is applied in providing for premium on redemption in accordance with Section 78 of the Act. Onconversion of the Bonds to Equity Shares the redemption premium is reversed.
Expenses on issue of Bonds and on Rights issue of Equity Shares are written off to the Securities PremiumAccount in accordance with section 78 of the Act.
m) Finance and Treasury charges
Net finance and treasury charges are disclosed in the financial statements. Interest and other income earned
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
62
from treasury operations are reduced from the costs of treasury operations. (Refer Note 23 below)
n) InventoriesInventories are valued at lower of cost and net realizable value. Cost of Inventories comprises of all cost ofpurchases and other costs incurred in bringing the inventories to their present location and condition. Costof traded goods is determined on weighted average basis.
o) Fringe Benefit Tax
Fringe Benefits Tax (FBT) payable under the provisions of section 115WC of the Income-tax Act, 1961 is, inaccordance with the Guidance Note on Accounting for Fringe Benefits Tax issued by the ICAI regarded as anadditional income tax and considered in determination of the profits/(losses) for the year.
p) Impairment of assets
An asset is considered as impaired in accordance with AS 28 on “Impairment of Assets” when at the balancesheet date there are indications of impairment and the carrying amount of the asset, or where applicable thecash generating unit to which the asset belongs, exceeds its recoverable amount (i.e. the higher of theasset’s net selling price and value in use). In assessing the value in use, the estimated future cash flowsexpected from the continuing use of the asset and from its ultimate disposal are discounted to their presentvalues using a pre-determined discount rate. The carrying amount is reduced to the recoverable amount andthe reduction is recognized as an impairment loss in the profit and loss account.
q) Contingent LiabilitiesContingent Liabilities as defined in AS 29 on “Provision, Contingent Liabilities and Contingent Assets” aredisclosed by way of notes to accounts. Provision is made if it becomes probable that an outflow of futureeconomic benefits will be required for an item previously dealt with as a contingent liability.
As at As atMarch 31, 2007 March 31, 2006
Rs. in Crores Rs. in Crores
3 . Estimated amount of contracts remaining to be executed on 206.50 228.28capital account and not provided for (net of advances)
4 . Counter guarantees given by the Company 670.00 695.00
5 . Contingent liabilities :
i) Claims against the Company not acknowledged as debts
Telecom Regulatory 102.61 109.64
Others 84.66 74.37
ii) Disputed demands before relevant authorities:
Income Tax 9.35 9.35
Excise Duty 20.48 12.98
6 . Payments to Auditors (excluding service tax) : 2006-07 2005-06Rs. in Crores Rs. in Crores
i) Audit fees 0.15 0.15
ii) Tax Audit fees 0.04 0.04
iii) Other matters (certification work etc.) 0.34 0.15
iv) Out of pocket expenses [Current year Rs.30,000 /- (Previous year Rs. 30,000/-)]
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
63
7 . Stock Option Plan
In November 1999, the Company established the Employee Stock Option Plan (ESOP) under which EquityShares are reserved for issuance to eligible employees of the Company. In terms of the plan, 1.20 croreswarrants were issued to Hughes Tele.com (India) Limited Employees Stock Option Trust, to be held by it onbehalf of the Company for awarding eligible employees as and when advised by the Compensation Commit-tee constituted for the purpose. Each allotted warrant carries with it a right to purchase one Equity Share ofthe Company at a price of Rs. 10/- per share. Other than 2,40,000 fully vested warrants allotted in an earlieryear, all allotted warrants vest at the rate of 25% on each successive anniversary of the grant date, until fullyvested. The period during which the vested warrants may be exercised expires after 10 years from the dateof the vesting.
The position of the allotted warrants is as follows:
As at As atMarch 31, 2007 March 31, 2006
(Nos.) (Nos.)
Opening Balance 64,936 419,306
Issued during the period - -
Forfeited - -
Exercised - - 342,481
Lapsed 14,386 11,889
Closing Balance 50,550 64,936
Since the market value of the Company’s shares on the grant dates did not exceed the exercise price ofRs.10/-, no compensation expense has been recorded.
8 . The Rights issue of the Equity Shares of the Company closed on December 20, 2006. The issue consisted of2,889,11,242 Equity Shares of Rs.10/- each at a premium of Rs.7/- per Equity Share aggregating to Rs.491.15 crores in the ratio of 19 Equity Shares for every 100 Equity Shares held by the existing shareholdersas on the record date of October 28, 2006. The issue was fully subscribed and the shares were allotted onJanuary 12, 2007. The Company utilized the total proceeds of Rs. 491.15 crores for the purposes disclosedin the letter of offer as under:
Particulars Rs. in Crores.
Debt Repayment (including prepayment):
- to TTSL 121.04
- to Banks 178.00
299.04
Others
Project cost 150.00
General Corporate Purposes 38.53
Right Issue Expenses 3.58
192.11
Total Utilization 491.15
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
64
9 Segment Reporting
The Company is engaged in the business of providing Telecommunication Services under Unified AccessLicence. These, in the context of AS 17 on “Segment Reporting”, issued by the Institute of Chartered Ac-countants of India, are considered to constitute a single primary business segment.
10. Operating Lease
Operating lease rentals charged to revenue during the period for lease agreements entered fromApril 1, 2001.
2006-2007 2005-2006
Rs. in Crores Rs. in Crores
Residential Flats for accommodation of employees 0.09 0.38
Switch and other Sites 26.41 28.44
Future Minimum Lease Paymentsunder Non-Cancelable Operating Lease :
Due not later than one year 0.41 0.57
Due later than one year and not later than five years 0.91 1.33
The agreements are executed for a period ranging from 6 months to 9 years with a renewable clause and inmany cases also provide for termination at will by either party giving a prior period between 30 to 90 days.
11. The Revised AS 15 on “Employee Benefits”, issued by the ICAI, is adopted by the Company with effect fromApril 1, 2006. Upto March 31, 2006, leave encashment benefit payable to employees was provided for onthe basis of a third party actuarial valuation. Consequent upon the adoption of AS 15, leave encashment isprovided for on the basis of actual costs the Company expects to pay for the compensated absences.Consequently, the Operation and Other Expenses for the year includes an additional charge in the Profit andLoss account for the year on account of leave encashment benefit payable to employees aggregating to Rs.0.14 crores and Rs. 0.56 crores has been adjusted against the debit balance in the Profit and Loss accountas on April 1, 2006, in accordance with the transitional provision of AS-15.
The disclosure as required under AS 15 regarding the Company’s gratuity plan is as follows:
Particulars Rs. in Crores
Projected benefit obligation, beginning of the year 1.28
Service cost 0.44
Interest cost 0.10
Actuarial (gain)/loss on obligation 0.24
Benefits paid (0.30)
Projected benefit obligation, end of the year 1.76
Rs. in Crores
Projected benefit obligation, end of the year 1.76
Fair value of plan assets at the end of the year 1.34
Net periodic gratuity cost 0.42
(c ) Assumptions:Discount rate 8.00 %Rate of increase in compensation levels of covered employees 6.00 %
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
65
12. Income Taxes
No provision for current income tax has been made in the accounts since the Company estimates that therewill be no taxable profits for the year. Deferred Tax charges / credits have not been recognized in view ofthe tax holiday enjoyed by the Company and on considerations of prudence as set out in AS 22 on “Ac-counting for Taxes on Income”.
13. Value of imports on CIF basis in respect of : 2006-07 2005-06Rs. in Crores Rs. In Crores
Capital Goods 467.48 237.63
14. Expenditure in Foreign Currency (Payment basis) on account of :
2006-07 2005-06Rs. in Crores Rs. In Crores
Interest 26.39 17.35
Other 2.18 0.33
28.57 17.68
15. Value of Capital Inventory consumed
during the year : 2006-07 2005-06Rs. in Crores % Rs. in Crores %
Indigenous 3.13 94 0.20 56
Imported 0.21 06 0.16 44
3.34 100 0.36 100
16. Investment Details
Following units have been purchased and redeemed by the Company during the year ended March 31,2007
No. of Units Face Value (Rs) Cost (Rs. inCrores)
Tata Liquid Super High Investment Fund 674761.611 1,000 91.50
17. Derivatives
i) Outstanding derivative instruments :
As at March 31, 2007 As at March 31, 2006
USD Rs. in USD in Rs. inin Crores Crores Crores Crores
Currency option for hedging of foreign currencyexposure 9.20 399.74 10.23 456.44
ii) The foreign currency exposure that are not hedged by derivative instruments:
As at March 31, 2007 As at March 31, 2006
USD Rs. in USD in Rs. inin Crores Crores Crores Crores
FCCB (including redemption premium) 7.37 320.21 7.37 328.81
Vendor payables 0.05 2.17 0.03 1.46
7.42 322.38 7.40 330.27
The above disclosures have been made consequent to an announcement by the ICAI in December, 2005,which is applicable to the financial periods ending on or after March 31, 2006.
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
66
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12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
68
As at As atMarch 31, 2007 March 31, 2006
19. Earnings Per Share Data
i) Loss after Extraordinary item (Rs. in Crores) 310.61 541.06Extraordinary item (Rs. in Crores) (5.48) 47.25Loss before Extraordinary item (Rs. in Crores) 316.09 493.81
ii) Weighted average number of shares outstanding. 1,600,530,787 1,526,211,650
iii) Nominal Value of Equity Shares (Rs) 10 10
iv) Basic and Diluted Earnings per Share (Rs.)
- Including Extraordinary item (1.94) (3.55)
- Excluding Extraordinary item (1.97) (3.24)
In calculating the earnings per share the effect of dilution is ignored since results are anti-dilutive.
20. Quantitative details of principal items of goods traded (Starter Kits):Quantity Value
Rs. in Croresa) Purchases 1333161 5.58
( - ) ( - )b) Sales 797564 4.95
( - ) ( - )c) Closing Stock 535597 2.22
( - ) ( - )Note: Figures in brackets pertain to those of the previous year.21. Asset under construction includes the following incidental expenditure incurred during the construction
period.2006 –2007 2005- 2006
Rs. in Crores Rs. in CroresCharges for services 0.04 0.40Power 0.00 0.12Total 0.04 0.52
22. Managerial Remunerationi) Managing Director
2006-07 2005-06Rs. in Crores Rs. in Crores
Salaries 1.13 0.84Contribution to Provident and other Fund 0.07 0.07Monetary value of perquisites 0.04 0.18Total 1.24 1.09
Note:a) 2005-06 figures include Rs.0.13 crores paid during the year for 2004-05.b) 2006-07 figures include Rs.0.39 crores paid during the year for 2005-06.
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
69
ii) Non-executive Directors
2006-07 2005-06Rs. in Crores Rs. in Crores
Directors’ Sitting Fees 0.02 0.03
23. During the year, as per the terms of loan agreement, the Company has repaid the unsecured loan payable toHughes Network Systems, USA alongwith interest thereon, resulting in a waiver of liability of Rs 138.38crores. Out of the said amount, Rs. 127.84 crores initially capitalized to Plant and Machinery is reduced fromthe Gross Block of the respective assets and Rs 10.54 crores, charged earlier to the Profit and Loss Account,has been reduced from the Finance and Treasury charges. Accordingly, Depreciation and Interest for theyear are lower by Rs. 46.64 crores and Rs.12.15 crores respectively.
24. Extraordinary item
Due to the unusual heavy rains and floods in the city of Mumbai and other parts of Maharashtra and Goa inthe previous year, certain fixed assets were seriously damaged. The Company had, in the previous yearwritten off Rs. 47.25 crores being written down value of these damaged assets and had disclosed theamount as an “Extraordinary item” in the profit and loss account, since the event was clearly distinct fromthe ordinary activities of the Company and cannot be expected to recur frequently or regularly.
During the year, the Company has received insurance claim of Rs.5.48 crores against the aforesaid damagedfixed assets as the final settlement for the claim, which has been disclosed as an “Extraordinary item” in theprofit and loss account.
25. As the Company does not have information as to which of its creditors is registered under The Micro, Smalland Medium Enterprises Development Act, 2006, no disclosure as required by the said Act is given.
26. Going Concern
The accumulated losses of the Company at the close of the year exceeded its paid up capital and reserves.This, however, is not an uncommon feature for telecommunication service providers in their initial years ofcommercial operations due to high operation costs of heavy infrastructure and high capital requirement forbuilding the network. The Company has started making cash profits and had adequate commitments fromits lenders for meeting its operating and financial requirements and continues to grow its network. TheCompany is therefore being viewed as a going concern and accounts have accordingly been preparedunder the going concern assumption.
27. Comparatives
Comparative financial information is presented in accordance with the Corresponding Figure financialreporting framework setout in Auditing and Assurance Standard 25 on “Comparatives”. Figures of theprevious year are regrouped and reclassified wherever necessary to correspond to figures of the currentyear.
Signatures to Schedules ‘1’ to ‘15’
As per our attached report of even date
For Deloitte Haskins & Sells For and on behalf of the BoardChartered Accountants
R. N. TATA Charles AntonyA.B.Jani (Chairman) (Managing Director)Partner
S Venkatesan Madhav J. Joshi
(Chief Financial Officer) (Chief Legal Officer andCompany Secretary)
Place: Mumbai Place: MumbaiDate : May 15, 2007 Date : May 15, 2007
SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
12th ANNUAL REPORT 2006-07TELESERVICES (MAHARASHTRA) LIMITED
70
CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31,20072006-07 2005-06
Rs. in Crores Rs. in Crores
A Cash flows from operating activitiesNet Loss before Extraordinary item and tax (315.39) (492.96)Adjustments for :Depreciation 446.23 471.90Loss on Disposal of fixed assets (Net) 1.35 0.01Profit on redemption of units (0.47) (0.06)Unrealised foreign exchange (gain)/ loss (Net) (3.45) 4.20Interest income (1.93) (0.39)Finance and Treasury charges 177.61 142.02
---------------------- ----------------------619.34 617.68
---------------------- ----------------------Operating profit before working capital changes 303.95 124.72Increase in Sundry Debtors (14.52) (13.51)Increase in Loans and Advances (24.78) (4.30)Increase in Inventory (2.22) -Increase in Current liabilities and Provisions 83.40 256.90
---------------------- ----------------------Cash Generated from operations 345.83 363.81
Fringe Benefit Tax paid (0.68) (0.80)---------------------- ----------------------
Net Cash generated from operating activities 345.15 363.01---------------------- ----------------------
B Cash flow from investing activitiesPurchase of Fixed Assets (570.98) (598.89)Insurance claim received for fixed assets damaged due to flood 5.48 -(Refer Note 24 of schedule 15)Proceeds from sale of Fixed Assets 2.91 3.75Profit on redemption of units 0.47 0.06Interest received 2.52 0.83
---------------------- ----------------------Net Cash used for investing activities (559.60) (594.25)
---------------------- ----------------------
C Cash flow from financing activitiesProceeds on issue of equity shares. - 0.34Proceeds on account of rights issue 288.91 -Premium on account of rights issue ( net of right issue expenses) 198.66 -Proceeds from long term borrowings 616.14 365.74Repayment of long term borrowings (636.67) (56.36)Finance and Treasury charges paid (195.78) (132.67)
---------------------- ----------------------Net cash generated from financing activities 271.26 177.05
---------------------- ----------------------Net increase (decrease) in cash or cash equivalents 56.81 (54.19)
Cash and cash equivalents at beginning of year 26.71 80.90
Cash and cash equivalents at end of year 83.52 26.71---------------------- ----------------------
56.81 (54.19)---------------------- ----------------------
Notes to Cash Flow Statement
1. Components of Cash and Cash Equivalents includes Cash, bank balances in Current and Term Deposit Accounts (Refer schedule 6 to the Balance Sheet).
2. Proceeds from long term borrowings is net of debt arrangement expenses.
3. Purchase of Fixed Assets are inclusive of movements in Capital Work in Progress between the commencement and end of the year.
As per our attached report of even date
For Deloitte Haskins & Sells For and on behalf of the BoardChartered Accountants
R. N. TATA Charles AntonyA.B.Jani (Chairman) (Managing Director)Partner
S Venkatesan Madhav J. Joshi
(Chief Financial Officer) (Chief Legal Officer andCompany Secretary)
Place: Mumbai Place: MumbaiDate : May 15, 2007 Date : May 15, 2007
71
BALANCE SHEET ABSTRACT AND GENERAL BUSINESS PROFILEI Registration Details
Registration No. 11-86354
State Code 11
Balance Sheet Date March 31, 2007
II Capital raised during the year (Rs. in Crores)(Equity Share Capital & Security Premium Account)
Public Issue -
Rights Issue 491.15
Bonus Issue -
Private Placement (ESOP and conversion of FCCB) -
III Position of Mobilisation and Deployment of Funds (Rs. in Crores)
Total Liabilities 4,252.24
Total Assets 4,252.24
Sources of Funds
Paid-up Capital 1,809.50
Reserves & Surplus 413.87
Secured Loans 1,696.26
Unsecured Loans 332.61
Application of Funds
Net Fixed Assets (including Capital Work-in-Progress) 2,429.84
Net Current Assets (722.18)
Accumulated Losses 2,544.58
IV Performance of the Company (Rs. in Crores)
Turnover (including other income) 1,421.86
Expenditure 1,119.26
Loss Before Tax (309.91)
Loss After Tax (310.61)
Earning Per Share (Rs.) (1.94)
Dividend Rate -
V Generic Names of three Principal Products/Services of the Company
Item Code No. (ITC Code) Not Applicable
Product Description Telecommunication Services
For and on behalf of the Board
R. N. TATA Charles Antony(Chairman) (Managing Director)
S Venkatesan Madhav J. Joshi
(Chief Financial Officer) (Chief Legal Officer andCompany Secretary)
Place: Mumbai Place: MumbaiDate : May 15, 2007 Date : May 15, 2007
Members are requested to bring their copies of the Annual Report to the
Annual General Meeting.
Members are requested to send their queries, if any, relating to the
Accounts of the Company, at least 4 days before the meeting so that the necessary information
can be made available at the Annual general Meeting
Registered Office: Ispat House, B. G. Kher Marg, Worli, Mumbai - 400 018.
ATTENDANCE SLIPTwelfth Annual General Meeting on Friday, August 24, 2007
Folio No............................................ DP ID*.................................... Client ID*.........................................
Name ........................................................................................................................................................
Address ....................................................................................................................................................
..................................................................................................................................................................
....................................................................................................................................................................
I certify that I am a registered shareholder/proxy for the registered shareholder of the Company. Ihereby record my presence at the TWELFTH ANNUAL GENERAL MEETING of the Company at BombayHouse Auditorium, Bombay House, 24, Homi Mody Street, Fort, Mumbai - 400 001 at 1530 hours onFriday, August 24, 2007.
..................................................................................................................................................................
Proxy’s name in Block Letters ............................................................................
Member’s/Proxy’s Signature ...............................................................................
Note: Please fill in this slip and hand over at the ENTRANCE OF THE HALL.
* Applicable for investors holding shares in electronic (dematerialised) form.
Registered Office: Ispat House, B. G. Kher Marg, Worli, Mumbai - 400 018.
PROXY FORM
Reg. Folio No.............................................DP ID*.....................................Client ID*........................................
I/We.......................................................................................................................................................of
........................................................................................................................................ in the district of
.....................................................being a member/members of the above named Company hereby appoint
.......................................................................of .............................................................in the district of
...................................................................or failing him ................................................of in the district
....................................................................of ..............................................................as my/our proxyto vote for me/us on my/our behalf at the TWELFTH ANNUAL GENERAL MEETING of the Company to be
held on Friday, August 24 , 2007 and at any adjournment thereof.
Signature ..........................................................................
Signed this .............................day of .........................2007.
Note : This form in order to be effective should be duly stamped, completed and signed and must bedeposited at the Registered Office of the Company, not less than 48 hours before the meeting.
* Applicable for investors holding shares in electronic (dematerialised) form.
TELESERVICES (MAHARASHTRA) LIMITED
TELESERVICES (MAHARASHTRA) LIMITED
Affix a15 ps.
RevenueStamp
BO
OK
-PO
ST
TELESERVICES (MAHARASHTRA) LIMITEDIspat House, B. G. Kher Marg, Worli, Mumbai – 400 018.
Tel 91 22 6661 5445 Fax 91 22 6660 5516 / 5517Website: www.tataindicom.com
If undelivered please return to
Tata Teleservices (Maharashtra) LimitedIspat House, B. G. Kher Marg, Worli, Mumbai – 400 018.
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